Viet Nam: Greater Mekong Subregion Kunming-Hai Phong Transport Corridor: Yen Vien-Lao Cai Railway Upgrading Project

Transcription

1 Completion Report Project Number: Loan Numbers: 2302 and 8227 June 2017 Viet Nam: Greater Mekong Subregion Kunming-Hai Phong Transport Corridor: Yen Vien-Lao Cai Railway Upgrading Project This document is being disclosed to the public in accordance with ADB s Public Communications Policy 2011.

2 CURRENCY EQUIVALENTS Currency Unit - US dollar/s ($) - special drawings rights (SDR) - euro/s ( ) - dong (D) At Project Appraisal At Project Completion August 2006 December 2015 SDR1.00 = $ SDR1.00 = $ $1.00 = $1.00 = a D1.00 = $ D1.00 = $ a The euro dollar rate of exchange is that prevailing on the Agence Française de Développement loan closing date of 30 April ABBREVIATIONS ADB Asian Development Bank AFD Agence Française de Développement CARB CLFD CO2 CP Compensation, Assistance, and Resettlement Board Center for Land Fund Development carbon dioxide construction package DCARB District CARB DGT DMF DMS EIRR Direction Générale du Trésor design and monitoring framework detailed measurement survey economic internal rate of return EMP environmental management plan FIDIC Fédération Internationale des Ingénieurs-Conseils (International Federation of Consulting Engineers) GMS Greater Mekong Subregion ha HRC IEE hectare Hanoi Railway Company initial environmental examination IPIS independent project implementation support km kilometer m 2 MOT square meter Ministry of Transport PCR PMU-Rail project completion report Projects Management Unit (railway) PPC PPE PRC ROW RPMU SEMR SPS TA Provincial People s Committee personal protective equipment People s Republic of China right-of-way Railway Projects Management Unit semiannual environmental monitoring report Safeguard Policy Statement technical assistance

3 NOTE In this report, "$" refers to US dollars. Vice-President S. Groff, Operations 2 Director General J. A. Nugent, South East Asia Department (SERD) Director H. Iwasaki, Transport and Communications Division, SERD Team leader Team members A. Ahonen, Senior Transport Specialist, SERD N. Cuong Dinh, Associate Project Officer (Infrastructure), SERD E. Lara, Safeguards Officer (Environment), SERD M. Javier, Senior Project Assistant, 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.

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5 CONTENTS BASIC DATA Page 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 6 D. Disbursements 6 E. Project Schedule 6 F. Implementation Arrangements 7 G. Conditions and Covenants 7 H. Related Technical Assistance 7 I. Consultant Recruitment and Procurement 8 J. Performance of Consultants, Contractors, Concessionaire, and Suppliers 9 K. Performance of the Borrower and the Executing Agency 10 L. Performance of the Asian Development Bank 11 III. EVALUATION OF PERFORMANCE 11 A. Relevance 11 B. Effectiveness in Achieving Outcome 12 C. Efficiency in Achieving Outcome and Outputs 12 D. Preliminary Assessment of Sustainability 12 E. Impact 13 IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 14 A. Overall Assessment 14 B. Lessons 15 C. Recommendations 15 APPENDIXES 1. Original Design and Monitoring Framework Retrofitted Design and Monitoring Framework Organizational Structure of Viet Nam Railways after the Reforms Project Costs Estimated and Original Disbursement from Financing Sources Implementation Schedule Status of Compliance with Loan Covenants Revised Economic Evaluation Revised Financial Evaluation Environmental Safeguards Assessment Social Safeguards Assessment Rating of Project Performance 52 i

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7 BASIC DATA A. Loan Identification 1. Country 2. Loan Numbers 3. Project Title 4. Borrower 5. Executing Agency 6. Amount of Loan ADB - Original Amount - Net Loan Amount AFD - Original Amount - Net Loan Amount 7. Project Completion Report Number Viet Nam 2302 (ADB Loan (COL)) 8227 (Agence Française de Développement (AFD)) Greater Mekong Subregion Kunming-Hai Phong Transport Corridor: Yen Vien-Lao Cai Railway Upgrading Project Socialist Republic of Viet Nam Viet Nam Railways Ministry of Transport SDR40,395,000 ($60.00 million equivalent) SDR39,069,504 ($55,717,386 equivalent) 32,000,000 ($40.00 million equivalent 31,993,303 ($42,515,178 equivalent) 1628 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 Loan 2302-VIE In Loan Agreement Actual Number of Extensions Loan 8227-VIE In Loan Agreement Actual 7. Terms of Loan ADB Interest Rate Maturity (number of years) Grace Period (number of years) 14 August August November November December January April September December December December April % per annum during the grace period 1.5% per annum thereafter 32 8

8 ii AFD Interest Rate Maturity (number of years) Grace Period (number of years 1.00% per annum during the grace period 1.25% per annum thereafter 20 years 5 years 8. Disbursements a. Dates ADB Initial Disbursement 30 Jan 2009 Effective Date 25 September 2007 AFD Initial Disbursement 04 March 2009 Final Disbursement 20 December 2016 Original Closing Date 31 December 2012 Final Disbursement 22 April 2014 Time Interval 95 months Revised Closing Date 31 December 2015 Time Interval 62 months Category Effective Date Original Closing Date Revised Closing Date 25 May December April 2014 b. Amount (SDR million) Original Allocation Last Revised Allocation Dec 2015 Amount Canceled Net Amount Available Amount Disbursed Undisbursed Balance 01-Works Equipment Track Renewal Environment Protection Consulting Services A-Consulting Services Design 04B- Construction Supervision Independent Project Implementation Support Interest Charge Unallocated Total C. Project Data 1. Project Cost ($ million) Cost Appraisal Estimate Actual Foreign Exchange Cost Local Currency Cost Total

9 iii 2. Financing Plan ($ million) Cost Appraisal Estimate Actual Implementation Costs Borrower Financed ADB Financed AFD Financed DGT Financed Total IDC Costs Borrower Financed ADB Financed Total ADB = Asian Development Bank, AFD = Agence Française de Développement, DGT = Direction Générale du Trésor (Treasury and Economic Policy General Directorate of the French Ministry of Finance), IDC = interest during construction. 3. Cost Breakdown by Project Component ($ million) Component Appraisal Estimate Actual A. Base Cost a Civil Works Equipment and Track Renewal Land Acquisition, Resettlement, and Social Mitigation Environmental Mitigation and Monitoring Consulting Services for Design, Supervision, and Administration Taxes Subtotal (A) b Other Government-Fund Services B. Contingencies c C. Financing Charges During Implementation d Total (A + B + C) Appraisal estimate: a In mid-2006 prices. b Taxes of $12.17 million comprising value-added tax (10%) and other taxes (2%). c The physical contingencies are computed at 12% for civil works and track implementation, and 2% for track materials (because the quantities have been estimated based on track standards and are firm). Price contingencies are computed at international cost escalation of 2% per year for foreign costs and 5% per year for local costs. d Only includes Asian Development Bank s (ADB s) capitalized interest. Source: ADB estimates based on feasibility study by project preparatory technical assistance consultant. 4. Project Schedule Item Appraisal Estimate Actual Date of Contract with Consultants Design Consultants June November 2008 Construction Supervision Consultants 23 November 2011 Independent Project Implementation Support 28 November 2011 Completion of Engineering Designs December 2012 Civil Works Contract CP1 Date of Award October June 2013 Completion of Work December June 2015 CP2 Date of Award October November 2011 Completion of Work December February 2015

10 iv Item Appraisal Estimate Actual CP3, CP4 Date of Award October November 2012 Completion of Work December June 2015 CP5 Date of Award October May 2013 Completion of Work December March 2015 Equipment and Supplies Equipment and Track Renewal Dates Date of Award October November 2011 First Procurement 21 September 2012 Last Procurement 9 October 2014 Completion of Equipment Installation December 2014 Start of Operations Completion of Tests and Commissioning December 2011 April 2015 Beginning of Start-Up January 2012 April 2015 CP = contract package. 5. Project Performance Report Ratings Implementation Period From 31/12/2006 to 30/06/2007 From 31/07/2007 to 31/08/2007 From 30/09/2007 to 31/12/2010 Classification Switched to eops From 01/01/2012 to 30/06/2012 From 30/06/2012 to 31/12/2012 From 01/01/2013 to 30/09/2013 From 01/10/2013 to 31/12/2013 From 01/01/2014 to 31/12/2014 From 01/01/2015 to 31/03/2015 From 01/04/2015 to 30/06/2015 From 01/07/2015 to 31/12/2015 From 01/01/2016 to 31/12/2016 Development Objectives Satisfactory Satisfactory Satisfactory Project Ratings Actual Problem Potential Problem Potential Problem On Track On Track On Track Potential Problem On Track On Track D. Data on Asian Development Bank Missions Name of Mission Date No. of Persons Ratings Implementation Progress Satisfactory Unsatisfactory Satisfactory No. of Person- Days Specialization of Members a Fact-Finding Mission May c, f, g, h, i, m, n(2) Appraisal Mission Aug c, f, i, n, o(2) Inception Mission Aug f, j, k Review Feb e, f Review 2 30 Sep 2 Oct c, e, j Review Mar c, e, j(2) Special Review 1 29 Sep 1 Oct e, l Review Nov e, g, i, j, o Review Jan b, e, g, l, o Review Mar a, e

11 v No. of Person- Days Name of Mission Date No. of Persons Review Apr a, b, e, f, j, l Special Review Aug a, e, f Special Review Dec a, e, f Review Jan d, e, f, g, l, o Special Review Jun e, l Special Review 5 Special Review 6 Special Review 7 Resettlement Review 1 Special Review 8 Special Review 9 Resettlement Review 2 Midterm Review Review 9 Review 10 Review 11 Resettlement Review 3 Resettlement Review 4 Resettlement Review 5 Pre-Project Completion Review Project Completion Review 4 5 Aug Sep Jan Jan Nov Mar May Oct Mar 7 Apr Dec Jun Jan Jul Oct Feb Mar Specialization of Members d, e, f, g, l d, e, f, g, l d, e g d, o d, g, o g c, d, g, h, i, k, o c, g, h, k c, g, j, o c, g, h, j, o c, g, j j, o j, o j, o(2) c, m, j, o(3) a = Director, Transport and Communications Division, Southeast Asia Department; b = Country Director, Viet Nam Resident Mission; c = Sr. Transport Specialist; d = Unit Head, Project Administration; e = Infrastructure Specialist; f = Transport Economist; g = Social Development (Resettlement) Specialist; h = Environment Specialist; i = Financial Specialist; j = Project Analyst; k = Project Implementation Officer; l = Procurement Specialist; m = Social Development and Poverty Reduction Specialist; n = Senior Counsel; o = consultants.

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13 I. PROJECT DESCRIPTION 1. The Yen Vien-Lao Cai Railway line (the project line) is a section of the Eastern Economic Corridor of the Greater Mekong Subregion (GMS) Economic Cooperation Program. 1 The project line, which opened in the early 1900s, runs for about 285 kilometers (km) northwest from Hanoi along the Red River s northern bank to the city of Lao Cai, located on the border with Yunnan Province in the People s Republic of China (PRC). Over the past five decades, investments in railway infrastructure and maintenance have been inadequate. As a result, Viet Nam Railways (VNR) has been unable to arrest the trends of deteriorating assets, eroding financial conditions, and declining traffic. The project, therefore, aimed to restore the project line to adequate operating conditions, reconnect Viet Nam's rail network with that of the PRC, and reform VNR s organizational and financial structure. 2. The project s objectives were to (i) accelerate economic growth in Northern Viet Nam and stimulate cross-border trade between Viet Nam and Yunnan Province, (ii) connect Haiphong Port in Viet Nam with Yunnan Province and facilitate container traffic, (iii) reduce transport costs, (iv) improve rail traffic safety, and (v) secure sufficient railway capacity to handle traffic demands to The project involved rehabilitation and reconstruction of railway track, bridges, and terminal infrastructure, as well as safety measures. Major institutional reforms for VNR financial governance and cross-border procedures at Lao Cai were to complement the physical project components. II. EVALUATION OF DESIGN AND IMPLEMENTATION A. Relevance of Design and Formulation 3. Rail transport is significant for Viet Nam s national economy and for the realization of a GMS-wide transport system, although the railway s market share for both passengers and freight is below 3%. The project line was expected to facilitate cross-border trade and enable Viet Nam to benefit from the rapidly expanding economy of PRC s Yunnan Province. Viet Nam s deep-sea port of Hai Phong is increasingly important for freight to and from Yunnan, as well as for domestic traffic. Cargo throughput at the port surged from 15.7 million tons in 2010 to 23.8 million tons in 2015 an average annual increase of 8.5%. In addition, the railway line serves the phosphate and chemical industry near Tien Kien, located about 70 km northwest of Hanoi. The Hanoi-Lao Cai railway line is also an attractive and inexpensive means of transport for passengers, particularly tourists. 4. During project design in 2006, it was assumed that the project line would not be able to accommodate the future level of traffic. The traffic forecast, which was based on a multimodal transport study, estimated the likely demand for passenger and freight traffic in the Hai Phong Port-Lao Cai to Hekou-Kunming corridor, and the corridor s likely traffic distribution between railway and road. 3 According to the study s projections, freight volumes would increase by a factor of by The results subsequently updated by the feasibility study financed by project 1 The Eastern Economic Corridor links Kunming, the capital of Yunnan Province in the People s Republic of China (PRC), with Viet Nam. 2 Asian Development Bank (ADB) Report and Recommendation of the President to the Board of Directors: Proposed Loan and Administration of Loan from Agence Française de Développement to the Socialist Republic of Viet Nam for the Greater Mekong Subregion Kunming-Hai Phong Transport Corridor: Yen Vien-Lao Cai Railway Upgrading Project. Manila. 3 ADB Technical Assistance to the Socialist Republic of Viet Nam for a Multimodal Transport Study on the Kunming Haiphong Transport Corridor. Manila.

14 2 preparatory TA from the Asian Development Bank (ADB) 4 indicated that at the latest by 2020 the railway line s capacity would be exhausted. The feasibility study concluded that rail infrastructure investments combined with institutional reforms would be required to address the observed constraints and restore competitiveness of the railway. 5. The feasibility study provided preliminary design and cost estimates, which ADB used to determine the project s financing needs. Independent from the ADB-supported due diligence activities, the Government of Viet Nam carried out its own feasibility study, which was needed for final project approval from the government agencies concerned with infrastructure planning and investment. The government s feasibility study was approved after the project s external financing arrangements had been completed and ADB s Board of Directors had approved the project. 6. The envisaged improvements to railway infrastructure and railway governance were in line with government priorities. The government aimed to strengthen the integrated Kunming Hai Phong transport corridor, including its rail, road, and port facilities. The project also conformed to ADB s strategic priority of strengthening connectivity and facilitating cross-border movements and tourism under its regional cooperation strategy and program for the GMS Overall, the project was and is relevant in seeking to remove some of the long-term physical and institutional constraints. The project is consistent with ADB s Sustainable Transport Initiative Operational Plan, which seeks to raise ADB lending for railways to about 25% of total lending to the transport sector by The master plan and sector strategy for developing Viet Nam s railway sector, approved in 2015, recognize that the railway plays an important role in the country s socioeconomic development. 7 The master plan envisages the continued gradual improvement of existing routes as well as development of new strategic routes linking major seaports with centers of economic activity. It gives special emphasis to completing the rehabilitation of the project line from Yen Vien to Lao Cai. The goal of the master plan is to expand the railway s share for freight to about 2% of the total freight market and for passengers to about 3%. This goal will be attained by allocating private and public resources as well as foreign development assistance to rail infrastructure development. 8. The project design was somewhat inadequate to achieve the intended outcomes, which were a more efficient rail transportation system that will meet transport demand to 2020 and financially sustainable railway operation (Appendix 1). The original design and monitoring framework (DMF) reveals shortcomings on indicators, assumptions, and risks, as well as an insufficient understanding of Viet Nam s railway sector (Appendix 1 and para. 39). The project design had to be retrofitted to respond to the change in project scope, which was approved in 2011, 5 years after the approval of the loans. Accordingly, the outcome was modified to more efficient rail transportation system without a target date. The retrofitted DMF is in Appendix 2. 4 ADB Kunming Haiphong Transport Corridor Project. Upgrading Hanoi Lao Cai Railway. Feasibility Study and Preliminary Design. Main Report (Final). Technical Assistance Consultant s report (TA 4050-VIE). Manila. 5 ADB Greater Mekong Subregion: Regional Cooperation Strategy and Program Update ( ). Manila. The GMS comprises Cambodia, Yunnan Province and Guangxi Zhuang Autonomous Region of the People's Republic of China, Lao People's Democratic Republic, Myanmar, Thailand, and Viet Nam. 6 ADB Midterm Review of Sustainable Transport Initiative Operational Plan. Manila. 7 The Prime Minister of the Socialist Republic of Viet Nam Approving the Adjusted Master Plan on Development of Vietnam s Railway Transport Through 2020, with a Vision Toward Hanoi; and The Prime Minister of the Socialist Republic of Viet Nam Approving Adjustments to the Development Strategy for Viet Nam s Railway Transport Up to 2020 with a Vision toward Hanoi.

15 3 B. Project Outputs 9. The feasibility study and preliminary design financed by the project preparatory TA (footnote 4) had determined the scope of the original project, which consisted of five major components: (i) (ii) (iii) (iv) (v) Track component. Improving the alignment of the track, especially at sharp curves and in the vicinity of the Red River (to address problems associated with flooding, subsidence of embankment, and slope stability); replacing worn-out rails with heavier hardened-steel rails, particularly on sections of track having sharp curves where rail wear is most severe; replacing old sleepers and fastenings to prevent gauge expansion; replacing worn-out turnouts on the main line; and ballasting track. About 240 km were to be improved by new rails, sleepers, and fastenings. Bridge component. Constructing six bridges; rehabilitating 13 war-damaged and corroded bridges, which had necessitated speed restrictions; and strengthening up to 60 substandard bridges to enable use of heavier and more powerful locomotives. Terminals component. Constructing an intermediate station at Mai Tung at km including passing loops; constructing additional passing loops (each with length of 480 m) at nine stations; extending the passing loops with a required minimum length of 450 meters at eight additional stations; upgrading station facilities at North Yen Vien, Van Phu, Yuan Giao A, and Lao Cai; and providing operational facilities at selected stations. Safety component. Safety improvements of railroad crossings, including through replacing an entire railroad at-grade crossing at Dong Anh (km ) by a flyover; upgrading 44 at-grade crossings by providing an improved track-crossing structure for both motorized and pedestrian road traffic; and, at selected unauthorized at-grade rail crossing points, constructing about 5.5 km of fences and permanent rights-of-way to channel traffic towards official crossing points. The rail safety works were to be supported by a public awareness campaign. Reform component. Institutional reforms for improving financial governance and cross-border procedures at Lao Cai, to be financed by technical assistance (TA) from ADB and the Agence Française de Développement (AFD). 10. Due diligence carried out at project appraisal had identified the spread of HIV and other sexually transmitted infections as risks associated with construction sites. A public awareness campaign targeting local communities in the project area and construction workers mitigated the risks. Likewise, a program to raise awareness on human trafficking was implemented in cooperation with a nongovernment organization active in the project area. The HIV and human trafficking prevention programs were procured under the civil works contracts. 11. An increase in project cost necessitated reducing the project scope. The opening of the bid for the first construction package in late 2010 revealed a significant cost increase compared to estimates by the feasibility study consultants 4 years earlier. These estimates had been used as a basis to determine the project s financing needs. 8 The surge in commodity prices, notably for steel, which started in 2005 and peaked in 2008, partly explains the gap between the 2006 estimates and the 2010 realities. Estimates of material quantities were another source of 8 The bid price was about 71% above the appraisal estimate and 48% above the engineer's estimate.

16 4 inaccuracy. 9 The 4-year period between the design of the project in 2006 and the start of procurement activities is another explanation. Project implementation had suffered from start-up delays, which were caused by the poor performance of the design consultants and the slow response to take remedial action. The first construction contract was eventually awarded in November To finance the original scope of the project and achieve the associated development results would have required an increase in the financial resources provided by the three donors and the government. 10 As partners were not prepared to raise the financing, the need to downsize the project became inevitable. The reduction in scope, which the donors and the government endorsed in September 2011, aimed to effectively use the limited funds and retain the original project outcome. Table 1 shows a comparison of the original planned project outputs against the revised outputs, as well as the impact of the downsizing on expected project results. Although it was clear that the reduction would adversely affect railway operations in efficiency, safety, and available capacity, the changes were not considered to fundamentally alter the project s nature and outcome. The change in scope was therefore not considered major in terms of ADB s guidelines Appendix 2 shows the retrofitted DMF and the status of achievements at project completion. Track rehabilitation and upgrading works as revised in 2011 and the associated resettlement activities were completed by mid The targeted outcome was not fully achieved. VNR is committed to complete the balance work excluded from the project under a second phase. 12 The VNR financial management reforms have been implemented as part of the ongoing VNR institutional reform supported by the government. The government remains committed to regional cooperation. Table 1: Impact of the Downsizing of Project Scope on Expected Outcomes Original Output Reduction Impact Improving the alignment of the existing track, especially at sharp curves and in the vicinity of the Red River (to address problems associated with flooding, subsidence of embankment, and slope stability) The section from km to km with a length of km near Lao Cai was removed from the project A total of about 213 km will be replaced with new rails, sleepers, and fastenings Construction of six new bridges Strengthening of up to 60 substandard bridges to enable use of heavier and more powerful locomotives The output was reduced to 173 km Output reduced to construction of two new bridges 22 substandard bridges (37% of the envisaged target) were excluded from the project Reduction in safety and efficiency Reduction in operating speed reduces capacity and efficiency Reduction in capacity and efficiency Reduction in capacity and efficiency 9 For example, to come up with accurate quantities of ballast that could be re-used would require detailed engineering rather than feasibility studies, which rarely go into technical details of this nature. 10 Under the joint cofinancing arrangement between ADB and AFD, the two agencies jointly financed the civil works. In contrast, the parallel financing arrangement with Direction Générale du Trésor (DGT) meant DGT would exclusively finance the rail and turnouts construction package. 11 According to the guidelines, a major change materially alters or fundamentally affects the scope and project outcome as approved by the Board. Project Administration Instructions. PAI No Revised on June ADB s regional TA Connecting the Railways in the Greater Mekong Subregion can provide an opportunity to adjust the scope of the proposed second phase to the developments that have occurred since the original project was conceived.

17 5 Original Output Reduction Impact The station and the associated Reduction in capacity passing loops were excluded from the project Constructing a new intermediate station at Mai Tung at km , including passing loops Construction and extension of passing loops (each with a length of 480 meters) at 17 stations Upgrading station facilities at North Yen Vien, Van Phu, Yuan Giao A, and Lao Cai Construction of a road fly-over to eliminate level crossing at rail intersection Dong Anh (km ) Upgrading 31 at-grade crossings by providing improved track-crossing structure for both motorized and pedestrian road traffic At selected unauthorized at-grade railcrossing points, provide about 5.5 km of fencing and permanent rights-of-way to channel traffic towards official crossing points; rail safety works supported by a public awareness campaign km = kilometer. Source: PCR The scope was reduced by six stations, including about 3,000 meters of passing loops North Yen Vien Station was excluded from the project Excluded from the project Scope was reduced by 23 crossing to 8 level crossings Entire component excluded from the project Reduction in capacity Reduction in capacity and efficiency Reduction in safety and efficiency Reduction in safety and efficiency Reduction in safety and efficiency 14. Quality of output. The civil works packages were completed successfully, and the quality of the works has been satisfactory. Because of the sections excluded from the rehabilitation program and the remaining constraints to greater operating efficiency, the quality of work can only be fully appreciated when the proposed second phase of the rehabilitation is completed and VNR s rolling stock is modernized. These remaining constraints are the primary reasons that the targeted reduction in travel time by 13% has not been achieved and that trains operating speeds continue to be unsatisfactory. 15. Involuntary resettlement activities as mandated in the agreed updated resettlement plans (URPs), in addition to the income rehabilitation assistance provided by Provincial and District People s Committees of Lao Cai and Yen Bai for the severely affected, 13 were successfully completed. Adverse impacts on affected persons have been mitigated. Likewise, resettlement sites were developed to provide housing and the necessary utilities, including power, water, and road network. 16. The project-supported financial reforms have to be viewed in the context of the railway reforms carried out since The former integrated railway authority was converted to a single shareholder limited liability company, VNR, wholly owned by the government. The reforms resulted in a separation of railway infrastructure ownership from railway operations. While VNR remained owner of the infrastructure, the reforms provided an opportunity for private companies to get involved in commercial train railway operations and maintenance. VNR consists of (i) a parent company with a management board, a core organization with 11 departments, 12 dependent facility operation branches, and other units; and (ii) corporatized entities, including 13 The income restoration program envisaged in the URPs did not materialize. During the extended delay in the preparation of acceptable URPs, provincial and district authorities of Lao Cai and Yen Bai on their own initiative extended livelihood rehabilitation assistance to the AHs in the form of vocational trainings and access to credit facilities. For more on this, see Socioeconomic impact in Section III.E.

18 6 Hanoi Railway Transport Joint Stock Company (in charge of the project line) and Saigon Railway Transport Joint Stock Company, each of which operate passenger and freight train services. Appendix 3 provides an overview of the reorganized VNR s structure. C. Project Costs 17. At appraisal in 2006, the total project cost was estimated at $160 million equivalent. At project completion in 2015, the total cost was $ million. The relatively minor change does not reflect the reduction in project scope. Had the original scope been retained, the project cost would have risen by more than 50%. The project costs estimated at appraisal compared to the cost of the completed project are shown in Appendix 4. As stated in para. 12, the reduction in scope was not considered a major change, as it was not expected to affect the original project outcome. The economic analysis shows, however, that the project s viability suffered at least partly because of the reduction in scope (para. 43). 18. The cost estimates that served as a basis for ADB s project appraisal were those prepared by the feasibility study under ADB project preparatory TA (footnote 3). The significant increase in the actual cost compared to the feasibility study estimates reflects the quality of the feasibility study estimates as well as price increases that occurred during the 4-year period between completion of the feasibility study and opening of bids. An added difficulty in general is to come up with reliable cost estimates for rehabilitation works. D. Disbursements 19. The loan proceeds from ADB were disbursed following ADB s Loan Disbursement Handbook (2015, as amended from time to time). The disbursements occurred more slowly than projected at appraisal, which is consistent with the various delays encountered during implementation and the decision of the donor agencies to prioritize disbursing the AFD loan. The disbursements from the ADB loan started on 30 January 2009 with the advance payment to the design consultants. In December 2012, the ADB loan disbursements were put on hold because of the priority accorded to the AFD loan disbursements. 14 Upon closure of that loan on 30 April 2014, the disbursements from the ADB loan resumed. By December 2016, after the final ADB loan disbursement was made, about $55.72 million had been disbursed from the ADB loan, leaving a loan surplus of about $1.3 million to be canceled on loan closure. Disbursement details of the financing sources are in Appendix 5. E. Project Schedule 20. The Yen Vien-Lao Cai Project was approved on 19 December 2006 and completed mid The expectation at project appraisal was that it would take about 5 years to complete the project, with the recruitment of the detailed design consultants in early 2007 expected to mark the start of implementation. Preconstruction activities were the main causes of the delays, including making the loan effective, a condition of which was government approval of the government s feasibility study. Civil works were scheduled to commence in October 2008 and be completed towards the end of However, the contract for the detailed design consultant was awarded only in February 2009 and because of poor performance terminated in April National consultants subsequently completed the detailed design and associated tender document for the civil works and supplies. Construction package 2 (CP2) was tendered in September 2010 and the 14 After the closure of the AFD loan had been extended once before, the closure scheduled for June 2014 was definite. Therefore, financing project items from the AFD loan became a priority to avoid substantial funds remaining unutilized.

19 7 contract awarded in November The physical works started in the first quarter of 2012 and were completed in June 2015, 3.5 years after the original expected date. ADB extended the loan closing date by 3 years until 31 December 2015, and AFD extended its closing date by 16 months until 30 April Appendix 6 shows the actual 9-year implementation schedule. F. Implementation Arrangements 21. Consistent with the arrangements made at appraisal, VNR acted as the project s executing agency. The Railway Projects Management Unit (RPMU) was responsible for the day-to-day activities during implementation. These arrangements lasted until November 2014, when the Ministry of Transport (MOT) assumed ownership of the project. The transfer in executing agency responsibilities from VNR to MOT entailed a transfer of the RPMU to MOT, where the RPMU was incorporated into MOT s project management units, which are directly supervised by MOT. In the process, the RPMU became PMU-Rail, assigned to the Project Management Department No.4 responsible for day-to-day implementation. 22. VNR, and later MOT, acted as Employer and the consultants supervising the civil works as "Engineer" based on the International Federation of Consulting Engineers (FIDIC) terms of contract. A team of consultants provided independent project implementation support (IPIS) in contract management. The IPIS team determined reporting requirements and guided the RPMU and later PMU-Rail on their responsibilities under FIDIC contracts. Overall, the implementation arrangements were adequate to deliver the expected project results. G. Conditions and Covenants 23. The borrower has essentially complied with all loan covenants. It is noteworthy that, rather than relating specifically to project implementation, several covenants aimed to improve sector governance. To this end, the borrower has initiated sector governance reforms, undertaken legal initiatives, and adopted proper safeguard standards. The status of compliance with the major loan and grant covenants is in Appendix 7. H. Related Technical Assistance 24. Advisory TA financed by the Government of France for $980,000 supported the Government of Viet Nam s efforts to reform and modernize VNR s business processes and operations. 15 The TA s expected impact was to attain cost-effective and efficient railway services. The expected outcome was a modernized financial accounting and management system implemented on a pilot basis and an improved railway cross-border operation at the Hekou-Lao Cai border. The expected outputs were (i) a new and improved financial and accounting management system implemented in selected VNR units, and (ii) a template for the improvement of cross-border facilities and procedures. The TA performance was rated successful based on the evaluation of outputs and achievement of outcome: 16 (i) The first component involved modernizing VNR s financial accounting and management system to provide VNR with more accurate, relevant, and up-to-date financial information. The system was to be piloted in selected VNR business units before being implemented in the whole organization. The TA has resulted in 15 ADB Technical Assistance to the Socialist Republic of Viet Nam for Strengthening Operations and Business Processes in Viet Nam Railways. Manila (TA 7018-VIE). 16 ADB Technical Assistance Completion Report: Strengthening Operations and Business Processes in Viet Nam Railways. Manila. (IN.1-12)

20 8 (ii) recommendations to improve VNR s accounting system and financial management practices, and the implementation of a fully functional pilot financial management information system in selected VNR business units. VNR departments concerned with financial management were fully involved in the development of the new system, and the training provided by the consultants was rated effective and appropriate. VNR management and concerned departments have expressed their satisfaction with the new system and have at least partially implemented the TA recommendations. The second component aimed to enhance railway cross-border operations at the Hekou-Lao Cai railway border crossing. It involved implementing more efficient procedures and installing better facilities. The improved arrangements would later be replicated at VNR s other railway border crossings, such as those existing or planned with Cambodia, the People s Republic of China (PRC), and the Lao People s Democratic Republic. The TA resulted in useful recommendations to improve cross-border operations based on international practices. The recommendations for improving passenger and freight flows and facilities in Lao Cai Station have subsequently been incorporated in the detailed designs to improve the border-crossing point. Border crossing point operations at Lao Cai have benefited from the TA results. 25. The TA component of modernizing VNR s financial accounting and management system is one facet of the railway s all-embracing reform program (para. 16). While the overall program and implementation have progressed satisfactorily, successful completion of the TA activities is dependent on the overall program completion. Using pilot projects that would be replicated once the whole program and a new railway organization were in place was an effective approach. Implementation of the overall program is continuing and on track. VNR officials have cautioned that a longer-term perspective has to be applied to railway reforms, as there are many barriers to change. This is consistent with ADB experience gained with railway reforms in other developing member countries. I. Consultant Recruitment and Procurement 26. Consultants. Consistent with the different financing modalities, two sets of consultants provided services for the project. The first set involved consultants recruited for design and construction supervision and for IPIS, and were financed from the ADB loan. The second set involved consultants engaged to provide services under the advisory TA financed through a French government grant. The consultants were recruited using the quality- and cost-based method following ADB s Guidelines on the Use of Consultants (2013, as amended from time to time). There were no deviations from agreed-upon procedures, nor were there any disagreements between the borrower and ADB on consultant selection. 27. Procurement. Prequalification of contractors for civil works, which preceded the bidding process, resulted in the selection of five contractors. 17 Based on the ADB-approved revised procurement plan from December 2010, the three construction packages for track upgrading were awarded through international competitive bidding following ADB s Procurement Guidelines (2015, as amended from time to time). The contract for the reconstruction of the Lao Cai Station was awarded through national competitive bidding using the government s procurement guidelines, as accepted by ADB. 17 The list consisted of two Chinese, two Korean, and one Indian contractor; of these, four contractors were declared eligible to bid for the three packages, and one was declared eligible for construction package 1 (CP1) only.

21 9 28. The civil works packages were completed successfully within the envisaged contract period. Several variations orders were processed to adjust the quantities to the works completed. The final costs of CP2 and construction package 3 (CP3) remained within the original contract price because the increased base cost resulting from changes in quantities and price escalation could be absorbed by the contingency allowance. In contrast, construction package 1 (CP1) and construction package 5 (CP5) exceeded the original contract price mainly because of a substantial increase in quantities. Specifically, the additional ballast required for CP1 resulted from an unrealistic assumption that the ballast was suitable for re-use. The need to expand the Lao Cai temporary station to accommodate passenger traffic and to rebuild the station caused the cost increase of CP5. It should also be noted that the activities of the original construction package 4 (CP4), which remained after the reduction in project scope, were assigned to CP3 and CP5. J. Performance of Consultants, Contractors, Concessionaire, and Suppliers 1. Consultants 29. One team of consultants was engaged under the advisory TA, while three teams were involved in project implementation to assist with (i) the detailed design, (ii) construction supervision, and (iii) IPIS. (i) (ii) (iii) (iv) Advisory technical assistance consultants. The consultants performed satisfactorily and delivered the outputs effectively and on a timely basis. The advisory TA produced all planned outputs of high quality within budget. The quality of the analysis and recommendations was good. Specifically, the consultants recommendations for improving passenger and freight flows and facilities at Lao Cai Station were timely and were a useful contribution to the loan project. The consultants outputs were within budget and delivered on time. Detailed design consultants. The consultants performance was less than satisfactory because they failed to deliver the design and bidding documents within the required period. Although the contract was terminated in April 2010, the consultants continued their services until being demobilized in December Construction supervision consultants. The consultants acted as the Engineer and representative of the client, consistent with the FIDIC conditions of contracts. Their performance was marginally satisfactory, given the several replacements of the team leader. The consultants also encountered problems in establishing proper supervision procedures, which led to inadequate monitoring of contractors and delayed endorsement of contractors payment certificates. Although their quality improved during the project, the progress reports format and content failed to meet requirements. Independent project implementation support consultants. The consultants supported the executing agency and its implementation units RPMU and subsequently PMU-Rail in the bidding and award of construction packages, taking-over of works, and processing of contractors Interim Payment Certificates. They developed a management information system and monitored the project s physical and financial progress. The consultants contributed to enhancing the capacity of PMU-Rail by preparing manuals for contract management. The client and ADB appreciated the consultants performance, which is rated satisfactory.

22 10 2. Contractors 30. The performance of the three international contractors was partly satisfactory. The performance of the national contractor solely responsible for CP5 was satisfactory. The Lao Cai Station works were completed on time and met the quality requirements. All three international contractors while meeting their contractual obligations exercised insufficient supervision and control over their subcontractors. 18 Areas of concern throughout the implementation of works resulted from inadequate monitoring of completed works and recording of test results, as well as delayed issuance of completion certificates. These weaknesses generated significant delays in processing interim payment certificates and submitting as-built plans. The transfer of knowledge from the international contractors to the national subcontractors was limited. The contractors partly satisfactory performance may have been a result of insufficient staff resources. The contractors did not mobilize the required staff even after the Employer had requested them to do so. 31. Based on progress, quality, and safety criteria, subcontractors performance differed between satisfactory and unsatisfactory. Late payments of the main contractors caused delays of some subcontractors. Insufficient capacities, a lack of equipment and qualified manpower, and lax compliance with safety rules contributed to the subcontractors overall partly satisfactory performance. The poor adherence to safety rules has caused some train derailments. Despite many reminders by the Engineer and the Employer, subcontractors workers did not wear the required safety outfits. The contractors rectified the shortcomings toward the end of implementation. 3. Suppliers 32. Supplies consisted of rails and turnouts, which were procured through a competitive bidding process. The performance of the supplier was satisfactory. The goods were delivered on time and their quality was consistent with the technical specifications. Some of the newly installed rails showed defects about 18 months after project completion. 19 Engineers of VNR and the supplier jointly conducted an evaluation, which revealed the defects were likely caused by the rolling stock in use coupled with poor train operation. The defective rails were subsequently replaced. K. Performance of the Borrower and the Executing Agency 33. The borrower and the executing agency performed satisfactorily. During the initial phase of implementation, the executing agency had to get used to the practices and procedures of the donor agencies involved in the project, which caused some friction. When it came to deciding on the change in scope and whether or not to meet the cost increase by raising the financing amount, the donors unanimously agreed to reduce the scope, rather than providing more financing. The underlying assessment was that the executing agency would be overburdened with an increased resource envelope. Subsequently, the executing agency responded effectively to the need to adjust the project scope to the available financing. The decision of assigning the executing agency role to MOT (para. 21) helped improve implementation, owing mainly to MOT s previous exposure to internationally funded projects. PMU-Rail and the Project Management Department No.4 were instrumental in bringing the project to a successful end. The participation of all concerned government agencies in preparing this project completion report deserves recognition. 18 The civil works were carried out by 14 subcontractors: three subcontractors were involved in CP1, six in CP2, three in CP3, and two in CP5. Some of these subcontractors were involved in more than one construction package. 19 Defects included rail burning, rail contact fatigue, and lateral wear.

23 11 L. Performance of the Asian Development Bank 34. ADB s performance was satisfactory. ADB s less-than-satisfactory performance during the design stage has precluded a highly satisfactory rating. In contrast, ADB s project supervision and management during implementation is rated highly satisfactory. AFD and Direction Générale du Trésor (DGT) have commended ADB for its productive and effective role as lead coordinating agency. 35. The project design had some shortcomings, which led to unrealistic assumptions about the development results and thus caused the substantial reduction in project scope (para. 8). A contributing factor was the choice to use ADB s feasibility study as a basis for determining the project s financing needs. Feasibility studies do not ensure project readiness and rarely deliver results exact enough to serve as a basis for final financing arrangements. That the external financing became a binding constraint may be attributable to the impasse, which implementation had reached in Proper assessment of risks should have explored, however, whether the government would be able to close the financing gap arising from an increase in project cost. III. EVALUATION OF PERFORMANCE A. Relevance 36. The project is rated relevant. The intended outcomes were strategically aligned with Viet Nam s development priorities as well as with ADB s corporate strategies and country partnership strategy. The continued relevance is reflected in the government s Master Plan for the Development of Viet Nam s Railway Transport, which proposes gradual and consistent modernization and expansion of the country s railway sector (para. 7) Some design deficiencies detracted from a highly relevant rating. Sector details, such as the condition of rolling stock and the emergence of a competing mode of transport, should have been more adequately recognized as risks to be mitigated or constraints to be removed. 38. The assessment of risks should have considered the age profile of VNR s fleet of rolling stock, which has been and is a constraint to efficient railway operations. 21 The risk of traffic diversion to the new expressway was recognized. ADB s project appraisal assumed that the modal split would evolve consistent with the railway s comparative cost advantage, as predicted by the feasibility study (footnote 4). The subsequent developments (paras ), which led to a reduction of rehabilitation work and a weakening of the railway s competitive position, rendered this assumption invalid. The assumed cost advantage did not materialize to the extent originally expected. It must also be recognized that factors other than the cost of transport determine the modal choice of shippers. 22 For reasons discussed (para. 12), the project scope had to be reduced and the outcomes and targets adjusted. As a substantial part of the original rehabilitation works was not accomplished, the envisaged efficiency increases and the project s subregional impact hinge on the completion of the entire line. 20 The Prime Minister of the Socialist Republic of Viet Nam Approving the Adjusted Master Plan on Development of Vietnam s Railway Transport Through 2020, with a Vision Toward Hanoi. 21 At the project s design stage, some of the donors, notably DGT, had proposed including a rolling stock component. However, at that stage VNR had plans to procure rolling stock from the PRC. The plan did not materialize and as such represented a risk, which the project design should have recognized. 22 The choice of a mode of transport is not determined by cost alone. Shippers and consignees frequently prefer truck forwarders, despite their higher cost, to railways. The preference results from the possibility of just-in-time and doorto-door deliveries.

24 12 B. Effectiveness in Achieving Outcome 39. The project is rated less than effective in achieving the expected outcomes. The key outcome of the retrofitted DMF was efficient rail transportation system, which was not fully achieved. However, the outcome was to be partly reflected in safer road transport. With the decline in the frequency of road-related accidents, this outcome was achieved. The project s focus on rehabilitation and partial reconstruction was oblivious to the impact of the aged rolling stock, which remains a major impediment to the railway s competitiveness. ADB addressed a potential rolling stock bottleneck. However, the attempt was too narrowly focused on the number of rolling stock and the horsepower of locomotives The approach of using a feasibility study as a basis for the financing arrangements proved to be ineffective given the binding financing constraint. Because the project s scope was curtailed, the project line s competitiveness has not been fully restored. The result has been loss in traffic to the competing expressway. C. Efficiency in Achieving Outcome and Outputs 41. The project is rated less than efficient. The economic internal rate of return (EIRR) of the completed project as recalculated by the PCR applying the original methodology is 9.9%, which is lower than the appraisal estimate of 15.7% and below ADB s benchmark of 12.0%. The completed project will not to the extent originally assumed realize benefits accruing from the cost differential between road and rail transport. In addition, the operating speed on the rehabilitated track results in longer-than-expected train turnaround times and lower capacity utilization, and thus higher unit costs of rail transport. 24 The delayed pre-construction activities are not fully reflected in the revised EIRR and therefore constitute an additional element of poor efficiency. 25 Details of the revised economic analysis are in Appendix The result of the financial analysis confirms the less than efficient rating. The financial internal rate of return is estimated to be -2.1% based on actual and forecast traffic. Details of the financial analysis are in Appendix 9. D. Preliminary Assessment of Sustainability 43. The project is rated less than likely sustainable. The rating borders on likely sustainable. However, the prevailing uncertainty about the implementation and financing of the Phase 2 project tips the balance toward less than likely sustainable. In addition, Hanoi Railway Company (HRC) needs to consolidate the impacts of the railway sector s restructuring. The vertical separation of infrastructure ownership from railway operations and corporatization of the HRC and the Saigon Railway Company (para. 16) were helpful steps and have improved prospects for financial sustainability. While MOT sets passenger fares at a low level, freight rates are unregulated. HRC s 23 Schedule 5 of the loan agreement requires the borrower to ensure VNR deploys sufficient rolling stock and sufficient numbers of high horsepower locomotives at all times for effective operation of the project railway line. ADB Loan Agreement (Special Operations) (Greater Mekong Subregion Kunming-Hai Phong Transport Corridor: Yen Vien-Lao Cai Railway Upgrading Project) between the Socialist Republic of Viet Nam and Asian Development Bank dated 16 January Manila. 24 These constraints have contributed to the diversion of traffic from the railway to the expressway. Whereas in 2011 about 150,000 vehicles crossed the Lao Cai border in both directions, the figure has risen to 201,000 vehicles in 2016, which is equivalent to an increase of 6% per year. Trucks and buses account for the majority of the traffic. In 2016, an estimated 4 million tons of freight crossed the border. 25 The flow of economic benefits and costs starts with the first disbursement made towards a project-related contract. As most of the delays were incurred by preparatory activities, such as declaring the loans effective and recruiting consultants, their combined impact is not captured by the EIRR.

25 13 revenues cover operating costs and, in principle, a share of maintenance costs. However, as the railway infrastructure owner, MOT compensates HRC for maintenance costs incurred. In turn, HRC has to pay MOT for what is considered a lease of the infrastructure. These transfers are not reflected in the operating ratio, which is an indicator for the financial performance of commercial enterprises. 26 Nonetheless, HRC s latest operating ratios reflected a comfortable cost recovery. Overall, sustainability relies on HRC s future financial performance, the successful implementation of the Phase 2 project, and to some extent the government budget. Based on the financial data for 2014 and 2015, which reflect a downturn in HRC s financial performance, the railway line s sustainability is rated as less than likely. E. Impact 44. Environmental impact. 27 The project as designed in 2006 was not expected to have any major, long-term adverse impacts on the environment. An initial environmental examination was prepared in 2006, which identified all potential environmental impacts during all phases of implementation. As verified through a series of random interviews with stakeholders, the project was completed without any major complaint on environmental management. 45. An environmental management plan (EMP) indicating specific measures to minimize and mitigate the environmental impacts was incorporated in the initial environmental examination. It also included a monitoring program to check EMP implementation and assess the effects of construction on ambient air quality, water quality, and noise levels in the project environment. Civil works contracts specified implementing mitigation measures indicated in the EMP and the monitoring program by the contractors. ADB and PMU-Rail agreed to improve the EMP following ADB s adoption of the Safeguard Policy Statement in The project complied satisfactorily with the first two environmental covenants specified in the loan agreement. Nonetheless, environmental management could have been enhanced through continuous consultation and coordination with stakeholders and a more proactive supervision program during construction. Delays were encountered in implementing EMP mitigation measures and submitting semiannual environmental monitoring reports, which the third and fourth environmental covenants had required. Problems during construction related to the management and disposal of construction spoils, blockages of canals and culverts, lack of or inadequate personal protective equipment for workers, waste management at camp sites, and inability to secure permits to use selected disposal sites. The PMU-Rail, supervision consultants, and the contractors succeeded, however, in agreeing on time-bound corrective actions. Details of the environmental impact assessment are in Appendix Socioeconomic impact. Details on land acquisition and resettlement are in Appendix 11. An updated resettlement plan (URP) was prepared for each of the three construction packages. 28 RPMU was responsible for preparing the URPs. 29 Although the activities were at times not well coordinated, none of the affected households were displaced or required to hand over their properties before having received full compensation. The project adversely affected 1, The operating ratio is defined as cash operating costs / cash operating revenues based on realized revenues. 27 As required by the loan agreement, the project had to comply with Viet Nam s environmental laws and regulations, as well as ADB's Environment Policy (2002). 28 The packages included: CP1, covering Vinh Phuc Province and Phu Tho Province; CP2, for Yen Bai Province; and CP3, for Lao Cai Province. ADB gave its concurrence to the URP for CP2 on 10 November 2011, to the URP for CP1 on 14 October 2013, and to the URP with corrective action plan for CP3 in December Inputs into the URPs were from the detailed measurement survey, public consultations, and replacement cost surveys, and were provided by the Center for Land Fund Development of Yen Bai City and Lao Cai City, and by the Compensation, Assistance, and Resettlement Board of districts and communes outside of the cities.

26 14 households (4,445 persons), of which 224 lost 10% or more of productive landholdings and 580 lost their homes and had to relocate. The project had 10 relocation sites. 48. Project resettlement principles and entitlements as articulated in the agreed resettlement plan and contained in the loan agreement served as the basis for computing levels of compensation and other entitlements, including cash allowances. Compensation and allowances paid to affected households, including relocation site development, amounted to about $4.5 million. The affected households were aware of the grievance redress process. Their complaints pertained to the unit costs used for calculating replacement cost for affected landholdings and structures. In some instances, affected households were found to have built houses and similar structures on agriculture land. By the end of 2016, there were no outstanding or unresolved resettlement issues. 49. The income restoration program for severely affected households did not materialize. The local governments in Lao Cai and Yen Bai on their own initiative provided income rehabilitation assistance to the affected households through vocational trainings and access to credit facilities. PMU-Rail in the first quarter of 2015 carried out a comprehensive needs assessment of severely affected households and found there was no longer any need for the income restoration program, since the households had already restored their standards of living to pre-project levels. 50. Institutional impact. The project s institutional impact has been substantial. By acting as a catalyst, the project has accelerated important structural reforms (para. 17), from which the railways have emerged as a more effective organization with increased capacity to respond to the transport market needs. The skills and competencies of VNR staff have been enhanced through applying the financial management system developed under ADB TA. 51. HIV and trafficking prevention. The HIV and human trafficking prevention program has succeeded in improving knowledge and increasing awareness of related health risks and prevention measures. However, the success was limited because of the low participation of both the construction workers and the local communities, and the limited interest of the contractors. 52. Gender impact. The project was envisaged to have some gender elements. The key concern was the possible impact on the increase in human trafficking along the border of Lao Cai and the PRC. While the project was not expected to contribute to human trafficking, as crossborder rail traffic was restricted to freight, the significance of the problem caused the government and development partners to launch an awareness campaign on human trafficking. The campaign was carried out with the help of a nongovernment organization active in the project area, and was conducted at different phases of implementation. The gender component also included training for staff from the project management unit and other agencies, focusing on training female leaders to increase their participation in implementing HIV and human trafficking prevention. The components were implemented successfully. IV. OVERALL ASSESSMENT AND RECOMMENDATIONS A. Overall Assessment 53. The project is rated relevant, less than effective, less than efficient, and less than likely sustainable. The project was implemented with significant changes in scope and significantly behind its original schedule. The project's design was less than robust. Project outputs have not been delivered as originally envisaged, and the project s goals were only marginally achieved. The project s impact on subregional transport and trade as well on the railway s competitiveness will depend on the completion of the project as originally planned. Overall, the project is rated less than successful. Details of the evaluations and ratings are in Appendix 12.

27 15 B. Lessons 54. The pre-construction activities caused 3 years of implementation delays. The inflation, which surged from 2005 to 2009, affected prices of construction materials. The ensuing cost overruns triggered a change in scope and a substantial reduction in targeted project outputs. Increases in project cost are not uncommon and rarely lead to a reduction in scope. For the project, the fixed financing amount was the decisive factor, as neither the donors nor the government appeared willing to raise their financing share. The lesson drawn from this experience is to either (i) await a more robust cost estimate (typically produced by the detailed design activity), or, (ii) if time is of the essence and finalization of detailed designs cannot be awaited, make financing arrangements flexible enough to respond to foreseeable cost increases Another lesson is relevant to railway projects and more generally to projects dealing with complex systems. As railways consist of interconnected systems, trying to remove a constraint in one subsystem will not necessarily improve the entire system. Also, a localized, single deficiency can trigger cascading failures. For the project, the intended outcome a more efficient rail transportation system explicitly referred to the entire system and was inconsistent with the limited scope of the interventions. The reduced project scope was not able to achieve the modified development results, given that major constraints in the system remained unaddressed and unrecognized. The unfinished rehabilitation program and the inefficient rolling stock have reduced the comparative cost advantage of rail versus road transport (footnote 19). C. Recommendations 56. Scope of Phase 2 and financing. A government priority for proposing the launch of Phase 2 of the project is to restore competitiveness of the project line, particularly in relation to the expressway. However, the scope of Phase 2 should be reviewed given the developments that have occurred since the project was formulated in The scope would include all components omitted by the completed project, excluding those that VNR has in the meantime rehabilitated using its own resources. The government may wish to consider including the proposed Phase 2 in a larger program. VNR s new master plan and strategy will provide a sound basis for addressing the system s remaining bottlenecks holistically. In this regard, ADB s regional TA Connecting the Railways in the Greater Mekong Subregion will help to better understand the regional rail options, proposed investments involved in the options, and potential viability and financing alternatives. 31 The TA could also cover financing opportunities for railway projects in Viet Nam, including the envisaged Phase 2 or a modified version thereof. 57. Timing of the project performance evaluation report. 32 Because of the unsatisfactory stage of the project at loan closure, the preparation of a project performance evaluation report appears desirable. Its timing would have to depend on the progress of works needed to complete the proposed Phase 2 of the project. 30 Feasibility studies are expected to produce cost estimates with a +/-15% margin of error. However, the exact nature and scope of railway infrastructure rehabilitation cannot be assessed accurately within the timeframe usually available to carry out such studies (para. 10; footnote 8). 31 As an output, the TA will demonstrate the impact on the regional network of the various projects in the Greater Mekong Subregion (GMS) member countries. The TA will also assess realistic timeframes for rail connectivity, linking growth in demand to future points when potential rail improvements and investments achieve acceptable levels of viability. 32 The project performance evaluation report of ADB s Independent Evaluation Department is usually carried out when outcomes and impacts can be well assessed. This would typically be 5 years or more after project completion. The basis for the evaluation will be the project s DMF because it reflects what the project intended to achieve.

28 16 Appendix 1 Design Summary Impacts ORIGINAL DESIGN AND MONITORING FRAMEWORK Performance Targets/Indicators Data Sources/Reporting Mechanisms Assumptions and Risks Assumptions Comments Increased cross-border trade with Yunnan Province in the PRC Accelerated economic growth in northern Viet Nam Viet Nam Yunnan Province trade increased by 15% p.a. between 2011 and 2020 GDP per capita in the project area outside Hanoi increased to 70% of the national average by 2020 Project completion reports Railway physical and financial performance reports Government statistics and accounts Rehabilitation and institutional reforms are completed as planned Continued commitment by the governments to regional cooperation Streamlined and efficient crossborder operation, and no barriers to trading and travel by people The assumption is tautological. The DMF should not include assumptions and risks that can affect the planned completion of such activities. It was known at project appraisal that the track conversion to standard gauge at the Yunnan side of the corridor would impact cross-border operations. Outcome Risk Downturn in economic growth Assumptions If the impact is accelerated economic growth the risk of downturn in economic growth is tautological. More efficient rail transportation system that will meet transport demand to 2020 Financially sustainable railway operation Improved traffic safety Improved governance of VNR Railway rehabilitation and upgrading works completed by 2011 Railway fully meets railway freight transport demand to 2020 Railway operation commercially viable by 2015, and incremental revenues sufficient to meet debt-service requirements of the rehabilitation loan Number of accidents on the railway reduced by 25% and on adjacent roads by 10% by 2015 All implementing decrees for the Railway Law in force Progress reports made by construction supervision consultants Reports of project review missions and post-evaluation surveys Annual results of the railway s physical and financial performance Rail and road accident statistics Government accounts The PRC-assisted signaling project is completed on schedule Government is committed to railway reform Railway tariff set at full cost recovery level Donor agencies agree to provide technical assistance for reforms Risks Cross-border traffic suffers if meter gauge on the PRC side is replaced by a standard gauge railway The target to achieve commercially viable operations and full cost recovery is in denial of vast international experience. An attempt to achieve full cost recovery would have made the railway even less competitive. The conversion to standard gauge was a foregone conclusion at project appraisal, so the perceived risk could have been mitigated by the project. The risk of declining cross-border traffic is not exogenous to the project design.

29 Appendix 1 17 Design Summary Outputs 1. Railway infrastructure rehabilitation and upgrading, along with all associated resettlement and social mitigation activities on Yen Vien-Lao Cai railway line 2. Agreed agenda for institutional strengthening to ensure financial sustainability of railway operations 3. Agreed agenda for railway reform for facilitating the implementatio n of the Railway Law that seeks to provide opportunities for private sector participation in the development of railway infrastructure and operations Performance Targets/Indicators by mid-2007; modern accounting and management reporting systems deployed throughout VNR implemented in 2010 Realignment, embankment stabilization, track renewal, bridge building and repairs, building station facilities for upgrading line capacity, and safety works at level crossings completed All affected people compensated in full and on schedule Final report submitted by institutional strengthening consultants by June 2007 with recommendations on financial management and financial sustainability of VNR Railway reform enables implementation of the Railway Law Data Sources/Reporting Mechanisms Reports of review missions and progress reports of construction supervision consultants Midterm review and project completion report Railway accounts and user surveys Reports of consultants for institutional strengthening for financial sustainability of railway operations Reports of consultants for preparing implementing regulations for the Railway Law Assumptions and Risks Rail traffic does not materialize as forecast Assumptions Government implements the consultants recommendations for strengthening financial management and improving VNR s financial performance Continued support of the German government to help VNR with reforms and preparation of implementing regulations Government s approval of implementing regulations for the Railway Law in a timely manner Government s approval of the reform agenda for strengthening financial institutions to ensure sustainability, and VNR s implementation of the reform agenda in a timely manner Risk Wavering of political support for reforms Comments

30 18 Appendix 1 Activities with Milestones 1. Preliminary design of the project components: completed by July Recruitment of consultant services for project design and supervision: ADB approval of advance action by August 2006; consultants recruited by June 2007; consultants fielded by July 2007; and consultants work completed by December Recruitment of consultants for institutional strengthening: services to be started in April 2008 and completed by February Detailed design and drawings of the project components, prequalification and bidding documents, civil works contracts awarded in October Land acquisition and resettlement: started by January 2008 and completed by December Civil works and track works, including realignment, stabilization of embankments, bridge rehabilitation, upgrading station facilities, and safety works: started in October 2008 and completed by June Inputs ADB: $60 million AFD: $40 million (equivalent) DGTPE: $37.5 million (equivalent) Government of Viet Nam: $22.5 million Government of Germany: Continued funding of ongoing program for railway reform through GIZ ADB = Asian Development Bank, AFD = Agence Française de Développement, DGTPE = Directorate-General for Treasury and Economic Policy, DMF = design and monitoring framework, GDP = gross domestic product, GIZ = Deutsche Gesellschaft für Internationale Zusammenarbeit, PRC = People s Republic of China, VNR = Viet Nam Railways.

31 RETROFITTED DESIGN AND MONITORING FRAMEWORK Design Summary Impacts Performance Targets/ Indicators Data Sources/Reporting Mechanisms Assumptions and Risks Comments Status at Project Completion Assumptions Impact yet to be achieved Increased crossborder trade with Yunnan Province in the PRC Viet Nam Yunnan Province trade increased by 15% p.a. between 2011 and 2020 Project completion reports Railway physical and financial performance reports Government statistics and accounts Streamlined and efficient crossborder operation; no barriers to trading and travel by people Rehabilitation and institutional reforms completed as planned Continued commitment by the governments to regional cooperation The assumption is endogenous to the project design. It was known at the stage of project rescoping that track conversion to standard gauge in Yunnan would impede crossborder operations. The value of cross-border trade between the PRC and Viet Nam has decreased from 2012 to 2015 because of constraints unrelated to the project. Traffic on the railway grew by about 5% from 2015 to 2016: While the freight volume to Yunnan increased by 58.3% in 2016 over the previous year, the freight volume originating from Yunnan dropped sharply, so much so that the overall volume for both directions increased by only 5.3%. Track rehabilitation and upgrading works as revised in 2011 were completed mid VNR is committed to complete the balance work excluded from the project under a second phase. Risk Institutional reforms were completed. The government remains committed to regional cooperation. Outcome Downturn in economic growth Assumption More efficient rail transportation system Travel time reduced by 13% from 9 hours in 2012 Number of accidents on Annual results of the railway s physical and financial performance Rail and road accident statistics The PRC-assisted signaling project is completed on schedule The reduction in travel time alone is not a suitable indicator for more efficient rail operations. Travel time reduced from about 5.7 hours to 4.9 hours (11%). Travel time is net of halts at stations. Appendix 2 19

32 Design Summary Performance Targets/ Indicators the railway reduced by 25% and on the adjacent roads by 10% by 2015 Data Sources/Reporting Mechanisms Assumptions and Risks Comments Status at Project Completion Traffic throughput The quantity of freight carried by rail decreased should also be because of (i) ongoing construction on the reflected to project line, (ii) the opening of the Noi Bai to measure efficiency Lao Cai Expressway in 2015 giving shippers of the operations other transportation choices, and (iii) continuing though reduced lack of competitiveness. 20 Appendix 2 Risk Rail traffic does not materialize as forecast This risk is not exogenous to the project design. In fact, the project components all aim to stimulate traffic growth. No train accidents have occurred on the Yen Vien-Lao Cai railway section since the completion of civil works in mid Outputs Railway infrastructure rehabilitation and upgrading, along with all associated resettlement and social mitigation activities on Yen Vien-Lao Cai railway line Financial management capacity of VNR improved Railway rehabilitation and upgrading works completed by 2012 Recommendati ons made by consultants for strengthening financial management and improving VNR's financial performance implemented by the government Reports of review missions and progress reports of construction supervision consultants Midterm review and project completion report Railway accounts and user surveys Assumptions Government approval of the reform agenda for strengthening of financial institutions to ensure sustainability, and VNR's implementation of the reform agenda in a timely manner Risk Wavering of political support for reforms The civil works were substantially completed by June As of December 2015, resettlement activities were substantially completed. The VNR financial management reform has been implemented as part of the ongoing VNR institutional reform supported by the government.

33 Activities with Milestones Railway infrastructure rehabilitation and upgrading, along with all associated resettlement and social mitigation activities on Yen Vien-Lao Cai railway line Activity Scheduled Start Scheduled Finish Preliminary design of the project 1 Jul Dec 2007 components completed by December 2007 Procurement activities completed and construction commenced by October Dec Dec Actual Inputs ADB: $60.0 million AFD: $40.0 million DGT: $37.5 million Government: $22.5 million Activities with Milestones Financial management capacity of VNR improved Activity Scheduled Start Scheduled Finish Institutional strengthening consultants recruited by March Oct Mar 2008 Institutional strengthening consultants services completed by March Apr Mar 2010 ADB = Asian Development Bank, AFD = Agence Française de Développement, DGT = Direction Générale du Trésor, PRC = People s Republic of China, VNR = Viet Nam Railways. Sources: Ministry of Transport Viet Nam, Railway Project Management Unit Yen Vien - Lao Cai Railway Upgrading Project. Completion Report. Hanoi. CDM Smith and DB International GmbH JV Yen Vien - Lao Cai Railway Upgrading Project - Project Performance Monitoring Evaluation (PPME): Updated Data Report. Hanoi. ADB REG: Viet Nam: GMS Kunming-Haiphong Transport Corridor: Yen Vien-Lao Cai Railway Upgrading Project. Draft Design and Monitoring Framework. Manila. ADB Project Completion Mission. February Operational information received from Lao Cai Station management. Appendix 2 21

34 ORGANIZATIONAL STRUCTURE OF VIET NAM RAILWAYS AFTER THE REFORMS MANAGEMENT BOARD INSPECTORATE 22 Appendix 3 BOARD OF DIRECTORS HEAD OFFICE Administrative Dept. Personnel Dept. Finance & Accounting Dept. Infrastructure Management Dept. Internal Inspection Dept. Operations Dept. Construction & Investment Management Planning & Business Dept. Railway Security & Safety Dept. Rolling Stock Dept. International Cooperation - Science & Technology Dept. DEPENDENT ACCOUNTING UNITS 1. Operations Control Center PROJECT MANAGEMENT UNITS 1. RPMU, Region 1 JSC WITH OVER 50% OF CHARTERED CAPITAL HELD BY VNR railway JSCs TWO-MEMBER LIMITED COMPANIES AND OTHER AFFILIATED COMPANIES 2. Railway College 3. Railway Healthcare Center 2. RPMU, Region 2 3. RPMU, Region signalling and telecom JSCs 3. Di An Train JSC Railway Facility Branches 4. Gia Lam Train JSC 5. 5 Locomotive Branches 5. 2 Railway Transport JSCs JSC= joint stock company RPMU = Railway Projects Management Unit, VNR = Vietnam Railways. Source: Government of Viet Nam, Ministry of Transport Report on the Results of the Reforms to Restructure Vietnam Railways Corporation during Hanoi.