Completion Report. Project Number: Loan Number: 2128 October Viet Nam: Northern Power Transmission Sector Project

Transcription

1 Completion Report Project Number: Loan Number: 2128 October 2012 Viet Nam: Northern Power Transmission Sector Project

2 CURRENCY EQUIVALENTS Currency Unit dong (D) At Appraisal At Project Completion 1 November May 2012 D1.00 $1.00 = = $ D15,750 $ D20, = $ $ $1.00 = ABBREVIATIONS ADB Asian Development Bank AFD Agence Française de Développement BER bid evaluation report CPRGS comprehensive poverty reduction & growth strategy CSPU country strategy and program update EIRR economic internal rate of return EVN Electricity of Viet Nam (renamed Vietnam Electricity in 2006) GDP gross domestic product ICB international competitive bidding IDC interest during construction IEE initial environmental examination IMO independent monitoring organization NLDC National Load Dispatch Center NPPMB Northern Power Project Management Board NPTC National Power Transmission Corporation OCR ordinary capital resources PSMDP Power Sector Master Development Plan RRP report and recommendation of the President RTU remote terminal unit SCADA supervisory control and data acquisition TA technical assistance km kilometer WEIGHTS AND MEASURES kv kilovolt (1,000 volts) kw kilowatt (1,000 watts) kwh kilowatt-hour (1,000 watt-hours) GWh gigawatt-hour (1,000,000 kwh) TWh terawatt-hour (1,000,000,000) kwh MVA megavolt-amperes (1,000 kilovolt-amperes) MW megawatt (1,000,000 watts)

3 NOTES (i) The fiscal year (FY) of the Government of Viet Nam and its Agencies ends on 31 December. (ii) In this report, "$" refers to US dollars, unless otherwise stated. Vice-President S. Groff, Operations Group 2 Director General K. Senga, Southeast Asia Department (SERD) Country Director T. Kimura, Viet Nam Resident Mission (VRM), SERD Team leader A.M.Tuan, Senior Project Officer (Energy), VRM, SERD Team member L.T.Huong, Associate Project Analyst, VRM, SERD In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

4

5 CONTENTS Page BASIC DATA ii I. PROJECT DESCRIPTION 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 1 A. Relevance of Design and Formulation 1 B. Project Outputs 3 C. Project Costs 4 D. Disbursements 4 E. Project Schedule 4 F. Implementation Arrangements 5 G. Conditions and Covenants 6 H. Consultant Recruitment and Procurement 8 I. Performance of Consultants, Contractors, and Suppliers 8 J. Performance of the Borrower and the Executing Agency 9 K. Performance of the Asian Development Bank 10 III. EVALUATION OF PERFORMANCE 10 A. Relevance 10 B. Effectiveness in Achieving Outcome 11 C. Efficiency in Achieving Outcome and Outputs 12 D. Preliminary Assessment of Sustainability 12 E. Impact 12 IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 13 A. Overall Assessment 13 B. Lessons 14 C. Recommendations 14 APPENDIXES 1. Project Framework Status of Compliance with Loan Covenants Project Costs and Project Financing Contracts and Contract Payments Disbursement Schedules Financial Evaluation Economic Evaluation Project Outputs Project Implementation Schedule Land Acquisition and Resettlement Quantitative Assessment of Overall Project Performance 48

6

7 BASIC DATA A. Loan Identification 1. Country 2. Loan Number 3. Project Title 4. Borrower 5. Executing Agency 6. Amount of Loan 7. Project Completion Report Number Socialist Republic of Viet Nam 2128-VIE Northern Power Transmission Sector Project Socialist Republic of Viet Nam Electricity of Viet Nam a $ 120,000,000. PCR: VIE 1345 B. Loan Data 1. Appraisal Date Started Date Completed 2. Loan Negotiations Date Started Date Completed 3. Date of Board Approval 4. Date of Loan Agreement 5. Date of Loan Effectiveness In Loan Agreement Actual Number of Extensions 6. Closing Date In Loan Agreement Actual Number of Extensions 7. Terms of Loan Interest Rate Maturity (number of years) Grace Period (number of years) Commitment fee 8. Terms of Relending (if any) Interest Rate Maturity (number of years) Grace Period (number of years) Second-Step Borrower 26 July August November November December August November December December May LIBOR (6 months) % per annum % per annum LIBOR (6 months) % per annum 25 5 Electricity of Viet Nam a The name Electricity of Viet Nam was changed in 2006 to Vietnam Electricity

8

9 iii 9. Disbursements a. Dates Initial Disbursement 1 June 2006 Effective Date 16 December 2005 Final Disbursement 19 April 2012 Closing Date 10 May 2012 Time Interval 71 months Time Interval 77 months b. Amounts ($ million) Category Remaini Original Latest Amount Amount ng Allocation Allocation Canceled Disbursed Balance (1) (2) (3) (4) (5=3-4) 6 (7=4-6) 1A Transmission Equipment (16.10) B Load Dispatch Component A Resettlement Foreign Consultant Services 2B Resettlement Local Consultant Services 2C SCADA IDC Unallocated Total SCADA = supervisory control and data acquisition, IDC = interest during construction 10. Local Costs (Financed) - Amount ($) $187,000 - Percent of Local Costs 0.2% - Percent of Total Cost 0.1% C. Project Data 1. Project Cost ($million) Cost Appraisal Estimate Actual Foreign Exchange Cost Local Currency Cost Total Cost Breakdown by Project Component ($million) Component Cost Estimate Actual Cost Foreign Local Total Foreign Local Total Transmission NLDC Upgrade Financing Charges Total Project Cost NLDC = National Load Dispatch Center

10 iv 3. Financing Plan ($million) Cost Appraisal Estimate Actual A. Implementation Costs 1. ADB Financed AFD Financed Borrower Financed Subtotal (A) B. IDC Costs 1. ADB Financed AFD Financed Borrower Financed Subtotal (B) Total AFD = Agence Française de Développement, ADB = Asian Development Bank, IDC = interest during construction. Note: increases in the value of the euro accounts for the increase in dollar equivalents funded by AFD. 4. Project Schedule Item Appraisal Estimate Actual Date of Contracts with Consultants International Resettlement Consultant Q3-Q4/2004 Nov-05 Local Resettlement - Monitoring & Supervision Q3-Q4/2004 Q Completion of Engineering Designs Part A Dec-05 Dec-05 Part B Phase 1 Dec-05 Nov-07 Part B Phase 2 Dec-05 Aug-09 Completion of Pre-Appraised Sub Projects Thuong Tin - Quang Ninh T. Line & SSs 500 kv Jun-08 Dec-09 Trang Bach Substation 220 kv Jun-08 Oct-09 Nghi Son Substation 220 kv Jun-08 Oct-09 Dong Hoa Substation 220 kv Jun-08 Nov-09 Thai Binh Substation 220 kv Jun-08 May-09 Van Tri Substation 220 kv Jun-08 May-11 Completion of Additional Subprojects Tuyen Quang - Yen Bai 220 kv T. Line Jun-09 Dec-07 Ban La - Vinh 220 kv T. Line Jun-09 Feb-10 Son La 220kV Substation and Connection Jun-09 May-11 Phu Ly 220 kv Substation and Connection Jun-09 Aug-09 Hai Duong 220 KV Substation Jun-09 Mar-11 Lao Cai 220 kv Substation Jun-09 Apr-11 Hai Phong - Dinh Vu 220kV T. Line and Hai Phong - Vat Cach T. Line Jun-09 Aug-09 Van Tri- Soc Son 220 kv T. Line Jun-09 Dec-12 1 Do Luong 220kV Substation Jun-09 Dec-11 Completion of NLDC Upgrade Phase 1 (as revised) Jun-09 Nov-11 Phase 2 (as revised) Jun-09 Dec-12 kv = kilovolt, NLDC = National Load Dispatch Center Q = quarter, SS = substation, T. = transmission line 1 Expected to be completed in December 2012

11 v 5. Project Performance Report Ratings Implementation Period Development Objectives Ratings Implementation Progress From 13 December 2004 to 31 December 2004 Satisfactory Satisfactory From 1 January 2005 to 31 December 2005 Satisfactory Satisfactory From 1 January 2006 to 31 December 2006 Satisfactory Satisfactory From 1 January 2007 to 31 December 2007 Satisfactory Satisfactory From 1 January 2008 to 31 December 2008 Satisfactory Satisfactory From 1 January 2009 to 31 December 2009 Satisfactory Satisfactory From 1 January 2010 to 31 December 2010 Satisfactory Satisfactory From 1 January 2011 to 31 December 2011 Satisfactory Satisfactory D. Data on Asian Development Bank Missions Name of Mission Date No. of No of Specializations of Persons Person-days Members Identification February a, b Fact Finding 4-7 May a, c, b, d Appraisal 26 July to 06 Aug e, a, c, b, f, g, h, i, j Inception Mission 5-9 September, a, b, k, j Review Mission May a, k, m, g Review Mission 2-11 October b, k, m, g Review Mission March, m, k, g, n Review Mission 7-11 August, b, m Midterm Review 29 Oct.10-7 Nov, m, b, o, k, p, 2g, n Loan Review September, o, p, j Loan Review 9-13 February, b, o, g, l, p, k, g Loan Review 5-14 October, b, g, q, p Loan Review January, b, l, p. g, n Loan Review September, b, r, n, q, p, g, n, k, j Loan Review September, p, g, n, k Project Completion Mission 10 Aug -17 Sep, I, k Total 386 Code: a Project Specialist; b- Energy Specialist; c- Poverty Specialist; d- Economist; e- Director Mekong Infrastructure Division ; f- counsel; g- Resettlement Specialist/Staff Consultant; h- Environment Specialist; i- Project Implementation Specialist; j Assistant; k- Project Analyst; l- Financial Specialist; m- Energy Economist; n- Environment Specialist/Staff Consultant, o- Infrastructure Specialist; p- Program Officer, q- Social Specialist, r- Procurement Specialist

12

13 I. PROJECT DESCRIPTION 1. In 2001 power demand in the northern region of Viet Nam was growing at over 16% per annum and was expected to continue growing at this rate for the next 10 years. In order to help meet this load growth, The Government of Viet Nam decided to construct a 500-kilovolt (kv) ring main transmission system around the major load centers in the north covering Hanoi, Haiphong, and Quang Ninh. The sector project was part of this northern region investment program and part of the government s national power sector development program. The project had two components: (i) part A was the expansion and upgrading of 500 kv and 220 kv transmission systems and substations; and (ii) part B was an upgrading and expansion of the national power system s supervisory control and data acquisition (SCADA) system, plus communication facilities at the three regional and national load dispatch centers. The project objectives of strengthening the northern region s power system have been met. The project has helped Electricity of Viet Nam (EVN) maintain adequate and reliable transmission of electricity, including from new power plants that have come into operation since Through its loan covenants the project confirmed the importance of ongoing power sector reforms. These covenants addressed programmed interventions that have met the immediate objectives of plans that are designed to increase the commercial orientation of the electricity supply industry. 2. Part A of the project was made up of subprojects that were included in the government s Fifth Power Sector Master Development Plan 1 (PSMDP V) for the years 2001 to The Asian Development Bank (ADB) adopted a sector loan approach as several of the identified subprojects had not been appraised prior to loan approval. The Agence Française de Développement (AFD) provided parallel cofinancing to complete the project s requirements for import of equipment. Part B of the project was expected to involve the implementation of a SCADA system and the implementation of remote terminal units (RTUs), but was revised during the project implementation and reduced in scope. Part A was implemented by the Northern Power Project Management Board (NPPMB), a subsidiary of EVN that specializes in construction management. Part B was implemented by the National Load Dispatch Centre (NLDC), which controls the operation of the national power supply system. II. EVALUATION OF DESIGN AND IMPLEMENTATION A. Relevance of Design and Formulation 3. ADB s Viet Nam country strategy and program update ( ) focuses on pro-poor growth. 2 ADB s strategy was to assist the government create favorable opportunities for the poor to improve their living standards by combining investments that sustain high economic growth rates with targeted measures that benefit the poor. Between 1993 and 2002, rapid economic growth and development of the power supply system had made possible a reduction in the proportion of the population living below the international poverty line (from 58% in 1993 to less than 29% in 2002). The PSMDP V and subsequent revisions that cover estimated that annual investments of $1.2 billion to $1.5 billion would be required to increase electricity supplies sufficiently to sustain the high rate of economic growth. These expectations proved realistic. From 2005 to 2010 Viet Nam s gross domestic product (GDP) grew at an average rate of 7.3% per annum, electricity consumption increased at a compound annual growth rate of 13.5%, and the proportion of the population living below the poverty line declined from 19.5% in 2005 to 10.7% in The project assisted the government achieve these goals. The project was an integral part of a highly effective power sector investment program that enabled: (i) growth in power supply to keep pace with the 13.5% annual growth in demand; (ii) a 1 Prepared in 2001 by the Institute of Energy under the auspices of the Ministry of Industry and Trade 2 ADB Country Strategy and Program Update: Viet Nam, Manila.

14 2 decline in losses of electrical energy within the power network (from 11.8% in 2005 to 9.2% in 2011); and (iii) EVN to supply consumers with low-cost power from newly built power plants. 4. Because of the magnitude of the power sector s investment, the government concluded in 2004 that the power sector would be commercialized in order to attract investment capital from the private sector (for development of generation facilities), and that external capital would be used to fund investments in the national grid. The government requested its development partners to support development of the national transmission and distribution system. ADB responded by approving project preparatory technical assistance (TA) in December 2002 to help plan and prepare the project. 3 ADB also provided advisory and operational TA in 2003 to help Viet Nam prepare a road map of activities for commercialization of the power sector Part A of the project comprises subprojects drawn from the PSMDP V. The PSMDP identified overall investment requirements of $8 billion for implementation between 2005 and 2010 and determined the location and type of new generating stations to help meet the country s projected demand for electricity. The optimal mix of new generation investment favored the development of local energy resources; mainly hydro and coal in the north and gas in the south. The power transmission system investments, including those in part A of the project, were designed to minimize the cost of connecting power plants with load centers and were generally implemented according to the original plan. 6. Part B of the project was based on NLDC s studies. These studies were revisited by NLDC in 2006 and shortcomings in the plans for improved communication facilities at substations were identified. NLDC revised its plans for part B in 2006 and split the component into two phases. The first phase comprised developments that proceeded as originally intended. The second phase comprised developments that depend on installation of fiber optic communication links; these plans were further reviewed over the next 2 years. Once third parties began to develop economical communication services this enabled NLDC to reduce its investment and still achieve the objectives of Part B. 7. EVN was the executing agency, and together with its subsidiary project implementing agencies (NPPMB and NLDC) has had a long and successful experience in contracting and construction. Plans for reform of the power sector s institutional and financial framework were being prepared at the time the project was conceived, and a development partners financial model (the EVN Independent Creditors Model) indicated that EVN was financially sound and could undertake significant investment and meet its financial obligations. EVN and its agencies were unfamiliar with ADB s safeguard policies: under the sector loan they managed safeguard measures on subprojects that couldn t be appraised prior to project preparation. Many of the safeguard tasks that were left to NPPMB occurred on the transmission line subprojects, which are generally more demanding than for substations. NPPMB was ill equipped to deal with them, and the use of a sector loan with relatively inadequate provisions for advisory and operational support proved inappropriate. 8. The terms of reference of the project preparatory TA provided by ADB were designed for a team of individual consultants, but were used to engage a consulting firm. Some 33% of the firm s resources were allocated by ADB to economic and financial evaluation. The firm s ability to reallocate time to emerging safeguard issues was limited. ADB staff reported midway through TA implementation that there was a serious deficiency in the design of the TA, as no provision had been made for providing capacity building assistance to NPPMB, despite its unfamiliarity with ADB safeguard requirements. Although some workshops were subsequently incorporated 3 ADB TA 4051-VIE: Preparing the Northern Power Transmission Project. 4 ADB TA 3763-VIE: The Roadmap for Power Sector Reform.

15 3 into the consultant s work program they proved ineffective. NPPMB was not convinced that resettlement issues would be a problem and provided limited resources for preparation of resettlement plans. Resettlement issues proved difficult to resolve and contributed to the delays in project implementation. The consulting firm struggled to complete the economic and financial tasks, which had been largely been resolved outside of the TA by the PSMDP V and the EVN Creditors Financial Model respectively, and this unfortunately drew attention away from the shortcomings of the TA. B. Project Outputs 9. The project outputs envisaged at appraisal were (i) in part A, creation, expansion, and upgrading of the 500 kv and 220 kv transmission systems and substations; and (ii) in part B, expansion and upgrading of the national SCADA system through the provision of (a) RTUs at substations and power plants, (b) software and hardware upgrades at national and regional load dispatch centers, and (c) communication facilities to link the three regional load dispatch centers (north, central, and south) to the national load dispatch center in Hanoi. 10. Twenty-three potential subprojects were identified at appraisal for part A, 11 of which were appraised. Up to 12 of the remaining subprojects were expected to be appraised after loan approval. During implementation, EVN withdrew five subprojects from part A due to possible over commitment of ADB and AFD funds resulting from significant increases in equipment costs. The five excluded subprojects were funded by EVN and by other financiers and energized in One subproject upgrading of Do Luong 220 kv substation was added and appraised during the latter stages of implementation. The addition of the Do Luong subproject used some funds released when the SCADA system in part B was deleted (para. 10). At project completion, 19 subprojects were funded under part A. One part A subproject remains to be completed (scheduled for December 2012). 5 Twelve transformers, with a combined capacity of 2,075 megavolt-amperes (MVA) plus some 504 kilometers (km) of double-circuit 500 kv and 220 kv transmission lines, will have been added to the national grid. The subprojects identified during appraisal contributed 1,825 MVA and 151 km of transmission lines to the overall capacity increase. The expected and actual outputs are presented in Appendix Part B originally provided for the installation of 226 RTUs, plus some 385 km of fiber optic cable and telecommunications equipment that would link substations to control centers. However, the plans did not take into account conditions at substations, and were revised in 2006 and split into two phases. Phase one, targeted for completion in April 2008, became the installation of 121 RTUs and communication equipment in substations throughout Viet Nam with existing access to telecommunication services. Phase 2 provided for an additional 69 RTUs with fiber optic communication links to be installed at substations. Phase one was completed in November 2011 and phase two in May 2012, about 3 years behind the schedules presented in the revised feasibility study. Despite the delays the planned part B outputs have been achieved. The new facilities are providing timely and accurate information that is helping NLDC to improve management and control of power flows on the national grid. The potential to take advantage of the rise in availability of communication services provided by third parties was a new development that has benefited NLDC, but was a principal cause of the reduction in use of the ADB loan. 12. Power sector restructuring and reform. ADB s power sector covenants under Loan 2128 were designed around the government s plans to implement the Electricity Law, The new law came into effect as planned in 2005 and has created a legal framework for the eventual development of a competitive power market, including the establishment of a regulatory agency 5 The Van Tri Soc Son 220 kv transmission line is over 80% complete and is due to be energized in December 2012.

16 4 under the Ministry of Industry and Trade. Immediate sector restructuring goals, which were targeted under the loan covenants, have been met and include the corporatization and/or equitization of EVN s generation units by 2009, the creation in July 2008 of the National Power Transmission Corporation (NPT), and the implementation of a single-buyer power market. C. Project Costs 13. The project accounts prepared by EVN s auditors compiled statements from the disbursement records of ADB and AFD, but do not account for local costs or for the value of project assets in EVN and its subsidiaries books of account. A detailed breakdown is presented in Appendix The total project cost of $246 million falls short of the original estimate of $274 million, with 92% utilization of foreign cost expenditures, and 85% utilization of the local cost budget. The $13 million reduction in foreign cost expenditure is due to the lack of time to appraise, endorse, and implement new subprojects once staff realized that surplus funds would be available. 6 Most of the surplus funds resulted from a reduction in the scope of part B in early 2010 (para. 10), and from a $6 million overestimation in the appraisal budget for interest during construction (IDC). The $15 million drop in local costs resulted from (i) a reduction in the number of subprojects, (ii) foreign currency gains of $3.5 million arising from progressive devaluation of the dong during project implementation, and (iii) a $6.7 million overestimation of local cost IDC. D. Disbursements 15. The disbursement schedule in the report and recommendation of the President anticipated that the bulk of disbursements would be between January 2007 and June The final disbursements were expected to be in June 2009, with loan closing in January Disbursements actually commenced earlier than anticipated (in August 2006) and continued until April 2012, just before loan closure in May 2012 (refer to Appendix 5 for the disbursement schedule). As most funds were disbursed to equipment suppliers no imprest accounts were required. The original project implementation schedule assumed an orderly program of procurement and disbursements, with all bid documents prepared within a 6-month period beginning in July 2005, and procurement and disbursement of funds for the different packages proceeding in parallel. In practice the procurement and disbursement processes proceeded largely according to the urgency or preparedness of each subproject. Some packages progressed without delay, while others were delayed by the need to prepare land acquisition and resettlement action plans and/or by environmental evaluations. The original disbursement schedule for part A is nevertheless realistic once adjusted for the delay in loan effectiveness. The actual disbursement schedule for part B extending well beyond appraisal estimates resulted from inadequate evaluation during project preparation. However, following finalization and acceptance of the revised plans at the midterm review, disbursements were completed within the time frame covered by the extended loan closing date. E. Project Schedule 16. Part A. The delay in completion of the originally identified subprojects was 1 2 years, with the exception of the Van Tri Soc Son transmission line subproject, which was rerouted. A 6 The full shortfall was not fully clarified until 2010, which was too near to the extended loan closing date of 31 December 2011 for further sub-loans to be appraised and implemented. 7 ADB Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Socialist Republic of Viet Nam for the Northern Power Transmission Sector Project. Manila.

17 5 full year was lost by delays in loan effectiveness and consultant recruitment. The additional delays were caused by a variety of shortcomings in administration and safeguard processing, including: (i) (ii) (iii) (iv) (v) (vi) the time between opening of bids by NPPMB to submission of bid evaluation reports (BERs) to ADB averaged 4 to 5 months; the formation of the NPT in July 2008 added another layer of approvals and extended the time taken to make submissions; relatively small contract packages discouraged bidders and added to NPPMB s administrative burdens (e.g., 343 contracts had to be reviewed in 2006); this was later addressed through consolidation of bid packages; insufficient detail was provided in many of the BERs submitted to ADB, necessitating requests for clarifications; resettlement plans and initial environmental evaluations often did not meet ADB standards and had to be returned and revised; data collection for preparation of resettlement plans was time consuming; and local authorities were uncooperative when asked to process applications to endorse right-of-way and land acquisition for transmission line routes. 17. Many of the delays in Part A were due to the inexperience of NPPMB, which had to resolve contentious resettlement issues over which it had limited direct control. While the problems were predicted during project appraisal, NPPMB was reluctant to fund consultants and the provisions included in the project proved inadequate. In part B, the original plan for development of load dispatch facilities was not evaluated under the project preparatory TA, and was deficient. A revised feasibility study for this component was prepared in October 2006 that split the component into two phases. The first phase proceeded as expected, but the second phase was reduced in scope when the option to use service providers telecommunication facilities materialized. This delay resulted in a longer extension of the loan closing date than needed to complete part A. In the case of part B, both NLDC and EVN should have (i) acknowledged that the component was initially not properly prepared, and (ii) required an independent feasibility study prior to confirming funding. F. Implementation Arrangements 18. Viet Nam is the borrower of record and EVN is the sub-borrower. EVN was the project executing agency, and NNPMB the implementing agency for part A, with NLDC the implementing agency for part B. NPT was formed in 2008 as a subsidiary of EVN, and took over the country s high voltage transmission facility assets and operational responsibilities. Although NPT had no formal role in project implementation it was authorized by EVN as the owner of the assets to endorse procurement and disbursement documents prepared by NPPMB. This added another layer to project administration and extended the time taken for approvals. The NPPMB and the NLDC had no prior experience of ADB safeguard requirements, and division of equipment purchases into many small packages exacerbated their administrative difficulties. Implementation arrangements did prove effective after the NNPMB in particular became accustomed to ADB standards and safeguard requirements. After these issues were resolved and subprojects cleared for implementation, the agencies were able to draw upon EVN s extensive construction management experience and successfully conclude the subprojects. As noted above, EVN passed on procurement decisions for part A to NPT for approval. However, NPT s approval procedures were more complicated than those of EVN, which increased the time taken to complete procurement and finalize disbursement during the latter stages of the project. The transfer of responsibility for loan administration to the Viet Nam Resident Mission enabled a closer relationship between ADB and EVN, and led to improved communications and understanding.

18 6 G. Conditions and Covenants 19. Loan effectiveness was delayed by the execution of the subsidiary loan agreement by the borrower. The loan extension provided the government with sufficient additional time to ensure that the loan documents were valid and could be signed by properly designated government officials. The loan and project agreement covenants are in Appendix 2. One social covenant and five financial covenants were breached. 20. Social covenants. On some transmission line subprojects construction activities were broken down into sections, as were the corresponding processes for completing resettlement plans. This approach divided the task of completing safeguards into administratively manageable sections on transmission line routes that passed through the territories of different local administrations. However, division of subprojects and resettlement plans into sections meant that resettlement plans for a given subproject were not always finalized (as covenanted) before subproject construction had started on sections where section-based resettlement plans had been finalized. This measure achieved the objectives of the social covenants, but was not in accordance with the text of the loan agreement. The use of section-based resettlement plans did not adversely affect the safeguards of any subproject, and was a pragmatic and reasonable administrative measure. 21. Financial covenants. EVN s financial performance deteriorated during The decline in EVN s financial performance and financial status is shown by its failure to meet the financial performance ratio covenants, and is explained in Appendix 6. By 2010 EVN was in breach of all the financial performance ratio covenants. Table 1 lists EVN s performance for each of the covenanted financial performance ratios. Table 1: Performance of Electricity of Viet Nam in Meeting Financial Performance Ratio Covenants Item Self-Financing Debt Service Debt to Equity Covenant limit >25% >1.5 < 70: % : % : % 1.4 a 51: % a 1.2 a 63: % a 1.2 a 67: (11.7%) a 0.7 a 74:26 a 2011 (24.5%) a 0.7 a 81:19 a ( ) = negative Note: Vietnam Electricity was named Electricity of Viet Nam prior to a Performance breached covenant Source: EVN s consolidated audited financial statements. 22. EVN was required to account for all project expenditures and provide annual audited project financial statements. The project financial statements prepared by EVN s external auditors were compiled from the records of disbursement by ADB and AFD, but did not account for local contributions and/or the carrying values of assets in the borrower s accounts. The auditor s reports are an insufficient assurance that the equipment financed by both ADB and AFD has been used as intended. A recommendation for ADB to revise the instructions provided to borrowers and auditors is included in para. 64.

19 7 23. There has been no change in the amortization schedule of the subsidiary loan agreement and no covenants have been modified, suspended or waived. 8 Information on EVN s consolidated operations is available in Appendix 6 and is summarized below. Table 2: Operational Performance of Vietnam Electricity Item Electricity Balance Electricity Supply (GWh) 50,919 57,729 65,338 72,574 82,264 94, ,765 System Losses (%) 11.8% 11.1% 10.6% 9.2% 9.6% 10.2% 9.2% Total Energy Sales (GWh) 44,921 51,350 58,438 65,890 74,391 84,562 93,280 Growth in Sales % 13.4% 14.3% 13.8% 12.8% 12.9% 13.7% 10.3% Sales and Cost of Sales Average Tariff (D/kWh) ,075 1,245 Average Tariff Constant (D/kWh) a 1,611 1,511 1,509 1,250 1,322 1,299 1,245 Change in Real Average Tariff (%) b (8%) (6%) 0% (17%) 6% (2%) (4%) Cost of Fuel and Power (D/kWh) a Gross Margin on Electricity (%) 49% 53% 50% 46% 47% 39% 46% ( ) = negative, GWh = Gigawatt-hour, kwh = kilowatt-hour a In 2011 constant currency values. b Change excluding inflation Source: EVN data and ADB staff estimates. 24. During , (i) energy losses in the national power supply system declined from 11.8% to 9.2%, (ii) electricity transmitted grew from 51 terawatt-hours (TWh) to 103 TWh, and (iii) the inflation-adjusted costs of fuel and power declined as new power plants came on stream. These are remarkable achievements that few countries have matched, and are due in part to substantial investment in transmission lines and substation facilities, including the assets funded by the project. They have enabled EVN to increase the supply of electricity at a compound annual growth rate of 13.0%. However, tariff increases when adjusted for inflation failed to maintain the gross margin on sales of electricity, even although the inflation-adjusted costs of fuel and purchased power (adjusted to 2011 values) declined, from D815/kWh in 2005 to D676/ kwh in The financial impacts are summarized in the Table The financial performance of EVN is summarized in Table 3 and detailed in Appendix 6. Returns on capital employed that were 5% in 2005 had fallen to 2% in 2011, largely because tariffs increases did not kept pace with cost inflation, but also because interest costs, which absorbed 4% of income in 2005, now account for 8% of income. The deterioration is shown by the covenanted financial ratios, which have all been breached in 2010 and Some restoration of the sales margins on fuel and power occurred in 2011 after a dry hydro year in 2010 increased reliance on expensive fossil fuel generation. A time-slice financial internal rate of return shows returns of 3.4% per year from investment during , which is below EVN s weighted average cost of capital of 6.9% as estimated at appraisal. The return is sensitive to the tariff and the government is aware that tariffs are not covering power supply costs. In April 2011 the Prime Minister approved a mechanism that allows for gradual increase of the tariff at 3-month intervals, with the aim of improving EVN s financial performance, but this has not yet had a significant impact on profitability. 8 ADB and World Bank financial covenants were consistent until World Bank reduced its financial performance covenants for 2008 and 2009 (World Bank Report No: VN, Second Transmission and Distribution Project.

20 8 Table 3: Financial Performance of Vietnam Electricity Summary Financial Statements Income Statement (D billion) Income 37,274 43,766 57,003 63,732 78,975 96, ,724 Operating Profit (Loss) 5,642 3,894 5,753 (3,890) 2,400 (8,277) (5417) Net Profit (Loss) after Tax 2,840 1,692 2,590 (7,319) (1,433) (11,012) (15,677) Balance Sheet( D billion) Non-Current Assets 89, , , , , , ,988 Working Capital 8,457 13,936 15,385 7,923 4,209 (5,477) (11,398) Equity 47,707 53,262 76,863 64,533 69,830 61,424 47,943 Debt 49,856 63,746 81, , , , ,647 Cash Flow (D billion) Operating Cash Flow 9,421 11,401 14,335 11,302 24,108 15,312 32,207 Investing Cash Flow (20,447) (22,577) (32,820) (31,754) (47,941) (46,708) (46,614) Financing Cash Flow (20,447) (22,577) (32,820) (31,754) (47,941) (46,708) (46,614) Financial Covenant Targets Self-Financing (>25%) 29% 31% 26% 6% 25% (6%) (4%) Debt to equity (>70:30) 51:49 54:46 51:49 63:37 67:33 74:26 81:19 Debt Service (>1.5) Other Financial Ratios Return on Capital 5% 3% 3% (2%) 1% (2%) (2%) Current ratio Age of Receivables (months) ( ) = negative Source: Vietnam Electricity and ADB staff calculations H. Consultant Recruitment and Procurement 26. Four consulting packages totaling $273,000 were funded by the loan without any change to their original terms. One contract of $19,400 was for services to assist NLDC prepare bid documents and three were to help NPPMB in managing and monitoring resettlement activities. All consultants were recruited with quality- and cost-based selection procedures, in accordance with ADB s Guidelines on the Use of Consultants. No noteworthy problems were experienced. 27. All equipment financed by both ADB and AFD was procured in accordance with ADB s Procurement Guidelines (2002). A major procurement issue was related to the small size of several packages for purchase of equipment, which created an administrative burden and was not well received by suppliers. The issue was overcome by consolidating smaller packages into larger lots. The larger lots attracted responses from a greater number of bidders and improved price competition. A total of 37 procurement contracts were funded from the ADB loan, of which all but two were for supply of equipment under part A. The two remaining contracts were for design, supply, installation and commissioning of RTUs and associated communication equipment at substations throughout Viet Nam. I. Performance of Consultants, Contractors, and Suppliers 28. The consultants performance was partly satisfactory. The performance of the suppliers was generally satisfactory. All equipment suppliers were able to make deliveries in accordance with their approved contract schedules. The only major problem was the time lost when a set of defective relay equipment had to be replaced.

21 9 29. The service provided by the consultant who assisted NLDC prepare bid documents was highly rated. The performance of the international and national resettlement consultants and independent monitoring organization consultants was not always timely or consistent and they struggled to deal with a larger-than-expected number of affected households, and with gathering the types of data needed to produce resettlement plans meeting ADB standards. Shortcomings in their services resulted in insufficient funding for resettlement of affected households; eventually a total of 252 households were relocated. J. Performance of the Borrower and the Executing Agency 30. The performance of borrower, the executing agency and implementing agencies was partly satisfactory. EVN as the executing agency had responsibility for project implementation and was directly responsible for approving subprojects to be funded under the loan. The implementing agencies were NPPMB for part A (transmission lines and substations) and NLDC for part B (load dispatch facilities). In July 2008 NPT commenced operations and assumed responsibility for endorsing procurement decisions made by NPPMB. 31. Significant difficulties arose with respect to the performance of both NPPMB and NPT. More extensive services by consultants were required to resolve the safeguard requirements of the subprojects than anticipated by NPPMB during project preparation, because of (i) the largerthan-anticipated number of affected households; and (ii) the stringency of ADB s safeguard requirements, which proved more demanding than NPPMB expected. The safeguard requirements primarily concerned fixing and agreeing with local authorities on compensation for affected households. NPPMB was unable to efficiently and effectively address issues that arose with aggrieved households, and these problems were compounded by submission to ADB of sub-standard reports, which required revision and resubmission. This resulted in the start of several subprojects being delayed, and placed a heavy administrative burden on the ADB staff members dealing with NPPMB s reports. The addition of NPT to the chain of administrative approval processes was unsatisfactory, because its procedures were cumbersome and timeconsuming, and staff members were unfamiliar with ADB policies and procedures (for procurement, land acquisition and resettlement, disbursement, and reporting). 32. ADB was aware at appraisal that NPPMB had limited experience in preparing and implementing resettlement activities that meet ADB standards. Provision was made within the project for resettlement consultants to be engaged for both supervision and capacity building. However, NPPMB s capabilities were overestimated and the services provided by the main resettlement consultant were insufficient to enable timely resolution of safeguard requirements. NPPMB has subsequently successfully implemented a number of similar projects for development agencies and improved its ability to address safeguard requirements, and the project assisted in developing NPPMB s competence and capability. However, land acquisition and resettlement is contentious, and protracted disputes still occur throughout Viet Nam and across many sectors. The management of resettlement plans could be improved, but this involves the overall legal and policy framework, rather than a sector-specific or unique organizational issue; a specific area for improvement involves harmonization of assessment criteria and improvement in the decisions made by local authorities and peoples committees. 33. Although ADB accepted to add part B to the project, NLDC was directly responsible for the shortcomings in the original design, and for the subsequent delays that occurred as a result of the phase 2 developments. Ultimately the delay associated with taking advantage of the rise of third party providers of communication services (which resulted in a reduction in the required investment) enabled the original objectives to be fulfilled more cost-effectively, and was well justified.

22 NPPMB failed to fulfill its undertakings to the project in a timely and effective manner. NLDC also failed to perform in a timely fashion, although the final result of part B has to some extent justified the time taken for plan revision. NPT, which took over primary day-to-day responsibilities from EVN for endorsing procurement decisions, also took excessive time to approve procurement decisions and to process disbursement applications. EVN has failed to meet its financial performance covenants, but this has not directly affected the project s operational outcomes. In other respects EVN has performed satisfactorily, but as executing agency it was ultimately responsible for the unsatisfactory performance of NPT and NPPMB. The performance of EVN, NPT, NPPMB, and NLDC is rated partly satisfactory. K. Performance of the Asian Development Bank 35. The performance of ADB during implementation was partly satisfactory. The delay in part A resulted largely from the safeguard issues, which stemmed from the flawed project preparatory TA design. Some problems were deferred by the sector loan approach, but NPPMB was reluctant to provide adequate advisory and operational support during implementation. Many of the ADB staffs activities during implementation involved addressing the substandard plans and reports that ADB received from NPPMB. Most of the pre-appraised subprojects progressed to completion more or less within the original timeframe, which is a credit to the diligence and perseverance of loan administration staff. Other aspects of implementation, including selection of consultants, procurement and disbursements, were satisfactory. The shortcomings in part B stemmed from the lack of an evaluation of load dispatching facilities, and inadequate due diligence during project appraisal. This component was reassessed and changed over time, and satisfactory progress was made once plans were settled at the midterm loan review, when responsibility for loan administration had been transferred to ADB s Viet Nam Resident Mission. The late reduction in scope meant that the loan was not fully utilized and required extension of the loan closing date. 36. Advisory and training services provided by ADB included (i) project implementation and administration training, with attendance by 1 NLDC and 1 NPPMB staff member of a 10-day ADB seminar in May 2005; and (ii) participation by 6 NPMB and NLDC staff in the regular 2-day procurement seminars conducted by ADB. 37. ADB did not contribute directly to the delays during implementation. Loan and project administration (procurement, disbursement and safeguard review) delays were largely due to shortcomings in the documents prepared by NPPMB with the support of the local consultant. ADBs loan administration performance is rated satisfactory. However, insufficient attention was paid by ADB to resolution of the long delay in implementation of Part B, and to overcoming lengthy government approval procedures that contributed to the delays caused by the implementing agencies. III. EVALUATION OF PERFORMANCE A. Relevance 38. The project is highly relevant. The project was part of an economically beneficial and financially sound investment program that helped the government achieve its goal of sustained high economic growth, sufficient to help reduce the number of people living below the poverty line. The project s economic growth objective complemented targeted measures such as rural electrification programs that benefited the poor and were consistent with ADB s strategy at the time of approval. The impacts of the project should be viewed in the context of the achievements of the national power sector development program. The following table

23 11 summarizes program expectations presented in the RRP and compares them with actual achievements. Item Planning Assumptions Table 4: Forecast and Actual Program Outputs Forecast Baseline Target Actual Average GDP Growth Rate (%/year) 7% 7.3% Electricity Sales (CAGR) 13% 13.5% Power Supply Electricity Sales (GWh) 44,860 82,986 85,609 Generation Capacity (MW) 11,578 20,648 22,013 Transmission Capacity Transmission Lines 500 kv (km) 3,314 3,714 3,890 Transmission Lines 220 kv (km) 6,472 9,111 10,015 Transformer Capacity Substations 500/220 kv (MVA) 7,050 11,250 10,650 Substations 220/110 kv (MVA) 16,470 23,908 22,004 CAGR = compound annual growth rate, GDP = gross domestic product, GWh = Gigawatt-hour, km = kilometer, kv = kilovolt, MVA =megavolt-amperes, Source: RRP and Electricity of Viet Nam 39. The targets for increases in generation capacity and energy sales have been exceeded, as have the targets for building transmission lines; substation targets have not. The project fulfilled its contribution to the targeted MVA capacity additions at 500/220 kv substations, but delays in some subprojects contributed to the MVA shortfall at the 220/110 kv level. 40. The power sector development program s impacts in terms of increased generation capacity, reduced generation costs, and reduced network losses are a major achievement. ADB s participation was an integral part of this achievement and was magnified by ADB s ability to leverage its participation with cofinancing from AFD. The justification for funding more efficient and effective facilities under part B was taken to be self-evident, but adequate due diligence should nonetheless have been performed. The problems that arose with the project resulted largely from the inexperience of NPPMB and NLDC and were successfully overcome. B. Effectiveness in Achieving Outcome 41. The effectiveness of the project components is rated less effective. The use of subprojects from the PSMDP was a highly effective and efficient way to formulate the project, and the original outcomes of increased transmission transport capacity and transformation capacity at substations were achieved (quantitative data are in Appendix 11). The cofinancing arrangements with AFD worked as envisaged and helped leverage ADB s support. However, effectiveness at achieving project outcomes is subject to two key criticisms. First, NPPMB was ineffective in planning and implementing safeguard measures that met ADB standards. ADB was aware of NPPMB s shortcomings during loan processing, but was unable to devise an effective approach to overcome NPPMB reluctance to acknowledge and address the issue. The resulting delays contributed to a shortfall in national transformer capacity (as of the end of 2010). Second, the advantages of the sector lending modality were not fully realized. All but one subproject was identified prior to loan approval, but the flexibility afforded by the sector loan approach was not used to fully commit the loan and complete additional subprojects. Some progress was made during the midterm review to reallocate surplus funds, and the concurrent