IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA TF-94257) ON A CREDIT IN THE AMOUNT OF SDR 91.1 MILLION (US$ 150 MILLION EQUIVALENT) TO THE

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank Report No: ICR IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA TF-94257) Vietnam Sustainable Development Unit Vietnam Country Department East Asia and Pacific Region ON A CREDIT IN THE AMOUNT OF SDR 91.1 MILLION (US$ 150 MILLION EQUIVALENT) TO THE SOCIALIST REPUBLIC OF VIETNAM FOR A RURAL DISTRIBUTION PROJECT December 24, 2013

2 CURRENCY EQUIVALENTS (Exchange Rate Effective March 31, 2008) Currency Unit = Vietnam Dong (VND) 16,110 VND = US$ 1 US$ = SDR 1 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS AusAID Australian Agency for International Development LDU Local Distribution Utility CPC Central Power Corporation (formerly PC3) LV Low Voltage CPS Country Partnership Strategy MV Medium Voltage DNPC Dong Nai Power Company MVA Mega Volt Ampere DPO Development Policy Operation NPC Northern Power Corporation (formerly PC1) EIA Environmental Impact Assessment NPT National Transmission Company EMDP Ethnic Minority Development Plans NPV Net Present Value EMPF Ethnic Minority Policy Framework PAD Project Appraisal Document EMS Environmental Monitoring System PAH Project Affected Household EPTC Electricity Power Trade Unit PC Power Corporation (or Power Company) ERR Economic Rate of Return PDO Project Development Objective EVN Electricity of Viet Nam PFRP Policy Framework for Resettlement Plans FIRR Financial Rate of Return PIU Project Implementation Unit Genco Generation Company PMU Project Management Unit GOV Government of Vietnam RCM Retail Competitive Market HDPC Hai Duong Power Company RD Rural Distribution HH Households ROW Right of Way HPPC Hai Phong Power Company RP Resettlement Plans IDA International Development Association SEDP Socio-economic Development Plan IFR Interim Financial Reports SEDS Socio-economic Development Strategy IFRS International Financial Reporting Standards SEM Strategy for Ethnic Minorities km Kilometer SPC Southern Power Corporation (formerly PC2) KVA Kilo Volt Ampere VCGM Vietnam Competitive Generation Market KWh Kilowatt hour WCM Wholesale Competitive Market Vice President: Axel von Trotsenburg Country Director: Victoria Kwakwa Sector Manager: Jennifer J. Sara Project Team Leader: Hung Tan Tran ICR Team Leader: Tendai Gregan ii

3 VIETNAM Rural Distribution Project CONTENTS Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph 1. Project Context, Development Objectives and Design Key Factors Affecting Implementation and Outcomes Assessment of Outcomes Assessment of Risk to Development Outcome Assessment of Bank and Borrower Performance Lessons Learned Comments on Issues Raised by Borrower/Implementing Agencies/Partners Annex 1. Project Costs and Financing Annex 2. Outputs by Component Annex 3. Economic and Financial Analysis Annex 4. Bank Lending and Implementation Support/Supervision Processes Annex 5. Beneficiary Survey Results Annex 6. Stakeholder Workshop Report and Results Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders Annex 9. List of Supporting Documents MAP iii

4 A. Basic Information Country: Vietnam Project Name: Rural Distribution Project Project ID: P L/C/TF Number(s): IDA-44440,TF ICR Date: 10/16/2013 ICR Type: Core ICR Lending Instrument: SIL Borrower: Original Total Commitment: Revised Amount: XDR 91.10M Environmental Category: B SOCIALIST REPUBLIC OF VIETNAM XDR 91.10M Disbursed Amount: XDR 81.26M Implementing Agencies: Northern Power Corporation (NPC, formerly PC1) Southern Power Corporation (SPC, formerly PC2) Central Power Corporation (CPC, formerly PC3) Hai Phong Power Company (HPPC) Hai Duong Power Company (HDPC) Dong Nai Power Company (DNPC) Electricity of Viet Nam (EVN) Co-financiers and Other External Partners: AusAid B. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 11/09/2006 Effectiveness: 03/16/ /16/2009 Appraisal: 12/19/2007 Restructuring(s): Approval: 05/22/2008 Mid-term Review: 12/15/ /21/2011 Closing: 06/30/ /30/2013 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Risk to Development Outcome: Bank Performance: Borrower Performance: Satisfactory Moderate Satisfactory Satisfactory iv

5 C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Quality of Supervision: Satisfactory Implementing Agency/Agencies: Satisfactory Overall Bank Performance: Satisfactory Overall Borrower Performance: Satisfactory C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Performance (if any) Potential Problem Project No at any time (Yes/No): Problem Project at any time (Yes/No): DO rating before Closing/Inactive status: No Satisfactory Quality at Entry (QEA): Quality of Supervision (QSA): None None Rating D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Power Theme Code (as % of total Bank financing) Rural services and infrastructure E. Bank Staff Positions At ICR At Approval Vice President: Axel van Trotsenburg James W. Adams Country Director: Victoria Kwakwa Ajay Chhibber Sector Manager: Jennifer J. Sara Hoonae Kim Project Team Leader: Hung Tan Tran Hung Tien Van ICR Team Leader: ICR Primary Author: Tendai Gregan Tendai Gregan F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The objective of the proposed project is to improve the reliability and quality of medium voltage service to targeted retail electricity distribution systems. The project will achieve this though investment in rehabilitating and increasing the capacity of existing distribution lines and substations and standardizing them to 22, 35 and 110 kilovolts (kv). v

6 It will enable distribute systems to meet the growing demand more efficiently, provide better quality and quantity of electric power for productive uses, and reduce power system losses. Technical assistance will complement the physical investment by supporting the development of the PCs into modern power distribution utilities. Revised Project Development Objectives (as approved by original approving authority) The development objectives and key indicators were not revised. (a) PDO Indicator(s) Indicator Indicator 1 : Value quantitative or Qualitative) Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years Interruptions in MV service at MV/LV transformer, in the project areas net of interruptions caused by failure of upstream transmission system or power shortage: Number/Duration (hours) PC1: 285/570 PC1: 250/ 490 PC2: 1,954/5,519 PC2: 1,283/3,957 PC3: 110/48 PC3: 50/20 PC Hai Phong: 10/22 PC Hai Phong: 0/0 PC Hai Duong: 309/78.5 PC PC Hai Duong: 250/60 Dong Nai: 48/19 PC Dong Nai: 38/14 PC1: 194/ 410 PC2: 328/334 PC3: 6.2/7.4 PC Hai Phong: 0/0 PC Hai Duong: 245/55 PC Dong Nai: 36/12.5 Date achieved 12/31/ /30/ /31/2013 At project completion, the reduction of power interruptions to MV service at the MV/LV Comments (incl. % achievement) transformer level in both the number and duration surpassed the original target values in all six project areas. That is, this indicator was fully (100%) achieved. PC1, PC2 and PC3 exceeded their original reliability targets by a wide margin, and the remaining PCs either achieved or just exceeded their targets. Indicator 2 : Losses of MV system in the project areas (percent) Value quantitative or Qualitative) PC1: 7% PC2: 5.42% PC3: 6.84% PC Hai Phong: 7.9% PC Hai Duong: 6.4% PC Dong Nai: 4.9% PC1: 6.0% PC2: 4.11% PC3: 5.24% PC Hai Phong: 5.0% PC Hai Duong: 5.6% PC Dong Nai: 4.7% PC1: 5.9% PC2: 3.0% PC3: 4.76% PC Hai Phong: 5.0% PC Hai Duong: 5.45% PC Dong Nai: 4.34% Date achieved 12/31/ /30/ /31/2013 Comments 100% of the targeted reductions in MV system losses were achieved, with achieved (incl. % reductions in MV system losses actually exceeding targets in five of the six project areas. achievement) Voltage excursions outside Volts at MV/LV transformer, in the project areas: Indicator 3 : Number, duration Value quantitative or Qualitative) PC1: 600/4,800 PC2: 2,232/3,150 PC3: 214/205 PC Hai Phong: 112/20 PC Hai Duong: 150/35 PC Dong Nai: 50/2.5 C1: 30/ 240 PC2: 381/655 PC3: 70/20 PC Hai Phong: 50/10 PC Hai Duong: 80/15 PC Dong Nai: 38/1.9 PC1: 30/ 230 PC2: 0/0 PC3: 65/18 PC Hai Phong: 50/10 PC Hai Duong: 80/15 PC Dong Nai: 0/09 Date achieved 12/31/ /30/ /21/2013 Comments (incl. % achievement) The quality of power supplied to the six project areas improved dramatically, when measured at the MV/LV transformer level, as demonstrated by the fact that voltage excursions outside the Volt band fell in both number and duration and 100% of the original targets were vi

7 Indicator 4 : Value quantitative or Qualitative) achieved. Consumption in the project rural areas (KWh) PC1: 1.7x10^9 PC1: 2.4x 10^9 PC2: 4.6x10^9 PC2: 8.1x10^9 PC3: 211x10^6 PC3: 464x10^6 PC Hai Phong: 278x10^6 PC Hai Phong: 360x10^6 PC Hai Duong: 350x10^6 PC Hai Duong: 550x10^6 PC Dong Nai: 172x10^6 PC Dong Nai: 345x10^6 PC1: 3.3x 10^9 PC2: 27.7x10^9 PC3: 466x10^6 PC Hai Phong: 360x10^6 PC Hai Duong: 570x10^6 PC Dong Nai: 543x10^6 Date achieved 12/31/ /30/ /31/2013 Comments (incl. % achievement) 100% of targets achieved. Total electricity consumption in the project s rural areas exceeded targets in all six distribution networks. Standing out is the energy consumption in rural parts of PC2 (CPC), which at 27.7GWh was 3.4 times higher than the 8.1GWh target for PC2. Indicator 5 : Percentage of MV lines overloaded in the project areas Value quantitative or Qualitative) PC1: 25% PC2: 15% PC3: 6% PC Hai Phong: 15% PC Hai Duong: 12% PC Dong Nai: 2% PC1: 10% PC2: 10% PC3: 0% PC Hai Phong: 0% PC Hai Duong: 5% PC Dong Nai: 1% PC1: 9.5% PC2: 0% PC3: 0% PC Hai Phong: 0% PC Hai Duong: 4.5% PC Dong Nai: 0% Date achieved 12/31/ /30/ /31/2013 Comments (incl. % achievement) 100% achieved, with actual reductions in overloaded MV lines in project areas either meeting or exceeding original targets. These reductions in line overloading contribute to improved reliability of supplies and improved electrical safety. Indicator 6 : Percentage of MV transformers overloaded in the project areas Value quantitative or Qualitative) PC1: 34% PC2: 15% PC3: 8% PC Hai Phong: 12% PC Hai Duong: 15% PC Dong Nai: 0.61% PC1: 12% PC2: 10% PC3: 0% PC Hai Phong: 0% PC Hai Duong: 5% PC Dong Nai: 0.45% PC1: 10% PC2: 0% PC3: 0% PC Hai Phong: 0% PC Hai Duong: 4% PC Dong Nai: 0% Date achieved 12/31/ /30/ /31/2013 Comments (incl. % 100% of the targeted reductions in overloading of MV transformers were achieved. achievement) (b) Intermediate Outcome Indicator(s) Indicator Indicator 1 : Value (quantitative or Qualitative) Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years Distribution lines rehabilitated or newly constructed (km) under project: PC1, PC2, PC3, PC Hai Phong, PC Hai Duong, PC Dong Nai PC1: PC1: PC2: PC2: 1,571.4 NA PC3: PC3: PC Hai Phong: 74.4 PC Hai Phong: 75 PC Hai Duong: PC Hai Duong: 35.5 PC Dong Nai: 124 PC Dong Nai: Date achieved 12/31/ /30/ /31/2013 Comments (incl. % achievement) 100% achievement of the original targeted increase in length of distribution lines either rehabilitated or newly built, across all project areas. PC1 achieved more than twice its target, and PC2 2.5 times its target. These new lines are constructed to better quality than vii

8 Indicator 2 : Value (quantitative or Qualitative) many of the lines they replace, which benefits customers in terms of reliability and of supply and electrical safety. Distribution substations rehabilitated or newly constructed (KVA), under projects: PC1, PC2, PC3, PC Hai Phong, PC Hai Duong, PC Dong Nai PC1: 139,511 PC1: 367,790 PC2: 17,888 PC2: 105,530 PC3: 39,875 PC3: 64,970 NA PC Hai Phong: 0 PC Hai Phong: 0 PC Hai Duong: 10,440 PC Hai Duong: 10,500 PC Dong Nai: 7,920 PC Dong Nai: 72,410 Date achieved 12/31/ /30/ /31/2013 All of the targets for rehabilitating or building new distribution network substations were Comments achieved during the course of the project. In four of the five PCs, targets were exceeded, (incl. % thereby extending the reliability benefits of improved transformer capacity and power achievement) system reliability to a broader set of rural electricity consumers. G. Ratings of Project Performance in ISRs No. Date ISR Archived DO IP Actual Disbursements (USD millions) 1 06/16/2009 Satisfactory Satisfactory /25/2010 Satisfactory Satisfactory /28/2011 Satisfactory Satisfactory /25/2012 Satisfactory Satisfactory /01/2012 Satisfactory Satisfactory /25/2013 Satisfactory Satisfactory H. Restructuring (if any) Not Applicable I. Disbursement Profile viii

9 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal Country and Sector Context The project focused on improving the quality, reliability and efficiency of electric power services in rural Vietnam, and thereby helping to improve productivity in the power sector and in the economy as a whole. Vietnam s rapid economic growth and electrification in the period 1996 to 2007 resulted in rising demands for electricity, which strained supplies and adversely affected the quality and reliability of electricity supply; particularly in rural areas. The aims of this project supported both the Government of Vietnam s (GOV) Socioeconomic Development Plan for and the Bank's Country Partnership Strategy (CPS Report VN) for the same period. Both aim to sustain high economic growth to reach middle-income status by 2010 while improving social achievements, upholding social coherence, and sustaining the natural resource base. The project sought to contribute to improving Vietnam's electric power service provision and thereby help to improved Vietnam s international competitiveness by boosting productivity in the power sector and in the economy as a whole. Gradual reforms to Vietnam s power sector have been underway since The objective of these reforms is to improve efficiency of the power sector, through structural separation of EVN into separate functional business units, commercialization, the introduction of competition in generation and effective regulation. The reforms build on the Electricity Law (2005) and the Power Sector Reform Roadmap specified in the PM Decision 26 in 2006 (amended by PM Decision 63 of November 08, 2013) that defines a three phase gradual approach to sector reform with each phase split into two stages: an initial pilot to test and improve the design and then full implementation. Phase 1 ( ): Introduction of competition among state-owned generators through the establishment of the Vietnam Competitive Generation Market (VCGM), in which generators sell to a Single Buyer. Phase 2 ( ): Expansion of competition at the wholesale level - Wholesale Competitive Market (WCM), allowing generators to sell electricity to multiple wholesale purchasers including PCs and qualified large customers. Phase 3 (from 2023): Full competition by the introduction of Retail Competitive Market (RCM), in which the PCs monopoly as retail suppliers of small and medium sized customers is phased out. 1

10 In coordination with the restructuring of the power sector, establishment of cost-reflective tariff system, and promotion of demand side efficiency measures, the phased approach aims to ensure stable power supplies with adequate level of investment, improve efficiency of the sector performance and achieve reasonable price levels. The condition of Vietnam s rural power supplies at the time of appraisal was poor, with frequent interruptions in supply arising from power quality issues, including: i) interruptions in service at the Medium Voltage (MV) level arising from overloading of transformers; ii) voltage excursions outside of volts in the MV and Low Voltage (LV) networks; iii) overloading of MV distribution lines; iv) older distribution lines and substations requiring rehabilitation. The consequences of these power quality and reliability issues in rural Vietnam included: a) frequent and long disruptions to power supplies adversely affecting economic activities and the delivery of services to rural communities; b) damage to customer s electrical equipment from voltage excursions; c) low levels of electrical consumption in rural areas; d) electrical losses being inefficiently high, thereby reducing the efficiency of power supplies across the country. At the time of appraisal there were and continue to be requirements for massive investments in all aspects of Vietnam s power sector, simply to keep up with its rapidly growing power demands and to support ongoing economic development. Four critical challenges for Vietnam s power sector at the time of appraisal were: 1. Optimizing power investments - particularly for generation; 2. Financing the investments that must be made; 3. Implementing the reforms in the power industry and restructuring EVN; and 4. Improving access and service quality. The Rural Distribution project supported Vietnam in addressing these challenges through: Supporting network investments that form part of optimized power system plans; Bolstering capacity in power system planning, load forecasting, demand side management; Financing needed investments in the rural distribution network and in supporting the implementation of commercialization at power companies that would assist in them on attracting private sector finance; Assisting in the implementation of structural reforms of the Vietnam power sector, in particular through the corporate development of PC1, PC2, and PC3, so that they can in future act as independent participants in the evolving power market. Improving access and service quality, especially in rural areas. Rationale for Bank Assistance There were three primary reasons for the Bank s assistance with this project. First, it was consistent with the strong and deep engagement that IDA has had with Vietnam since the late 1990s, covering the full range of power sector issues. The Bank 2

11 has achieved this through a combination of economic and sector work, technical assistance and investment lending. There has been a rich and diverse dialogue centered on expanding and upgrading power service and supporting long-term reforms, backed by a lending program designed to support investment needs. This twin track approach of policy development and lending within a well-defined but flexibly-structured program has proved effective in achieving major impacts in generation, transmission and distribution, private sector participation in generation, rural electrification, renewable energy and demand side management. Second, in the early years several donors financed rural electrification, often focusing on specific geographic areas of Vietnam. Improving access is, however, a long term and complex process. IDA complemented these early investments, and developed a comparative advantage, particularly as the issues have transitioned from traditional rural electrification - connecting large numbers of consumers to the more complex combination of policy, management and physical outcomes. While other donors and multilateral institutions could, and are welcome to, parallel finance investments, there are none that were willing to undertake IDA's pivotal role over the long term. Third, this project was consistent with IDA s agreed ten-year power sector program with Vietnam, which included four discrete operations that prioritize and deal selectively with the issues while underpinning GoV's long term objective of universal access. This RD project was the third in a planned series of four. The first Rural Energy Project (Cr VN, closed FY07) focused on increasing the number of basic connections. The second Rural Energy Project (Cr VN, FY05, ongoing) addresses rehabilitation of the existing LV systems and the development of institutions and actors to ensure service delivery at the retail level. This Rural Distribution (RD) project focused on the improvement of the medium voltage systems and support the corporate development of the electric power distribution entities, known as Power Companies (PCs). The fourth operation, the Distribution Efficiency Project (Cr.5156-VN, started from FY13) supports Vietnam s PCs in providing quality and reliable electricity services and to reduce greenhouse gas emissions through demand side response and efficiency gains. The RD project thus forms a key part of the country s rural electrification program, with which the World Bank has been a major strategic partner since the late 1990s. Vietnam s concerted effort with rural electrification has achieved remarkable results in providing access to more than 80 million people in over 33 years from 1.2 million having access in 1976 (2.5% of population) to 82 million having access in 2012 (98% of population). The electrification program and its priorities have evolved over time from providing simple connections, to developing and implementing strategic plans to securely and efficiently meet rapidly growing demands for energy and ensuring quality of supplies. The RD project fits into the fifth and sixth phases of Vietnam s 38 year electrification program: focus on quality and regulation (Phase 5) and consolidation for the last mile (Phase 6). During Phase 5 (2005 to 2008), Vietnam s government focused on quality of supply and power sector regulation, in addition to continued expansion of electricity access. There was also: (i) greater emphasis on the enforcement of regulations; (ii) a shift in focus from network extension to rehabilitation; and (iii) direct government support for extending 3

12 electricity access, particularly to minorities and those in remote areas. The government s focus was not only on increasing electrification rates, but also on ensuring efficiency and addressing institutional shortcomings in the sector. The Bank s RE2 project was developed to support these government objectives. Phase 6 (Consolidation for the last mile) extends from 2009 to now and the focus of Vietnam s rural electrification program has shifted to ensuring sustainability of the rural supply business. In parallel, the government is pushing for greater accountability, working to determine the most appropriate strategies for extending access to those without electricity, and ensuring affordability of electricity to the poor. Key milestones include: (i) tariff reforms (Prime Minister s Decision 21, issued February 2009); (ii) approval of the Vietnam Distribution Code (2010); and (iii) consolidation of rural electricity distribution and retail businesses into larger, more financially robust, PCs. 1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The objective of the project is to improve the reliability and quality of medium voltage service to targeted retail electricity distribution systems. 1 The project will achieve this through investment in rehabilitating and increasing the capacity of existing distribution lines and substations and standardizing them to 22, 35 and 110 kilovolts (kv). It will enable distribution systems to meet the growing demand more efficiently, provide better quality and quantity of electric power for productive uses, and reduce power system losses. Technical assistance will complement the physical investment by supporting the development of the PCs into modern power distribution utilities. The six key performance indicators at Project Development Outcome level were: 1. Reduction in interruptions in MV service at MV/LV transformer, in the project areas net of interruptions caused by failure of upstream transmission system or power shortage: number/duration (hours); 2. Decrease in losses of MV system in the project areas (percent); 3. Reduction in voltage excursions outside Volts at MV/LV transformer, in the project areas, both in number and duration; 4. Increase in energy consumption in the project rural areas (KWh); 5. Reduction in percentage of MV lines overloaded in the project areas; and 6. Reduction in percentage of MV transformers overloaded in the project areas. 1 There is an inconsequential discrepancy in the wording of the PDO in the Project Appraisal Document (PAD) and the Financing Agreement (FA). The PDO in the FA is: The objective of the Project is to improve the reliability and quality of medium voltage service to targeted retail electricity distribution systems within rural areas of Vietnam [italics added]. It appears a slight change to the PDO wording in the FA was made for purposes of legal precision. The ICR uses the PDO from the PAD because it was always implicit that all the targeted retail electricity distribution systems were in rural areas of Vietnam, and indeed all the investments actually made were consistent with the FA. 4

13 The two key performance indicators at the Intermediate Outcome level were: Increase in distribution substations rehabilitated or newly constructed (KVA), under projects: PC1, PC2, PC3, PC Hai Phong, PC Hai Duong, PC Dong Nai; Increase in distribution lines rehabilitated or newly constructed (km) under projects: PC1, PC2, PC3, PC Hai Phong, PC Hai Duong, PC Dong Nai. Section F of the data sheet (see above) lists both the development objective level and the intermediate outcome level indicators for each component of the project. 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The development objectives and key indicators were not revised. 1.4 Main Beneficiaries The project s direct beneficiaries are electricity consumers in the rural areas of Vietnam targeted by the project. The benefits of improving the reliability and quality of power supplies in MV and LV systems accrue through reduced power interruptions, enhanced economic opportunities (through increased productivity in energy intensive industries), increased access and energy consumption, and relatively lower costs of energy due to efficiency improvements. The project also sought to indirectly benefit all energy consumers by enhancing the capability of PCs to: i) develop their power systems using least cost capacity expansion planning methods; and ii) operate commercially, including improving customer services. 1.5 Original Components (as approved) The project had seven components, six of which were aimed at improving MV service in the territories of participating PCs. Each of the six components contained two types of subprojects involving new construction, rehabilitation, strengthening or a combination of any of the three, of: (i) all of the 22 or 35 kv system requiring improvements within a single province falling within the territory of a participating PC; or (ii) a single substation or line at the 110 kv level feeding the 22/35 kv systems in rural areas within a province or provinces falling in the territory of a participating PC. The seventh component supported the corporate development of selected PCs through technical assistance. The seven components are listed below, with financing amounts at the time the project was approved. Component 1: Improvement of the rural distribution system in the Northern Region (Total cost $66.83 million, of which IDA $47.44 million). This component aimed to rehabilitate and strengthen rural distribution networks in about 15 provinces in the northern region of Vietnam, which are the responsibility of Power Company No.1 (PC1). Component 2: Improvement of the rural distribution system in the Southern Region 5

14 (Total cost $36.99 million, of which IDA $27.73 million). This component aimed to rehabilitate and strengthen rural distribution networks in about 19 provinces in the southern region of Vietnam, which are the responsibility of Power Company No.2 (PC2). Component 3: Improvement of the rural distribution system in the Central Region (Total cost $63.14 million, of which IDA $46.53 million). This component sought to rehabilitate and strengthen rural distribution networks in about 11 provinces in the central region of Vietnam, which are the responsibility of Power Company No.3 (PC3). Component 4: Improvement of the rural distribution system in the area of Hai Phong City (Total cost $ million, of which IDA $13.16 million). This component aimed to rehabilitate and strengthen rural distribution networks in the rural areas and islands surrounding Hai Phong City, in the north of Vietnam, which are the responsibility of Hai Phong Power Company (PC Hai Phong). Component 5: Improvement of the rural distribution system in Hai Duong Province (Total cost $6.45 million, of which IDA $5.06 million). This component aimed to rehabilitate and strengthen rural distribution networks of Hai Duong Province in the northern region of Vietnam, which are the responsibility of Hai Duong Power Company (PC Hai Duong). Component 6: Improvement of the rural distribution system in Dong Nai Province (Total cost $11.38 million, of which IDA $8.59 million). This component aimed to rehabilitate and strengthen rural distribution networks in Dong Nai Province in the southern region of Vietnam, which are the responsibility of Dong Nai Power Company (PC Dong Nai). Component 7: Corporate development of PCs (Total cost $4.5 million, of which IDA$1.5 million and AusAID $3 million). This component aimed to support the corporate development of PCs 1, 2 and 3. It focused on building capacity of the PCs so that they could in the future act as independent participants in the power market as it develops according to the Government's road map for reform. Five main areas were addressed: Developing PCs' financial management practices for greater autonomy; Increasing capacity to forecast market development and to undertake commercially-based investment decisions; Planning and implementing monitoring systems for performance standards; Supporting PCs as they prepare for further reform of the power sector; and Preparation of plans for completing GoV's program of universal electrification. Phasing of project implementation Each of the six investment components would be executed in two phases. The first phase consisted of subprojects that had been appraised and were ready for implementation upon approval by the World Bank's Board of Executive Directors. The second phase comprised subprojects that are brought forward by implementing agencies when their preparation is complete. IDA financing of the second phase subprojects were on a first-come, first appraised basis; until all funds allocated to the component were committed. The technical assistance component took place in a single phase over the lifetime of the project. 6

15 1.6 Revised Components The seven components remained the same, but the number of sub-projects under each component evolved during project implementation. This is discussed in Section Other Significant Changes The overall structure of the project did not change during implementation, with the seven components remaining in place. However, there were significant changes to: a) the scale and scope of each component; b) the schedule of implementation; and c) the funding allocations across the first six investment components. The scale and scope of the project increased after significant cost savings, arising from competitive tendering for goods and works, enabled extra sub-projects to be developed and approved. These extra sub-projects went beyond the original scope of the Phase 1 and Phase 2 investments envisaged when the project was approved in The original schedule of project implementation was revised, following: a) the delay in project effectiveness; 2 and b) broader power sector reforms contributing to delays in the implementation Component 7 (Technical Assistance). Despite the delay in project effectiveness and start up, all implementing agencies were able to execute their capital works sub-projects as per original plan and have them completed and commissioned by June 30, In short, the time lost with the delay in the start - up was made up and this overall catch up occurred even with additional investment sub-projects being added on. Two important changes took place early on during the implementation period: 1. Electricity tariff reform was introduced in 2009 (PM Decision 21) establishing the market mechanism for the annual update of electricity tariffs and the adoption of national incremental block tariff for all residential consumers (of PCs and of Local Distribution Utilities (LDUs)), and requiring LDUs to prepare business plans and those unable to prove financial viability under the new tariff regime be absorbed by PCs; and 2. Reform of the distribution sector in 2010, with the establishment of 5 Power Corporations (PCs) created from existing Power Companies. A key reason for this consolidation was to ensure distribution companies had sufficient scale to upgrade and continue to improve the efficiency of their distribution network services. These reforms are considered to be positive developments that contributed to improving the sustainability of the Vietnam s power sector and its ability to efficiently expand to reliably meet load growth. Four other key power sector reforms during the course of project implementation were: 1. In 2009, the GoV issued the principles for the power sector structure to be in place during the Vietnam Competitive Generation Market (VCGM). The National 2 The project became effective on March 16, 2009, four months after it was signed on November 4, The project was approved by the World Bank Board on May 22,

16 Transmission Company (NPT) was created as a subsidiary of EVN, concentrating on the investment, operation and maintenance of the national high voltage transmission grid. The consolidation of distribution companies, including LDUs, into five large PCs in 2010 was a key step in the move to VCGM. 2. The VCGM commenced full operation in July 2012 with participation of 48 direct trading generators with total capacity of 11,630 MW, which corresponds to approximately 35% of the total national system capacity. VCGM spot market provides generation price signals that both reflect daily supply and demand balance and impacts of seasonal change of hydropower resources. 3. In 2012, the GoV decided to transfer ownership and operations of all EVN power plants (except for strategic multi-purpose hydropower plants) to three generation companies (Gencos) of sufficient scale and diversification of generation technologies to participate in the VCGM and to develop generation projects. It further limits the scale of any generator to 25% of the generation capacity installed in the power system, and establishes that there should not be shared commercial interest between generation, the single buyer (EVN Electricity Power Trade Unit EPTC) and NPT. 4. In 2013, three Gencos were created as corporations fully owned by EVN. Each Genco owns subsidiary power plants, and sells power into the VCGM. The ongoing structural reforms to Vietnam s power sector require the PCs to commercialize and adapt their operations toward operations in a market based environment. Component 7 of the project supported the development of capacity of the PCs to make this transition over time. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry The project quality at entry was satisfactory. First, the project responded to the priorities and wishes of the GoV and built on the lessons of earlier power sector programs in Vietnam by having: 1. A clear roadmap, with objectives focused on remedying some of the most pressing weaknesses in the country s rural distribution network; 2. A design that sought to ensure decentralized implementation and ownership, and flexibility to allow any cost savings during the course of implementation to be switched across sub-projects; 3. Cost sharing arrangements that were appropriate to the financial capacity of participants to sustain debt servicing requirements; and 4. Effective consultations and strong commitments from the large number of parties involved in implementation; including PCs, their Provincial Supply Departments (PSDs, for PCs 1, 2 and 3) and the LDUs. 8

17 Second, the design supported rapid start-up and by the time of project negotiations, 25 of the 54 sub-projects identified for implementation (by value $123 million out of $202 million in total) had obtained approval for their feasibility studies and about 50 per cent of approved subprojects had detailed designs and procurement documents approved. Such readiness was unusual in the Vietnam portfolio at the time. However, despite this readiness for implementation, in the twelve months after the project was approved by the Board, there had been no disbursements due to the five month delay in the project signing and effectiveness. Given Vietnam s country context, a five month delay in project effectiveness is not rare. The cost allocation across investment components was designed to be flexible, so that during implementation any subproject could be added or substituted, provided that the changes proposed were consistent with the project objective. This flexibility was used soon after the project became effective and extra subprojects were added by PCs. By March 2010, most of the contracts planned in the appraisal stage had been signed and it was apparent that the whole credit allocation for each PC would not be fully utilized. The PCs sought to use the residual funds for new subprojects, which were subsequently prepared, appraised and approved. The residual funds arose from the savings from strong competition in the tendering of goods and works. However, these savings were partly offset by the appreciation of the US$ against the SDR between April 2008 and March 2009, which resulted in a reduction in total SDR91.1 million in IDA funds expressed in US$ from US$150 million to about US$139 million. At appraisal, the key risks to the Development Objective were identified as being related to: (i) market restrictions having a negative impact on power system planning; (ii) weak financial capacity of the PIUs; (iii) energy shortages or surpluses due to demand and supply forecasting errors; (iv) fraud or corruption resulting in cost overruns or poor quality outputs or subprojects. The key risks to Implementation Progress identified during appraisal were: (i) implementation and disbursements starting slowly; and (ii) fiduciary compliance issues. A shortcoming was that the PDO definition and key performance indicators (KPIs) did not adequately cover capacity building and technical assistance elements of the project (Component 7); most likely because it was a small share of the overall project costs and was of secondary consideration to the capital investments in terms of immediate impacts on rural electricity supplies. There was no review of quality at entry by the Bank s Quality Assurance Group (QAG). 2.2 Implementation Four of the six implementing agencies had previous experience in implementing a variety of IDA financed projects including RE2 (implemented by PC1, PC2 and PC3), SEIER (PC1, PC2, PC3, DNPC), TD2 (PC3) and were familiar with Bank procedures. The other two implementing agencies (HDPC and HPPC) had not implemented Bank assisted projects before, and had to acquire an understanding of the fiduciary requirements, processes and procedures of the Bank both ahead of and during implementation. 9

18 Supervision missions, and the March 2011 Mid-Term Review, highlighted a number of issues for management attention, as detailed below. Delay in project effectiveness The delay in signing and making effective the Financing Agreement resulted in a 10 month elapsed time between the project approval by the World Bank Board on May 22, 2008 and effectiveness on March 16, This delay undercut earlier efforts to ensure a rapid start-up of the project. Despite the effectiveness delay, by the time of the Mid-Term Review the six PCs had made substantial progress in project implementation, with $65 million (or 44.8%) of the $142 million in project funds disbursed by March 30, 2011 and all the subprojects, including those under Phase 2 and Phase 3, having been approved. Strong competition for goods and works generated significant savings At the time of the Mid-Term Review, the tendering of goods and works contracts had on average generated savings of between 10-15% of the official pre-bid cost estimates. These cost savings were a key reason why additional (Phase 2 & 3) subprojects could be financed using the available project finance. Banking credit crunch had negative effect on construction timeframes The banking credit crunch in Vietnam in the period 2011 to 2013 resulted in a number of works contractors having severe difficulties in accessing lines of credit to finance construction works ahead of submitting claims for payment once construction milestones were met. In some cases the credit squeeze led to significant delays in the implementation of subprojects because contractors could not finance construction works. Some of these delays were so significant that a number of works contracts had to be terminated by the implementing agencies and the works contracts re-tendered for award. This resulted in further delays in the completion of sub-projects in cases where there were inadequacies in the documentation and handover process between the original contractor and the new one. Two factors had a positive impact on the implementation and outcomes of the project: 1. Community supervision of environmental safeguards. Community supervision proved to be a very effective means of ensuring community ownership, minimizing disputes, and having rapid and ongoing compliance with environmental management plans. Community supervision worked well for 22/35 kv system subprojects. 2. Flexibility of project design. The inherent project flexibility allowed it to adapt to unexpected changes in circumstances that arose during project implementation. 3 An effectiveness delay flag is triggered when the elapsed time between project approval and effectiveness is longer than nine months. 10

19 For example, during project implementation, the significant cost savings were flexibly used to deliver new investments that effectively increased the delivery of project benefits to a larger number of people than originally envisaged. There was no QAG review of the quality of supervision for this project. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization The KPIs used in the project, both at the PDO outcome level and the Intermediate outcome level, were appropriate and will remain relevant and suitable into the future. The KPIs provide readily quantifiable measures of the physical PDO outcomes; specifically improvements in the quality of service, reliability of supply, efficiency of supply, and changes in the average consumption of electricity in the rural areas targeted by the project. The KPIs for intermediate outcomes were also straightforward and useful: i) Length of distribution lines rehabilitated or newly constructed (km) under the project; ii) Capacity of distribution substation rehabilitated or newly constructed (kva) under the project. However, the six PDO level indicators and the two intermediate level KPIs in the results framework do not adequately cover Component 7 (Technical Assistance/Capacity Building). The design, collection and utilization of the M&E data for the project was carried out effectively by the PCs throughout the project and served a useful means of tracking both progress and measuring impacts of the investments financed by the project. 2.4 Safeguard and Fiduciary Compliance At appraisal, it was determined that the project triggered three safeguards policies, all of which were related to sub-components in the Transmission and Distribution System Expansion and Reinforcement activities of the PCs (Components 1 to 6), including: OP/BP 4.01, Environmental Assessment; OP/BP 4.12, Involuntary Resettlement; and OP 4.20, Indigenous Peoples (which in Vietnam are referred to as Ethnic Minorities). The social and environmental impacts of the project are discussed below, together with a short assessment of compliance with the safeguards policy requirements. Social safeguards The RD project, like many rural electrification projects, caused modest land acquisition for the individual project affected household and small community-wide socioeconomic impacts. Many of the subprojects aimed to upgrade systems based on an existing right of way (ROW). The project was assessed as not causing culturally specific impacts on ethnic minority communities. The triggering of social safeguards policies OP/BP 4.12 (Involuntary Resettlement) and OP 4.20 (Indigenous Peoples) at project appraisal resulted in EVN and the PCs having to 11

20 prepare the following instruments to meet IDA s social safeguards requirements: (i) a Social Assessment; (ii) a Policy Framework for Resettlement Plans (PFRP); (iii) a Strategy for Ethnic Minorities (SEM); and (iv) separate Resettlement Plans (RP) and Ethnic Minority Development Plans (EMDP) for each of the subprojects. There was a range of major challenges in carrying out land acquisition by PCs. The slow progress on land acquisition on sub-projects had a negative impact on the ability of implementing agencies to finalize construction contracts or resulted in delays once works had commenced. Some of the difficulties with land acquisition arose from weaknesses in the level of collaboration between PCs and local authorities (provincial, commune, and village) in terms of land acquisition and compensation. Other significant land acquisition challenges during the course of the project implementation were: (i) finalization of compensation for impacts in ROW; (ii) disagreements by affected households with proposed compensation rates; (iii) coordination with relevant agencies to finalize the administrative procedures around consultations and compensation. To improve the land acquisition process the following measures were taken: i) a strengthened working relationship between implementing PCs and local authorities; and ii) ensuring a smooth translation from approved safeguard documents (prepared by PCs) into actual implementation (performed by local authorities). In addition, independent monitoring reports were used as effective tools to track and improve the implementation of safeguard activities. A good example of the effectiveness of strengthened working relationship between PCs and local authorities is SPC, which found that once it began to closely collaborate with PPC the land acquisition process was significantly accelerated. At the end of the project, the overall compliance with social safeguard policies triggered by the RE project was satisfactory. Regarding OP 4.10 on Indigenous People, although this policy did not apply to all subprojects, where relevant (typically in mountainous areas with ethnic minorities), implementing agencies were able to prepare Ethnic Minority Development Plan (EMDP) in accordance to the agreed Ethnic Minority Policy Framework (EMPF) of the project. Local community consultations on the EMDPs were conducted to ensure that the public was fully informed of the planned investment projects, their impacts, and safeguards arrangements. Independent monitoring consultants were also mobilized to oversee the execution of those social safeguard instruments. Given that most subprojects brought direct benefits to affected communities, local people were generally supportive of their implementation. The land acquisition and compensation activities by Implementation Agencies satisfactorily complied with OP 4.12, Involuntary Resettlement. At the time of project closing, the civil work of nearly all subprojects was completed, and had satisfactorily met the requirements of OP 4.12 (e.g. compensation payment, mobilization of independent consultant, etc.). Environmental safeguards 12

21 The project triggered OP 4.01 (Environmental Assessment) and its environmental issues were rated as Category B at project appraisal. Since each subproject was stand alone, each required a separate review of its environmental safeguards issues, through preparation of Environmental Assessments and Environmental Management Plans (EA/EMPs). The defined impacts included dust, noise pollution, soil erosion, traffic disturbance, and road damage; which are minor and could be mitigated effectively. The limited negative impacts were identified and mitigation measures were carried out by each PMU. The use of independent monitoring consultants throughout project implementation added capacity to support PCs in assessing environmental impacts, designing appropriate mitigation measures, and supervising compliance with the EMP and Safeguard Policy Framework. The environmental safeguards compliance of the project was satisfactory, with it being consistently in compliance with the environmental safeguard policies and environmental performance requirements. The Environmental Monitoring System (EMS) put in place operated effectively using a cooperative mechanism between contractors, PMUs, local authorities, and local communities. In general, any adverse environmental impacts or concerns were reported and solved with the participation of relevant stakeholders. Procurement At the time of appraisal, the overall project risk for procurement was assessed as moderate. The key issues and risks around procurement were seen to be: (i) potential understaffing in all PMUs, given their other procurement workload; and (ii) the PIUs under PC1 s PSDs, PC Hai Phong, PC Hai Duong and PC Dong Nai having inadequate knowledge and experience of the Bank s procurement processes and how they would apply to their respective components. To mitigate these procurement risks during implementation, the following countermeasures were proposed: (i) procurement training for all implementing agencies at the start of the project; (ii) PC1 (now NPC) implementing training of its PSDs; (iii) procurement consultants being hired by PC Hai Phong, PC Hai Duong and PC Dong Nai; and (iv) procurement training, support and advice by the Bank s procurement specialists during the course of project implementation. During implementation, the overall procurement performance of the project was satisfactory. The large and diverse range of subprojects required a mix of ICB contracting for goods and NCB contracting for works, and these were generally well executed by the PIUs using the Bank s procedures. However, as discussed in Section 2.2., once contracts were entered into, difficulties sometimes arose when: (i) the provision of goods was not well coordinated with the works schedules; (ii) contractors encountered financial liquidity issues arising from the credit crunch and works were delayed; and (iii) works had to be re-tendered following prolonged difficulties in contractors meeting their obligations, in particular those faced with liquidity issues. During the project period no cases of fraud and corruption were detected. Financial Management 13