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Document o f The World Bank
FOR OFFICIAL USE ONLY
Report No: 3 1753
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED CREDIT
IN THE AMOUNT OF SDR 45.5 MILLION (US$65.9 MILLION EQUIVALENT)
TO THE
SOCIALIST REPUBLIC OF VIETNAM
FOR A
CUSTOMS MODERNIZATION PROJECT
October 17,2005
Poverty Reduction and Economic Management Unit East Asia and Pacific Region
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. I t s contents may not otherwise be disclosed without World Bank authorization.
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CURRENCY EQUIVALENTS
(Exchange Rate Effective September 30,2005)
Currency Unit = Dong (D) US1.00 = D15,905 D1,OOO = US$0.063
ADB AFTA ASEAN ASYCUDA BTA CAS C B M CBPR CFAA CMS CMSC CPRGS DS EU FMR GDP GATT GDVC GDT GMS GoV GSO HRM HS ICT IDA IMF IRR JICA M&E MOF M O T M P I MPT
FISCAL YEAR January 1 - December 31
ABBREVIATIONS AND ACRONYMS
Asian Development Bank ASEAN Free Trade Area Association o f South East Asian Nations Automated System for Customs Data Bilateral Trade Agreement Country Assistance Strategy Customs Business Model Customs Business Process Redesign Country Financial Accountability Assessment Customs Management System Customs Modernization Steering Committee Comprehensive Poverty Reduction and Growth Strategy Diagnostic Study European Union Financial Monitoring Report Gross Domestic Product General Agreement on Tariffs and Trade General Department o f Vietnam Customs General Department o f Taxation Greater Mekong Sub-Region Government o f Vietnam General Statistical Office Human Resource Management Harmonized Systems Information and communications technology International Development Association International Monetary Fund Internal Rate o f Return Japan International Corporation Agency Monitoring and Evaluation Ministry o f Finance Ministry o f Trade Ministry o f Planning and Investment Ministry o f Post and Telematics
FOR OFFICIAL USE ONLY
NA NPV OECD PAD PAR PHRD PIP PPU P M U PRSC
QCBS SA SAD SBD SBV S I L SMEs TA TIN TIPV UNDP USAID VAT VCCI VCMP wco WTO
QBS
National Assembly N e t Present Value Organization o f Economic Co-operation and Development Project Appraisal Document Public Administration Reform Policy and Human Resource Development Project Implementation Plan Project Preparation Unit Project Management Unit Poverty Reduction Support Credit Quality-based selection Quality- and cost-based selection Special Account Single Administrative Document Standard bidding document State Bank o f Vietnam Specific Investment Loan Small and medium-sized enterprises Technical assistance Tax Identification Number Total Investment Point o f View United Nations Development Program United States Agency for International Development Value Added Tax Vietnam Chamber o f Commerce and Industry Vietnam Customs Modernization Project World Customs Organization World Trade Organization
Vice President: Jemal-ud-din Kassum Country Director: Klaus Rohland
Sector Director: Homi Kharas Task Team Leader: Duc Minh Pham
This document has a restr icted d is t r ibu t ion and m a y be used by recipients on ly in the performance o f their off icial duties. I t s contents may no t be otherwise disclosed w i thout W o r l d Bank authorization.
VIETNAM Customs Modernization Project
CONTENTS
Page
STRATEGIC CONTEXT AND RATIONALE ................................................................. 1 Country and Sector Issues ................................................................................................... 1
Rationale for Bank Involvement ......................................................................................... 2
Higher Level Objectives to Which the Project Contributes ................................................ 3
PROJECT DESCRIPTION ................................................................................................. 3 1 . Lending Instrument ................................................................................................................ 3
2 . Project Development Objective and Key Indicators ........................................................... 3
3 . Project Components ............................................................................................................ 4
4 . Lessons Learned and Reflected in the Project Design ........................................................ 6 5 . Alternatives Considered and Reasons for Rejection ........................................................... 9
C . IMPLEMENTATION .......................................................................................................... 9 1 . Institutional and Implementation Arrangements ................................................................ 9 2 . Sustainability ..................................................................................................................... 10
3 . Critical Risks and Possible Controversial Aspects ........................................................... 11
4 . Credit Conditions and Covenants ..................................................................................... 13
APPRAISAL SUMMARY ................................................................................................. 13
A . 1 . 2 . 3 .
B .
. . .
D . 1 . 2 . 3 . 4 . 5 . 6 . 7 .
Economic and Financial Analyses .................................................................................... 13
Technical ........................................................................................................................... 14
Fiduciary ........................................................................................................................... 15
Social ................................................................................................................................. 15
Environment ...................................................................................................................... 16
Safeguard Policies ............................................................................................................. 16
Policy Exceptions and Readiness ...................................................................................... 16
Annex 1: Country and Sector Background .............................................................................. 17
Annex 1: Country and Sector Background .............................................................................. 17
Annex 2: M a j o r Related Projects Financed by the Bank and/or other Agencies ................. 21
Annex 3: Resul ts Framework and Monitor ing ........................................................................ 25
Annex 4: Detailed Project Description ...................................................................................... 30
Annex 5: Project Costs ............................................................................................................... 40
Annex 6: Implementation Arrangements ................................................................................. 41
Annex 7: Financial Management and Disbursement Arrangements .................................... 42
Annex 8: Procurement Arrangements ..................................................................................... 46
Annex 9: Economic and Financial Analysis ............................................................................. 51
Annex 10: Safeguard Policy Issues ............................................................................................ 58
Annex 11: Project Preparation and Supervision ..................................................................... 59
Annex 12: Documents in the Project F i l e ................................................................................. 61
Annex 13: Statement o f Loans and Credits .............................................................................. 62
Annex 14: Country at a Glance ................................................................................................. 64
Annex 15: M a p IBRD 33511 ...................................................................................................... 66
VIETNAM Customs Modernization Project
FY Annual Cumulative
Project Appraisal Document East Asia and Pacific Region
EASPR
2005 2006 2007 2008 2009 2010 2011 0.00 3.90 17.00 27.00 15.00 2.50 0.50 0.00 3.90 20.90 47.90 62.90 65.40 65.90
Date: October 14, 2005 Country Director: Klaus Rohland Sector Director: H o m i Kharas Project ID: PO85071 Lending Instrument: Specific Investment Loan
Team Leader: Duc Minh Pham Sector(s): General public administration sector (1 00%) Theme(s): Trade facilitation and market access (P) Environmental screening category: Not Required Safeguard screening category: N o impact
Project Financing Data [ ] Loan [XI Credit [ 3 Grant [ 3 Guarantee [ ] Other: F o r Loans/Credits/Others: Total Bank financing (US$m.): 65.90
epartment o f Vietnam Customs
L Estimated disbursements (Bank FY/US$m)
I s approval for any pol icy exception sought f rom the Board? Does the project include any critical r isks rated “substantial” or “high”? Re$ PAD C.5
i ]Yes [ x j ~ o [XIYes [ ] N o
Does the project meet the Regional criteria for readiness for implementation? Re$ PAD D. 7 Project development objective Re$ PAD B.2, Technical Annex 3
[XIYes [ ] N o
The Project Development Objective i s t o facilitate trade and increase revenue collection, improve the production o f foreign trade statistics, and enhance community protection and national security by improving
the effectiveness, efficiency, accountability and transparency o f the Customs Administration. In addition, the project would be a key factor in facilitating Vietnam’s accession to the WTO and securing the gains f rom greater integration into the wor ld trading system.
The project i s expected to meet these objectives by: (i) introducing modern Customs systems and procedures based on internationally agreed standards and best practice; (ii) improving the organizational structure and strengthening the human, financial and physical resource capacity o f the GDVC; and (iii) introducing appropriate information and communication technology to improve effectiveness, increase transparency and lower transaction costs. The project builds upon the on-going efforts o f other donors, and wil l seek t o reinforce their inputs.
Project description Ref: PAD B.3.a, Technical Annex 4
The project wil l provide consulting services, training, technical assistance and appropriate infrastructure to support three key operational components, and one support component. Component one deals with the core technical systems, and procedural aspects o f the reform program. Component two deals with the organizational and resource management improvements necessary to underpin the new systems. Component three provides the information and communication technology (ICT) support to achieve wor ld class standards o f performance in Customs administration. Component four provides the technical and managerial support required to achieve effective implementation and long t e r m sustainability o f project objectives.
Which safeguard policies are triggered, if any? Ref: PAD 0.6, Technical Annex 10 Significant, non-standard conditions, if any, for: Ref: PAD C. 7 Board presentation: None Credit effectiveness: The Borrower wil l establish the P M U and appoint a Project director, a Project coordinator, and specialists in, respectively, procurement, financial management, I C T and Customs/business processes, each in a manner acceptable to the Association, and
The Borrower will adopt a financial management manual acceptable to the Association.
Covenants applicable to project implementation:
None
1. By September 30, 2006, MOF shall complete the review o f current Customs business procedures and documentation and develop an action plan for the harmonization and simplification o f said procedures and documentation in line with the provisions o f the Revised K y o t o Convention on the Harmonization and Simplification o f Customs Procedures, provide such action p lan to the Association, and thereafter implemenl said plan.
2. By September 30, 2006, to serve as a basis for risk management in Customs operations, MOF shall develop a compliance and risk management implementation plan, including therein a risk register togethe1 with a series o f risk profiles, and a national post-clearance audit plan; provide said plan to the Association fo i review and comments; and implement said plan.
3. By M a y 3 1, 2006, in order to carry out i t s compliance and risk management implementation plan, MOF shall establish a risk management unit, under the direction o f qualified managers, staffed with competent anc experienced personnel in sufficient numbers, and provided with sufficient resources.
4. By December 15, 2006, MOF shall complete a comprehensive assessment o f the current organizationa structure o f GDVC, with a v iew to rationalize such structure and to reflect new priorities and responsibilities
of GDVC; and on the basis o f said assessment, develop an organizational re-structuring action plan for GDVC; provide said plan to the Association for i t s review and comments; and implement said plan.
5. By November 1, 2006, MOF shall develop a human resources strategic plan and complete a detailed staffing requirements assessment under terms o f reference acceptable to the Association; provide said strategic plan and the report o f the staffing requirement assessment to the Association for i t s prompt review and comment; and thereafter, implement said strategic plan.
6. By December 15, 2006, MOF shall establish a change management unit, staffed with competent managers and personnel in sufficient numbers and provided with adequate resources; said Unit to be responsible for planning, sequencing and implementing activities for the reform and modernization o f GDVC.
7. By June 30, 2007, MOF shall prepare a draft comprehensive integrity and anti-corruption program in Customs services, taking into consideration the provisions o f the Revised Arusha Declaration on Integrity in Customs by the Wor ld Customs Organization, and provide said draft program to the Association for i t s prompt review and comments.
8. By September 30,2006, M O F shall prepare a detailed national training plan for Customs officers and staff; provide said plan to the Association for i t s review and comments; and carry out said plan.
A. STRATEGIC CONTEXT AND RATIONALE
1. Country and Sector Issues
In recent years, Vietnam has made steady progress on a wide-ranging reform program based o n i t s Comprehensive Poverty Reduction and Growth Strategy (CPRGS). The CPRGS, approved in 2002, rests o n three main pillars: completing the transition to a market economy, socially equitable and environmentally sustainable development, and building modern governance. Completing the transition to a market economy i s closely linked to Vietnam’s integration with the world economy and entails significant trade liberalization and, by definition, a much greater role for the private sector in economic activity. Over the last ten years, GDP has grown at more than 7% per year on average, and the poverty rate has halved. Exports have been a key driver o f growth, rising by over 25% per annum over the last ten years. Vietnam has made considerable progress in the implementation o f i t s commitments under the A S E A N Free Trade Area and the Vietnam-US Bilateral Trade Agreement (BTA). More recently, the Government has announced i t s strong commitment to accede to the World Trade Organization (WTO) “as soon as possible”.
The reform agenda i s strongly owned by the Government and widely supported by the donor community. At the strategic level, the direction o f reforms i s being locked-in through international commitments. Meeting the requirements for W T O accession has provided additional impetus to the pace o f reform, especially for items such as wide-ranging legal changes. And the CPRGS approach i s being sustained by incorporating its principles into Vietnam’s next five year Socio-Economic Development Plan (2006-1 0). Translating the strategic reforms into on-the-ground results will be a key challenge, especially as international integration intensifies. Progress on this front would be greatly facilitated by improving the quality o f public administration and sector-level interventions aimed at strengthening governance. This i s particularly important as Vietnam seeks to attract greater private investment, both domestic and foreign. A modern and efficient Customs administration will be an integral part o f this process.
Recognizing the importance o f improving the quality o f public administration and governance, the Government o f Vietnam, in September 2001, announced a Master Plan for Public Administration Reform (PAR), o f which Customs reform i s a key component. Around the same time, the Customs L a w was passed by the National Assembly PA) . This was followed by the issuance o f sub-legislation and instructions dealing with the organizational structure o f the General Department o f Vietnam Customs (GDVC), the classification o f import and export goods, and Customs valuation. Most recently, the Ministry o f Finance (MOF) has approved the Strategic Plan for Customs Reform and Modernization for 2004-2006.
A well-performing and ethical Customs administration makes a major contribution to revenue mobilization, assists governments to facilitate trade and investment, and increases confidence in the quality and integrity o f govemment institutions. Experience in many countries has shown that Customs are uniquely positioned to co-ordinate, consolidate and simplify border-related regulatory formalities on behalf o f a l l government stakeholders. A streamlined, effective Customs administration also provides t imely and accurate foreign trade statistics, and helps protect society from transnational crimes such as counterfeiting, smuggling or narcotics
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trafficking. Striking an appropriate balance between these apparently competing demands is the key challenge facing al l Customs and border management agencies today.
Whi le considerable reform measures have been undertaken recently, Vietnamese Customs are st i l l considered slow, unresponsive, inconsistent and vulnerable to corruption. A long-term vision with clear strategic goals i s lacking. Such a vision needs to be developed along with enabling instruments for i t s implementation. The Customs administration will need to change significantly, shifting i t s mindset f rom a culture o f domestic protection and control o f al l transactions, aggravated by an over-reliance on bureaucratic systems and procedures, to one that facilitates foreign trade and promotes private sector development. In addition, national security has become a major priority for Customs. However, increasing confidence in the security o f imports and exports needs to be achieved without thwarting trade facilitation objectives.
2. Rationale for Bank Involvement
Recent economic reforms have seen Vietnam’s foreign trade growing at a rapid 20% per year on average over the past decade. As in other transition economies, this implies that state-controlled foreign trade i s rapidly being replaced with diversified imports by a large number o f private f i rms . This generates a considerable increase in transactions and associated frauds. However, Customs have maintained to a large extent their former organization, responsibilities and procedures. The Customs administration faces new responsibilities and complexities due to much greater international economic integration, notably increased security concerns. This presents a need and an opportunity for Vietnam to establish, based o n existing strengths, a modern, wor ld class Customs service.
The Bank has supported CPRGS objectives through quick disbursement o f Poverty Reduction Support Credits (PRSCs). Specifically, the PRSCs have supported strategic elements o f the reform agenda. These are elements that cut across sectors and require consensus and endorsement at the highest political level. These programmatic lending activities have been complemented by investment loans to ensure that higher level strategic changes bear fruit o n the ground. PRSC4, the most recent operation o f that sort, continues Bank support for Vietnam’s international economic integration, including the government’s efforts towards W T O accession. PRSC4 includes prior actions to improve the transparency and accountability o f government functions. The Vietnam Customs Modernization Project (VCMP) would neatly complement these overall pol icy goals.
Exploiting the full benefits o f a fast and efficient Customs service requires an appropriate synchronization with transport infrastructure and regulations. The Bank has been involved with strengthening transport infrastructure in Vietnam and this engagement i s likely to remain important in the future. The Bank’s recently launched multi-modal transport regulatory review wil l offer insights for coordinating reforms in Customs with those in the logistics industry.
The project i s also complementary to and builds o n work by various development partners, including the International Monetary Fund (IMF) in the areas o f identifying strategies and priorities for tax and Customs administration reform, money laundering and balance o f payments statistics; the United Nation Development Program (UNDP) in the Customs statistics system; the
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World Customs Organization (WCO) and Japan International Corporation Agency (JICA) in the provision o f training and technical assistance; the United States Agency for International Development (US AID) on BTA implementation and W T O accession; the Asian Development Bank (ADB) in Customs facilitation through the GMS Cross-Border Transport initiative; and the European Union (EU) in Customs capacity enhancement.
3. Higher Level Objectives to Which the Project Contributes
The proposed V C M P i s listed in the Country Assistance Strategy (CAS) Progress Report that was presented to the Board on February 19, 2004. In the earlier full CAS presented to the Board on September 3, 2002, it was listed as Component I11 o f the Public Administration Reform (CAS, Annex D1, page 8 o f 19). Since the complete CAS, the Government’s resolve to accede to the W T O has strengthened considerably. I t announced its intention to accede “as soon as possible”, and accession by mid-2006 appears to be a realistic target. In support o f this commitment the CAS update explicitly added assistance to strengthen Vietnam Customs.
The three pillars or broad objectives o f the government’s CPRGS are also the organizing principles o f the Bank’s CAS. The proposed project o f Customs modernization will contribute to two o f the main pillars o f the CPRGS, namely completing the transition to a market economy with growing international economic integration and building modern governance, including reduced scope for corruption. Enhancing the quality o f governance, including undertaking Customs modernization, is viewed as essential in supporting private sector development. Being a key component of the investment climate o f a country, strengthening Customs would also be seen as a vehicle for encouraging both domestic and foreign investment.
B. PROJECT DESCRIPTION
1. Lending Instrument
This i s a specific investment loan (SIL).
2. Project Development Objective and Key Indicators
The Project Development Objective is to facilitate trade, increase revenue collection, improve the production o f foreign trade statistics, and enhance community protection and national security by improving the effectiveness, efficiency, accountability and transparency o f the Customs Administration. In addition, the project would be a key factor in facilitating Vietnam’s accession to the W T O and securing the gains f rom greater integration into the wor ld trading system.
The V C M P i s expected to meet these objectives by: (i) introducing modern Customs systems and procedures based on internationally agreed standards and best practice; (ii) improving the organizational structure and strengthening the human, financial and physical resource capacity o f the GDVC; and (iii) introducing appropriate information and communication improve effectiveness, increase transparency and lower transaction costs. The upon the on-going efforts o f other donors, and will seek to reinforce their inputs.
technology to project builds
3
K e y performance indicators o f the VCMP as indicated in the table below will be assessed throughout the project l i f e by the Customs clearance-time measurement and the client survey, alongside the broader development outcomes supported and assessed under the PRSCs.
Total revenue collection cost over revenue collected
Declarations per number o f staff
Mean import clearance times for commercial shipments at ports, roads, and airports
Percentage o f consignments subjected to physical inspections
Broader Development Indicators
20% decrease
25% increase
45% reduction at airports and ports by end o f project; 25% reduction at roads
At least 50% reduction
0
0
0
0
0
A rising ratio o f exports, particularly manufactured exports, to GDP. An increase in the share o f private sector exports to total exports. An increase in private sector investment to GDP. Reduced corruption as rated by independent monitors. An improvement in the reliability and public availability o f data.
These broader development indicators are beyond the scope o f the project and will be measured and monitored outside the project M&E system.
Selected Performance Indicators*:
Outcome / Output
Increased transparency o f customs operations
Increased efficiency o f customs operations
Reduced clearance times
Lower revenue leakage r
Indicator Indicative target ** r Client perceptions o f Customs’ performance as measured by client surveys
Significant improvement in client perceptions
Revenue generated and/or infringements detected as a result o f Customs’ intervention pre or post clearance
50% increase
y project components i s presented in Annex 3: Arrangement for Results I * A full set o f indicators
Monitoring. ** At project completion.
3. Project Components
The VCMP will provide consulting services, training, technical assistance and appropriate infrastructure to support three key operational components and one support component. I t will have a total cost o f US$ 77.7 million, o f which U S $ 65.9 mil l ion will be financed by IDA and
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U S $ 1 1.8 m i l l i on by the Government. The components were identified fol lowing the conduct o f a diagnostic study and the preparation o f a new Customs business model based o n contemporary approaches to Customs administration. The components provide a structured approach or pathway to close the gap between the current situation, as outlined in the diagnostic study, and the desired future state, as articulated in the new business model. Component one deals with the core technical systems and procedural aspects o f the reform program, and component two with the necessary organizational and resource management improvements necessary to underpin the new systems. Component three provides the information and communication technology (ICT) support deemed necessary to achieve world class standards o f performance in Customs administration. Component four provides the necessary technical and managerial support required to achieve effective implementation and long-term sustainability o f proj ect objectives.
Component 1: Customs Systems and Procedures (Total financing required: U S $ 4.2 mil l ion; IDA credit: US$ 2.7 million; Government contribution: US$ 1.5 million). This component is designed to assist the G D V C to introduce a range o f modern systems and procedures that will reduce clearance times, provide enhanced transparency and predictability for traders, reduce red tape and lower transaction costs. Specifically, it will support the development and implementation of: (i) a modern, transparent and accessible legal framework; (ii) modern procedures such as risk management and post clearance audit; and (iii) harmonized and simplified business processes based on international standards such as the W C O Revised Kyoto Convention on the Harmonization and Simplification o f Customs Practices. The component will also focus on improving the level o f compliance through a more dynamic approach to Customs enforcement and by achieving enhanced cooperation with other government agencies. Attention will be paid to reducing informal trade and commercial fraud through the development o f an enhanced compliance and enforcement infrastructure based on the effective use o f intelligence and improved research and analysis capabilities. Another part o f this component will endeavor to improve the capacity and performance o f the Customs brokerage industry.
Component 2: Organizational Restructuring and Management (Total financing required: US$ 26.8 million; IDA credit: U S $ 21.5 mil l ion; Government contribution: U S $ 5.3 million). This component will support a rationalization o f the organizational structure o f Customs. I t will include a restructure at the headquarters, regional and branch level offices, designed to strengthen managerial control, improve decision making and provide an appropriate organizational focus on a range o f critically important ‘value added’ functions. I t will also focus o n developing an enhanced human, financial and physical resource management capacity within the GDVC. This will result in the introduction o f modern, merit based, human resource management policies and practices, and a greater capacity to identify and develop the necessary staff competencies to meet current and future needs. The capacity and functioning o f the Customs Training Academy will be improved to ensure it i s able to make a more effective contribution to the long-term development o f the GDVC. The capacity o f the G D V C to plan and manage i t s financial and physical resources will be enhanced through improvements in the financial accounting and budgeting system, including asset management and internal audit. This component will also provide, when necessary, adequate equipment and infrastructure to support critical project objectives, notably accommodation for I C T equipment, refurbishment and adaptation o f facilities to reinforce the new business approach, and appropriate non-intrusive detection equipment. The component wil l strengthen the strategic planning capacity o f the
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G D V C and its performance management and monitoring systems. This would allow it to plan for future needs and to measure success in meeting client service standards. As integrity and good governance are critical issues, significant attention will be given to the development, implementation and monitoring o f a comprehensive integrity / anti-corruption action plan and to supporting administrative systems.
Project Cost by Component and/or Activity"
Component 1 : Customs Systems and Procedures Component 2: Organizational Restructuring and Management Comoonent 3 : Information and Communications Technolow
Component 3: I n f o r m a t i o n and Communicat ion Technology (Total financing required: US$ 41.4 million; IDA credit: US$ 38.8 million; Government contribution: US$ 2.6 million). This component i s designed to provide the GDVC with a modern I C T environment and corresponding infrastructure and will include: (i) the development and implementation o f a comprehensive and modern Management Information System that will support the redesigned Customs processes, the collection o f data for management, planning and statistics purposes, and improved access to information; (ii) the procurement o f hardware and infrastructure development necessary to the rollout o f the new system; (iii) the funding o f appropriate telecommunications equipment and infrastructure; (iv) support for the nationwide rollout and the training o f customs officials at a l l levels; and (v) measures to improve the capacity o f G D V C to manage the new system and I C T infrastructure.
Local Foreign Total U S $ m n U S $ m n U S $ m n
1.6 2.6 4.2 5.3 21.5 26.8 2.6 38.8 41.4
Component 4: Project M a n a g e m e n t Suppor t (Total financing required: US$ 4.6 million; IDA credit: US$ 3.0 million; Government contribution: US$ 1.6 million). In addition to the above described key components, a fourth component has been included to provide detailed project management support to the Project Management Unit (PMU) and project-related coordination bodies including the Customs Modernization Steering Committee. The component will ensure that adequate technical support i s provided to the P M U during al l stages o f project implementation.
Component 4: Project Implementation Support Service Charge and Commitment Fees Total Financing Required
Summary o f the project components, their indicative costs, and the Bank financing i s as follows:
1.6 3 .O 4.6 0.7 0.7 11.8 65.9 77.7
* Including price and physical contingencies.
4. Lessons L e a r n e d and Reflected in the Project Design
World Bank and other relevant agencies' research, including W C O and the Organization o f Economic Co-operation and Development (OECD), highlights a number o f critical issues that need to be addressed for successful reform and modernization in Customs. The design, procurement packaging and implementation arrangements for the V C M P reflect these lessons and draw on the accumulated experience o f the Bank. These include:
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(i) The need for a conductive reform environment where Client ownership and sustained high-level political will and commitment are affirmed. Without such commitment maintained over the longer term, reform efforts are l ikely to be unsuccessful, regardless o f the quality o f their design and implementation. The V C M P i s a demand-driven project, building o n the Client’s strong determination for deepening international integration, and reforming public administration. Experience elsewhere - including in South East Europe, Turkey and Russia - indicates that the probability for long-term success i s highest when the reform project is closely l inked to wider government reform agenda. In the case o f Turkey, the Customs agenda was closely linked to Turkey’s wider EU accession agenda. By the same token, the Vietnamese Government’s commitment to W T O accession i s l ikely to have an extremely positive impact o n the Customs reform agenda and will assist in maintaining a high level o f political commitment to the project. Since the project was launched at a government-led high level seminar, the commitment o f the government has been evident at al l stages o f project preparation. The leadership o f the project during the design phase has been under the general direction o f the senior management o f the M O F and the GDVC, and senior officials have been designated in each region to ensure effective information sharing and participation in the design o f the project.
(ii) The need for accurate diagnosis o f modernization needs and the development o f country-specific responses. W h i l e Customs administrations throughout the world face similar strategic challenges and perform similar regulatory functions, their individual circumstances, operating environments, administrative competencies, resource availability and development ambitions vary. The project preparation has been based o n a comprehensive diagnostic o f the situation prevailing in Vietnam. The assessment was undertaken as part o f a Policy and Human Resource Development (PHRD) Grant. To ensure the reliability o f the approach taken for the diagnostic process, the PHRD-funded consultants used the WCO’s Customs Capacity Building Diagnostic Framework. This framework provides a template for addressing all key operational and support functions o f Customs and i s based on international standards and best practice.
(iii) The need for pre-reform capacity enhancement. Lessons from previous large scale Customs projects strongly suggest that senior management participation and ownership o f the project i s critical to i t s long-term success and sustainability. During the V C M P preparation phase, the Bank funded the conduct o f a residential development program for key senior executives o f the G D V C and representatives o f key stakeholder agencies. The program was developed and conducted by the University o f Canberra, Customs and Excise Studies Centre and was tailored specifically to the needs o f Vietnam in order to expose participants to al l the major principles that underpin modern Customs administration, as well as the project management and leadership skills necessary to drive the change process. As a result, the executive gained a much better understanding o f the scale, scope and content o f the changes envisaged under the project and have been able to play a more active and constructive role both in project development and in leading the change process in GDVC. Similarly, the Bank also funded a study visit for a senior management delegation o f Vietnam Customs to learn managerial experience o f Customs reform and execution o f the Bank-supported Customs project for Russia and Turkey. As a result, various lessons have been learnt and are reflected in the V C M P design and implementation arrangements.
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(iv) The need to acquire instruments to make reform measurable. It i s important that the modernization project and its impact be measured regularly and progress assessed on an objective basis. As such, during al l stages o f the VCMP preparation, significant attention was paid to obtaining accurate base l ine data in respect to core business processes. For example, surveys o f clearance times were conducted at major ports and land border crossings and will be periodically carried out to determine the impact o f the reform process. Likewise, a client survey program i s under preparation which wil l provide a clear view o f the perceptions o f the business community. These two key performance measurements make the V C M P significantly result- oriented. In addition, the project incorporates a major sub-component dealing specifically with further strengthening the quality o f performance indicators for al l key Customs operational and procedural areas. The development o f such indicators and monitoring mechanisms will facilitate supervision and monitoring o f the project.
(v) One o f the perennial problems facing al l capacity-building recipients and providers i s the poor level o f co- ordination and communication between national, regional and international donors leading to duplication o f effort, l i t t le or no attention to other strategically important areas o f Customs administration, and sometimes conflicting recommendations. Therefore, significant attention has been paid during the V C M P design to ensuring effective cooperation between donors. The project builds o n the complementary work currently being undertaken by a range o f donors and attempts to avoid duplication o f effort. Meetings were held with al l key donors during al l stages o f project preparation and the project components reflect the areas in which the most ‘value added’ can be achieved.
The need for enhanced co-operation and coherence between donors.
(vi) The need for adequate human and financial resources to be devoted to achieving project objectives. Customs administrations in many developing countries typically face enormous pressure to maximize revenue collections. To achieve this, particularly in an operating environment characterized by poor levels o f voluntary compliance, Customs officials typically resort to high levels o f documentary and physical inspection to verify the value, classification and origin o f goods. While this results in significant delays in Customs clearance and creates an operating environment that i s vulnerable to corruption, it does not bring the expected results in terms o f increased compliance. At the same time, Customs administrations also face significant pressure f rom the private sector and trade-related government agencies to expedite the processing and clearance o f goods. This can only be achieved by reducing the level o f routine and resource-intensive documentary and physical examination. Experience in al l industrialized countries has proved that such apparently competing demands and objectives can be successfully managed by an efficient and effective Customs administration: the scale and the scope o f the improvements necessary to achieve this in developing countries are extensive. Unfortunately, human and financial resources devoted to such fundamental changes have often been inadequate to achieve the changes required and in many cases, even when improvements have been made, they have proved unsustainable in the longer term. In order to re-address these problems, the project design has incorporated (i) a five year implementation timeframe; (ii) significant provision o f short- and long-term in-country advisors; and (iii) the development o f W T O compatible fee arrangements which will provide a pool o f financial resources necessary to ensure sustainability o f project objectives.
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(vii) The need to obtain adequate private sector participation and commitment. Experience in previous Bank’s Customs-related projects suggests that it i s important to secure long-term commitment and participation o f the private sector in the modernization program. Significant attention has been devoted to this in the project design, including a more formalized process for consultation, cooperation and partnership with the private sector, and involving the creation o f a Customs brokerage industry. In addition, the Vietnamese Chamber o f Commerce and Industry was invited to participate in al l preparation stages, including the design and conduct o f the baseline client surveys. The participants included key stakeholders such as manufacturers, freight forwarders, shippers and port operators.
5. Alternatives Considered and Reasons f o r Rejection
The lessons learned during this and previous research have been incorporated in the project design and are reflected in this Project Appraisal Document (PAD) In addition, attention was paid to reviewing a number of previous reform activities undertaken in the G D V C to ensure previous mistakes were not repeated. For example, the G D V C init ial ly proposed a modernization program that was over-reliant on a technology-intensive design, effectively equating modernization solely with new equipment. However, experience throughout the world suggests that such an approach greatly limits the rate o f return o n investment if business processes are also not redesigned. Furthermore, the GDVC’s approach in developing an in- house IT system is likely to be beyond the technical competence o f the G D V C at this time. The project will therefore finance the procurement and implementation o f balanced investment in both physical and human resources. It will target the procurement o f an existing ‘o f f the shelf system customized to fit the specific requirements o f Vietnam.
C. IMPLEMENTATION
1. Institutional and Implementation Arrangements
The Socialist Republic o f Vietnam, through MOF, will be the Borrower for the International Development Association (IDA) credit. The beneficiaries will be the GDVC; other l ine ministries, including Committee on Fighting Against Smuggling, Counterfeiting and Commercial Fraud; border agencies; and other stakeholders. Proposed implementation arrangements include the fol lowing elements: (i) Customs Modernization Steering Committee; and (ii) PMU.
(i) Customs Modernization Steering Committee (CMSC). The Customs reform is currently directed by a Steering Committee, headed by the Vice Minister o f Finance and implemented by an Executive Committee consisting o f representatives from the MOF, G D V C and related l ine ministries. It i s proposed that the CMSC will: (a) provide a strategic direction to and oversee the modernization o f Customs services; (b) provide guidance to the PMU in project implementation and the accomplishment o f its objectives; and (c) ensure coordination with relevant agencies and institutions, and the businesses community, including small and medium enterprises (SOEs). To ensure greater effectiveness of reform guidelines established by the CMSC, the GDVC has appointed a full-time Customs senior executive in every Customs province whose role wil l be to: (a) translate into operational requirements pol icy reforms decided at national level; (b) evaluate
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resistance and other delaying factors and design corresponding change management approaches, and; (c) report o n progress and difficulties to the GDVC and CMSC.
(ii) It i s proposed that one o f the most senior members o f GDVC’s Management will be appointed to be the Project Director o f the VCMP. The Director should manage to make best use o f project outcomes to ensure effective and speedy implementation. H e or she should attend al l the CMSC meetings and be empowered to make decisions in relation to implementation o f the project. The Director will convene and chair coordination meetings with other Ministries, agencies and stakeholders as required. The P M U should include a Project Coordinator, a Procurement Specialist, a Financial Management Specialist, an I C T Specialist and a Customs / Business Process Specialist, as wel l as support administrative personnel. I t i s considered that the existing Project Preparation Unit (PPU) could form the core o f the proposed PMU, thus ensuring continuity, but it will need to be strengthened with additional resources, including international consultancy and technical expertise. The P M U wil l cover procurement, loan management and reporting functions acceptable to IDA. The PMU will coordinate the project management, prepare terms o f reference, and hire consultants and contract for services, training and goods as necessary for the implementation o f the project.
Project Management Unit.
2. Sustainability
Six factors are considered critical for project sustainability, al l o f which have been addressed in the project design.
(i) Client’s ownership of and high level commitment to its reform agenda including the Customs modernization program. The project contributes to higher leve l objectives such as WTO accession, private sector development, reforming public administration and enhancing governance. The strategic reform agenda that supports these higher level objectives is strongly owned by the Government. I t i s also widely supported by the donor community through the PRSC process. This represents an overarching reason that greatly strengthens the sustainability o f the actions envisaged under the current project.
(ii) Clear direction and participation of the government and the Customs executive in project design and development. The most senior management o f the Ministry o f Finance have been actively involved in al l aspects o f project preparation and have overseen the establishment o f the project management coordination mechanisms. Likewise, the M O F has approved the Customs Modernization Plan prepared by GDVC. The Modernization plan adopts international standards and best practice, and i s totally consistent with the objectives sought for the project.
(iii) The development of a sustainable, in-house capacity for continuous improvement following completion of project activities. The project has placed significant priori ty o n developing the soft infrastructure necessary for an ongoing process and a culture o f continuous improvement. These include: (a) the creation o f a dedicated strategic planning capacity within the GDVC; (b) the reorganization o f the G D V C to better focus on a range o f ‘value added’ functions; (c) the identification o f a range o f core competencies required to manage complex Customs operations in the future; and (d) parallel investments in developing the Vietnam
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Customs College and curriculum to better equip staff for future management, administrative and technical tasks.
(iv) The establishment of sound financial management and budgeting arrangements. The project is placing significant priority on developing a more transparent and predictable financial management and resource allocation process which will ensure Customs are able to predict and budget for future needs. In addition, the project will develop a WTO compatible fee structure which will provide an ongoing income stream to finance the I C T infrastructure that will be implemented as a result o f the project.
(v) The implementation o f advanced I C T systems will radically streamline operations by simplifying procedures, increasing transparency, removing opportunities for the unlawful use o f official discretion and introducing internationally agreed standards. Such changes, once implemented, will be extremely dif f icult if not impossible to reverse.
Reliance on ICT as a key business strategy.
(vi) Participation of the private sector via licensing and partnership arrangements. Fundamental to the changes that will be implemented as a result o f the project wil l be the development o f a new and more productive relationship between the private sector and Customs. Such changes will incorporate a range o f incentives and disincentives which will increase private sector compliance and improve the investment climate. The development o f sound and quantifiable performance indicators and client standards will mean any slippage in performance will be easily identifiable and Customs officials will be held accountable.
3. Critical Risks and Possible Controversial Aspects
W h i l e the lessons learned from previous Customs reform projects undertaken by the Bank and other donors have been considered and factored into the project design, several r isks have been identified, however, which may impact o n the project’s success. These, together with appropriate measures to mitigate these risks, are outlined in the fol lowing table.
Risk
From Outputs to Objective
(i) Government may not sustain the high level o f commitment necessary for long- term success, due to, but not solely caused by, the sheer magnitude o f the project.
(ii) Changes needed to the legal framework may not be approved by the government leading to inability to implement reform agenda. From Components to Outputs
Customs Systems and Procedures
M
M
Risk Mitigation Measure
Government and business community support for the project i s extremely strong. Project i s based on implementation of agreed international commitments. Existence of key performance standards and indicators wil l quickly identify any slippage from project targets. The project provides for extensive in-county TA and training to increase staff capacity.
Significant attention has been paid to assessing the necessary changes to the legal framework. Government agreement has been obtained to undertake a comprehensive re-drafting of the legal framework in l ine with international standards.
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(i) Inability o f Customs officials to move away from a control mentality to one based on risk-based intervention.
(ii) Inadequate technical skil ls and willpower necessary to ensure effective implementation o f new techniques and procedures.
(iii) Customs reform program i s comprehensive and complex. High degree o f interdependence and interrelationship between individual components and activities.
Organization and Management
(i) Rationalized administrative and management structure wi l l result in fewer middle and senior management positions in regional offices thus affecting career opportunities for existing officials. It may be difficult to obtain political support for such significant change.
jignificant investment in human resource development, raining, performance management and merit based idvancement. Establishment o f performance standards. tevised management, administrative and reporting structure Jroviding more effective supervision o f regional and branch Iff ices. Redundancy program for officials unable to meet new .equirements.
I
(ii) Reforms that reduce the opportunity for part o f Customs officials to charge monopoly rents for the use o f their official discretion wi l l be resisted.
TCT
(i) Application software development has a high probability o f failure and hardware may be acquired too early.
(ii) From experience, ICT procurement packages are prone to being delayed due to their complexity.
(iii) Risk o f fraud and corruption in project procurement.
I Overall Risk Rating Risk Rating -
H
M
H
H
H
H
H
M
H :High Ri:
'roject makes provision for significant short- and long-term echnical advisors. Significant investment in the development If a National Customs College and technical sk i l l s curriculum.
'roject implementation plan makes adequate provision for jequencing o f activities. Where interdependencies are present hey have been noted and scheduled accordingly. Flexibility md generous implementation timeframes have been ncorporated in project design. Project management nechanisms are strong.
Project wi l l focus on new remuneration and conditions o f service provisions which wi l l provide a more appropriate mix 3 f incentives and disincentives for staff at all levels. Special attention wi l l be paid to transitional arrangements to ensure staff commitment to the project's objectives i s maintained.
Project incorporates a comprehensive integrity program backed up by robust enforcement mechanisms. U s e o f ICT wil l remove many opportunities for the unlawhl use o f official discretion.
Special attention was paid to the PIP to include the proper sequencing o f activities and to ensure experienced technical advice.
Project management unit wi l l include specific ICT procurement expertise.
Project management infrastructure i s sound, and suitable provision wi l l be made for supervision o f procurement in monitoring and evaluation plan.
S (Substantial Risk), M (Moderate Risk), N (Negligible or Low Risk)
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4. Credit Conditions and Covenants
Financial Analysis-Total investment perspective IRR (real) NPV @ 10%
(US$ mill ion, real) 47% 139
Effectiveness Conditions: The Borrower has: (i) established the Project Management Unit and appointed thereto a competent Project Director and staff, in accordance with the provisions o f the Development Credit Agreement; and (ii) adopted and put into effect a financial management manual.
Financial Analysis--Government’s perspective IRR (real) NPV @ 10%
(US$ mil l ion) 276 Yo 187
Covenants: covenants have been specified in the D C A .
D. APPRAISAL SUMMARY
1. Economic and Financial Analyses
Financial Analysis: The financial analysis attempts to distill the impact o f the reform by estimating the difference in revenue collection ‘with’ and ‘without’ the project. Three scenarios are considered for increase in revenues relative to a benchmark ‘without project’ stream. In the base case, revenues are projected to rise to a level that is 2% higher than the benchmark. The project l i f e i s assumed to be 12 years, with five years o f investment and seven years o f full-scale operation. Table 1 summarizes the results: the project is financially feasible even when the favorable impact o f the IDA loan i s not considered, Le., the financial analysis i s f rom a Total Investment point o f view. The real financial IRR reaches 47%, and the financial NPV at a 10% real discount rate is US$ 139 million. When IDA loan financing i s considered (Le., the financial analysis is f rom the Government’s point o f view), the financial internal rate o f return, in real US$ terms, i s much higher, at 276%. The financial NPV at a 10% real discount rate i s a substantial US$ 187 mil l ion.
Economic Analysis: The cost-benefit analysis excludes the impact o f the IDA loan cash f low, as well as the financial benefits resulting from higher tax collection due to better enforcement. The latter simply represents fiscal transfer f rom one economic agent to the other. Only those costs and benefits that impact o n economic welfare are considered. Two scenarios are studied. The Base Case Scenario examines the economic impact o f the cost reduction or savings to the trader due to lowered clearance time at Customs only. Scenario 2 integrates the economically beneficial impact o f the synergy in better cooperation between customs and border authorities o n reduced clearance time in total. Essentially, the outcomes o f both scenarios can be considered as lower bound estimates, as both leave out other tangible economic benefits, notably the second round effects o f trade expansion on economic growth. The project i s highly desirable, economically. In the base case scenario, the real economic IRR attains 156%, and the real economic N P V reaches more than US$705 mil l ion. The net economic outcomes under Scenario 2 are significantly higher. In Scenario 2, the real economic IRR i s 53 1 %, and the real economic N P V i s more than US$2.6 billion.
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Base case scenario IRR (real) NPV @ 10%
(US$ million. real)
Scenario 2 IRR (real) NPV @ 10%
(US$ million. real)
2. Technical
156 Yo
The technical approach used for the project design i s based on the best Customs practices as articulated in the WCO’s Revised Kyoto Convention, and implemented through PHRD Grant TF 053144. The Terms o f Reference (TORs) for the Trade Facilitation and Legal Development Component was a se l f standing activity and focused on reviewing the Customs legislations (including the Customs Code o f 2000) with the objective o f proposing how the current legislation could be adjusted to ensure consistency with the forthcoming WTO membership and best Customs practices. The TORs for the project design were combined into a single contract (as illustrated in Figure 1) in order to undertake a comprehensive diagnostic review o f the Customs administration in Vietnam, i t s organization, resources and operations; prepare a new Customs Business Process Redesign (BPR) that i s designed to bridge the gap between the ‘present state’ and the ‘target state’ o f Customs; and produce a detailed project implementation plan.
705 531% I 2,6 13
Figure 1 : Technical Approach Employed During Project Design -. - Contract on I,egai
Developnteot Contract on the project dejign -
T I T T
The key product Diagnostic Study
resulting from the Consultant’s work on the project design includes the which profiled the current situation within the GDVC and highlighted the
issues that needed to be addressed within the modernization process; the Customs Business Model which suggested potential ‘goals’ for modernization o f Customs in terms o f where the GDVC needs to be within the next five to ten years in terms o f becoming a world-class Customs
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organization; the Customs Business Process Redesign which provides a ‘pathway’ to enable the GDVC to progress f rom the current position, as set out in the Diagnostic Plan, to the goal, as presented in the Customs Business Model, by addressing the various issues in a structured manner with clear priorities; and the Project Implementation Plan that forms part o f the overall Vietnam Customs Modernization Project.
This methodology provides a logical development sequence, first identifying the current situation as the base from which future development will take place, then where the G D V C wants to be in the future, and finally a definition as to what i s required to get there. More importantly, this logical approach, with i t s linkages, provides an audit trail for the modernization process in that it i s based on a sequential concept that enables both G D V C and external parties to understand why specific sector components have been included, and be able to measure implementation progress in both qualitative and quantitative terms.
3. Fiduciary
A Project Preparation Unit (PPU) has been established and has been implementing the Technical Assistance for project preparation (Le., the PHRD grant). Upon approval o f the credit, i t i s planned to transform the PPU into a fully-fledged Project Management Unit (PMU). Staff o f the PPU have already become acquainted - while not yet trained - with the Bank’s fiduciary requirements and instruments, including the need for annual financial audits. Financial management and procurement staff are under recruitment. In the PMU, both functions are expected to be staffed by two individuals each. These individuals will receive training in Bank procedures that i s available through the local Bank office and regionally.
The project has a relatively high content o f complex information system procurement. The related challenges have carefully been identified and addressed in the project design. They are also well understood by G D V C and the staff o f the PPU. It i s planned to augment the procurement capacity o f the PMU by significant inputs from an internationally selected I C T advisor and by additional short-term expertise in Bank-financed I T C procurement.
Cost-benefit and implementation risk considerations strongly favor the implementation o f an already existing software package for customs information systems. The procurement plan, therefore, foresees the possibility that the bidding process in this case may have to use phases in order to permit fair selection among competitors that have a dissimilar commercial structure. A complete assessment o f financial management and disbursement arrangements can be found in Annex 7, and o f the procurement arrangements in Annex 8.
4. Social
The VCMP wil l enhance revenue generation thus enabling the government to align more resources for meeting the development goals set out in the CPRGS. The project will increase transparency and accountability in Vietnam Customs, and contribute to better provision o f public services, while effectively combating corruption. The Customs functional reorganization, downsizing and salary reform are al l o f particular importance to the VCMP. As such, the technical assistance for a social safety net under the PRSCs, and the Bank’s work on downsizing
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o f the public sector within the P A R Master Plan, will ensure that key components o f the project are situated within an overall national reform program.
5. Environment
Environment category: C - N o t Required.
6. Safeguard Policies
The V C M P encompasses policy, legal, regulatory, capacity building activities and an investment component to assist in the implementation o f e-Customs and modernizing Customs equipment used by the G D V C and related government agencies. There i s no settlement or displacement o f communities and indigenous people that will be encountered in the project.
Safeguard Policies Triggered by the Project Yes N o Environmental Assessment (OPIBPIGP 4.0 1) [I [XI
Natural Habitats (OPIBP 4.04) [I [XI
Pest Management (OP 4.09) 11 [XI Cultural Property (OPN 11.03, being revised as OP 4.11) [I [XI Involuntary Resettlement (OPIBP 4.12) [I [XI Indigenous Peoples (OD 4.20, being revised as OP 4.10) [I [XI Forests (OPIBP 4.36) [I [XI
Safety o f Dams (OPIBP 4.37) [I [XI
Projects in Disputed Areas (OP/BP/GP 7.60)* [I [XI
Projects on International Waterways (OPIBPIGP 7.50) [I [XI
7. Policy Exceptions and Readiness
This project complies with al l applicable Bank policies.
*By supporting the proposedproject, the Bank does not intend to prejudice the f inal determination of the parties' claims on the disputed areas.
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Annex 1: Country and Sector Background
VIETNAM: Customs Modernization Project
Recognizing the importance o f improving the quality o f public administration and governance, in September 2001, the Government o f Vietnam (GoV) announced a Master Plan for Public Administration Reform (PAR), o f which Customs reform i s a key component. Around the same time, the Customs L a w was passed by the National Assembly. This was fol lowed by the issuance o f sub-legislation and instructions dealing with the organizational structure o f the General Department o f Customs (GDVC), the classification o f import and export goods, and Customs valuation. Most recently, the Ministry o f Finance has approved the Strategic Plan for Customs Reform and Modernization for 2004-2006. This project earmarks the state budget and IDA sources for project financing.
W h i l e considerable reform measures have been undertaken recently, the GDVC is s t i l l considered slow, unresponsive, inconsistent and vulnerable to corrupt practices. There is a lack o f long-term vision that includes clear strategic goals and enabling instruments that can assist reform implementation. The Customs administration wil l need to change significantly, shifting i t s mindset from a culture o f domestic protection and control o f al l transactions, aggravated by an over-reliance on bureaucratic controls, to one that facilitates foreign trade and promotes private sector development. In addition, after the terrorist attacks o f September 1 1, national security has become a major Customs priority, yet h o w it i s accomplished should not thwart facilitation objectives.
Procedures within the G D V C are bureaucratic and complicated. Customs use the Harmonized System nomenclature (HS), rely on the Taxpayer Identification Number (TIN) for tracing importers and will soon introduce the international Single Administrative Document (SAD) declaration form, but clearance requires that many steps and documents must be attached to the import declaration. In addition, the procedures are based on extensive physical examination o f goods, with l i t t le or no concept o f risk management, and place too much routine responsibility on mid-level management (repeated intervention o f the section chief). They are essentially designed to clear the paperwork with limited analysis o f the actual operation, and do not take full advantage o f the existing computer systems.
The current structure o f Customs control i s based on pre-clearance verification and an over- reliance on physical examinations. Most, if not all, consignments are extensively examined. Post-release audits are rightly considered as part o f the risk management approach and the current legal framework allows for their use, but they are currently considered more as an enforcement measure rather than as a compliance management mechanism, and are not regularly carried out. It i s important that the concept o f intervention by exception be introduced, under which a set o f mechanisms o f control - before, during and after the importation - are triggered by intelligence-based risk profiles. In addition, compliant traders should be identified, acknowledged and rewarded under streamlined regulatory requirements.
Concerning Legislation, the Customs L a w passed o n June 29, 2001, does not altogether provide for the modern instruments required under a rapidly expanding economy, and in the context o f increased security concerns. The L a w does not appear to incorporate many provisions o f the
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Kyoto or Geneva Conventions, may be inconsistent to some extent with WTO rules, and incorporates weak enforcement provisions. Provisions sometimes appear to extend to over- generous procedures and to lack penal provisions. In addition, legislation affecting Customs operations i s scattered over a number o f laws and regulations that are not easily accessible to importers. The Government’s recent efforts focus on revision o f the Customs L a w to meet requirements in the context o f W T O accession.
Customs valuation and control o f the declared value o f imported goods is generally a major problem area for formerly state-controlled economies such as Vietnam. Customs until recently checked the declared values against a minimum price l ist . Whi le the minimum price regime that has been adopted in Vietnam i s a transitional method to assess import declared values, it is inconsistent with W T O principles. Thus, the recent removal o f the minimum price l i s t is consistent with the General Agreement on Tariffs and Trade (GATT) valuation principles. However, alternative services that can assist Customs to verify the correct value o f various imports are not fully in place. r
Customs enforcement is the necessary counterpart to trade facilitation. Managing the enforcement o f Customs requirements faces several challenges in Vietnam: (i) Legal powers have proved to be insufficient. W h i l e there are s t i l l many laws and regulations covering Customs activities, criminal provisions written under these regulations lack clarity. Vietnam Customs clearly need an overarching legislation that enable professional operations for information gathering and analysis, stronger powers o f control, and adapted procedures for prosecution. (ii) Vietnam Customs are expected to control passengers and goods at approved border crossings and inland clearance locations. This limited geographical autonomy may cut o f f Customs from valuable sources o f information, and severely affect their capacity to intercept or detect smuggling. In addition, the inability to carry out inland checks prevents relaxing border verifications, thus limiting facilitation objectives. (iii) There i s a need for improved training and capacity-building and for technical equipment for Customs enforcement. (iv) Inter-agency coordination between al l the administrations intervening in the area, or on the periphery o f Customs, i s managed by a Government Committee (Committee 127), but some streamlining and clarification would prove helpful, as cooperation with other forces i s at times difficult.
The government has highlighted potential tariff revenue losses as one o f i t s concerns as it implements international agreements under AFTA, and in the near future under the WTO. As such, it i s important for the government to have accurate information o n how much revenue i s due and how much i s actually collected from different import items. At present, however, Customs are unable to precisely estimate, in a timely manner, the revenue collected by import items. This i s because there i s a mismatch between tar i f f rates which are specified at the 8-digit level and import flows which are recorded at the 6-digit level. This issue o f recording and reporting trade flows (at least for internal purposes) at the same level o f detail should be one o f the areas addressed through improved information management systems. Revenue collection would also be strengthened by improving the system o f duty exemptions. At present the system o f investment incentives that provides import duty exemptions i s highly complex and non- transparent, and it i s dif f icult to enforce. This leaves duty exemptions vulnerable to abuse, leading to revenue losses. M u c h o f the problem would be solved by simplifying the investment
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incentives system, but the ability o f Customs to record and track the use o f these exemptions would nevertheless need to be made more efficient and effective.
Since i t s f i r s t introduction in Vietnam in 1999, the VAT has quickly become one o f the major revenue collection instruments. At the same time, the organizational separation between GDT and G D V C has resulted in the VAT on imports being collected by Customs but the refund being administered by the GDT. Cooperation with the tax administration therefore i s crucial. W h i l e a memorandum o f understanding between the two administrations (which are under the supervision o f same Vice Minister o f Finance) is being prepared, better coordination between the Tax and Customs departments would greatly benefit f rom stronger audit programs and connectivity o f the IT systems in both departments. To facilitate this cooperation, the audit and arrears management function o f the GDVC should be strengthened, and the IT systems o f the two General Departments with necessary interconnectivity should be set up to collect data useful for the audits in the other General Department. The V C M P has permeated the tax-Customs interface issues in al l three major components: (1) Customs systems and procedures; (2) Organizational restructuring and management; and (3) Information and communication technology. Further institutional arrangements need to improve in order to facilitate a smooth tax-Customs interface, taking into account critical factors such as the existing organizational setting, operational procedures, configuration o f revenue systems, historical relationships and management performance.
The organization and management o f the G D V C is currently inadequate to sustain the changes that are necessary to transform it into a modern Customs administration capable o f meeting the many challenges described above. In particular, weaknesses are evident in four critical areas: (i) human, financial and physical resource management; (ii) organizational and institutional framework; (iii) integrity and good governance; and (iv) change management. In respect to human resource management, significant improvements are required in: (i) recruitment, selection, promotion and advancement o f staff; (ii) mobil i ty and rotation o f officials; (iii) human resource development and training (specifically in respect to the scope, function and operation o f the Vietnam Customs College); (iv) staff remuneration; (v) performance management/staff appraisal; (vi) conditions o f service; and (vii) discipline. Sound, transparent and accountable financial management systems and procedures are important to ensure effective and efficient management and administration. Senior managers must be able to plan and account for the allocation and utilization o f resources. Financial management information systems need to be made available which provide up-to-date information to managers to guide decision-making and increase accountability. The introduction o f activity-based costing will increase the level o f information available to managers on the precise costs associated with the discharge o f certain functions. This will in turn allow more precise forecasting, and increase the amount o f data available to managers for planning and administrative purposes.
Whi le the main focus o f the project is not o n the acquisition o f infrastructure, equipment and technical aids, modern Customs administration involves the use o f certain contraband detection equipment including X-ray or other scanning equipment, radiation detection equipment and other non-intrusive examination, testing or detection equipment. The utilization o f such equipment can ensure that high risk containers and cargo are screened without undue delay to importers and exporters. It i s envisaged that a range o f such equipment will be funded either under the VCMP,
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or through other donors’ contribution. The G D V C has developed a comprehensive reform and modernization strategy for the period 201 0-2020 which articulates a long-term vision, i s forward looking in i t s scope and focus, and will guide the reform and modernization effort in the coming years. The G D V C would, however, benefit from further development o f i t s corporate strategic planning and management capacity. The design and implementation o f a new organizational structure better aligned to support business needs and to give due regard to key value added functions, will be implemented as a part o f the Customs modernization project.
Given the vital ly important role Customs play in revenue collection, trade facilitation, national security and the protection o f society, it i s important that a comprehensive integrity / anti- corruption program be developed and implemented. To assist Customs administrations to establish such programs, the W C O has prepared the Revised Arusha Declaration on Integrity in Customs. The Declaration consists o f ten distinct but interrelated elements considered essential for the development and implementation o f a comprehensive and sustainable anti-corruption and integrity enhancement program.
Change management program o f the scale and scope o f the V C M P will require the development and implementation o f a long-term change management strategy. The strategy will address the fol lowing issues considered as critical to the overall success and sustainability o f the program and achievement o f the Government’s objectives. Special attention wil l be paid to designing a change management program that i s in keeping with cultural norms.
Information and Communication Technologies. The A S Y C U D A system was installed between 1993 and 1996 with U N D P support, but was never used to i t s real capacity, largely because the necessary legislative and procedural changes were not made at the time. However, an apparently wel l functioning declaration processing system i s st i l l in place in several offices, and several applications, such as the consultation o f data bases (valuation and importer records in particular) are in operation. The core functions that are computerized are: (i) declaration processing and statistical data capture; (ii) duty calculation, supervision o f debt and payments; (iii) valuation; (iv) supervision o f violations; and (v) inward processing.
Customs have prepared an IT development plan for the period 2004 - 2006 which will match the GoV’s administrative computerization project. I t includes: (i) software development; (ii) upgrade o f hardware; (iii) infrastructure; and (iv) modern telecommunications. Features such as electronic declarations, risk management, WTO-compatible valuation system, linkages with the tax administration and post-entry audits would be incorporated into the system, which will be compatible with ASEAN standards.
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Annex 2: M a j o r Related Projects Financed by the Bank and/or other Agencies VIETNAM: Customs Modernization Project
nformation and Communication Ievelopment (P079334)
Vietnam ICT Development Project - Computerized interface between customs and othe agencies, connectivity between provincial centers and the central customs systems, as wel l as secure electronic access for the trading community, non- customs enforcements and banks. Bank's participation in the joint multi-donor effort led by Sweden to support the Government Inspectorate in anti-corruption work. - Reduced corruption and improved transparency and accountability in government operations, including the Customs administration, w i l l lead to greater private investment and thus a better integration into the world trading system.
A number o f research projects have been carried out in co-operation with various ministries on the characteristics and long-term prospects o f several key industries, export-import activities and other related areas in the context o f WTO accession and international integration. Substantial analytical worE i s planned for 2005 with more focus on the implementation o f the W T O agreement. A number
'ublic Administratton Reform
'WTO Accession Support Research Activities:
Bank-financed Projects
-
NR
Ongoing Sector Issue / Related Activities ~
econd Payment System and Bank lodemization Project 3.40410-VN)
US$ 112.9 million)
US$54.33 million)
Improve the payment service and operation efficiency o f participating banks - The indirect beneficiaries o f this project include the government's Treasury and Customs, and the financial markets, as the expanded Inter-Bank Payment System (IBPS) w i l l provide faster and more reliable payment services to these institutions. In addition, the IBPS i s being increasingly used to process payment collections and disbursements relating to government activities, such as those associated with the treasury and customs departments, and w i l l also underpin the cash leg o f financial market activities, such as a future inter- bank money market and the cash leg o f securities transactions.
financial agencies (the Treasury, Finance, Taxation and Customs departments) in 61 provinces.
'ublic Financial Management leform Project Cr. 37670-VN)
Strengthen budget planning and execution, reporting and accountability - The Local-Area Networks (LANs) that are being created under this project are connecting the key
Supervision Ratings
IP"
S
S
NR
N R
>Ot
S
- S
- NR
NR
NR
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Bank-financed Projects
Ongoing
’rivate Sector Development
Completed
3anking and Payment System vlodernization I
Sector Issue / Related Activities 3 f workshops have been held or are planned for sharing the findings with the main stakeholders. Training activities: aim to provide major WTO rules and agreements including relevant case studies on Vietnam. - The Vietnamese Government has announced its :ommitment to accede to the WTO. In this regard lhe VCMP would complement this policy goal as it aims to strengthen the capacity o f customs in Vietnam to ensure that the country i s able to make an effective and efficient contribution to the government objectives in the respect to trade facilitation, revenue collection, and integration into the world trading system. [nvestment Climate Assessment - Objective: (1) takt a thermometer reading of the business environment; (2) provide inputs to the debate on the draft unified Enterprise Law UEL) and the common Investment Law (CIL); (3) benchmark Vietnam’s investment climate against regional and international competitors on the eve o f Vietnam’s accession to thc WTO; and (4) provide insight/analysis and policy recommendations to address selected issues o f key concern to policy makers and firms.
- Private sector participation i s especially important. A strong relationship and long-term commitment between the private sector and the Customs administration i s important to improve private secto compliance and the investment climate. A more sound Vietnamese customs administration and higher client standards mean that any slippage in performance will be easily identifiable and customs offices will be held accountable.
Sector Issue
Improve the payment service and operation efficiency o f participating banks
5 = Satisfactory; L=Likely; SB = Substantial; M = Modest; NR = Not Rated ‘-Implementation progress; ‘f - Development objective
Supervision Ratings
IP*
NR
DOT
NR
OED Evaluation
S(L(SB
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Sector Issue
Activities
Other development agencies
Sector Issues
4sian Development Bank
4ustralia
European Commission
France
IMF
Japan
Capacity building for M O F to support Analysis (tariffs, industry and subsidy) for WTO Accession.
Assistance to STAMEQ on SPSiTBT issues to do with their Standards Ordinance
MUTRAP Bridging Short-term TA to assist the beneficiaries in strengthening the capacity o f the government o f Vietnam and Vietnamese stakeholders for managing W T O accession (191,076 Euros). Multilateral Trade Policy Assistance Program (MUTRAP) Supporting Vietnamese officials in policy-making departments o f all relevant ministries involved in multilateral trade policy issues (3,250,000 Euros). Multilateral Trade Policy Assistance Program I1 (MUTRAP 11) The project purpose i s to strengthen the capacity o f the government o f Vietnam and Vietnamese stakeholders for managing W T O accession (5,100,000 Euros). Technical assistance to the NCIEC and l ine ministries for economic integration and W T O accession: Training and assisting reviewing o f legal system, capacity building and support to media. Balance o f payments statistics mission, Tax Self-Assessment Pilot mission, AML/CFT mission (to provide training on AMLiCFT measures for the relevant government agencies; fol low up the progress in the AML iCFT regime in Vietnam and the implementation o f the AML Decree, as well as the efforts for CFT which are not covered by the AML Decree); assistance in statistics o f trade, investment income, transfers, FDI, and the signing o f an agreement between Customs and Tax on sharing taxpayers database using Tax Identification Numbers (TIN); assistance in helping Vietnam to accepl the obligations o f Article VI11 o f the IMF’s Articles o f Agreement, affirming the liberalization o f current international trade anc investment transactions.. Modernization o f Customs Administration:
\DB activities in regards to hs toms are minimal; however there s a scope for coordination under the 4DB GMS project. n 2005, AusAID may fund a small echnical assistance project assisting Vietnam to draft a WTO-compliant Standards Ordinance, wi th a iarticular focus on the compliance I f i t s TBT and SPS. The project w i l l deliver Technical 4ssistance services to the 3overnment o f Vietnam (MPI, Ministry o f Finance and STAMEQ) in assuring technical and management support in six components including Fiscal Policy and Legal Advisory Services; Taxation; Customs; Accounting, Auditing, Insurance; and Statistical Analysis, Standards, among others. The component regarding taxation and Customs i s roughly U S $ 3 million, but the whole proiect i s closer to U S $ 14 millidn. - To prepare Vietnam for WTO accession in late 2005, the V C M G complements this policy goal because i t s aim i s to strengthen the customs administration. The IMF focuses their efforts on tax issues, money laundering and balance o f payments. It i s also supporting Vietnam to j o in the WTO in light o f acceptance o f Article VI11 obligations o f the IMF’s Article o f Agreement as well as the signing o f a memorandum o f understanding between customs and the tax administration.
The JaDanese Droiect directlv
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Japan (JICA)
Norway
Singapore
Sweden
UK (DFID) r USA
Capacity building for General Department o f Vietnam Customs to realize the modernization o f customs procedures. Capacity o f Master Trainers for Modemization o f Customs Administration. Main activities include organization o f training and study tours for Vietnamese officials, and develop teaching material and guidelines.
Market Access and Trade Facilitation Support for Mekong Delta Countries, through Strengthening Institutional and National Capacities Related to Standards, Metrology, Testing and Quality (SMTQ).
Intemational Trade Institute o f Singapore: To provide training, research and consulting in customized training programs, courses, seminars, conferences in international business and trade. (ASEAN Initiative for CLMV). Technical assistance on ru les o f origin (ROO): Reviewing legal framework on ROO, case studies and study tour in Sweden. Support to Trade Promotion and Export Development in Vietnam: To assist Vietnam in achieving the export growth rates set for the decade:
Support to analytical and outreach activities to prepare for WTO accession: Sectoral tari f f reduction options in industry and agriculture, WTO accession awareness-raising.
USAID supports WTO accession issues under the STAR project, mainly in the legislation area. Ma in activities include supporting M O F and General Department o f Customs in regulations on evaluation, Intellectual property, export-import tax, etc.
inderlines the efforts o f the Bank’s VCMP.
l ICA focuses i t s efforts on jeveloping master trainers who w i l l x-ovide practical training in the xeas o f Customs Valuation, Post Clearance Audit, and H S Classification. Furthermore, w i l l also act in the capacity o f staff training in regional customs offices. The goal o f this project i s to facilitate industrial development and export capabilities, thus making a sound, modem and transparent customs administration essential for this aim. ITIS delivers technical assistance training programs to Vietnamese customs officials and are involved in the Initiative for ASEAN Integration (IAI) for newer members.
Administering rules o f origin i s a core task o f customs administration.
A well-functioning, modem, and transparent customs administration i s essential for export and trade promotion and increasing export growth rates. To prepare Vietnam for WTO accession in late 2005, the V C M G complements this policy goal because i t s aim i s to strengthen the - customs administration. U S A I D supports WTO accession which includes: (a) legislation; (b) organization (in particular the establishment o f valuation and post- release control units in customs); and (c) some training.
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Annex 3: Results Framework and Monitoring
VIETNAM: Customs Modernization Project
Results Framework
To facilitate trade, increase revenue :ollection, improve the production If foreign trade statistics, and :dance community protection and national security by improving the :ffectiveness, efficiency, accountability and transparency o f the Customs Administration. In addit ion, t h e p ro jec t would b e a k e y factor in facilitating Vietnam’s accession to the WTO and secur ing the gains from greater i n teg ra t i on into the world trading system.
Componen t One:
1. Improved Customs Systems and Procedures.
Component Two:
2. A more effective and efficient organizational and management structure
Outcome Indicators
1 Client perception o f Customs’
1 Total revenue collection cost
performance
over revenue collected
1 Declarations per number o f staff
Mean import clearance times for commercial shipments at ports, roads and airports
subjected to physical inspections
infringements detected as a results o f Customs’ intervention pre o r post clearance.
1 Percentage o f consignments
1 Revenue generated and/or
Component One:
1 Timely development o f easily accessible legislation to support modernization.
1 Simpli f ied procedures with reduced documentation requirements.
1 Introduction o f risk management and post clearance audits. . Development o f a customs broking industry with DTI capability.
1 Timely revenue reports t o MOF with accurate revenue by impor t category.
Componen t Two :
1 Reduction in the number o f citylregional offices and a new HQ structure.
1 Assessment o f staff needs under new organizational structure.
1 Retraining and redeployment o f
Use of Outcome Information
h t c o m e indicators provide an werarching framework for project nanagement, monitoring, progress ,eporting and periodic reviews.
Component One:
These results indicators wil l be used to track progress in implementing component one o f VCMP on Customs systems and procedures.
Component Two:
Indicators wil l be used to track and veri fy progress in implementation o f the Customs modernization agenda on organizational restructuring and management.
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Component Three:
Development o f applications: (i) for handling customs operations such as declaration processing;
3. Improved Information Collection and Management
Indicators wi l l be used t o monitor progress in I C T development and application in VCMP.
I staff.
1 Management accounting and internal auditing unit created.
a Supply and installation o f new equipment.
1 Development o f Asset register.
1 Change management report.
Services charter and service standards developed.
Component Three: I Component Three:
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Annex 4: Detailed Project Description
VIETNAM: Customs Modernization Project
The V C M P wil l be implemented over five years at an overall cost o f U S $ 77.7 million, o f which US$ 65.9 mi l l ion will be financed by IDA and US$ 11.8 mi l l ion by the Government. The project will achieve i t s development objectives through three operational components and one project support component. Detailed descriptions o f the project components are as follows.
Component 1. Customs System and Procedures
Total financing required: US$4.2 mi l l ion IDA Credit: US$ 2.6 mi l l ion Government contribution: U S $ 1.6 mi l l ion
This component i s designed to assist the GDVC to introduce a range o f modern systems and procedures that will reduce clearance times, provide enhanced transparency and predictability for traders, significantly reduce red tape and lower transaction costs. Specifically, the component wil l support the development and implementation o f a modern, transparent and accessible legal framework, modern systems and procedures based on risk management and post clearance audit, and harmonized and simplified business processes based on internationally agreed standards, notably the WCO Revised Kyoto Convention on the Harmonization and Simplification o f Customs Practices. The component will also focus on improving the level o f compliance through a more professional approach to Customs enforcement and by achieving enhanced cooperation with other border-related government agencies. A s a part o f this component, attention will be paid to improving the capacity and performance o f the Customs brokering industry. Likewise, attention will be paid to reducing informal trade and commercial fraud through the development o f an enhanced compliance and enforcement infrastructure based on the effective use o f intelligence and improved research and analysis capabilities.
Sub-component 1.1. Legal Framework
A properly designed legislative management plan will be developed to provide an overarching and cohesive structure to ensure successful passage and implementation o f the required legislative changes necessary to achieve full implementation o f the project. The plan will identify the main legislative tasks, key stakeholders, time frames, required resources and desired outcomes. Several areas o f current legislation need to be improved, particularly in relation to electronic transactions, the risk management environment, post clearance audit and Customs applications. A database o f laws will be created and structured in a way that will make the legislation easier to understand and reference. Once the various decrees and circulars are identified and collated according to their subject matter, and cross referenced, they will then be made easily accessible to the public.
The VCMP wi l l provide assistance to develop a legislative management plan, draft new legislation, develop a structured set of laws and establish a practical outreach program, including preparing relevant publications and improvements to the website. I t wi l l support the translation of legislation.
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Sub Component 1.2. Intervention by Exception
The implementation o f a comprehensive compliance managementhmprovement strategy, together with the introduction o f a risk management philosophy, are essential to assist officials to move from the current ‘control’ mentality to one that balances control with facilitation. The compliance management strategy will be developed with the full participation o f G D V C officials and will examine the overall approach to managing and progressively improving the level of compliance in Vietnam. Fol lowing the development o f the strategy, work will commence o n the introduction o f risk management into a l l aspects o f G D V C operations. A key element o f this approach will be the creation o f a strategic risk register made operational by developing a series o f r isk profiles that will then be used for the day-to-day implementation o f risk management in Vietnam. The profiles wil l also be incorporated into the IT systems to ensure comparable treatment across the country. Fol lowing the design o f the risk management system, a training program will be developed and implemented in two stages. Firstly, training will be provided to specialists who will form the base staffing for the Risk Management Unit at Headquarters. Secondly, training will be provided for operational personnel. ‘Train-the-trainer’ techniques will be employed wherever possible.
The VCMP wi l l support the development of a comprehensive compliance management / improvement strategy, the implementation of risk management throughout the organization and the design and delivery of specialized training.
A comprehensive post clearance audit regime will be introduced to support the risk management system. Such a regime differs significantly f rom the current audit system which i s totally reactive due to limits imposed by the current legal framework. The L a w will need to be amended to allow for audits that seek to verify data rather than confirming the existence o f commercial/economic crime. Post clearance audit is, however, a complex activity and its effective implementation will require significant investment in training and technical assistance. W h i l e JICA has already provided training in post clearance audit and i s developing a group o f ‘master trainers’, additional technical support and training will be required to establish the regime and initiate a comprehensive audit program.
The VCMP will support the establishment of a comprehensive post clearance audit capacity within the GDVC, assistance to prepare a sound national audit plan, the production of relevant operational manuals and the design and delivery of practical training in post clearance audit techniques.
Sub Component 1.3. Harmonized and Simplified Business Processes
This sub-component will focus o n harmonizing and simplifying the business procedures and documentation in line with the provisions o f the Revised Kyoto Convention o n the Harmonization and Simplification o f Customs procedures and will be undertaken in advance o f IT system desigdadaptatiodimplementation. As part o f this process, there will be a complete review o f the support documentation required to be submitted with Customs declarations. It is clear that the current ‘document pack’ i s excessive by international standards and contains many
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documents that are no longer required. Following this process and guided by i t s results, bidding documents will be prepared for the Vietnam Customs Information System (VCIS). It is recognized, however, that the type o f business process re-engineering required i s complex, as is the preparation o f comprehensive bidding documents, and would benefit f rom external assistance to facilitate and validate the process.
The VCMP wi l l support the conduct of a comprehensive review and rationalization of documentary requirements, the re-engineering of import/export/transit procedures and the preparation of detailed bidding documents for the VCIS.
Establishing the correct valuation, classification and origin o f goods in l ine with internationally agreed standards i s a core role for Customs. The GDVC needs to upgrade their sk i l ls and experience in each o f these technical areas. W h i l e some training has already been provided by donors and i s currently being supported by a JICA project (see Annex 2), further training and assistance i s needed to ensure al l necessary provisions are applied in a consistent and transparent manner throughout the country. Particular emphasis should be placed o n developing training materials and manuals, and on training a pool o f technically proficient officials who can act as content matter specialists and in-house trainers.
The VCMP wi l l support the development of training materials and the provision of training in the areas of valuation, classijkation and origin.
Ensuring the speedy and efficient clearance o f goods and conveyances crossing land borders i s important both for Vietnam and neighboring countries. Current import, export and transit procedures will need to be reviewed and redeveloped to ensure that the processes are streamlined and in l ine with regional and international best practice. Issues that will be addressed include the identification o f opportunities for more effective cooperation both between the GDVC and other government agencies operating at the border, and between the G D V C and the Customs Departments in neighboring countries. The latter will resul t in the development o f more effective transit arrangements and the rationalization o f inspection activities.
The VCMP wi l l support a review of current procedures for import, export and transit at land border stations and the development of an action plan to guide the implementation of modern systems and procedures.
Sub-component 1.4. Transparency and Consistency
A major weakness in the current logistics chain for Vietnam i s the lack o f a group o f qualified professional customs procedure agents, commonly referred to as Customs Brokers. The introduction o f a more formalized Customs Brokers regime i s critical to the success o f the automation process and to the development o f a more productive partnership with traders. Technical assistance i s required to help GDVC to develop and promote the establishment o f a Customs Broker industry and to develop an appropriate and transparent regulatory framework.
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The VCMP wi l l support the assessment of legislative requirements, the establishment of licensing systems with competency requirements, and the planning and conduct of awareness and training programs for ofJicials and representatives of the private sector.
In order to improve transparency and provide an increased level o f certainty for traders and investors, it i s important to provide a practical and easily accessible process for importers to request advanced rulings on tari f f and valuation. Once a ruling has been issued by Customs it will be binding, thus allowing traders to import goods in the full knowledge o f the classification and valuation treatment Customs will apply on importation. Moreover, where disputes may arise between traders and Customs officials, it i s important that traders have the right to dispute any decisions that might be taken via an independent appeal process.
The VCMP wi l l support the development and implementation of advance tariff and valuation ruling systems and the strengthening of existing appeal mechanisms.
Sub-component 1.5. Compliance and Enforcement
There i s a need to improve capability o f G D V C in information gathering and analysis in order to support the proposed changes in procedures envisaged under the project, particularly in the areas of risk management and post clearance audit. I t i s proposed that assistance be provided in the planning and development o f a professionally-based Information Gathering and Analysis Unit within G D V C Headquarters and subsidiary units at the regional level. This wil l involve the design and conduct o f appropriate technical training to selected specialists followed by periodic advice o n h o w to develop improved information gathering and analysis systems and h o w to make the best use o f information in the application o f various Customs procedures. The strategy and techniques o f commercial analysis and client segmentation are entirely outside the experience o f the GDCV and indeed much o f the State administration. For this reason, technical assistance will need to be extensive.
The VCMP wi l l support the development of a professional information gathering and analysis capacity in the GDVC together with an enhanced capacity for research and analysis. This process wi l l involve the identijkation of a set of minimum competencies, and the development and conduct of an integrated training package. In addition, the project w i l l support an on-the- j ob mentoring program to assist oficials to transfer skills to the workplace.
Component 2. Organizational Restructuring and Resource Management
Total financing required: U S $ 26.8 m i l l i on IDA Credit: U S $ 21.5 mi l l ion Government contribution: US$ 5.3 m i l l i on
This component is designed to underpin the technical system and procedural changes, and the I C T developments, which will be financed under the project and will assist the G D V C to develop a modern organizational structure and strengthen its human, financial and physical resource capacity.
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Sub-component 2.1. Organizational Restructuring
The G D V C currently operates at a three-level organizational structure consisting o f headquarters, cityhegion and branch level offices. While the structure i t se l f i s sound, there i s a need to improve control and communication between the central administration and the operational interfaces o f the organization. Given a profile o f the different workloads as measured in terms o f declarations processed, the size o f the labor force and revenue collections, it seems some rationalization o f the number o f cityhegional offices would be desirable in the longer term. Such a rationalization must, however, fo l low a detailed review and be phased in gradually, as and when improvements in efficiency and effectiveness are achieved and in accordance with the rollout o f the IT system.
The VCMP wi l l support the conduct of a comprehensive assessment of the current structure and the identijkation of any opportunities for rationalization.
In addition to the above, it is proposed that the Headquarters structure needs to be reviewed to ensure that the organizational model appropriately reflects the priorities and functional responsibilities being developed under the project. This will require the strengthening o f some departments and reductions in others, and adjustments to clarify roles and responsibilities and to eliminate any functional overlaps.
The VCMP wi l l support the review of the organizational structure and the development of a new organizational model that reflects the new roles, responsibilities and priorities of the GDVC. If in following the review it is determined that some officials are surplus to requirements and cannot be re-trained or redeployed within a reasonable timefiame, financing wi l l be sought to pay for redundancy packages (in line with government policies and guidelines).
Sub-component 2.2. Human Resource Management
The GDVC does not maintain a dedicated human resource function and therefore key human resource management issues are dealt with by a narrowly focused Personnel branch, and many tasks are handled at the region and branch level. I t i s important therefore that a more comprehensive and strategic approach is taken to human resource management issues within the GDVC. Areas in need o f special attention include HR records, personnel policies and practices, performance management, and training and staff development.
The VCMP wi l l support the provision of training and technical assistance to establish a robust human resource management functions in the GDVC. This wil l involve the development of a HR strategic plan, the provision of a computerized HR system and database, the conduct of a detailed staffing requirements assessment, and the development of new personnel policies and practices (including recruitment, selection, mobility, remuneration, performance management and separationhedundancy).
Sub-component 2.3. Human Resource Development
Human Resource Development i s regarded as a critical component o f the VCMP. While specific training and technical assistance activities have been identified to support specific component
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activities, there i s a need to focus o n developing a sustainable capacity for the G D V C to develop and improve the competencies o f i t s officials. As such, the project will focus o n improving the capacity o f the Training Academy to meet the majority o f G D V C training and development needs. This will be achieved by developing and implementing a long-term ‘twinning’ arrangement with a specialist vocational training institute or similar organization. As a f i rs t priority the project will finance the development o f a comprehensive training strategy, the conduct o f a detailed training needs analysis, and the development o f a new training curriculum addressing the GDVC’s administrative, technical and management development needs.
The VCMP wi l l support the establishment of a twinning arrangement with an internationally recognized provider of relevant vocational education designed to underpin the long-term development of the Vietnam Customs College.
Sub-component 2.4. Financial Resource Management
The GDVC does not maintain an effective Management Accounting function and this wil l be required in order to improve the financial performance o f G D V C by developing a resource that can provide financial cost information to enhance management decision-making. Likewise, the Internal Audit Department does not perform conventional internal audit functions. Given the overall expenditure o f over US$50 mi l l ion annually and the devolved expenditure mechanisms, it will be necessary to strengthen this function.
The VCMP wi l l support the development of a strengthened management accounting capability and the development of a sound internal audit function.
Sub-component 2.5. Physical Resources
The funding o f infrastructure maintenance is included in the annual budget and capital funding occurs mainly through an annual Government grant, though this i s relatively small at around VND 10 bi l l ion per year. In certain circumstances, regional authorities may also provide additional funding. A draft plan has been developed in December 2004, but not yet approved, that quantifies the overall infrastructure development requirements at approximately $80 million. The current infrastructure development plan cannot be funded solely o n the basis o f existing revenue and grants from central and regional Government sources. It i s therefore proposed that some support funding be included as part o f the project to assist in funding essential infrastructure associated with implementation o f the I C T component. Likewise, modern contraband detection equipment, such as mobile x-ray scanners, will complement the risk management system to ensure certain cargo i s cleared without undue delay.
The VCMP wi l l support modest infiastructure investments associated with the more effective control of assets and equipment and the refurbishment of facilities necessary to ensure effective security and maintenance of ICT investments made under the project. It wi l l also finance the procurement of contraband detection equipment including scanners.
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Sub-component 2.6. Management Support and Governance
There i s a need to develop a strategic planning capacity within the G D V C to manage the overall Customs modernization process. I t i s proposed to develop a professional planning management capability by establishing a specific planning division under the direct supervision o f the Deputy Director General responsible for modernization. The planning division will be responsible for both project management and the equally important change management aspects associated with project implementation.
The VCMP wi l l support the establishment of a Planning Department and Change Management Unit to ensure effective planning, sequencing and implementation of the changes being introduced as a part of the project and the wider modernization program
Many Customs administrations around the world have established client service standards covering key operational activities and outputs f rom the organization. Typically, service standards will cover such issues as time for processing and release o f goods, time taken to process tar i f f and classification advices, time taken to process refunds, time taken to hear appeals against Customs decisions, etc. Mechanisms need to be established to ensure operational information on Customs’ performance in respect to each o f the chosen standards i s captured in a reliable and consistent manner across the country. Regular reports must be produced and Customs performance against the standards analyzed and reported to clients. A standard set o f client service standards will be prepared covering al l key service areas. The service standards will be monitored and results published at quarterly intervals.
In order to successfully manage a modern Customs administration it is necessary to have a comprehensive understanding o f the complexity o f Customs operations and processes. Key performance indicators should be developed to provide information o n the organization’s Performance in areas such as imports, exports, transit, workload, workflow, compliance, valuation, duties and taxes collected, etc. The Bank has funded the development o f a process for measuring the time taken for the release o f goods; however, similar performance indicators covering other core Customs functional responsibilities will have to be established, and methodologies for data collection, analysis and reporting identified and implemented.
The VCMP wi l l support the preparation and implementation of a series of client service standards and performance indicators covering all key functions of the GDVC and the identification of appropriate monitoring and reporting mechanisms.
Sub-component 2.7. Integrity and Good Governance
The changes that will be introduced during the course o f the project will partially reduce the integrity and governance risks by improving supervision and accountability and reducing incentives for corruption. The nature o f Customs work does, however, entail a number o f inherent r isks and these need to be mitigated by the development and implementation o f a comprehensive integrity/anti-corruption program based on the provisions o f the WCO’s Revised Arusha Declaration on Integrity in Customs.
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The VCMP wil l support the development and implementation of a national integrity development plan.
Component 3. Information and Communication Technology
Total financing required: U S $ 4 1.4 mi l l ion IDA Credit: U S $ 38.8 mi l l ion Government contribution: US$ 2.6 mi l l ion
This component i s designed to provide the G D V C with a modern I C T environment and supporting infrastructure that will facilitate the adoption o f modern approaches to Customs administration and will include: a) the development and implementation o f a comprehensive and modern Management Information System that will support the redesigned customs processes, the collection o f data for management, planning and statistics purposes, and improve access to information for the public; b) the procurement o f hardware necessary to support the national rollout o f the new system; c) the funding o f appropriate telecommunications equipment and infrastructure; d) support for the nation-wide rollout and the training o f customs officials at al l levels; and e) measures to improve the capacity o f GDVC to manage the new system and I C T infrastructure.
Over the five years o f the project, this component will be divided into short- and medium-term phases. The f i rs t phase will cover: (i) init ial procurement o f computer and communications equipment; (ii) procurement o f a core customs management information system; (iii) pilot testing and init ial training on the customs software; (iv) procurement o f management systems and development o f a Web Portal; and (v) planning the rollout o f the core customs software. The second phase will cover: (i) procurement o f regional and branch computer and communications equipment; (ii) rollout o f regional and branch systems; (iii) training o f nation-wide custom staff; (iv) establishment o f a post-implementation technical assistance unit at G D V C and; v) addition o f functional improvements as they emerge f rom technical assistance components such as improved information gathering and analysis.
Sub-component 3.1. Management Information Systems
Regarding the applications, this component will finance the development or acquisition o f information systems to allow the implementation over the long-term of: (i) core customs operations containing, among others, declaration processing, harmonized system tar i f f and documentation control, determination o f customs value, control o f goods in transit, risk management, production o f trade statistics and forecasts, broker applications, payments and financial accounting; (ii) customs management containing, among others, human resources management, payroll and assets management; and (iii) the establishment o f a Web Portal, to provide access to information to the public and to allow communication and on-line processing between customs and the trade community.
Based on the previous experience o f GDVC, the application to support the core business o f the customs will, wherever possible, be the COTS (Commercial Off-The-Shelf) package which will
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be a modern Customs Management System, targeted at collecting data directly f rom traders and, by minimizing the keyed input at Branches and Regions, facilitating the work o f Customs Officers in their monitoring and inspection roles. The applications will use Intranet and Internet to connect al l Customs departments and offices, Ministries, other border agencies, banks and stakeholders f rom the trade and transport communities.
Sub-components 3.2. and 3.3. Computer and Telecommunications Equipment
Regarding the hardware required for the M I S operation, the component will finance the provision o f computer equipment for a l l levels at GDVC. All Regions, Branches and Departments will be equipped with a level o f computer equipment necessary to carry out the new requirements o f modernization. This will include PCs, printers, scanners, communications equipment, security devices and software.
For the central level, the component will finance the procurement o f servers, (including backup server), database licensing and telecommunications equipment. The procurement will be undertaken in batches. The first batch o f general purpose workstations and similar equipment could already be procured in the init ial phase o f the project.
Sub-component 3.4. Capacity Building
The V C M P will finance the capacity building activities related to the implementation o f the information systems. Technical assistance wil l be provided to the I C T unit at G D V C to strengthen its management and technical skills in order to undertake the development and implementation o f the new information systems.
In addition, the V C M P will finance training activities o n new applications required to implement the systems at central, regional and branch levels o f customs for technical staff and end-users both in customs and the private sector.
Sub-component 3.5. Nationwide Implementation
Under this sub-component, the project will finance the provision o f technical services to rollout the system to al l the regions and Branches o f GDVC.
The services will include init ial on-site technical assistance and establishment o f a unit to support post implementation activities. These are large scale activities which will require extremely detailed planning, preparation and execution.
Component 4. Project Management Support
Total financing required: U S $ 4.6 mi l l ion IDA Credit: US$ 3.0 mi l l ion Government contribution: U S $ 1.6 mi l l ion
38
The VCMP is expected to be a large and complex undertaking requiring a significant degree o f expertise both in project management and in project specific content. To ensure effective implementation o f project components, al l activities and project inputs will need to be carefully planned and scheduled to ensure optimal effectiveness. Likewise, timely and efficient overall project management expertise and procurement experience will be required to ensure effective and transparent project implementation. In many cases, the project would benefit f rom access to international experience and advice and, while a significant amount o f short-term expert assistance is provided for under the individual components, i t i s considered essential that each operational component be supported by a long-term in-country advisor responsible for the overall coordination o f project activities and inputs. To ensure the advisors are able to work effectively with their GDVC counterparts, they should be supported by locally engaged administrative assistants/translators.
The VCMP wi l l finance the costs of an experienced international project management advisor and experienced procurement, finance and disbursement specialists to assist the Project Manager to implement all aspects of the project. The project wi l l also finance the costs of an interpreterhranslator and appropriate administrative assistance including office equipment, a project vehicle and operating costs for the PMU. Whilst specialist assistance is also required for the ICT component, this is provided for and speciJed in the component itself
39
Project Cost by C:omponent
Indicative Cost il)A Credit Guvernniettt C‘ontrihtitioit
(1KS nin)
Amount %O of ((IS$ I D A mn) Credit
Amount YO 01 (lM ntn) total
Annex 6: Implementation Arrangements
VIETNAM: Customs Modernization Project
The Socialist Republic o f Vietnam, through its MOF, will be the Borrower for the International Development Association (IDA) credit. The beneficiary will be the GDVC. Other beneficiaries wil l be other Government Ministries, including the Committee o n Fighting Against Smuggling, Counterfeiting and Commercial Fraud; border agencies; and other stakeholders. Proposed implementation arrangements include the following elements: (i) Customs Modernization Steering Committee; and (ii) PMU.
(i) Customs Modernization Steering Committee. Customs reform is currently directed by a Steering Committee, headed by the Vice Minister o f Finance, and implemented by an Executive Committee, consisting o f representatives f rom the MOF, G D V C and related l ine ministries (According to Decision No. 3219/QD-BTC dated Oct 5, 2004 o f Minister o f Finance). I t is proposed that the Steering Committee will: (i) oversee the modernization process; (ii) provide guidance to the P M U in project implementation and the work o f the PMU; (iii) co-ordinate with other relevant institutions in Vietnam and businesses; and (iv) foster dialogue with the World Bank.
(ii) Project Management Unit. It i s proposed that the Project director o f the V C M P be one o f the most senior members o f GDVC’s Management, responsible for Customs modernization. The Director should manage to make best use o f project outcomes to ensure effective and speedy implementation. H e or she should attend al l the CMSC Meetings and be empowered to make decisions in relation to implementation o f the project. The Director will convene and chair coordination meetings with other Ministries, agencies and stakeholders as required. The P M U should include a Project Coordinator, a Procurement Specialist, a Financial Management Specialist, an I C T Specialist and a Customs / Business Process Specialist, as well as support administrative personnel. I t i s considered that the existing Project Preparation Unit (PPU) could form the core o f the proposed PMU, thus ensuring continuity, but it will need to be strengthened with additional resources, including international consultancy and technical expertise. The P M U will cover procurement, loan management and reporting functions acceptable to IDA. The P M U will coordinate the project management, prepare terms o f reference, hire consultants and contract for services, training and goods as necessary for the implementation o f the project.
41
Annex 7: Financial Management and Disbursement Arrangements
VIETNAM: Customs Modernization Project
A. Financial Management Arrangements
Country Issues: Among the key findings o f the 2001 C F A A that are relevant to financial management (FM) aspects o f the Project are the following: (a) Reports f rom the public expenditure accounting system attempt to capture data in too much detail, while management reports for effective decision-making are not widely used; (b) As the requirements o f public expenditure accounting are very comprehensive and detailed, compliance with the requirements is challenging for al l units particularly at lower levels; and (c) As accounting staff focus on more easily accomplished requirements like mechanical verification o f payments and receipts, regular and efficient monitoring o f State budget information for effective use o f public funds is not always carried out in a timely manner. The C F A A also reports that ‘the current budget arrangement in Vietnam suffers from a lack o f transparency for the achievement o f objectives’. The conclusion o f the C F A A report i s that there i s a certain degree o f fiduciary risk in the use o f public resources, although overall, the fiduciary r isk for this project i s manageable for on-budget items considering the steps that are envisioned to be taken under the financial management plan.
Strengths and Weaknesses, and Risk Analysis: Although GDVC has been implementing some internationally funded projects, their experience with Bank-financed projects and with Bank financial management requirements i s quite limited. At the time o f project appraisal, the Project Preparation Unit (PPU, which is slated to become the Project Management Unit, or PMU, as the Credit becomes effective) has been recruiting a financial specialist whose qualifications and experience meet minimum IDA requirements. The PPU also has for i ts use an accounting software package capable o f recording transactions by project, expenditure category, project components and funding source. However, there s t i l l i s a requirement to carry out additional set-up work with this software package to make it ready for the project. In summary, the key weaknesses are: (i) lack o f understanding o f IDA procedures and requirements o n FM, and o f disbursement procedures; and (ii) missing key steps in the set-up o f the computerized FM system that will facilitate periodic and annual financial reporting purposes. An Act ion Plan has been developed to address the weaknesses and improve the FM capacity o f the PPU/PMU. I t i s attached at the end o f this annex.
Implementation Arrangements: As stated above, a PMU will be established in G D V C which will undertake preparation, implementation, and monitoring o f activities under the Customs Modernization Project. This P M U will be the successor to the already existing PPU. A Special Account will be opened and operated by the P M U to facilitate payments for project activities.
Staffing: At the time o f appraisal, a financial officer and an accounting assistant are being recruited by the PMU. Although the proposed individuals have skills and experience meeting minimum IDA requirements, additional training and support would be given to them by the Bank’s project team and a consultant, to improve their capacity for the expected duties.
Accounting Policies and Procedures: The PMU would use the accounting system promulgated under Decision #214 f rom the Ministry o f Finance. Under that accounting system, sub-accounts
42
flexibly record project expenditures by expenditure category or by project component. A chart o f accounts will be developed to accommodate the capture o f expenditure data classified by project components and expenditure categories.
Amount o f the Credit Allocated
(US$ Mn)
Reporting and Monitoring: The PMU would be responsible for preparation o f financial reports on activities in the Special Account. The financial statements will be prepared in compliance with international and national standards. Beside that, the P M U would prepare the Financial Monitoring Reports (FMRs) to meet practical monitoring requirements. A set o f FMR formats will be agreed upon during negotiations. The FMRs should be part o f the periodic Progress Reports submitted by the PMU. Normally, these FMRs would include:
Percent in total Financed
% of Expenditure to be
0
0
0 Special Account Statement; 0
0 Procurement Process Monitoring.
Sources and Uses o f Funds by expenditure category; Uses o f Funds by project activities/components;
Implementation Progress by contract (combined with Contract Monitoring);
(1) Works (2) Goods
(3) Consultants’ Services (4) Costs o f roll-out o f
(5) Training (6) Incremental Operating
Customs operations systems
costs
TOTAL
B. Disbursement Arrangements
2’2 3.3 95% 46.1 70.0 100% o f foreign expenditure,
100% o f local expenditure (ex- factory cost) and 90% o f expenditure for other items procured locally
8.9 13.5 100% 3.6 5.5 100%
4.0 6.1 100% 1.1 1.7 100%
65.9 100.0
Allocation of Loan Proceeds: Funds from the IDA credit (US$ 65.9 mil l ion) wil l be disbursed against: (i) 100% o f foreign expenditure or 100% o f local expenditure (ex-factory cost) for goods; (ii) 90% o f local expenditure for other items procured locally; (iii) 95% o f expenditure o f c iv i l works; and (iv) 100% o f expenditure for Consultants’ services.
C a tegorv
43
Use o f Statements of Expenditures (SOEs): For works costing less than US$lOO,OOO equivalent per contract, goods costing less than US$50,000 equivalent per contract, services provided by consulting firms costing less than US$lOO,OOO equivalent per contract and services provided by individual consultants costing less than US$50,000 equivalent per contract, withdrawals under the Credit Agreement would be made on the basis o f statements o f expenditure, normally v ia the Special Account. The related payment documents will be made available for the required audits, as well as to the Bank supervision missions upon request. All other expenditure above the SOE thresholds will be submitted on the basis o f full documentation.
Special Account: A Special Account (SA) would be opened for the P M U in a commercial bank with terms and conditions satisfactory to IDA, and with an authorized allocation o f US$ 1 mi l l ion equivalent. Replenishment applications should be submitted monthly or whenever 30% or more o f the authorized allocation has been drawn from the account, whichever occurs first. For withdrawals outside the Special Account (applications for direct payment or for issuance o f Special Commitments) a minimum application value o f 20% o f the authorized allocation o f the Special Account would be observed. To speed up project implementation, retroactive financing would be permitted to the extent o f US$ 200.000 equivalent for payments made prior to the date o f the Credit Agreement but after the appraisal date o f April 28, 2005, for contracting urgently required goods, works and consultant services. The procurement procedures shall be in accordance with the Bank’s Procurement Guidelines in order for the eventual contracts to be eligible for Bank retroactive financing, and the normal review process by the Bank shall be followed.
Funds Flow: This is a traditional investment project. Accordingly, the P M U would be required to check and approve expenses against their eligibility for project activities before making payment from the Special Account.
C. Audit Arrangements
Financial statements o f the project would be prepared by the PMU on an annual basis. These statements would be audited on an annual basis in accordance with international auditing standards and in compliance with the independent auditing regulations o f Vietnam. The auditor’s reports will be made available to IDA within six months o f the close o f the fiscal year. The auditor would express a single audit opinion covering the Project Accounts, the use o f SOEs and the Special Account. A management letter addressing any internal control weaknesses o f the implementing agencies (PMU and GDVC) will also be provided by the auditor together with the audit report.
The P M U would select auditors for the project fol lowing IDA procurement procedures. The TOR for the audit, as wel l as the auditor selected, must be acceptable to IDA.
44
Attachment - Action Plan on Financial Management
Weaknesses (i) Lack o f understanding o f IDA procedures/ requirements on F M and disbursement.
(ii) Lack o f sufficient set-up o f the current computerized system to facilitate periodic and annual financial reporting.
Action P M U to hire a consultant to develop a project FM manual. Training should also be provided by the consultant for PMU’s staff.
P M U to make the required additional effort to set up i t s current FM software to facilitate quarterly and annual financial reporting purposes for both IDA and the Government o f Vietnam.
By whom PPU/PMU
PPUPMU
By when
Negotiation
Negotiation
45
Annex 8: Procurement Arrangements
VIETNAM: Customs Modernization Project
A. General
Procurement for the proposed project will be carried out in accordance with the World Bank’s ’Guidelines: Procurement under IBRD Loans and IDA Credits’ dated M a y 2004, ‘Guidelines: Selection and Employment o f Consultants by World Bank Borrowers’ dated M a y 2004, and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Credit, the different procurement methods or consultant selection methods, the need for pre-qualification if any, estimated costs, prior review requirements, and time frame have been agreed between the Borrower and the Bank in the project’s Procurement Plan referred to in Section C below.
Procurement o f Works: Works procured under financing from the Credit will be for urgent interior remodeling and refurbishment o f the G D V C office and computer space. All related procurement will fal l wel l under the threshold US$2 mi l l ion each for which N C B may be used based on the sample Standard Bidding Documents (SBDs) agreed with the Bank. Contracts below US$30,000 each may be procured using shopping procedure and documents agreed with the Bank. Local funding and procurement procedures, i.e., no funds f rom the Credit, will be used for al l other work towards modernizing the building infrastructure o f Vietnam Customs.
Procurement o f Goods: Goods procured under this project will include (i) the acquisition and adaptation (or the development) o f a new Management Information System (MIS) that wil l integrate the support o f Customs processes, the collection o f trade and other operational data, the management and administration o f Customs, and a web site and services for the public; (ii) upgrades in computer hardware and network infrastructure to support the operation o f this new system nation-wide; and (iii) the massive technical services needed to support the nation-wide roll-out o f the system and the training o f users. Other goods procurement will be for investments related to new or refurbished buildings (such as furniture), special equipment facilitating the customs inspection function (such as vehicle scanners, x-ray machines, C C T V systems and other equipment supporting inspection and enforcement), and office equipment and computers needed by the Project Management Unit. The overwhelming majority o f goods will be procured under I C B using the Bank’s SBDs. In accordance with their suitability for a specific procurement package, SBDs for the I C B procurement o f Information and Communications Technology (ICT) include the harmonized SBD for Goods, the SBD for the Supply and Installation o f Information Systems (single- and two-stage), the RFP approach and any new SBD as may be available at the time o f the actual procurement in l ine with the Bank’s guidance for I C T procurement.
I C B as detailed above will be used for al l goods procurement packages above US$lOO,OOO each. Packages under US$1 00,000, but above US$20,000 each, and meeting the related conditions stipulated in the Guidelines may be procured by NCB. Packages below US$20,000 each may be procured via shopping procedures.
Once the functional specifications for the MIS have been f irmed up based o n thorough market analysis, the Borrower will make a determination o n whether the MIS system i s to be procured
46
as one package or as two separate packages (software and implementation). Procurement will be conducted competitively, unless a case can be made, in accordance with the Bank’s Guidelines, that direct contracting/single source selection from non-commercial or private entities presents clear advantages over competition. The final decision on the procurement method during implementation will be subject to the Bank / RPM prior review and approval.
Procurement o f Non-Consulting Services: N o procurement i s foreseen under this category.
Selection o f Consultants: Consulting services will be required in al l components o f the project. Notably, these services will be required for analytical, training and implementation work o n improvements to the legal framework, organizational processes, development o f human resources and management capacity (including short-term capacity enhancements for managing the project and especially i t s I C T component). Mostly, firms will be selected for these assignments under QCBS and QBS procedures. Some assignments will be structured in two phases, with the possibility to engage the consultants selected for Phase 1 to continue their work in Phase 2 if this is conducive. Contracts estimated to cost less than US$lOO,OOO each may be procured through selection based on Consultants’ Qualifications (CQS). Where appropriate for the task, international and local specialists may also be engaged as individual consultants. For some o f the training design and delivery, it will be advantageous for the project to al low the consideration o f Vietnamese academic and other government training institutions which may uniquely be suited to take o n this work. In this case, selection could be made among local academic govemment institutions or by direct contracting subject to the Bank’s prior agreement. While this may happen for a number o f assignments, they will each individually be modest in cost. As for twinning partners, selection could be possibly l imited to single-sourcing, as vocational education institutions with skills and curricula in customs administration are s t i l l very few in the world. There will be full, prior approval and review by the Bank if limited or single- source selection wil l be indicated.
Operating Costs: Operating costs, except the salaries o f career c iv i l servants assigned to the project, wil l be financed by the project and procured using the PMU’s administrative procedures which were reviewed and found acceptable to the Bank. I tems suitable for procurement as works or goods, such as purchases o f computer and office equipment or vehicles, will be procured by the methods mentioned above. Most o f the operating expenses, however, will be claimed against the Credit v ia statements o f expenditures. These costs may include office consumables, communications (telephone, Internet subscriptions), office and other rentals, fuel, domestic travel and subsistence costs incurred by project personnel (civi l servants and consultants) related to piloting and rollout o f the MIS, travel and subsistence costs o f officials attending training, and any similar operating costs. However, these provisions will not preclude the Government to provide for some or al l o f these costs from counterpart funds. The wages o f required local support personnel o f the PMU - as far as possible already itemized and budgeted in Component 4 - may also be financed under this category.
Others: The project foresees the possibilities o f study tours, and o f staging workshops and conferences (in Vietnam) or attending conferences abroad to discuss progress and emerging results o f the project. The project also includes an allocation to finance severance payments that
47
could result f rom the organizational restructuring o f Vietnam Customs. Related costs may be covered by the Credit subject to the Bank’s prior agreement in each case.
B. Assessment of the Agency’s Capacity to Implement Procurement
Procurement activities wil l be carried out by a Project Management Unit (PMU) which will be the successor, in an upgraded manner, o f the Project Preparation Unit (PPU) which already operates with the support o f the project’s PHRD grant.
The capacity o f the PPU/PMU to implement procurement actions for the project was assessed during the pre-appraisal mission. The organizational placement o f the unit within GDVC, i t s authority to conduct project activities, and its current staffing were found adequate for project preparation but not adequate for project implementation.
The key issues and r isks concerning procurement for implementation o f the project have been identified and include: (i) the absence o f a formally established project implementation agency, as this agency i s normally only established after the Government’s approval o f the project; (ii) inadequate procurement and technical capacity o f the PPU which i s expected to become the P M U for the project; and (iii) unfamiliarity o f the PPU and G D V C with the Bank’s procurement policies and procedures. The main corrective measures which have been agreed are:
Formal establishment o f the P M U by November 2005. Staffing the P M U with one to two procurement officers by December 2005. Technical Assistance on procurement: an international procurement expert with special expertise in I C T procurement will be recruited. W h i l e not working full-time for the project, this expert will be available at a l l critical procurement steps, and particularly in the f i rs t years o f implementation, notably preparation o f the key bidding documents for the information system and consulting services, bid evaluation, and contract supervision. Training for the PMU’s procurement officers in the Bank’s guidelines and SBDs through course attendance as available in the region and beyond. Procurement training for other staff o f the PMU and G D V C staff involved in project activities, as may be available in Hanoi f rom the Bank’s procurement specialists.
The overall project risk for procurement i s medium.
C. Procurement Plan
The Borrower, at appraisal, developed a procurement plan for project implementation which provides the basis for the procurement methods and specific SBDs expected to be used. This plan has been agreed between the Borrower and the Project Team and i s available at the PPU / PMU. I t wil l also be available in the project’s database and in the Bank’s external website. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.
48
D. Frequency of Procurement Supervision
1 2 3
Ref. Contract Estimated No. Description Cost (US$)
In addition to the required prior procurement reviews to be carried out by the Project Team, the capacity assessment o f the PPU indicates the need for annual procurement supervision missions to update the PMU procurement capacity assessment and carry out post reviews.
4 5 6
Procurement Pre- Dom. Pref. Method Qual. (yesho)
In view o f the special review needs o f ICT-related procurement in the project, the Project Team plans to keep access available to specialized expertise in I C T procurement, including this expertise in supervision missions from time to time as needed.
1
E. Details o f the Procurement Arrangements Involving International Competition
1. Goods and Works
(a) List o f contract packages to be procured fol lowing I C B and direct contracting:
Container 10,000,000 ICB No No scanners
ICB No No 2 I X-ray I 2,200,000
ICB (possible alternatives: RFP or direct contracting), as explained in section A
I machines 3 1 CCTV I 3,300,000
No N o I systems
4 1 Customs Op. I 9,900,000
5
6
7
Software package and adapt./maint .
MIS and web 1,500,000 site development
Computer 13,300,000 equipment
Telecomm. 5,100,000 ICB No No Equipment
I I
ICB I No 1 No
7
Bank Review (Prior/Post)
Prior
Prior
Prior
Prior
Prior
Prior
Prior
8
Exp. Bid- Opening Date
for first package
NOV-2006
NOV-2006
NOV-2006
Feb-2007
Feb-2007
Feb-2007 for first Package
Mar-2007
a Comments
Procured in one or two packages
Multi-year contract
Optionally, either combined with No. 4 or split into two packages Several packages over the duration o f the project Optionally, combined with No.6
49
8 Nationwide impl. support (‘rollout’)
(b) Procurement under I C B for contracts estimated to cost above US$lOO,OOO per contract and al l direct contracting will be subject to prior review by the Bank.
3,570,000 ICB (possible No No Prior Mar-2007 Could be alternative: bid as two RFP) or three
slices
2. Consulting Services
Prior
(a) List o f consulting assignments requiring short-list o f intemational f i rms .
I Jan-2006 Possibly in two phases
1 12 13 I I
Exp. Date of Proposals Submission
Jan-2006
Ref. No.
Comments
Possibly in two phases
Description o f Assignment
Estimated cost (US%)
I exception 2 I Reengineering& I 1,009,900
1
I I dev. ofbidding I
Strategylmeasure 542,000 for intervention by
I I document for 1
3 Customs Inf. Sys. Improving 352,500
I I transparencyand I Prior
6
Feb-2006 Possibly in two phases
Improving the 342,650
improvement Human Resources I 1,591,700
support to compliance and enforcement Human Resources management strategy, and policies
4
250,250
Selection Method
Prior
Prior
QCBS
Feb-2006
Feb-2006 Likely phased
QCBS
QCBS
QCBS
QCBS
QCBS (or, possibly QBS, or directly contracted twinning)
Bank Review (PriorRost)
Prior
Prior I Feb-2006 I Possibly in two phases
(b) In addition, al l consultancy services estimated to cost above US$lOO,OOO per contract for f i rms, or US$50,000 for individuals, and al l single source selection o f consultants ( f i rms) will be subject to prior review by the Bank.
(c) Short l i s ts o f consultants for services estimated to cost less than US$200,000 equivalent per contract may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines.
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Annex 9: Economic and Financial Analysis
VIETNAM: Customs Modernization Project
The objective o f the customs modernization project in Vietnam is to improve the effectiveness and efficiency o f customs operations. It i s possible and important to examine the feasibility o f the project, financially and economically. The financial analysis considers whether the project generates fiscal revenues that are higher than the project costs in discounted and real terms. However, it does not necessarily indicate if the project i s welfare-enhancing. On the other hand, the cost-benefit analysis or the economic analysis, estimates how much the Vietnamese society would gain f rom the project - economically - if pure fiscal transfers are excluded. The calculation o f the net economic benefits requires that improvements in both effectiveness and efficiency o f customs operations be measured.
A. Financial Analysis
Methodology:
The financial analysis attributes to the inf lows and outflows under ‘with’ and ‘without’ (or counterfactual) project scenarios. The analysis i s conducted from two different perspectives. The analysis from the Total Investment Point o f View (TIPV) does not consider the impact o f the loan financing with the implied assumption that the N P V o f the debt financing i s 0. The analysis f rom the TIPV examines if the project i s financially and commercially feasible when 100% o f the project investment i s made from the project owner: effectively, the analysis isolates any confounding impact o f the loan financing on the project’s financial outcomes. On the other hand, the analysis f rom the Vietnamese Government’s Point o f View incorporates the favorable terms o f the IDA loan.
Key Assumptions:
Qualitative Assumptions: Financial benefits from a Customs modernization project are multiple. Better customs practices will result in lowering the rate o f smuggling so that a larger share o f total imports is subjected to the statutory import duties. In addition, it would improve the valuation, classification and weight o f imports declared at customs, and lead to better management o f special import regimes (e.g., exemptions, drawback and temporary admission system), the misuse o f which often leads to revenue leakages. Further, improved coordination between DGT and D G C i s expected to enhance enforcement as well as refund audits related to the administration o f the value added tax and income tax.
Fo r example, the increased revenues due to improved enforcement are v i ta l for the government’s consideration o f whether the project wil l y ie ld an internal rate o f return (IRR) that i s equal or higher than the opportunity cost o f fund o r the discount rate; and yet, these revenues only represent f iscal transfers f rom the trading community t o the government and thus are excluded f rom the economic analysis.
51
Taxes on Imports: The exercise estimates the taxes on imports2 expected to be raised ‘with’ the project and compares these with the counterfactual (i.e., the taxes on imports that would have been raised in the absence o f the project). In the case o f Vietnam, even in the absence o f the project, taxes o n imports will be affected by a number o f factors that will impact on the effective tax rate on imports:
(i) The trend towards multilateral and regional trade liberalization. Membership in the W T O and ASEAN will cause tariffs to be gradually lowered and will require customs to implement some new customs practices, with the Valuation Agreement being amongst the more important ones. Shift in the import structure. The structure o f imports may shift over time so that a higher share o f total imports will be subjected to either higher or lower statutory duties and taxes. Growth o f import base. The import base will increase with economic growth. Better enforcement. Vietnamese authorities may well undertake some initiatives that result in better control over the import tax base, in the absence o f the project.
(ii)
(iii) (iv)
The calculation o f the financial rate o f return implies that one needs to isolate the impact o f future import tax revenues due to these various factors from the impact o f the project implementation.
Investment Time and Project Life: For the purpose o f the analysis, the calculation assumes the project l i f e o f 12 years, starting f rom Year 0 (2005), with five years o f investment and seven years o f full-scale operation. The assumption i s based on the international experience o f the effective l i fe o f a Customs modernization project. Also, it i s expected that f rom Year 12 onward, the discounted f l ow o f benefits (at 10% real discount rate) will be virtually offset by the discounted f low of the annual maintenance costs; and hence the net discounted financial gains after the first 12 years o f the project l i fe will drop to practically nil.
Inflation: For our analysis, the annual inf lat ion rate in US$ is assumed at 3%.3
Quantitative Assumptions: The financial benefits o f the project are estimated on the basis o f revenue data presented in the Diagnostic Report by Scott Wilson as part o f the TA for the preparation o f the project (February 2005) as well as data f rom MOF. As a first step, a benchmark ‘without project’ revenue stream i s constructed for VAT, import and export taxes, and excise on imports. In nominal U S $ terms, total revenues increase at 9% per annum between 2006-2010 and then slow to 8% per annum over the next six years. Next, three scenarios are constructed for the impact o f the project on revenues. In the Base Case Scenario, revenues gradually rise above the ‘without project’ benchmark stream reaching a level that i s 2% higher
The term ‘taxes on imports’ refer t o a l l taxes collected on imports. In Vietnam, the Customs currently collects value added taxes and excise on imports, trade taxes, applicable fees and fines. For the VAT, Customs collects the VAT on imports, but the DGT administers the VAT refunds and hence i s responsible for a l l refund audits.
There are basically two schools o f thought in the use o f the currency unit for project evaluation. One i s for the use o f domestic currency, whereas the other favors the application o f foreign currency. In evaluating the financial and economic impact o f this project, we have used U S $ uni formly and hence consistently applied U S $ inf lat ion throughout the analysis.
3
52
by 201 1. This higher level o f 2% i s then maintained for the next f ive years. In the l o w and high case scenarios, the corresponding percentages are 1.3% and 2.7% respectively.
Table 1: Pro-Forma Cash Flow Statement from Vietnamese Government’s Point of View and from the Total Investment Point o f View
Unit: U S $ million
Project year 0 1 2 3 4 5 6 7 8 9 1 0 1 1
Inflows
Improved revenue generation
Investment (IDA and government)
Service charge
Commitment fees Recurrent costs
Outflows
NCF, w/o financing, undiscounted
Debt Cash Flow
NCF, with financing, undiscounted Financial N P V
wlo financing @lo% with financing @10?40
wlo financing with financing
Financial IRR
5 5
0.03
0.22
(5)
4
(1)
3 11 19 39 41 65 6a 71 75 7a a2
3 11 19 39 41 65 68 71 75 7a a2 19. 30 16 3 20 22 22 22 22 22 22 19. 30 16 3
0.15 0.34 0.43 0.44 0.43 0.41 0.40 0.39 0.38 0.36 0.33
0.15 0.06 0.01 - 20 22 22 22 22 22 22
(16) (19) 2 36 21 43 46 49 52 56 60
17 25 14 3 - - (2) (2)
0 6 16 38 21 42 45 49 52 54 58
$139million [Real financial NPV from the total investment point o f view] $187million [Real financial NPV from Government’s point of view]
47% 276%
[Real financial IRR from the total investment point of view] [Real financial IRR from Government’s point o f view]
Outcome:
Table 1 presents the pro-forma financial cash f low o f the project. The results indicate that the V C M P i s financially desirable f rom both the Vietnamese Government’s perspective (with consideration o f the favorable impact o f the IDA loan investment financing) or f rom TIPV (without consideration o f the impact o f the subsidized IDA loan). From the Government’s point o f view, the project’s financial internal rate o f return (IRR) in real U S $ is at 276%, and the net present value (NPV) at 10% discount i s substantial, at more than US$187 million. Even when the favorable impact o f the IDA loan is l e f t out o f the financial analysis (i.e., analysis f rom the TIPV), the project is s t i l l highly financially desirable: the real financial IRR i s 47%, and the financial N P V at 10% discount reaches approximately US$139 mil l ion.
53
Table 2: Sensitivity Analysis
Increase in revenue without project
benchmark revenue stream (in 2011)
Financial analysis Financial analysis from from TIPV Government's POV
1.3% 2.0% 2.7%
B. Economic Analysis
IRR NPV(US$ IRR NPV(US$ (in %) million) (in %) million)
173 96 27 48 276 187 47 139 381 278 65 23 0
Methodology:
The cost-benefit analysis excludes debt financing and al l the financial benefits that are critical for the government budget (higher tax collection due to better enforcement, for example) but simply represents pure financial transfer from one economic agent (trader) to the other (government). It considers only the real economic welfare-impacting costs and benefits.
Economic benefits for the V C M P are multiple. However many are not easily quantifiable. Some o f the major economic benefits may include: (i) cost reduction or savings to the trader that ensue f rom the better customs practices; and (ii) the trade expansion that results f rom greater trade competitiveness, permitting greater specialization along comparative advantage l ines and reaping dynamic advantages o f greater trade openness.
Assumptions:
(i) Trade expansion over the period o f the VCMP: Time series data for the period o f 1990- 2003 (World Development Indicator 2004) indicate that the Vietnamese nominal GDP at market price grew at an average annual rate o f 8.2%. The import to GDP ratio has gradually r isen over the years and in 2003 stood at 65'30, after a sharp r ise in recent years. One can assume that this ratio remains unchanged or that it rises f ~ r t h e r . ~ Under the base l ine assumption, this ratio i s maintained at 65%.
(ii) Five percent o f imports enter Vietnam though land borders, 25% through airports and 70% through ports.
(iii) Time release data for ports and land crossings are drawn from the study o n Performance Indicators Measurement undertaken by Lyubka Milhai lova (April 2004). At land
Between 1980 and 2002103 that ratio rose from 54% to 95% in Malaysia, from 28% to 50% in the Philippines and from 30% to 58% in Thailand.
54
borders, release time is 2:23 hours with customs responsible for 2 hours. At ports, the release time was estimated at 8.4 days, with customs responsible for 2.3 days. The base l ine estimate examines the impact o f reducing the release time, accountable to customs operations only, according to the objectives o f the project.
The transaction costs o f trade are closely related to the release t ime o f cargo at customs. The OECD estimates suggest that, on average, reducing the release time by one day i s equivalent to lowering the cargo cost by 0.5%. In addition traders incur direct costs o f preparing the customs declaration.
Two scenarios o f the f l ow o f economic analysis are considered. The Base Case Scenario considers only the economic benefits generated from the reduction in clearance time due to improved Customs procedures alone. Scenario 2 estimates the project’s economic benefits, taking into account both the welfare-enhancing impact o f the project reflected in improved Customs procedures and reduction in overall release t ime that will ensue from the improved synergy between customs and other border agencies. For instance the release time at post i s estimated at 8.4 days, with customs responsible for 2.3 days. Scenario 2 assumes that the overall release time, for which customs are not directly responsible, will also be reduced. The reduction in clearance t ime in both Base Case and Scenario 2 fo l low the same schedule. The clearance time at road i s reduced by 12% by the end o f Year 3 o f the project, and by 25% at the end o f Year 6, relative to the current level. After this period, the clearance time flattens out. For ports and airports, a greater reduction in clearance times i s assumed: a 20% reduction by the end o f Year 3, and 45% reduction at the end o f Year 6.5
Outcome:
Table 3 presents the results o f the economic analysis applied to the Base Case Scenario. The project i s economically desirable. The real economic IRR i s at 156%, and the real economic N P V attains at more than US$705 million. The net economic outcome under Scenario 2 that incorporates the estimated economic benefits o f the project due to the improved operation o f the Customs as well as the strengthened coordination between Customs and border agencies are significantly higher. In Scenario 2, the real economic IRR i s 53 1%, and the real economic N P V i s more than US$ 2.6 billion.
The results from both scenarios - the Base Case Scenario and Scenario 2-are robust and are to be considered as the lower bound estimates o f the positive net economic gains. A number o f other economic benefits have been omitted f rom the analysis due to the lack o f available data, and their consideration would have increased further the economic benefits o f the project. Such benefits may result f rom the second round effect o f trade expansion o n economic growth that would increase the import share o f GDP beyond the 65% level retained in this calculation. Also, lower clearance time for exports and reduction in direct cost to traders o f preparing customs
Effectively, in Year 1 1, the clearance t ime i s reduced t o 75% o f the t ime required pr ior the project, and it is reduced to 56% for the Customs clearance at por t and airport. The analysis models the expectation that after seven full-operation years, the improvement in release t ime that can be affected directly by customs improvements i s assumed to have come to an end.
55
declarations, expected under the project, would generate additional economic benefits. In conclusion, the robust outcomes o f both financial and economic analyses confirm that the project generates net financial gains to Vietnam and i s welfare-enhancing.
56
Table 3: Economic Analysis: Economic Pro-Forma Cash Flow - Base Case Scenario Unit: U S $ million
Project year 0 1 2 3 4 5 6 7 8 9 1 0 1 1
Inflows
outflows Economic Benefits*
Investment (IDA and government) Recurrent costs
Economic NCF, undiscounted Economic NPV @lo% Economic IRR
8 336 72 109 150 191 201 211 222 233 245 0 ' 8 36 72 109 150 191 201 211 222 233 245 5 20 29 18 4 20 22 22 22 22 22 22 5 20 29 18 4 0 0 0 0 0 20 22 22 22 22 22 22
(5) (12) 7 54 104 130 169 179 189 200 211 223 703
152%
57
Annex 10: Safeguard Policy Issues
VIETNAM: Customs Modernization Project
There are no safeguard pol icy issues that need to be considered.
58
Annex 11: Project Preparation and Supervision
VIETNAM: Customs Modernization Project
Planned Actual PCN review March 17 2004 March 17 2004 Initial PID to PIC March 16,2005 March 16,2005 Initial ISDS to PIC March 16,2005 March 16,2005 Appraisal April 20,2005 April 20,2005 Negotiations June 6,2005 October 11,2005 Board approval July 12,2005 November 10,2005 Planned date o f effectiveness Planned date o f mid-term review Planned closing date
January 1,2006 March 25,2008
June 30,201 1
Key Institutions Responsible for Preparation o f the Project:
The Ministry o f Finance, on behalf o f the Socialist Republic o f Vietnam, i s responsible for coordinating preparation o f the VCMP. The MOF has received a Policy and Human Resource Development Grant (PHRD) for the project preparation from the Government o f Japan, through the World Bank’s Trust Fund TF 053144 for US$996,500. This Grant i s being used for project preparation by the recipient to contract consulting services for the following preparation activities: (i) reviewing the Customs legislations (including the Customs Code o f 2000) with the objective o f proposing how the current legislation could be adjusted to ensure consistency with the forthcoming WTO membership and the best Customs practices as articulated in the WCO’s Revised Kyoto Convention; (ii) undertaking a comprehensive diagnostic review o f the Customs administration in Vietnam, i t s organization, resources and operations; (iii) preparing a new business model for Customs in Vietnam that reflects the mission, objectives, context and principles in the new Customs Management System (CMS); (iv) detailed modernization strategic plan for Customs modernization; (vi) preparing bidding documents for the procurement during the initial six to 12 months o f the IDA- financed project. The activities are underway and will be completed by the date o f the Board presentation.
(v) detailed project implementation plan;
Bank Staff and Consultants Who Worked on the Project Included:
Name Title Unit Duc Minh Pham Senior Economist, Task Team Leader EASPR Gerard McLinden Senior Trade Facilitation Specialist PRMTR Michel Zarnowiecki Senior Customs Specialist TUDTR Vivek Suri Senior Economist EASPR Thang Chien Nguyen Senior. Procurement Specialist EAPCO Hoi-Chan Nguyen Senior Counsel LEGEA Tuan Minh L e Public Finance Economist PRMPS Deepak Bhatia Manager ISGIA Henry Forero ICT Specialist ISGIA Hung Viet L e Financial Management Specialist EACVF
59
Quyen D o Duong Disbursement Officer EACVF Ngan Thuy Nguyen Project Assistant EACVF Luc D e Wulf Consultant Fredrich Konigshofer Consultant Lyubka Mihailova Consultant
Bank funds expended to date on project preparation: 1. Bank resources: US$391,000 2. Trust funds: 3. Total: US$391,000
Estimated Approval and Supervision costs: 1. Remaining costs to approval: US$30,000 2. Estimated annual supervision cost: US$l50,000
60
Annex 12: Documents in the Project File
VIETNAM: Customs Modernization Project
1. 2. 3. 4. PHRD Grant Contracts 5. 6. Correspondence with the Government
PHRD Grant proposal - approved PHRD Grant Agreement (TF 053 144) Terms o f Reference for PHRD Grant Assignments
World Bank Mission Aide Memoirs
61
Annex 13: Statement o f Loan and Credits IDA Credits in the Operations Portfolio
(as ofSeptember 30, 2005)
Credit Fiscal
Original Amount
Difference
actual and supervision ratings bi between Last ARPP
in US$ million expected Cancel- Undis- disburse- Development Implementation
$0 Year Borrower Purpose IBRD IDA lations bursed mentS ("0) ai objectives Progress
Eighteen credits closed
On going credits
30340 33580 36800 40000 41070
30000 31250 33060 34480 38430 40730
32110 34750 38870 40280 41150
41160
28080 36310 HI52
31260 35940 37520 40890
37670 40410
29960 30990 3 1980 32920 35320 35720 36480 38800 39530 39690 41140
40910
1998 Govt 2000 Govt 2002 Govt 2005 Govt 2006 Govt
1998 Govt 1999 Govt 2000 Govt 2001 Govt 2003 Govt 2005 Govt
1999 Govt 2001 Govt 2004 Govt 2005 Govt 2006 Govt
2006 Govt
1996 Govt 2002 Govt 2005 Govt
1999 Goa 2002 Govt 2003 Govt 2005 Govt
2003 Govt 2005 Govt
1998 Govt 1998 Govt 1999 Govt 2000 Govt 2001 Govt 2002 Govt 2002 Govt 2004 Govt 2005 Govt 2005 GOM 2006 Govt
2005 Govt
Sub-Total
Energy Power Transmission and Distribution Rural Energy Energy Efficiency and Equitization Rural Energy I1 2nd Transmission and Distribution Transport Inland Waterways Urban Transport Rural Transport I1 Mekong Transport Road Network Improvement Road Safety Urban Development 3 Cities Sanitation HCMC Environmental Sanitation Urban Upgrading Water Supply Development Rural Water Supply & Sanitation I C T ICT Development Health National Health Regional Blood Transfusion HIV/AlDS prevention Education Higher Education Primary Teachers Training Primary Education for Disadvantaged Ch Targeted Budget Support for EFA PREM Public Financial Management Payment System &Bank Modemization Rural Development Forest Protection Agricultural Diversification Mekong Delta Water Coastal WetlandsiProtection Community Based Rural Infrastructure Uorthem Mountains Pov. Reduction Rural Finance I1 Water Resources Assistance Forest Sector Development Avian Influenza Emergency Recovery Natural Disaster Risk Management PRSC PRSCIV Total -- Current Projects
Grand Total --All Projects (Closed and Current)
Total disbursed of which repaid
Total undisbursed
0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00
0.00
0.00 0.00 0.00
0 00 0.00 0.00 0.00
0.00 0.00
0.00 0.00 0.00 0 00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0
2034.71
199.00 150.00 225.00 220.00 200.00
73.00 42.74
103.90 110.00 225.30
31.70
80.50 166.30 222.50 112.60 45.90
93.70
101 20 38.20 35.00
83.30 19.84
138.76 50.00
54.33 105.00
21.50 66.85
101.80 31.80
102.80 110.00 200.00 157.80 39.50
5.00 86.00
100.00 3950.82
5.985.53
Active Loans Closed Loans 1,081.00 1.883.00
30.39 3,006 90
85.58 -
0.00 0.00 0.00 0.00 0.00
0.00 8.19 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00
0.00
2.35 0.00 0.00
0.00 0.00 0.00 0.00
0 00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 10.54 -
Total
30.39 2,964.00
3,006.90
Note: a. Intended disbursements to date as projected in SAP minus actual disbursements to date b. Following t h e FY94 Annual Review of Portfolio Performance (ARPP). a letter-based system was introduced
(HS=highly satisfactory, S=satisfactory, U=unsatisfactory, HU=highly unsatisfactory). c. Disbursement i s estimated to continue beyond closing date.
Sovrce: World Bank
0.00 -
94.10 36.50
201.40 218.90 198.10
25.90 11.30 21.30 79.10
215.00 30.40
48.60 159.80 206.30 109.00 45.50
94.00
18.00 41.30 33.50
41.20 18.00
139.70 47.80
56.80 98.20
9.90 21.40 53.30 16.40 81.80 77.10 84.60
148.10 39.10 4.10
85.50
95.90 3o06.90
44% 21% 71% 21%
na
30% 42% 19% 58% 68%
na
55% 80% 52%
100% na
na
27% 88%
100%
43% 75% 75%
na
94% 100%
40% 30% 49% 45% 44% 29%
-64% 17%
-32% 53%
na
na 50%
S S S na na
S S S S S na
S S S na na
na
S S S
S S S na
S na
S S S S S S S S S S na
na
S S S na na
S S S S S na
S S S na na
na
S S S
S S S na
S na
S S S S S S S S S S na
na
62
VIETNAM STATEMENT OF IFC’s
Held and Disbursed Portfolio In Millions o f U S Dollars
Committed Disbursed
IFC IFC
FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic.
2003 ACB-Vietnam 0.00 5.02 0.00 0.00 0.00 5.02 0.00 0.00
2002 AZ/AGF Vietnam 0.00 1.32 0.00 0.00 0.00 1.32 0.00 0.00 2002 CyberSofi 0.00 1.25 0.00 0.00 0.00 1.25 0.00 0.00 2002 Dragon Capital 0.00 0.00 2.00 0.00 0.00 0.00 2.00 0.00
2002 F-V Hospital 5.00 0.00 3.00 0.00 5.00 0.00 3.00 0.00 2003 Glass Egg 0.00 1.75 0.00 0.00 0.00 0.63 0.00 0.00
1998 MFL Vinh Phat 0.15 0.00 0.00 0.00 0.15 0.00 0.00 0.00
1997 Nghi Son Cement 14.87 0.00 0.00 9.15 14.87 0.00 0.00 9.15
2001 RMIT Vietnam 7.25 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1996 SMH Glass Co. 5.00 0.00 0.00 0.00 5.00 0.00 0.00 0.00
2003/04 Sacombank 0.00 2.32 0.00 0.00 0.00 1.14 0.00 0.00
2002/03 VEIL 0.00 8.00 0.00 0.00 0.00 8.00 0.00 0.00 1996 VILC 0.00 0.75 0.00 0.00 0.00 0.75 0.00 0.00
~~~ ~~
Total portfolio 32 27 20 41 5 00 9 15 2502 18 11 5 00 9 15
~ ~~
Approvals Pending Commitment
FY Approval Company Loan Equity Quasi Partic
2002 F-V Hospital 0.00 0.00 0.00 0.00 2000 Interflour 0.01 0.00 0.00 0.01
1999 MFL Chau Giang 0.00 0.00 0.00 0.00 1999 MFL Minh Minh 0.00 0.00 0.00 0.00
2000 MFL Mondial 0.00 0.00 0.00 0.00
2000 MFL-AA 0.00 0.00 0.00 0.00
Total pending commitment: 0.01 0.00 0.00 0.01
63
Annex 14: Country at a Glance
VIETNAM: Customs Modernization Project
2002 Population, mid-year (millions) GNi per capita (Atlas method, US$) GNI (Atlas method, US$ billions)
Average annual growth, 1996-02
Population (%) Labor force (%)
Most recent estimate (latest year available, 1996-02)
Poverty (% of population below national poverty line) Urban population (% of total population) Life expectancy at birth (years) Infant mortality (per 1,000 live births) Chiid malnutrition (“A of children under 5) Access to an improved water source (“A of population) Illiteracy (“A ofpopuiafion age 15+) Gross primary enrollment (% of school-age population)
Male Female
KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1982
GDP (US$ billions) Gross domestic investmenffGDP Exports of goods and services/GDP Gross domestic savings/GDP Gross national savings/GDP
Current account baiancelGDP Interest paymentslGDP Total debt/GDP Total debt servicekxports Present value of debtiGDP Present value of debWexports
1982-92 1992-02 (average annual growth) GDP 5 2 7 4
POVERTY and SOCIAL Vietnam
80.5 430
34.8
1.3 1.7
25 70 26 34 77 7
106 109 102
1992
9.9 17.6 34.7 13.6
-0.8 0.4
246.6 7.1
2001
6.9
East Asia B Pacific
1,838 950
1,740
1 .o 1.2
38 69 33 15 76 13
106 105 106
2001
32.7 31.2 54.6 28.8 30.9
1.6 1.1
38.5 6.7
33.5 60.8
2002
7.0
Low- income
2,495 430
1,072
1.9 2.3
30 59 81
76 37 95
103 87
2002
35.1 32.1 55.5 28.1
-1.5 0.8
38.0 5.9
2002-06
Development diamond’
Life expectancy
-
I
GNI Gross per primary
I capka enrollment
~
-
Access to improved water source
-Vietnam Low-income group
Economic ratios‘
Trade
Indebtedness
-Vietnam Low-income w o w I GDP per capta 2 9 5 8 5 5 5 7 I
STRUCTURE of the ECONOMY
(% of GDP) Agriculture industry
Services
Private consumption General government consumption Imports of goods and services
Manufacturing I 33 9
27 3
I .. 15.4 19.8 20.6 .. 38.8 38.6 38.5
0 80 7 648 65.7 97 98 99 00 01 02 I
-GDI - 0 - G D P 5.6 6 3 6 2 38 8 569 5 9 5 1 I
1982-92 lgg2-02 2o01 2o02 Growth of exports and imports ( W ) (average annual growth) Agnculture 3 1 4 2 3 0 Industry 5 0 112 10 4
Services 7 9 6 6 6 1
Private consumption 5 0 5 6
Gross domestic investment 13 8 108 1 0 6 -Exports -O-lmports
* The diamonds show four hey indicators in the country (in bold) compared Wl th its income-group average If data are misslng the diamond will be incomplete
Manufacturing 1 9 113 113 11 6
General government consumption 3 4 6 6 5 4 97 98 99 00 01 02
Imports of goods and services 23 9 2 3 2 2 2
64
Vietnam
1 ~ - 5 -
-GDP deflator -CPI - -
P R I C E S a n d G O V E R N M E N T F I N A N C E
D o m e s t i c p r i c e s (%change) Consumer prices implicit GDP deflator
G o v e r n m e n t f i n a n c e (%of GDP, includes current grants) Current revenue Current budget balance Overall surplus/deficit
1982
T R A D E
(US$ millions) Total exports (fob)
Rice Fuel Manufactures
Total imports (cif) Food Fuel and energy Capital goods
Export price index(1995=WO) Import price index(1995=X)O) Terms o f trade (S95=WO)
B A L A N C E o f P A Y M E N T S
(US$ millions) Exports o f goods and services Imports o f goods and services Resource balance
Net income Net current transfers
1982
1982
-659
-85 90
Current account balance -654
Financing items (net) Changes in net reserves
458 196
M e m o : Reserves including gold (US$ millions) Conversion rate (DEC, locaVUSS) 0.9
E X T E R N A L D E B T a n d R E S O U R C E F L O W S
(US$ millions) 1982
43 IS RD 0 IDA 35
Total debt outstanding and disbursed
Total debt service IB RD IDA
Compositionof net resourcefiows Official grants Official creditors Private creditors Foreign direct investment Portfolio equity
World Bank program Commitments Disbursements
0 0 0
67 n 0 13 0
0 16
1992
37.7 32.6
19.0 0.0
1992
2,475 300 756
2,950 82
616 950
1992
3,199 2,950
249
-384 59
-76
538 -462
11.2022
1992
24.332 0
57
232 0 1
lt3 248 140
385 0
0 0
Principal repayments 0 1
2 0 0 1
-0.4 1.9
21.4 5.4
-2.5
2 0 0 1
15,027 588
3 , m
16,162
1,671
2 0 0 1
17,637 V.783
54
-634 1,x)o
521
-196 -325
14,725.2
2 0 0 1
P,584 0
1,344
1 2 0 0 x)
263 993 -591
1,300 0
739 279
2
2 0 0 2
4.0 4.1
21.0 5.5
-2.3
2 0 0 2
16,706 725
3,270
19.733
2,017
2 0 0 2
8,654 21.l77 -1.523
-766 1,767
-522
986 -464
15,279.5
2 0 0 2
0,332 0
1.715
1,174 0 0
666 -641 1,x)0
0
558 261
2
I I n f l a t i o n (%)
0 \ , 97 98 99 k- 01
E x p o r t a n d i m p o r t l e v e l s (US$ mill.)
~ 5 . 0 0 0 -
20.000 -
15 000
10 000 ' 5000
I O 96 97 98 99 00 01 02
1 I Exports @ Imports
I , C u r r e n t a c c o u n t b a l a n c e t o G D P (Oh)
, -15 1
C o m p o s i t i o n o f 2 0 0 2 deb t (US$ mil l . )
786 B 1715
E 7635
A - IBRD E - Bilaterd 8 - I D A D-Ot~nu l t l i a te ra l F-Prlvate C- IMF G-Slart-term
65
MAP SECTION
Ngoc LinhNgoc Linh(3143 m) (3143 m)
CentralCentral
HighlandsHighlands
11
22
33
4455
66
77
8899
1010
11111212
13131414
151516161717
18181919 2020
212122222323 2424
2525 26262727
2828
2929
3030
3131
32323333
3434
3535
3636
3737
3838
3939
4040
4242
4343
4141
4444 4545
4646
4747 48484949
5050
51515252
5353
6464
5454
5555
5656
5757
58585959
6060
6161
62626363
BBllaacckk
RReedd
MMaa
LangLangSonSon
Ho Chi Minh CityHo Chi Minh City
BiBiêên Hn HòòaaThu DThu Dããuu
MMôôtt
DDôôngngXoXoááii
Tan AnTan An
Vi ThanhVi Thanh
My ThoMy Tho˜̃Long XuyLong Xuyêênn
Hai PhongHai Phong
Ha LongHa Long
Phong ThaPhong Tha
DiDiêênnBiBiêên Phn Phúú
LLàào Caio Cai
Play CuPlay Cu
BuBuôôn Man MaThuThuôôtt
Gia NghiaGia NghiaDDàà Lat Lat
VinhVinh
Vinh YenVinh Yen
Nam DinhNam DinhNinh BNinh Bììnhnh
DDôông Hng Hóóii
Kon TumKon Tum
SSóón Lan La
YYêên Bn Bááii
HHààGiangGiang
TuyTuyêênnQuangQuang ThaiThai
NguyenNguyen
`̀Cao BangCao Bang
Bac CanBac Can`̀
CCâân Tho'n Tho'
Cao LanhCao Lanh
BBêên Tren Tre,,Vinh LongVinh Long
TTâây Ninhy Ninh
ThTháái Bi Bììnhnh
Hung YenHung YenHHàà D Dôôngng
HHàà Nam Nam
ViViêêt Trt Trìì
HaHaíí D Dúóúóngng
BBáác Giangc GiangBBáác Ninhc Ninh
HHòòa Ba BììnhnhHANOIHANOI
CHINA
C A M B O D I A
THAILAND
LAOPEOPLE'SDEM. REP.
To Nanning
To Hepu
To Tiandong
To BabaoTo
Kunming To Kaiyuan
To Muang Xai
To Luang
Prabang
To Khammouan
To Savannakhet
To Kampong Cham
To KampongChhnang
An
na
m
Co
rd
i l l er
a
Hainan I.(China)
1
2
3
45
6
7
89
10
1112
1314
151617
1819 20
212223 24
25 2627
28
29
30
31
3233
34
35
36
37
38
39
40
42
43
41
44 45
46
47 4849
50
5152
53
64
54
55
56
57
5859
60
61
6263
LangSon
Ho Chi Minh City
Biên HòaThu Dãu
Môt
Phan Thiêt
DôngXoái
Tan An
Bac Liêu
Vi Thanh
Vung Tàu˜My Tho˜
Cà Mau
Rach Giá
Long Xuyên
Hai Phong
Ha Long
Phong Tha
DiênBiên Phú
Lào Cai
Quy NhonPlay Cu
Buôn MaThuôt
Gia NghiaDà Lat
Vinh
Vinh Yen
Nam DinhNinh Bình
Dông Hói
Dông Hà
Tam Ky
Nha Trang
Tuy Hòa
Kon Tum
Són La
Yên Bái
HàGiang
TuyênQuang Thai
Nguyen
C̀ao Bang
Bac Can`
Sóc Trang
Trá VinhCân Tho'
Cao Lanh
Bên Tre,Vinh Long
Tây Ninh
Quàng Ngai
Dà Nang
Hà Tinh˜
Thanh Hóa
Thái Bình
Hung YenHà Dông
Hà Nam
Viêt Trì
Haí Dúóng
Bác GiangBác Ninh
Hòa Bình
Hué
Phan Rang-Tháp Chàm
HANOI
PhuQuoc
Hainan I.(China)
CHINA
C A M B O D I A
THAILAND
LAOPEOPLE'SDEM. REP.
Mekong
Black
Red
Ma
Gul fof
Tonkin
Gulfof
Thai land
M e k o n g
De
l ta
To Nanning
To Hepu
To Tiandong
To BabaoTo
Kunming To Kaiyuan
To Muang Xai
To Luang
Prabang
To Khammouan
To Savannakhet
To Kampong Cham
To KampongChhnang
An
na
m
Co
rd
i l l er
a
Central
Highlands
Ngoc Linh(3143 m)
22°N
20°N
18°N
16°N
14°N
12°N
10°N
22°N
20°N
18°N
16°N
14°N
12°N
10°N
108°E106°E104°E
110°E108°E106°E104°E102°E
VIETNAM
12345678910111213141516171819202122232425262728293031
Lai ChauDien BienLao CaiHa GiangCao BangSon LaYen BaiTu Yen QuangBac CanLang SonPhu ThoVinh PhucThai NguyenBac GiangQuang NinhHa NoiBac NinhHa TayHung YenHai DuongHai PhongHoa BinhHa NamThai BinhNinh BinhNam DinhThanh HoaNghe AnHa TinhQuang BinhQuang Tri
323334353637383940414243444546474849505152535455565758596061626364
Thua Thien HueDa NangQuang NamQuang NgaiKon TumGia LaiBinh DinhPhu YenDac LacDac NongKhanh HoaBinh PhuocLam DongNinh ThuanTay NinhBinh DuongDong NaiBinh ThuanT.P. Ho Chi MinhBa Ria-Vung TauLong AnTien GiangDong ThapBen TreAn GiangVinh LongTra VinhKien GiangCan ThoHau GiangSoc TrangBac LieuCa Mau
PROVINCES:
0 50 100 150
0 50 100 150 Miles
200 Kilometers
IBRD 33511
NOVEMBER 2004
V IETNAM
PROVINCE CAPITALS
NATIONAL CAPITAL
RIVERS
MAIN ROADS
RAILROADS
PROVINCE BOUNDARIES
INTERNATIONAL BOUNDARIES
This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, o r any endorsemen t or a c c e p t a n c e o f s u c h boundaries.