asian development bank · currency unit - dong (d) d1.00 = $0000091 $1.00 = d11,027 for the...

RRP:VIE 26312

ASIAN DEVELOPMENT BANK

REPORT AND RECOMMENDATION

OF THE

PRESIDENT

TO THE

BOARD OF DIRECTORS

ONA

PROPOSED LOAN

TO THE

SOCIALIST REPUBLIC OF VIET NAM

FOR THE

SECOND ROAD IMPROVEMENT PROJECT

October 1996

CURRENCY EQUIVALENTS(as of 14 October 1996)

Currency Unit - Dong (D)D1.00 = $0000091$1.00 = D11,027

For the purposes of calculations in this Report, a rate of Dli 000 = $1.00 has been used, whichwas the approximate rate prevailing at the time of Project appraisal.

ABBREVIATIONS

CMEAEIAEIRRGDPISCHCMCkmkm2mm2MOTMPINHCODAOECFPAPPIUPMUPMU-1PPCPRCPTARRC

Council for Mutual Economic AssistanceEnvironmental Impact AssessmentEconomic Internal Rate of ReturnGross Domestic ProductInstitutional Strengthening ComponentHo Chi Minh Citykilometerssquare kilometersmeterssquare metersMinistry of TransportMinistry of Planning and InvestmentNational Highway ComponentOverseas Development AdministrationOverseas Economic Cooperation FundProjected Affected PersonProject Implementation UnitProject Management UnitProject Management Unit No. 1Provincial People's CommitteePeople's Republic of ChinaProvincial Transport AuthorityRural Roads Component

NOTES

(i) The fiscal year of the Government ends on 31 December.(ii) In this Report, $ refers to US dollars.

RRMUSEIATAUKUNDPVINAMARINEVNRVNRAVIWAVOCvpd

Regional Roads Maintenance UnionSummary Environmental Impact AssessmentTechnical AssistanceUnited KingdomUnited Nations Development ProgrammeViet Nam National Maritime GroupViet Nam National RailwaysViet Nam Road AdministrationViet Nam Inland Waterways AdministrationVehicle Operating Costvehicles per day

TABLE OF CONTENTS

Page

LOAN AND PROJECT SUMMARY

MAP Iv

I. THE PROPOSAL

1

II. INTRODUCTION

1

III. BACKGROUND

1

A. The Transport Sector IB. The Road and Road Transport Subsector

4

C. Government Policies and Plans

10D. External Assistance to the Road Subsector 10E. Lessons Learned

11F. The Bank's Sectoral Strategy 12G. Policy Dialogue 12

IV. THE PROJECT

14

A. Rationale 14B. Objectives, Project Area and Scope 15C. Cost Estimates 18D. Financing Plan 18E. Implemention Arrangements 19F. Executing Agency 22G. Environmental and Social Measures 23

V. PROJECT JUSTIFICATION

24

A. Economic Analysis 24B. Social Dimensions 26

VI. ASSURANCES

27

VII. RECOMMENDATION

29

APPENDIXES

30

LOAN AND PROJECT SUMMARY

Borrower Socialist Republic of Viet Nam

Project Description : The Project wit! assist the Government with improving about 161km of National Highway No. 1 from the border with the People'sRepublic of China (PRO) south to Hanoi, help improve about 600kilometers (km) of rural roads in three provinces served by theProject road, and continue the Bank's assistance to the Ministry ofTransport (MOT) to strengthen the institutions charged withmanaging Viet Nam's road sector.

Classification : Economic Growth

Environmental : Category A. An environmental impact assessment (EIA) wasAssessment

undertaken and the Summary EIA was circulated to the Board on31 May 1996.

Rationale : After decades of conflicts and economic isolation, Viet Nam'sinfrastructure, particularly its transport infrastructure, is badlydeteriorated and is a constraint to general economic recovery andinvestment from the emerging private sector. The Governmenthas requested external assistance for rehabilitating the nationalhighway system, over 70 percent of which is in poor condition.The highest priority is given to National Highway No. 1, the mostimportant north-south link. The Bank, World Bank, and OverseasEconomic Cooperation Fund (OECF) have already responded tothis request with loans to rehabilitate the highway from Ho ChiMinh City to Nha Trang (the Bank) and from Hanoi to Vinh and HoChi Minh City (HCMC) (World Bank). OECF is funding thereplacement and construction of major bridges (over 20 meters inlength). The proposed Project continues this assistance withfunding from the Bank and OECF to improve an additional 161 kmof National Highway No. 1 from the PRO border south to Hanoi.To improve access and economic linkage to the rural populationinfluenced by the national highway, the Project includesimprovement of over 600 km of rural roads to enhance transportreliability on provincial, district and commune roads. Thiscomponent will help raise agricultural productivity and on-farmincome and is associated with the development of off-farmincome opportunities. In addition, it is a critical determinant toincreasing social benefits. The Government accords high priorityto the Project, which is also in line with the Bank's strategy toencourage the increased use of transport linkages, especially inupgrading and extending transport corridors, rehabilitating criticalinfrastructure, and developing efficient and sustainableinstitutions.

I

Objectives : The main objectives of the Project are to (i) rehabilitate Nationaland Scope Highway No. 1 from Hanoi north to the PRC border to Hanoi to a

standard appropriate to the level and type of traffic using theroad, (ii) improve rural accessibility and agricultural incomes, (iii)reduce transport costs by facilitating more efficient transportservices, (iv) improve road safety, and (v) strengthen theinstitutions concerned with road management and administration.

Cost Estimates : The total Project cost is estimated at $237.0 million equivalent, ofwhich $150.0 million (63.3 percent) is the foreign exchange costand $87.0 million equivalent (36.7 percent) is the local currencycost.

Financing Plan($ million)

Foreign LocalSource Exchange Currency Total Percentage

Bank 97.0

23.0 120.0

50.6OECF 52.1

11.9 64.0

27.0Government 0.9

52.1. 53.0

22.4

Total 150.0

87.0 237.0

100.0

Loan Amount : The equivalent in various currencies of SDR 83,331,000 millionand Terms ($120.0 million equivalent) from the Bank's Special Funds

resources, with an amortization of 40 years, including a graceperiod of 10 years, and a service charge of 1 percent per annum.

Period of Utilization : 31 December 2001

Implementation MOT's Project Management Unit -1 (PMU-1) will be responsibleArrangements for Project implementation. Civil works for the national highway

will be carried out by contractors and for the rural roads bydomestic contractors; their work will be supervised by consultants.Consultants will also help carry out the institutional strengtheningcomponent.

Procurement : Road civil works for the national highway will be in four contractpackages and will be carried out by contractors selected followinginternational competitive bidding procedures in accordance withthe Bank's Guidelines for Procurement. Procurement of ruralroad civil works contracts will be carried out in accordance withprocedures acceptable to the Bank.

Consulting Services : An international consulting firm will be engaged to provide about300 person-months of international and 600 person-months ofdomestic consultants for national highway constructionsupervision. Consultants will also be retained to rrepare and

lit

implement the rural road component. International and domesticconsultants will implement the Institutional Strengtheningcomponent. All consultants will be selected in accordance withthe Bank's Guidelines on the Use of Consultants and otherarrangements satisfactory to the Bank.

Estimated Project : 31 December 2001Completion Date

Project Benefits The main quantifiable benefits from improvement of the nationaland Beneficiaries highway will be savings in vehicle operating and road

maintenance costs resulting from an improved road surface andalignment and reduced interference from slow traffic. The overallestimated economic internal rate of return (EIRR) for thiscomponent of the Project is 30.0 percent on the basis ofeconomic costs and benefits estimated over a 20-year period.Sensitivity analysis shows that the Project will remain viable underthe most adverse scenario. The rural road componentsubprojects will have a minimum EIRR of 12 percent emergingmainly from agricultural benefits and reduced transport costs.The benefits will help induce accelerated economic growth, whichwill contribute to attaining the Government's regional developmentobjectives including increased rural incomes and improved livingstandards. Reliable rural roads have significant impacts on labormobility and economic status, allowing local residents theopportunity to pursue more off-farm employment. Social benefitsincluding health and education opportunities are also likely toaccrue in those communities. Other beneficiaries will be roadtransport operators and road users. The institutionalstrengthening component will continue assistance to the MOT andits Viet Nam Road Administration, and help make them moreefficient and effective Government agencies.

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1. THE PROPOSAL

1. I submit for your approval the following Report and Recommendation on aproposed loan to the Socialist Republic of Viet Nam for the Second Road ImprovementProject.

INTRODUCTION

2. The Bank's involvement in the road sector in Viet Nam started in early 1990when the Government, recognizing that the country's deteriorated infrastructure was a seriousconstraint to economic development, requested Bank financial assistance for rehabilitation ofthe Ho Chi Minh City (HCMC)-Nha Trang section (435 kilometer [km]) of National Highway No.1, which extends from the border of the People's Republic of China (PRC) in the north to thesouthern most tip of the country. A loan 1 for improving the HCMC-Nha Trang Section wasapproved by the Bank in November 1993. A project preparatory technical assistance (TA)2was approved at the same time and provided for a feasibility study of other sections ofHighway No. 1, including the 161 km section from the PRC border to Hanoi and the 700-kmsection from Dong Ha to Nha Trang. The study found improvement to both stretches to befeasible on economic grounds. The Government accorded highest priority to the PRO-Hanoisection, which also had the highest economic internal rate of return (EIRR). At the request ofthe Government, a rural road component was prepared to complement the improvements toNational Highway No. 1.

3. The Project was appraised by a Bank Mission that visited Viet Nam from 13 to24 May 1996 and a Follow-up Mission which visited Viet Nam from 2 to 5 July 1996. ThisReport is based on the Mission's findings; discussions with Government officials and staff fromconcerned multilateral and bilateral agencies, including the World Bank and Japan's OverseasEconomic Cooperation Fund (OECF); and the findings and recommendations of the feasibilitystudy.

Ill. BACKGROUND

A. The Transport Sector

General

4. Viet Nam extends about 1,600 km from its northern border with the PRO to theGulf of Thailand in the south. Its two densely populated river deltas (Red River and Mekong),which are about 1,000 km apart, are linked by a narrow (40 to 60 km wide) land strip. Thecountry has about 331,000 km 2 of land area and a total population of about 73.7 million.Urbanization is starting to grow rapidly, but about 80 percent of the population still live in ruralareas. Although economic diversification is taking place, agriculture, forestry, and fishery stillaccount for more than a third of gross domestic product (GDP) and for more than 70 percent of

Loan No. 1272-VIE: Road Improvement Project, for $120 milhon, approved on 23 November 1993.TA. No. 1997-VIE: Second Road improvement, for $2.1 million, approved on 23 November 1993.The Mission comprised the following: T. Jones, Sr. Project Economist (Mission Leader): J. Cooney. SrProject Engineer, IWTC: CE Dark, Economist, PW3, S. Lateef, Social Development Specialist. SOCD,and K. Wentz, Counsel, OGCThe Mission comprised G HecKer, Mission Leader, and Mr. T Jones, Sr. Project Economist.

2

total employment. Viet Nam has a rich natural resource base; a relatively well educated,skilled, and disciplined work force; and a good potential for long-term economic growth. Thereal GDP grew by 8-9 percent annually during 1992-1994 and by 9.5 percent in 1995. Thisrate of growth is expected to continue for the next 2-3 years. Recent estimates place theannual per capita income at about $270; the Government plans to increase this figure to $400by the year 2000.'

5. With the rapidly increasing transformation of Viet Nam's economy from acentrally-planned to a market-based system, Government policies are being radicallyreoriented; public administration is being reorganized; and industry deregulation, priceliberalization, and commercialization of state enterprises are being implemented in all sectors,including the transport sector. The rapid transition of Viet Nam's transport sector requires thattransport agencies and operators adapt to the new economic environment to improve transportefficiency and to create an institutional, legal, and financial framework conducive tosustainable economic growth.

6. Because Viet Nam is long and narrow, with a mountainous spine, transportmovements are concentrated in the coastal areas. Much of the infrastructure in the northerrpart of the country was originally constructed 50-100 years ago; few improvements have beenmade since and maintenance and rehabilitation have been constrained by a lack of resources.In the south, infrastructure was improved and maintained up to about 1970. Low levels ofmaintenance were carried out subsequently but because of age and lack of substantialrehabilitation resources, this infrastructure is also largely in poor condition and requiressubstantial resources if the existing infrastructure investment is to be maintained.

7. Viet Nam's transport system includes all modes and has (i) about 105,100 km oroads, 2,600 km of railways, and 19,500 km of navigable waterways, of which 7,000 km areclassified as main waterways; (ii) seven main ports; (iii) three international airports; and (iv) 13smaller airports serving domestic traffic (see Appendix 1 for modes of transport other thanroads). Although some progress is being made, transport statistics are limited and of dubiousreliability. A transport data base is being prepared under a Bank-funded TA Z but, until thatdata base is firmiy established, most statistics come from other official sources and a numberof objective specific studies that have been carried out recently. Road transport is thedominant mode, carrying about 58 percent of freight and about 76 percent of passengers,'while inland waterways and coastal shipping account for about 37 percent of freight tonnage(28 percent and 9 percent, respectively) and about 13 percent of passenger volumes. Therailways and civil aviation share the rest. The modal split of traffic is expected to remain in thenear future with a slight increase in passenger movements by road and in freight movementsby inland waterways (see Appendix 2).

A Board information Paper entitled "Country Economic Review" (CER:VIE 96013) was circulated to theBoard of Directors on 5 August 1996 (IN. 142-96).TA No. 1996-VIE: Institutional Strengthening of the Ministry of Transport, for $1.9 million, approved on 2November 1993.Statistics are not available for the private sector, which is estimated to carry about 30 p ercent o the tote:traffic volume.

3

2. Transport Planning and Coordination

8. At the highest policy level is the National Assembly, which meets twice a yearand has an advisory standing committee acting on its behalf in the intervening periods. TheNational Assembly makes decisions on major economic policies, and approves the nationalplan and state budget after they have been approved by the Prime Minister. The Ministry ofPlanning and Investment (MPI) reports to the Prime Minister. Major policy decisions, transportplans, and large projects, including those for external financing, require review by the NationalAppraisal Committee, which is headed by the Minister of MPI. and approval by the PrimeMinister.

9. The Ministry of Transport (MOT) is responsible for the overall management anddevelopment of the transport sector (see Appendix 3). Four modal administrations within MOTare responsible for the different transport modes, one each for roads, railways, inlandwaterways, and ports. 1 MOT has been introducing new modal administrations since 1992.The Viet Nam Road Administration (VNRA), Maritime Administration, and Inland WaterwayAdministration were approved in June 1993, while the Viet Nam National Railways wasestablished earlier. MOT has been slowly adjusting its internal organization to establish well-defined modal responsibilities and support departments.

10. The Planning and Investment Department of MOT undertakes overall policycoordination, investment priorities, programming, and budgeting in the transport sector withsupport from its Center for Statistics and a number of other institutions. At the provincial anddistrict level, planning and programming for transport sector investments and operations arevested with the provincial transport authorities (PTAs), which have links to MOT and theprovincial people's committees 2 , but no direct responsibility to MOT except for theimplementation of some road works. Planning and programming functions within MOT are yetto be fully developed to include modern economic analysis methods and cost recoverysystems in transport sector planning and project selection. Nevertheless, these methods andsystems are slowly being introduced through MOT staff participation in recently completed andongoing transport related studies, seminars, lectures, and study tours. Formal training isrequired for a full appreciation of such techniques and systems.

3. Investments

11. Insufficient capital and maintenance expenditure is a major constraint toimproving and maintaining national transport infrastructure capacity. In 1993, the nationalbudget for transport infrastructure amounted to about $131 million equivalent, representingabout 14 percent of the Government's total capital expenditures and about 0.8 percent ofGDP. The allocation for the transport sector is low compared to that in most developingcountries, where 2-3 percent of GDP is more common. These investments reached about$200 million in 1995 and are expected to increase as externally funded projects are initiated.For 1996 to 2000, the Government has put forward a transport sector assistance program tothe external funding community totaling $5,200 million, with the road sector alloted 67 percentof transport sector investment, railways 15 percent. and the other modes about 18 percent.

The Civil Aviation Administration was established in February 1993 ana now re p orts directly to theGovernmentProvncra p eooie s committees are responsibie for the Government aoministratron of the provinces

4

Details on actual and planned transport infrastructure expenditures during 1991 to 2000 aregiven in Appendix 4.

4. The Road and Road Transport Subsector

a. The Road Network

12. The road network in Viet Nam consists of about 105,100 km of roads classifiedas national (11,400 km); provincial (14,200 km); district (25,300 km); village (46,200 km); urban(2,500 km); and special (5,500 km) roads (see Appendix 5). Viet Nam's road density,compares favorably with that in other developing countries, at 0.32 km/km 2 . It exceeds that ofThailand (0.20) and Malaysia (0.25). Some mountainous areas are, however, still inaccessibleby road. The longest and most important road, National Highway No. 1, extends from the PRCborder in the north through Hanoi, Da Nang, Nha Trang and HCMC to Nam Can in the south.Other important roads include National Highway No. 5 from Hanoi to Haiphong, NationalHighway No. 18 from the junction of National Highway No. 5 at Bac Ninh to Halong Bay, andNational Highway No. 51 from HCMC to Vung Tau. Of importance to the Greater MekongSubregion 1 are National Highway No. 22 from HCMC to Moc Bai at the Cambodia border, andNational Highway Nos. 8, 9, 40, which connect central Viet Nam with Thailand through Laos.Another important Greater Mekong Subregion connection is the road from Hanoi to Kunmingin Yunnan Province of the PRC.

13. Most of the national roads are old, as very lithe new construction has beencarried out since reunification of the country 2 in 1975, In the north, with minor exceptions,roads were built before 1954 and in the south, little construction took place after 1970. Whilegeometric standards are generally adequate, pavements were not rehabilitated when needed.the residual strength of most roads is very poor, and, while the riding surface is fair because ofcontinual but costly pothole patching, major maintenance, renabilitation, or improvement isurgently needed. For the national roads, 62 percent of the total length is paved and about 43percent is in good or fair condition. About 21 percent of provincial roads are paved and 25percent are in good or fair condition. Although the condition of urban or speciat roads has notbeen surveyed, it appears that urban roads are generally in good or fair condition but arerapidly facing capacity constraints from increasing traffic volumes. District and communeroads are usually earth or gravel surfaced, in poor condition, and not passable to motorizedtraffic especially during the rainy season. MOT estimates that there are about 8,160 bridgeswith total length of 168 km on the road network; the average length per bridge is 20.6 m. Thecondition of these bridges is generally unknown. except for those along the 2,220 km ofNational Highway No. 1 surveyed in 1991, most of which are in poor condition. In the north,over one third of the bridges were built as temporary structures, while in the south, some 50percent are temporary and need upgrading, rehabilitating or replacing. Also, a few bridges onmain roads serve rail as well as road traffic but are only one lane wide and can cause majortraffic delays. In addition, many of the bridges in fair condition are old and designed for lowloads and cannot accommodate a vehicle of over 10 tons gross weight. A study financed bythe Overseas Development Administration (ODA) of the United Kingdom is evaluating major

Cambodia, the Peoples Republic of China (Yunnan Province), Lao Peocies Democraho Repubo,Myanmar, Thailand, and Viet Nam comprise the Greater Mekong SubreQionSome roaas are currently beino improved and rehabilitated with both bilaterai and multilateral assistance

5

bridges on the national road network and helping to build local capacity for bridge maintenancemanagement.

b. Vehicle Fleet and Traffic

14. Statistics regarding the number of vehicles actually using the roads in Viet Namare not reliable. Initial registration data are available, but annual operating license data arenot. Most sources indicate that there were about 323,000 motor vehicles (excluding about 2.8million motorcycles, 24,000 three-wheelers, and military vehicles) registered in 1994, whichconsisted of 129,000 cars and pickups, 42,000 buses, and 152,000 trucks (Appendix 6 givesthe most recent breakdown up to 1990). The increase of new vehicles registered and licensedin Viet Nam is believed to be quite high in recent years, particularly with the infusion of largeforeign investments, but the exact increase is not known. Much of the fleet is old andinefficient, mostly comprising gasoline-powered small trucks with payloads under 6 metric tons;but new and larger trucks are being imported and used on the national roads. Passenger carsconstitute a rapidly growing portion of the vehicle fleet, while two-wheeled vehicles includingbicycles and motorcycles are used exclusively for short distance passenger travel and forcarrying small amounts of freight. Two-wheeled vehicles are used extensively in cities and oninterurban roads.

15. Regular traffic counts are carried out in Viet Nam by the PTAs and the regionalroad maintenance unions (RRMU), but there is not at present a structured system of collectingand collating these data in a usable form. Data collected for the preparation of this and otherprojects and studies indicate traffic volumes on the road network. Average daily traffic on thenational roads near HCMC and Hanoi ranges from 3,000 to 21,000 four-wheeled vehicles perday (vpd) and congestion is becoming a serious problem. In other areas, traffic is below 1,000vpd on most of the national and provincial roads and below 100 vpd on local roads. Excludingtwo- and three-wheeled vehicles, traffic is about 65 percent heavy vehicles and 35 percentpassenger cars. The 1994 traffic count on National Highway No. 1 ranged from 4,200 vpdnear Hanoi to about 1,500 vpd an the least traveled sections.

16. Viet Nam has a high number of road accidents with fatality rates about 10 timeshigher than in neighboring countries and some 40 times higher than in more industrializedcountries. In 1994, 4,533 persons were killed and 13,900 persons were injured in the 13,118accidents reported to the police. The major causes of accidents are the undisciplined behaviorof vehicle operators, bicyclists, and pedestrians; the confusing and dangerous mix of fast andslow-moving vehicles; and the use of pavements for various nontraffic-related purposes. Highaccident rates are also attributed to inadequate laws and regulations for vehicles and traffic,their lax enforcement, the poor condition of roads, and absence of action to identify andimprove hazardous locations. The Government is beginning to address the most critical safetyissues and has passed legislation (Decree 36-CP 1 ), which, with new road regulations issued inMay 1995, provide for clearance of encroachments within the right-of-way of the road andreorganization of roles and responsibilities related to road safety. Since implementation ofDecree 36-CP, the Government reports that accident rates have declined by 30 percent. Bankinvolvement in road and road safety issues will continue through Project design andimplementation and continuing dialog with concerned Government officials. The proposedProject provides paved shoulders throughout the length of the national highway, suitable for

Assistance was g iven to MOT/VNRA in the preparation of this decree under TA Nc 1996-VIE institutional

Stren gthening of the Ministry of T ranspor± for $1.9 million. ap p roved on 23 November 1993

6

the separation of slow from fast moving traffic, improved intersection design, and various roadfurniture including lighting, road signs, and guardrails to facilitate safe operations.

c. Road Transport Industry

17. Before economic reforms were introduced in 1986, the transport industry wasentirely Government-owned and operated under rigid regulation and price control. In 1989, theroad freight industry was deregulated allowing private participation, as was passenger roadtransport in 1990. Road freight rates and passenger fares have been progressivelyderegulated on interprovincial routes, except for certain basic commodities such as rice, salt,and fertilizer, for which price controls have been maintained. The Government prepares aschedule of road freight tariffs periodically, which, if implemented, would make road transportvery expensive, but these official tariffs are considered indicative and the consignor usuallynegotiates the rates with the transport operator. Passenger fares are normally subject toprovincial control but they are not strictly enforced particularly for intermediate journeys.Minibuses and shared taxis are entitled to collect higher fares than large buses, reflectingshorter waiting times and quicker journeys.

18. Ownership of road transport companies can be classified into five majorcategories: (I) MOT-owned enterprises (all are located in the north and were established before1975; recently they became financially autonomous); (ii) provincial or district enterprises; (iii)own-account operators (Government agencies, private manufacturers, and traders), with theirown vehicle fleets; (iv) private individual operators; and (v) cooperative associations of privateoperators organized by the province or district, owner-drivers, or small enterprises. Of theapproximately 145,000 trucks in Viet Nam, about 40 percent belong to the Government -either MOT, which operates commerciai haulage fleets in the north, or other ministries(including the military), which usually carry goods for their own accounts supplementedsometimes with commercial haulage. The private sector, which includes cooperatives and jointventures, accounts for about 21 percent of all trucks and about 15 percent of capacity. Almostall private operators have only one vehicle. The public passenger transport fleet is mostlyprivately owned or operated by cooperatives, and includes tricycles, converted jeeps, andminibuses. The larger buses are usually state-owned

d. Road Subsector Revenues and Expenditures

19. Neither the total amount of highway expenditure, nor its allocation to the variousroad classes and types, nor the structure of their financing, is fully understood at this time.The fragmented information available indicates that, because of the acute shortage ofresources over the last few years, expenditures have been minimal, particularly for roadmaintenance. A large part of the expenditure for major construction and rehabilitation is metfrom external sources. Recent estimates of road user revenues and expenditures are shownin Appendix 7.

20. Viet Nam applies a wide range of road user charges. These include chargesthat are: (i) purchase-related (duties on imported vehicles and ownership transfer taxes whenvehicles change hands); (ii) ownership-related (annual registration fees); and (iii) use-related(import duties on spare parts. tires, and lubricants). Furthermore, the fuel used in road

7

transport is taxed at Dl ,267 per liter for gasoline and D607 per liter for diesel (1995).1 TheGovernment has recently introduced a surcharge of D300 on fuel used in road transport (trafficfee) whose purpose is, according to Decree No. 1 86-CP dated 7 December 1994, "to generatefunds for regular repair and maintenance of the transport system of the whole country." It isnot known yet whether these funds have been allocated for the stated purpose. See Appendix8 for the structure of road user charges.

21. Total revenues from road user charges in 1993 were estimated at $193 million(D2,050 billion), of which about 95 percent was collected from fuel taxes. The new traffic feewould have yielded (at 1993 fuel consumption levels) an additional $43 million (D470 billion).The total revenue collected from road users approximately matches the funding requirementsfor recurrent road expenditures (operating and maintenance). Road user revenues andexpenditures are important matters and are the subject of ongoing policy dialogue between theGovernment and the Bank.

e. Road Administration

i. Organization and Structure

22. One of the major changes resulting from MOT's reorganization starting in 1992is the introduction of modal administrations that are responsible for each of the major transportmodes. The Viet Nam Road Administration (VNRA) was established in January 1993 (Decree07-CP) as a department directly subordinate to the Minister (see Appendix 3). VNRA has asubstantial degree of autonomy and broad powers. It has its own legal status, is accountableto the State Treasury, and prepares its own budget, which is reviewed by MOT and submittedto the Prime Minister for approval, Its role and responsibilities encompass the five key roadadministration tasks: policy formation, planning, guidance, control, and execution.2

23. VNRA is directly responsible for administering national roads as well as forregulating the road transport industry and road traffic rules and regulations. In 1995, it tookover vehicle and driver licensing and vehicle inspection responsibility from the Ministry ofInterior. Local authorities are responsible for provincial, district, and other local roads undertheir jurisdiction. VNRA is headed by a General Director assisted by two Deputy GeneralDirectors, one responsible for construction and maintenance and the other for transportservices (the latest organization chart for VNRA is shown in Appendix 9). VNRA is poorlyequipped to handle its broad powers and responsibilities but is being assisted by the Bank'sTA No. 1996-VIE. VNRA is in the process of adjusting to its role. At the regional level,national roads are being administered and maintained by four RRMUs, each responsible forabout 1,000-1.900 km of national roads. Under each RRMU are a number of sub-RRMUs with200-300 staff responsible for maintaining specific sections of roads.

All motor fuels are imported. Fuel taxes range from 72 percent of the cost insurance, and freight price forgasoline to 50 percent for diesel.The Viet Nam Road Administration: Issues and Options for Institutional Strengthening, Working Paper AlN. 0. Lea International Ltd., May 1995. Funded under TA No 1996-VIE: Institutional Strengthening of theMinistr of Transport; see p a g e 2 nara T

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ii. Planning and Design

24. MOT through VNRA is responsible for long-term planning of the national roadnetwork and to some extent for the provincial roads. MOT, with guidance on budgetarymatters from the Ministry of Finance and MPI, seeks the Prime Minister's approval of its five-year plan. The long-term planning exercise is carried out by the Department of Planning andInvestment of MDI with inputs from VNRA (and its RRMUs), and local consultants such as theTransport Development Strategy Institute and the Transport Engineering and Design Institute.These institutes have recently been made financially independent and compete as consultantswith other domestic organizations for Government and internationally funded projects. MOThas just started to implement a five-year plan to rehabilitate and improve about 7,200 km of theroad network.

25. In addition to the five-year plan, MOT prepares annual capital and maintenanceplans. MOT starts the process in August of each year, when MPI issues planning guidelines.RRMUs submit annual plan requests to VNRA, which reviews and submits them to MOT'sDepartment of Planning and Investment. The Department finalizes the plans and submitsthem to MPI for approval in December, with specific allocations for major projects and a lumpsum allocation for other projects.

26. MOT is responsible for technical feasibility studies and detailed design of majorroad works and bridges on the national and some of the provincial road network, usuallythrough its in-house institutes; the RRMUs design small-scale works related to rehabilitation ofroads and bridges. VNRA reviews the design of major works prior to implementation. Becauseof the long period of isolation, road design knowledge and techniques in the country areoutdated and inadequate, particularly in pavement evaluation and engineering. To assist MOTin its modernization in the short-term and to ensure that large-scale projects are well designed,international agencies are insisting that designs be undertaken by international consultants.usually in association with domestic consultants. Some technology transfer takes place fromthe international to the domestic consultants, but its effects are limited by the small number oflocal staff involved and continuity in terms of keeping such staff involved in this work. Resultsof Bank-financed design works have been mixed and the need is clear for more intensivetraining, including overseas degree programs for qualified staff. To manage thedecentralization of planning, design, and construction, particularly of foreign-funded majorconstruction projects, VNRA will have to improve its design quality control and contractmanagement capabilities. As an interim measure, MOT has set up a number of projectmanagement units (PMUs) responsible for the administration and control of foreign-fundedprojects. The PMUs are learning to perform their function fairly well. They will eventually beabsorbed into VNRA.

iii. Construction

27. Until recently, all major road and bridge construction works have been carriedout by force account through six construction corporations directly under MOT and for minorworks by the RRMUs either through contract or force account. Recently the Government hasmade the construction companies' operations commercially oriented and for most of the largeinternationally financed construction works in Viet Nam, these companies have formed joint

9

ventures with foreign firms on commercial terms. 1 These joint ventures are still in the nascentstage and some administrative, accounting, and procedural changes will be required for themto be successful. Outside of the joint ventures, the autonomy given to the constructioncompanies is promoting competition among them for local contracts through open bidding forcivil works domestically financed or allowed under international funding. The local constructioncompanies and the executing agencies all need modernization, including management skills,quality control, and physical resources. The ongoing and proposed externally financed roadimprovement projects will further stimulate the development of the domestic constructionindustry and introduce internationally accepted contract management and quality controlsystems. The proposed Project will continue to help domestic construction companies buildtheir capabilities and capacities through joint venture and subcontractual arrangements withinternational contractors.

iv. Maintenance

28. MOT is responsible for programming the maintenance of the national roadnetwork and provides advice on PTA maintenance proposals. MOT issues technical standardsand guidelines for all road classes. The road maintenance companies under RRMUs areresponsible for maintaining major national roads (46 percent of the national road network),while PTAs are responsible for the remainder of the national road network and the provincial,district, and commune roads. This is not a very efficient or consistent organization for nationalroad maintenance management. Alternative arrangements have been developed and arebeing discussed with MOT and VNRA officials.

29. The most recent study, 2 by Kirkpatrick, covering development of a roadmaintenance strategy estimates that maintenance expenditures for national roads cover onlyabout 25 percent of needs; thus, maintenance on most of the national road network is beingneglected. However, despite the budget p roblem, PTAs and RRMUs have mobilized existingresources to maintain vital sections of these roads. Nonetheless, substandard maintenancehas resulted in relatively high surface roughness levels, often soon after repairs have beencompleted. In addition, the planning and programming for maintenance does not rely onsystematic information on road conditions and completed maintenance activities. Anappropriate road maintenance management system is needed to help planners of VNRA,PTAs, and RRMUs decide on major maintenance intervention levels, timing, and monitoring.The Kirkpatrick study undertook a detailed evaluation of selected national and provincial roadsand recommended that a road inventory management system be put in place and used as abasis for investment and maintenance planning. Operationally, the World Bank is providingequipment and TA to the RRMUs for implementing maintenance and minor road works on apilot basis. For rural road maintenance, the consultants to be provided under the proposedProject in collaboration with parallel World Bank initiatives will help prepare a maintenanceplan and budget and suggest alternative funding sources.

Vietnamese contractors have successfully completed a BanK-financed road improvement contract in theLao Peoples Democratic Republic.

2 Scott Wilson Kirkpatrick. Study of Investment and Maintenance Strategy for National and Provincial RoadsViet Narn, January 996. The study was funded by ODA (UK

10

B. Government Policies and Plans

30. The Government intends to increase real per capita GDP to $400 by the year2000. To realize this goal, the Government recognizes that significant constraints need to beovercome. The major constraints are (i) a low level of domestic savings, (ii) inadequate anddilapidated physical infrastructure, (iii) an insufficiently developed financial system, (iv) aregulatory and institutional framework that is not yet fully compatible with the needs of amarket-oriented economy or of the private sector, and (v) the lack of managerial and technicalskills required by a market based system.

31. The Government is implementing a transport sector reform program that aims toimprove transport efficiency and create an institutional and financial framework conducive toeconomic growth. Most notably in the past few years, the Government has taken a number ofreforms in this direction, such as (i) eliminating cargo allocation to specific modes, (ii)abolishing prescribed tariffs for road and inland waterway freight transport (except for certaincommodities considered of strategic and social importance) and decentralizing control overpassenger fares, which are now determined by the provinces, (iii) relaxing of controls overentry by less restrictive licensing arrangements and allowing own-account fleets (including themilitary) to carry for third parties, (iv) opening of interurban passenger transport to competition,in stages, and placing of urban passenger transport under the control of the provincial people'scommittees, which allocate routes and determine prices, (v) commercializing state transportenterprises and abolishing most direct operating subsidies to them, (vi) granting permission forthe establishment of private transport enterprises and private sector participation in transportinfrastructure investment and operation, (vii) reorganizing MOT into modal administrations withbroad responsibilities under the overall authority of the minister, and (viii) initiating stepstOwards cost recovery from users of transport infrastructure provided by the state. In thefuture, these reform initiatives need to be expanded and enhanced to eliminate remainingimpediments to efficient markets and transport institutions. Under the Enhanced StructuralAdjustment Facility arrangement with the International Monetary Fund, certain policy reformsrelated to transport are expected to be accomplished from 1996 to 1998, includingrehabilitation and development of the road network, the urban transport systems, ports, andinland waterways; an improved regulatory framework for private transport services; andimproved cost recovery, operations, and maintenance procedures. Bilateral and multilateralfunding agencies are assisting the Government to achieve these objectives. The Bank, inparticular, is assisting with institutional development including organization, policy reform, andinvestment and maintenance planning.

C. External Assistance to the Road Subsector

32. Until the drastic cutbacks in aid from the former Soviet Union and other membercountries of the former Council for Mutual Economic Assistance (CMEA) in the late 1980s, VietNam had been heavily dependent on aid from these countries. Most assistance was in theform of equipment, construction materials, and TA (mostly for the construction of majorbridges). Following the cessation of CMEA assistance, some grants for sector studies andpreparation of projects for external funding have been provided to MOT. In 1990, the UnitedNations Development Programme (UNDP) provided a $970,000 grant for the preparation ofthe National Transport Sector Review. For road project preparation, the Finnish internationalDevelopment Agency granted $500,000 (Fmk2.0 million) and the Canadian InternationalDevelopment Agency $550,000 for detailed engineering and preparation of tender documentsfor the rehabilitation of about 430 km of road along National Highway 1 from Hanoi to Vinh

li

which has Deen funded by the World Bank, and about 435 km of National Highway I fromHCMC to Nha Trang, which has been financed by the Bank. 1 With the relaxing of sanctionsagainst external funding, Viet Nam has received considerable project and technical assistancefor the road subsector (see Appendix 10). The Bank and the World Bank assistance isfocused on rehabilitation of sections of National Highway 1; OECF is funding the majorbridges on these same stretches. France is funding construction of a new bridge on NationalHighway I at Gianh. Improvement of National Highway 5 from Hanoi to Haiphong (106 km) isbeing financed by Taipei,China and Japan, and National Highway 18 from Chi Linh to BaiChan (81 km) is being financed by the Republic of Korea. The Bank and the World Bank arealso preparing additional financial assistance for the improvement of the remaining stretches ofNational Highway 1 and selected improvements to rural roads. Australia is funding thepreparatory activities and construction of a major bridge across the Mekong River at My Thuan.Bilateral assistance for studies has also been forthcoming, most notably for an investment andmaintenance strategy study of national and provincial roads and a study of all major bridges,both funded by ODA (UK). Because of the volume of assistance received and proposed,coordination among the various agencies is essential. The Bank is taking a very active role onthis. While the annual meeting between the Government and funding agencies provides abasic framework for aid coordination, these meetings are being supplemented by regularsubsectoral meetings. A transport sector meeting, organized by the Government with supportfrom the World Bank was held in October 1994. The Bank provided the main support to theGovernment in organizing a road subsector conference of funding agencies in January 1996and the Government is organizing a follow-up meeting scheduled for November 1996. Thesemeetings are essential to understanding the Government's needs and the capacity of thefunding agencies to help meet these needs in a coordinated manner. UNDP is assisting withpreparation of an aid coordination data base.

D. Lessons Learned

33. Although the Bank's road sector assistance to Viet Nam commenced onlyrecently, a number of lessons have already been learned. The most difficult preconstructionactivities under the earlier project have now been completed, and the lessons learned will besufficient to allow the Project to proceed through to contract award without significant difficulty.However, the first project showed that the Government's approval procedures are very slowand require streamlining. The proposed Project addresses this problem by using advanceaction for procurement of civil works contractors and selection of a supervision consultant(approved in March 1995). Both activities are now proceeding, with the objective that civilworks and consultant's contracts will be ready to sign immediately after the Project loan hasbeen declared effective. The Project also addresses the involuntary resettlement issue basedon experience gained from the World Bank's concurrent first and second highway rehabilitationprojects (there was very little resettlement required for the Bank's ongoing first roadimprovement project). The project preparatory TA for the proposed Project has produced adetailed resettlement action plan, an Ethnic Minorities Action Plan, and the TA consultant isassisting PMU-1 with delineating the required right-of-way boundaries in the field as a first stepin the land acquisition and resettlement process. Residents required to relocate will have beenidentified and compensated, and will be moved before their land is required for the road worksso that the required right-of-way will be available for work to commence immediately after theProject loan has become effective.

Loan No i272-VE Road /rnDrc;vernenf Project, for $12OU mThon. aporoved on 23 November 1993

12

E. The Bank's Sectoral Strategy

34. The Bank's program of activities in Viet Nam in the initial period following theresumption of operations in October 1993 was guided by the Interim Operational Strategyformalized in 1993. The Country Operational Strategy Study (December 1995) wassubsequently prepared and focuses on facilitating the country's transition and restructuring ofthe economy according to market-based principles while promoting balanced and sustainabledevelopment. The Bank's strategic objectives are to promote efficient economic growth,poverty reduction, and environmentally sound development, guided by the concept ofgeographic linkages. These linkages are centered on Hanoi in the north, Danang in thecentral area, and HCMC in the south. The development of linkages between these growthareas and their hinterlands is central to the Bank's and the Government's strategy, and theBank is, inter alia, concentrating its project interventions on transport corridors and relateddevelopment zones that best serve the Government's goal of rapid but balanced economicgrowth. Upgraded transportation corridors connecting the growth areas and selected ruralareas would improve the overall business environment within which households andenterprises in Viet Nam could seek out and develop new market and employmentopportunities. Feeder roads to the transportation corridors would reach out into the remoteareas and help bring them more into the economic mainstream. Linkages not only apply totransport but also to other economic sectors and include private and public sector participationand complimentarity between the operations of the Bank and other funding agencies. Giventhis strategic framework, the Bank is addressing selected critical constraints in five areas ofspecial interest: (i) policy reform and institutional development, (ii) infrastructure development,(iii) rural development, (iv) human development, and (v) resource management.

35. The Bank's project and technical assistance to Viet Nam's road subsector hasbeen recognized as critical for achieving these linkages and for supporting the country'seconomic development. While special priority is given to promoting rapid but balancedeconomic growth, particularly through a substantial increase in investment in essentialeconomic infrastructure, the Bank's program of assistance through the proposed Projectcoupled with the Bank's TA program, will also contribute to rural development, institutional andpolicy reforms, and improved public sector management. The proposed Project is in line withthe Bank's strategy and is included in the Bank's operational program for Viet Nam.

F. Policy Dialogue

36. The introduction of modern policies is dependent on the development of thepolicy making institutions. The Bank, World Bank and some bilateral agencies are activelyassisting MOT and VNRA to become modern well-managed Government agencies. This is acontinuing process and considerable progress has been achieved. The main areas forcontinuing policy dialogue which fit within the overall transport sector policy dialogueframework of the external assistance community and the Government are outlined below.

13

1. knstitutional strengthening

37. Institutional strengthening is a major concern of the Government and is beingaddressed under the Bank's ongoing TA No. 1996-VIE. 1 The focus of the TA is broad,encompassing activities involving assistance to help (I) improve the organization and theadministrative efficiency of VNRA; (ii) VNRA implement road and road transport subsectorreforms being pursued by the Government in collaboration with the international lendingagencies; (iii) in drafting a road act and related rules and regulations; (iv) in the establishmentof a computerized transport data base for the better management and planning of the overalltransport sector, and training of staff in transport statistic preparation, analysis, anddissemination; and (v) in strengthening PMU-1 capabilities to deal efficiently with foreign-assisted projects. Within the context of these five tasks, specific direction was given to focuson private sector participation within a regulatory framework in which the Governmentincreasingly adopts the role of supervisor and regulator rather than carrying out operations onits own. Much has been achieved toward the accomplishment of these objectives. Assistanceto PMU-1 has been completed under this TA but is being continued by the consultantsassisting with ongoing project supervision. A computerized transport data base for the nationalroad network and inland waterway system has been set up within MOT. This needs to beexpanded to cover the other modes. The basic contents of a new road act have beenprepared and some of its provisions have been implemented through a decree concerningroad safety (Decree 36-CP). Additionally, the TA has helped VNRA meet its newresponsibilities including driver examination, driver training and licensing, and collection ofperformance data. Setting of vehicle safety standards, evaluation of the vehicle inspectionsystem, and preparation of documents for vehicle license examination have been addressed.

38. VNRA, established in 1993, needs continued help to develop into a moreeffective institution. VNRA has been assigned increasing responsibilities designed to make it atruly modal-specific agency. The TA consultant has been assisting VNRA in establishing theappropriate organization, systems, and procedures to address these responsibilities.Following completion of the TA, the next step for institutional strengthening would embrace thedevelopment of support systems, manuals and control documents, and training of staff in awide range of management and technical processes. The most pressing needs are forimproving road network planning capabilities, needs identification for road infrastructureplanning activities, enhancement of information management systems for user andinfrastructure activities, and refinement of guidance and control documents for maintenanceoperations. In addition, modernization of technical standards, specifications, and qualityassurance systems and the upgrading of staff skills are very important. Such assistance isprovided for under the proposed Project.

2. Insufficient Road Maintenance and Investment

39. Insufficient road maintenance and investment can be traced to two mainproblems: inadequate planning and minimal funding. Institutional support for roadmaintenance organization is being provided through TA (see para. 38). A recent study fundedby ODA (UK) provided an initial identification of a maintenance strategy and estimated themagnitude of the problem. The World Bank is providing funding for more road maintenance

TA No 1996-VIE institutional Strengthening of the Ministry of Transport, for $1.2 miIIon, approved on 23November 1993

14

equipment; the introduction of competitive contracting methods for periodic maintenance; andtraining for road agencies and domestic contractors in contract administration, managementand supervision. The Bank and the World Bank are collaborating on future steps to improveroad maintenance planning and implementation.

3. Road User Charges

40. Road user charges are a significant source of revenue for the Government.With the recent introduction of the "traffic fee," the level of road-user revenues is now roughlyequivalent to the marginal cost of road use. However, significant distortions remain and shouldbe eliminated within the structure of road-user charges. Diesel fuel and heavy vehicles are stilltaxed at a low rate, which amounts to an indirect subsidy to heavy vehicles and thus provideslittle incentive for the use of efficient vehicles and the efficient use of these vehicles. Also,taxes specific to the weight of the vehicle and the damage it causes to the roads need to beintroduced. These matters are the subject of study and, based on study results, will bepursued further. The Bank is currently encouraging the Government to set up a dedicatedfund for road maintenance as a short-term measure to ensure adequate funding.

41. The Government has agreed to keep the Bank informed of the progress of allpolicy, strategy, and technical studies related to transport sector issues, ongoing or to beundertaken under various external assistance, by providing the Bank with any relateddocuments, including consultants' reports, and seeking the Bank's comments thereon. TheBank will continue to coordinate with the World Bank and other agencies during Projectimplementation V

IV. THE PROJECT

A. Rationale

42. After decades of conflicts and economic isolation, Viet Nam's infrastructure,particularly its transport infrastructure, is badly deteriorated and is a constraint to generaleconomic recovery and investment from the emerging private sector. The Government hasrequested external assistance for rehabilitating the national highway network, over 70 percentof which is in poor condition, as well for other components of the road network. The highestpriority is given to National Highway No. 1, the most important north-south link. Immediateneed for rehabilitating this route was also strongly supported by the findings of the NationalTransport Sector Review. 1 The Bank, World Bank and OECF have already responded to thisrequest through provision of loans for the rehabilitation of the stretch from Nha Trang to HCMC(Bank) and the stretch from Hanoi to Vinh (World Bank). OECF is funding the replacementand construction of major bridges (over 20 meters (m) in length) on these sections. Theproposed Project, which has been prepared through a Bank-financed TA, 2 and will becofinanced by OECF, continues this assistance. The Project will improve an additional 161 kmof National Highway No. 1 from the border with the PRC south to Hanoi and will also improveselected provincial, district, and commune roads in Ha Bac, Lang Son, and Cao Bangprovinces to help ensure reliable road access to the primary road network. The Project will

BCEOM, United Nations, Viet Nam National Transport Sector Rev,ew, Final Report, 1992TA No 1997-VIE: Second Road improvement Proiecr, approved for $21 million on 23 November 1993 Asupplementary grant for $0.85 millior, was approved on 31 May 1995

15

help the Government improve the national and rural road accessibility and reliability, therebyfacilitating efficient transport services and promoting balanced regional development. TheGovernment is committed to enabling poverty reduction. This involves the development ofrural infrastructure that focuses on upgrading and extending of rural roads. The Governmenthas also stated that rapid broad-based economic development in combination with targetedinfrastructure and social service provision are the best approaches for reducing poverty. TheGovernment accords high priority to the Project, in line with the Bank's operational strategy,which encourages the increased use of linkages, particularly transport, with a stronggeographic dimension to improve living conditions for the rural population. The strategy alsoencourages the development of sustainable Government institutions.

B. Objectives and Scope

1. Objectives

43. The Project will assist the Government with (I) improving 161 km of Highway No.1, from the PRC border south to Hanoi (the national highway component [NHC}); (ii) improvingabout 600 km of provincial, district, and commune roads in Lang Son and Ha Bac provinces,through which the NHC passes, and the adjacent Cao Bang province (the rural roadscomponent [RRC]); and (iii) strengthening the institutions charged with managing Viet Nam'sroad sector (the institutional strengthening component [ISO]).

2. Project Area

44. The NHC starts at the PRO border and traverses two provinces (Ha Bac andLang Son) and the northern suburbs of Hanoi, and provides an important linkage with theadjacent Cao Bang Province. Excluding Hanoi (population about 2.3 million) the influencearea of the Project Road is about 21,250 km 2 with a population of about 3.6 million.

45. Lang Son Province shares a border with the PRC and four other provinces. Ithas a total area of 8,200 km 2 and a population of 690.000. Lang Son is a border town and isthe focal point for trade with the PRO. This has been increasing rapidly, from 334,500 metrictons (mt) in 1991 to more than 1.6 million mt in 1994. It is expected to increase to 2.5 millionmt in 1996. Virtually all of this is carried by road. From the PRO border through Lang SonProvince to Ha Bac Province, a distance of about 102 km via the national highway, the terrainis mostly mountainous and rolling midland and produces mainly tobacco, maize, soy beans,and tea. Because much of the land is not suitable for rice cultivation, Lang Son Province is arice deficit area. Most forest cover was destroyed long ago; no significant forest areas remain,although some reforestation projects are under way. Throughout most of this length, thenational highway has a minimal two-lane width and surface condition and pavement strengthare poor. Continual maintenance at high cost is required to keep the road trafficable.

16

46. For the southern section from the Lang Son-Ha Bac Province border to Hanoiwhere the NRC terminates at National Highway No. 5, a distance of about 66 km, the terrain ismostly plains in the Red River delta. Ha Bac Province is heavily populated, with 2.3 millionpeople, and a total area of 4,600 km2 , of which about 60 percent is intensively cultivated. Themain crops, in addition to rice which is in surplus, are soy beans, maize, peanuts, sugarcane,and tea. There are no significant forests or fisheries. Except near Hanoi where the road has aconcrete pavement, the road is old and the pavement is weak. Traffic composition for four-wheeled or larger vehicles is about 63 percent buses and trucks while the remainder ispassenger cars and utility vehicles. Close to Hanoi there is a very large usage of bicycles andmotorbikes. Pedestrian traffic can be substantial and there is some animal drawn carriage.Together, these reduce the road capacity significantly.

47. Cao Bang Province, which is included in the RRC, is adjacent to and northwestof Lang Son Province. Cao Bang Province is influenced by the Project road mainly through itsroad connection with Lang Son town. The land and topography are similar to Lang SonProvince. While rice is the most important crop, it is in deficit. Other important market cropsinclude sugarcane, tobacco, cassava, soybeans, maize, and sweet potato. The 75-km stretchof National Highway No. 4 from Cao Bang town to Lang Son town and National Highway No.3, which traverses the province, are in fair paved condition; almost all other roads are notpaved and are mostly in poor condition.

3. Scope

48. The Project comprises six components: (i) civil works for the NHC, includingconstruction of new or replacement bridges up to 20 m long; (ii) construction of new orreplacement bridges longer than 20 m; (iii) consulting services for supervision of the NHC; (iv)civil works for the RRC; (v) consulting services for the RRC; and (vi) the ISC. The Bank-financed portion of the Project will consist of (i) the NHC with associated consultant services;(ii) the RRC with associated consulting services; and (iii) the ISO. The OECF-financed portionwill comprise bridges over 20 m long over the entire NHC length.

a. National Highway Component

49. This component will cover 161 km of Highway No. 1. Within this length, about60 km immediately north of Hanoi will be constructed on a new alignment to the east of theexisting highway. tt will comprise the first carriageway of an ultimate dual carriageway facilitythrough this densely populated and rapidly developing corridor, and is being constructed inpreference to improving the existing highway because of the unacceptable resettlementrequirements that the latter would require. The remaining 100-km length is largely on a newalignment, to improve geometry and to avoid the towns and villages that have grown up alongthe existing road. The highway improvement works will include rehabilitation or replacement ofall bridges up to 20 ni in length, and the rehabilitation of existing bridges greater than thislength.

1^

b. Bridges Longer than 20 m

50. Bridges longer than 20 m will be replaced or newly constructed (where re-alignment is involved) under parallel projects to be financed by OECF.'

c. Consulting Services for the National Highway Component

51. Consulting services for the NHC will be for construction supervision, and willinclude environmental impact and resettlement monitoring, and a substantial trainingcomponent for Government officials and domestic consultant personnel.

d. Rural Roads Component

52. The RRC will improve about 600 km of provincial, district, and commune roads,in Lang Son, Ha Bac, and Cao Bang provinces, to provide two levels of access: (i) reliableaccess, which provides vehicular access for most of the year, with some short-terminterruptions being acceptable; and (ii) minimum access, which provides a lower level ofservice, and with longer interruptions being acceptable. The roads to be improved, and theextent and nature of the improvements, will be decided on the basis of population served, theextent of economic activity, existing traffic and, for about 20 percent of the roads in eachprovince, social criteria. The improvements will be implemented through spot repairs to roadpavements and formations, repair and replacement of minor drainage structures, andconstruction of surface drainage systems. Design standards and specifications will be simple,and will provide for the maximum possible use of labor-based construction techniques, and forthe involvement of small-scale domestic contractors. There will be little or no change toexisting horizontal and vertical alignments, and very little, if any, requirement for landacquisition or resettlement.

e. Consulting Services for the Rural Roads Component

53. For the RRC, services will be provided for (i) assisting with surveys based on theagreed road selection criteria; (ii) selecting candidate roads; (iii) developing technical designs,contract documents, and specifications; (iv) procuring equipment and materials; (v)administering contracts; and (vi) training. As rural road maintenance is poor because offunding and management constraints, the consultants will work with PMU-1 and the PTAs todevelop a system of maintenance planning and management. The World Bank willsimultaneously undertake a similar project in other provinces. The Bank, Government, andWorld Bank have agreed to coordinate closely on all aspects of the two projects, includingp lanning, management, and maintenance.

Institutional Strengthening for the Viet Nam Road Administration

54. The ISC will include further assistance to MOT and VNRA, and training for MOTand PMU-1 staff. The exact scope will be determined based on the recommendations of theongoing TA and discussions of needs with MOT and VNRA management. Some of the needshave been presented in para 38.

OECF has already included the bodges between Hanoi and Bac Giang, about 60 km from the southernterminus of the Proiect road, in its program of assistance to Viet Nam. The Government is finalizing withOECF further assistance for the bridges on the remaining 100 km of the Project road.

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C. Cost Estimates

55. The estimated total cost of the Project is about $237.0 million equivalent.including bridges, land acquisition, utility relocation, resettlement, civil works, and consultingservices. The cost comprises $150.0 million in foreign exchange, including $4.4 million forservice charge during construction (63.3 percent of the total) and $87.0 million (36.7 percent)in local currency. The cost estimates are based mainly on detailed engineering estimates,which assume that civil works will be carried out by international contractors and supervisedby international consultants. Table 1 summarizes the cost estimates (see also Appendix 11).

Table 1: Cost Estimatesa($ million)

Item

National Highway Component1. Civil Works (Project Road)2. Right-of-Way and Resettlement'3. Consulting Services4. Contingencies

PhysicaPriced

Subtotal (1+2±3+4)

ForeignExchange

69.9

5.6

7.54.0

87.0

Local TotalCurrency Cost

29.9 99.8

15.4 15.4

1.0 6.6

I.

7.7 11.7

58.6 145.6Rural Road Component

5. Civil Works 3.0 5.8 8.86. Consultant Services 1.0 0.2 1.2

Subtotal (5+6) 4.0 6.0 10.07. institutionai Strengtnenin 1.6 0.4 2.08. Service Charge 4.4 - 4.4

Subtota (1 to 8) 97.0 65.0 162.09. OECF Bridges (includinp contingencies) 53.0 22.0 75.0

Grand Totai 150.0 87.0 237.0At December 1995 prices, includin g taxes estimated at $5.9 million

b ncludes resettlement costs arising from the a g reed Resettlement Action PlanAt 10 percent of base cost for Items ito 3At 2 4 percent per annum for foreign exchange costs, and 8 percent per annum for local currency costs.

Source: MOT and Mission estimates.

D. Financing Plan

56. The Project's financing plan is set out in Table 2. The proposed Bank loan willprovide $120 million equivalent, denominated in Special Drawing Rights from the Bank'sSpecial Fund Resources with an amortization period of 40 years including a grace period of 10years with a service charge of 1 percent per annum. The loan will finance all of the foreignexchange costs for the Bank-financed portion of the Project, estimated at $97.0 million (40.9percent of total Project cost), and a portion of the local currency costs, estimated at $23.0million (9.8 percent but excluding customs duties and taxes), together equivalent to about 50.6percent of the Project cost. The OEOF loan will be for $64.0 million equvaient and wiU finance

19

all of the related foreign exchange costs, excluding service charge, and part of the relatedlocal currency costs, together amounting to 27.0 percent of the total Project cost. Theremaining Project costs estimated at $53.0 million (22.4 percent) will be financed from theGovernment's own resources. The Borrower will be the Socialist Republic of Viet Nam. Theproceeds of the loan will be made available by the Borrower to MOT through appropriatebudgetary allocations.

Table 2: Proposed Financing Plan($ million)

Source

BankOECFGovernment

Total

ForeignExchange

97.052.1

0.9150.0

LocalCurrency

23.011.952.187.0

Total PercentCost

120.0 50.6

64.0 27.0

53.0 22.4

237.0 100.0

57. The amount of local currency funding takes account of the current fiscalsituation in Viet Nam. The country is one of the poorest in the world and the Government hasdifficulty mobilizing sufficient funds from its own resources to meet all developmentcommitments, including rehabilitation and upgrading critical physical and social infrastructure.Although the need to generate domestic resources to finance investments for sustainingeconomic growth is well recognized, the country has not yet developed the resource basenecessary to finance adequately the required level of investments without external assistance.Under the current circumstances, a large investment-savings gap will continue exertingpressure on development programs; thus external support is needed to meet some of the localcurrency costs of projects. In line with the Bank's policy to help provide local currency costfinancing particularly for projects that address priority poverty concerns in the economicallyless developed regions, about 19 percent of the loan will be for that purpose.

E. Implementation Arrangements

1.

58.

(i)

(ii)

(iii)

Project Organization

The following summarizes the Project's organization:

PMU-1 will be the Executing Agency for all components.

PMU-1 will be responsible for day-to-day implementation of the Project.

Project coordination to improve and expedite decision making will be throughthe Vice Minister responsible for the Project.

(iv) Project consultants will be employed (one each) for the NHC and the RRC, boththrough PMU-1. The consultant for the ISC will be selected by MOT and VNRAin coordination with PMU-1 with overall guidance provided by the Vice Minister.

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(v) Each consultant will appoint a team leader from the consultant's internationalfirm. The team leaders will be responsible for the day-to-day management ofthe consulting services.

(vi) For the NHC, the consultants will mobilize civil works supervision teams for thefour civil works contracts and, for the RRC, one team for each of the threeprovinces.

(vii) For the ISC, appropriate arrangements will be made for the various likelycomponents, such as overseas training, local training, and development ofguidelines and standards for MOT and VNRA.

2. Implementation Schedule

59. A summary implementation schedule for the Bank-financed portion of theProject, based on a detailed schedule, is provided in Appendix 12. The NHC will commenceimmediately after loan effectiveness, expected in early 1997, and will be completed by end-2000. The RRC, which will include consultant selection, identification of subprojects, andpreparing appropriate arrangements for civil works will also commence at loan effectivenessand will be completed by early-2000. The ISC will commence in late 1997 and will becompleted by the end of 1999. The OECF-financed bridge works are expected to follow aschedule similar to that for the NHC. The total implementation period from loan effectivenesswill be about 4 years.

3. Civil Works Procurement


60. The civil works will comprise four contracts, each covering about 40 km ofhighway and valued at about $30 million to $40 million. Procurement will be undertaken inaccordance with the international competitive bidding procedures set out in the Bank'sGuidelines on Procurement. As defined in the conditions under which the contracts will beadministered, the employer for the contracts will be MOT, acting through PMU-1; the engineerwill be the international supervision consultant, and the engineer's representative will be theconsultant's team leader.

b. Rural Road Component

61. The RRC civil works will be implemented through a large number of smallcontracts, expected to range in value up to $250,000. These contracts will be procured usinglocal competitive bidding procedures acceptable to the Bank. The bidding documents willrequire contractors to engage a reasonable proportion of the labor from the immediate area ofthe road to be improved. Appendix 13 provides additional details of the procedures forprocurement under the RRC.

21

4. Consulting Services


62. The consulting services required for the NHC contract supervision will beprovided by an international consultant in association with domestic consultants. Theconsultant will be selected in accordance with the Bank's Guidelines on the Use ofConsultants, and other arrangements satisfactory to the Bank. Staffing inputs will be about 300person-months of international consultants and 600 person-months of domestic consultants.Outline terms of reference for the consulting services are in Appendix 14. Expertise requiredwill include project and contract management, materials and pavement engineering, structuralengineering, and social and environmental impact assessment and monitoring. The overallperiod of the services will be about 45 months. Facilities and services required by thesupervision consultant - accommodation, vehicles, offices and equipment, etc. - will besupplied through the civil works contracts.


63. The consulting services required for the RRC will be provided by an internationalconsultant in association with domestic consultants. Staffing inputs will be about 40 person-months of international consultants and 240 person-months of domestic consultants. Outlineterms of reference for the services are in Appendix 15. The consultants will be selected inaccordance with the Bank's Guidelines on the Use of Consultants and other arrangementssatisfactory to the Bank.

5. Reports, Accounts, and Audit

a. Reports

64. Prior to beginning the civil works under the Project, PMU-1 will provide the Bankwith brief progress reports on the status of preconstruction activities. Thereafter, the NHC andRRC consultants will prepare brief monthly progress reports on their components for PMU-1and the Bank. The format of these reports will be discussed and agreed upon prior tocommencement of the consulting services. Once the works have been completed, PMU-1 willarrange for the Project consultants to submit Project completion reports. Quarterly progressreports will be required from the consultants involved in the !SC, plus subject-specific and otherreports as may be required from time to time by MOT and VNRA and the Bank.

b. Records and Accounts

65. PMU-1 will maintain records and accounts adequate to (i) identify the goods andservices financed out of the proceeds of the loan and from counterpart local funds for allProject components; (ii) identify the use of these goods and services on the Project; (iii) recordthe progress of the Project, including its cost; and (iv) reflect in accordance with consistentlymaintained sound accounting principles its operations and financial condition.

22

66. These Project accounts and related financial statements will be audited annuallyby auditors acceptable to the Bank. The audited reports and related financial statements, to beprepared in English, will be furnished by PMU-1 to the Bank not later than 12 months after theend of the fiscal year to which they relate.

c. Imprest Account

67. The Bank has agreed in principle to the establishment of an imprest account foreligible payments for RRC civil works. This will benefit the Project by improving contractors'cash flows and reducing the risk of company failure. The account will be established andoperated in accordance with the Bank's Guidelines on Imprest Fund and Statement ofExpenditures Procedures and arrangements agreed upon between the Government and theBank.

6. Midterm Review

68. The Bank will conduct regular reviews throughout Project implementation. Inparticular, in November and December 1998, the Bank will undertake with PMU-1, MOT andVNRA a detailed review of the Project and its implementation status. This review will cover theentire scope of the Project, to determine whether any adjustments to its scope andimplementation arrangements are warranted. The review will also address any outstandingprocurement problems, financing, and scheduling matters.

7. Benefit Monitoring and Evaluation

69. For the NHC, PMLJ-1, with the assistance of the NHC supervision consultants,will carry out benefit monitoring and evaluation by compiling and analyzing appropriate traffic,axle load, and other data. For this purpose, PMU-i will arrange for surveys to be carried out toestablish base line data at the start of the NHC and immediately after it has been completedand handed over to the Government. The findings and supporting data will be incorporatedinto the Project completion report. Systems for recording data and statistics for suchmonitoring will be established as part of Project implementation management. PMU-i willevaluate the benefits of the Project in accordance with a schedule and terms of reference tobe agreed upon with the Bank.

70. For the RRC, the Bank will agree upon the following with PMU-1 during the earlystage of Project implementation: (i) the nature and extent of benefit monitoring, (ii) factors tobe measured, and (iii) base line data to be collected.

F. Executing Agency

1. National Highway Component

71. For the NHC, the Executing Agency will be PMU-1. PMU-1 will be responsiblefor day-to-day implementation of the Project. PMU-1, headed by a General Director whoreports to the MOT Vice-Minister responsible. is charged with all works related to theimprovement of Highway No 1. PMU-1 is presently responsible for implementing the Bank-

23

financed Road im p rovement Project (Loan No 1272-VIE[SF]), 1 for which it is performing well.PMU-1 wi!l be responsible for all Project preconstruction activities, including selection ofsupervision consultants, award of civil works contracts, land acquisition, management of theresettlement and rehabilitation plan, an ethnic minorities action plan, and relocation of utilities.'Once contracts tave been stoned, PMU-1 will provide day-to-day administration of the Project,including processu-g contractors' and consultant's payments, preparing loan withdrawalapplications, monitorir1g bar, disbursements, and arranging for audits in accordance with theloan agreement.

2. Rural Road Component

72. The RRC will be implemented by PMU-1 in association with the PTAs of HaBac, Lang Son, and Cao Bang provinces. PMU-1 will establish a Project implementation unit,to be headed by a full-time Project manager, and will also establish sub-PMU-ls in each of thethree provinces. The sub-PMU-ls will include suitable staff from the PTAs. The Projectimplementation unit will be responsible for monitoring and providing advice and assistance tothe sub-PMU-ls, and for overall Project implementation, including any centralized procurementthat is to be carried out under the Bank's Guidelines for Procurement or other proceduresapproved by the Bank. The sub-PMU-ls will be responsible for all of the rural roadimprovement activities within their respective provinces. The nature and scope of theseactivities will be defined during the early stages of the Project, but they will include preparingwork plans, procuring civil works contracts, obtaining approvals to award contracts, andmanaging contract implementation.

3. Institutional Strengthening Component

73. The ISO will be implemented by MOT and VNRA. The Vice-Minister responsiblewill oversee all aspects of implementation while the Director Genera ! of VNRA will beresponsibte for day-to-day implementation in coordination with other concerned departmentheads within MOT.

G. Environmental and Social Measures

1. Environmental Impacts


74. Since the NHC follows a new alignment for much of its length, environmentalimpacts require particular attention. Under the Project Preparatory TA, and in accordance withthe Bank's Guidelines on the Environmental Impacts of Infrastructure Projects, a detailedenvironmental impact assessment (EIA) has been carried out, and a summary environmentalimpact assessment (SEIA) report has been prepared. The SEIA was circulated to the Bank'sBoard of Directors on 31 May 1996. The main impacts involve disruption of agriculturalactivities, resettlement and land acquisition, and minor erosion along rivers. The NHC'sdesigns and contract documentation provide details of the necessary environmental mitigationmeasures, and the contractual means by which they are to be implemented duringconstruction. The scope of the supervision consulting services will include environmental

See para 2

24

impact monitoring and mitigation. Specific tasks will include air and water quality monitoringbefore and during construction, and the establishment of procedures to continue themonitoring after the works have been completed.

75. With regard to NHC environmental clearances, PMU-1 has complied with therequirements of the Government's EIA regulations, as issued in April 1995. In brief, theregulations require PMU-1, as the NHC proponent, to obtain approval of the Project's EIAreport from the Ministry of Science, Technology, and Environment, and specifically from itsNational Environment Agency.


76. Since the roads to be improved already exist and the proposed improvementswill not involve realignments or major earthworks, environmental impacts will be minimal.Project preparation will include an initial environmental examination and an EIA, if necessary.Contract documentation will include provisions for minimizing construction-related impacts.

2. Social Impacts

a. Land Acquisition and Resettlement

77. The NHC will require substantial land acquisition (about 450 hectares), andresettlement of about 960 households, comprising about 3,430 residents (Project-affectedPersons—PAPs). Under the Project Preparatory TA, a detailed social impact survey wascarried out and a comprehensive resettlement and rehabilitation pian orepared (see summaryat Appendix 16). PMU-1 will arrange for the necessary land to be acquired, and for PAPs to beresettled and compensated in accordance with the Government's procedures and the BanksPolicy on Involuntary Resettlement. Where there are differences between the Government'sprocedures and the Bank's req uirements, the latter wifl generally govern. PMU-1 agreed toinform the Bank of such differences. if any.

78. Reflecting the importance that the Bank places on the carefui and effectiveimplementation of the resettlement plan, the loan agreement contains a number of covenantsrelated to this issue. These covenants require, inter a/ia, that the people who must beresettled do not face a material reduction in incomes, deterioration in living standards, orunnecessary social and cultural dislocations, and that MOT and PMU-1 will implement andmonitor the resettlement plan in a manner consistent with the Government's procedures andthe Bank's requirements. Specifically, PMU-1 will engage a domestic agency acceptable tothe Bank, under terms of reference acceptable to the Bank. to monitor the implementation ofthe resettlement plan. The Bank will also monitor the resettlement process through regularreview missions.

b. Ethnic Minorities Action Plan

79. For the NHC, 31 percent of PAPs are from ethnic minority communities. Tocomply with the Bank's policy on indigenous peoples, the Government conducted a specialsurvey of these PAPs and has submitted to the Bank an acceptable ethnic minorities actionplan. This action plan includes an identification of the various ethnic minority communities andtheir social and economic organization, provides details of their tenancy status, identifiescompensation options preferred by these communities assesses any adverse tm pacts as a

25

consequence of their minority status, and suggests mitigation measures to address thepotential adverse impacts.

V. PROJECT JUSTIFICATION

A. Economic Analysis

1. National Highway Component

80. Vehicle operating cost (VOC) savings and maintenance cost savings were theonly benefits quantified in the economic evaluation. Resettlement costs were the majordisbenefits quantified; benefits from resettlement were not quantified. VOCs were calculated"without" and "with" the road improvements for typical vehicles representative of the traffic onthe Project road. The methodology employed for the economic evaluation, which is commonlyfollowed in Bank-financed road projects, is outlined in Appendix 17. Two homogeneous roadsections, the north and south sections were identified for economic evaluation purposes. Theaverage VOC savings per kilometer range from 30.8 percent on the north section to 22.6percent on the south section in constant mid-1995 prices. The difference is mainly due todifferences between the existing roughness and the vertical and horizontal alignments of thetwo sections. Most of the VOC savings is attributable to passenger transport vehicles (59.3percent). Maintenance cost savings account for less than 3.5 percent of total benefits: VOCsavings account for the rest.

81. The economic evaluation was carried out for the two homogeneous roadsections and for the full length of the highway to be improved. For the derivation of theeconomic internal rate of return (EIRR), cost and benefit streams were estimated over a periodof 20 years starting in 2001, which is considered to cover the economic life of the roadimprovements, including periodic resurfacing of the pavement. Costs and benefits wereestimated net of duties and taxes and were expressed in constant mid-1995 prices.Improvement costs include provision for construction supervision, resettlement, rights-of-way,and physical contingencies. Shadow pricing was not used for estimating the relative value oftraded and nontraded goods, but shadow wage rates were used for local labor. The annualcost and benefit streams are given in Appendix 17. The base EIRR for the NHC is 30.0percent, with the EIRRs for the homogeneous sections about the same (30.9 percent and29.3 percent). The sensitivity of the EIRRs was analyzed with respect to changes n theunderlying cost and benefit parameters (see Appendix 17). Under the most adverseassumption of a 10 percent increase in costs and a simultaneous reduction in benefits of 10percent, the overall EIRR remains viable at 24.4 percent.

2. Rural Road Component

82. The RRC is a "pilot" undertaking by the Bank. Because there may be delaysand adjustments in procedures and approaches particularly during the initial stages. The RRCwill be monitored closely by the Bank. The RRC covers Cao Bang, Lang San, and Ha Bacprovinces, where the annual per capita GDP in 1993 was $100, $107, and $146 respectively.The population of the three provinces totals about 3.6 million with a total area of 21.300 km2.Typically, an average of 5 percent of the road network in the provinces is classified as nationalroad, 7 percent is provincial road, 14 percent is district road, and 74 percent is communal road.About 7 percent of the roads are paved with an all-weather surface. Assuming that 20 percentof the population in these provinces are urban residents and that the rest are distributed evenly

on the provincial, district, and communal roads, 1 km of district road has a direct influence onabout 2.3 km 2 and about 300 people.

83. Most rural roads selected for improvement will meet specified economic criteria,but some will be selected on the basis of social criteria. An economic rate of return of 12percent or more will be required for 80 percent of the selected rural roads, to be derived from asimplified economic analysis of producer's and consumer's surplus. For 20 percent of theselected rural roads, social criteria will be used. This 20 percent will target less-privilegedmountain and ethnic populations in areas where population density is low and economicpotential dim. The social criterion to be used in these areas is that more than 30 percent of theroad's influence area is populated by an ethnic minority.

3. Project Risks

84. The NHC is not subject to any significant economic risks, as EIRRs areexpected to remain acceptable even with adverse changes in cost and benefit parameters.One possible risk is that the improved highway may not be adequately maintained aftercompletion. Through a loan covenant, the Government will be required to review themaintenance allocations regularly and to ensure that sufficient funds are available.Additionally, the Bank and other members of the donor community are actively involved inimproving road maintenance management, planning, and implementation capabilities. TheBank is also encouraging the Government to set up a dedicated road maintenance fund as aninterim measure until adequate funds can be assured under the normal budgetary process.Delays could also occur during implementation because PMU-i is not yet fully familiar withBank procedures. However, this risk is being reduced through advance action that has alreadybeen approved and is well advanced and through timely visits of Bank project administrationmissions. The construction supervision consultants will also contribute to reducing this risk. Afurther possible risk is that the cross-border trade with the PRC will stagnate and traffic growthwill not materialize at the 10-13 percent annual rate forecast. To test this, the EIRR wasrecalculated assuming that VOC benefits would grow at 50 percent of the forecast and thatconstruction costs would increase by 10 percent; this yielded an EIRR of about 18 percent forthe overall Project.

B. Social Dimensions

85. The NHC and RRC deliver substantial nonquantifiable benefits such as quicker,less costly market access for farmers and tradesmen, increased access for socialcommunications, decreased waiting time for passengers, decreased time for movement oftrade goods with higher reliability, and, in general, better transport services for the entireregion. Directly affected will be the 3.6 million people living in the three provinces in the zoneof influence of the improved highway and rural roads plus the population of Hanoi (about 2.3million). The improved roads will directly influence the transport costs of maize, soybeans,sugarcane, tobacco, and fresh vegetables, all of which are important crops in the area. Thearea served by the northern section has a rice deficit (Lang Son and Cao Bang provinces)while the south section (Ha Bac Province) has a surplus. The movement of rice will befacilitated by the improved national highway and the improved rural roads, potentiallyimproving nutrition levels in the deficit areas. The reduction of VOCs resulting from theimprovement will benefit road users, particularly road transport operators. Since transportcharges mainly depend on road conditions, it is expected that a portion of the VOC savings willbe passed on to road transport users. Through this and improved efficiency the road

27

improvements will help enable small-scale producers to participate more actively in the marketeconomy.

86. The inclusion of the RRC in the scope of the Project reflects the strong linkagesbetween rural poverty and inadequate physical infrastructure. Appendix 18 describes theselinkages in detail, in the context of Viet Nam and the Project area. Some of the more importantconclusions drawn in Appendix 18 are summarized here. Good rural roads affect labormobility, which in turn is significantly related to economic status. People in communitiescharacterized by labor mobility engage in more economic activities, and are more likely to haveready access to a reliable road. This leads to greater economic diversification and moreproductive use of farm land, all of which contribute to improved living standards. Socialbenefits including increased educational attendance are likely to be enhanced by roads thatare accessible for at least the greater part of the year. Better rural roads also assist inimmunization, mother-child health, and preventive health care programs by allowing reliableaccess to communes and villages. In addition, a healthier rural population is an importantfactor in lessening the number of farming days lost to illness.

87. The RRC provides an important additional benefit. Construction techniques willbe largely labor based and will distribute about $2.5 million to labor in the local area. This isimportant, since many villagers maintain subsistence livelihoods with minimum cash incomes.The cash income earned from the Project will provide them with important additionalresources.

VI. ASSURANCES

88. The Government has given the following assurances, in addition to the standardassurances, which have been incorporated into the legal documents:

(I) implementation

(a) The Government will take all necessary actions to ensure that all land,rights-of-way, easements, leases and other rights in land or privilegesrequired for the Project are made available promptly to ensure timely Projectimplementation free from any impediment to the Project.

(b) The Government will ensure that the notice to proceed for thesupervision consultancy services is issued prior to the Bank's approval ofthe first civil works contract.

(c) The Government will ensure that all environmental mitigation measuresidentified in the SEIA report are incorporated in the NHC design, and arefollowed during construction, operation, and maintenance of the improvedhighway and rural roads. The Govemment will further ensure that the Projectis designed and constructed in accordance with the Banks EnvironmentalGuidellnes for Selected Infrastructure Projects (Highways and Roads).

(d) Midway through the Project implementation period (November/December1998), the Government, in cooperation with the Bank, will undertake adetailed review of the Project and its implementation status. The scopeof the review will include all aspects of the Project, including land

28

acquisition and resettlement. Following completion of the review, theBorrower will take all necessary actions to correct any problems inProject implementation identified.

(ii) Resettlement. The Government will take all measures necessary to implementto the satisfaction of the Bank the timebound Resettlement Action Plandeveloped in conjunction with the Bank, as may be amended from time to timeby the agreement between the Government and the Bank. The Government willensure that all PAPs are compensated and resettled in accordance with therequirements of the Resettlement Action Plan. PMU-1 will engage a domesticagency acceptable to the Bank, under terms of reference acceptable to theBank, to monitor implementation of the RAP.

(iii) Ethnic Minorities Action Plan. The Government will take all measuresnecessary to implement to the satisfaction of the Bank the ethnic minoritiesaction plan agreed to with the Bank. Status reports on the implementation ofthe Plan will be submitted to the Bank as part of the monthly reports for theNHC.

(iv) Operation and Maintenance. The Government will ensure that the improvedroads are maintained to design standards and in accordance with soundmaintenance practices. The Government will further ensure that annual roadmaintenance plans are prepared for the improved roads, on the basis of theagreed-upon maintenance standards, traffic volumes, and assessment ofneeds.

(v) Benefit Monitoring. The Government will monitor and evaluate NHC benefits bycompiling and analyzing traffic and condition data for the improved roads. PMU-1 wiV be responsible for collecting and analyzing the data through traffic,roughness. and other appropriate surveys conducted at the commencementand completion of the Project, and will collaborate with other agencies of theGovernment as necessary. The findings and supporting data of such surveyswill be incorporated in the Project completion report to be submitted to the BankThe data to be collected and the methodology for their analysis will be agreedupon by PMU-1 and the Bank. For the RRC. PMU-1 and the Bank will agree onthe nature and extent of the benefit monitoring to be conducted and themethodology for its accomplishment.

(vi) Sector Studies

(a) The Government will keep the Bank informed of all transport sector androad subsector studies undertaken in Viet Nam, and will provide theBank with copies of all documents relevant to such studies, includingconsultants' reports, and will ensure that the Bank has the opportunity tocomment on the recommendations contained therein.

(b) The Government and the Bank will from time to time exchancie views onthe progress of the Government in carrying out the p oiices and actionsrecommended by such sector and subsector studies. The Government

29

will maintain a policy dialogue with the Bank in respect of problems andconstraints affecting the growth and development of the road subsector.

(vii) Rural Road Component. The roads to be included under this component, andthe work to be undertaken on them, will be determined by the Government incooperation with the Bank, and will be approved by the Bank. The roads will beselected on the basis of criteria agreed between the Bank and the Government,the criteria to include (a) the population served by the road; (b) the extent ofeconomic activity; (c) existing traffic; and (d) for about 20 percent of the roads ineach province, agreed social criteria to target less-privileged mountain andethnic populations. These sociat criteria will include the requirement that notless than 30 percent of the population served by the roads in Lang Son and CaoBang provinces must belong to ethnic minority groups.

Vii. RECOMMENDATION

89. I am satisfied that the proposed loan would comply with the Articles ofAgreement of the Bank and recommend that the Board approve the loan in various currenciesequivalent to Special Drawing Rights 83,331,000 to the Socialist Republic of Viet Nam for theSecond Road Improvement Project, with a service charge at the rate of 1 percent per annumand with an amortization period of 40 years, including a grace period of 10 years, and suchother terms and conditions as are substantially in accordance with those set forth in the draftLoan Agreement presented to the Board.

MITSUO SATOPresident

30 October 1996

I

2

3

4

5

6

7

8

9

10

II

1213

14

15

16

17

18

APPENDIXES

Number Title Page Cited On(page, para.)

Transport Modes Other than Roads

Domestic Freight and Passenger Transport by Mode

Organization Structure of the Ministry of Transport

Public Expenditure on Transport

Road Network by Class and Surface Type

Motor Vehicle Statistics

Road User Revenues and Road Expenditures

Structure of Road User Charges

Organization Chart of the Viet Nam Road Administration

External Assistance to the Road Subsector

Summary Cost Estimates

Summary Implementation ScheduleOutline of Procurement Procedures for theRural Roads Component

Outline Terms of Reference for Construction Supervision

Outline Terms of Reference for the Rural Roads Component

Summary Resettlement Plan

Outline of the Economic Evaluation

Rural Roads and Poverty Reduction

30 Page 2, para. 7

34 Page 2, para. 7

35 Page 3, para. 9

36 Page 3, para. 11

37 Page 4, para. 12

38 Page 5, para. 14

39 Page 6, para. 19

40 Page 6, para. 20

42 Page 7, para. 23

43 Page 10, para. 32


45 Page2O,para.5946 Page 20, para. 61

47 Page2l,para.62

48 Page2l,para.63


60 Page 25, paras. 80/81


30 Appendix 1 page 1

TRANSPORT MODES OTHER THAN ROADS

A. Inland Waterways

1. Inland navigation uses about 2.000 kilometers (km) of waterways in the northalong the Red River and its tributaries, and 4,500 km. in the south along the Mekong River andnumerous canals and tributaries. Small-scale navigation also exists on several rivers andinlets located between the two major deltas. Most shipping routes are open waterways. Themajor constraint in the use of the system is the substantial fluctuation in depth and highsiltation rates. During the dry season, many channels are no more than 1 meter deep. Thechannels require dredging, but this is not possible because of inadequate budgets andequipment. A large backlog of dredging has thus accumulated, estimated at 10 million cubicmeters.

2. Inland waterway transport is operated at different levels: state, provincial,cooperative, and private. At the state level, the Inland Waterway Management Unit wasresponsible to the Department of Infrastructure Management under the Ministry of Transport(MOT). This responsibility has been transferred to a newly established Viet Nam InlandWaterways Administration (VIWA). VIWA exercises management and operationalresponsibility for all navigable river and canal systems in Viet Nam. This responsibility extendsto maintenance and development of navigation facilities and buoys and shipping channels.Own account and provincial or district (small ports) are operated by the company or localgovernment authority. MOT also has two river transport enterprises, but there is nomanagement connection between these and VIWA. The main activities of VIWA areengineering, maintenance, and where possible, improvements to the waterway system such asdredging and canal works, installation and maintenance of navigational aids, and thehydrographic survey and charting of the system.

3. in 1992, 15 million tons of cargo was transported by river, accounting for 27.5percent of Viet Nam's total domestic freight volume, and 22.3 percent of the total passengertraffic. In the north, state-owned enterprises account for 30 percent of the total tonnage and47 percent of the ton-km transported. In the south, the corresponding figures are 10 percentand 15 percent. Passenger transport is organized by provincial fleets. Trends in inlandwaterways transport are sustained growth in the south and sustained traffic in the north.

4. The Red River system has five major ports: Hanoi, Habac, Hoa Binh, Ninh Binh,and Viet Tn. About 1,500 barges grossing 400,000 tons operate with about 280 tugs totaling50,000 horse power. In 1991/93, a total of 7.5 million tons of freight were transported annuallyin the system over an average distance of 220 km. The main commodity transported was coal,totaling 3.6 million tons, from the Quang Ninh coal mine; most of this was carried to threepower plants: (i) Bac Lang, 190 km from the mine; (ii) Ninh Binh, 320 km; and (iii) Uong Bi, 60km. The rest of the freight consisted primarily of construction materials, foodstuffs, andpetroleum products.

5. The Mekong system has 4,500 km of navigable channels, of which some 2,600km can be considered as principal waterways connecting Ho Chi Minh City (HCMC) with thesea and approximately 30 river ports in the south. Total fleet capacity is estimated at 260000tons. The Mekong system is navigable for small sea-going ships all the way to Phnom Penh,332 km from the coast. HCMC port. which is on the Saigon River 85 km from the coast and isconnected to the Mekong by canals, is deep enough to accommodate large ocean-going

31 Appendix 1, page 2

vessels and is thus the focus of inland navigation in the Mekong Delta; export cargo such asrice is transshipped here, commonly directly from river barge to sea-going ship. Otherimportant ports are in Can Tho and An Giang.

B. Railways

6. Presently, the rail network consists of six single-track lines in operation and twobranch lines, totaling 2,561 km about 60 percent of which are in the north of the country.About 84 percent of the network is narrow gauge, 7 percent is standard gauge and 9 percentis combination of narrow and standard gauges. The main trunk line linking Hanoi to HCMC is1,730 km long. There are 260 stations and, as an average, there is one passing track per 8km. of line.

7. All lines are operated by the Viet Nam National Railways (VNR), which isconstituted as self-financing state enterprise based in Hanoi. Three subsidiary unions, oneeach in the north, center, and south of the country, are responsible for the management andoperation of the rail system. A number of other unions of enterprises are responsible forvarious aspects of the rail industry. MOT gives overall direction to VNR and providesconstruction funds for new routes. VNR is required to obtain approval for its expenditure plansfrom MOT and other Government departments as are the other transport subsectors.

8. Following deregulation, passenger traffic decreased from 24 million passengersin 1987 to 11 million in 1990, and further to 8.8 million in 1992. VNR statistics show a sharpdecrease in freight traffic, from 4 million tons in 1988 to 2.8 million in 1992, partly explained bya change n recording procedures. Seven major commodities—i.e. coal, constructionmaterials, cement, apatite, fertilizer, machinery, and ore—accounted for 83 percent of thefreight traffic in 1992. Haulage distances vary considerably from 1.405 km for foodstuffs to142 km for construction materials, with an average of 367 km.

9. The railway system suffered extensive damage during the Viet Nam war whenvirtually all bridges in the north were destroyed. Since then, bridges with a total length of10,000 m have been repaired, but many only on a temporary basis. Although about 1,300 kmof new track were laid since 1975 (much of it south of Da Nang, where services had ceasedand rails had been partly dismantled), overall track conditions are generally poor, rails areweak on many stretches, and rails and sleepers are often in deteriorated and unsafe condition.

C. Ports

10. Seven of the largest ports for sea-going vessels are under the Viet NamNational Maritime Group (VINAMARINE). In terms of throughput, Saigon Port is the largest(4.3 million tons in 1990), followed by Hai Phong (2.5 million tons), Da Nang (430 million tons),Quy Nhon (300 million tons), Nha Trang (221 million tons). Quang Ninh (298 million tons). andNghe Tinh (80 million tons).

11. In addition, some ports are exclusively for coal loading and are administered bythe Ministry of Energy, such as Cam Pha and Hong Hai ports in Quang Ninh Province. Themain oil ports, administered by the ministry of Heavy Industry, are in the vicinity of Hong Hal,Hal Phong, Da Nang, HCMC. and Vung Tau. A number of small ports are managed byprovinces: the largest ones are Ben Nge in HCMC and Can Tho on the Bassac River.


12. International (overseas) traffic in ports reached nearly 10 million tons in 1990,while coastal freight totaled about 3 million. Of the total international traffic, 60 percent wasloaded or unloaded in VINAMARINE ports while 40 percent of the movements were indedicated ports for petroleum products or coal. Commodities with the largest internationaltraffic volumes were petroleum products (30 percent of the total); food grain (16 percent);fertilizer (12 percent); and coal (8 percent).

13. All ports under VINAMARINE handle general cargo, bulk cargo, and containers.Only the ports of Hal Phong and Saigon have berths for container carriers. Port equipment isgenerally old. In most cases, port operations are not efficiently conducted, partly due to theinadequacy of cargo handling e q uipment. None of the ports are adequately equipped forhandling containers.

14. VINAMARINE, based in Hai Phong, was reformed in 1990 from the previousstate organization, General Marine Department, which was established in 1975. In late 1992,VINAMARINE was replaced by the Maritime Transport Administration. As VINAMARINE, theorganization provided overall management of the ports and shipping system and. through itsvarious subsidiaries, owned the country's seven ventures with Vietnamese and overseasinterests and held part ownership of a further eight shi pping companies. Another 30enterprises under VINAMARINE ownership included stevedoring, freight forwarding andshipping, pilotage, harbor services, chandlers, a bank, a hoteL and other maritime servicecompanies. A maritime college that provides ships offic& and crew trainina also came underthe purview of VINAMARINE,

15. In the new structure. trw Transport Aaministration is to be the policyand regulatory agency for the marine sector. p rovidina rnanagemen a. the state leveL out wilno longer exercise direct control over the business management of MOT-owned enterprises inthe maritime industry.

D. Air Transport

16. Of 16 airports in the country . onl y three (No Ba at HanoL Than Son Nhat atHCMC, and at Dc Nang) nave internationa passenger and freight handling services. Fourairports (a Hal Phong, Nne Trang Buon Me Tnout. and Phu Quoc) provide scheouleddomestic services. The remaining nine airports are not served on a scheduled basis. Terminalfacilities, even at the three main airports, are in urgent need of upgrading and modernizing.Smaller airports have little chance to develop in the near future.

17. There are international scheduled flights between the two iargest airports in VietNam (Nd Bai and Than Son Nhat) and about 15 cities, mostly in Soutneast Asia and Europe.in 1990, the three international airports handled about 18,600 aircraft, more than half flyinginternational flights. Than Son Nhat is the most active airport in the country.

18. There were 8.666 domestic aircraft movements and 10,010 internationalmovements in 1990. The number of domestic passengers is estimated at 273,000—anincrease of 15 percent over 1989—and the number of international passengers at 579,000over half being foreign visitors. International traffic grew at an. annuai rate of over 30 percentdurng the last four years. Passenger services, both on the grounc and in the ai are belowstandard


19. Vietnam Airlines is a fully Government-owned entity. As of 1991, itsresponsibilities included (i) management, operation, and development of the national airline; (ii)management and development of all airports; (iii) management and development of airnavigation services; (iv) fuel supply to aircraft; and (v) management of enterprises unrelated tocivil aviation.

20. Vietnam Airlines' fleet consists of Soviet aircraft: Tupolev 134, Antonov 24, andYakovlev 40. As of mid-1991, only 12 aircraft operated and they had an average utilizationratio of three hours per day. The present aircraft fleet is inadequate because of high operatingcosts and low occupancy rates of passenger and freight. Air navigational equipment aregenerally in poor condition and need to be upgraded and adapted to new technologies in orderto cope with the maintenance requirements of modern aircraft.

21. Civil aviation has not historically been within the authority of MOT but this wasrecently changed. A Civil Aviation Law passed in late 1991 is a first step in modifying theorganization of the civil aviation subsector. The Department of Civil Aviation was createdwithin the MOT in 1992, its function being to advise the Ministry on strategic issues related toair transport. This department has changed to a new Civil Aviation Administration in June1993.

34

Appendix 2

DOMESTIC FREIGHT AND PASSENGER TRANSPORT BY MODE

ForecastShare Share

1995 (%) 2000 (%)

46 61 5548 48

2,175 11 2,610 10

3 5 5 5309 313

1,050 5 1,500 6

20 27 31 31120 120

2.420 12 3,720 1Z

6 7 9 92,545 2,24914,000 71 19,120 71

75 100 100 100

19,645 100 26,950 100

579 80 1050 0'13 30

7,367 56 31,500 81

16 2 25 2198 200

3,167 24 5,000 13

125 17 130 11 F20 18

2,489 19 2,275 6

2 0 2 C.41 4465 0 88 0

722 100 1207 100

13,088 100 38.863 100

ActualShare Share Share

Subsector (UnIt) 1990 (%) 1991 (%) 1992 (%)Freight Transport

(million-ton) 32 61 40 62 32 58Roads 49 65 84

(millionton-km) 1539 13 2594 15 2650 14

(mihion-ton) 2 4 3 4 3 5Railways 362 424 383

(millicnton-km) 847 7 1,103 6 1,073 6

(million-ton) 15 28 16 26 15 28Inland Waterways 115 78 142

(millionton-km) 1,681 14 1.284 7 2,135 12

(million-ton) 3 7 5 8 5 9Maritime 2,411 2,601 2,488

(million ton-km) 8,196 67 12,744 72 12,440 68

(million-ton) 52 100 64 100 55 100Total

(millionton-km) 12,263 100 17,725 100 18,298 100Passenger Transport

(million-ton) 349 72 374 74 360 76Roads 32 27 33

(millionton-km) 11.182 74 9,955 74 11,844 76

(million-ton) 11 2 10 2 9 2Railways 182 186 199

(million ton-km) 1913 13 1,767 13 1.753 11

(million-tonl 122 25 120 24 107 22Inland Waterways 16 14 18

(millionton-km) 1,986 13 1,677 12 1,867 12

(million-ton) 0 0 1 0 1 0Maritime 142 53 29

(million ton-km) 57 0 37 0 41 0

(million-ton) 481 100 504 100 477 100Total

(million ton-km) 15,138 100 13,437 100 15,505 100

Domestic freight and passenger transport is negligible.Source: TESI, 1993.

NonproductiveOrgans

ResearchInstitutes

TrainingSchools

03

0i

Staff Department andFunctional Organs

LegislationDeoartment

PersonnelDepartment

Planning & InvestmentDeoartment

Finance & Acctg.Deoartrnent

Line Department & SpecializedManagement Organs

RoadAdministration

MaritimeAdministration

Inland WaterwayAdministration

Viet Nam National

1Z

CD

:3

ci

('3

Science & TechnologyDepartment

International RelationsDepartment

InspectionSection

GeneralAdministration

ent

ProjectManagement

Unit

Quality 'Inspection andManagement

Specialized SectorBusiness

DesignInstitutes

SpecializedIndustry

Transport &Construction

STRUCTURE OF THE MINISTRY OF TRANSPORT

Minister of Transport I

PUBIJC EXPENDITURE ON TRANSPORT(bfllion dong)

--Actual _____ Projections' ______ 1991-1995 1996-2000

Share Share Sha'e Share Share Share Share

Item 1991 " (%) 1992 (%) 1993 (%) 1994 (%) 1995 (%) Total (%) Average Total (¼)

National Networks

Capital Construction

Roads 98.0 22.8 215.0 26.4 371.0 28.8 555.0 28.8 835.0 28.8 2075.0 28.2 415.0 38,000 66.6

Railways 16.0 3.7 65.0 8.0 110.0 8.5 165.0 8.5 247.0 8.5 603.0 8.2 120.6 8400 14.7

Inland Waterways 140 3.3 30.0 3.7 50.0 3.9 75.0 3.9 112.0 3.9 281.0 3.8 56.2 1,500 2.6

MaritirneTransport 5.0 1.2 10.0 1.2 15.0 1.2 22.0 1.1 34.0 1.2 86.0 1.2 17.2 5,900 10.3

CivilAviatiori 18.0 4.2 41.0 5.0 60.0 4.7 90.0 4.7 135.0 4.7 344.0 4.7 68.8 3,300 5.8

Subtotal 151.0 35.1 3(1.0 44.4 606.0 47.0 908.0 47.0 1363.0 47.0 3389.0 46.0 677.8 57.100

Repairs

121.0 28.1 180.0 22.1 300.0 23.3 450.0 23.3 675.0 23.3 1,726.0 23.4 345.2

Local Networksc)

Capital Construction and 0)

Repairs' 158.0 36,7 272 33.5 383 29.7 574 29.7 862 29.7 2,249.0 30.5 449.8

Total 430.0 100.0 813.0 100.0 1,289.0 100.0 1,932.0 100.0 2,900.0 100.0 7,364.0 100.0 1,472.8

Percentage to

Total capital expenditure (%) 20 1 14.2 15.2

Percentage to GOP (%) 0.6 0.8 1.1

Tote! Government Capital

Expenditure 2,135.0 5,710.0 8500.0

Percentage to GOP (%) 3.1 5.6 7.1

1993. 1995 figures include an inflation rate of 15 percent per annum. --

Dollar amounts were converted to dong at the exchange rate of 8,400/s.

Dollar amounts were converted to dong at the exchange rate of 11,400/S.l Includes rehabilitation.

Source: Ministry of Transport, Planning and Investment Department, and Ministry of Planning and Investment. >-u

CD

1><

37

Appendix 5

ROAD NETWORK BY CLASS AND SURFACE TYPE (1992)(km)

Surface TypeClass Paved Road Unpaved Road

Cement Asphalt Penetration Sub- Sub-Concrete Concrete Macadam Total Gravel Earth Total Total

National 66 3,547 3,662 7,275 1,302 2,776 4,078 11,353

Share (%) 0.9 48.8 50.3 100.0 31.9 68.1 100

Share(%) 0.6 31.2 32.3 64.1 11.5 24.5 35.9 100.0

Provincial 19 202 2,304 2,525 1,858 9,815 11,673 14,198

Share (%) 0.8 8.0 91.2 100.0 15.9 84.1 100.0

Share(%) - 0.1 1.4 16.2 17.8 13.1 69.1 82.2 100.0

District - 60 1,200 1,260 4,430 19,600 24,030 25,290

Share(%) 0.0 4.8 95.2 100.0 18.4 81.6 100.0

Share (%) 0.0 0.2 4.7 5.0 17.5 77.5 95.0 100.0

Village - na na 5.0 na na na 46,200

Share (%) n.a. na na 5.0 na na na

Share (%) n.a. na na 10.0 na na na 100.0

Urban - 2,070 - 2070.0 na na na 2,570

Share (%) 0.0 100.0 0.0 100.0 na na na

Share (%) 0.0 80.5 0.0 80.5 0.0 0.0 0.0 100.0

Subtotal 85 5,879 7,166 13,130 7,590 32,191 39,781 99,611

Share (%) 0.6 44.8 54.6 100.0 19.1 80.9 100.0

Share (%) 0,1 5,9 7.2 13.2 7.6 32.3 39.9 100.0

Special Roads - na na na na na na 5,450

Total 85 5,879 7,166 13130 7,590 32,191 39,781 105,061

Share (%) 0.6 44.8 54.6 100.0 19.1 80.9 100.0

Share (%) 0.1 5.6 6.8 12.5 7.2 30.6 37.9 100.0

na Not available

These are roads built for specific economic purposes such as exploitation of coals. etcb Excluding data denoted as na. (not available).

Source: Ministry of Transport, 1993

38

Appendix 6

MOTOR VEHICLE STATISTICS

Car andYear Pickups Buses Trucks

1980 49,116 14,650 90,5961988 36,452 24,875 96,7531990 42,798 31,235 144,967

Annual Growth Rate (percent)

1980-1988 (3.7) 6.8 0.8

1988-1990 8.4 12.1 22.4

1980-1990 (1.4) 7.9 4.8

Source: Police, Traffic Department

Total

154,362158,080219,000

0.317.73.6

39Appendix 7

ROAD USER REVENUES AND ROAD EXPENDITURES

Table 1: Road User Revenues (D billion)

YearSource 1990 1991 1992 1994 1995

FueHmportTaxes - - - 2,571 -Road User Charges (Fuel) - - - 1,155 -Retail Taxes (Fuel) - - - 164 -Turnover Taxes (Fuel) - - - 110 -Vehicle Import Duties - - - 717 -Tire Import Duties - - - 68 -Vehicle Registrations - - - 24 -

Total - - - 4,809 -

Table 2: Road Expenditures

Year

Category 1990 1991 1992 1993 1994 1995 a

[Construction 194 210 368 751 1,064 869Maintenance - - - 403 458 402

Total - - - 1,154 1,522 1,271

Not avaHableAflocation

Source; MOT, Planning and Investment Department

Appendix 8, page 1

40

ROAD USER TAXES (1995)

Category

I. Import Duty and Road Vehicles and FuelA. Fuel

1 Gasoline2. Diesel3. Fuel Oil4. Kerosene5. Other (avtur, etc.)

B. Vehicles (percent of CIF prices)Passenger Vehicles> 24 Seats15-24 Seats5-15 Seats<5 Seats

2. TrucksPayload > 20Payload 5-20Payload < 5

3. 2 and 3 WheeledMotorcyclesS ports BicyclesOthers

C. Spare Parts

U. Transport Business Taxes"

A. Trading in Petroleum ProductsB. Trading in Vehicles/Spare PartsC. Transport Services

1. Freight2. Passenger3. Urban Passenger

Ill Property Transfer Tax

A. Buying, Selling, Exchange or GiftB. Inneritance

IV. Collection of Traffic Fee on the price of Fuel

V. General Fees

A. Motor VehicleVehicle Ownershi p Reaistration with 4 orMore WheelsState Bodies and CompaniesCooperatives and Private OwnersTraiiers, Semi-trailer with 2 or 3 WheeisState Bodies and CompaniesCooperatives and Private Owners

2 Periodic Technical Safety Inspection -for the Motor Vehicle Inspection Station wasEquipped with 100 percent Mechanical Ins-pection Equipment.a. Truck: More than 10 Tons and Specializedb. Truck

-- Passenger car: More than 40 Seats(including driver) and City Bus

c. Truck: 5/10 Tonsd. Passenger Car: 10/40 Seats (including

driver)e. Truck: to5TonsI. Passenger Car: 619 Seats (including

driver)g. Passenger Car to 5 Seats (including

driver)h. Small Truck such as Bong SenI. Lambro. and Three wheel Motorcycle

Rates

55 percent of CIF prices25 percent of CIF prices0 percent of CIF prices20 percent of CIF prices20 percent of CIF prices

FBU SKD

CKD1

CKD2

IKD

50 40

12

6

3

55 40

25

10

7

55 45

40

20

5

55 50

50

30

5

1 0

0

0

0

30 20

6

4

2

60 40

16

8

4

50 45

35

8

5

5 -

70 -

5-55 percent of CIF prices, depending on level of assembly

1 percent of market price1-6 percent of market price

2 percent of revenue4 percent of revenue1 percent of revenue

3 percent cf value5 percent of value

300 liter

for Vietnamese (0;

for foreigner ($)

55,000'

3555,000

3530.000

2020.000

1520.000

1520,00C

18

200,000'

35

200,000

35

180,000

35180,000

35

170.000

301 50,000

30

120,000

30

100.00050 .000

Rates

20,00020,0005,000

5,000

30.000

107,00050,000

50,000

7.000

1,900,000

1,000,000

500 .000

1515

22

20

8,000

10,000

9,0005,0008.000

10,000

5,000

2,000

500

500

10 .000

41

Appendix 8, page

ROAD USER TAXES

Category

3. Certificate of Major Modifications

4. Safety Certification of Major Repairs

5. Certificate of Permission to Operate

6. Certificate of Deregistration

7. Certificate of Change of Ownership

B. Drivers Licenses

1. Motorcycles> 70 cm3

2. Comprising Training

3. Testing

4. Documents

5. Trucks, Buses (includes 9 months training)

6. Cars, Tourist Cars (includes 6 months training)

7. Lambro, Tractor (includes 3 months training)

VI. Bridge Fees

1. Trucks

Gross Weight < 4t

Gross Weight - lOt

2. Buses

Passenger Buses

Tourist Buses < 12 seats

12-49 Seats

> 50 Seats

3. Small Vehicles

Car

Lambro, Tractor

Other Motor Vehicles

4. Motor Vehicle of State Employee

VII. Licensing Fee tor Transport License

VIII. Licensing Fee for intercountry Trans port 20,000a FBU: fully built up; 80K: semi-knocked down; IKD: incomplete knocked down; and CKD: completely

knocKed down.Decision 470/HDNN, Council of Ministers, 10 September 1991.

a Circular 778/TC

Circular 80/TT-LB, 15 December 1992

Set by Ministry of Interior, which governs the police.Decree No. 186-CP, dated 7 December 1994

Example Thang Long Bridge, Hanoi, Circular 80/TI-LB. 15 December 1992

Source: ND. Lea International. Inc.

JiiIi:Filer nationalDepartment

L ace ardeight of

r eatci a with

wi

Planning andInvestment

Annual arid longer

Irons plans network arid other

data capture;analysis of works

inding needs road

ciii transportrqiilctinns

Occasional

Liaisons

Transport SafetyDepartment

Technical adviceon road safety

policy and policyimplementation

Vehicle

Management

Department

OR3AMZATION CHART OF THE VIET NAM ROAD ADMINISTRATION

Genera' DirectorViet Narn Roads Administration

Internal Management Departments

Oversight of Transport Scientific Institutes on Road Sector Finance and Personnel Administration InternalMatters and of the Vocational Colleges (4 No.)

Accounting Management Department Audit

External Operations Oepattmerife

Roadrsoi!s Me, q 'nrerrf Organiatinn

Internal Technical Departments

Capital Regional Roads 1 Science and F Traffic TransportConstruction Mgrrt t. i rritc RRMU (4 No) Technology L Department J Department

TL TIProcurenerit arid Management ofrrranagemerrt of ltaticnal Roads iii Research work Road traffic Management ofrrad works from their region arid and the application management with VRA transport andlie prune sector the necessary of technology in oversight of road plant resources

and the Road ongoing repair the Roads and safety and road with oversight ofCorustrrrctrOn cnnstrr,ct,oni nd Transport sectors condition from the the ten Transport(.uuiip&rrues rinarryterence work road user oornrt of Comnanies

r'qiured view

I I

jr

SuhRRMUs (33) r Survey and 1manage & maintain Design i I

[niain National Roads L Companies j

I I I II I I Regular II I I I

-------- L -------4

Provincial Transport Adrnrnistratiorm (53 No) Liaisons Vehicle InspectionReport to Local Gove'rrunent for the maintervrnrc if ll Provincial Roads Regulations and

Agent ot VRA to rnrairrtairi and nrrarrsge ttre second tier of the National Roads Roadworthiness

>-o•0CD

0

(0

43Appendix 10

EXTERNAL ASSISTANCE TO THE ROAD SUBSECTOR1996

National Cost $ million Opening ExternalHighway Section Km Vn External Total Year Source_______ _______________________ _________ Gov't _____________ _______ _____________

1 Lang Son-Hanoi 161 53.4 183.8 237.2 2000 BankHanoi-Vinh 279 9.1 81.5 90.6 1998 WBVinh-Dong Ha 289 33.0 187.0 220.0 1999 WBDong Ha-Nha Trang 697 27.3 152.5 179.8 1998 BankNhaTrang-HCMC 434 18.2 101.3 119.5 1999 Bank-OECFI-ICMC-Can Tho 150 4.9 43.8 48.7 1998 WB

Subtotal 2010 145.9 749.9 895.8

5 Hai Duong ByPass 15 9.6 9.9 19.5 1996 Taipei,ChinaKm 0 (near Hanoi)-Hai Phong 91 72.2 126.5 198.7 1998 OECF

Subtotal 106 81.8 136.4 218.2

18 Chi Linh-Bai Chay 81 10.1 57.3 67.4 2000 Korea, Rep. of

Total Roads 2,197 238 944 1,181

Bridge Location

Gianh Quang Binh 1.7 11.9 13.6 FranceMy Thuan Tien Giang 14.0 39.0 63.0 Australia

!38 Bridges Various 19.0 107.3 126.3 OECF

Total Bridges 34.7 158.2 202.9

Total Roads and Bridges 272.5 1,101.8F 1,384.3

Source: Viet Nam Road Administration, Ministry of Transport and Communication

SUMMARY COST ESTIMATES($ million)

FX LC Total Bank OECF COy____ _______ _____ _______ _______ [_Percent US$ US$ US$

National Highway ComponntCivil Works 69.86 29.94 99.80 80.0 79.93 19.87ROW& Resettlement 0.00 15.40 15.40 0.0 0.00 15.40Consulting Services 5.60 1.04 6.64 100.0 6.64 0.00

Base Cost 75.46 .46.38 121.84 71.1 86.57 35.27Contingencies 11.56 12.22 23.78 80.0 19.05 4.73

Physical 7.55 4.63 12.18 80.0 9.76 2.42Price 4.01 7.59 11.60 80.0 9.29 2.31

Rural Road ComponentCivil Works 3.00 5.80 8.80 77.3 6.80 2.00Consulting Services 1.00 0.20 1.20 100.0 1.20 0.00

Total 4.00 6.00 10.00 80.0 8.00 2.00Institutional Strengthening 1.60 0.40 2.00 100.0 2.00 0.00Service Charge 4.38 0.00 4.38 100.0 4.38 0.00Total Cost 97.00 65.00 162.00 74.1 120.00 42.00OECF-Bridges 53.00 22.00 75.00 0.0 0.00 64.00 11.00Grand Total _______ 150.00 87.00 237.00 50.6 120.00 64.00 53.00

Financi Percentages [ 50.61 27.Of 22.4

Soucre: Feasibility Study nd Mission Estimates.

CD

x-i

SUMMARY IMPLEMENTATION SCHEDULE

PROJECT COMPONENT 1996 1997 1998 1999 2000_______________________ Qi Q2 Q3 Q4 Qi Q2 Q3 Q4 Qi Q2 Q3 Q4 Qi Q2 Q3 Q4 Qi Q2 Q3 Q4

Highway Improvement

Consulting ServicesSelection USupervision - --- - - - - - - - - - - •

Civil WorksPrequalification UBidding, Approval, and AwardConstruction - - - - - - - • - - -

Rural Roads

Consulting ServicesSelectionSeMces • - - - • - -_ - •

Preconstructjon ActivitiesRoad Selection

Design and DocumentationProcurement (Packages 1 3)

Civil WorksPackage 1Package 2Package 3

Institutional Strengthening

Consultant Selection

Implementation • - •

1. Prepared for the Bank-financed portion of the Project. The OECF-financed componenta will proceed to similar schedules.2. Schedule for the Rural Roads Component is tentative and based on completing about 70 km of road improvement in each province in each of the three civil work packages.3. Schedule assumes the Project loan is effective in February 1997.

01

CD

£1><

NJ

nE;]

Appendix 13

OUTLINE OF PROCUREMENT PROCEDURESFOR THE RURAL ROADS COMPONENT

1. The Project Implementation Unit within PMU-i will be responsible for procuringall civil works contracts to be executed under the Project.

2. Civil works under the Rural Roads Component will be procured in accordancewith the Bank's Guidelines on Procurement and with local competitive bidding proceduresacceptable to the Bank. Civil works will consist essentially of upgrading the level of service ofselected provincial and district roads, and possibly commune roads, by repairingembankments, constructing missing drainage structures, improving road drainage systems,and providing gravel overlays. The works will include the protection of waterway banks whenthese coincide with road embankments or have the potential for damaging the road. Biddingdocuments will be simple in their commercial and technical aspects, and will be developed atan early stage of Project implementation.

3. The Project's civil works will be packaged into contracts with values typicallyaround $100,000-150.000 with a maximum of $250,000. each covering about 10-20 kilometer(km) of road improvement. dependino on the extent of pavement gravelling work and thenumber and size of structures within the road length. Bidding will be open to domesticcontractors, generally those located within the Project area.

4. Equipment to be procured under the Project will typically be limited to vehiclesand motorcycles for contract preparation and supervision: office equipment includingcomputers, copiers, and furniture; and laboratory eauipment.

5. The Bank will review, in advance of their use, all documents concernin thetendering and award of (i) equipment; (ii) roads in forest buffer zones, if any; (iii) all road worksinvolving resettlement; (iv) roads in ethnic minority areas; (v) the first three civil works contractsof each PPMU; and (vi) ali contracts estimatec to cost more than $150,000 equivalent.Contracts not covered by these requirements will be retained by the Project implementationunit (PIU) and the sub-PMus, and will e reviewed by the Bank on a random basis duringroutine Bank review missions.

47

Appendix 14

OUTLINE TERMS OF REFERENCEFOR CONSTRUCTION SUPERVISION

A. Objectives

1. The main objective of the consultancy services is to ensure that the highestpossible construction quality is achieved. This will be done through strict supervision of thecontractors' activities to ensure that all work is carried out in full compliance with theengineering design, technical specifications, and other contract documents. A secondobjective is to promote technology transfer by: (I) requiring the consultants to employ suitablyqualified Vietnamese professionals and provide them with on-the-job training; and (ii)appointing qualified Ministry of Transport (MOT) personnel as counterparts. A third objective isgenerally to facilitate the implementation and liaison with all the concerned Governmentofficials and local organizations, including, but not limited to, Project Management Unit No. 1(PMU-1), the rural roads maintenance unions (RRMUs), the police, and the district/communeadministrations.

B. Scope of Services

2. The services to be provided by the consultant will include (I) reviewing thedesign to identify inconsistencies, etc, and advising PMU-1 of the potential impacts of these;and undertaking additional design work where this is found to be necessary; (iii) administeringthe civil works contracts as the Engineer, as defined in the contract documents; (iv) preparingprogress and other reports (primarily monthly progress and Project completion reports); (v)monitoring compliance with the environmental impact mitigation measures included in thescope of the Project's civil works; (vi) assisting PMU-1 with monitoring the resettlement actionplan; (vii) assisting PMU-1 with loan disbursement documentation and monitoring; and (viii)training PMU-1 and domestic consultants' staff in contract management procedures and otherrelevant activities. On present scheduling, it is not intended that the consultant will be involvedin selection of the contractors; this will be undertaken by PMU-1 with assistance from otherconsultants prior to the appointment of the supervision consultant.

C. Staffing and Other Inputs

3. The consultant will provide the international and senior domestic staffing definedin the Project's organization and staffing charts. In summary, staffing inputs will be about 300person-months for internation& consultants and 600 person-months for domestic consultants,over a total Project period of about 42 months. In addition, the consultant will provide suchtechnical and administrative support staff required to adequately carry out the services. Officeand residential accommodation, vehicles, office and other equipment, and other support staff,will be provided through the civil works contracts.

4. The consultant must structure its staffing to maximize the efficiency of thesupervision operation as a whole. Therefore, the Engineer/Project Manager will manage fouradditional professional individuals who will be dispatched and utilized by the supervision teamson a routine or as-needed basis. These individuals will be as follows:

(i) Environmental/Resettlement Monitor Consultant (foreign), initially full time, thenintermittent;

(ii) Senior Pavement/Materials Engineer (foreign), full time;(iii) Senior Construction Scheduler/Quantity Surveyor (foreign), 15 months;(iv) Assistant to the Project Manager (domestic., ful! time.

48 Appendix 15, Page 1

OUTLINE TERMS OF REFERENCE FOR THE RURAL ROADS COMPONENT

A. Introduction

1. The Project contains a component to improve selected lengths of provincial,district, and, possibly, commune roads in Lang Son, Ha Bac, and Cao Bang provinces. The firsttwo are the provinces through which the length of Highway 1 to be improved under the highwayimprovement component of the Project passes. Cao Bang province adjoins Lang Son province tothe west and will also be affected by the Project road. The component will be implemented in twoparts, the first broadly to develop selection methods and, using these, to select candidate roadsto be improved, and the second to implement the improvement works. The component will beprepared and implemented taking into account the approach adopted for the concurrent WorldBank-financed Rural Transport Project, which has adopted a low-cost spot improvementapproach. The objective of this approach is to improve the reliability of road access to as large aproportion of the provinces' populations as possible, while keeping costs low and maximizing theuse of local resources. The component's Executing Agency will be Project Management Unit(PMU-1 within the Ministry of Transport (MOT). PMU-1 will establish a Project implementation unit(PIU) to manage the component on a day-to-day basis. At the province level, the component willbe the responsibility of sub-PMUs.

B. Objectives

2. The principle obiectives of the component are to (i) assist the Government withimproving the selected roads. to im prove the reliability of access to inhabitants of the Projectprovinces; and (ii) develop the capability of domestic organizations - Government and privatesector - to prepare and implement projects of this nature. About 6D percent of the road lengthwill be selected using economic criteria; and 20 percent using social criteria to target less-privileged mountain and ethnic population in areas where population density is low and economicpotential dim and the economic return criteria of 12 percent cannot be met.

C. Scope

3. The scoDe of the services, for each of the two parts into which the component hasbeen divided, will be broadly as foow.

1. part I - Preparation

The activities to be undertaken by the consultant for Par I of the services willinclude the following, to be implemented over six months.

(i) review available studies to determine poverty and other indicators for the Projectprovinces, and undertake additional investigations and interviews that arenecessary to accurately define their social characteristics, in particular theavailability and quality of rural road transport

(ii) for each of the Project provinces, identify the rurai road network using anappropriate road inventory approach;

(iii) prioritize the roads usina a simple screening indicato oased on ponulation density.imorovement cos'. ano sccia an other reievsn fac:or tne ex.ored eoonorn


rate of return should be 12 percent or higher, except for the roads selected underpurely social criteria;

(iv) develop technical guidelines for the improvement works, to be based on the spotimprovement approach and to make use of simple labor intensive methods to theextent possible and appropriate;

(v) based on a study of existing institutional arrangements, develop a Projectimplementation structure that will allow the component to be effectively prepared,managed, and implemented;

(vi) analyze the available contractor resources in the provinces, in terms of number ofcontractors, capability, resources, etc, and develop an approach to effectivelyinvolve these contractors in the component;

(vii) organize appropriate training programs for Government staff involved with thecomponent, drawing on the resources of provinces that have received similartraining under the World Bank's Rural Transport Project, to enable them to carryout the preparation work in their provinces.

2. Part 2— Implementation

5. Part 2 of the services will commence after the Government and the Bank havereviewed and agreed on the outcome of Part 1, in particular on the selection of roads to beimproved, technical aspects, and institutional arrangements. The consultant's Part 2 activities, tobe implemented over about two years, will include the following, in support of the PIU and thesub-PM Us:

(i) general coordination, including planning and budget activities;

(ii) engineering and technical matters;

(iii) Project and contract management, including supervision, monitoring, evaluating,and reporting;

(iv) financial management, including providing advice on managing and accounting forthe loan funds disbursed by the Bank to the component's imprest account;

(v) institutional strengthening, including training for Government personnel and forprivate sector contractors undertaking the component's civil works;

(vi) preparation of manuals for Project management, technical aspects of roadconstruction, procurement, maintenance, and other relevant activities;

(vii) assistance with procuring civil works and equipment; and

(viii) review, assessment and analysis of the social impact of rural road improvementsunder the Project and preparation of benchmark information to evaluate/review ona regular basis the impacts on the surrounding population.


D. Staffing and Other Inputs

6. The consultant will provide two long-term specialists, and a number of short-termspecialists, all international, for a total input of about 40 person-months. The long-term specialistswill be an adviser and a construction supervisor. In addition, about 240 person-months ofdomestic consultants will be required. The consultant will be provided with office accommodation,facilities, and resources by the PIU and the PPMUs. These will be financed through the Projectloan.

E. Reporting and Documentation Requirements

7. The consultant will provide PMU-1 and the Bank with an inception report, a designreport, a procurement report, monthly progress reports, and a Project completion report. Theconsultant will also provide draft and final bid documents. The consultant will submit these reportsand documents in the form and number of copies specified by PMU-1 and the Bank, inaccordance with the implementation schedule agreed during contract negotiations.

51

Appendix 16, page 1

SUMMARY RESETTLEMENT PLAN

A. Introduction

1. During Project preparation, it became apparent that roadside, or ribbon,development was so extensive in the southern 60 kilometer (km) length of the Project road, andfor considerable but isolated lengths in the northern 100 km, that the existing alignment could notbe improved to the standard required for a national highway without substantial involuntaryresettlement. Initial surveys indicated that about 20,000 residents, in about 5,000 households,would have to move. In the northern section, the requirement for resettlement was lesssubstantial, but the existing road traversed a mountain pass, with very poor horizontal and verticalalignments. From traffic safety and economic considerations, it was considered desirable toimprove the alignment over this length wherever possible.

2. To reduce the resettlement and alignment problems to acceptable proportions,extensive lengths of the existing highway would be by-passed by new alignments. As finallydesigned, the Project road will consist of about 110 km of new alignment (60 km in the south, thefirst two-lane stage of an ultimate six-lane divided dual-carriageway highway, and about 50 km inthe north). The remaining 58 km will remain predominately on the existing alignment.

to minimize social andit will still be necessary to

About 450 hectares of landhe Project's preparation. af which a comprehensive

3. Although the proposed alignment was selectedenvironmental impacts 1 and does reduce the resettlement problem,involuntarily resettle about 3,400 residents in about 960 households.will have to be acquired, most rural but some urban. As part ofdetailed social impact survey was carried out, on the basis cresettlement and rehabilitation plan has been prepared.

B. Principles of Land Acquisition and Resettlement

4. The principles of land acquisition and resettlement for the Project are derived fromtwo sources. First, the Bank has formally set out its requirements in its Policy Paper onInvoluntary Resettlement, Second, the Government has promulgated a number of decrees andregulations that define its approach to land acquisition and resettlement resulting fromdevelopment projects. The basic approach adopted by the Government is in accord with the thatof the Bank, and essentially with that of the World Bank, which has invested considerable effortin encouraging and assisting the Government to adopt principles and procedures that comply withinternational practice.

5. The common objective of these policies is to ensure that people displaced by theProject (Project affected persons - PAPs) should generally be at least as well off, if not better off,than they would have been without the Project. The land acquisition and resettlement plans havebeen prepared with this as a guiding principle. The parameters addressed, and the manner inwhich they have been addressed, are summarized in Table 1.

See the Pro j ect's Environmental Impact Assessment report for details of the approach adopted for corridorana alianment selection and for identif y ing and mittoating socra and environmental impacts

52

Appendix 16, page 2

Table 1: Resettlement Parameters and Approach

Parameter Approach Applied

1. Involuntary resettlement should be minimized New alignments have been selected where highpopulation densities would have necessitatedsubstantial resettlement.

2. Plans should be prepared for those displaced

3. There is to be community participation

Socioeconomic surveys have been completed; PAPshave been identified; and their land, buildings, andother assets enumerated.

During the surveys, meetings were held at theprovince, district, town, and commune levels, withofficials and with residents. Further communityparticipation and consultation will be conductedthrough the provincial, district, and communeresettlement committees (PRCs, DRCs and CRCs)following the completion of the detailed measurementsurvey (DMS) and the ethnic minorities action plan andprior to implementation of the resettlement action plan(RAP). These consultations will be supplemented by apublic information campaign conducted by the Projectmanagement unit. A Resettlement Information Bookletwill also be prepared and distributed by the PMU for allstockholders (affected people, PRCs, DMCs, CRCs)that includes the basic features of the RAP(compensation/resettlement principles, procedures,and entitlements of the PAPs)

4. PAPs to receive fair compensation for all losses, Compensation will be provided for land, structures,inciuding assets and livelihoods crops, etc, in accordance with existing procedures. The

RAP includes provisions for relocation allowances,assistance with dismantling, transporting andreconstructing structures, alternative employmenttraining, and 6 months rental subsidies for PAPs whoare tenants.

5. PAPs to receive adequate support in obtainingreplacement land, replacement incomes, andresettlement allowances

6. Resettlement process to be monitored by theGovernment and the Bank

7. The land acquisition and resettlement program is to bean integral part of Project aesign

Resettlement areas to be developed, with land,utilities, and access.

Government will engage a domestic agencyacceptable to the Bank, under terms of reference alsoacceptable to the Bank, to monitor the land acquisitionand resettlement program. and to report on it to theGovernment and the Bank.

The corridor and alignment selection process haveincluded environment and resettlement aspects asmajor factors; the initial road alignment has beenaltered to minimize impacts on people (landacquisition and resettlement) and Project schedulesincluding the loan processing schedule, and to takeinto account land acquisition and resettlementschedules.


C. Laws Governing Land Acquisition and Resettlement

1. The Land Law

6. The 1993 Land Law is a comprehensive land administration law, superseding theearlier 1987 version. The new law is arguably one of the most important and fundamental laws tohave been promulgated since the country's independence, and has had a profound effect on theeconomy and on people's lives. In almost all respects, the Land Law gave the people access toland through land user rights which are similar to private ownership. The law, which went intoeffect on 15 October 1993, covers a wide range of issues. A comprehensive summary is includedin the Project's resettlement action plan. Some of the more important issues that are relevant toland usage, acquisition, and resettlement, are summarized below, with some explanatory notes.These issues have also been chosen to illustrate the often substantial differences in the conceptsof land ownership and usage between socialist and more market-oriented economies.

(i) Land belongs to the people, with the State as its sole administrator. No privateorganization or individual has the right to own land.

(ii) The State reserves the right to allocate land and determine its usage.

(iii) Families and individuals who have been allocated land have the right to exchangetheir land for another piece; transfer their right to use the land to another party; andrent bequeath or use their right to the land as collateral. These privileges are themost significant aspect of the Land Law, in effect transferring management of theland back to individuals. There are, however, some important managementdecisions the State still reserves for itself.

(iv) The Peoples' Councils at all levels (province, district, and commune) areresponsible for the administration of land use in their localities; the Peoples'Committees at all levels are responsible for managing land issues in their domains.

(v) Based on its usage, land is classified as agricultural, forestry, rural residential,urban, specialized, or unused. The issue of land usage remains one of the lastimportant management decisions that has not been turned over to privateindividuals. Reflecting what is primarily a fear that scarce agricultural land will betransferred for industrial or residential use, the Government retains exclusiveauthority over the determination of land usage. This issue is becoming increasinglymore controversial, as recently promulgated rules and regulations suggest.

(vi) The State reserves the right to determine the value of all kinds of land for thepurpose of taxation, collection of fees, allocation and compensation. These valueswill be determined by region and time period.

(vii) The State reserves the right to appropriate land when truly necessary, in cases ofnational defense or security, or national and public interest. In these cases, theland user will be compensated for loss of possessions. "National and publicinterest" is defined in Decree No 90-OP as including all transportation andinfrastructure projects (this provides the basis for the right-of-way acquisitioncrucial to the implementation of the Project).


(viii) Before land is appropriated, the user must be informed of the reason forappropriation, time schedule and plan for resettlement, if necessary, and optionsfor compensation.

(ix) Certificates verifying the household and individual's right to use the land will beissued to those who have been lawfully allocated land by the local government.This certification has not always been implemented incorrectly.

(x) Individuals who have been allocated agricultural, forest, or residential land, havethe right to bequeath this land in accordance with the inheritance law.

(xi) Individuals allocated agricultural land have the right to rent this land out for amaximum of three years if they lack the resources for production or areexperiencing economic difficulties.

2. Other Relevant Laws and Regulations

7. A substantial number of other laws, regulations, and decrees are relevant to landacquisition and resettlement. The more important of these are listed below: a summary of each isprovided in the Project's Resettlement Action Plan.

(i) Residence Law, 26 March 1991, of the State Council, which gives individuals theright to own residential housing;

(ii) Decree No. 60-CF. 5 July 1994. property ownership and the right to use urbanresidential land:

(iii) Decree No. 64-CP, 15 September 1993. reguatons concerning the allocation ofagricultural land to households and individuals to use in a long-term and stablemanner for agricultural production:

(iv) Officiai Message No 1044/KTN, of the Prime Minister. 3 March 1995, declaring amoratorium on the transfer of rice-land to other uses;

(v) Decree No. 87/CP, 17 August 1994. regulations concerning the pricing of differentland types;

(vi) Decree No. 90/CP, 17 August 1994, compensation for appropriation of land fordefense, security, or national and public interest; and

(vii) transportation regulations, of which there are a considerable number; the mostrecent is Decree No. 36/CP which, inter a/ia, deals with clearance of obstructionsand encroachments from highway rights-of-way.

D. Socioeconomic Survey

8. As part of Project Preparation, detailed dwelling unit, asset, and land-use surveyswere carried out in June, July, and August 1995. The dwelling unit survey (affected structures)was conducted during June and July 1995 on approximately 90 percent of the affected population.This survey was camed out before the alignment was finally fixed. so that the objective of minimizing


resettlement through appropriate alignment selection could be achieved. Accordingly, the number ofhouseholds interviewed (1,300) at the time was greater than necessary. Ultimately, once the alignmenthad been fixed, the number of affected households was reduced to 960. Also, to assist withpreparation of a plan for households that will have agricultural and forest land affected by the Project,the survey teams conducted a sample survey of agricultural villages in the Project area in August1995. This survey, which was to determine the impact of the Project on agricultural activities, wascarried out over a two-week period, during which 895 households were interviewed.

9. The results of the surveys are presented in the Project's Resettlement Action Planand summarized as follows:

(i) The affected population is estimated to be 3,460 in 960 households.

(ii) Of the people affected, about 31 percent are from ethnic minority groups, mainlyTay and Nung, located mainly in Lang Son Province, and about 18 percent ofhousehold heads are war veterans, for whom the Government provides specialprograms.

(iii) Land-use certificates are held by 63 percent of affected people, and a further 36percent of affected people have verbal permission from the local authority to usethe land. Less than 1 percent of affected people have no legal permit to use theland on which they reside.

E. Compensation Issues and Procedures

10. The approach to land acquisition and resettlement is based on the Project'ssocioeconomic surveys and the Government's and the Bank's requirements and procedures.

1. Definitions

a. Project Affected People

11. Project Affected People (PAP) means (i) anyone whose name appears in the Juneand July 95 survey list, prepared as part of the Project's resettlement survey, or a subsequentdetailed measurement survey (DMS); (ii) anyone who has become affected by a subsequentrealignment of the Project road; (iii) anyone who has become affected as a consequence of therural roads component and whose structures would be partly dismantled or relocated or whoseland would be acquired for the road works or for resettlement site development as a consequenceof the Project. PAPs include people within the project road length who have been affected by theimplementation of Decree 36/OP.

b. Clear area

12. For the existing alignment, the area to be cleared includes widening the road to thedesign width (defined as the toe-to-toe width for embankments and top of cut to top of cut widthfor cuts) plus 7 meters (m) on either side of the highway (for rural areas) and 3-5 m (for urbanareas), measured perpendicular to and away from the toe of the embankment slope, or the top ofthe cut slope. For new alignment, the clear area includes the width between the toe of theembankment slope or the top of the cut slope plus an additional 7 m on either side.


c. Structures - Legality

13. Legal structures that belong to the PAP include the structures within the right-of-way and built before 1982 or, if built after 1982 has permission from the responsible authority.Illegal structures that belongs to the PAP are within the right-of-way and were built after 1982without any eligible permission.

d. Land—Legality

14. Legal land belongs to a PAP, and the owner has a legal title to the land. Illegalland belongs to a PAP, but the owner has inadequate legal documentation.

e. Encroachment

15. Land that a PAP occupies but does not own.

2. Compensation and Assistance Policies

a. Structures

16. For legal structures, compensation will be 100 percent of new construction cost.For illegal structures, assistance equivalent to 60 percent of new construction cost will beprovided. Unit prices for new construction will be as established periodically by relevant provincialpeople's committees (PPCs) based on materials and labor costs. These are updatedapproximately every three months. Compensation and assistance will be provided in the form ofcash or kind or both.

b. Land

17. Compensation will be paid for land that is taken permanently for road construction;is in the clear area (see para. 12) and is covered by structures as part of the road construction (inurban areas only); and is taken for resettlement site development (including access roads).Compensation will be made in accordance with the following methods: (i) legal PAPs whose landwill be acquired are compensated land for land with the same value and usage purpose orcompensated in cash and land, at the PAPs' option; and (ii) PAPs whose loss of land is small canbe compensated wholly in cash.

16. PAPs with legal residential land, if the land remaining after the land required for theroad and clear area is less than 40 square meters (m 2) in urban areas and 60 m2 (in rural areas),can opt to stay or move to a resettlement site. The criteria for relocation in a resettlement site areas follows:

(I) The PAP's land value is first calculated in accordance with the prices set in Decree87/CP to convert the acquired land to the replacement land. After the conversion, ifthe acquired land is smaller than 60 m 2 , its owner is entitled to a 60 m 2 plot in theresettlement area;

(ii) If the lost land is larger than 60 m 2 , its owner is entitled to a plot in the resettlementarea equivalent to the lost area, provided that it is no larger than 120 m 2 . Thedifference, if any, will be compensated as cash.


(iii) PAPs who would lose only their shops (without residence) will be provided a plotequivalent to the affected area, with a minimum area of 14 m 2 , in a resettlementsite or a business center.

19. For PAP's with illegal residential land but who, based on existing regulations, areeligible for a legal land use right title, land-use will be legalized and the PAPs will becompensated in the same manner as for legal PAPs.

c. Encroachers

20. Encroachers, presently estimated to make up about 0.4 percent of PAPs(equivalent to 4 households), in principle will not be compensated for land, but will be providedwith assistance equivalent to 60 percent of new construction cost and with relocation ofstructures. Consideration will be focused on the poorest groups of encroachers to give them aplot of 60 m2 in a resettlement area if it is confirmed by the local authority that they haveinadequate or no land for a residence.

3. Compensation Rates for Land (including land taken for reseftlement sites)

21. Compensation for land will be based on the prices established for each class,category, and location of land, as issued by relevant PPCs pursuant to Decree 87/C P. Presentvalues are set out in the Project's Resettlement Action Plan. The category of land defined forcompensation will be the one defined when the land was originally allocated to the owner. Thevalue of land for the purpose of compensation will be the current value of similar land.

4. Compensation for Structures and Other Physical Assets

22. Compensation for structures and physical assets will be decided on the basis ofDecree 90/OP, subject to the amounts to be paid to PAPs for these items will not be less than thenew replacement cost at the time individual compensation entitlements are calculated.

5. Compensation for Trees, Crops and Graves

23. Compensation will follow clauses 12 and 13 of Chapter III of Decree 90/OP. Detailsof amounts to be paid will be provided by the PPCs. The compensation rates for crops will reflectcurrent values for the crops, with appropriate provision for lost future crop income from the PAP'sland.

6. Other Assistance

24. PAPs who are to resettle will be entitled to a relocation and subsistence allowance,with a minimum value of D500,000 (about $50). PAPs whose structures are partially dismantledwill be entitled to half this amount. Each household will be entitled to send a member to a trainingcourse for simple skills, of duration 3-6 months, with the costs to be covered by the Project. Socialassistance will be made available for the poorest and minority groups. Farmer PAPs who will losemore than 20 percent of their total income will be entitled to training in a suitable career inaddition to compensation for land and crops.


F. Budget Issues

25. The cost of land acquisition and resettlement is presently estimated to be about$15.5 million. This consists of about $11.0 million for land, $1.5 million for dwelling unitcompensation, $1.6 million for other compensation, and about $1.4 million for administration andcontingencies. The total amount, although included in the Project cost, is to be financed entirelyby the Government from its own resources, and will be required, in approximately equal parts, inthe 1997 and 1998 fiscal years.

G. Organizational Responsibility

26. The Ministry of Transport (MOT) is the Executing Agency for the Project, actingthrough Project Management Unit No. 1 (PMU-1). PMU-1 will be responsible for the landacquisition and resettlement programs, for which it has established within its organization aresettlement department. This department has undertaken similar tasks for earlier projectsfinanced by the Bank and the World Bank financed projects. PMU-1 will liaise closely with theprovincial, district, and commune people's committees in the affected area, who have establishedresettlement committees and wifl be closely involved with the programs. Training orcompensation standards, procedures, entitlements, implementation, grievance, and monitorinoprocedures for the provincial resettlement committees (PRCs), district resettlement committees(DRCs), and commune resettlement committees (CRCs) will be conducted by PMU-1. A PublicInformation campaign will be conducted and an information booklet will be prepared anddistributed by PM U-I.

H. Implementation Schedule

27. A detailed implementation schedule for the land acquisition and resettlementprograms was agreed between the Government and the Bank during appraisal. Resettlement andland compensation schedules will be completed before construction activities begin in an area.PAPs will be informed at least three months prior to the intended displacement of the variousoptions available, the compensation rates, and the implementation schedule and procedures toenable PAPs to make informed choices regarding the available options and to prepare forrelocation, identification of replacement lands, and alternative livelihoods. PAPs will be given atleast two months final notice prior to demolition or land acquisition, and all compensationpayments will be paid and resettlement sites identified at least one month prior to the actualdislocation. In essence, the schedule requires that the actual programs be completed in twoyears, commencing in January 1997. Preliminary activities, including detailed surveys, finalvaluations, preparation and submission of budget re q uirements, and establishment of monitoringprocedures, will be completed by 31 December 1996.

I. Monitoring and Evaluation

28. PMU-1. will engage a suitable domestic agency acceptable to the Bank, underterms of reference acceptable to the Bank, to monitor the land acquisition and resettlementprograms. The agency will provide PMU-1 will status reports each quarter from January 1997 toDecember 1998, or until the programs have been completed. PMU-1 will provide the Bank withcopies of these reports. In addition, PMU-1 will ensure that the Project's consultants include intheir progress reports the status of the resettlement action plan (RAP, to include information onlocation and numbers of people relocated, compensation amounts paid by item, and assistanceprovided to PAPs. Once the land acquisition and resettlement p rograms have been completed.


PMU-1 will provide the Bank with a final report, to be followed two years later by a follow-upevaluation of the resettlement program, setting out the extent to which the program has achievedits primary objective, that the well-being of the people affected by the Project should be no worsethan it would have been had the Project not been implemented. The evaluation, to includecomprehensive socioeconomic analysis techniques, will include recommendations for mitigationmeasures required to remedy shortcomings that have become evident.

J. Grievance Procedures

29. To ensure that affected people have avenues for redressing their grievances related toany aspect Of land acquisition and resettlement, detailed procedures for redressing grievances havebeen established for the Project.

a. Stage I

30. Any person who is aggrieved by any aspect of the resettlement program, he or shecan lodge a written or oral grievance with the commune peoples committee or communeresethement committee. If a person is not satisfied with the decision, he or she has a right toappeal to the relevant district resettlement committee, the District Inspectorate. If a satisfactoryresolution is not reached, the person can appeal to the provincial level. If an oral complaint ismade, it will be recorded by the committee to which it is made and processed. Grievancesregistered with commune and district resettlement committees will be conveyed by them to theprovince resettlement committees. The PPC must resolve the issue within 21 days. Detailedimplementation of the process will be in line with Decree 38 and its attached guidelines.

b. Stage 2

31. lIthe person making the complaint is not satisfied with the decision or receives noresponse within 21 days of registering the grievance, he or she can appeal to the local office of PMU-1for redressing the grievance. The appeal should be lodged within three months of registering theoriginal complaint. PMU-1 will provide the affected person with a decision within one month ofregistering the appeal.

c. Contents of grievances

32. The grievances lodged by an affected person can relate to any aspect of the landacquisition and resettlement programs including the compensation offered. The detailedprocedures for redressing grievances and the appeal process will be publicized widely in the areaaffected by the Project through a resettlement information booklet to be distributed to all affectedpersons.


ECONOMIC EVALUATION

A. Base Case and Options

1. The northern terminus of the Project section of National Highway No. I starts at thePeople's Republic of China (PRC) border crossing point near Lang Son. Moving southward theroad passes through Lang Son Province and crosses into Ha Bac Province at kilometer (km) 102,into Hanoi Province at km 161, and is joined National Highway No. 5 at km 168, which is thesouthern terminus. The northern section from the PRC border to the Border with Ha BacProvince (Ni) (102 km) is lightly populated mainly because of the rolling, hilly, and ruggednature of the land and it's limited usefulness because of deforestation. The road is in very poorcondition and the vertical and horizontal curvatures are often substandard for modem traffic. Thebase case for this section was to improve the road along the existing right-of-way, which wouldresult not only in high construction costs but other costs associated with land acquisition andresettlement. During the feasibility study, various options were investigated and resulted infollowing the existing alignment with bypasses or new and better alignments (for example, abypass of the Sai Ho Pass following an existing but abandoned railway alignment) and bypassesof towns where the alignments were often poor and large-scale resettlement would be required.

2. The southern section from the northern border of Ha Bac Province to the junctionwith National Highway No. 5 (N2), with a length of about 66 km, passes through intensivelycultivated farm land with high density mainly strip development along the right-of-way. Thealternative to widening and improving the existing road was to bypass the smaller towns near thenorthern terminus and then to move to a completely new alignment of about 51 km, bypassing thebuilt-up areas through to the junction with National Highway Nc.5 at Hanoi. The new alignment oN2 will initially be constructed to a two-iane standard but is designed for expansion to six lanes Kaccommodate increasing traffic volumes. For NI and N2. the alternative was selected oreconomic, engineering, and sociai impact grounas. In both cases the existing highway wilicontinue in service and will accommodate short local tri ps by motor vehicles as well as the highvolume of local slower moving traffic such as motorbikes. bicycles, iivestock, and pedestrians.

B. Methodology

3. The economic evaluation was carried out for the two homogeneous road sections(Ni and N2) and for the Project as a whole. Vehicle operating cost (VOC) savings andmaintenance cost savings were the only benefits quantified in the economic evaluation. Projectcosts included construction, supervision, right-of-way and resettlement, maintenance, andphysical contingencies. Economic costs were used throughout mainly by adjusting the estimatedfinancial costs by 5 percent to account for taxes and duties and a small adjustment for theshadow wage rate of local labor. For the derivation of the economic internal rate of return (EIRR),the cost and benefit streams were estimated over a 24-year period starting in 1997 from thebeginning of construction until the year 2020, which covers the economic life of the roadimprovements, including periodic resurfacing of the pavements. Appropriate sensitivity tests werethen carried out along with the Sensitivity Indicators.

C. Road Condition and Traffic

4. Ni from the northern terminus at the PRO border to the southern border of LangSon Province is 100.8 km long, is narrow (7 to 8 meters [ml) and has various asphalt pavedsurfaces that are not in good condition. Roughness averages about 8 to 12 m per km, whichvery high and results in high VOC. The horizonta and verca geometric . are functional!\obsolete with an average horizontal curvature o 18 aeareeE De V.fl' whic contriute rx

1,4741 13.5 12.5

4,1871 13.5 12.5


inefficient vehicle operating characteristics. Average annual daily traffic in 1994 amounted to1,570 four-wheeled vehicles per day (vpd).

5. N2 through Ha Bac Province to the junction with National Highway No.5 in Hanoi is67 km long, is also narrow (7 to 8 m) and, except near Hanoi where it becomes four lane, hasvarious asphalt paved surfaces that are not in good condition and are often flooded in the wetseason. Roughness, while lower than the Ni section, is still high at 6.2 m per km. The horizontaland vertical curvatures are generally acceptable as the road mostly passes through areasadjacent to paddy fields. Traffic is very high, with about 4,200 four-wheeled vpd.

6. Historic traffic counts in Viet Nam are very limited in scope and application. Thefeasibility study team undertook extensive traffic counts and origin-destination surveys todetermine the number and type of vehicles using the Project road as well as their purpose andorigin-destination characteristics. These data were compared with the available traffic counts andan analysis of the relationship between gross domestic product (GDP) growth and road trafficgrowth was undertaken both for data available in Viet Nam and in comparison with othercountries in the region when they were at a similar stage of development and their present levelof motorization. Based on an expected average growth in GDP of 8.8 percent per year andelasticities of 1.53 for passengers and 1.42 for freight, annual growth rates for passenger trafficare estimated to be 13.5 percent and for freight, 12.5 percent until 2001. After that, growth ratesare estimated to decline to 12.0 percent and 10.0 percent, respectively. In view of experience inother countries and because Viet Nam is in the early stage of modern economic development,these rates are considered reasonable. A summary of the road condition and traffic is given inTable 1.

Road Section

NiPRO borderto Ha BacProvincialBoundary

N2

Ha BacProvincialBoundary to

JunctionHighway No. 5

Table 1: Road Condition and Traffic

CurrentRoughness Traffic Volume 1994

Level (mlkm) I Average Annual Daily Traffic (AADT)Average

Two-wheeled Cars Buses Trucks

9.5

794 653

222

6.2

3.538 2.296

360i 1,531

Growth RateTota l a j

pb

Excluding two-wheeled vehicles.b

Passenger traffic to 2001 with a subsequent decline to 12.0 percent per annum thereafterC

Freight traffic to 2001 with a subsequent decline to 10 percent per annum thereafter.Source: Feasibility Study


C. Costs

1. Vehicle Operating Costs

7. VOC savings and maintenance cost savings were the only benefits quantified inthe economic evaluation. VOC were calculated without and with the road improvements for boththe base case and the recommended alternative for vehicles typical of the traffic on the Projectroad. VOCs for six typical vehicle types were estimated using the highway design andmaintenance-VOC model, which takes into account Project-induced changes in surfaceconditions, gradients, and vehicle speeds as well as a number of other factors such as the VOCcomponents (vehicle, fuel, oiL tires, crew, maintenance. interest, overhead, and insurance costs).The resulting unit VOCs for the representative vehicles for the preferred alternative and the basecase are given in Table 2.

Table 2: Unit VOC for Representative Vehicles($/vehicle/km)

Vehicle Type

car 'Jthity Vehicle Bus j Medium Truck Heavy Truck Very Heav y T

Road Section IBase ret Bas re Basc Pref Base Pref Base Pref Base Pref_______________ - 1 1

N 0.15 1t 0.36 0.16 0.36 0.30 0.21 016 0.35 0.25 ' 0.55 0.38N2 0.13 1.2 C.26 0.16 3,32 0.30 0.18 0.15 0.28 0.23 0.42 0.3

Source: Feasibility Study

2. Construction and Maintenance Costs

8. Construction costs were based on aetailec engineering anc inciude civi workssupervision, right-of-way, and resettlement costs. Maintenance costs and ph ysicai contingencare also incluaed. Construcuon is ex pected to commence in ebruar i99' and be completed bMay 2000. For the EFRR evaluation costs nave been distributed according to the componentsand dates indicated b', tne construction scneaule. The four contracts coverinc N and N2 areexpected to be im plemented over tne same period. Current maintenance costs on the Proiecroad are estimated a. 7,O30 per krr. anc are basec on the average cost of routine anc period::maintenance according to Governmen records. Maintenance costs with the improvements areexpected to be substantially reduced and average $1500 per km for routine maintenance.$9,500 per km for a single bituminous surface treatment in the fifth and fifteenth year afteroDening. and $18,000 per m for ar asphaltic concrete ovenay n tne tenrn vea afte r cpening,

D. Benefits and Beneficiaries

9. The main quantifiable benefits of the Project include VOC savings andmaintenance cost savings. Operating costs for trucks are estimated to decline by 16-31 percent.Typical travel time for trucks will be reduced from about 3.5 hours to 2.25 hours, or 35 percent.The travel time savings to trucks alone in the opening year would be about 720.000 hours and isreflected in the estimated VOCs. The importance of the Proiect road tc Viet Narn suggests thatthere will be substantial nonquantifiable benefits, such as quicker, less costly market access forfarmers and tradesmen, increased access for sociai communicatione. decreased waiting andtravel times for passengers, decreased time for the movement oi trade coods witn higherreliability and in oenera better transoort services fo the n're ro ' '2 aifec c' 'i"2 0 millic rs oeoole livinc 'n ne twn nrnv'ce travee ' oe -i-ianc (about 2 million at ts soutnern tetm:nus. The rcoro'e: ':transport costs of r'::e ................... :L.'::i:-- :


important crops in the direct zone of influence of the Project road. The area traversed by the NIis a rice deficit area while that area served by N2 is a rice surplus area. The movement of ricewill be facilitated by the improvement of the Project road. The reduced VOC resulting from theimproved Project road will benefit road users, particularly road transport operators. Sincetransport charges mainly depend on road conditions, it is expected that a portion of the VOCsavings will be passed on to road transport users. Through this and improved efficiency, the roadimprovements will help enable small-scale producers to participate more actively in the marketeconomy. Finally, cross-border trade with the PRC has been increasing recently. The roadimprovement will encourage this trend through faster, safer, and more reliable transport betweenproduction and consumption centers.

E. Economic Evaluation

10. The EIRRs have been calculated using the standard process of iterativediscounting until the cost/benefit ratio is equal to one. VOCs were calculated using the HDM-VOC model, while the other costs and benefits were introduced exogenously. For the evaluation,it was necessary to compare the base-case improvement without any realignment and thepreferred alternative, which includes a number of realignments to avoid resettlement or tosignificantly improve the Project road's substandard geometncs. The base EIRR for the Projectoverafi is 30.0 percent, with the EIRRs for the individual sections about the same with 30.9percent for Ni and 29.3 percent for N2. The alternatives with significant realignments wereclearly preferred over the base-case improvements. The EIRRs for the base case withimprovements were 22 percent for Ni and 13 percent for N2. The cost of the preferredalternative was also significantly less than the base case with improvements. NI with thepreferred alternative was estimated to cost $92,000 less per km than the improved base-case,while N2 was $1.55 million less per km, including construction and resettlement costs. FOr bothstretches, the cost of improvement of the existing alignment was high mainly because of the veryhigh costs associated with resettlement. The sensitivity of the EIRRs for the preferredcase wereanalyzed with respect to the underlying cost and benefit parameters and the implementationperiod. Under the most adverse assumption of a 10 percent increase in costs and asimultaneous reduction in benefits of 10 percent, the overall EIRR remains viable at 24.4 percent.A summary of the economic evaluation is shown in Table 3 while the cost and benefit streams aregiven in Table 4.

Table 3: Summary of Economic Evaluation and Sensitivity Test

EIRR in Percent

RoadSection

Ni

N2

Ni+ N2

Alternative Preferred 10% Capital 10% VOC Combination Sensitivity lndicator'Base I Alternative Cost Savings Case 1 +

Case a b C Increase Reduction Case 2 Case 1 Case 2

(Case 1) (Case 2)30.9 29.0 28.7 27.0 0.65 0.71

22.0 I 29.3

27.5 I 27.3 I 25.6 I 1.03 I 0.68

30.0

26.2 27.9 24.4 I 1.08 0.7

22.0

13.0

18.0

a Improvement of the road stretch on the existing alignment.b New Construction on a totally new alignment (done for N2 only) to 4-lanes.

For Ni, alignment changes where needed to minimize resettlement or improve thehorizontal and vertical alignment. For N2, the same alignment as for Alternative 1 but to 2 lanes.

Sensitivity Indicator = Percentage Change in EIRRPercentage Change in Variable Tested

Source: Consultant and Mission estimates.

Table 4: Cost and Benefit Streams - Project Road($'OOO)

NI + N2

NI

N2

Year19971998(9992000200120022003200420052006200720087009201(1711

2t131 1

-, flit

11

1 P

?( t no

andMaintenance

Costs-61,134.3-71965.4-55,484.9

-8,130.9884.3884.3341.6140.7884.3884.3884.3884,3

-6925.2-10,036.1

884.3884.38843,884.334 1.6140.7884.3884.3884.3884.3

VehicleOperating

Costs-3,073.05,967.0

33,644.042,681.047,556.052,991.059,053.065,811.073,348.081,751.091,126.0

101,580.0114,241.0126,249.0140,760 0156,946.0175,007.0195,1550217,638.0242,725 0270,718.0301,958.0336,8230375,734.0

Benefits-64."07.3.65 98 A

-21,010.931,550.148,440.353,875.359,394.66.5.951 774,232.382,535.392,010.3

102,464.3107,315.8116.2 12.9141044.31 57,830.3175891.3196,039.32 17,979,6242,865.7271,002.3302,842.3337,707.3376,618.3

onsi rucuonand

MaintenanceCosts28,233.927,024.9

-19,905.6.3,352.9

519.6519.6200.7

82.7519.6519.6519.6519.6

4,069.35,897.3

519.6519.6519.6519.6200.7

82.7519.6519.6519.6519.6

VehicleOperating

Costs-1667.02,196.0

14,028.017,787.019,809.022,063.024,575.027,375.030,496,033,974.037,853.042.176,046,997.052,372.058,366.065,049.072,5(13.080,815.090,087.0

100,429.0111,964.0124,833.0139,189.0155,206.0

NetB'3ne fits

27,900.924 ,828.9-5,877.614,434.120,328.622,582.624,775.727,457.731,015,634,493.638,372.642,695.642,927.746,474.7f58,685.665,568.673,022.681,334.690,287.7

100,511.7112,483.6125,352.6139,708.6155,725.6

..onstructionand

MaintenanceCosts-34,900.4-44,940.5-35,579.3-4,778.0

364.7364.7140.958.0

364.7364.7364.7364.7

-2,855.9-4,138.8

364.7364.7364.7364.7140.9

58.0364.7364.7364.7364.7

VehicleOperating

Costs-1,406.03,771.0

19,616.024,894.027,747.030,928.034,478.038,436.042,852.047,777.053,273.059,404.067,244.073,877.082,394.091,897.0

102,504.0114,340.0127,551.0142,296.0158,754.0177,125.0197,634.0220.5280

NetBenefits

-36306.4-41169.5-15963.3

2011628111.731292.734618.9

3849443216.748141.753637.759768.764388.169738.282758.792261.7

102868.7114704.7127691.9

142354159118.7177489.7197998.7220892.7

0)

>D

CD

a.><

CoCD

(TI

EIRR 30.0%

EIRR = 30.9%

EIRR = 29.3%

'Iive' Feasibility Study and Mission Estimates.


RURAL ROADS AND POVERTY REDUCTION

A. Background

1. The Bank's Country Operational Strategy Study for Viet Nam has two primaryobjectives: (I) the need to enhance and sustain rapid broad-based economic growth; and (ii)human development. To facilitate these thrusts, the strategy encourages the increased use oflinkages, particularly transport,with a strong geographic dimension. This translates into theupgrading and extension of transport corridors and the use of feeder roads into rural areas tofoster economic opportunities and reduce poverty in underserved areas.

2. The Government of Viet Nam, in its commitment to reduce poverty, isformulating an integrated National Program for Hunger Eradication and Poverty Reduction andis creating an enabling environment for poverty elimination. The initiative includes, amongothers, a rural infrastructure component which focuses on the upgrading and extension of ruralroads. Government has stated that rapid broad-based economic development in combinationwith targeted infrastructure and social service provision are the best approaches for reducingpoverty.

B. Importance of Rural infrastructure

3. The Bank and the Government, acknowledge the important contribution of ruralinfrastructure in reducing poverty. Rural infrastructure, particularly rural roads, is a criticaldeterminant of agricultural productivity and is also associated with the development of off-farmincome opportunities and greater participation in the market economy. In Viet Nam. evidencesuggests that people who live near existing infrastructure or have reasonable access to it.have higher living standards and have been able to take better advantage of the marketreforms than those who do not (about $127 annually compared to $101 - Viet Nam LivingStanaards Survey (VLSS), 1993). Furthermore, people living in communities located nearreliable roads have significantly higher average per capita expenditures.

4. In fact, the presence and condition of rural roads and village electrification werealso shown to have significant impacts on paddy production (as well as on-farm and off-farmlabor supply). The VLSS revealed that if a community is more than 3 kilometer (km) from aroad, paddy productivity begins to decrease, at the substantial rate of 402 kilogram per hectare(kg/ha) for every additional km away from the road. Moreover, road conditions matter.Estimates show that yields decrease 26 kg/ha for every additional month that the road isimpassable. Communities with road access are also more likely to have a permanent marketlocated in their village: to engage in more than one economic activity; to leave the village toseek work; to sell agricultural surplus; and to be better served by public and/or privatetransport.

5. The existence of reliable rural roads appears to affect labor mobility, which inturn is significantly related to economic status. On average, households in communities withlabor mobility (e.g. which report having residents that sometimes leave the village to seek workelsewhere) have per capita expenditures of D1.2 million compared to D1.0 million forcommunities without labor mobility (World Bank, Poverty Assessment and Strategy, 1995).


People in communities characterized by labor mobility engage in more economic activities, andare more likely to have ready access to a reliable road.

6. In the absence of a good transport network, agricultural development ishindered in several ways: prices for inputs (fertilizer, seeds, etc.) are higher and output lower;marketing of high value perishable products is impossible; farmgate prices are lower; andaccess to new technology and information is limited. In Viet Nam, the presence of reliablerural roads appears to indicate improved flow of goods. services and information. This leads togreater economic diversification, labor mobility, more productive use of farm land, all of whichcontribute to improvements in living standards.

7. Social benefits, which are more difficult to quantify. are also likely to accrue tothose communities which have access to reliable roads. Educational attendance by primaryand secondary students is likely to be enhanced by roads which are passable all year round.Better educational attainment through to secondary and post-secondary education has shownto significantly contribute to off-farm earnings and opportunities. Teacher absenteeism is alsolikely to decline given proper access to and from schools. Combined, these factors haveimportant implications for economic and social development. Long term health benefits arealso likely to accrue. Better reiiabiiitv of existing rural roads will assist in realizing immunizationand vitamin campaigns. and enhancing mother-child health programs. Easier access to healthfacilities will also serve the Government's primary and preventive health care programs,particularly contagious disease control through regular and ali-weather access to communesand villages. In addition, a healthier rural population is an important factor in lessening thenumber of farming days lost due to ill-health and the consequent negative im pacts on potentiaincome.

C. Poverty Situation in Project Areas

8. Poverty is widespreac in Viet Nam According to a recent study (World BankPoverty Assessment Strategy, 1995). over 51 percent of the oopuiation is classified as living inpoverty, and over 90 percent of the rural population is classified as on or below the povertyline. Incomes are lower in the Central Highlands Region (50 percent o the national average),Northern U plands Region (5 oercent where the Proiect is located, and the North OentraRegion (71 percentI. However, levels of poverty are not uniform throughout each region andselected pockets of poverty exist in all regions. Within each of the targeted provinces (Ha Bac,Lang Son and Cao Bang) a great deal of variation in living standards exists. The presence ofethnic minority groups, or the p hysical access of villages tc rural roads and waterwa ys. maymean marked differences within a province or district.

9. Many rural households, often the poorest and also often belonging to minorityethnic groups, live in remote mountainous areas where infrastructure provision is extremelylimited. Overall, access to infrastructure in rural areas is generally deficient, with less than onethird of the population having access to a combination of a passable road, public transport anda permanent market. Only 27 percent of the rural poor have access to this combination ofinfrastructure compared with 40 percent of the non-poor. in Cao Bang Province, for example,only 63 percent of communes are served by a rural road, while less than 50 percent have apermanent market. In Lang son Province, only 17 percent of communes have a permanentmarket. In Ha Bac orovince. 53 percent of communes have such a riare


10. According to the VLSS, monthly per capita income for rural areas in theNorthern Uplands region is only D75,370 compared to the national rural average of D94,440.For the rural poor in this region, the figure is even lower - D24,230 compared to the nationalrural average monthly income of D25,520. The Project area reveals an increasing disparityeven within provinces. Average monthly income per capita in Cao Bang, Lang Son and HaBac is D92,370, D97,930, and D134,950, respectively.

11. In Viet Nam, the prevalence of poverty amongst ethnic minority groups is muchhigher than the national average. Poverty amongst these groups tends to be severe: almost66 percent of the Tay, 67 percent of the Thai, 70 percent of the Nung, and 89 percent of theDao, live in poverty. In Lang Son and Cao Bang, ethnic minority groups comprise at least 70percent of the population. Potential exists for enhanced economic opportunities for some ofthe ethnic minority communities through improved access to a reliable all-weather rural road.

12. However, two distinct groups of the poor need to be recognized. The firstgroup, comprising the majority of the poor, are poor now but face better prospects in thefuture. As villages and communes in the Project area are provided with improved roads,access to wider markets and increased credit facilities will develop. Members of this groupcould progress to growing commercial crops or to taking up nonfarm work, thereby improvingtheir living standards. This group will benefit significantly from the provision of ruralinfrastructure, economic growth, and market liberalization.

13. The second group, ethnic minority communities living in remote andmountainous areas, which are more disconnected from economic and social infrastructure, areless likely to participate in a growing market economy without substantial and sustainedgovernment assistance. Potentially, they could become exceedingly marginalized andvulnerable. Improving the quality of life for these more disadvantaged groups will requiretargeted poverty reduction programs and social services alongside improved access to roadsand other physical infrastructure.

14. Identifying, formulating, and implementing comprehensive policies andprograms on poverty reduction and rural development wilt assist in uplifting those groups thathave access to economic and social opportunities. Through these programs, national povertylevels should be reduced, and additional resources should become available to target areasand regions not substantially impacted by market reforms.

D. Government Polices and Programs

15. The Government's industrialization and modernization program for theremainder of the century contains a number of strategic aims. They include the developmentof agriculture, forestry in combination with agro-industries, and the rehabilitation and expansionof infrastructure. A large proportion of the Government's targeted investment capital during1996-2000 will be put in three focal geographic areas (the north, center, and south) in order tocreate growth regions to stimulate overall economic activity in the entire country. In particular,special attention will be given to socioeconomic development in mountain areas that are withinthe Project influence area.

16. To achieve these aims, the Government intends to launch a number ofimportant socioeconomic programs including agricultural and rural economic development,


industrial development, infrastructure development, regional development, socioeconomicdevelopment for mountainous areas, and a national program for poverty alleviation.

17. Agriculture will continue to play a strategic role in Viet Nam's development.From now up to the year 2000, food crops wifl provide most of Viet Nam's agricultural output.This is expected to continue for a number of reasons: the Government's strategy in promotingincreased food production; increases in food prices are expected, providing farmers withincentives for commercial food production; and investment promotion for agriculture, especiallyinvestment in irrigation and rural roads, will open further opportunities for expanding marketsand increasing crop yields.

18. Thus, Government policy has an important role to play in promoting ruraldevelopment and reducing poverty. Increased public investment and maintenance of ruralinfrastructure—including rural roads—and agricultural research and extension services will needto be formulated to assist in raising rural incomes in areas that have economic potential. Inaddition, rural development will also depend on enabling improvements in the functioning ofcredit and land markets. The Government has recognized these linkages and is formulatingnational programs for rural development that aim to take a coordinated and intersectoralapproach to rurai development (e.g., agricultural productivity, linkage with rural infrastructure,environmental protection, credit availability, social service provision, etc.). Completion of thestrategy is expected by late 1996.