Document of The World Bank ON A PROPOSED CREDIT TO THE SOCIALIST REPUBLIC OF VIETNAM FOR A PROJECT. June 4, 2001

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT Report No: VN IN THE AMOUNT OF SDR 81.9 million (US$ MILLION EQUIVALENT) TO THE SOCIALIST REPUBLIC OF VIETNAM FOR A COMMUNITY BASED RURAL INFRASTRUCTURE PROJECT June 4, 2001 Rural Development and Natural Resources Sector Unit East Asia and Pacific Region

2 CURRENCY EQUIVALENTS (Exchange Rate Effective May 2001) Currency Unit = Vietnamese Dong (VND) VND 1,000 = US$0.69 US$1.00 = VND 14,500 FISCAL YEAR Government: January 1 - December World Bank July 1 - June 30 ABBREVIATIONS AND ACRONYMS CAS CBPP CEMMA CF CPCC CPMU DPC DPI DTSG EA EIA EMAP GOV ICB IRR MIS MOF MOLISA MPI NBF NGO PIP PMR PPMU SA. SOE Country Assistance Strategy Community Based Participatory Process Conmmittee for Ethnic Minorities and Mountainous Areas Community Facilitator Commune Project Coordinating Committee Central Project Management Unit District Peoples Committees Department of Planning and Investment (Provincial) District Technical Support Group Environmental Assessment Environmental Impact Assessment Ethnic Minorities Action Plan Government of Vietnam International Competitive Bidding Internal Rate of Return Management Information System Ministry of Finance Ministry of Labor, War Invalids and Social Affairs Ministry of Planning and Investment Not Bank Financed Non-governmental Organization Project Inplementation Plan Project Management Report Provincial Project Management Unit Subproject Agreement Statement of Expenditure Vice President: Country Manager/Director: Sector Manager/Director: Task Team Leader/Task Manager: Jemal-ud-din Kassum Andrew D. Steer Mark D. Wilson Christopher J. N. Gibbs

3 VIETNAM COMMUNITY BASED RURAL INFRASTRUCTURE CONTENTS A. Project Development Objective Page 1. Project development objective 2 2. Key performance indicators 2 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 2 2. Main sector issues and Government strategy 2 3. Sector issues to be addressed by the project and strategic choices 3 C. Project Description Summary 1. Project components 4 2. Key policy and institutional reforms supported by the project 6 3. Benefits and target population 6 4. Institutional and implementation arrangements 8 D. Project Rationale 1. Project alternatives considered and reasons for rejection Major related projects financed by the Bank and other development agencies Lessons learned and reflected in proposed project design Indications of borrower commitment and ownership Value added of Bank support in this project 14 E. Summary Project Analysis 1. Economnic Financial Technical Institutional Environmental Social Safeguard Policies 22 F. Sustainability and Risks 1. Sustainability Critical risks Possible controversial aspects 24

4 G. Main Loan Conditions 1. Effectiveness Condition Other 24 H. Readiness for Implementation 25 I. Compliance with Bank Policies 25 Annexes Annex 1: Project Design Summary 26 Annex 2: Detailed Project Description 29 Annex 3: Estimated Project Costs 53 Annex 4: Cost Benefit Analysis Sunmmary, or Cost-Effectiveness Analysis Summary 56 Annex 5: Financial Summary for Revenue-Earning Project Entities, or Financial Summary 58 Annex 6: Procurement and Disbursement Anrangements 59 Annex 7: Project Processing Schedule 74 Annex 8: Documents in the Project File 75 Annex 9: Statement of Loans and Credits 76 Annex 10: Country at a Glance 78 Annex 11: Resettlement Policy Framework 80 Annex 12: Ethnic Minorities Action Plan 82 Annex 13: Environmental Aspects 88 MAP(S) Map No. IBRD 31290

5 Date: May31, 2001 Country Manager/Director: Andrew D. Steer Project ID: P Lending Instrument: Specific Investment Loan (SIL) VIETNAM COMMUNITY BASED RURAL INFRASTRUCTURE Project Appraisal Document East Asia and Pacific Region EACVF Program Financing Data [1 Loan [X1 Credit 1 Grant 1 Guarantee [ Other: For Loans/Credits/Others: Amount (US$m): $ Team Leader: Christopher J. N. Gibbs Sector Manager/Director: Mark D. Wilson Sector(s): AY - Other Agriculture Theme(s): Rural Development Poverty Targeted Intervention: Y Proposed Terms (IDA): Standard Credit Grace period (years): 10 Years to maturity: 40 Commitment fee: 0.50% Service charge: 0.75% Financing Plan (US$m): Source Local Foreign Total BORROWER IDA LOCAL COMMUNITIES Total: Borrower: SOCIALIST REPUBLIC OF VIETNAM Responsible agency: MINISTRY OF PLANNING AND INVESTMENT Address: 2 Hoang Van Thu, Hanoi, Vietnam Contact Person: Mr. Pham Hai, Director, Department of Local and Regional Economy Tel: Fax: pham-hai@hn.vnn.vn Estimated disbursements ( Bank FY/USSm): FY Annual Cumulative Project implementation period: Expected effectiveness date: 10/01/2001 Expected closing date: 12/31/2007 OCSPAD Pa Re My,-

6 A. Project Development Objective 1. Project development objective: (see Annex 1) The project objective is to reduce rural poverty in up to 600 of the poorest rural communes (a commune in Vietnam is the lowest administrative unit comprising several villages and is inhabited by some 3,600 people, on average) in 13 provinces in the Central Vietnam by: (1) increasing the capacity of these communes for decentralized and participatory planning and management of development activities; (2) providing essential small-scale, community based infrastructures in these communes; and (3) generating direct income for the poor through providing construction employment. 2. Key performance indicators: (see Annex 1) Key performance indicators include: degree of participation of stakeholder groups in planning and selection of infrastructure; number of civil works contracts signed by communes and application of competitive contracting procedures; number of households which gained new or improved access to essential infrastructure; number of O&M groups established; level of improvement in standards of living as assessed by beneficiaries; and number of local labor days generated and income earned. B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: Date of latest CAS discussion: 09/28/1998 IDA/R980135[IFC/R98-199] Progress Report discussed on 5/30/2000 (IDA/R [IFC/R ] The project will support targeted poverty reduction within the two CAS goals of 'Investing in People and Promoting Social Equity' and 'Accelerating Rural Development'. The project will also support the CAS goal of 'Improving Public Administration, Transparency and Participation' which calls for greater decentralization and participation by civil society and local communities in the identification, design, planning, fund management and imnplementation of Bank-supported projects. The I-PRSP was discussed at the Board on 4/12/2001 (IDA/SecM ). 2. Main sector issues and Government strategy: Urban and Rural Income Disparity: Substantial progress has been made in recent years in reducing poverty in Vietnam and the national incidence of poverty declined from 58% in 1993 to 37% in 1998 (World Bank, Vietnam Development Report 2000: Attacking Poverty). Despite these impressive achievements, poverty remains a major problem especially in rural areas, where 90% of the poor live. In rural areas, the poverty rate is 45% and the food-only poverty rate is 18%, compared to 9% and 2% respectively for urban areas. The poorest often live in areas which are remote, lack infrastructure, have difficult or no access to information and to social and other services, and are poorly linked to markets. Narrowing these gaps is essential for reducing their poverty. Moreover, there is a significant risk that the poorest rural areas could be further marginalized and income disparity could grow unless fimds can effectively be transferred in targeted ways from the relatively richer to the poorer areas. Intemational development support should also be targeted to build up human, social and physical capital in the poorest parts of Vietnam. Deficiencies in Fund Transfer and Commune Level Investment: The World Bank Report on Fiscal - 2-

7 Decentralization and Delivery of Rural Services highlighted the fact that deficiencies in public administration, transparency and participation at all levels have led to a situation, where for every dollar spent for capital development in rural areas in Vietnam (a) only a small share is received by the beneficiaries at whom it was aimed, and (b) physical infrastructure developed does not match the beneficiaries' own priorities. The reasons for this are generally rooted in: (i) weak administrative capacity, (ii) the lack of transparency and accountability in the use of public funds at all levels, which discourages participation, (iii) the disconnect between the decision makers and the beneficiaries caused by significant infornation gaps about local needs, and (iv) the lack of project-based planning and budgeting due to unclear and uncertain budgetary allocation at provincial, district and commune levels. (Authorities often approve and start implementing investment projects estimated to cost more than the funds available, and use the fact that works are not complete as justification to request further funds or divert funds earmarked under other programs or purposes.) Government Strategy Reducing rural poverty is among the highest priorities of the Govermnent which has a long-tern commitmento assist in the development of poor areas by making substantial budget transfers from richer areas, such as Hanoi and Ho Chi Minh City, too poorer ones. Major on-going programs include the National Target Program of Hunger Eradication and Poverty Reduction (HEPR)(Prime Minister's Decision No. 133/1998/QD-TTg Program) and the Socio-Economic Development Program for Especially Difficult Mountainous and Remote Communes (Prime Minister's Decision No. 135/1998/QD-TTg), focused originally on 1,715 of Vietnam's poorest rural communes out of a total of over 10,000 communes in Vietnam. The latter program, often called the Poorest Communes Program or Program 135, calls for orchestrated efforts and targeted resource provision in the poorest communes. At the Consultative Group meeting for Vietnam in December 1998, the Government requested assistance from donors for this program. It should be noted that there are also communes officially designated by GVN as "poor" which are not remote and mountainous. These are also addressed by this project in the project provinces.) The Govenmment has been promoting decentralization through a series of laws, decrees and regulations. The major guiding principle has been to give greater power, autonomy and responsibility to provinces, districts and communes. The 1996 State Budget Law, as well as the issuance of decrees and regulations in late-1998 on disseminating budgetary information of provinces and communes attempt to bring greater transparency and stability to financing for local development. Such initiatives are accompanied by the recently promulgated Decree 29/1998 (on 'Grassroots Democracy') that seeks to promote transparency in the use of public fund at the commune level and promotes grassroots participation in decision making. 3. Sector issues to be addressed by the project and strategic choices: The Government's initiatives for decentralization and devolution are yet to be fully operational particularly at commune level. This is partly due to skepticism about the capacity of the poorest communes ever to plan implement and manage their own development activities, but also reflects a genuine need for capacity building following a long tradition of central planning. For a long time, top-down planning has been seen as the way to integrate political choices regarding human needs and natural resource use efficiencies. This belief is still strong at provincial and district levels. The country's 10-year development strategy and five-year plans, which are prepared at and consulted over all administrative levels down to the commune level, are still a clear manifestation of this development approach. As long as the communes lack the capacity to take more responsibility for their own affairs, the strong temptation at provincial and district levels is to use funds such as those from Program 135, designated for demand-driven investments, to finance gaps of the country's five-year plan targets

8 The project will complement Program 135 and other poverty targeted interventions. It will give highest priority to capacity building, which enables authorities at commune level to take responsibility and ownership in planning, decision making and implementation of small-scale infrastructure investments. The capacity created in this way will be beneficial in other nationally and internationally supported development interventio4s, including Program 135. Community based, small-scale infrastructure can be effective in developing the capacities of the poor people as it requires minimal coordination and strategic planning from higher authorities, is manageable within existing local knowledge and institutions, and the effects can immediately become visible. Building of such capacity at the commune level the project will help implementation of donor and govemment financed rural development investment. C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): Strengthening Decentralized Planning and Implementation Capacity (US$ 9.05 million) There will be training of government and project staff in all aspects of the project. Training will be provided to the Central Project Management Unit (CPMU), Provincial Project Management Units (PPMUs), and district technical staff. About 110 Community Facilitators (CFs) will be recruited and trained to interface with the community. This component also supports information campaigns to ensure widespread public understanding, transparency and accountability, including distribution of printed materials, signboards, newsletters, and broadcasts by mass media. Infrastructure Development (US$ million) Commune level works (US$ million). Providing grants to communes of between $21,000 and $64,000, depending on the size of the commune population. Up to three grants will be provided to each commune triggered by progress with the successful use of the previous grant. Only if the first grant is properly used will the second be provided. Grants must be used to build or repair small-scale public infrastructure works (subprojects) identified through a participatory process from a pre-determined list of eligible works (see Annex 2). Unskilled labor would be recruited locally. Beneficiary communes will contribute 5% of total sub-project costs mainly in the forn of labor. The remaining 95% would be paid from the grant. Inter-commune level works (US$ million). Providing an additional grant equal to 20% of the combined value of commune grants in districts with three or more project communes, to finance larger infrastructure that impacts on two or more poor commune. This will be limited to improvement or upgrading of existing roads, irrigation and flood control schemes and electrification, identified in Annex 2. Inter-commune subprojects will be chosen by the affected communes and implemented by the District People's Committees - DPCs starting in project year two. Project Support Services (US$ 6.79 million) Financing establishment and operating expenses of a CPMU in Hanoi and PPMUs in the thirteen participating provinces. Most staff will be seconded from the existing govemment offices and return to their previous posts after project implementation. Particular attention will be given to monitoring project progress and impact. An independent agency would be employed under the project for process monitoring. -4 -

9 Project Cost Summary Total Project Costs Front-end fee Total Financing Required Project Costs and Financing The total project costs are estimated at US$ million (VND 1.97 trillion). A summary of the project costs is shown in Annex 3. Detailed cost tables are provided in the Project Implementation Plan (PIP), Annex 4, Tables 1 to 6. Cost estimates are based on detailed costing of the planning and implementation capacity building and the project management components. Investments for commune and inter-conmnune infrastructure works will be in response to "demand" expressed by the communes under the project through the participatory process. The total allocation is aggregated from the allocation to each commune including a provision for additional communes, which are expected to become eligible during the project through a revision of official lists of poor communes by CEMMA and MOLISA and the inclusion of additional provinces following the mid-term review. (Vietnam's official poverty line has been adjusted upward in 2001 and additional communes can be expected to be designated as "poor.") The costs for inter-conmmune infrastructure works are estimated at 20% of the total commune level works. Contingencies. The total project costs include price contingencies for foreign-based prices based on projected MUV-5 price escalation factors of 2.5% for the year 2001, 2.6% for the year 2002 and 2.5% for each year thereafter. For costs in local currency an annual price escalation of 6.0% for 2001 and 5.0% for during remaining project implementation phase is used. Physical contingencies are not applicable in this project. Component Sector Indicative Bank- % Of Costs % of financing Bank- (US$M) Total (US$M) financing 1. Strengthening of Planning and System Reform & Implementation Capacity Capacity Building 2. Infrastructure Development: Community Commune level infrastructure Action Program - Inter-commune infrastructure 3. Project Support Services Institutional Development

10 2. Key policy and institutional reforms supported by the project: Government Decree 29, the Regulation on the Exercise of Democracy in Communes, often termned the' Decree on Grassroots Democracy', defines a framework for consultation, participation and transparency concerning provision of public works at the commune level. It outlines detailed responsibilities of commune authorities and the modalities for consultation and participation of the commune population in implementing commune-level projects, including small-scale infrastructure. However, the Decree is not being actively applied in many communes and the level of its understanding in most poor communes is low. The project will foster the spirit of the decree and promote its application by supporting understanding of the rights and obligations of the decree for communities and local authorities, and designing and supporting practical methods for its implementation in designated poor commnunes. Long-term government policy makes commune and district authorities responsible for funding their own small-scale infrastructure works. While this approach is considered desirable, most poor communes are unable to take up this responsibility unless their managerial capacity improves and local revenue reaches adequate levels. The project aims to develop such capacity and to provide a capital injection for provision of essential public works through grants. 3. Benefits and target population: The project will initially target 540 poor communes in 13 provinces in central Vietnam, out of a total of 611 communes eligible for project support. The total population of the 540 communes is about 1.4 million. The communes selected for the project are defined as "poor", based on the criteria established by the Committee for Ethnic Minorities and Mountainous Areas (CEMMA) for Program 135 and/or the criteria of the Ministry of Labor, Invalids and Social Affairs (MOLISA defines communes as poor, if more than 40% of total households are poor in accordance with the GVN's poverty line. CEMMA uses a combination of criteria including remoteness, status of infrastructure, social indicators, production systems, and poverty to define poor communes). Communes located in protected areas (86 in the project area) are excluded from the project because adding infrastructure could exacerbate resource over-exploitation and because there are on-going projects providing specific support for local development in protected areas. Funds allocated under the project are sufficient to support an additional 120 to 150 communes. After an early mid-term review, the availability of funds will be reassessed and the possibility to add additional poor communes or provinces beyond those on the original list will be considered

11 No. Provinces No of poor Communes in Communes covered Project No. of districts communes natural parks by other projects/i communes before mid-term before review mid-tern review I Thanh Hoa Nghe An Ha Tinh Thua Thien Hue Quang Nam Quang Ngai/ Binh Dinh Phu Yen Khanh Hoa Ninh Thuan Binh Thuan Lam Dong Binh Phuoc Total / It Excluding communes in natural parks 12 Quang Ngai includes 50 communes potentia/ly covered by AusAID, but not yet designated and thus still eligible for suppoat from CBRIP A commune is Vietnam's lowest unit of government with a Commune People's Council as its legislative body and a Commune People's Committee as its administrative body. Typically a commune consists of 5 to 10 natural villages. Villages may include hamlets. Villages and hamlets are generally ethnically homogenous, but conmmunes can include a mix of ethnic groups. The average population of the 540 project communes is about 3,600 people (or about 700 households), but the actual size varies widely. Some 50% of the project communes fall into a population range between 1,800 and 5,000 people. However, the largest project conmnune has 27,000 people and the smnallest one has only 322 people. Project activities will raise the capacity among the poor communes to take responsibility for the affairs that directly affect their future well being. Small-scale public infrastructure works supported by the project would increase household incomes, improve living standards and reduce poverty and vulnerability. Use of local labor, with adequate payment, preferably during the agricultural off-season, would generate job opportunities and contribute to a safety net for the poor

12 4. Institutional and implementation arrangements: Project implementation will extend over 6 years starting in The project would initiate work in 60 communes with a minimum of three conmmunes in each project province at the beginning of the project. In this way, application of the project's methodology and procedures would be tested and refined. Implementation would be expanded to cover an additional 200 communes after about 8 to 10 months, and the remaining communes would be included at the end of Year 2. Project Management Project management will be based on a decentralized, demand-driven structure granting communes as much decision making authority as possible, sub-project ownership and responsibility for the operation and maintenance of proposed investrnents. The key features of the proposed organizational structure and functional responsibilities are described below. Commune Project Coordinating Committee (CPCC): A CPCC will be the key institution at the commune level for mobilizing the community, demand identification, and planning and implementing subprojects. CPCCs will be formed in each project commune and will be headed by a member of the Commune People's Committee and include the commune accountant, representatives from the mass organizations, and elected representatives from each village (one woman and one man). Full-time CFs will be employed under the project to introduce the project to the commune and facilitate the Community Based Participatory Process (CBPP), a CPCC-led initiative for subproject selection, implementation and management. The CF will work closely with the CPCCs and help their interactions with District, PPMU, and other concemed parties. Community Facilitators (CFs): Full-time CFs will be employed to introduce the project to the communes and facilitate the Conmmunity Based Participatory Process (CBPP), a CPCC-led initiative for subproject selection, implementation and management. CFs will work closely with CPCCs and help their interactions with District authorities, District Technical Support Groups (DTSGs) and other concerned parties. Some 3040 CFs will be recruited in 2001 and receive training. The remaining CFs will be recruited and trained as additional communes enter the project in future years. Hiring CFs will be broadly advertised and a selection process, including experts in participatory development and acceptable to the Bank, would make the final recommendation from among the qualified candidates. To facilitate full participation and inclusion of women and ethnic minorities in the project communes, their recruitment as CFs will be formally encouraged, and position announcements and selection processes will recognize this. Provincial Project Management Unit (PPMU): A PPMU will be set up in each project province under the Provincial Department of Planning and Investment (DPI) by seconding a number of existing full time staff of the department. The major functions of the PPMUs include: overall project management and supervision in the province; employment, support and supervision of the CFs; approval of subprojects including entering into Subproject Agreements with the CPCCs; initiation and assurance of the fund flow process (see Financial Management section below), and M&E and reporting. A PPMU will be composed of a project director, an engineer, a commune liaison officer, a monitoring officer and at least one professional accountant. The project will finance transportation and field allowances of staff, office equipment and operational expenses. Central Project ManagementUnit (CPMU): CPMU has been set up in MPI within its Department of Local Economy and Territory. MPI will entrust this unit with overall project management, fund transfer, exchange of informnation and experience among provinces, inter-departnental and inter-agency co-operation/coordination, training and human resource development, M&E, and reporting required by the - 8 -

13 Bank. The CPMU will comprise a director, a senior project coordinator, a training coordinator, a chief financial officer and two accountants, a monitoring and evaluation team (chief M&E officer and two M&E officers), three full time liaison officers, a procurement officer, an environmental and social safeguard officer and office support. The liaison officers will visit project areas on rotational basis and interact with PPMUs, CPMUs, CPCCs, CFs and district staff to ensure good communications between CPMU and these parties over project matters. Overall guidance of project implementation will be provided by MPI in consultation with the Ministries of Finance; Transport; Construction and Energy; Agriculture and Rural Development; MOLISA; CEMMA, MPI, as well as the Vice-Chairman of Provincial People's Committee from each project province. Guidance at the provincial level will be the responsibility of the DPIs, in consultation with the Vice Chainnan of the People's Committee, representatives from the line departments and representatives from each project district at Vice-Chairman level. Financial Management System Flow offunds. The capacity of poor communes to pre-finance works is very limited. However, availability of funds at the commune at an early stage is critical to support project ownership and responsibilities. Fund flow arrangements must be transparent, manageable and fully accountable. For all commune level subprojects approved by the PPMU for implementation, the CPCC will open a project account at an approved commercial bank accessible to the commune. For each subproject the PPMU will sign a Subproject Agreement (SA) with the CPCC stating implementation arrangements and estimated subproject costs. Funds will be transferred directly from the project Special Account to the commune's project account in two installments: a) equivalent to 50% of the estimated subproject costs, minus the 5% beneficiary contribution, upon signing the SA and following PPMU's request for a transfer; b) the balance on the basis of a Subproject Completion Form signed by the CPCC, the supervising engineer and a financial officer from the district, after checking on both physical works and financial statements. Accounts will be held at central and at commune levels. Commune level accounts will be checked by financial officers from the district at least twice: once after the physical implementation is completed (Subproject Completion Form stage) and a second time after the final disbursement has been completed and all outstanding payments have been settled (Subproject Disbursement Completion Form stage). For details see Annex 2, Attachments 5 and 7. To keep control of the fund flow, the CPMU and the PPMU will be notified of all disbursements. Procedures for payment of intercommune works contracts will be different. Payments to contractors for intercommune works will be made by the DPC following regular government steps (mobilization and progress payments, holdback and final payment) and in accordance with Bank procurement guidelines. When a subproject is completed, the DPC will issue an implementation completion form, to be signed by the supervising engineer. This form will be checked and signed by the PPMU, and the CPMU will use this form as the basis for disbursement from the project Special Account to the District Account held by the District Treasury in a commercial Bank. Disbursement will be 80% of actual approved expenditure plus an 8% lump sum to cover all district-level overhead costs for survey, design, construction supervision and related project implementation costs. Accounting, financial reporting and auditing. CPMU will be responsible for the financial management, reporting, supervision and arrangements for auditing of all project activities. A project Special Account will be opened for the IDA credit in a commercial bank acceptable to IDA, and managed by the CPMU. Financial records will be kept for all project-related expenditures using accounting principles and practices acceptable to IDA. An action plan to improve the financial management capacity (section E.4) was agreed - 9-

14 with the main implementing agencies and is included Annex 6. The project accounts will be audited annually. Monitoring and Evaluation Project monitoring comprises an MIS-based monitoring and process monitoring system. The former is designed to record the progress of the project in order to facilitate management and supervision and to generate progress reports. This would involve a continuous recording for each subproject of its stage of the subproject cycle for each participating commune and district (e.g. planning, decision making, subproject approval, implementation, completion or disbursement). Since some key processes in this project cannot be captured in the MIS, e.g. the degree of participation by commune members, the project will set up an independent process monitoring system which would: examine the quality of the CBPP in such aspects as participation and inclusion and adherence to safeguard policies; monitor the actual subproject approval procedure and fund flow arrangements; and oversee the interactions between various administrative units and the project's management. The process monitoring will be conducted by an independent agency outside the project's line management and employ a field-based approach. The same agency will evaluate the impact of the project at the time of mid-term evaluation and after project implementation. D. Project Rationale 1. Project alternatives considered and reasons for rejection: Selection of Project Communes Supporting only the communes identified as poor under the Program 135 was considered, but rejected on the ground that many non-listed communes are equally poor and in equal need of support. All communes identified as poor by CEMMA and MOLISA are eligible for support by the project. Those poor communes receiving financial support for provision of small-scale public infrastructure from other World Bank-assisted projects or other donors will not be supported by CBRIP. Fund Allocation to Communes Communes vary in size, population, labor availability, income, and level of infrastructure endowments. Their locations affect costs for infrastructure works mainly due to differences in transportation costs for materials. Weighted allocation on the basis of such parameters was considered, but proved inappropriate due to greater data requirements and more importantly, as mentioned in the section B 3, the possibility of manipulation and reduced transparency, that could lead to disputes and fund misuse. The outsiders' assessment of what infrastructure would be needed and desirable could open a window for interference and be detrimental to the project ownership by the communes. Seven levels of financial allocation were decided reflecting population differences in population size (see Annex 2, Attachment 2). Social Funds The possible use of a "Social Fund" mechanism was considered. Social Funds appear to be best suited to conditions where local Government capacity for participatory planning is very low or non-existent. In such a context, funds are provided to local groups with management vested in a specially established unit, which is exempt from normal Government regulation on salaries, procurement and disbursement. The use of such a mechanism was not considered appropriate in the case of Vietnam where there is already a national programn for supporting poor communes (Program 135) and some capacity for local level participatory - 10-

15 planning and where a number of projects have demonstrated how this capacity can be strengthened and used. Rather than work outside the system, the project aims to strengthen the administrative and managerial capacity of poor communes in support of the government's program of decentralization, not to create a parallel structure. Commitments to communes and approval of Subproject Proposals Most participatory projects require submission of subproject proposals to higher authorities for approval without any pre-determined fund allocation. This implies that final power for approval and fund allocation rest with authorities outside the community. The project makes a clear up-front commitment regarding the availability of funds to each commune and the eligibility of works. Each participating communes will know in advance that a financial allocation has been made and if the communes follow the participatory process laid out they will be able to develop small subprojects from the pre-approved list, funded by grants. The approval procedures will focus on consistency with the project objectives and design, and will not include decisions on the overall allocation of funds nor question the prioritization decided by the communes. As subproject owners, the communes' choices will be supported

16 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). :f:f0if00 M t$ 0;lfC:Latest ; Supervision Sector Issue : roject (PSR) Ratings i: :: _ jnanced (Ba_k-_ projecsonly) Implementation Development Bank-financed Progress (IP) Objective (DO) Agricultural support facilities, IPM, Agricultural Rehabilitation S S crop diversification Project (FY 94) Irrigation rehabilitation, O&M Irrigation Rehabilitation Project S S improvement (North-Central VN) (FY 94) Rural credit support Rural Finance Project (FY97) S S Agricultural diversification, small-scale Agricultural Diversification S S private sector tree crop development (FY97) Rural transportation Rural Transport Project (FY97) S S Rural transportation Second Rural Transport Project S S (FYOO) Rural Energy Rural Energy Project (FYOO) S S Rural infrastructure, rural development Northern Mountain Poverty Reduction Project - under preparation. Other development agencies Asian Development Bank IFAD UNCDF AusAID CIDA Rural Infrastructure Sector Project Central Poverty Reduction Project Provincial Development Projects in Tuyen Quang, Quang Binh, Ha Giang and Ha Tinh Rural Infrastructure Development Project (RIDEF) in Quang Nam Rural development in Quang Nam and Quang Ngai Provinces Rural Development in Thanh Hoa and Soc Trang Provinces IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons learned and reflected in the project design: There is a short but intense history of community based rural development projects in Vietnam. Notable are those financed by IFAD in four provinces in northem and central Vietnam, UNCDF in Quang Nam,

17 UNDCP in Nghe An, and Oxfam GB in Ha Tinh. Key lessons emerge on effective targeting, decentralized decision making, participation, transparency and financial accountability. These were summarized by government and donors in a joint workshop sponsored by the World Bank and UNDP on assistance to poor communes in July Notable amnong the lessons were the following: Make targeting the poor transparent, keep it simple and minimize opportunities for influential people to favor the non-poor or preferred locations (most projects). Efforts to mobilize and empower local communities for development of small-scale infrastructure can be successful, but local capacity building must precede other investments (IFAD/IUNCDF). Capacity building must also apply to community members, not just officials (UNCDF). Participation must be encouraged from the outset if genuine local ownership is to be built (UNCDF, UNDCP, IFAD). Participation must include both men and women, and the poor (Oxfam GB). Project possibilities and funds availability must be publicly and widely announced, and accounts and tendering for works or goods made public (UNCDF). Keep the local contribution small and seek the opportunity to generate local employment (Oxfam GB). Contractors must be encouraged if they are to employ local workers (Oxfam GB). Centralized administrative procedures can result in slow implementation and disbursement (various Bank and ADB projects), however, decentralized fund management requires careful controls (UNCDF). Directly channeling funds to communes is feasible and can be more successful (UNCDF, IFAD) provided training is provided in advance, and funds are managed accountably with clear procedures and periodic auditing (all projects). Entrusting local conmnunities with decision making and implementation of development activities in large scale projects has been tested successfully in other countries. The World Bank's Village Infrastructure Project in Indonesia (Loan 3888-IND) was rated highly satisfactory and concluded that "villagers are able to be "subjects of development instead of the object of development." During project preparation, the Governmenteam for CBRIP visited this project in Indonesia (and the World Bank-assisted Agrarian Reform Communities Development Project in the Philippines) in order to learn from the experience. Relevant lessons identified on study tours by the Vietnamese, included: * project designs must be kept simple if they are to accommodate the variations to be expected across provinces * effective participation lowers subproject costs and raises sustainability * managing contractors requires very special attention to ensure performance and avoid corruption * without a high level of public accessibility to project infornmation, quality falls and corruption increases * community-driven projects need skilled facilitation * most communities can meet project objectives to high standards provided the design of mechanisms for procurement, financial and quality assurance are appropriate A high level of government commitment is essential; large scale projects can be used to address village level needs; the private sector can and should participate in implementation; continuity of project teams supports quicker implementation; small scale subprojects are preferred to large ones and short implementation periods for subprojects are preferred to long ones; pilot action are not always beneficial as they can require as much effort to mobilize as full-scale projects; project villages are able to handle both technical and administrative aspects of subproject design and implementation, including on-going O&M, provided adequate raining is provided; a maintenance culture, however, takes time to build; independent monitoring cannot be relied upon to identify all problems quickly, but it is still essential; the project's financial and audit control agency must be involved in project design to avoid later demands for documentation that cannot easily be provided; the project managementeam needs real time access to up-to-date information on physical and financial progress if it is to be effective especially at the later stages

18 of imnplementation. Based on these lessons the project will pay due attention to widespread public information and open and transparent decision making and bidding processes; subprojects of a scale small enough to be managed locally; a clear project implementation plan and field manual; promotion of meaningful local level participation by men and women; and a flow of funds that channels resources as directly as possible to the targeted communes, but retains solid accountability. 4. Indications of borrower commitment and ownership: GOV is strongly conmmitted to providing targeted assistance to poor communes. It announced its own program of assistance to poor, remote and mountainous commnunes in Under the Program 135 the Government initially sought in 1999 to provide grnts of about VND 410 million (US$29,000) to 1,000 of the poorest communes and special services to an additional 715 communes. These numnbers have been expanded in subsequent years. Current commitment by Governmnent to Programn 135 is about $28 million annually, all from Government's own sources. Provinces, districts and communes are implementing the programn, having prepared proposals for the use of these funds and carried them out. Nevertheless, the understanding of, and degree of local influence over, Program 135 investmnents is modest at best in most rural areas. The 1998 "Decree on Grassroots Democracy" is a manifestation of the Government's intention to accelerate decentralized decision-making concerning socio-economic development, ensure commune-level control of funds, and enhance participation and transparency. Government sees this project and others (including the Bank-assisted Northern Mountains Poverty Reduction Project, and new initiatives supported by ADB, AusAID and CIDA that are under preparation) as vehicles to promote commnune-level development in poor rural areas and local ownership. Government's agreement to support the creation of CPCCs and appoint CFs, and its endorsement of the participatory process and flow of funds, are strong signals that it is committed to a community-driven but accountable development process. 5. Value added of Bank support in this project: The Governmnent has started implementation of Program 135, which had been intended to transfer decision-making power to communes. Experience shows that decentralization efforts have only been partly successful since the political intention was not backed up with applicable and practical concepts and sufficient capacity building of lower level institutions. Several other donors are also supporting or plan to support commune level infr-astructure investmnents using participatory decision making. However, these are still under preparation and none of them is sizable enough to be an impetus to co-ordination and conceptualization of the process of commnune level infrastructure investment at the national level. Different investors applying different procedures and regulations have also added to some confusion at commnune, districts and provincial levels. In addition, local authorities often have to manage funds from different sources according to different sets of requirements for similar investmnents. The Bank support for the project will help draw together experience of decentralized and participatory projects in Vietnamn, such as the Government's own programs, donor-fuinded programns/projects, including those by UNDP, IFAD, UNCDF, as well as projects in other countries inside and outside the region. Thus this project (and its sister Northern Mountains Poverty Reduction Project) provide valuable vehicles the development, application and demonstration of new approaches to participatory, community-driven investmnent. The Government is strongly commnitted to this large-scale application of community-driven development and several other donors have shown strong interest in applying the project concept in their programs and projects in the country

19 E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8) 1. Economic (see Annex 4): O Cost benefit NPV=USS million; ERR = % (see Annex 4) O Cost effectiveness * Other (specify) Note: NPV and ERR are not applicable. The communes will determine the type of infrastructure themselves as an integrated element of the project implementation process. The type and composition of infrastructure works therefore can not be anticipated ex-ante. Thus, an overall ex-ante cost benefit analysis for this project is considered to be too speculative. In addition, the approval of each subproject proposal should not be subject to an economic analysis if the project aims to build subproject ownership through a community-based participatory process. Much infrastructure provision or upgrading - such as of primary schools and primary health care centers - are justified on other than economic grounds, and other economic infrastructure - such as improved access and rural electrification - is known to be associated with high economic rates of return.nevertheless, to assure overall economic viability, effective and workable restrictions on the basis of investment per capita and work force and ceilings per unit for economic infrastructure, will be applied. Total investment per capita will on average range between US$ 26 for the group of largest communes and US$ 52 for the group of smallest communes. Comparing this investment with the prevailing average annual income per capita of US$ in communes in the project area, the project would reach economic viability (EIRR above 12%) if it would raise incomes by 3.0% in the case of the smallest and 1.5% in the case of largest communes. In addition, there are significant non-quantifiable benefits associated with most small-scale public infrastructure in communities where it is either absent or in need of rehabilitation. To assure that infrastructure investments remain within economnically reasonable limits, cost ceilings have been set for selected infrastructures, such as per hectare investment for irrigation and per household investment for drinking water supply and electrification (for details see Annex 4 and PIP Annex 3). Experience with similar investments in Vietnam shows that EIRRs for rural infrastructure investments are generally high. Rural Transport Projects I and II indicate that most access improvements are viable up to $15,000 per kilometer; Rural Energy indicates that electrification of rural communes is viable in most cases with EIRRs above 30%, except for the remotest communes in rugged terrain; and the Irrigation Rehabilitation Project indicates that small-scale system rehabilitation is almost always viable in Vietnam (EIRRs above 12%). The cost ceilings adopted under the project aim to ensure that even without an economic analysis, the investments are almost always economically viable. In addition, the PIP includes a simple method for calculating economic returns to selected small-scale infrastructure works, once they have been chosen and designed, including access improvements, drinking water systems and irrigation (PIP Annex 8). It is not intended that these calculations be used to screen such small-scale projects, but that during the early years of implementation, economic analysis be routinely conducted and if necessary the list of eligible works and cost norms be adjusted at mid-term. 2. Financial (see Annex 4 and Annex 5): NPV=US$ million; FRR = % (see Annex 4) Note: NPV and FRR are not applicable

20 The first and most critical financial issue in this project is the limited capacity of poor communes to pre-finance works. Notwithstanding the government's policy, contractors would not enter into a contract with communes lacking financial resources. To overcome this, the project will not only publicly commit a grant to the communes but also, to support project ownership and responsibility at the commune level at a very early stage, release an advance payment of 50% of the estimated subproject costs. This payment would be subject to an approved Investment Approval Request and a Subproject Agreement, a document specifying CPCC's obligations, signed by the CPCC and the PPMU. Details of the approval procedure and flow of funds arrangements are in Annex 14. Commune and inter-commune level infrastructure investment is not expected to put a significant additional burden on public expenditure budgets. The benefiting communes would be expected to cover incremental O&M costs of the subprojects. A clear commitment and O&M plan with estimated labor requirements and responsibilities by the beneficiaries would be a condition for financing the proposed subprojects. Construction of new schools and health centers would only be approved where teachers or health personnel already exist, or where a finn written commitment to provide the required teachers, health care staff and supplies, is provided in advance by the district authorities. Fiscal Impact: The fiscal impact of this project is negligible. The GOV has already committed about $28 million annually for its national program of support for poor and mountainous communes since This amount is scheduled to increase to about $40 million through 2005 from the GOVs own sources. These funds are more than sufficient to provide the GOV counterpart of about $3.0 million annually, on average. The GOV counterpart fund for the first year's activity has already been built by MPI into the national budget for These are funds that will support project management and funds for infrastructure that will be transferred to the participating provinces. 3. Technical: The project is designed to implement a wide range of small and simple rural infrastructure works, largely using local labor and materials, and applying locally evolved and preferred design features. Standard and appropriate designs for public buildings (schools, kindergartens, and health care stations) in rural communes are available. Access improvements will be restricted to important spot improvements on existing roads and tracks, with the main aim of improving accessibility and safety particularly during the rainy season. The extension of the power grid to remote conmmunes is eligible inter-commune infrastructure (where the World Bank-assisted Rural Energy Project is not applicable), but because some remote and mountainous communes are located at a distance that makes connecting to the national electricity grid impractical, the project will support commune electrification through renewable energy sources, primarily hydropower (micro- to small scale installations), and simple solar power systems. Many hilly and mountainous conmmunes have opportunities to develop simple gravity-flow or well-based drinking water schemes and micro-scale irrigation schemes, either gravity based or using turbine-pump technology, which already has a footing in Vietnam. The skills and capacities to construct and maintain such works are found in the project areas and contractors are usually available at the district level. Project support in planning and selection of works by CFs and especially by district level technical specialists will enable beneficiaries to understand appropriate technical, structural and functional options and altematives when making choices. These and other details are spelled out in the PIP and will be translated into a comprehensive field manual in simple language to provide practical guidelines on design aspects, costs, procurement and contracting matters. The Field Manual will be made available at all levels

21 and evolve on the basis of practical experience. DTSGs will become the main partners of communes in the infrastructure implementation process and substantial training provisions for DTSG staff have been made in project design. Operation and Maintenance O&M could fail for facilities that were provided by government agencies, without sufficient consultation with beneficiaries to create a sense of real ownership. In-depth participation in the selection and planning of infrastructure should create a high degree of ownership and a foundation for effective O&M. It is observed that in very remote, self-reliant communes and villages, the degree of ownership and responsibility for O&M of essential facilities is often very high. The anticipated O&M requirements will be within the capacities of the target communes and their beneficiaries. The field manual will translate the requirements of the PIP into guidance on user group establishment, labor, and cash or in-kind requirement for O&M for different types of infrastructure. Those will be discussed at the planning and decision making stage in the communes to make users collectively aware of the arrangements and obligations for O&M, which go along with the investments. Specific O&M arrangements and obligations will be part of each Subproject Agreement. 4. Institutional: 4.1 Executing agencies: Project implementation and overall project supervision will be the responsibility of the Department of Regional Economy and Territory in MPI. MPI has line Departments (DPIs) in every province, which will take the responsibility for project implementation at the provincial level. The responsibility for the execution of subprojects will rest with the CPCCs for commune level works and with the DPCs for the inter-commune level works. A Subproject Agreement (SA) signed between the PPMU and the CPCC or DPC spells out the responsibilities and obligations of CPCCs and DPCs in respect of subprojects. Intensive training will be provided to the staff of the CPCCs, the CFs and the members of the DTSGs to assist the project communes to plan and execute subprojects. The DPCs responsible for the execution of inter-commune level works generally have extensive experience with the implementation of small-scale infrastructure projects. However, district staff will also receive training on subproject execution, procurement, quality control and O&M requirements, and responsibilities in the context of a community-driven project. 4.2 Project management: Project management is based in existing government organizations with MPI at the national level and its line departments (DPIs) at the provincial level. A CPMU in Hanoi and 13 PPMUs will be set up and their key staff have been nominated or are being recruited. Most project management staff will be seconded from existing government offices and will return to their offices after project implementation. Since most management staff lack experience with IDA-funded projects and the rules and procedures to be followed under such projects, intensive training and guidance prior and at the early project implementation stage is required. A detailed Project Management Training Plan for the project management staff, part of it to be implemented prior to project effectiveness, is provided in the PIP (PIP Annex I 1). The highly decentralized subproject execution responsibilities with some 500 subproject implementation units (communes and districts) require a management system with clearly defined responsibilities, and quick and efficient information flows. A computerized Management Information System (MIS) is

22 required for supporting the management units at the provincial and central level to provide information on all project activities from the subproject planning process in the communes to the final disbursement for implemented works. 4.3 Procurement issues: Most commune level works, if not entirely implemented by the commune residents, will be procured through limited competitive bidding with price quotations from at least three qualified, pre-selected construction companies. Since most CPCCs are not familiar with basic procurement rules and procedures, they need to be trained in procurement and contract management procedures. To help the CPCCs obtain bids through written invitations from contractors, standard forms will be provided to the communes as part of the field manual. A List of Interested Contractors will be compiled by each PPMU through public advertisement and furnished to CPCCs prior to each construction season. The CPCC members will be given extensive support from the CFs and trained DTSG officers. As an important outcome of this project it is expected that local leaders at the commune level will develop an effective understanding of simple competitive procurement procedures and will leam that such procedures can result in significant cost savings. Procurement arrangements are detailed in Annex 6 and PIP Annex Financial management issues: During the preparation of this project the financial management capabilities of the govemment agencies have been assessed. The assessment found that the concemed agencies have the basic financial management system in place. However, at the commnune level, the competence of the accountants varies and most of them have experience of handling limited recurrent costs only. Existing weaknesses need to be overcome by capacity building in financial management and internal auditing, from central to commune level. Transparency and accountability have to be strengthened to irnplement this project as designed. The results of the assessment and corresponding Action Plan to address measures needed to improve capabilities are included in Annex 6. A Financial Management Action Plan as part of the PIP has been agreed with the main implementing agencies to remedy existing weaknesses (PIP Annex 6). A qualified Chief Financial Officer has been recruited by the CPMU to prepare a Financial Management Manual, improve accounting and financial control systems and practices, and establish acceptable procedures for fimancial reporting and auditing (section G. 1, covenants a) and d)). 5. Environmental: Environmental Category: B (Partial Assessment) 5.1 Sunumarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis. An environmental assessment (EA) and a detailed social assessment (SA) were prepared by the GOV. In the EA, particular attention was given to (i) degradation of forest resources; (ii) impact on ethnic minorities; (iii) resettlement and land acquisition; (iv) impact of new infrastructure on erosion; (v) increase in disease due to water borne vectors; (vi) degradation of wetlands caused by flood control measures; and (vii) ground water depletion. As a result of the EA, 86 poor communes which were potentially eligible for project support have been designated ineligible for environmental reasons, because they are in, or partly in, designated parks and protected areas. For the remaining communes, because the project supports only very small-scale infrastructure works the overall potential environmental impact is anticipated to be low. A positive environmental impact is expected from improving rural sanitation and drinking water facilities. Details of Environmental Aspects of the project are contained in Annex 13. The EA also forms Annex 12 of the PIP

23 5.2 What are the main features of the EMP and are they adequate? To minimize the potential impact on forest resources, the project will restrict the type of eligible subprojects in communes located in buffer zones of protected areas and will make an environmental assessment compulsory for road subprojects over 5 km in length. An environmental training program will be obligatory for key staff in all project management and implementation units. An Environmental-Social Safeguard Policies Officer will be part of the CPMU and trained in environmental impact assessment Each province will have an Environmental Focal Point who will be trained in EIA, conservation of natural resources and health issues associated with subprojects. In addition, environmental training will be provided to district staff, CFs and members of CPCCs. (The agreed training program is detailed in the EA and PIP Annex 11.) The likelihood of actual resettlement due to subprojects is very low because of the small scale of eligible infrastructure works and the intensive local participation, although some temporary land compensation may be required. Nevertheless, a separate Resettlement Policy Framework Paper has been agreed with the GOV. This Paper (summarized in Annex 11) is contained in full in the PIP (Annex 13). Ethnic minority interests are mainstreamed through the design of the project following the SA. Additionally, an Ethnic Minorities Action Plan has been prepared which captures all the elements of project design aimed at ensuring the informed participation of ethnic minorities in the project as explained in section E.6. below and in PAD Annex 12 (detailed in the Ethnic Minorities Action Plan EMAP) and reproduced in full in the PIP at Annex 13). 5.3 For Category A and B projects, timeline and status of EA: Date of receipt of final draft: November 21, 2000 The draft EA was publicly disclosed by Government at the offices of the Ministry of Planring and Investment in Hanoi, Vietnam on February 15, 2000 and again on August 4, 2000 after being revised, when it was also posted in the Infoshop in Washington. 5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms of consultation that were used and which groups were consulted? Group discussions with potential project beneficiaries, and open and semni-structured interviews with environmental specialists and government officials at the district, provincial and national level have been held during the preparation process of the EA. The National Environmental Agency, the Ministry of Science, Technology and Environment, Provincial Departments of Science, Technology and Environment, the Center for Natural Resources and Environmental Studies, IUCN Vietnam and the Comrnmittee for Ethnic Minorities and Mountainous Areas have been involved in those discussions. 5.5 What mechanisms have been established to monitor and evaluate the impact of the project on the environrnent? Do the indicators reflect the objectives and results of the EMP? An environmental screening mechanism in the form of a checklist is set out in the EA and incorporated in the PIP (Annex 12). For each type of subproject an approach to environmental assessment is recommended. Application of the screening checklist is followed by and environmental review which can trigger (i) a limited environmental assessment, where some impacts are discerned; or (ii) an environmental impact assessment where significant direct or indirect impacts are considered likely. A set of likely and recommended mitigation measures is detailed in the EA (Appendix 7) and required in the application of the

24 PIP (Annex 12). Monitoring will be closely focused on environmental impacts on the physical, biological and social environments. No road construction or improvement will be permitted under the project in comnmunes in designated forest or park buffer zones in order to limit encroachmnent. The location of each subproject will be registered through a geographic information system (GIS). The participation of ethnic minorities would be monitored in the MIS system and through the independent process monitoring. Process monitoring will monitor the steps taken in the participatory planning and decision making processes to ensure that the voice and opinions of ethnic minorities are included and adequately reflected. In addition, an estimated 20% of all subprojects for which an enviromnental assessment would be carried out would be audited by an independent agency on the implementation of the recommended environmental mitigation measures. 6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes. The first social issue of relevance concems govemance at the commune level. Due to the long-standing top-down approach taken in most Government-financedevelopment programs and projects in Vietnam, many communes believe that utilization of public funds is the prerogative of the districts and provinces. This obstacle to decentralization is compounded in the poorest communes, where the lack of confidence in commune capacity by higher authorities has further marginalized the communes' role. This has perpetuated the heavy reliance of poor communes on districts and provinces, obliged upward accountability for the higher authorities at the cost of their own responsible decision making, and overshadowed accountability to the population. The project actions will help to make operational the grassroots Democracy Decree's call for commune-level govemance, and will begin to institutionalize communes' responsibility to decide their own development paths in an inclusive and accountable way. The second social issue relates to the capacity of poor communes to undertake subproject implementation in a responsible manner. The Social Assessment demonstrates, based on field experience, that a local capacity exists in many communes to plan small-scale infrastructure works in consultative ways, mobilize labor for construction, and operate and manage the completed structures responsibly. The project builds on this crucial local capacity which can be only materialized when there is a guarantee of local ownership and, at the same time, support for strengthening the existing skills through a 'learning-by-doing' approach. Other donor-funded projects in Vietnam have demonstrated successful outcomes from such an approach. Accountability in the use of funds is safeguarded through an information campaign to ensure transparency and encourage the commune residents' awareness and self-responsibility, combined with rigorous monitoring measures. The social organization of communes is the next relevant issue because it shapes the mode and degree of inclusion or exclusion that takes place, thus affecting how collective agreements are made and conflicts are avoided. A commune comprises several villages which are ethnically homogenous and can be defined as' genuine' communities in the sense that they are traditional social groups with strong internal cohesion. Recognizing that informed public decisions that reflect the genuine interests of the beneficiaries are best reached at the village level, identification of subprojects start in each village with the participation of all village men and women. The subproject selection process will be facilitated by the CFs who are trained in group dynamics, and the inclusion of elected village representatives in the CPCC will ensure that no village is left out in the process. The fourth issue is participation and inclusion of ethnic minorities. Since about half the population in the project area belongs to minority groups, based on the SA, the project will mainstream their participation

25 and inclusion through its overall project design and an EMAP. The EMAP identifies the legal and institutional framework for working with ethnic minorities in Vietnam; the relevant programs targeting ethnic minorities; ethnic minorities in the project area and their relevant features; land tenure issues; and a matrix of recommended and specific actions for ethnic minority stakeholders. These action address: consultation; public representation; the role of traditional leaders; project ownership; compensation for assets; safeguards in potential in-migration areas; incorporation of ethnic minority values; selection and design of eligible works; safeguards for access to natural resources; opportunities for paid employment; and conflict resolution. The impact on ethnic minorities of the processes applied in the project will be closely monitored and assessed. Changes will be made in the light of the first year's experience and at the mid-term review. (The EMAP is summarized in the PAD at Annex 12. The full policy framework for compensation, resettlement and rehabilitation of project affected persons and the EMAP are included in the PIP, Annex 13). Thus project design reflects the Bank's indigenous people's policy criteria in that: the demand-driven approach permits culturally informed choices for infrastructure; ethnic minorities' interests are attended to in the selection process through inclusion of their representatives in the CPCC and facilitation by CFs who will be trained in ethnic minority issues; and information outreach will take place through a campaign using manuals, leaflets, posters and multimedia for dissemination of clear and simple messages. PPMU and CPMU staff will also receive training on ethnic minority issues as part of their Management Training (PIP Annex 11). In some 40 communes populated by ethnic minorities where in-migration pressure is high, the project prescribes more intensive supports and implement a more rigorous monitoring system. The project will generate direct social benefits through improved access to essential public infrastructure, such as better income opportunities and easier access to social services, and support to the safety net provided to the poor through jobs paid in cash. In addition, it is expected that the project will empower the poor, further develop social capital at the commune level, and aid the acquisition by the poor of administrative and technical skills, which will enhance their self esteem and have positive effects on their future initiatives to further improve their well-being. 6.2 Participatory Approach: How are key stakeholders participating in the project? Participation of beneficiaries is guided through a step-wise process of subproject identification, selection, and implementation. The Community Based Participatory Process (CBPP in PIP Annex 15), integrates a series of meetings, training, and information dissemination and is facilitated by the CF. It starts with a general introduction to the project using flip-charts and leaflets, followed by meetings in each village attended by all men and women to select two representatives (one man and a woman) to be members of the CPCC. The next step is a commune training course in which the CF gives a detailed explanation of subproject processing, and trains village representatives on how to hold participatory subproject selection meetings. Village representatives convene subproject selection meetings in respective villages, initially separately for men and women, and after the CF's guidance on preliminary costs finalize village proposals. If the village proposes more than one subproject, the second one must come from the women's group. All the proposals are presented by village representatives in the CPCC meeting and discussed in light of the costs and village poverty ranking before the final list of selected subprojects is agreed by the members. How the free labor contribution will be mobilized and responsibilities of O&M will be also discussed and agreed upon. According to the agreed O&M requirements and with assistance from CF, direct beneficiaries will form an O&M group, select a representative, and formulate activity plans. 6.3 How does the project involve consultations or collaboration with NGOs or other civil society

26 organizations? Close consultations and collaborations with NGOs and national institutes during the project preparation have created a good foundation for cooperation with them during the project implementation in several key areas. The Center for Rural Development in the Hue University, will host project managementraining with qualified, external resource persons and NGOs actually conducting the courses. It is also envisaged that some of the planned monitoring and impact evaluation will be carried out by suitably qualified national institutes. 6.4 What institutional arrangements have been provided to ensure the project achieves its social development outcomes? To ensure informed, inclusive and participatory decision-making by the poor communes, the project will finance full-time CFs who will guide the CPCC and liaise with districts and PPMUs. The CFs will be selected by an expert panel to ensure their initial quality and attend an intensive training course which covers such topics as community development, participatory decision-making, women's development, working with ethnic minorities, and targeting the poor, in addition to basic technical skills on small-scale infrastructure works and procedures of subproject processing. 6.5 How will the project monitor performance in termns of social development outcomes? The project will have a detailed MIS system that includes social development outcomes. In addition, in the first two years of implementation, the project will support intensive process monitoring to monitor whether or not the proposed participatory approaches are pursued satisfactorily and to identify specific obstacles that hinder smooth conduct of subproject processing. An independent body outside the project management will conduct the process monitoring and be given the power to propose prompt and adequate remedial actions, as needed. 7. Safeguard Policies: 7.1 Do any of the following safeguard policies apply to the project? XPo l til Haicy0S,\,000 Lf Tz T-7-ft00j Applicablity6 Environmental Assessment (OP 4.01, BP 4.01, GP 4.01) 0 Yes 0 No Natural habitats (OP 4.04, BP 4.04, GP 4.04) Forestry (OP 4.36, GP 4.36) 0 Yes * No 0 Yes 0 No Pest Management (OP 4.09) _ No Cultural Property (OPN 11.03) 0 Yes 0 No Indigenous Peoples (OD 4.20) * Yes 0 No Involuntary Resettlement (OD 4.30) * Yes-O No Safety of Dams (OP 4.37, BP 4.37) 0 Yes 0 No Projects in International Waters (OP 7.50, BP 7.50, GP 7.50) 0 Yes 0 No Projects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60) 0 Yes * No 7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies. An Environmental Assessment report, a Policy Framework for Compensation, Resettlement and Rehabilitation of Project Affected Persons and an Ethnic Minorities Action Plan have been prepared by the borrower. These reports have been publicly disclosed by Government on February 15, 2000 at the offices of the Ministry of Planning and Investment in Hanoi, Vietnam and in Washington at the Bank Infoshop on February 15, 2000 and again on August 4, 2000 after being revised. The implementation of the provisions described in both documents will be monitored by an independent agency

27 F. Sustainability and Risks 1. Sustainability: The critical factors to project sustainability are addressed in this project: * A high level of ownership of the planning and implementation process by the communes, and the degree to which the infrastructure provided becomes broadly owned, leads to a high level of effective O&M. * The communes themselves must generate additional resources for subproject O&M. Communes and villages have a tradition of contributing labor to the O&M of public assets. Under the project labor and cash requirements for each subprojects will already be discussed and agreed upon at the planning and approval stage, and * The skills and capacities of commune leaders - men and women - to consult and manage a participatory process of project planning and implementation will be strengthened. 2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1): Risk Risk Rating Risk Mitigation Measure From Outputs to Objective Communes can successfully plan and H Project provides a participatory approach and come to consensus decisions acceptable to extensive training and central level back-up to all groups within the commune CFs who support communes in consensus planning and decision making. Project monitors the process and provides corrective actions. O&M cost is affordable to the M Benchmarks to ensure minimum numbers of beneficiaries. beneficiaries per infrastructure item are set to keep the cost per household reasonable. Standard infrastructure designs favor low operational cost using local labor. Complementary services (agricultural S Provision of complementary services is a extension, school and health station staff) condition for subproject approval and part of the are provided by the Government. Subproject Agreement between the PPMUs and the CPCCs: without prior agreement, subprojects will not go ahead. From Components to Outputs Qualified candidates for the CF posts can S Open advertisement for recruitment. be found. Professional selection and review. Project provides competitive remuneration and allowances and intensive training. Labor for construction is locally N Construction work is timed to take place during available. the agricultural off-season. Government provides qualified staff to the M Central Government promotes awareness of the management units. importance of the project and high level of ownership among the provinces. Overall Risk Rating Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk) S

28 3. Possible Controversial Aspects: There may be a concern that the project could controversially encourage in-migration to forested areas by improving living standards in conmmunes located in remote areas. This potentially controversial aspect has been addressed by excluding communes in parks and reservations from project support and by prohibiting the use of project funds for road access improvement in buffer zones of national parks and reserves. An additional potentially controversial aspect is the fear of leakage of funds because the commune authorities are unused to handling capital budgets. This aspect has been addressed through the provision of training for commune accountants (and accountants at all levels) before any funds flow for subprojects; strict supervisory and financial control systems; the requirement for public accountability and transparency in the provision and use of funds and a massive public information campaign; and, independent monitoring of the community based participatory process including the award of contracts and the use of project funds. G. Main Loan Conditions 1. Effectiveness Condition * Formally establish the CPMU and PPMU including appointment of key staff * Conclude Project Management Training (section E.4.2 and PIP Annex 11) - Train CPMU and PPMU staff for computerized Information Management System MIS (section E.4.2 and PIP, Annex 10). GOV to approve the legal status of Commune Project Coordinating Committee (CPCC) * CPMU to hire an independent agency to carry out the process monitoring and the project impact evaluation (section C.4 and PIP Annex 10) * Selection of participating commercial banks and written agreement between the CPMU and the selected banks on terms and conditions of services to be provided under this project - Adoption of the Project Implementation Plan including the Financial Management Manual by GOV (section C. I and E.4.4) 2. Other [classify according to covenant types used in the Legal Agreements.] * Govenmuent will maintain the CPMU with qualified staff responsible for overall project implementation (management) * Project implementation will follow the PIP acceptable to IDA: revisions to the PIP will require IDA's no objection (implementation) * PPMU to enter into project agreements with DPCs and CPCCs detailing rights and obligations of the DPCs and CPCCs in implementation of subprojects (implementation) * CPMU will submit, by March 31 and September 30 each year, for IDA review semi-annual, progress reports of works and activities carried out following the fornat agreed in the PIP (PIP, Annex 10) (monitoring and reporting) * The action plan for strengthening financial management will be implemented (financial management) * CPMU will maintain a computerized accounting system and a qualified accounting staff and submit for IDA review semi-annual financial reports following the format agreed upon in the PIP (PIP, Annex 6) (financial management) * CPMU will ensure that the Resettlement Policy Framework and EMAP are complied with (implementation) * Project accounts (including the Special Account and the Statement of Expenditures) will be audited

29 annually by independent auditors acceptable to IDA, and audit reports will be forwarded to IDA within six months after the end of the year (section C.4) (accounts and audit) * CPMU will submit, by January 31 each year, for IDA review a List of Interested and Contractors for each project province (section E4.5 and Annex 6) (implementation) * The outcome and impact of the project will be monitored using selected performance indicators, agreed with IDA, as presented in the PIP (Annex 10) (monitoring and evaluation) * A mid-term review will be held no later than December 31, 2003 (monitoring and reporting) * In accordance with OP 13.55, the borrower will prepare a project evaluation report and provide assistance to IDA for the preparation of an Implementation Completion Report within six months of Credit closing (monitoring and reporting) H. Readiness for Implementation C 1. a) The engineering design documents for the first year's activities are complete and ready for the start of project implementation. Z 1. b) Not applicable. O 2. The procurement documents for the first year's activities are complete and ready for the start of project implementation. Z 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality The following items are lacking and are discussed under loan conditions (Section G): 1. Compliance with Bank Policies Z 1. This project complies with all applicable Bank policies. O] 2. The following exceptions to Bank policies are recommended for approval. The project complies with all other applicable Bank policies. Christ pher J. N. Gibbs 4 ~ark D. Wilson -A-Q-r-e-w--Lr-Steer Team.eader Sector ManagerlDirector Country ManagerlDirector

30 Annex 1: Project Design Summary VIETNAM: COMMUNITY BASED RURAL INFRASTRUCTURE Key Performance Hierr of Obeciv. ndicator Mnitrings & Evalua,tion Critical Assumtnons Sector-related CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Mission) Rural poverty reduction * Rural household * Living standard survey * Sound macro-economic, income * Commune and district agriculture and rural * Rural poverty statistics on income and development policies incidence poverty Project Development Outcome i Impact Project reports: (from Objective to Goal) Objective: Indicators: Poverty reduction in poorest communes in Central Vietnam by: 1. Increasing the capacity of 1.1. % of communes where * MIS * The Government current the communes for all villages hold Village * Semi-Annual Progress policy on decentralized decentralized and Subproject Selection Reports development decision participatory planning and Meetings. * Project Impact making and resource management of development Evaluation allocation continues. activities 1.2. % of women, ethnic minorities and non-cadres in CPCC Number of communes which organized competitive contracting Time spent for completing one subproject implementation cycle Number of O&M groups established % of the households which assess their commune has strengthened the capacity to plan and implement development activities. 2. Providing essential, 2.1. Number of households * MIS community based physical which gained new or * Semi-Annual Progress and social infrastructure; and improved access to essential Reports infrastructure. * Project Impact Evaluation 2.2. % of the population who assess the gained or improved access to infrastructure helped improve standards of living. I -26 -

31 3. Generating income for the 3.1. Number of local labor * MIS poor through providing days generated. * Semi-Annual Progress employment. Reports 3.2. Amount of money paid to * Project Impact local laborers. Evaluation Output from each Output Indicators: Project reports: (from Outputs to Objective) Component: a. 1. CFs are recruited, trained a Number of CFs trained * MIS * Communes can and deployed. and deployed. * Semi-Annual Progress successfully plan and Reports come to decisions accepted by all groups within the commune. * The service cost is affordable to the beneficiaries. * Complementary services (agricultural extension, school and health station staff) are provided by the Government in accordance to the initial agreement. a.2. CPCCs are established and functioning. a Number of completed Investment Approval Requests (JARs). a.2.2. Number of Subproject Agreements (SAs) signed. a.2.3. Number of Subproject Completion Forms (SCFs) completed. a.3. CBPP is conducted smoothly. a Number of the tranches completed. b. I.Physical structures were b % of SCFs which built according to the design. certify satisfactory completion of the works. b.2. Infrastructure built is well b % of subprojects used and maintained. which have functioning O&M group

32 Project Components / Inputs: (budget for each Project reports: (from Components to Sub-components: component) Outputs) A. Planning and US$ 9.05 million * MIS * Qualified candidates for implementation capacity * Semi-Annual Progress the CF posts can be building Reports found * Training US$ 2.59 million * Quarterly Financial * Commune US$ 6.46 million Statements planning/implementatio n support B. Infrastructure US$ million * Labor for construction is development locally available. * Commune infrastructure US$ million * Inter-commune US$ million infrastructure C. Project management US$ 6.79 million * Govemment provides qualified staff to the management units

33 Annex 2: Detailed Project Description VIETNAM: COMMUNITY BASED RURAL INFRASTRUCTURE 1. Selection of Communes and Project Area The project would support communes identified as "poor" by the Government of Vietnam based on the criteria developed by CEMMA for Program 135 and by MOLISA. Considering other donor-funded projects in support of poor communes, the Government has selected 13 provinces in the central part of the country to be supported by this project. A list of the project provinces with the number of poor communes is attached (see Attachment 1). In these 13 provinces a total of 705 communes are poor. Of these, 86 poor communes located in natural parks were excluded as investment in infrastructure development is largely prohibited, and 8 were excluded because they are covered by the World Bank-assisted Forest Protection and Rural Development Project (7) and one by the Japan Bank for Intemational Cooperation, leaving 611. In 129 communes commune-level infrastructure development has been proposed or is under consideration by other donors. These include 39 communes in Thanh Hoa to be supported by the Canadian International Development Agency (CIDA), three communes in Thua Thien Hue to be supported by Finnish Government, (potentially) 50 poor commnunes in Quang Ngai to be supported by Australian Agency for International Development (AusAID), and in Lam Dong and Binh Phuoc a total of 7 communes supported by The World Bank Forest Protection and Rural Development Project. The communes supported by these projects will be put on hold at least until the mid-term review to identify if additional support is justified by CBRIP at a later stage. Thus, CBRIP will initially work in a total of 540 communes. Funds allocated under the project are sufficient to support perhaps another 120 to 150 communes. The GOV has announced that the poverty line will be raised, leading to an increase in the number of poor communes. Therefore, the lists of communes identified as poor under Program 135 or MOLISA will be updated after the first two years of project implementation and the additional communes identified as poor be considered for eligibility under CBRIP. However, communes once identified as poor and selected to be supported would not be relegated. After an early mid-term review, at the end of the second year of implementation, the availability of funds will be reassessed as will the possibility to add new provinces. 2. Key Design Elements Of total funds to be spent for infrastructure works under the project, about 80% will be directly channeled to the communes and used for commune-level works. The list of eligible works is provided in Attachment 4 of this Annex. The commune will be the legal "owner" of the works implemented at the conmmune level. The remaining 20% of the funds for infrastructure are allocated for inter-commune works which impact on two or more communes. The list of eligible works includes provision of basic access to conmmunes, or imnproving or upgrading existing small irrigation systems. Decision making and responsibility for planning, implementation and management of commune-level works will rest with the communes, assisted by conmmunity facilitators (CFs) and a District Technical Support Group (DTSG). In addition: * The financial allocation to each commune is predetermnined and all participating communes will be publicly informed of the amount. * A Field Manual providing sample designs, guidelines on costing and construction supervision in order to foster informed decision making will be prepared under the project and provided to districts, commune and villages. One CF for every three five communes and selected staff

34 from the district will be trained to support communes in subproject implementation process. * The selection of comnune level subprojects will be the responsibility of the Commune Project Coordinating Committee. Technical viability of subprojects will be cleared by suitably qualified staff working at the district level or by approved engineering consultants. Similarly, the selection for inter-commune level subprojects will rest with the District People's Council with technical aspects to be cleared by the provincial technical staff or approved engineering consultants. A precondition for approval of any subproject will be that arrangements and responsibilities for operations and maintenance (O&M) are clearly defined and agreed in advance. * The commune will be responsible for selection of subproject contractors and for supervising and paying them, as well as for any labor provided by the community (details are described in Annex 6, Procurement of Infrastructure Works). However, they will be able to engage the services of technical officers of the district or of approved consultants to assist them in this work. Similar arrangements will be established for inter-commune works. There is a large variation among communes in terms of size, location, ethnicity and planning and management capacity, which requires differentiation in terms of financial and capacity building support: * The amount of money allocated to the commune will reflect its population. Communes will be classified into seven groups based on population, with each group being provided a different level of fnancial support. Allocations will be between VND million 900 and 2,700 (approximately US$ 64,000 to US$ 193,000) from the smallest to the largest commune respectively. On a per capita basis, smaller communes would receive a higher amount (see Annex 2, Attachment 2). * Communes have been classified on the basis of existing institutional and technical capacity with different levels of support, training and supervision to be provided during planning and implementation (a classification of communes is shown in Annex 2, Attachment 3). The project will be implemented over six years and each commune/district is expected to be supported over a period of at least three years. The project would start working in about 60 communes with a minimum of three communes in each project province at the beginning of the project, an additional 200 communes would be included after 8 to 10 months, and the remaining communes would be included at the end of Year 2. A mid-term review will be conducted after year two of project implementation. 3. Organizational Arrangements. Community Based Participatory Process. The project will be introduced to the communes by CFs through a comprehensive informnation campaign, which disseminates all relevant information conceming the project to the communes and villages. The villages will be asked to select two representatives (one woman and one man), who will become members of the CPCC. Through series of commune- and village-level meetings facilitated by CF, the CPCC will select and propose individual subprojects. The CPCC members will receive training under the project in all aspects of planning and decision making, bidding and contracting of works, accounting, supervision, and O&M of small infrastructure works. Training forms a vital part of project preparation and implementation. Initial project management training (for CPMUs and PPMUs) and training the initial batch of CFs will be done before effectiveness. Training of CPCCs will follow the mobilization of the CFs. Commune accountants will receive training before any fimds flow. All training materials and the Field Manual will be tested in the first year and amended in the light of

35 experience. Details are described in the PIP Annex 1 I (Training Plan) and Annex 15 (Community Based Participatory Process). For very remote communes (65 communes without vehicle access, classified as Type B communes in the social assessment report) and communes with specific in-migration pressure (40 communes classified as Type A communes in the SA report) the implementation arrangements will be modified with more intensive support and monitoring. District's Support. Districts will play a key role in technical preparation, appraisal and supervision of subprojects. A District Technical Support Group (DTSG) consisting of officers from the line departments in the district be identified and trained under the project to carry out these tasks. Each district will appoint a liaison person for the project. During the planning stage, districts will provide technical support in costing the proposals forwarded by the communes and preparing an Investment Approval Request (1AR). The relevant technical departments at the district will check the LJR in the following five areas: (a) eligibility under CBRIP; (b) prelirminary technical feasibility; (c) estimated cost remaining within the budget; (d) resettlement and environment issues; (e) consistency with other ongoing infrastructure investments. Upon clearance of the proposals, the district will pass the proposal to the PPMU either directly or, for complex subprojects, after a detailed feasibility study. Execution of Subprojects. The PPMU will enter into a Subproject Agreement with CPCC and entrust CPCC (or the District in case of inter-commune level works) with the execution of subprojects. CPCC (or District) will implement the subprojects using either local labor, employing a contractor, or a combination of both. Upon work completion, the CPCC (or DPC) will complete a Subproject Completion Form signed by the owner CPCC the contractor (if applicable), the supervising engineer from the district, and a financial officer from the district. This completion form will be forwarded to PPMU, which will use this as basis to request reimbursement from the project (see Annex 2, Attachment 7 and Annex 6 for fund flow). 4. Funding of Infrastructure Works. Individual infrastructure subproject will be funded from IDA credit, beneficiaries contribution and government counterpart funds as follows: Commune level works Type Amounts Funding Source and Procedures A Commune grant allocated funds 50% of the estimated costs will be disbursed from the IDA credit to each commune for available in as an advance to the commune based on a signed Subproject physical infrastructure three equal Agreement; remaining portion will be disbursed upon a certified works from IDA credit tranches Subproject Completion Form. B from VND 900, to 2,700 million per commune depending on the size of the commune (see Annex 12, Attachment 2) Funds under A will be 100% financed from IDA credit. Beneficiaries contribution at least 5% of The Subproject Agreement and the Subproject Completion Form to be provided on top of the value of will clearly identify works contributed by the beneficiaries the allocated funds under funds used (mainly unskilled labor) separated from works financed with A under A funds under A. Among others, eligibility for the next investment tranche will be subjecto an overall beneficiaries contribution of I least 5% of the funds used under A

36 C Overhead costs paid from 8% of A + B Disbursement (100% from IDA credit) would be done to the IDA credit on top of the district treasury after subproject completion (based on certified commune allocation Subproject Completion Form) as a lump sum payment for district under A services for engineering, design, construction supervision, financial auditing, etc. Inter-commune level works A Allocation for funds No advance will be made. Disbursement will be made based on a inter-commune level available in certified Subproject Completion Form. 80% of the eligible works for districts with one tranche expenditure will be reimbursed from the IDA credit; the three and more poor remaining 20% will come from counterpart contribution communes; the total amount will be determined as 20% of the total allocation for commune level works under A above (all _ tranches) B Overhead costs paid from 8% of Disbursement (100% from IDA credit) would be made to the IDA credit on top of the A district treasury after subproject completion (based on certified allocation to the district Subproject Completion Form) as a lump sum payment for district under A services for engineering, design, construction supervision etc

37 Attachment 1: Provinces and Number of Communes Participating in the Project North Central Coast CEMMA MOLISA Combined Districts Exduded Communes?-Oect Districts List List for potentially Communes environ- covered by other mental projects 2/ reasons 1/ I Thanh Hoa (CIDA) Nghe An Ha Tinh (IFAD) Thua Thien (Finnish 32 7 Hue Aid Project) 5 Quang Nan South Central Coast 6 Quang Ngai (AusAid) 82/3 8 7 Binh Dinh PhuYen i Khanh Hoa I O Ninh Thuan BinhThuan Central Highlands 12 Lam Dong / North South East 13 Binh Phuoc / Total S / Communes in natural parks. 2/ Excluding communes that were already droppedfor environmental reasons. 3/ AusAID has not yet identified its project communes and all are considered eligible for CBRIP 4/ World Bank-assisted Forest Protection and Rural Development Proejct (6) and JBIC (1) 5/ World Bank-assisted Forest Protection and Rural Development Proejct (1)

38 Attachment 2: Allocation of Funds to Communes Group Population of Commune No. of Total Year Year Year Average communes investment per person In Vietnamese Dong VND million VNDOOO I Less than 1,800 people II 1,800-2, , III 2,400-3, , IV 3,000-3, , V 3,600-4, , VI 4,200-5, , VII More than 5,000 people 109 2, In US Dollars US$ '010 US$ I Less than 1,800 people ,800-2, III 2,400-3, IV 3,000-3, V 3,600-4, VI 4,200-5, VII More than 5,000 people

39 Attachment 3: Commune Classification Commune Prevalence Characteristics Specific risks for Special Supports Classification CBRIP Type A: 40 - communes in the - risks of benefits being - subproject proposal to be Communes communes process of rapid captured by migrants at reviewed by with social change; expense of indigenous anthropologist/ethnic in-migrants - difficulties in groups; minority specialist before and coming up with - risks of improved approval can proceed (see' indigenous plans that express infrastructure attracting subproject selection'); groups the needs and further migrants and - Community Facilitator priorities of the increasing pressures on (CF) must facilitate all community as a indigenous groups and commune meetings for whole; the environment. subproject selection to - language barriers ensure both migrants and most likely in indigenous groups are reaching indigenous groups represented; - close monitoring (studies rather than spot-checks) required throughout project cycle Type B: 65 - no vehicle - simply too far away - CFs for these communes Communes communes access, sited from for district cadres to hired on basis of with no several hours' to 2 justify, on their commitment to reach vehicle access days' walk from salaries, walking the communes; financial district centers; hours or days it takes to incentives for CFs in these - least experience reach these communes; communes; of implementing - similar disincentives - close monitoring (studies government for contractors; rather than spot-checks) projects: few fixed - higher costs of required throughout project settlement or 135 implementation due to cycle projects reach transportation here; difficulties - high levels of self reliance; - language barriers in reaching many people

40 Type C: all other Standard all other communes procedures project recommended in communes this proposal apply to all these communes except for those laid out for working with ethnic minorities in ethnic minority communes

41 Attachment 4: Infrastructure Works Eligible under the CBRIP Commune Level Works General Subprojects would cover small-scale public infrastructure works serving the population of the concerned commune only. Funds allocated to the commune would be utilized in a planning period with three cycles (normally three years). The coimmune can apply for the next cycle only after successful completion of previously approved subprojects. Eligible infrastructure works would only include complete schemes, whether rehabilitated or new, and which can be constructed within one year from approval. Eligible subprojects are listed below under their respective sub-sector: Transport Infrastructure Existing Roads 1. Improvements/ upgrading of existing roads (providing access to a commune or existing within a commune and its villages), not involving changes in alignment. Works would include improvement of critical sections (spot improvements), involving gravel topping, cross drainage culverts, embankment stabilization, river crossings (Irish fords), and small concrete and timber bridges (up to two spans). Existing Tracks 2. Upgrading of cart tracks leading to communes with no other access, in order to provide at least seasonal four-wheeled vehicle access to a commune (would involve same menu of activities as for existing roads but would be subject to specific scrutiny with regard to restrictions in environmentally sensitive areas). Trail Improvement 3. Improvement of foot paths between villages and their commune center, or to provide access from a commune to an existing district road across a river, through construction of foot bridges (generally with spans of < 50m on village trails but with spans of up to 200m where commune access from outside is involved). Ferry Crossings 4. Rehabilitation of existing ferry installations or provision of entirely new ones as an alternative to a bridge, where local conditions justify such investment

42 Drinking Water Supply Schemes 5. Gravity and groundwater supply schemes serving a minimum of five households at a maximum investment of <US$ 100 per household. Generally the project would provide for the intake and water source structures, treatment and major distribution facilities down to public taps at water tanks, but cases may arise where households would be prepared to pay for individual HH connections (including water meters). Such schemes would be examined case by case and agreed upon at commune level, then appropriately designed to suit either system or a combination of both. 6. Communal dug wells (shallow wells with appropriate sanitation), serving a minimum of five HH, at a cost of <US$ 100 per HH. Irrigation Schemes 7. Improvement/upgrading of farmer-built run-of the-river diversion schemes (serving 5-30 Ha), providing low-cost headworks, main canal and essential control structures, using mainly stone masonry and gabions and costing up to US$ 2000 per Ha, total investment. 8. Improvement of small reservoirs, serving <30 Ha up to a maximum investment of US$ 3000 per Ha. Emphasis would be on rehabilitation /improvement of existing facilities with particular reference to structural safety. 9. Development of micro irrigation schemes, <10 Ha, based on the well- proven turbine-pump technology, with maximum total investment costs of US$ 2000 per Ha. This is a potentially viable means of irrigating natural terraces well above the reach of normal gravity flow systems. Public Buildings School Buildings 10. Replacement of existing deficient 'village leaf schools', kindergartens or day care buildings with permanent structures at a cost of < US$ 65 per sqm. l. Repair or replacement/expansion of other existing school buildings (classrooms, teachers' quarters and sanitary facilities) at a cost, not exceeding US$ 65 per sqm. In case of expansion, district to provide teachers. 12. Construction of entirely new school buildings at primary or lower secondary level in villages and/or commune centers (classrooms, teachers' quarters and sanitary facilities) at maximum cost of US$ 65 per sqm, provided district undertakes to provide teachers. 13. Construction of entirely new kindergartens or day-care homes at maximum costs of US$ 65 per sqm, provided commune caters for required staff. 14. Provision of furniture and equipment for school classrooms, kindergartens and day-care homes. Health Stations 15. Repair, expansion, replacement or entirely new health stations (one per commune), at a maximum

43 investment of US$ 120 per sqm. 16. Provision of equipment, furniture and initial stock of medicine for health stations. Communal Houses 17. Construction of communal houses at a maximum investment cost of US$ 50 per sqm. Sanitation Facilities 18. Provision of public toilets and water supply facilities, including shallow well or piped connection to existing system, and septic tank. These facilities would be separate entities of school buildings, kindergartens, day-care houses, teachers' quarters, health stations communal halls and market places. They would usually be part of a subproject but should preferably be built as separate buildings. Markets 19. Provision of public market infrastructure in upland communities at a maximum cost of $20 per sqm. Flood Protection Works 20. Flood protection works (levees, sluices, refuge platforms, etc.) serving at least 50 Ha or 100 HH or protecting major infrastructure works within the commune. 21. In flood-prone areas the design of public buildings financed under the project and listed above under paras and 17. can be changed to allow for two level buildings. Electric Power Supply Extension of Power Supply Lines 22. Connection of villages to commune center if this is connected to the existing national power grid. Eligible facilities include only the public power lines and transformers (one at each village), at a maximum investment cost of US$ 250 per household. According to Vietnamese Standards adopted for the WB supported Rural Electrification Project Phase I, power lines from commune center to villages must have at least a voltage level of 22KV. A sub- station at village level would transform the current down to low voltage level (220/380V) for onward transmission through the village. From this line privately financed lines would extend as metered connections to individual HH. Micro Hydro Power Schemes 22. Construction of micro hydropower schemes in the approximate range of 2 to 8 KW, serving from about 8 to 35 HH at a maximum investment of US$ 200 per HH. Where feasible installations would be provided with battery charging facility to be available for HH, not directly connected. Solar Power Generation Facilities 23. Solar power generation systems, including photo-voltaic panels, substructure, batteries for power

44 storage and distribution lines (DC and/or AC) for public use at sites where no other power source (national grid, micro hydro power) is available and where there is no prospect of such availability within the next three years. Solar power generators would be designed to suit health stations, schools, community halls and other public buildings in remote mountainous communes. Costs would range between US$ 3,000 and 15,000 per installation depending on size and diversity. General Inter-Commune Works/ I Subprojects would be restricted to works that are inter-communal, i.e. the use of which is shared by more than one commune, out of which at least one should be enlisted as poor commune under the project. Eligible infrastructure works would include only complete schemes, which can be constructed within one year from approval in the following sub-sectors: 1. Improvement/upgrading of existing roads, focusing on spot improvements such as Irish crossings, bridges, culverts, side drains and re-shaping of road surface for critical sections provided that the conununes served are not supported by the World Bank-assisted Rural Transport Project I and Improvement/upgrading of existing irrigation or flood control schemes. 3. Extension of the electrical grid provided communes served are not supported by the World Bank-assisted Rnual Energy Project. 1/ Districts with three or more poor communes would be providedfunds equivalent to 20% offunds allocated to the communes in that district

45 Attachment 5: Subproject Preparation, Approval and Implementation Process A. Commune Level Infrastructure Subprojects The Community Based Participatory Process is detailed in PIP Annex Identification of commune infrastructure projects Commune infrastructure subprojects will be identified and prioritized through participatory consultations in each village, followed by a final communal consulting meeting. The Community Facilitator (CF) will assist with this process. The CF will be provided with a Project Implementation Manual, which allows a very preliminary judgment on feasibility and costs and which would enable the CF to create awareness about options and choices the commune would have. 2. Preparation of the Investment Approval Request (IAR) The CPCC with the help of the CF and a District Technical Expert (assigned from the District Infrastructure Office) will prepare an Investment Approval Request (lar). CFs and District Technical Experts will be trained in how to complete the AR. The IAR will be a fonnatted booklet with different sections requesting specific information to be listed. Separate pages will be used for different categories of infrastructure. 3. Approval of the IAR by the District The completed LR will be submitted by CPCC representatives and the District Technical Officers to the Vice-chairman of the District People's Committee who will sign and stamp the concemed section of the IAR. The District Technical Officer will assure conformity of the subproject(s) with the following criteria: (a) eligibility under CBRIP, (b) preliminary technical feasibility, (c) availability of financial resources for feasibility studies, (d) resettlement issues, (e) major environmental issues, and (f) consistency with other on-going/planned infrastructure investments. After approval by the district the CPCC will submit the approved TAR to the PPMU. 4. Approval of the IAR by the PPMU The PPMU will verify the availability of funds for the first subproject to be implemented under the tranche and will thereafter approve the TAR by signing and stamping a specific section of the IAR. Once approved PPMU staff and the CF will explain the requirements and format for a Subproject Investment Brief (SIB) or, if there is a need, Feasibility Report (FR), to the CPCC representatives. 5. Preparation of Subproject Investment Brief (SIB) or Feasibility Report (FR) The CPCC with assistance from CF will prepare an SIB or request preparation of an FR to the DTSG or a -41 -

46 private consulting company. The SIB will include: (a) subproject name and location; (b) objectives and rationale; (c) checklist for technical and financial feasibility and safeguard measures; (d) short description of technical specifics; (e) cost estimates and funding sources (including modus of local contribution); (f) implementation schedule; and (g) 0 & M needs (technical requirements and cost) and responsibilities (description of institutional arrangements for O&M). 6. Signing of the Subproject Agreement (SA) between the PPMU and CPCC Once the PPMU engineers have appraised the FR or IAR if no FR was considered necessary, PPMU staff must prepare a Subproject Agreement (SA). Once the SA is completed two CPCC representatives and the CF will meet with the PPMU to discuss and sign the SA. The SA will contain: (a) a section on the rights and obligations of the CPCC and the PPMU regarding the execution of the commune infrastructure works; (b) the proposed construction methods; (c) modus of procurement; (d) a financing plan showing the fund requirements and sources (including the beneficiaries contribution of at least 5%) over the period of implementation; (e) the monitoring, supervision and reporting responsibilities and procedures; and (f) the operation and maintenance arrangements and responsibilities after implementation. The CPCC will open an account entitled - Community Based Rural Infrastructure Project (CBRIP) Account- at a suitable commrercial bank close to the commune. Once the account has been opened a letter will be sent by the CPCC to the PPMU informing them of the number of the CBRIP Account. At this time the PPMU will request CPMU an allocation of 50% of the total estimated investment costs from the Special Account as an advance to the commune's project account based on the agreed estimated costs for the sub-project in the SA. Upon receipt of the request, the CPMU will transfer the amount to the commune's account. 7. Price Quotations for infrastructure works The CPCC will be responsible for the execution of the infrastructure works in accordance with the modalities agreed upon in the SA. As stipulated in the SA the CPCC will decide on the amount and type of work to be given to a contractor and the paid labor works to be done by the conmmune members themselves. The CPCC representatives and the CF will request written sealed bids for the infrastructure works from at least three eligible contractors for contracts up to a value of US$50,000 equivalent. All interested district and provincial contractors will be given a fixed date for submitting sealed bids to the CMB. Any contractor listed for the project can submit bids. One day after the closing date for receiving bids the CPCC and the CF will hold a public meeting of CPCC -42 -

47 members to open the bids and to select the best bid. The CF and the Technical Officers from the district will assist the CPCC members to evaluate the bids. In case the lowest bidder can not be selected a written explanation must be sent to the PPMU. Any funds saved through a process of competitive bidding (balance between the cost estimated in Feasibility Study and the actual cost) will remain available to the budget for the commune. These funds can be used for other infrastructure works in the same investment cycle or they can be carried over for infrastructure works in next cycle. 8. Signing of contract Once a contractor is selected, the CPCC representative will sign a contract with the contractor in the presence of the CF. A standard contract form which specifies the cost, the expected work completion date, labor mobilization arrangements will be used and a copy of Feasibility Study will be attached. 9. Supervision Construction supervision and quality control must be the responsibility of the consulting company/engineer that has prepared the FR and the subsequent final construction designs. In most cases this will be the technical officers from the district. In case of private consulting companies the costs for supervision and quality control should generally not exceed 2% of the investment costs. Cost quotations will be base on government regulations for supervision and quality control. 10. Completion of subprojects At the completion of subprojects a standard Subproject Completion Form will be filled out by the CPCC stating the satisfactory completion of the infrastructure works. The CMB, the supervising engineer (from the district or the independent supervising company) and the financial officer from the district will sign the Project Completion Form and send it to the PPMU. The PPMU will sign the Subproject Completion Form and forward it to CPMU. The Subproject Completion Form stating the physical completion and the actual expenditures, which will be used as the basis for the disbursement of funds from the Central Level Special Account. The disbursement will be done in two parts: (a) to the commune's project account (100% of the expenditure minus the advance received earlier), (b) an overhead cost of 8% of the actual expenditure will be transferred to the district treasury for compensation of the services provided by the district's technical staff for IAR, FR, and construction supervision. 11. Disbursement Completion Form A Disbursement Completion Form will be completed by the CPCC, and checked and signed by the district fnancial officer before it will be sent to the PPMU stating the total costs and final status of payments to the various contributors to the commune subprojects (e.g. contractor, paid local labor contribution, un-paid beneficiaries contribution, etc.). The Disbursement Completion Form will be prepared in a cumulative way showing the disbursement for any prior sub-project. Once at least 80% of the funds in a given tranche have successfully been used and an equivalent of 5% contribution was made by the beneficiaries the PPMU will state the commune's eligibility for the next tranche of funds in the following cycle. Any left over funds will then be added to the next tranche

48 Subproject Preparation and Implementation Process And Disbursement Procedures for Commune Level Work ICommune Identifysubprojects d Commune Public posting of CBRIP Summary ~~~~~~~~and the amnount of money allocated * CF * Participatory consultations Prepare Investment Approval [ JAR form will be provided 2 Request (JAR) I CF and DTSG will be trained in how to help preparing the IAR CPCC_ *CF * DTSG _ 3 L DiDapprovethe ''Eligibility under CBRIP Preliminary technical feasibility " Availability of financial resources / Resettlement issues * DPC / / Major environment issues Consistency with other infra. invest. * DTSG 4 PPMU approve the JAR Verify the availability of funds " Confirm future provision of operating costs for teachers, health workers and supplies and materials * PPMU " Approval in writing -44 -

49 Payment to the contrctors ' Contract indicates clear payment 9 will be cosigned by the schedule chairman of CPCC and Contractor payment request accountant; and checked and / Finished physical work checked and accountant; and checdandsigned by the supervision engineer endorsed by the district treasury * CPCC * CPCC Accountant * District Treasury * Commercial Bank in lnitirwt 10 Complete Subproject and - CPCC submits the Subproject SCF signed by contractor, CPCC, engineer and PPMU. Completion Form (SCF) to the / SCF states physical completion and PPMU. Attach a form actual expenditures summarizing the actual expenditure of the 50% advance District Finance CPCC Distnct Finance conducts lnternal Audit (IA) training provided to the internal auditing on the district finance auditor commune's expenditure of the / KIA reports submitted to PPMU and CPMU completed completed subproject IA place findings posted on the commune public LA reports reviewed by the external auditor annually * Contractor * CPCC Supervising Engineer n t * ~PPMT I CMPUauthorizes / Commune Account: will receive 100% the of the expenditure minus the 50% Specied Account to the advance received earlier commune 's project account 12 disbursementfrom * CMPU * Special Account -45-

50 13 CPCC submits {T otal costs and final actual payments Disbursement Completion and differences from the advance Form to PPUM IP PMU will then state the commune's eligibility for the next tranche. A ny allocated but unspent funds will * CPCC be added to next tranche * PPMU - * CPMU

51 B. Inter-Commune Level Infrastructure Subprojects 1. Identification of subprojects It is expected that after the first round of commune level participatory planning a number of priority infrastructure works will be identified, which will be considered important for the commune, but will benefit at the same time other communes as well (inter-commune level works). A single conmmune will not want to use its funds to finance such works. The project will provide additional financial resources of 20% of the total resources allocated to communes for financing such works. The district would after the first year of project implementation invite all communes in one or in a series of meeting to identify and decide on sub-project(s) for district level works. 2. Initial subproject document (Investment Approval Request) The technical department at the district will prepare an Investment Approval Request (IAR). 3. Technical clearance and check of eligibility of subproject by PPMU The provincial technical offices will check the IAR for (a) eligibility under CBRIP, (b) preliminary technical feasibility, and (c) availability of financial resources, (d) resettlement issues, (e) major environmental issues, and (f) consistency with other on-going/planned infrastructure investments. A standardized form will be provided to each province. 4. Clearance by PPMU of sub-project for preparation of FR The PPMU will inform the District People's Committee (DPC) to contract preparation of a feasibility report. The district will open a project account at a commercial bank. 5. Preparation of feasibility report and designs as required The DPC will contract the preparation of a feasibility report to an eligible design company or its own technical offices district or provincial government department. In case the FR preparation is contracted to a consulting firn the cost for the feasibility report should normally not exceed 4% of the estimated investment costs. 6. Subproject Agreement (SA) between PPMU and DPC The feasibility report together with a draft SA will be sent to the PPMU. Standard forns for' such SA would be made available to the district. The SA will contain: (a) a section on the rights and obligations of the DPC and the PPMU regarding the execution of the sub-project, (b) the proposed construction method, (c) modus of procurement, (d) a financing plan showing the fund requirements and sources (including the beneficiaries contribution of at least 10%) over the period of sub-project implementation, (e) the monitoring, supervision and reporting responsibilities and procedures, and (f) the O&M arrangements and responsibilities after implementation. The PPMU will appraise and approve the subproject by signing the SA and entrusting the DPC with the execution of the subproject in accordance with the modalities agreed upon in the SA

52 7. Execution of subproject In accordance with the SA the DPC decides on the amount and type of work to be given to a contractor and the paid works done by the local labor. Also in accordance with the SA the DPC will invite for bids from eligible contractors by public advertisement and bidding procedures acceptable the Bank. 8. Supervision The construction supervision and quality control will be carried out by the technical offices of the districts or by a private consulting company. The costs in both cases should generally not exceed 2% of the investment costs including a final quality approval and should be paid from the allocation of the project for district level works. In exceptional cases (e.g. very remote sites) DPC and PPMU may agree on a higher percentage, laid down in the SA. 9. Implementation Completion Form A sub-project implementation report will be prepared by the DPC. The DPC and the supervising engineer will sign this report. A standardized form will be made available under the project. The report will be forwarded to the PPMU to be signed and checked by the accountant in the PPMU, and CPMU will use this report as the basis for disbursement from the central level Special Account to the district treasury. Disbursement will be done at 80% of the actual expenditure for the works plus a lump sum of 8% of the actual expenditure for all overhead costs for survey, design, construction supervision, etc. to the district's project account. 10. Disbursement Completion Form A form will be completed and sent to the PPMU by the DPC stating the total costs and final status of payments to the various contributors to the sub-project (e.g. contractor, consulting companies, government services, paid local labor contribution)

53 U u 0~~~~~~~~~~~~~~~~~~' L 2

54 Attachment 7: Proposed Flow of Funds MOF World Bank Provincial Project Technical ~ ~ ~ ~ ~ ~ ~ ~ ~~proa Management Unit er/ Commune Project Coordination Committee * Disbursement Application/Request )03... Fund Flow -. Notification of Disbursement

55 By Component: Project Component I - US$9.05 million Strengthening Decentralized Planning and Implementation Capacity This component includes training of government and project staff in all aspects of the project. Training will be provided to staff of Central Project Management Unit (CPMU) and Provincial Project Management Units (PPMUs), as well as to district technical staff. About 110 Community Facilitators (CFs) will be recruited and trained under the project to help the communes in all stages of subproject planning and implementation. Because of the key role they plat interfacing with the community, CFs will receive salaries and operational allowances from the project and be equipped with motor cycles. In order to guide the project staff and to foster informed decision making a Project Field Manual (PF}; will be prepared prior to the start of the project and provided to the PPMUs, districts, and CFs for their work in communes and villages. The PFM will contain sample designs, guidelines on costing and construction supervision, and specimen contracts and forms. The PFM will be updated as project implementation proceeds based on experience. The component also supports information campaigns to ensure widespread public understanding, transparency and accountability. These will include distribution of various printed materials to the communes, preparation of signboards, production of newsletters, and broadcasting through the mass media. The direct spending for capacity building will be relatively modest (about 7% of base costs), but the "process" applied in this project is important for the ultimate outcome in terns of increased capacity. Project Component 2 - US$ million Infrastructure Development Commune level works (US$ million). Under this component each commune will receive a grant of between $20,000 and $60,000, depending on the size of the commune population. Up to three separate grants will be provided to each commune triggered by progress with the successful use of the previous grant, i.e. the total grant to each commune could reach $60,000 to $180,000. Grants must be used to build or repair small-scale public infrastructure such as access roads, tracks, bridges, drinking water supply schemes, sanitation facilities, irrigation systems, electrification, schools, and health centers. The communes will select infrastructure works (subprojects) through a participatory process from a pre-deternined list of eligible works (see Annex 2). Unskilled labor inputs would be recruited locally and construction would be scheduled as far as possible in the agricultural off-season to maximnize opportunities for local ernployment. Beneficiary communes will contribute 5% of total sub-project costs mainly in the form of labor. The remaining 95% would be paid from the grant allocated to each commune. Local inputs beyond 5% of the total cost will also be paid from project grant. Inter-commune level works (US$ million). In districts with three and more project communes an additional amount of money, up to a total of 20% of the combined commune grants, will be provided to finance somewhat larger infrastructure works impacting more than one poor commune. The types of infrastructure supported under this sub-component are limited to improvement or upgrading of existing roads, irrigation and flood control and electrification schemes. A list of eligible inter-commune level works is provided in Annex 2. Selection of inter-commune subprojects will be made on the basis of proposals from the communes and implemented by the District People's Committees. Starting in project year two DPC would invite all project communes to meetings to identify and decide on subproject(s) for

56 inter-commnune level works. Project Support Services (US$ 6.79 million) Financing under the project will support the establishment and operational expenses of a CPMU in Hanoi and PPMUs in the thirteen participating provinces. Most staff will be seconded from the existing government offices and return to their previous posts after project implementation. Particular attention will be given to monitoring project progress and impact. An independent agency would be employed under the project for process monitoring and particularly at the early stage of irnplementation all processes will be very closely monitored to gain feedback and to make adjustments as necessary

57 Annex 3: Estimated Project Costs VIETNAM: COMMUNITY BASED RURAL INFRASTRUCTURE The total project costs are estimated at US$123.4 million (VND 1.97 trillion). A summary of the project cost is shown in Annex 3, Table A. The estimate is based on detailed costing of the planning and implementation capacity building and the project management components. Investments for commune and inter-commune infrastructure works will be in response to 'demand" from the communes under the project. The total allocation is aggregated from the allocation to each commune including a provision of additional communes, which are expected to become eligible during the project through a revision of CEMMA and/or MOLISA lists (due to a planned raising in 2001 of the poverty line) and the inclusion of additional provinces after the mid-term review. The costs for inter-commune infrastructure works are estimated at 20% of the total commune level works. Contingencies. The total project costs include price contingencies for foreign born prices based on projected MUV-5 price escalation factors of 2.5% for the years 2000 and 2001, 2.6% for the year 2002 and 2.5% for each year thereafter. For costs in local currency an annual price escalation of 7.0% for the year 2000, 6.0% for 2001 and 5.0% for during remaining project implementation phase is used. Physical contingencies are not applicable in this project, Financing. About US$ million are expected to be financed through a credit from IDA, the remaining US$ 20.6 million would come from GOV (US$ 16.8 million) and from the direct beneficiaries of the project (US$ 3.8 million), (Annex 3, Table B). The GOV would pay for 20% of the inter-commune level works executed by the districts, for the services to prepare and supervise commune level subprojects, for all taxes and duties, as well as the salaries of the project management staff seconded from government offices. The contributions from the communes (totaling 5% on top of the allocated budget from the project to each commune) could be in the form of cash, kind or labor for subproject investments. It is expected that most of this contribution will be in the form of labor. Labor contribution will be valued at VND 15,000 per day. Recurrent Cost Implication. The benefiting communes would cover incremental O&M of the smnall-scale infrastructure investment. A clear commitment and O&M plan with estimated labor requirements and responsibilities by the beneficiaries would be a condition for financing of subproject proposals. Commune and inter-commune level infrastructure investment is therefore not expected to put additional burden on public expenditure. Schools and health centers, which might be proposed by the communes, would only be constructed, where teachers or health personnel already exist

58 Table A. Components Project Cost Summary (VND Bilil 7n) (USS Million % Total Local Foreign Total Local Foreign Total Base Costs A. Planning & Implementation capacity Building Training Commune planning/implementation suppott Subtotal Planning & Implementation Capacity Building B. Infrastructure Development Commune level infrastructure 1, , Inter-commune infrastructure Subtotal Infrastructure 1, , Development C. Project Management Central Project Management Unit I Provincial Project Management Units I Monitoring and Evaluation Subtotal Project Management Total BASELINE COSTS , Physical Contingencies 1, Price Contingencies Total PROJECT COSTS 11, ,

59 Table B. Financing Plan (US$ million) WB Beneficiaries Gov Total Amount % Amou % Amount % Amou % nt nt A. Commune Infrastructure Works Commune Grants Beneficiaries Contribution Subtotal Commune Infrastructure Works B. Inter-Commune Works C. Equipment and Vehicles Cars Motor Cycles Office and Other Subtotal Equipment and Vehides D. Training Local Subtotal Training E. Services Local Foreign Subtotal Services F. Subproject Preparation a/ G. Operating Expenses Salaries b/ Field and Travel allowances Other Subtotal Operating Expenses H. Compensation and Safeguard Measures Total a/lincludes Investment Approval Request, Investment Reports, Feasibility Reports and Designs; expenditure coveredfrom local counterpartffunds. b/ Government staff only

60 Annex 4 Cost Benefit Analysis Summary VIETNAM: COMMUNITY BASED RURAL INFRASTRUCTURE Communes will determine the composition of infrastructure investment activities themselves as an integrative part of this project. The final choices can not be anticipated. This makes an ex-ante quantification of economic benefits for this project is not possible. About half of the small-scale public infrastructure works eligible under CBRIP (12 of 23 types) are provision or rehabilitation of social infrastructure (schools, health centers etc.) for which economic analysis is not justified. In addition, major benefits of this project relate to the improvement of capacity of communes to plan, invest and manage small-scale investments with long-term benefits for public as well as private economic efficiency. Economic benefits from capacity building and infrastructure investments in terms of improved incomes and living conditions of the poor arise usually through a number of intermediate stages only, which are difficult to predict. Chart I provides an illustration of the economic input/output flows for selected project activities. The self-determnination of communes regarding their investment choices forbids demanding complicate economic analyses for each proposed subproject. In order to ensure that minimal criteria for economic efficiency are met in this project simple, however, effective rules are set in terms of investment per capita and work force and limits for per unit investment for economic infrastructure as follows: Investment per capita and workforce The total investment in any commune is limited by the absorptive capacity in terms of economic activity and labor availability in the communes. The total investment per capita ranges on average between US$26 for the large communes and US$52 for the small communes and remains below 10 to 20% of the current total economic output per person. A significant share of the investment should be transformed into labor by local people. Assuming that about 50% of the investment will generate labor and one labor day is valued with one US$ the average labor days needed for the project investment will range between 8 and 17 days per year. Ceilings per unit investment: Clear and easy to check ceilings have been set for economic infrastructure investments and investments, which benefit distinct beneficiaries to endure economic viability and to support equitable fund allocation (see below). Unit costs are detailed in full in the Project Implementation Plan (PIP, Annex 3) and the Field Manual. Irrigation Schemes Maximum Investment per Unit (US$) Improvement of Diversion schemes Improvement of Mini Reservoirs Development of Turbine-Pump Schemes 2,000 per hectare 3,000 per hectare 2,000 per hectare Drinking Water Supply Gravity Supply Schemes Pumped Schemes 100 per household 100 per household

61 Communal Wells 100 per household Electrification Extension of Power Supply Lines Micro Hydro Power Schemes 250 per household 200 per household A conventional rate of return calculation is not possible in this demand-driven project. Conmmunes are to be given simple and transparent guidelines for decision making among alternatives. However, in addition, a simple, computerized method for economic analysis of improvements to access (rehabilitation of rural roads, trails bridges etc.), drinking water systems, and irrigation (PIP, Annex 8) has been established to be applied by DTSGs to relevant subprojects. This method is not intended to screen out proposals that have community support

62 Annex 5: Financial Summary VIETNAM: COMMUNITY BASED RURAL INFRASTRUCTURE Years Ending US $ million, Year Ending December 31 ll~i ii~~mim'n 1 ~~I M "E MTATiO Year 1 Year 2 Year 3 1 Year 4 Year 5 Year 6 Year 7 Total Financing Required Project Costs Investment Costs Recurrent Costs Total Project Costs Total Financing Financing IBRD/IDA Govemment Central Provincial Co-financiers User Fees/Beneficlaries Others Total Project Financing Main assumptions: Commune level subprojects will be 50% pre-financed by IDA fiom Special Account

63 Procurement Annex 6: Procurement and Disbursement Arrangements VIETNAM: COMMUNITY BASED RURAL INFRASTRUCTURE Procurement capacity and risks: A Procurement Capacity Assessment Review (PCAR) was undertaken for CBRIP in October 2000 and updated in April The overall finding is that the procurement risk is high largely because of the limited procurement experience of commune authorities and the scattered nature of the project. Most communes have little experience as project owners in the procurement of works or goods, or they have used national procurement systems that are not sufficiently open or rigorous. The project will also finance many contracts managed by CPCCs spread over a wide area, making supervision difficult. To mitigate these risks, a three-part approach set out in the Procurement Capacity Assessment Report is to be followed, including: i) extensive training at all levels (detailed in the Training Plan, PIP Annex 11), plus pre-project training supported by a Danish grant (PIP Annex 11, B); ii) prior- and post-reviews by staff of the Bank's Office in Vietnam; iii) use of standard and model documents; and iv) a practical field manual. In addition, the District Technical Support Groups (DTSGs), which include procurement- experienced and professionally trained technical staff, will help to reduce risks by providing direct support and back-up to the CPCCs. Procurement methods: Most works to be financed under the IDA credit will be procured by CPCCs and District Peoples Committees (DPCs) which will be following Bank procedures for the first time. Most goods, equipment, furniture, supplies, and vehicles will be procured by the CPMU, which has followed Bank procedures for two years. Procurement of goods and works will follow Bank Procurement Guidelines ("Guidelines: Procurement under IBRD Loans and IDA Credits"), dated January 1995 and revised January and August 1996, September 1997 and January All the project management units belong to government and are subject to the laws and regulations covering the operation of government, in particular the decrees on project preparation and implementation (Decree 52-CP) and investment in capital construction (Decree 88-CP). The provisions of Decree 88-CP on National Competitive Bidding (NCB), however, do not conform fully to IDA procurement policies and principles. with respect to aspects of: eligibility; bidding documents; advertising; time for bid preparation; bid opening; bid evaluation; award of contract; and, bid security. Therefore, for clarity in processing NCB procurement, unacceptable provisions of national laws and practices are identified to include: i) invitation of a few bidders in place of public advertising; ii) automatic rejection of bids offering prices that exceed pre-bid estimates; iii) merit point and other non-monetary evaluation of bids; vi) bracketing to avoid bids that are too high or too low; and v) mixing the evaluation of a bid with the qualification assessment. Therefore, a supplemental letter for all NCB procurement to waive those areas in Vietnam's public procurement regulations that are inconsistent with the Bank Procurement Guidelines will be discussed and agreed at negotiations. These areas include specific reference to: i) bidding documents; ii) advertising; iii) time for bid preparation; iv) bid opening; v) bid evaluation; vi) contract award; vii) bid security; viii) procurement of smaller contracts; and ix) selection of consultants. Standard bidding documents for NCB Procurement of Works prepared by the Bank's Resident Mission (last revision, September 1999) will be used and a new standard document for procurement of small works under $50,000 has been be prepared and will be cleared by the Bank. Procurement of consultants will follow Bank Consultant Guidelines ("Guidelines: Selection and Employment of Consultants by World Bank Borrowers"), dated January 1997 and revised September 1997 and January For selection of consultants, the Bank Standard Request for Proposals, dated July 1997 and revised April 1998 and July

64 1999, will be used. The project elements, their estimated costs and proposed methods of procurement are summarized in Table A. Commune Infrastructure Works (US$ million): The project provide or rehabilitate small subprojects identified and implemented by communes on a demand-driven basis, such as road access improvements, foot bridges, foot path construction, small-scale drinking water supply works, school class rooms, health centers, micro hydro power and small irrigation schemes, community halls and others. Procurement responsibility will be entrusted to the CPCCs in a written Subproject Agreement (SA) signed between the PPMU and the CPCC. Procurement will follow procurement of small works or community participation procedures following Bank Procurement Guidelines (January 1995, Revised January and August 1996, September 1997 and January 1999). It is possible, but unlikely, that commune infrastructure works will exceed the US$50,000 threshold for NCB: NCB: In the event that individual subprojects implemented by communes will costs more than USS50,000 equivalent, contracts for those subprojects would be awarded on the basis of NCB following the Bank's Procurement Guidelines, sections 3.3 and 3.4. Procurement of Small Works/Community Participation: Procurement of subprojects estimated to cost less than the equivalent of US$50,000 per subproject up to an aggregate amount of US$ 79.4 million will be made through: (i) lump-sum fixed-price / unit rate contracts awarded on the basis of written quotations obtained from at least three qualified domestic contractors in a sealed form in response to a written invitation; or (ii) community participation. Contracts awarded under the Procurement of Small Works method will be awarded to the lowest evaluated responsive bidder. To help the communes obtain quotations from contractors the PPMUs will annually compile lists of qualified and eligible contractors for the project and make these lists available through the CFs working with the communes. To compile such a list, each PPMU will, prior to each construction season, advertise annually the opportunities for work and seek expression of interest from contractors. Contractors will be invited to indicate their experience and general interest to work under the project, and they will be evaluated. Draft letters of invitation to contractors, consulting firms and individuals have been prepared. Community participation will be in accordance with the Bank Procurement Guidelines, section 3.15 and the Community Based Participatory Process detailed in PIP Annex 15. The amount of work to be undertaken through community participation cannot be identified reliably in advance, it will be determined by the participatory process. However, there will be a ceiling of US$10.0 million for community participation to be re-evaluated at mid-term. Where the CPCC agrees to implement subprojects through community participation, this will be reflected in the written Investment Approval Request (IAR) which will identify the contribution by the community of labor and materials, locally supplied (such as sand and gravel) or to be purchased (such as bricks or cement). The IAR for community participation will be approved first by the District and then by the PPMU, in the same way as for Procurement of Small Works. In exceptional circumstances, for those communes which have been classified as very remote and with difficult access (Type B communes) and bids under procurement of small works are obtained from only one eligible contractor, the CPCC can request award based on the single qualified bid for contracts costing less than US$50,000 per individual contract up to a maximum of US$3.9 million. The CPMU will re-assess the access situation annually and reconfirm the use of this method. Inter-commune Works (US$ million): Civil works implemented by districts consist of improvement

65 or up-grading of rural access and small irrigation systems. Works will be procured following Bank Procurement Guidelines either through NCB or quotation procedures, as follows: NCB: Works estimated to cost more than US$50,000 up to a maximum of US$200,000 per contract will be procured under contracts awarded on the basis of NCB in accordance with the Bank Procurement Guidelines, sections 3.3 and 3.4, up to an aggregated amount of US$ 14.8 million. Since the largest contract for inter-commune works will not exceed the equivalent of US$200,000, it is unlikely that foreign firms will find such contracts attractive. Nonetheless, bids from foreign contractors will not be precluded. Procurement of Small Works: Works estimated to cost less than the equivalent of US$50,000 per contract up to an aggregate amount of US$ 3.7 million may be undertaken by a lump-sum, fixed-price/unit rate contracts awarded on the basis of quotations obtained from at least three qualified domestic contractors in a sealed forn in response to a written invitation. Goods (excluding vehicles), Equipment, Furniture and Supplies (US$ 1.05 million): Goods will be procured following Bank Procurement Guidelines (January 1995, Revised January and August 1996, September 1997 and January 1999) as follows: NCB: Goods (except vehicles) estimated to cost less than the equivalent of US$200,000 per contract (e.g. furniture, computers and peripherals, office equipment, training equipment etc.) up to a total of US$ 0.5 million would be procured by the CPMU following NCB procedures in accordance with the provisions of paragraph 3.3 and 3.4 of the Bank Procurement Guidelines. National Shopping: Goods (except vehicles) estimated to cost less than $50,000 per contract (e.g., s.mall items of equipment, urgent requirements of computers, audio visual equipment, furniture, books, periodicals, extension and publicity materials, and spare parts, etc.) will be procured by the several implementing agencies in small lots over the 6 year project implementation period using national shopping procedures in accordance with paragraphs 3.5 and 3.6 of the Guidelines, up to an aggregate amount of US$ 0.55 million. Direct Contracting: Proprietary equipment estimated to cost less than $5,000 equivalent per contract may be procured using direct contracting procedures in accordance with paragraph 3.7 of the Guidelines, up to and aggregate arnount of US$ 0.05 million. Vehicles (US$ 2.37 million): Some 27 cars (total costs about US$2.0 million) will be procured for the central and provincial project management units. Procurement of cars will be done by the CPMU through ICB using the World Bank Standard Bidding Document for Goods dated January 1995 and revised March 2000 and January Some 236 motor cycles (up to an aggregate value of US$0.37 million) will be procured over three years in contracts valued at less than US$100,000. About 35 motor cycles will be procured prior to project effectiveness using national shopping procedures at a total cost not to exceed US$50,000 equivalent. Procurement of additional batches of motor cycles will be through LAPSO. Consultant's Services and Training (US$ 536 million): Consultant's services (US$2.34 million) will be procured to provide technical assistance and field services (CFs). Contracts for services valued at US$100,000 or more for technical assistance (US$1.05 million) will be procured through the Quality and Cost Based Selection (QCBS). (The Project's Training Plan is contained in Annex 11 of the PIP). All consultants' assignments valued at over US$200,000 will be advertised in a national newspaper and UN

66 Development Business seeking expression of interest. Consulting assignments for complex tasks will be procured on the basis of the World Bank's Standard Request for Proposals dated July 1997, revised April 1998 and July 1999, which incorporates the World Bank Standard Form for Contract for Consultant Services, Complex Time-based Assignments. CFs and specific individual consultants recruited to strengthen the CPMU will be recruited following the World Bank Guidelines for individual consultants. Contracts for consultants' services valued at less than US$100,000 for firms and US$50,000 for individuals (total of US$1.62 million), will be procured through Consultant's Qualifications (CQ), sole source or individual consultant methods. The sole source method will be only for small contracts during the first two years of implementation to accelerate project implementation, including the design and refinement of training, monitoring and process monitoring activities by consultants who are already familiar with community based development in Vietnam. Individual consultants will be hired based on their qualifications for the assignment in accordance with Section V of the Guidelines. Individuals to be hired will include the Community Facilitators (542 staff years) hired by the PPMUs, key staff of the CPMU (project coordinator, training coordinator and chief financial officer), and specialized staff recruited to provide individualized training, monitor field work and support the participatory planning process, and participate in the mid-term review. These individuals would be recruited competitively based on TORs approved by IDA. Training costs (US$3.02 million) include the costs of running training courses set out in the Training Plan (PIP Annex 11), including fees, travel expenses and per diems, and the costs of training and public information materials. Eligibility issue: State owned enterprises under the direct supervisory authority of the Employer shall be excluded from any bids for civil works, goods or services under the project. Dependent SOEs are allowed to be sub-consultants under contracts with their line agency provided that no more than 20% of the contracted value is sub-contracted to these SOEs for bids invited through January 1, The project does not finance services or consulting contract inputs that are directly associated with the military or indirectly through military companies/enterprises. Military entities or SOEs under the Ministry of Defense are not eligible to participate in Bank-financed contracts. Procurement Planning: Prior to the issuance of any invitations to pre-qualify for bidding or to bid for contracts, the proposed procurement plan for the project shall be furnished to IDA for its review and approval, in accordance with the provisions of paragraph I of Appendix I to the Bank Procurement Guidelines. Procurement of all goods and works shall be undertaken in accordance with the procurement plan as shall have been approved by the Association and with the provisions of said paragraph 1. Annual Procurement Plans will be reviewed by IDA. Procurement Information: Procurement information will be collected and recorded as follows: (a) (b) Prompt reporting by CPMU to IDA of contract award information. Comprehensive semi-annual reports by CPMU to be furnished to IDA for its review indicating (i) revised cost estimates for individual contracts and the total costs;

67 (ii) (iii) revised timings of the procurement actions including advertising, bidding, contract award and completion time for individual contracts; and compliance with aggregate limits on the specified methods of procurement (c) Completion report by the borrower to be funished to IDA within three months of the credit closing date. Table A: Project Costs by Procurement Arrangements (in US$ Million) Expenditure Category Procurement Method (US$ thousand) ICB NCB Other a/ NBF Total A. Commune Infrastructure Works Commune Grants (79.40) (79.40) Beneficiary Contribution B. Inter-Commune Works (14.77) (14.77) C. Goods, Equipment, Furniture and Supplies Cars (0.68) (0.68) Motor Cycles (0.28) (0.28) Office and Other (0.79) (0.79) D. Consultants' Services Services (2.34) (2.34) Training (3.02) (3.02) E. Subproject Preparation b/ F. Incremental Operating Costs Salaries c/ Field and Travel Allowances (1.52) (1.52) Other G. Compensation & Safeguarding Total (0.68) (14.77) (87.35) (102.78) NOTE: figures in parenthesis are the respective amounts financed by IDA Credit. a/lincludes civil works and goods to be procured through national shopping, UN agencies (IAPSO), price quotations, direct contracting, consultants' services, services of contracted staff of the central project management office, CFs, training, technical assistance services. b/ Includes Investment Approval Request, Investment Reports, Feasibility Reports and Designs; expenditure coveredfrom local counterpartfunds. c/lincludes only incremental government staff, paid by government

68 Table Al: Consultant Selection Arrangements (US$ million) Consultants' Selection method Services Expenditure QCBS CQ Other NBF Total Category Finns / (0.72) (0.20) (0.13)) (1.05) Individuals / (1.29) (1.29) Total (0.72) (0.20) (1.42) (2.34) 1. Sole source. 2. Individual consultants including CFs and specific consultants hired to strengthen the CPMU. Review by the Bank of Procurement Decisions (Table B): Prior review of contracts: IDA will conduct prior review of procurement documents and actions in accordance with the Procurement Guidelines for Inter-commune works contracts to cost more than US$100,000 per contract and for the first contract each year in each Province, for contracts awarded using quotation and NCB procedures; * Commune works contracts to cost less than US$50,000 per contract for the first contract each year in each Province, for contracts awarded using Procurement of Small Works and Direct Contracting (and NCB, if any) procedures; e Goods contracts. For all contracts to cost more than US$100,000 and the first contract each year using NCB or shopping. * Consultants' Services contracts. For all contracts that exceed US$100,000 per contract for finns, US$50,000 per contract for individuals, and all contracts using single source or direct contracting. - Prior review of civil works and goods includes bidding documents and evaluation reports. Prior review for consultant services will be in accordance with the Consultant Guidelines and will include termis of reference, short lists, requests for proposals, evaluation reports and final draft negotiated contracts

69 Table B: Thresholds for Procurement Methods and Prior Review Expenditure Category Contract Value Procurement Contracts Subject to Prior (Threshold) Method Review by Bank (US$000) (US$ equivalent) 1.Intercommune Works >50 to <200 NCB First contract each year in each <50 Quotations province and all above $100, Commune Level >50 NCB First contract each year in each Works province <50 Quotations/Direct First contract each year in each Contracting/ province. Community Participation 3. Goods & Equipment >50 to <200 NCB First two contracts each year >5 to <50 NSP and all above $100,000 <5 Direct Contracting None 4. Vehicles >100 ICB All <100 Shopping 5. (a) Consultants' >100 QCBS All above $100,000 Services by firms <100 CQ, single source All single source (b) Consultants' >50 CQ, single source All above $100,000 Services by individuals <50 CQ, single source, All single source individual consultants Training >5 to<50 First two contracts each year. <5 NSP None Direct contracting Notes: Contracts not subject to Bank prior review will be subject to Bank post review at the rate of one-in-five in year one and at a rate to be determined by RMV procurement staff in subsequent years. ICB: International Competitive Bidding NCB: National Competitive Bidding NSP: National Shopping Procedures requiring at least three price quotations QCBS: Quality and Cost Based Selection CQ: Consultants' Qualifications Post review: Contracts below the prior review threshold for Works, Goods and Services shall be subject to post review as per procedure set forth in paragraph 4 of Appendix 1 of the Bank Guidelines

70 Frequency of procurement supervision missions proposed: One every three months. Financial Management and Disbursement Organization and Management Commune Project Coordination Committees (CPCCs): A CPCC will be the key institution at the commune level for popular mobilization, demand identification, and planning and implementation of sub-projects. CPCCs will be formed in each commune and headed by a member of the Commune People's Comrnittee. A CPCC will include the commune accountant, representation from mass organizations, and elected representatives from each village (one woman and one man). Provincial Project Management Unit (PPMU): A PPMU will be set up in each project province under the Provincial Department of Planning and Investment (DPI) by secondment of several existing full-time staff of the department. The major function of the PPMUs include: overall project management and supervision in the province; support and supervision of the CFs; approval of sub-projects including entering into Sub-project Agreements with the CPCCs; initiation and assurance of the fund flow process; assurance on provision of provincial counterpart funds; and provincial M&E and reporting. A PPMU will include a project director, a project coordinator, a rural engineer and procurement officer, a commnune training and liaison officer and at least one professional accountant. The project will finance transportation and field allowances of staff and office equipment. Central Project Management Unit (CPMU): The CPMU has been set up in MPI in its Department of Local Economy and Territory. MPI will entrust this unit with overall project management, fund transfer, exchange of information and experience between provinces, interdepartmental and interagency cooperation, training and human resource development, overall M&E, and reporting required by the Bank. The CPMU will comprise a director, a senior project coordinator, a training coordinator, a monitoring and evaluation team (chief M&E officer and three liaison officers), an accountant team (a chief financial officer and four accountants), and an environmental and social safeguards officer. The M&E and liaison officers will visit project areas on a rotational basis and closely interact with PPMUs, CPCCs, CFs and district staff to ensure smooth comnunications between the CPMU and these parties over any project-related matters. Assessment of the Financial Management System A review was carried out during the project preparation to assess the adequacy of the project financial management system. The assessment was based on detailed discussions with accounting staff and management of the agencies, an examination of accounting records and supporting documents, and test checks of the system by tracing actual transactions from initiation to final recording in the accounts. The conclusion is that the implementation agencies have the basic framework to handle the accounting and disbursement aspects of the project. However, the assessment determined that there is only limited experience in meeting project managernent information needs. In some districts, the accounting rules have not been followed strictly and, for example, trial balances are not prepared regularly, delaying the detection of errors and reducing the reliability of reported expenditure figures. The competency of the accountants in the communes varies and most of them only have experience handling limited amounts of recurrent expenditure. A financial management action plan has been developed and agreed with the borrower to address institutional, skills, financial management reporting, and internal and external audit requirements for this project

71 Financial Management Action Plan A financial management action plan has been agreed with the borrower to be implemented prior to and during the project implementation. The project will be implemented in three phases: initially in 60 communes in the first year; in an additional 150 communes in the second year; and, in an additional 330 communes in the third year. Financial management training will be expanded to each incoming group of communes (and to all financial management staff joining the CPMU or PPMUs) before new any new sub-project approvals are granted. The Financial Management Action Plan includes the following key actions: Recruitmnent of a Chief Financial Officer (CFO). The CPMU will recruit a professionally qualified and experienced Chief Accountant with overall responsibility for all the financial management aspects of the project. Each of the 13 PPMUs will have at least one qualified accountant with experience in modem accounting and financial management practices. Every project district will appoint one accountant to check the supporting documents and sign off on the sub-project completion form. The CPCC of every commune will identify a suitable person to act as the project accountant and cashier. Since most of the project accounting staff have not been involved in the design of the project and, more specifically, in the design of the financial management system, priority will be given to ensure that their training will be completed before sub-projects are approved early in project implementation. Financial Management Manual. Implementation of the procedures proposed for the project will require design of appropriate forms, the designation of officials who will sign the various forms, and distribution of copies of each form at various levels. Many of the basic forms are already in existence under the current Government procedures for allocation and expenditures by the Provinces and Districts but these may need to be simplified and adapted to suit the CBRIP. Recording of all project expenditures by the communes in a simple but clear manner will be critical for overall financial management of the project. These procedures will be included in the financial management manual to be developed. The manual will serve as the reference and training document for the accounting staff at every level. It will include the following aspects of the project: 1) organization and responsibility of all the agencies involved in the financial management aspects; 2) funds flow arrangement; 3) staffing and training; 4) financial accounting system; 5) internal control mechanism; 6) financial reporting; and 7) auditing arrangements. The manual will also include procedures for sub-project approvals, accounting and internal controls, forms of various accounting books, records, statements, withdrawal application, accounting staff s responsibilities, and flow of financial information to and from various levels. The manual will be developed in full consultation with the Project Director, PPMUs, District and CPCCs. Proposed Financial Management System. The planned accounting system would cover all sources and uses of funds. All PPMUs will maintain separate books and records for transactions relating to the project. At the commune level, the accountant will maintain simple records for each sub-project implemented by that commune, and the main focus at the commune level will be on participation, transparency and public disclosure of the financial information. A Chart of Accounts will be developed to capture the expenditure data classified by project components and expenditure categories. Physical progress reports, which are linked to financial costs, will be available in the project management information system. Internal Control Mechanism Simple, clear and transparent financial and accounting policies to govem the financial management system for the project will be developed. There will be regular-monitoring of advances given to districts and conmmunes, and the implementing agency at the next highest level will sign

72 off on the sub-project completion form. Standard internal controls will be put into place such as checking of expenditures, requirement of appropriate documentation, level of authorization, periodic reconciliation and physical verification. There will be periodic internal audits of CPCCs' accounts by the District Financial and Pricing Offices, including verification on a sample basis of the physical evidence of completion of sub-projects. District accounts will be audited periodically by provincial level auditors. Financial Reporting. An appropriate financial management software capable of producing Project Management Reports (PMRs) in accordance with IDA requirements will be established by the date of negotiations. It has been agreed that the following PMRs in accordance with IDA requirements will be submitted to the Bank semi-annually: Sources and Uses of Funds; Uses of Funds by Project Activities; Special Account Statement; Progress of CBRIP; Sub-projects Disbursement Status; and Semi-Annual Progress Report (The Government agreement should be sought for production of PMRs on the quarterly basis during the negotiations). The accounting record books for the communes will be developed by the CPMU to guide collection of the required information, which will be consolidated by the PPMUs to produce the required PMRs. Two model reports (Sources and Uses of Funds and Uses of Funds by Project Activities) have been briefly discussed with the CPMU. However, these will need further discussions, especially with the CFO soon after his/her appointment. This will be the first time that most Communes will function as a project owner and have the responsibility to handle cash and execute contracts for sub-projects. It will be CFO's responsibility to ensure that each CPCC has adequate financial staff to execute these functions and in particular, to maintain an up-to-date records of all project expenditures. To make the accounts of the sub-projects transparent to all the local stakeholders, a simple summary financial statement including amounts received, spent and the balance, would be publicly posted by the CPCC in a public place in the community center and updated regularly. Internal Audits. Regular and systematic intemal audits will constitute a very critical part of intemal control system of this project. Under the current procedures, the District Finance and Pricing Office carry out some internal audit functions at the conmmune level. Such internal audits will need to be strengthened and more detailed procedures including frequency, main areas to be covered during audits, and responsibilities and reporting, will be established for this project prior to the dates of negotiations. All payment vouchers, receipts and accounting documents will be retained by the project "owners"(i.e. at the Communes or Districts). The main objective of internal audits will be to verify that project expenditures are adequately supported by proper documentation and justifications. Intemal auditors will also verify on a sample basis, the physical evidence of sub-projects completed by the Communes and Districts. Training. The CFO together with the intemational training consultant will design a detailed program of training for accountants and staff involved in financial management at each level. The training should include disbursement procedures and the Bank's guidelines for procurement of goods and services relevant to this project. Particular attention will be given to provision of adequate training to commune level accountants. Auditing Arrangements. The CPMU will appoint an independent auditor acceptable to IDA. The auditor will be responsible for an annual audit of the project financial statements including the project accounts, staternents of expenditure (SOEs and supporting documents, and the Special Account). The Auditor's Report would be submitted to the Bank within 6 months of the close of the government's fiscal year. The audit will be conducted in accordance with auditing standards acceptable to IDA and under IDA terms of reference. The agreed financial management action plan is summarized below:

73 Action: Responsibility Complete by: 1. Organization and staffing: i) establish CPMU MPI Negotiations ii) appoint Chief Financial Officer CPMU Negotiations iii) appoint CPMU accounting staff CPMU Board Date iv) appoint PPMU accountants (13) PPMU Negotiations v) appoint first 60 CPCC accountants CPCC Negotiations 2. Financial managenent manual: i) develop procedural forms CPMU Negotiations ii) develop project Financial Management Manual acceptable to IDA - submit to the bank for review Negotiations - finalize the manual CPMU Effectiveness CPMU 3. Project financial management system: i) procure a suitable financial management package CPMU Negotiations ii) train project accountants in operation of the new software CPMU Effectiveness iii) establish a computerized financial management system capable of CPMU Effectiveness producing PMRs in accordance with the IDA requirements. Complete training of project accountants on the new software. 4. Internal audit arrangements: Strengthen intemal audit anrangements CPMU December 31, Training: 5a. First phase financial management training: * i) CPMU accountants (2) CPMU Effectiveness ii) PPMU accountants (13) CPMU Effectiveness iii) First phase CPCC accountants (60) CPMU/PPMU Within 3 months of effectiveness 5b. Second and third phases of financial management training: i) CPMU accounting staff (2) CPMU Within 12 months of effectiveness ii) PPMU accounting staff (26) CPMU Within 12 months of effectiveness -69 -

74 iii) CPCC accountants ( ) CPCC/PPMU Within 12 months of effectiveness for 150 phase-two communes and within 24 months of effectiveness for 331 phase-three communes 6. Set up project monitoring system and mechanisms CPMU/PPMU Effectiveness 7. External audit arrangements: i) Appoint project auditor with a TOR acceptable to IDA to audit project CPMU Within 3 months of accounts effectiveness ii) Submit audits of project accounts and annual financial statements CPMU Within 6 months of the end of each fiscal year. * There will be three phases of financial management training: i) before effectiveness (for CPMU, PPMUs and 60 communes), ii) before the end of the first year of implementation (for additional CPMU and PPMU staff and for 150 additional communes), and iii) before the end of the second year of implementation for any remaining new CPMU and PPMU staff and 331 additional communes). Flow of Funds. MOF will provide technical guidance to the CPMU and will authorize the submission of requests for funds replenishment to the World Bank. The accounting unit at the CPMU will oversee the project financial management aspects i.e. prepare the Financial Management Manual, consolidate the accounting information, prepare the financial statements, authorize the funds withdrawal application from the Special Account, and liaise with the commercial bank holding the Special Account. The project will use the traditional disbursement method, but within a year of credit effectiveness, a review will determine the feasibility of adopting PMR-based disbursement procedures. The project will maintain a centralized financial management and accounting system maintained at the CPMW, with decentralized payment procedures. The IDA-disbursed proportion of the project expenditures will be transferred from the special account directly to the sub-project owners' accounts (e.g. a district account in case of district level works and a commune account in case of commune level works) as follows: * Commune level works executed by the communes. Each commune will, after its first sub-project is approved by the PPMU, open an account at a conmmercial bank. For each sub-project a Sub-project Agreement will be signed between the CPCC and the PPMU. Based on this Agreement the PPMU will request the CPMU to transfer of 50% of the estimated costs of the sub-project (excluding the beneficiaries free, 5% contribution) from the Special Account to the commune's project account. Upon finishing the works the commune will forward a Sub-project Completion Form with supporting documents showing the reimbursable expenditures and the beneficiaries contribution of at least 5% of the total costs. The Sub-project Completion Form stating the physical completion and the actual expenditures will be used as the basis for the disbursement of funds from the centrally held Special Account. * Inter-commune works executed by the districts. After a sub-project is approved by the PPMU, the district will open-an account at a commercial bank. For each sub-project a Sub-project

75 the district will open an account at a commercial bank. For each sub-project a Sub-project Agreement will be signed between the District Peoples Committee and the PPMU. National counterpart funds will be use to pre-finance the works. Upon finishing the works the district will forward a Sub-project Completion Form to the PPMU with supporting documents including a Statement of Expenditure for works costing less than US$50,000 equivalent or full documentation for works costing more that US$50,000 equivalent, showing the actual expenditures. Following this, the PPMU will request disbursement of funds from the centrally held Special Account. The summary of flow of funds has been outlined in the Attachment 7 to the Annex 2 of this Project Appraisal Document. Allocation of Credit Proceeds. The proposed allocation of credit proceeds is given in Table C. The credit will be disbursed as follows: (a) 100 percent of the eligible expenditure for commune level works; (b) 80 percent of the expenditure for inter-commune works; (c) 100 percent of foreign or ex-factory costs, or 75% of local costs, for goods, equipment and vehicles; and (d) 1 00 percent of the costs of consultants' services and training. Retroactive Financing To assist with project preparation activities and to expedite project start-up, IDA will finance project costs incurred after December 31, 2000 up to a limit of SDR 1,590,000 million (US$ 2.0 million), provided[da.jpr6curement procedures are followed. The activities to be covered by retroactive financing will include: (a) pre-project activities related to the contracting and training of CFs and the goods and equipment procured for the CFs; (b) project management capacity establishment; (c) activities related to M&E; (d) national and international training and workshops; and (e) commune level works. A list of eligible expenditure for retroactive financing is shown in the PIP in Appendix 5 to the main text. By loan category, retroactive financing would cover: (i) commune level works (US$1,000,000);(ii) goods (US$200,000);(ii) consultants' services (technical assistance and training) (US$530,000); and (iv) incremental operating costs (US$270,000). Implementation of intercommune works will not begin until project year two and, hence, they will not be eligible for retroactive financing

76 Procurement methods (Table A) 67. See Annex 6, Table A - Project Costs by Procurement Arrangements (in US$ Million), Page Prior review thresholds (Table B) See Annex 6, Table B: Thresholds for Procurement Methods and Prior Review, Page

77 Disbursement Allocation of credit proceeds (Table C) Table C: Allocation of Credit Proceeds Expenditure Category Amount in US$million Financing Percentage 1. Commune Infrastructure Works % of expenditure II. Intercommune Works % of expenditure III. Goods, Equipment, Furniture and % of foreign expenditure; 100% of Supplies local expenditure (ex-factory costs); 75% of goods procured locally IV. Consultants' Services and Training % of expenditure V. Incremental operating expenses % of expenditure Total Project Costs Total Use of statements of expenditures (SOEs): Expenditures for: a) goods under contracts costing less than $50,000 equivalent each; b) works for conimune subprojects under contracts costing less than $50,000 equivalent each; c) works intercommune subproject costing less than $100,000 equivalent each; d) consultants' services provided by firms under contracts costing less than $100,000 equivalent each; e) consultants' services provided by individuals under contracts costing less than $50,000 equivalent each; and f) training and incremental operating costs, withdrawal applications will be supported by statements of expenditures (SOEs). All other withdrawal applications will be supported by full documentation and signed contracts. Special account: A special account will be established in a commercial bank specifically designated for this purpose by the borrower's central bank and on terms and conditions acceptable to IDA. The special account, which will cover IDA's share of eligible expenditures under the project, will have an initial allocation of US$2 million and an authorized allocation of US$6 million. The initial allocation will be increased to the authorized allocation when the amount disbursed form the credit totals US$10 million, subject to IDA prior approval. Disbursements from the Special Account will be made against Withdrawal Applications for: (i) direct payments; (ii) reimbursements of expenditure with full documentation; (iii) reimbursement of expenditures against SOEs; and (iv) advance payments for commune level subprojects against cost estimates in Subproject Agreements agreed between the CPCCs and the PPMUs. Applications to replenish the special account, supported by appropriate documentation, will be submitted regularly, preferably monthly, or when the amount withdrawn equals 50 percent of the initial deposit, whichever comes first. Applications will be prepared by the CPMU, the special account holder, in accordance with IDA procedures and submitted to IDA in accordance with procedures in decision 96/2000/QD/BTC of the Ministry of Finance dated June 12,

78 Annex 7: Project Processing Schedule VIETNAM: COMMUNITY BASED RURAL INFRASTRUCTURE Project Sichedule7 ::: Planned a : 0 ActuaX Tietkn to prepare the projct (mo6nths) First Bank mission (identiflcation) 03/21/99 03/21/99 Appraisal mission departure 04/05/ /03/2000 Negotiations 05/21/ /30/2001 Planned Date of Effectiveness 10/10/2001 Prepared by: Ministry of Plamning and Investment Preparation assistance: ASEM Grant Bank staff who worked on the project included: Nameni: Christopher Gibbs Pham Hung Cuong Hoi-chan Nguyen Vu Thu Huong Omowunmi Ladipo Adbul Haji Xiaolan Wang Nguyen Chien Thang Tosca Van Vijfeiken William Cuddihy Scott Guggehneim Frida Johansen Speciality Task Team Leader Operations Officer/Rural Engineer Legal Counsel Team Assistant Financial Management and Disbursements Financial Management Financial Management Procurement Officer Social Scientist Peer Reviewer Peer Reviewer Peer Reviewer World Bank - FAO Cooperative Program: Daud Khan Josef Ernstberger Yoshiko Ishihara Dietmar Kraatz Lars Hein - Service Chief - Natural Resource Economist - Sociologist - Rural Engineer - Environmental Specialist

79 Annex 8: Documents in the Project File* VIETNAM: COMMUNITY BASED RURAL INFRASTRUCTURE A. Project Implementation Plan Project Implementation Plan Field Manual B. Bank Staff Assessments C. Other Aide memoires of preparation missions Social Assessment Environmental Assessment Policy Framework *Including electronic files

80 Annex 9: Statement of Loans and Credits VIETNAM: COMMUNITY BASED RURAL INFRASTRUCTURE Feb-2001 Original Amount in US$ Millions Difference between expected and actual disbursements Project ID FY Purpose IBRD IDA Cancel, Undisb. Orig Frm Rev'd P MEKONGTRANSPORTAND FLOOD PROTECTION P COASTAL WETLANDS PROIECTION AND DEV P RURAL ENERGY P RURAL TRANSPORT II PROJECT P MEKONGDELTA WATER P VN-HGHER EDUC P URB TRAN IMPROVENENT P VN-3 CITIES SANTATION PROJECT P TRANSMISSION&DESTR P AGRI DIVERSFICATION P INLAND WATERWAYS P FORESTPROT.&RUL DE P VN-WATER SUPPLY PROJECT P RURAL TRANSPORT P HIGHWAY REHABII P VN-NATIONAL HEALTH SUPPOW P BANKING SYSTEM MODER P VN-POPULATIOC & FAMILY P RURAL FINANCE P IRRIGATION REHABILIT P HIGHWAY REHAB P VN-PRIMARY EDUCATION Total:

81 VIETNAM STATEMENT OF IFC's Held and Disbursed Portfolio Feb-2001 In Millions US Dollars Commiited IFC Disbursed IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1995 Baria Serece Prt Hanoi Metropole Kyoei Steel MFL Vinh Phat Mom.Star Cement NATL /97 Nghi Son Cement SMH Glass Co VILC Vimaflour Total Portfolio: Approvals Pending Conmmitment FY Approval Company Loan Equity Quasi Partic 1996 VIETNAM INTL LSE BA RIA BAWC Interflour MFL Chau Giang MFL Minh Minh MFL Mondial MFL-AA Total Pending Commitment:

82 Annex 10: Country at a Glance VIETNAM: COMMUNITY BASED RURAL INFRASTRUCTURE East POVERTY and SOCIAL Asai & Low- - _ - _ Vietnam Pacific Income Development diamond 1999 Populaton. mid-vear (millions) 77,5 1,837 2,417 Life expectancy GNP per capita (Atlas method, US$) 370 1, GNP (Atlas method. US$ billions) , Average annual rowth PoDulation (9 1i.6 t2 1 9 G Grs Labor force (%l 1.6 1,3 2.3 GNP Gross per primary moat recant atimate hiateat Year available, I19o ) capita. / enrollment Poverty tx of populatior7 below nafonel Povertv line) 37 Urban gooulation r% of totl popula/tion) Life expectancv at birth (Years) Infant mortality (per live births) Chitd mnainutrition (X of children under 5) Access to safe water Access to improved water source (% of oopulation) llfiteracyr ( of population age 15+) Gross primarv enrollment (% ofschool-aqo population) Vietnam Mote 116 t Low-income group Female KEY ECONOMIC RATIOS and LONG-TERM TRENDS GDP (US$ biltions) Economic ratios' Gross domestic investmenvgdp Trade Exports of goods and services/gdp Gross domestic savings/gdp 4.4 Gross national savings/gdp S Current account balanee/gdp, Domestic Ivsm Interest vavments/gdp ,1 2.3 Sav±gs Investment Total debtjgdp la S g Total debt service/exoorts, ,7 Present value of debt/gdp Ia,,, Present value of debt/exports /a. S2,7 72,3 Indebtedness S a e03 (average annual growth) -r) GOP ,0 4, Vitnam GNP per capita Low-income group Exports of goods and services STRUCTURE of the ECONOMY Growth of investment and GOP (%) (% of GDP) 40 A(riculture,, Industrv Manufacturing Services ss Private consumption General government consumption GDI O*GDP Imports of goods and services (average annual growth) Growth of exports and Imports (%) Agriculture r _ Industrv '' Manufacturing 20 Services o,, Private consumption st a 99 General government consumption Gross domestic investment c Imports of goods and services Exports - -mports Gross national Product Note: 1999 data are preliminary estimates. The diamonds show four key indicators in the countrv (in bold) compared with its income-group average. If data are missing, the diamond will be incomolete

83 Vietnam PRICES and GOVERNMENT FINANCE inflation (%) Doni7est prkes 2o (% change) Consumer prices Implicit GOP deflator Govemment finance s (% of GDP, incktdes cuirent grants) 0 Current revenue (exc.interest), t Current budget balance GOP deflator ' t CPI Overall surplusideficit TRADE Export and import levels (US$ mill.) (USS millions) Total exports (fob).. 1,320 9,365 11,520 1s,oto Rice ,024 1, Fuel ,232 2,091.* * Manufactures 9,o*0 Total imports (cif).. 1,790 11,386 11,643 s o Food Fuel and enercy _.136 1,166 3, Capital goods.....d.. o Export price index (1995=100) S Import price index (1995=100) KExports *Imports Terns of trade (1995=100J BALANCE of PAYMENTS Current account balance to GDP (%) (US$ millions) Exports of goods and services ,974 14,172 3 Imports of goods and services.. 13,507 13,834 0 Resource balance.. -1, Net income Net current transfers ,051 Current account balance , Financing items (net).. 1, Changes in net reserves , Memo: Reserves including gold (US$ millions).... 2,028 3,424 Conversion rate (DEC, local/us$).. 4, , ,700.0 EXTERNAL DEBT and RESOURCE FLOWS (US$ millions) ComposItion of 1998 debt (USS mifl.) Total debt outstanding and disbursed /a ,762 11,142 IBRD S:851 IDA Total debt service ,606 1,943 D:712 IBRD F:3,450 IDA Composition of net resource flows Oflicial grants Official creditors Private creditors /b Foreign direct investment /b Portfoho equity E: 5,340 World Bank program A: IBRD D: Other nmitdlateral Commitments B: IDA E: Bilateral Disbursements C: IMF F: Others (including SOEs debts, Principal repayments 0export credits, financil institutons, Netflows Interest payments Net transfers EASPR

84 Additional Annex 11 Resettlement Policy Framework Policy Framework for Compensation, Resettlement and Rehabilitation of Project Affected Persons The project has prepared a resettlement policy framework known as the Policy Framework for Compensation, Resettlement and Rehabilitation of Project Affected Persons (PAPs). The objective of the policy is to ensure that all persons affected by the project will be compensated for their losses at replacement cost and supported with rehabilitation measures to help them improve, or at least maintain, their pre-project living standards. The Policy Framework has been approved by the GOV is included in full as Annex 13 of the Project Implementation Plan. Principles and Objectives The principles outlined in the World Bank's Operational Directives 4.30 have been adopted in preparing this Policy Framework and the following principles and objectives would be applied: (a) Acquisition of land and other assets will be minimized as much as possible. (b) All PAPs residing, working, doing business or cultivating land to be acquired under the Project as of the date of the baseline surveys are entitled to be provided with rehabilitation measures sufficient to assist them to improve or at least maintain their pre-project living standards, income earning capacity and production levels. Lack of legal rights to the assets lost will not bar the PAP from entitlement to such rehabilitation measures. (c) The rehabilitation measures to be provided are: (i) compensation at replacement cost without deduction for depreciation or salvage materials for houses and other structures; (ii) agricultural land for land of at least equal productive capacity and/or of equal size with the same productive capacity, whichever is acceptable to the PAP; (iii) replacement of premise land of equal size acceptable to the PAP; (iv) and transfer and subsistence allowances. (d) Replacement of premise and agricultural land will be as close as possible to the land that was lost, and the two types of land will be as close as possible, acceptable to the PAP. (e) The rehabilitation means will be provided to the PAPs no later than one month prior to the expected start-up date of works in the respective subproject site. (f) Plans for acquisition of land and other assets and provision of rehabilitation measures will be carried out in consultation with the PAPs, to ensure minimal disturbance. Entitlements will be provided to PAPs no later than one month prior to expected start-up of works at the respective subproject site. (g) The previous level of community services and resources will be maintained or improved. (h) Financial and physical resources for resettlement and rehabilitation will be made available where and when required

85 (i) Institutional arrangements will ensure effective and timely design, planning, consultation and implementation of the Inventories. (j) Effective and timely supervision, monitoring and evaluation of the implementation of the Inventories will be carried out. Institutional Framework The responsibility for implementing the Policy Framework, Inventories and RAPs is as follows: (a) For commune-level works, the Commune Project Coordination Conmmittee (CPCC) assesses the extent of land acquisition and/or other asset losses under the proposed subproject, and includes the information in the Investment Approval Request for submission to the District Technical Support Group (DTSG). For inter commune-level works, responsibilities for impact assessment and preparation of Projects Approval Request rest with the District Project Support Group. (b) For commune-level works, the DTSG appraises the Investment Approval Request, verifies the information, and, for the cases which fall under the Policy Framework, informs the PPMU of the need for Inventory or RAP preparation. For inter commune-level works, appraisal and verification responsibilities will rest with PPMU. (c) The overall responsibility for enforcement of the Policy Framework and for planning and implementing the Inventories rests with CPMU. In coordination with the respective CPCC, and with the respective District Peoples' Committee (DPC) in the case of district level works, each PPMU is responsible for preparing Inventories and RAPs and for the day-to-day implementation thereof within their respective jurisdiction. (d) Funds for preparing the Inventories and RAPs will be provided by the CPMU through the PPMU. Complaints and Grievances Complaints and grievances related to any aspect of the Inventories and RAPs, including the determined area, quantity and price of the lost assets, will be handled as follows: (a) As a first stage, PAPs will present their complaints and grievances to the CPCC, which will have to provide a written response to the PAP, within fifteen calendar days of receiving the complaint. If the PAP is not satisfied with the decision of the CPCC, the PAP may present the case to the PPMU within fifteen calendar days of receiving the written response from the CPCC. The decision of the PPMU should be rendered within thirty calendar days of receipt of the PAPs appeal, and can, at the request of the PAP within fifty days, be reviewed and revised by Provincial People's Committee. The decision of the Provincial People's Committee will be provided to the PAP in writing within thirty calendar days of the request. (b) If the PAP is not satisfied with the decision of the Provincial Peoples' Comrnittee, the case may be submitted for consideration by the District Court. PAPs will be exempted from all administrative and legal fees

86 Additional Annex 12 Ethnic Minorities Action Plan Guidelines In accordance with the World Bank's Operational Directive on Indigenous People (OD 4.20), an Ethnic Minorities Action Plan (EMAP) has been prepared. The EMAP has been agreed by GOV and the full text of the EMAP is included in the Project Implementation Plan at Annex 13. Introduction Since almost half of the population in the project area belong to ethnic minority groups, project preparation has aimed to mainstream ethnic minority participation from the outset by: attuning the project's support to levels consistent with their capacity; establishing a framework of participation and decision making that assures genuine inclusion of ethnic minorities; and providing them with a choice of infrastructure which reflects their cultural identity and needs. A number of consultations with ethnic minority population and their representatives took place during project preparation at village meetings and individual interviews, intensive field studies and stakeholder workshops conducted under the Social Assessment, and in other consultation workshops, in order to translate their views into specific design features. As the recent World Bank report indicates ('Vietnam Development Report 2000: Attacking Poverty), ethnic minorities are one of the poorest and most vulnerable groups in the country. By targeting the poorest communes in Central Vietnam, the project assists the ethnic minority population and the GOV in their pursuit for poverty reduction. The project will provide direct benefits to ethnic minority communities by improving access to essential infrastructure, which in turn will lead to improved income opportunities and easier access to social services. In addition, the project will empower ethnic minorities through capacity building in various aspects, which should enhance their self-esteem and have long-term positive effects on their future initiatives to improve their well-being. The project's demand-driven approach will allow for the culturally appropriate choice of infrastructure subprojects by ethnic minorities. Key design features The project incorporates various design features aimed to ensure full inclusion and participation of the ethnic minority stakeholders. Two key design features are: * The village as entry point. The project ensures genuine participation of ethnic minorities by treating villages, where ethnic homogeneity is the norm and strong social and cultural cohesion among households exists, as the unit for information dissemination, consultation, and subproject identification. * A formal framework for participation. The Community Based Participatory Process (CBPP), a commune-wide exercise for subproject selection, planning and implementation, has a built-in mechanism that assures participation of the ethnic minorities in the decision making process and, in ethnically mixed communes, equal opportunities for project benefits. The mechanism includes: representation of all villages in the Commune Project Coordination Committee (CPCC); village-level subproject selection preceding commune-level consultation and the final subproject selection; flexible lead-times that enable ethnic minority villages to spend sufficient time on

87 village-level consultation; and facilitation by Community Facilitators (CFs) during the entire CBPP, including for village-level activities. The CBPP is included in full in the Project Implementation Plan as Annex 15. Other important design features are: * the project does not support the GOV's Program of Sedentarization and Fixed Cultivation * information dissemination emphasizes verbal communications in local languages and visual images in the printed materials. (See PIP Annex 14, Infonnation Dissemination and Sharing.) * training at all levels includes awareness of ethnic minority issues. The topic will be highlighted, in particular, in CF training. (See Annex 11, Training Plan.) The CF training also focuses on group dynamics and animation, as well as conflict resolution and managemnent * CF selection criteria will include previous experience in working with ethnic minorities. Knowledge of local indigenous languages will be considered as an important factor for selection. Job advertisement will encourage application by ethnic minorities and be posted at the locations where qualified ethnic mninorities would seek job opportunities * CPMU includes a full-time Environmental and Social Safeguard Officer, who will receive trauining on the EMAP and oversees its implementation. He/she will be supported by a full-timne Commune Liaison at each PPMU for day-to-day work Independent process monitoring will pay special attention to participation and inclusion of ethnic minorities, as well as adherence to other required safeguard measures

88 Specific Actions for Ethnic Minorities Specific action under the EMAP based on the Social Assessment (SA), are identified in the matrix below: Design Feature SA Recommendations Actions Agreed to 1. Compensation * The Policy Framework for Compensation, Resettlement for land and assets and Rehabilitation of the Project Affected Peoples Policy Framework (Annex 13) stipulates that compensation will be provided, in accordance to OD 4.30 (Involuntary Resettlement), regardless of the legal rights. * Compensation will pay respect to cultural practices and social norms. In matrilineal groups, in particular, women's customary rights are recognized in determining the recipients of the compensation. 2. Consultation * Village-level * All the subproject proposals will be initially identified consultations on at the village level at Women's and Men's Village subproject choice must Subproject Selection Meetings (5), followed by Final be held. Village Subproject Meeting (7). * All voters must be * The above two meetings will be attended by all adults invited to all in the village. In addition, all village adults will project-related participate in Village Reporting and Design meetings in the village. Consultation Meeting (9) held at each village after commune-level subprojects selection (8). 3. Public o CPCC must include an * CPCC includes two elected representatives (one woman representation elected representative and one man) from each village. from each village. * Representatives from * Village representatives will attend all essential every village must be meetings at the commune level (2, 4, and 8). present at commune-level meetings. 4. Roles of * Encourage the village * Village representatives in CPCC will be democratically traditional leaders to put those people elected at Village Meetings for Selection of they trust and respect Representatives (3). Consultation with village elders is on the Village encouraged throughout the CBPP. Management Committee, including traditional leaders (people respected in the community)

89 5. Project * Maintenance * Subproject Implementation Consultation Meeting (10) ownership Committees must be will discuss and agree on local contribution and creates established for each an O&M group for each approved subproject. subproject. 6. Technical * Village representatives in CPCC will participate in capacity and Commune Training Course (4). training * Preliminary Cost Estimation of Project Subprojects (6) requires CF's visits to each village to present a preliminary cost estimate on the basis of Field Manual, prior to Final Village Subproject Selection Meeting (7) * O&M group representatives will receive training specific to the approved subproject. 7. Understanding * lnformation * All the information materials adopt simple and clear of state dissemination on key messages and visual images (pictures, charts, etc.). development topics relevant to the - Leaflets providing key project information will be approaches project through: distributed to villages at the time of CBRIP multiple channels Introduction Meeting (2). (verbal, printed fact - Following materials are posted publicly at each sheets, information village: CBRIP summary and the amount of money videos, provincial allocated to the commune (2); selected subprojects newspapers and (8); content of SIB or FR summary (10); contract magazines); emphasis details (11) and content of SCF. on understanding by * Information will be also disseminated verbally, using the target audience; local translators whenever necessary. providing contents that - The introductory leaflet will be read aloud by CF at are practical rather the Village Meetings for Selection of Representatives than conceptual. (3). 8. Safeguard in For all Type A communes: in-migration * Subproject proposal to * A copy of an Investment Approval Request (IAR) from communes be reviewed by Type A communes must be sent to CPMU for anthropologist/ethnic examination by Environmental and Social Safeguard minority specialist Officer prior to submission to DTSG for technical before approval. appraisal (see Annex 16). * CF must facilitate all commune meetings for subproject selection to ensure both migrants and indigenous groups are represented. * Close monitoring (studies rather than spot-checks) required throughout the project cycle. * CFs assigned to Type A communes will be carefully chosen on the basis of demonstrated skills on group dynamics and understanding of ethnic minority issues. * Terms of Reference for process monitoring will include this specific activity

90 9. Incorporation * Targeted consultations * Village Reporting and Design Consultation Meetings of ethnic must be held on design (9) proposes preferred design and location. minorities' values with those interest in project design groups most directly affected a particular subproject. * Contractors must * Subproject Implementation Meetings (10) attended by consult communes on representatives from beneficiary villages discuss subproject design and funding sources (local contribution, contract, and paid location. labor), which will be spelled out in the Subproject Investment Brief or Feasibility Study Report. * CF training includes practical field work and study * Study visits by project visits to RIDEF (see Annex 11). staff to the sites where local people have built infrastructure works without government assistance, to learn from design and construction. 10. Eligible works * Kindergartens are * The list of commune-level eligible works include especially beneficial to construction of kindergartens. ethnic minorities in order for children to have a head start in schooling and for parents and older children to reduce child rearing burdens, releasing productive time. * Inclusion of traditional * The same list includes communal houses. communal houses (Nha rong) in the eligible list was recommended. 11. Safeguard for * In the communes located in buffer zones, a restricted EM access to list of eligible subprojects, excluding road natural resources. improvement, will be applied. (All communes located in protected areas were excluded from the list of project communes.)

91 12. Safeguard for * Evaluation by Commune Liaison Officer (PPMU). CFs' fulfillment of the duties 13. Opportunities * PPMUs will encourage the listed local contractors to for paid labor employ ethnic minorities. 14. Conflict * Local people must be * Management Training and CF Training include the resolution made aware of existing topic of conflict resolution and management (see Annex mechanisms. Existing 11). regulations provide the * Project introduction leaflet introduces the existing following: District and mechanisms and encourages the use. Commune People's * Process monitoring spot-checks how grievance cases Committees have one were handled. day per week to receive complaints; chairpersons of People's Committees are responsible for settling complaints; and the Fatherland Front and citizens are responsible for supervising the process and encouraging people to use it

92 Additional Annex 13 Guidelines Environmental Aspects An Environmental Assessment (EA) has been prepared by GOV for this project in accordance with World Bank Operational Policies 4.01 (Environmental Assessment) and 4.04 (Natural Habitat). The EA is included in full as Annex 12 of the PIP. Project Scope The project area includes parts of 13 provinces in central coastal Vietnam, including some 98 districts. These districts contain a possible 611 communes that have been identified as poor based on the criteria developed by CEMMA or the Ministry of Labor, Invalids and Social Affairs (MOLISA). The project would serve the population of these communes, an estimated 1.8 million people, implemented over six years with each commune and district to receive grant funding for small-scale public infrastructure works over a period of up to three years. Screening Potential Project Impacts The potential environmental impacts of the project have been identified on the basis of field observation and discussion with villagers, NGOs, environmental experts and govemment officials at the commune, district, provincial and national level. The relevant Bank guidelines (OP 4.01, OP 4.04 and OD 4.30) and the Environmental Assessment Sourcebook have been used as references. As the concrete activities of the project would be demand-driven and decided during implementation, only overall, non-site-specific potential environmental impacts can be assessed in advance. Particular attention has been given to: (i) forest degradation; (ii) the impact on ethnic minorities; (iii) resettlement or temporary land loss; (iv) erosion cause by new infrastructure; (v) increase in disease caused by water-borne vectors due to irrigation development; (vi) degradation of wetlands due to the construction of flood protection measures; and (vii) groundwater depletion. The potential impact on ethnic minorities has been assessed in detail in a Social Assessment, conducted by the Vietnam office of OXFAM Hong Kong, an NGO, and this EA presents only a summary of the issue. A separate Ethnic Minority Action Plan has been prepared and agreed by GOV. As inter-commune works will probably be larger in scale than commune-level works, their impacts have been assessed separately. For both commune- and inter-commune works, only issues (i) and (ii) are likely to have a significant potential impact. An overview of the potential enviromnental impacts of the project is given in the following tables for commune- and inter-commune infrastructure

93 Potential Environmental Impact - Inter-commune Works. Infrastructure Potential Potential Impact per Region* Impact = some impact possible, * = low potential impact) South Eastern RegionN + S Central Coast Explanation Transport Increased access ** Although many forested areas in Vietnam are heavily degraded, Upgrading and to and patches of relatively intact forests and a number of natural parks are construction of degradation of located in or near the project area. A main reasons for the commune access forest resources. conservation of these forests has been their inaccessibility. roads or tracks, including bridge repair, "Irish bridge" river crossings and new bridges. Increased immigration as a result of improved access. Resettlement and land acquisition. Erosion of new roads. **In the project area, this present some risk only in Lam Dong and Binh Phuoc, where spontaneous migration is still continuing. **In the project design it is envisaged to exclude all projects involving resettlement but, probably limited, land acquisition may be required. In any case a Policy Framework Paper has been agreed with the GOV to deal with potential cases of resettlement and otherwise project affected people (see Attachment) **If road upgrading requires changes in alignment or road width, erosion may increase in the absence of proper road construction. Irrigation Increase in **Malari and dengue fever are endemic and wide spread in the Improvement and diseases with a area. Construction of water bodies such as irrigation reservoirs may construction of small water born increase the breeding opportunities for the mosquito species acting as reservoirs and river vector. vector for these diseases. diversion schemes with gabions and stone masonry. Land acquisition **In current project design it is envisaged to exclude all projects for new involving resettlement but, probably limited, land acquisition may irrigation be required. reservoirs

94 Flood Control Flood control *The area contains a number of wetlands which have been identified Construction and measures may as having high biodiversity in the National Biodiversity Action Plan. rehabilitation of affect coastal or existing inland wetlands. embankments (diking). Electrification Extension of the national electricity grid to one or a group of communes. Rural sanitation Provision of public toilets and water supply to existing markets in district centers. No significant environmental impact anticipated No significant environmental impact anticipated -90 -

95 Potential Environmental Impact - Commune-level Works. Infrastructure Potential Potential Impact per Region* Impact = some impact possible, * = low potential impact) South Eastern RegionN + S Central Coast Explanation Transport Increased access ** Although many forested areas in Viet Nam are heavily Improvement and to and degraded, patches of relatively intact forests and a number of upgrading of existing degradation of natural parks are located in or near the project area. One of the roads by forest resources. main reasons for the conservation of these forests has been their improvements of inaccessibility. critical sections with gravel, drains, culverts, Irish crossings (<50m), single span bridges and truss bridges (<15m). Changes in road alignment or road extensions would not be funded. Increased immigration as a result of improved access. *In the project area, this presents only a risk in Lam Dong and Binh Phuoc, where spontaneous migration is still continuing. Irrigation Increase in **Malaria and dengue fever are endemic and wide spread in the Improvement / diseases with a area. Construction of water bodies such as irrigation reservoirs construction of small water born may increase the breeding opportunities for the mosquito species reservoirs and river vector. acting as vector for these diseases. diversion schemes with gabions and stone masonry. Land acquisition for the construction of irrigation reservoirs. **In current project design it is envisaged to exclude all projects involving resettlement but, probably limited, land acquisition may be required

96 Domestic water Groundwater *Drinking water in the coastal zone of central Vietnam is often supply depletion. pumped from aquifers. Some aquifers have limited water resources Construction and and are prone to pollution and salinization in case of uncontrolled rehabilitation of water and improper installation of tube wells. supply systems including gravity drinking water schemes, shallow and deep wells and tubewells Flood protection embankments Construction and rehabilitation of embankments (diking). Electrification Connection of communes to the national electricity grid; construction of small hydropower schemes of 5-50 kw Schools, health centers and other public buildings Rehabilitation and construction of primary and secondary school buildings, kindergartens health stations, markets. No significant environmental impact anticipated No significant environmental impact anticipated No significant environmental impact anticipated

97 To address the most important environmental impacts identified during project preparation, the design was modified to exclude communes located inside protected areas and to restrict the list of eligible works for communes in buffer zones by excluding all transport infrastructure. In addition, a number of mitigation measures were included in project design, listed in the table below: Potential Impact Increased access to and degradation of forest resources Increased stress on ethnic minorities Land acquisition Erosion of roads related to improvement or widening Increase in malaria and dengue fever Degradation of wetland areas Mitigation measure * Adapted list of subprojects eligible for funding for communes in ecologically vulnerable zone (including buffer zones) * Mandatory Environmental Assessment (EIA) for all district road projects involving upgrading or construction of stretches of road over 5 km. * Environmental training of CFs and district officials. * Support for the socio-economic position of ethnic minorities is central to project design. Project design includes the mobilization and training of CFs to ensure equal participation of ethnic minorities. Therefore, in the EIA, no further mitigation measures are included. * Adequate compensation in case of land acquisition and other asset losses. A compensation plan, including compensation as agreed upon by the land owner, is provided in attached Policy Framework. * Field Manual will describe how to process subprojects involving land and assets acquisition according to the Policy Framework. * Training program for CFs, PPMU and CPMU staff will include the subject. * A description of erosion measures would be included in the Field Manual. * For district roads exceeding 5 km in length, erosion control would be checked in the EIA. * Description of biological vector control measures included in the training program for CFs. * Biological vector control part of environmental training. * Flood protection measures involving reclamation of land outside existing dikes excluded from funding. * EIA for subprojects involving stretches over 10 km of flood protection rehabilitation or construction. An environmental section will be included in the Field Manual to address environmental mitigation measures. The Field Manual will be prepared for use by CFs and district staff, and will contain the environmental assessment procedure of CBRIP, the Policy Framework for Compensation., Resettlement, and Rehabilitation of Project Affected People, and a technical section. The technical section addresses the following subjects: (i) control of erosion of local infrastructure; and (ii) control of malaria and dengue fever vectors with biological agents. Erosion may affect roads, flood protection dikes and irrigation dams. The first step in erosion control is the proper design of roads and embankments. For roads, this includes proper alignments, provision of sufficient culverts, and protection of culvert outlets. These are the responsibility of the contractor and would be covered in the engineering manuals. Once construction is finalized, the community must ensure regular maintenance and control of erosion up- and downhill of the road. This includes (i) the protection of

98 improved roads from damage of landslides and gully erosion through the reforestation of up and downhill slopes of roads; (ii) plugging of gullies that emerge where runoff water is concentrated; (iii) protection of the vegetation cover of flood protection dikes. The manual would contain a section describing the process of erosion, and how simple and low costs measures, can control erosion and contribute to maintenance of the infrastructure. Control of malaria and dengue fever in Vietnam is usually by low volume pesticide spraying, used particularly in lakes. However, as the malaria and dengue surveillance system is inadequate and resistance of the mosquitoes has increased, the effectiveness of spraying is decreasing. Additionally, application of pesticides to drinking water tanks is highly dangerous, and application in running water is ineffective. An alternative means of control is by biological vectors. Malaria. The main risk for increased breeding opportunities of the mosquito is related to reservoirs. The complete control of Anopheles breeding is very difficult. The best results have been achieved with the release of larvae-eating fish. Suitable species include Macropodus opercularis, Oreochromis mossambicus, Aplocheilus latipes, Betta splendens, Carassius auratus (goldfish) and Cyprinis carpio (carp) in the reservoirs. The use of mesocyclops (used to control dengue fever vectors) is ineffective, since it rarely feeds on the larvae of Anopheles. Dengue fever. The dengue fever vector (A. egypti) breeds in small reservoirs and ponds near houses, such as drinking water tanks and water collected in waste (old tires, coconut shells, etc.). It is possible to control dengue fever by (i) elimnination of these types of waste; and (ii) release of mesocyclops (a small crustacean) in water tanks. Mesocyclops prey upon the larvae of A. egypti and are able to keep a water tank entirely free of larvae. Mesocyclops is often present in wells and ponds, and has been accepted in field tests by the local population for use in drinking water tanks. The field manual will point out these options. Environmental screening Subprojects will be identified through a community based participatory process (PIP Annexes 15 and 16). An Investment Approval Request will be sent to the District Technical Support Group in case of commune level works or to the PPMU in case of inter-commune works. At that point an officer trained in environmental issues will screen the proposal for its environmental effects. A screening checklist (below) will be used to classify subprojects into four categories, those not needing environmental assessrnent and those needing: (i) an Environmental Review; (3) a limited Environmental Assessment; or (4) a full Environmental Impact Assessment

99 Screening Checklist Recommended Environmental Assessment Approach Subproject Type None ER LEA EIA Rehabilitation of Rural Roads and Bridges X - Less than 5 km - More than 5 km x Tracks and Trails - Improvement X -New X Ferry Crossing - Improvement X - New X Drinking Water Supply - Fewer than 100 persons X - More than 100 persons; little or no possibility of X aquifer contamination - More than 100 persons; possibility of aquifer X contamination X - any subproject in areas with saline water aquifers Micro-scale Irrigation Subprojects (less than 50ha) - Rehabilitation; no new construction of canals X - Construction of new canals X Small-scale Irrigation Subprojects (more than 50ha) X - Rehabilitation; no new construction of canals X - Construction of new canals Schools, Communal Houses, Markets, etc. - Minor rehabilitation X - Rehabilitation with major construction or waste X disposal considerations - New constructions x Health Stations - Rehabilitation X - New constructions X Sanitation Facilities -Fewer than 100 persons X - More than 100 persons X Electrical Supply Systems X

100 Flood Protection Barriers - with less than I Okm barriers X - with 10 and more km barriers X Environmental Review (ER) refers to a simple environmental assessment, to be conducted by a technically trained officer at the district level. A simple checklist will be used to record the findings of the review and to address the general impacts associated with a subproject. A standard form will be provided in the Field Manual and a set of mitigation measures will be proposed specific to the type of subproject in question. Limited Environmental Assessment (LEA) will be applied to subprojects likely to have some environmental impacts, which need to be reviewed by the provincial Environmental Focal Point. He/she will use a form specific to the subproject type to record the assessment, likely environmental impact and proposed mitigation measures to be incorporated in the design or added to the subproject. Standard forms for various types of subprojects are to be provided in the Field Manual. The Environmental Focal Point would also visit the proposed site to assess baseline conditions and potential site specific impacts. Subprojects requiring a LEA, will be monitored during construction and operation to ensure that mitigation measures are implemented. Environmental Impact Assessment (EIA) would be required in the event of significant direct or indirect environmental impacts and would require a complete enviromnental assessment report. The necessity of a full environmental review is likely to be rare and subprojects requiring an EIA would, in most cases, be refiused funding under CBRIP. Subprojects where an EIA would be required include: (i) road rehabilitation of more than 5krn, (ii) irrigation schemes benefiting more than 50ha, and (iii) flood protection works with barriers longer than I Okm. The EIA would be conducted as part of a subproject Feasibility Study by an independent consultant. The preparation of EIAs and plans for resettlement and land acquisition and compensation would be financed from a special fund of US$300,000, earmarked in the counterpart fund. Actual compensation would not be financed from this fund but from the counterpart component of subproject costs. Environmental staffnmg In order to enable the CPMU to implement the environmental, resettlement and land compensation procedures of the CBRIP, it is proposed to include an Environment-Social Safeguard Policies Officer in the CPMU staff, and to appoint in each of the 13 provinces one of the monitoring and evaluation, or commune liaison officers, as Environmental Focal Point. The Focal Point would be responsible for implementation of the environmental and safeguards procedures at the provincial level including compliance of drinking water supply subprojects with the Provincial Rural Water Supply and Sanitation Strategy. Also, he/she would liaise between district and commune level officers, and environmental NGOs and research institutes that would be involved in the preparation of EIAs. The Provincial Focal Points would receive a list of national and regional institutes capable of conducting EIAs. The Environment-Social Safeguard Policies Officer would prepare the list at the beginning of the first year of project implementation. The Environment-Social Safeguard Policies Officer and the Provincial Focal Points would be trained under the project (see PIP Annex I 1). Environmental training -96 -

101 To ensure implementation of environmental safeguard measures and to contribute capacity building, environmental training would be provided at four levels of the project. The training activities have been outlined in the CBRIP training needs assessment, summarized in the PIP (Annex 11) and include training for the following: * Environmental and Social Safeguards Officer in CPMU * Provincial Environmental Focal Points (13) * District staff (95) * Commune Facilitators (120) * Commune members (611) Environmental monitoring and auditing Due to the very large number of small subprojects to be implemented under the project (probably over 2000 over 6 years), and to the large number of other socio-economic activities with impacts on the enviromnent ongoing in the project area, the aggregate environmental impact of all project activities cannot be monitored. Therefore, it is proposed to focus monitoring activities on (i) the location of road works relative to protected areas, buffer zones and well preserved forest; and (ii) participation of ethnic minorities in commune planning and decision making. Environmental monitoring would be supported by a GIS that would record precise map coordinates for each subproject. The participation of ethnic minorities would be recorded in the MIS and through independent process monitoring in a module that tracks the participatory planning process (detailed in PIP, Annex 10). Twenty percent of all subprojects for which an EIA are carried out will be audited by an independent environmental institute or NGO to assess whether or not the recommended environmental mitigation measures were applied. The Environmental and Social Safeguard Officer will select the subprojects to be audited. In case of sub-optimal execution of the EIA, or deficient application of the required mitigation measures, the consultant would provide recommendations for improvement. The audits will be financed from the ELA Fund

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