Completion Report

Project Number: 39175-013 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.

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 = $1.485332 SDR1.00 = $1.3922

$1.00 = €0.799169 $1.00 = €1.3822a

D1.00 = $0.00006220 D1.00 = $.00003281 a The euro–dollar rate of exchange is that prevailing on the Agence Française de Développement loan closing date of 30 April 2014.

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 DGT

– –

District CARB Direction Générale du Trésor

DMF DMS EIRR

– – –

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 m2

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

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 A. Ahonen, Senior Transport Specialist, SERD Team members 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.

CONTENTS

Page

BASIC DATA i

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 16

2. Retrofitted Design and Monitoring Framework 19

3. Organizational Structure of Viet Nam Railways after the 2013–2015 Reforms 22

4. Project Costs – Estimated and Original 23

5. Disbursement from Financing Sources 24

6. Implementation Schedule 25

7. Status of Compliance with Loan Covenants 26

8. Revised Economic Evaluation 37

9. Revised Financial Evaluation 41

10. Environmental Safeguards Assessment 43

11. Social Safeguards Assessment 46

12. Rating of Project Performance 52

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 2006 25 August 2006 13 November 2006 14 November 2006 19 December 2006 16 January 2007 16 April 2007 25 September 2007 1 31 December 2012 21 December 2016 1 31 December 2012 30 April 2014 1.0% per annum during the grace period 1.5% per annum thereafter 32 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

Final Disbursement

20 December 2016

Time Interval

95 months

Effective Date

25 September 2007

Original Closing Date

31 December 2012

Revised Closing Date

31 December 2015

AFD Initial Disbursement

04 March 2009

Final Disbursement

22 April 2014

Time Interval

62 months

Effective Date Original Closing Date Revised Closing Date

25 May 2007 31 December 2012 30 April 2014

b. Amount (SDR million)

Category Original

Allocation

Last Revised

Allocation Dec 2015

Amount Canceled

Net Amount Available

Amount Disbursed

Undis-bursed

Balance

01-Works 14.441 36.527 36.527 35.530 0.997

02-Equipment – Track Renewal

16.394 - - - - -

03-Environment Protection 0.579 - - - - -

04-Consulting Services 3.242 - - - - -

04A-Consulting Services Design

1.217 - 1.217 0.996 0.221

04B- Construction Supervision Independent Project Implementation Support

2.323 - 2.323 2.258 0.065

05-Interest Charge 1.118 0.328 - 0.328 0.285 0.043

06-Unallocated 4.621 - - - - -

Total 40.395 40.395 - 40.395 39.069 1.326

C. Project Data

1. Project Cost ($ million)

Cost Appraisal Estimate Actual

Foreign Exchange Cost 96.21 92.92 Local Currency Cost 63.79 61.62 Total 160.00 154.54

iii

2. Financing Plan ($ million)

Cost Appraisal Estimate Actual

Implementation Costs Borrower Financed 22.50 17.19 ADB Financed 60.00 55.31 AFD Financed 40.00 42.52 DGT Financed 37.50 39.11 Total 160.00 154.13

IDC Costs Borrower Financed 0.00 0.00 ADB Financed 1.66 0.41 Total 161.66 154.54 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 Costa Civil Works 35.75 88.58 Equipment and Track Renewal 78.02 39.11 Land Acquisition, Resettlement, and Social Mitigation 5.61 7.47 Environmental Mitigation and Monitoring 1.43 0.00 Consulting Services for Design, Supervision, and Administration

8.03 9.56

Taxes 12.17 4.38 Subtotal (A)b

Other Government-Fund Services

141.01

0.00

149.10

5.03 B. Contingenciesc 17.33 0.00 C. Financing Charges During Implementationd 1.66 0.41 Total (A + B + C) 160.00 154.54 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 2007 5 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 2008 13 June 2013 Completion of Work December 2011 30 June 2015 CP2 Date of Award October 2008 15 November 2011 Completion of Work December 2011 28 February 2015

iv

Item Appraisal Estimate Actual

CP3, CP4 Date of Award October 2008 28 November 2012 Completion of Work December 2011 3 June 2015 CP5

Date of Award October 2008 15 May 2013 Completion of Work December 2011 31 March 2015 Equipment and Supplies Equipment and Track Renewal Dates Date of Award October 2008 15 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

Ratings

Development Objectives Implementation Progress

From 31/12/2006 to 30/06/2007 Satisfactory Satisfactory Satisfactory Project Ratings

Actual Problem Potential Problem Potential Problem On Track On Track On Track Potential Problem On Track On Track

Satisfactory From 31/07/2007 to 31/08/2007 Unsatisfactory From 30/09/2007 to 31/12/2010 Satisfactory 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

D. Data on Asian Development Bank Missions

Name of Mission

Date

No. of Persons

No. of Person-

Days Specialization of

Membersa

Fact-Finding Mission 15–26 May 2006 8 96 c, f, g, h, i, m, n(2) Appraisal Mission 14–25 Aug 2006 6 72 c, f, i, n, o(2) Inception Mission 20–24 Aug 2007 3 15 f, j, k Review 1 19–21 Feb 2008 2 6 e, f Review 2 30 Sep–2 Oct 2008 3 9 c, e, j Review 3 9–13 Mar 2009 4 20 c, e, j(2) Special Review 1 29 Sep–1 Oct 2009 2 6 e, l Review 4 16–23 Nov 2009 5 40 e, g, i, j, o Review 5 20–26 Jan 2010 5 25 b, e, g, l, o Review 6 22–24 Mar 2010 2 6 a, e

v

Name of Mission

Date

No. of Persons

No. of Person-

Days Specialization of

Members

Review 7 22–23 Apr 2010 6 12 a, b, e, f, j, l Special Review 2 25–27 Aug 2010 3 9 a, e, f Special Review 3 6–8 Dec 2010 3 9 a, e, f

Review 8 18–27 Jan 2011 6 60 d, e, f, g, l, o Special Review 4 13–17 Jun 2011 2 10 e, l Special Review 5 Special Review 6

4–5 Aug 2011 26–29 Sep 2011

4 5

8 20

d, e, f, g, l d, e, f, g, l

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

9–12 Jan 2012 16–19 Jan 2012

8–9 Nov 2012 1–7 Mar 2013 2–9 May 2013 8–17 Oct 2013

25 Mar–7 Apr 2014 1–5 Dec 2014

22–26 Jun 2015 4–8 Jan 2016

19–22 Jul 2016 26–27 Oct 2016 15–22 Feb 2017 22–31 Mar 2017

2 1 2 3 1 7 4 4 5 3 2 2 3 6

8 4 4 21 8 70 20 20 25 15 8 4 24 39

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.

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 2020. 2 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 2.8–3.6 by 2020. 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). 2006. 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 2005. Technical Assistance to the Socialist Republic of Viet Nam for a Multimodal Transport Study on the Kunming – Haiphong Transport Corridor. Manila.

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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.5

7. 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 2025.6 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. 2006. 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. 2006. Greater Mekong Subregion: Regional Cooperation Strategy and Program Update (2007–2009). 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. 2017. Midterm Review of Sustainable Transport Initiative Operational Plan. Manila. 7 The Prime Minister of the Socialist Republic of Viet Nam. 2015. Approving the Adjusted Master Plan on Development

of Vietnam’s Railway Transport Through 2020, with a Vision Toward 2030. Hanoi; and The Prime Minister of the Socialist Republic of Viet Nam. 2015. Approving Adjustments to the Development Strategy for Viet Nam’s Railway Transport Up to 2020 with a Vision toward 2050. Hanoi.

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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) 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.

(ii) 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.

(iii) Terminals component. Constructing an intermediate station at Mai Tung at km

124+200 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.

(iv) Safety component. Safety improvements of railroad crossings, including through replacing an entire railroad at-grade crossing at Dong Anh (km 20+700) 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.

(v) 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.

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 2011.

12. 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.11 13. 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-2015. 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 283+550 to km 292+317 with a length of 6.073 km near Lao Cai was removed from the project

Reduction in safety and efficiency

A total of about 213 km will be replaced with new rails, sleepers, and fastenings

The output was reduced to 173 km

Reduction in operating speed reduces capacity and efficiency

Construction of six new bridges Output reduced to construction of two new bridges

Reduction in capacity and efficiency

Strengthening of up to 60 substandard bridges to enable use of heavier and more powerful locomotives

22 substandard bridges (37% of the envisaged target) were excluded from the project

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. 5.02. Revised on June 2015.

12 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.

5

Original Output Reduction Impact

Constructing a new intermediate station at Mai Tung at km 124+200, including passing loops

The station and the associated passing loops were excluded from the project

Reduction in capacity

Construction and extension of passing loops (each with a length of 480 meters) at 17 stations

The scope was reduced by six stations, including about 3,000 meters of passing loops

Reduction in capacity

Upgrading station facilities at North Yen Vien, Van Phu, Yuan Giao ‘A’, and Lao Cai

North Yen Vien Station was excluded from the project

Reduction in capacity and efficiency

Construction of a road fly-over to eliminate level crossing at rail intersection Dong Anh (km 20+700)

Excluded from the project Reduction in safety and efficiency

Upgrading 31 at-grade crossings by providing improved track-crossing structure for both motorized and pedestrian road traffic

Scope was reduced by 23 crossing to 8 level crossings

Reduction in safety and efficiency

At selected unauthorized at-grade rail-crossing 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

Entire component excluded from the project

Reduction in safety and efficiency

km = kilometer. Source: PCR

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 2010. 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.

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 $154.53 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-

2015. 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 2011. However, the contract for the detailed design consultant was awarded only in February 2009 and—because of poor performance—terminated in April 2010. 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.

7

contract awarded in November 2011. 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 2014. 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. 2007. 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. 2012. Technical Assistance Completion Report: Strengthening Operations and Business Processes in Viet

Nam Railways. Manila. (IN.1-12)

8

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.

(ii) 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.

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) 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.

(ii) 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 2010. (iii) 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.

(iv) 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.

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.

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 2011. 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).20

37. 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. 11–12), 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. 2015. Approving the Adjusted Master Plan on Development

of Vietnam’s Railway Transport Through 2020, with a Vision Toward 2030. 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 door-to-door deliveries.

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.23 40. 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 8. 42. 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. 2007. 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 2007. 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.

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 2009. 46. 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 10.

47. 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 1,225

26 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 2013.

29 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.

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 cross-border 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.

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.30

55. 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 2008. 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.

16 Appendix 1

ORIGINAL DESIGN AND MONITORING FRAMEWORK

Design Summary

Performance Targets/Indicators

Data Sources/Reporting

Mechanisms Assumptions

and Risks Comments Impacts 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

Assumptions Rehabilitation and institutional reforms are completed as planned Continued commitment by the governments to regional cooperation Streamlined and efficient cross-border operation, and no barriers to trading and travel by people Risk Downturn in economic growth

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. If the impact is “accelerated economic growth” the risk of “downturn in economic growth” is tautological.

Outcome

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

Assumptions 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.

Appendix 1 17

Design Summary

Performance Targets/Indicators

Data Sources/Reporting

Mechanisms Assumptions

and Risks Comments by mid-2007; modern

accounting and management reporting systems deployed throughout VNR implemented in 2010

Rail traffic does not materialize as forecast

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 implementation of the Railway Law that seeks to provide opportunities for private sector participation in the development of railway infrastructure and operations

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

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 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

18 Appendix 1

Activities with Milestones

1. Preliminary design of the project components: completed by July 2006. 2. 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 2011. 3. Recruitment of consultants for institutional strengthening: services to be

started in April 2008 and completed by February 2010. 4. Detailed design and drawings of the project components, prequalification and

bidding documents, civil works contracts awarded in October 2008. 5. Land acquisition and resettlement: started by January 2008 and completed

by December 2009. 6. 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 2012.

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.

Appendix

2

19

RETROFITTED DESIGN AND MONITORING FRAMEWORK

Design Summary

Performance Targets/

Indicators

Data Sources/Reporting

Mechanisms Assumptions

and Risks Comments Status at Project Completion Impacts Increased cross-border 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

Assumptions Streamlined and efficient cross-border operation; no barriers to trading and travel by people Rehabilitation and institutional reforms completed as planned Continued commitment by the governments to regional cooperation Risk Downturn in economic growth

The assumption is endogenous to the project design. It was known at the stage of project re-scoping that track conversion to standard gauge in Yunnan would impede cross-border operations.

Impact yet to be achieved 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-2015. VNR is committed to complete the balance work excluded from the project under a second phase. Institutional reforms were completed. The government remains committed to regional cooperation.

Outcome 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

Assumption 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.

20

Appendix

2

Design Summary

Performance Targets/

Indicators

Data Sources/Reporting

Mechanisms Assumptions

and Risks Comments Status at Project Completion the railway reduced by 25% and on the adjacent roads by 10% by 2015

Risk Rail traffic does not materialize as forecast

Traffic throughput should also be reflected to measure efficiency of the operations This risk is not exogenous to the project design. In fact, the project components all aim to stimulate traffic growth.

The quantity of freight carried by rail decreased because of (i) ongoing construction on the project line, (ii) the opening of the Noi Bai to Lao Cai Expressway in 2015 giving shippers other transportation choices, and (iii) continuing—though reduced—lack of competitiveness. No train accidents have occurred on the Yen Vien-Lao Cai railway section since the completion of civil works in mid-2015.

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 Recommendations 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 2015. 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.

Appendix

2 21

Activities with Milestones

Railway infrastructure rehabilitation and upgrading, along with all associated resettlement and social mitigation activities on Yen Vien-Lao Cai railway line

.

Actual Inputs

ADB: $60.0 million AFD: $40.0 million DGT: $37.5 million

Government: $22.5 million

Activity Scheduled Start Scheduled Finish Preliminary design of the project components completed by December 2007

1 Jul 2007 31 Dec 2007

Procurement activities completed and construction commenced by October 2008

1 Dec 2006 31 Dec 2008

Activities with Milestones Financial management capacity of VNR improved

Activity Scheduled Start Scheduled Finish Institutional strengthening consultants recruited by March 2008

1 Oct 2007 31 Mar 2008

Institutional strengthening consultants’ services completed by March 2010

1 Apr 2008 31 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. 2015. Yen Vien - Lao Cai Railway Upgrading Project. Completion Report. Hanoi.

CDM Smith and DB International GmbH JV. 2015. Yen Vien - Lao Cai Railway Upgrading Project - Project Performance Monitoring Evaluation (PPME): Updated Data Report. Hanoi. ADB. 2012. 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 2017. Operational information received from Lao Cai Station management.

22

Appendix

3

ORGANIZATIONAL STRUCTURE OF VIET NAM RAILWAYS AFTER THE 2013–2015 REFORMS

JSC= joint stock company RPMU = Railway Projects Management Unit, VNR = Vietnam Railways. Source: Government of Viet Nam, Ministry of Transport. 2016. Report on the Results of the Reforms to Restructure Vietnam Railways Corporation during 2012–2015. Hanoi.

MANAGEMENT BOARD

BOARD OF DIRECTORS

INSPECTORATE

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

2. Railway College

3. Railway Healthcare Center

4. 12 Railway Facility Branches

5. 5 Locomotive Branches

PROJECT MANAGEMENT UNITS

1. RPMU, Region 1

2. RPMU, Region 2

3. RPMU, Region 3

JSC WITH OVER 50% OF CHARTERED CAPITAL HELD

BY VNR

1. 15 railway JSCs

2. 5 signalling and telecom JSCs

3. Di An Train JSC

4. Gia Lam Train JSC

5. 2 Railway Transport JSCs

TWO-MEMBER LIMITED

COMPANIES AND OTHER

AFFILIATED COMPANIES

Appendix 4 23

PROJECT COSTS – ESTIMATED AND ORIGINAL

Table A4.1: Revised Project Investment Plan ($ million)

Cost at

Appraisal Cost at

Completion

A. Base Cost

1. Civil works 35.75 88.58

2. Equipment 78.02 39.11 3. Land acquisition, resettlement, and social mitigation

5.61 7.74

4. Environmental protection 1.43 0.61 5. Consulting services

8.03 9.56 6. Taxes

12.17 4.38

7. Admin and overheads

4.14 Subtotal (A) 141.01 154.12

B. Contingencies 17.33 0.00 C. Financing charges

during implementation 1.66 0.41

Total (A + B + C) 160.00 154.53

Source: Asian Development Bank.

Table A4.2: Sources of External Financing ($ million)

ADB = Asian Development Bank, AFD = Agence Française de Développement, DGTPE = Directorate-General for Treasury and Economic Policy. Source: Project completion report.

ADB AFD DGTPE Government Total ADB AFD DGTPE Government Total

A. Base Cost

1. Civil works 21.45 14.30 0.00 0.00 35.75 50.54 38.034 0.00 0.00 88.57

2. Equipment 24.35 16.24 37.43 0.00 78.02 0.00 0.00 39.11 0.00 39.11

3. Land acquisition,

resettlement, and social

mitigation

0.00 0.00 0.00 5.61 5.61 0.00 0.00 0.00 7.74 7.74

4. Environmental Protection 0.86 0.57 0.00 0.00 1.43 0.00 0.00 0.00 0.61 0.61

5. Consulting Services 4.82 3.21 0.00 0.00 8.03 4.77 4.48 0.00 0.31 9.56

6. Taxes 0.00 0.00 0.00 12.17 12.17 0.00 0.00 0.00 4.38 4.38

7. Admin and Overheads 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 4.14 4.14

Subtotal (A) 51.48 34.32 37.43 17.78 141.01 55.31 42.514 39.11 17.184 154.12

B. Contingencies 6.86 5.68 0.07 4.72 17.33 0.00 0.00 0.00 0.00 0.00

C. Financing charges during

implementation1.66 0.00 0.00 0.00 1.66 0.41 0.00 0.00 0.00 0.41

Total (A + B + C) 60.00 40.00 37.50 22.50 160.00 55.72 42.514 39.11 17.184 154.53

Shares in Total Financing 37.5% 25.0% 23.4% 14.1% 100.0% 36.1% 27.5% 25.3% 11.1% 100.0%

Financing as allocated Financing as disbursed

24 Appendix 5

DISBURSEMENT FROM FINANCING SOURCES

Cumulative Disbursements ($ million)

ADB = Asian Development Bank, ADF = Asian Development Fund, DGT = Direction Générale du Trésor. Source: Project completion report.

-

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

2009 2010 2011 2012 2013 2014 2015 2016

DGTresor ADF ADB Total

Appendix

6

25

IMPLEMENTATION SCHEDULE

A. Pre-construction Activities

Feasibility Study

Project Appraisal

Loan Approval and Loan Closing

Loan Effectiveness

Selection of Consultants for Engineering and Supervision

Engineering and Bidding Document Preparation

Bidding of Civil Works and Aw ard of First Contract

Land Acquisition and Resettlement

Environment

B. Civil Works

Construction (CP1)

Construction (CP2)

Construction (CP3)

Construction (CP5)

D. Appraisal Implementation Schedule

Legend Appraisal Actual

ACTIVITIES 201520062005 2011 2012 2013 20142007 2008 2009 2010

26 Appendix 7

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Covenants

Ref. in Loan/Project Agreement Status of Compliance

General

1. The Borrower shall enable ADB's representatives to inspect the Project, the Goods and Works financed out of the proceeds of the Loan, and any relevant records and documents.

LA, Art. IV, Sec. 4.02

Complied with.

2. The Borrower shall take all action which shall be necessary on its part to enable VNR to perform its obligations under the Project Agreement, and shall not take or permit any action which would interfere with the performance of such obligations.

LA, Art. IV, Sec. 4.03

Complied with.

3. The Borrower shall exercise its rights under the Loan Agreement in such a manner as to protect the interests of the Borrower and ADB and to accomplish the purposes of the Loan.

LA, Art. IV, Sec. 4.04 (a)

Complied with.

4. No rights or obligations under the Loan Agreement shall be assigned, amended, or waived without the prior concurrence of ADB.

LA, Art. IV, Sec. 4.04 (b)

Complied with.

B. Project Implementation and Coordination

5. VNR shall be the Executing Agency for the Project and its responsibilities shall include procurement, withdrawal of Loan proceeds and reporting to ADB and co-financiers. The RPMU, a unit within VNR, shall be responsible for day to day Project implementation and its staff shall include sufficient qualified technical, financial and support personnel.

LA, Sch. 5, para. 1

6. VNR shall carry out the Project with due diligence and efficiency, and in conformity with sound administrative, financial, engineering, environmental, railway and public utility practices.

PA, Art. II, Sec. 2.01 (a)

Complied with.

7. In carrying out of the Project and operation of the Project facilities, VNR shall perform all obligations set forth in the Loan Agreement to the extent that they are applicable to VNR.

PA, Art. II, Sec. 2.01 (b)

Complied with.

8. VNR shall make available, promptly as needed, the facilities, services, equipment, land and other resources which are required, in addition to the proceeds of the Loan, for carrying out of the Project.

PA, Art. II, Sec. 2.02

Complied with delay. A 1 ha section at Lao Cai Station was not promptly handed over to the contractor because of the delay in compensation payments and development of the resettlement site.

9. In the carrying out of the Project, VNR shall employ competent and qualified consultants and contractors, acceptable to ADB, to an extent and upon terms and conditions satisfactory to ADB.

PA, Art. II, Sec. 2.03 (a)

Complied with.

10. Except as ADB may otherwise agree, all Goods, Works and consulting services to be financed out of the proceeds of the Loan shall be procured in

PA, Art. II, Sec. 2.03 (b)

Complied with.

Appendix 7 27

Covenants

Ref. in Loan/Project Agreement Status of Compliance

accordance with the provisions of Schedule 4 to the Loan Agreement.

11. VNR shall carry out the Project in accordance with plans, design standards, specifications work schedules and construction methods acceptable to ADB. VNR shall furnish, or cause to be furnished, to ADB, promptly after their preparation, such plans, design standards, specifications and work schedules, and any material modifications subsequently made therein, in such details as ADB shall reasonably request.

PA, Art. II, Sec. 2.04

Complied with.

12. VNR shall take out and maintain with responsible insurers, or make other arrangements satisfactory to ADB for, insurance of Project facilities to such extent and against such risks and in such amounts as shall be consistent with sound practice.

PA, Art. II, Sec. 2.05 (a)

Complied with.

13. Without limiting the generality of the foregoing, VNR undertakes to insure, or cause to be insured, the Goods to be imported for the Project and to be financed out of the proceeds of the Loan against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable to replace or repair such Goods.

PA, Art. II, Sec. 2.05 (b)

Complied with.

14. ADB and VNR shall cooperate fully to ensure that the purposes of the Loan will be accomplished.

PA, Art. II, Sec. 2.07 (a)

Complied with.

15. VNR shall promptly inform ADB of any condition which interferes with, or threatens to interfere with, the progress of the Project, the performance obligations under this Project Agreement for the Subsidiary Loan Agreement, or the accomplishment of the purposes of the Loan.

PA, Art. II, Sec. 2.07 (b)

Complied with. The government had advised ADB of the changes.

16. ADB and VNR shall from time to time, at the request of either party, exchange views through their representatives with regard to any matters relating to the Project, VNR and the Loan.

PA, Art. II, Sec. 2.07 (c)

Complied with.

Operations

17. The Borrower shall ensure that VNR deploys sufficient rolling stock and sufficient numbers of high horsepower locomotives, at all times, for effective operation of the Project railway line.

LA, Sch. 5, Para. 4

Complied with.

18. The Borrower shall ensure that the extensions to existing passing loops and new passing loops at stations included in the Project are implemented in coordination with ongoing signaling works in order to ensure efficient and economic implementation of the Project.

LA, Sch. 5, Para. 5

Complied with.

19. The Borrower shall ensure that VNR takes all necessary measures, including adjustment of train composition, schedules, and operational speeds,

LA, Sch. 5, Para. 6

Complied with.

28 Appendix 7

Covenants

Ref. in Loan/Project Agreement Status of Compliance

when necessary, to allow both operations and period possession of the line to facilitate implementation of Works on and adjacent to the track in accordance with an agreed implementation schedule.

Reporting

20. VNR shall furnish to ADB all such reports and information as ADB shall reasonably request concerning (i) the Loan and the expenditure of the proceeds thereof; (ii) the Goods, Works and consulting services and other items of expenditure financed out of such proceeds; (iii) the Project; (iv) the administration, operations and financial conditions of VNR relevant to the Project; and (v) any other matters relating to the purposes of the Loan.

PA, Art. II, Sec. 2.08 (a)

Complied with.

21. Promptly after physical Completion of the Project, but in any event not later than three (3) months thereafter in such later date as ADB may agree for this purpose, VNR shall prepare and furnish to ADB a report, in such form and in such details as ADB shall reasonably request, on the execution and initial operation of the Project, including its cost, the performance of VNR of its obligations under this Project Agreement and the accomplishment of the purposes of this Loan

PA, Sec. 2.08 (c)

Not complied with. PMU-Rail will follow up with VNR on the preparation and submission of the report to ADB.

22. Without limiting the generality of the foregoing, VNR shall furnish to ADB quarterly reports on the execution of the Project and on the operation and management of the Project facilities. Such reports shall be submitted in such form and in such detail and within such a period as ADB shall reasonably request, and shall indicate, among other things, progress made and problems encountered during the quarter under review, steps taken or proposed to be taken to remedy these problems, and proposed program of activities and expected progress during the following quarter.

PA, Art. II, Sec. 2.08 (b)

Partly complied with, with delays. The QPRs were delayed and some improvements were required. Through an MOT decision on 13 August 2014, the project ownership was transferred from VNR to MOT. Subsequently, the RPMU, the implementing agency, was merged with MOT project management units and is known as PMU-Rail. While PMU-Rail under MOT is responsible for project implementation, the staff of the former Project Implementation Department, PID4, have been retained to ensure smooth day-to-day project management and administration. SBV formally informed ADB of these changes. A memo for a

Appendix 7 29

Covenants

Ref. in Loan/Project Agreement Status of Compliance

minor change in project implementation arrangements and amendments to LA was prepared in consultation with OGC, CTL, OCO, and SETC and approved by Director, SETC on 31 January 2015. With MOT assuming the role of EA, the ADB mission in June 2015 repeated its earlier request that VNR, MOT, and PMU-Rail assure continuous compliance with the loan covenants.

Governance

23. To ensure transparency and good governance, VNR shall publicly disclose on its website information on how loan proceeds are being used, presenting procurement contract awards, including for each contract (a) the list of participating bidders, (b) name of the winning bidder, (c) basic details on bidding procedures adopted, (d) amount of the contract awarded, (d) list of goods and/or services purchased, and (e) intended and actual utilization of Loan proceeds under each contract. The website shall be updated within two (2) weeks after each award of contract

LA, Sch. 5, para. 20

Complied with.

24. VNR shall enable ADB's representatives to inspect the Project, the Goods and Works financed out of the proceeds of the Loan and any relevant records and documents.

PA, Article II, Sec 2.10

Complied with.

25. VNR shall, promptly as required, take all action within its powers to maintain its corporate existence, to carry on its operations, and to acquire, maintain and renew all rights, properties, powers, privileges and franchises which are necessary in carrying out of the Project or in the conduct of its business.

PA, Article II, Sec 2.11 (a)

Complied with.

26. VNR shall at all times conduct its business in accordance with sound administrative, financial, environmental, railway and public utility practices, and under the supervision of competent and experienced management and personnel.

PA, Article II, Section 2.11 (b)

Complied with.

27. VNR shall at all times operate and maintain its plants, equipment and other property, and from time to time, promptly as needed, make all necessary repairs and renewals thereof, all in accordance with sound administrative, financial, engineering, environmental, railway, public utility, and maintenance and operational practices.

PA, Article II, Section 2.11 (c)

Complied with.

30 Appendix 7

Covenants

Ref. in Loan/Project Agreement Status of Compliance

28. VNR shall promptly notify ADB of any proposal to amend, suspend or repeal any provision of the Governing Laws and shall afford ADB an adequate opportunity to comment on such proposal prior to taking any action thereon.

PA, Article II, Section 2.14

Complied with.

Financial Covenants

29. The Borrower shall ensure that VNR utilizes technical assistance to be made available under the Project to optimize the Project's economic benefits and financial returns, including modernizing VNR's financial management system into a structure suitable for a modern, commercial market-based railway operations as envisaged under the Borrower's Railway Law No. 35/2005/QH11, effective 1 January 2006.

LA, Sch. 5, para. 2

Complied with.

30. The Borrower shall ensure that VNR prepares its financial statements of operations showing VNR's actual position. The financial statements shall comprise an income and expenditure statement, and balance sheet and shall be submitted to ADB within six months of the end of each fiscal year.

LA, Sch. 5, para. 3

Complied with delays. 2007 AFS submitted to ADB in January 2010. 2008 AFS submitted in October 2009. 2009 AFS submitted in June 2010. 2010 AFS submitted in April 2012. 2011 AFS submitted in October 2013. 2012 AFS submitted in April 2014. 2013 AFS submitted in December 2014. 2014 AFS submitted in November 2015. 2015 AFS submitted at the end of December 2016.

Appendix 7 31

Covenants

Ref. in Loan/Project Agreement Status of Compliance

31. Without prejudice to the generality of Section 2.09 of the Project Agreement, the Borrower shall ensure that a separate accounting system for Project expenditures is maintained in accordance with sound accounting principles. All Project accounts, including financial statements, statements of expenditures and account records, shall be audited annually as part of the regular audit of accounts and financial statements by an independent auditing firm. The consolidated audit reports (in English) shall be submitted to ADB within six months of the end of each fiscal year. The audit opinion shall include (i) a detailed description of the source of funds and expenditures made; (ii) an assessment of the adequacy of accounting and internal controls systems with respect to Project expenditures and other financial transactions, and to ensure safe custody of Project-financed assets; (iii) a determination as to whether the Borrower and VNR have maintained adequate documentation for all financial transactions, specifically including the statement of expenditures and imprest account procedures; and (iv) confirmation of compliance with this Loan Agreement's financial covenants.

LA, Sch. 5, para. 21

Complied with.

32. VNR shall maintain, or cause to be maintained, records and accounts adequate to identify the Goods, Works and consulting services and other items of expenditure financed out of the proceeds of the Loan, to disclose the use thereof in the Project, to record the progress of the Project (including the cost thereof) and to reflect, in accordance with consistently maintained sound accounting principles, its operations and financial condition.

PA, Article II, Section 2.06

Complied with delays. Through a decision from MOT on 13 August 2014, the project ownership was transferred from VNR to MOT. Subsequently, the RPMU, the implementing agency, was merged with MOT project management units, and is known as PMU-Rail. ADB approved the change in the implementation arrangement through an internal memo on 3 February 2015. ADB received the signed amendment letter from the government on 15 January 2016. Audit reports for Project Financial Accounts have been submitted following the Loan Agreement, but with delays.

32 Appendix 7

Covenants

Ref. in Loan/Project Agreement Status of Compliance

33. VNR shall (i) maintain separate accounts for the Project; (ii) have such accounts and related financial statements (balance sheet, statement of income and expenses, and related statements) audited annually, in accordance with appropriate auditing standards consistently applied, by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB; and (iii) furnish to ADB, promptly after their preparation but in any event not later than 6 months after the close of the fiscal year to which they relate, certified copies of such audited accounts and financial statements and the report of the auditors relating thereto (including the auditor's opinion on the use of the Loan proceeds and compliance with the financial covenants of the Loan Agreement as well as on the use of the procedures for imprest account/statement of expenditures), all in the English language. VNR shall furnish to ADB such further information concerning such accounts and financial statements and the audit thereof as ADB shall from time to time reasonably request.

PA, Article II, Section 2.09 (a)

Complied with.

34. VNR shall enable ADB, upon ADB's request, to discuss VNR's financial statements and its financial affairs, relevant to the Project, from time to time with the auditors, appointed by VNR pursuant to Section 2.09 (a) here above, and shall authorize and require any representative of such auditors to participate in any such discussions requested by ADB, provided that any such discussion shall be conducted only in the presence of an authorized officer of VNR unless VNR shall otherwise agree.

PA, Article II, Section 2.09 (b)

Complied with.

35. Except as ADB may otherwise agree, VNR shall not sell, lease or otherwise dispose of any of its assets which shall be required for the efficient carrying on of its operations or the disposal of which may prejudice its ability to perform satisfactorily any of its obligations under this Project Agreement.

PA, Article II, Section 2.12

Complied with.

36. Except as ADB may otherwise agree, VNR shall apply the proceeds of the Loan to the financing of expenditures on the Project in accordance with the provisions of the Loan Agreement and this Project Agreement, and shall ensure that all Goods, Works and consulting services financed out of such proceeds are used exclusively in the carrying out of the Project.

PA, Article II, Section 2.13

Being complied with.

Environment

37. The Borrower shall ensure that its laws and regulations governing environmental impact

LA, Sch. 5, Para. 16

Complied with.

Appendix 7 33

Covenants

Ref. in Loan/Project Agreement Status of Compliance

assessments, as well as ADB's Environment Policy (2002), are followed. If there is any discrepancy between the Borrower's laws and regulations, and ADB's Environment Policy, then the ADB Policy requirements shall apply.

38. The Borrower shall ensure that the contract documents for Works under the Project include specific measures in accordance with ADB's Environment Policy to mitigate negative environmental impacts caused by the construction and to give due consideration to prevention of damage to the natural environment in the design, construction, operation and maintenance of the Project.

LA, Sch. 5, Para. 17

Complied with. Remedial actions implemented to minimize environmental impacts resulting from construction activities.

39. The Borrower shall ensure that VNR implements the Environmental Management Plan (EMP) for the Project, based on the IEE, ensuring that there are adequate budget and staff resources. The Borrower shall ensure that the Project shall complies with best environmental practices and meets the mitigation and monitoring requirements in a timely manner as described in the IEE and prevents damage to the natural environment as a result of the design, construction, operation and maintenance of Project facilities. The Borrower and VNR shall cause (i) the contractors engaged under the Works contracts to comply strictly with all environmental mitigation and monitoring requirements set out in the contract documents, and (ii) the consultants engaged for construction supervision to monitor closely the compliance by contractors with the environmental impact mitigation and monitoring requirements.

LA, Sch. 5, Para. 18

Complied with.

40. The Borrower shall ensure that VNR submits a semi-annual monitoring report on the conduct of the IEE and EMP to ADB for review, and which report shall include updates on the development and implementation of mitigation measures.

LA, Sch. 5, Para. 19

Complied with some delay. Delayed submissions of SEMRs, and SEMRs needed revisions.

Resettlement

41. The Borrower shall ensure that VNR: (i) engages resettlement and gender specialist consultants to assist in updating, implementing and monitoring the Resettlement Plan (RP) and an independent monitor before commencement of any land acquisition activities; (ii) does not commence any land acquisition and relocation activities nor commence any Works until the updated RP has been prepared following detailed design and the updated RP has been reviewed and approved by ADB;; and (iii) carries out all resettlement activities in accordance with the updated RP agreed upon

LA, Sch. 5, Para. 7

Partly complied with. Land acquisition was carried out, especially in Lao Cai Province, ahead of an agreed updated RP.

34 Appendix 7

Covenants

Ref. in Loan/Project Agreement Status of Compliance

between the Borrower and ADB. The RP shall be prepared in compliance with ADB's Policy on Involuntary Resettlement and the Borrower's

laws, regulations, and procedures. In case of discrepancies between the Borrower's laws, regulations, and procedures and ADB's Policy requirements, ADB's Policy requirements shall prevail.

42. The Borrower shall ensure that the Project-affected persons (APs), including those from the host community, are compensated at replacement cost and assisted prior to displacement from their houses, land, and assets, such as they will be at least as well off as they would have been in the absence of the Project, and the poorest APs and vulnerable groups, including ethnic minority APs are assisted to help improve their socioeconomic status. No APs will be displaced from affected land until the applicable province allocates suitable alternative land for such APs within the same or a neighboring commune or pays compensation at replacement cost sufficient to purchase suitable alternative land within the same or neighboring commune.

LA, Sch. 5, Para. 8

Complied with.

43. The Borrower shall ensure timely provision of counterpart funds for resettlement to meet any unforeseen obligations in excess of the resettlement budget estimates in order to satisfy resettlement requirements and objectives.

LA, Sch. 5, Para. 9

Complied with, except for funds shortage encountered in completing the Lang Den Relocation Site Phase 2 and clearing the 1 ha VNR property at Lao Cai Station.

44. VNR shall ensure that Works contractors are not issued a notice to commence Works for a particular section of alignment until (a) compensation payment and relocation to new sites has been satisfactorily completed for that section of alignment, (b) agreed rehabilitation assistance is in place, and (c) the particular section of alignment is free of all encumbrances.

LA, Sch. 5, Para. 10

Complied with.

45. The Borrower shall ensure that, to the extent any ethnic minorities are likely to be significantly affected by the Project, the measures set forth in the Ethnic Minorities Specific Actions, as agreed between the Borrower and ADB as specified in the approved RP, are carried out in accordance with such Actions, applicable laws and regulations of the Borrower and ABD's Policy on Indigenous Peoples.

LA, Sch. 5, Para. 11

Complied with, although payment of special cash assistance to EM AHs was completed only in 2016.

Social Issues

46. VNR shall ensure that all Works contracts under the Project incorporate provisions and budget to the effect that contractors: (i) comply with all applicable labor laws and related international

LA, Sch. 5, Para. 12

Complied with. Training sessions on HIV/AIDS for workers and

Appendix 7 35

Covenants

Ref. in Loan/Project Agreement Status of Compliance

treaty obligations, and do not employ child labor; (ii) provide safe working conditions for male and female workers; (iii) implement the provisions set forth in the Project-specific Gender Strategy as summarized in para. 13 below; and (iv) carry out HIV/AIDS and Human Trafficking education and awareness campaigns in the campsites and corridors of influence and which campaigns: (A) will include women leaders and youth from Project affected households, the Women's Union, and (B) are held in coordination with the Borrower's programs and other existing initiatives.

adjacent communities were conducted through the contractors with support from provincial authorities.

Gender

47. District-level resettlement committees established pursuant to the RP shall include representatives from the district-level Women's Union. Commune-level resettlement committees established pursuant to the RP shall include representatives from the commune-level Women's Union as well as female representatives from affected households, including women-headed households and women from ethnic minority households. VNR shall ensure there are capacity building training programs to provide training to district-level and commune-level resettlement committee members, as well as female representatives from affected households, including women-headed households and women from ethnic minority households, in order to provide, among other things, entitlements, compensation and livelihood strategies for income improvement for affected persons, and grievance procedures.

LA, Sch. 5, Para. 13

Complied with. The Women’s Union was involved in resettlement activities, including supporting livelihood restoration for women.

48. The Borrower shall ensure that VNR (i) prepares a format for monitoring reports with monitoring indicators broken down by gender and ethnic group for purposed of monitoring and reports, and (ii) conducts gender sensitization training on gender and resettlement for its relevant staff, the district-level and commune-level resettlement committees, and the Women's Union.

LA, Sch. 5, Para. 14

Complied with.

49. In any instance where land is acquired for affected persons, the Borrower and VNR shall ensure joint registration of land or land use rights in the names of both the husband and wife.

LA, Sch. 5, Para. 15

Complied with.

Project Performance Monitoring and Evaluation

50. VNR shall implement a systematic Project performance monitoring and analysis system for use throughout the Project period. VNR shall establish Project indicators (baseline data) including, among others: (i) economic development and socioeconomic indicators; (ii)

LA, Sch. 5, Para. 22

Complied with.

36 Appendix 7

Covenants

Ref. in Loan/Project Agreement Status of Compliance

transport costs and time for passenger and freight services; (iii) transport services and transport charges; (iv) accident rates; (v) financial sustainability of the railway sector; (vi) affected persons income; (vii) access to social services, and (viii) jobs created in construction and maintenance. The baseline data shall be collected within (6) months of the Effective Date; a second survey shall be conducted upon Project completion, and a third survey three years after Project completion to establish Project impact. The design of the baseline and impact surveys shall include data collected from (i) secondary data from government sources, (ii) household socioeconomic sample surveys, and (iii) participatory rapid appraisals. Where relevant, indicators will be disaggregated by gender.

51. The RPMU shall: (i) collect and consolidate all Project progress reports, site reports, technical and financial reports and submit them to ADB; (ii) prepare quarterly progress reports, midterm Project evaluation report and an overall Project completion report; and (iii) other reports as may be reasonably requested by ADB. Quarterly reports shall include updated implementation, financial and government-related information, as well as reports submitted by the independent monitor for resettlement activities. Quarterly reports shall be submitted to ADB within 30 days of the end of each quarter.

LA, Sch. 5, para. 23

Complied with.

ADB = Asian Development Bank, AFS = audited financial statement, AH = affected households, CTL = Controller’s Department, EA = executing agency, EM = ethnic minority, ha = hectare, LA = Loan Agreement, MOT = Ministry of Transport, OCO = Office of Cofinancing Operations, OGC = Office of the General Counsel, PID4 = Project Implementation Department 4, PMU = Project Management Unit, QPR = quarterly progress report, RP = Resettlement Plan, RPMU = Railway Project Management Unit, SBV = State Bank of Vietnam, SEMR = semiannual environmental monitoring report, SETC = Southeast Asia, Transport and Communications Division, VNR = Vietnam Railways. Source: Project completion report.

Appendix 8 37

REVISED ECONOMIC EVALUATION

A. Approach

1. The project’s economic viability was reevaluated considering the updated information on project cost, traffic, and the implementation schedule. The methodology followed the approach adopted at appraisal. It was assumed at appraisal that the international traffic between Viet Nam

and the People’s Republic of China (PRC) would be the main risk to the project, because the traffic forecast was assumed to be dependent on the implementation of the Greater Mekong Subregion Cross Border agreement at the Lao Cai-Hekou border crossing, scheduled for 2008.

Delays in implementing the PRC’s plans for the new railway line between Kunming and Hekou was assumed to have another negative impact on the project railway’s international traffic, with a corresponding impact on the project’s economic and financial viability and subregional benefits.

These risks did not occur. Rather, it was the decline in traffic caused by the railway’s remaining inefficiencies, as compared to the newly constructed expressway, that impeded the project line’s performance.

2. The original economic analysis took into account the trade-off between the construction of a new standard gauge railway between Kunming and Mengzi—a station on the PRC line between Kunming and the Viet Nam border at Lao Cai/Hekou—arguing that the resulting

improvements to the railway services in the PRC would more than offset the impediments to traffic from the break-of-gauge at the border, as the gauge in Viet Nam was assumed to remain meter. The appraisal evaluation therefore examined two possibilities: with and without upgrades of the

railway in the PRC. As the gauge in the PRC has since been converted to standard, the reevaluation reviews the positive assumptions given border traffic operations and the actual development of traffic on the project line.

3. The general approach is based on “with” and “without” project scenarios. In the “without” case, higher costs for passengers and freight transport will be incurred, as all transport will be on roads. As a result, there would be higher carbon dioxide (CO2) emissions and more frequent road

traffic accidents. The “with” case reflects the advantage of rail as compared with road transport regarding the modal costs and the two parameters of CO2 emissions and accidents. Consistent with the Guidelines on the Economic Analysis of Projects (2017), the reduced CO2 emissions are

based on $36.3 per ton with assumed annual increases of 2%. 4. The project’s benefits and costs were computed to reflect the prevailing international supply and demand conditions. The unit of account (the numéraire) of the analysis is the dollar,

which is a convertible currency, and the exchange rate of 2017 was used to convert the dong to the dollar. The majority of construction inputs are internationally traded. This also applies to labor. The local wages were therefore left unconverted. Other inputs include petroleum products, for

which the country is a net importer and which are not subsidized when sold domestically. Cement is sourced both from the domestic market and from other countries, as domestic supply is insufficient to meet demand. These considerations lead to a standard conversion factor of 0.95,

implying that the economic costs and benefits are about 5% below the financial equivalents. Details are in Table A8.1.

38 Appendix 8

Table A8.1: Traded and Non-Traded Components of Project Cost and Benefits

Cost and Benefit

Component Traded Components Non-Traded Components Conversion

Equipment Construction equipment and machinery

Deduction of duties and taxes to establish border price. Conversion factor: 0.95

Material Petroleum products Cement, sand, gravel Domestic price to be reduced by taxes to reflect world market prices. Conversion factor: 0.95

Labor There is no labor surplus in the construction industry. The cost of labor thus reflects the supply and demand situation of a traded component

No conversion

Transport The transport service is a non-traded component although it contains traded elements, which were not separately identified

Domestic price to be reduced by value-added tax on transport

VOC savings (benefit)

Cost of vehicle operation and spare parts related to road and rail transport

Cost of road transport reflect border prices based on HDM model; the unit costs of rail transport were computed separately, and the cost items (capital, O&M, crew) converted by a conversion factor of 0.95

HDM = highway development and maintenance, O&M = operations and maintenance, VOC = vehicle operating costs. Source: Project completion report.

B. Economic Cost

5. The reevaluation—consistent with the original economic analysis—followed the standard approach of a cost–benefit analysis, which uses the concept of a “numéraire,” reflecting either border prices for tradable goods or domestic prices converted at official exchange rates to convertible foreign exchange cost—the underlying rationale being to measure any gain or loss to

the economy in external trade.1 In this regard, the reevaluation applied the conversion factor of 0.95 used in the original evaluation. All costs and benefits are stated in 2017 constant prices.

C. Traffic

6. From 2012 to 2015, traffic declined for both passengers and freight because of the limited serviceability of the project line during construction, the alternative of using the new expressway

1 Asian Development Bank. 1997. Guidelines for the Economic Analysis of Projects. Manila.

Appendix 8 39

from 2014, and a drop in trade between Kunming and Viet Nam starting in 2011. The average annual daily traffic on the expressway is estimated at 16,000 vehicles per day, whereby heavy

trucks account for about 20% in total traffic. It is noteworthy that the truck traffic is imbalanced, with trucks originating from the PRC dominating traffic by a large margin. The underlying causes are the break in rail gauge (from standard gauge in the PRC to meter gauge in Viet Nam) and the need to load and unload if the haul is to be continued by rail. Most freight operators appear to

prefer using the expressway and paying the required toll, instead of accepting the efficiency loss involved in shifting freight on the border. The reduced transit time realized on the expressway is another advantage.

7. A comparison of actual and originally assumed traffic as well as traffic forecast by Viet Nam Railways in 2016 is shown in Table A8.2. The assumed traffic growth of 5.5% will be

supported by the envisaged completion of the project’s Phase 2 and consistent with expected growth in GDP of 5% per year.

Table A8.2: Demand for Railway Traffic between Yen Vien and Lao Cai

(Appraisal Forecast versus Actual and Revised Forecast)

2010 2015 2020 2025 2030

APPRAISAL

Passengers (million) 1.8 2.4 3.0 3.7 4.6

Freight tons (million) 3.8 9.0 12.8 14.3 15.9

REEVALUATION

Passengers (million) 3.1 1.4 1.9 2.6 3.4

Freight tons (million) 2.6 2.6 3.3 4.4 5.8

Sources: Asian Development Bank. 2006. Report and Recommendation of the President for the Yen Vien and Lao Cai Railway Project; and Viet Nam Railways actual data and Viet Nam Railways forecast as of February 2016.

D. Project Benefits

8. The benefits generated by the project include (i) cost savings resulting from the margin

between road transport and rail transport cost, (ii) reduced CO2, (iii) savings in road maintenance costs, and (iv) reduced road accidents and costs associated with accidents. With the exception of reduced CO2 emissions, the appraisal evaluation has used the same types of benefits. As are

a function of traffic and because of the gap between the predicted and actual traffic, the value of the benefits at project completion is significantly below that assumed at appraisal. E. Calculation of the Economic Internal Rate of Return

9. The recalculated economic internal rate of return for the project is 9.9%. The sensitivity analysis shows that the project’s viability is sensitive to a resumption in traffic growth. However, even an assumed 20% increase in traffic will only marginally improve the project’s viability.

40 Appendix 8

Table A8.3: Economic Internal Rate of Return of the Completed Project ($ million)

( ) = negative, CO2 = carbon dioxide, EIRR = economic internal rate of return, NPV = net present value.

Table A8.4: Sensitivity Analysis

EIRR = economic internal rate of return, n.a. = not applicable. Notes: The sensitivity indicator is defined as the percentage change of the EIRR resulting from the percentage change of the independent variable. Switching value is the percentage change of an independent variable chosen to make the EIRR fall to a defined hurdle rate and the net present value to become zero. Source: Project completion report.

Years

Construction

and

Resettlement

Variable

Track

Maintenance

Total

Costs

Vehicle

Operating

Costs

Reduced

CO2 costs

Road

Safety

Reduced

Road

Maintenance

Total

Benefits

2009 1.0 - 1.0 - - - - - (1.0)

2010 1.0 - 1.0 - - - - - (1.0)

2011 0.6 - 0.6 - - - - - (0.6)

2012 20.1 - 20.1 - - - - (20.1)

2013 26.7 - 26.7 1.9 - - 0.002 1.9 (24.8)

2014 50.5 0.2 50.7 3.1 0.3 0.2 0.002 3.6 (47.1)

2015 31.9 0.3 32.2 5.4 0.6 0.2 0.002 6.2 (26.0)

2016 10.1 0.4 10.5 8.8 1.3 0.2 0.002 10.3 (0.2)

2017 - 0.6 0.6 8.9 1.6 0.2 0.002 10.7 10.1

2018 - 0.4 0.4 8.7 1.9 0.2 0.003 10.8 10.4

2019 - 0.4 0.4 8.6 2.3 0.2 0.003 11.1 10.7

2020 - 0.4 0.4 8.5 2.7 0.2 0.003 11.5 11.1

2021 - 0.4 0.4 8.9 3.3 0.2 0.003 12.4 12.0

2022 - 0.4 0.4 9.2 3.9 0.2 0.003 13.4 13.0

2023 - 0.4 0.4 9.6 4.7 0.2 0.004 14.5 14.1

2024 - 0.5 0.5 9.9 5.7 0.3 0.004 15.9 15.4

2025 - 0.5 0.5 10.3 6.8 0.3 0.004 17.4 16.9

2026 - 0.5 0.5 10.8 8.2 0.3 0.004 19.2 18.7

2027 - 0.5 0.5 11.2 9.8 0.3 0.004 21.3 20.8

2028 - 0.5 0.5 11.6 11.7 0.3 0.005 23.7 23.2

2029 - 0.5 0.5 12.1 14.1 0.3 0.005 26.5 26.0

2030 - 0.5 0.5 12.6 16.9 0.3 0.005 29.8 29.3

2031 - 0.6 0.6 13.1 20.3 0.3 0.006 33.7 33.2

2032 - 0.6 0.6 13.6 24.4 0.3 0.006 38.3 37.7

2033 - 0.6 0.6 14.2 29.2 0.3 0.006 43.7 43.2

2034 - 0.6 0.6 14.8 35.1 0.3 0.007 50.2 49.6

2035 (7.1) 0.6 (6.5) 15.4 42.1 0.4 0.007 57.8 64.3 EIRR

NPV 73.8 1.8 75.6 42.9 22.6 1.0 0.015 61.9 -13.7 9.9%

Costs Benefits

Net

Benefit

SCENARIOS EIRR (%)SENSITIVITY

INDICATOR

SWITCHING

VALUE

A NORMAL CASE 9.9 n.a.

B INCREASE IN CAPITAL COST BY 20% 8.1 0.10

C DECREASE IN TRAFFIC BY 20% 5.2 0.3

D COMBINED IMPACT OF (B) AND (C) 3.4

E INCREASE IN TRAFFIC BY 50% 11.8 3.5 1.4

Appendix 9 41

REVISED FINANCIAL EVALUATION A. Approach

1. The financial analysis of the revised project is based on the financial data of Hanoi Railway

Company (HRC), including unit costs and revenues for passengers and freight. The costs related to the project are consistent with the entire Viet Nam Railways system.

Table A9.1: Financial Internal Rate of Return

( ) = negative, FIRR = financial internal rate of return.

2. The financial internal rate of return of -2.1% shows that the railway line under the prevailing constraints will not be able to recover its operating costs, not to mention the cost of depreciation and interest as targeted in the original outcome statement. It should be noted, however, that the

financial analysis is limited to the project line and that passenger revenues are not cost-based. Moreover, HRC is not required to recover the capital cost of the track. HRC’s financial statements in Table A9.2 show that its financial performance in 2014 and 2015 was satisfactory, albeit on the

decline. The operating ratio is adequate, with operating revenues exceeding operating cost by a margin of about 25%. The extraordinary income items shown in the income statements are related

Year

Investment

Cost

Pax

Operations

Freight

OperationsTotal Cost

Pax

Operations

Freight

Operations

Gross

IncomeNet Income

2009 1.1 1.1 (1.08)

2010 1.1 6.8 3.5 11.3 8.3 8.1 16.4 5.10

2011 0.6 6.7 3.4 10.7 8.2 8.0 16.2 5.46

2012 21.8 6.6 3.4 31.8 8.1 7.8 15.9 (15.85)

2013 28.9 6.5 2.8 38.3 8.0 6.6 14.6 (23.63)

2014 54.7 5.3 3.0 63.0 6.5 7.0 13.4 (49.56)

2015 34.6 4.3 2.8 41.7 5.3 6.5 11.8 (29.92)

2016 10.9 3.9 2.1 16.9 4.8 4.9 9.7 (7.22)

2017 3.9 2.0 5.9 4.7 4.8 9.5 3.61

2018 3.8 2.0 5.8 4.7 4.7 9.4 3.55

2019 3.7 2.0 5.7 4.6 4.6 9.2 3.50

2020 3.7 2.0 5.7 4.5 4.6 9.1 3.46

2021 3.8 2.1 5.9 4.7 4.8 9.5 3.62

2022 4.0 2.2 6.2 4.9 5.1 10.0 3.80

2023 4.2 2.3 6.5 5.2 5.3 10.5 3.99

2024 4.4 2.4 6.8 5.4 5.6 11.0 4.19

2025 4.6 2.5 7.1 5.7 5.8 11.5 4.40

2026 4.9 2.6 7.5 6.0 6.1 12.1 4.62

2027 5.1 2.8 7.9 6.3 6.4 12.7 4.85

2028 5.4 2.9 8.3 6.6 6.8 13.3 5.09

2029 5.6 3.0 8.7 6.9 7.1 14.0 5.35

2030 (30.7) 5.9 3.2 (21.6) 7.2 7.5 14.7 36.31

FIRR -2.1%

IncomeCosts

42 Appendix 9

to the transfers from the budget under the public service obligation.1 This is an arrangement common for most of the world’s railway lines.

Table A9.2: Hanoi Railway Company – Income Statements 2014 and 2015

D $

2015 2014 2015 2014

Operating income 3,815,435,949,588 3,026,326,850,077 165,888,520 131,579,428

Cost of operations 2,901,199,214,684 2,417,348,045,704 126,139,096 105,102,089

Net operating income 914,236,734,904 608,978,804,373 39,749,423 26,477,339

Overheads and depreciation 898,341,808,394 90,591,405,636 39,058,339 3,938,757

Interest and other financial expenses 27,585,149,718 34,029,880,176 1,199,354 1,479,560

Total non-operating cost 925,926,958,112 124,621,285,812 40,257,694 5,418,317

Net income (11,690,223,208) 162,775,791,845 (508,271) 7,077,208

Non-operating income 18,057,936,814 4,262,989,968 785,128 185,347

Accounting profit before tax 6,367,713,606 167,038,781,813 276,857 7,262,556

Current corporate income tax expense 816,958,509 3,637,217 35,520 158

Net profit after corporate income tax 5,550,755,097 167,035,144,596 241,337 7,262,398

Operating ratio 76.0% 79.9% 76.0% 79.9% ( ) = negative. Note: The operating ratio is defined as cash operating costs over cash operating revenues based on realized revenues. Source: Hanoi Railway Company.

1 A public service obligation is an obligation imposed on railways by legislation or contract to provide a service of

general interest that the railway would not undertake based on commercial considerations.

Appendix 10 43

ENVIRONMENTAL SAFEGUARDS ASSESSMENT

1. The loan agreement requires the project to follow Viet Nam’s laws and regulations governing environmental impact assessments, as well as the Environment Policy (2002) of the Asian Development Bank (ADB). The project is environment category B, and an initial environmental examination (IEE) was prepared in 2006 under technical assistance 4050. The IEE

identified all potential environmental impacts during implementation. An environmental management plan (EMP) indicating specific measures to minimize and mitigate the environmental impacts is incorporated in the IEE. The IEE also includes a monitoring program to oversee EMP

implementation and assess the effects of construction on ambient air quality, water quality, and noise levels in the project environment. Civil works contracts required the contractors to implement the mitigation measures indicated in the EMP and the monitoring program.

2. Prior to the start of civil works in 2012, ADB adopted the Safeguard Policy Statement (SPS) in 2009, which superseded ADB’s Environment Policy. Although no update was made to the 2006 IEE, ADB and the Projects Management Unit (railway) (PMU-Rail) agreed to improve the EMP

following the SPS. Modifications to enhance the EMP included measures that promote workers and public safety and the establishment of a project grievance redress mechanism to resolve complaints. When the IEE was prepared in 2006, workers’ welfare was not an environmental

concern but was included as standard practice in the construction industry. Over the years, however, it became an important component of environmental safeguards, hence measures that promote occupational safety, such as the use of appropriate personal protective equipment (PPE)

at work, were included as parameters to be monitored. The use of PPE was further emphasized by the Ministry of Labor’s Circular No. 04/2014/TT-BLDTBXH dated 12 February 2014.

3. The project was able to comply satisfactorily with the first two environmental covenants

specified in the loan agreement. However, delays occurred in the implementation of EMP mitigation measures and the submission of semiannual environmental monitoring reports (SEMR), which are requirements of the third and fourth environmental covenants. This was particularly

evident during the start of civil works, although the covenants were eventually complied with. Non-implementation of some mitigation measures were observed during loan review missions, although this was not reported in the SEMRs. Non-compliance issues during construction usually

related to management and disposal of construction spoils, blockage of canals and culverts, inadequate PPE for workers, waste management at camp sites, and inability to secure permits for some project facilities such as disposal sites prior to their use. ADB, PMU-Rail, the construction supervision consultant, and the contractors agreed on corrective actions and deadlines to address

the issues. However, implementation of the corrective actions by the contractors was often slow, necessitating persistent reminders from the construction supervision consultant and PMU-Rail.

4. The first SEMR had many sections and statements that were difficult to understand. ADB provided guidance to improve the SEMR, including the use of an EMP Implementation Monitoring Checklist to clearly identify which mitigation measures were being applied. On field visits during

loan review missions, however, it was observed that actual on-site conditions were sometimes contrary to what had been reported in the SEMR. The construction supervision consultant and PMU-Rail were advised to make the SEMRs clearer and more reflective of what is happening on-site. The SEMRs improved over the years, but revisions were still necessary to improve the

reports’ quality and clarity and make them suitable for disclosure on ADB’s website. Photos included in the final SEMRs show the state of allied project facilities such as spoils disposal areas and borrow pits as well as canals and streams after construction was completed.

Borrow pits have been cleaned up and rehabilitated. Disposal areas show stable slopes overgrown with vegetation, and waterways are clear of debris. These were validated in the sites

44 Appendix 10

visited during the project completion review and pre-PCR missions, such as the Bac Cuong disposal site. The construction camp and storage areas near the Lao Cai Station are covered with

grass and other vegetation. 5. Environmental effects monitoring was also conducted during construction for a quantitative assessment on whether activities affected air quality, water quality, and noise levels

in the project areas when compared with baseline values. A third party did the monitoring under the supervision of the construction supervision consultant and PMU-Rail. Results did not show a general pattern of increase and were generally within the prescribed standard values, with

occasional exceedances for some air and water quality parameters. A few lapses in data gathering were observed but later rectified. Improved data analysis was requested to correlate the results with other development initiatives, activities, and conditions within the sites at the time

of sampling. Overall assessment shows that the effects of project activities on environmental quality, if any, were short term and minimal. However, post-construction monitoring data is unavailable for validation.

6. A continuing concern during the construction period was management of removed and replaced steel rails, sleepers, and sleeper accessories. These materials were to be turned over by PMU-Rail to Viet Nam Railways based on the MOF’s Circular No.198/2013/TT-BTC dated 20

December 2013. However, it took a while for the inventory to be completed, and no temporary storage location for these materials was identified. Instead, they were stacked openly near the rail tracks. In the final SEMR, it was reported that the materials were finally sold to private

companies and had been removed from the project site by 31 July 2016. The materials were not observed at the sites visited during the PCR mission in March 2017. 7. PMU-Rail provided three liquidation documents (in Vietnamese) dated 24 November 2016

for the old materials auction for three civil works construction packages. The documents indicate that PMU-Rail had handed over all old materials of the three packages to the buyers and that the buyers paid all contracts costs. Detailed quantities of old materials by each type (i.e., rail, sleeper,

and fastening) are provided in the documents and PMU-Rail confirmed that the total quantities of old materials are accurate.

8. Random and informal interviews conducted during the pre-PCR and PCR missions revealed that no complaints on environmental concerns were filed and that the stakeholders were generally satisfied with how the project was implemented. Environmental officers from the provincial district and city Environmental Management Departments in Binh Xuyen district in Vinh

Phuc province, Viet Tri city in Phu Tho province, Yen Bai city and Tran Yen district in Yen Bai province, and Lao Cai city in Lao Cai province reported there was inadequate coordination with them during construction. PMU-Rail asserted that notifications were given to the various People’s

Committees and showed permits for disposal sites in these areas as documentation. The long period between loan approval and the commencement of civil works, as well as the environment officers being new to their positions, may have contributed to this oversight. It is important to carry

out continuous coordination not only with the Provincial People’s Committees but also with the district and city Environmental Management Departments during implementation. 9. It is fortunate that most of the offices did not receive any complaints related to

environmental management during construction, but proper coordination with the local environment offices could have served the pro ject well. The SPS also encourages continuous consultation with the stakeholders during implementation. The IEE even suggested that local

environment offices be utilized for environmental monitoring.

Appendix 10 45

10. Though the project was generally compliant with environmental management requirements during the pre-construction and construction period, minor setbacks were

encountered, especially during the early stages of implementation. The limited engagement of the environment specialist may have been a limiting factor in ensuring the timely implementation of mitigation measures—not only for the main contractors but for subcontractors as well. It is important that all pre-construction requirements such as the submission of a contractor’s

environmental management plan and permits for all allied project facilities are complied with. Lapses in EMP implementation should be addressed at the onset so they do not become unmanageable. Continuous coordination and consultation with stakeholders are necessary to

gauge and address their environmental concerns throughout public implementation.

46 Appendix 11

SOCIAL SAFEGUARDS ASSESSMENT

A. Institutional Arrangement for Resettlement 1. The Government of Viet Nam’s decrees 197/2004, 84/2007, and 69/2009 detail the institutional arrangements for carrying out resettlement. As project owner, the Viet Nam Railway

(VNR),1 through the Railway Project Management Unit (RPMU), was responsible for preparing and implementing the updated resettlement plan (URP) for each of the three construction packages—construction package 1 (CP1), covering Vinh Phuc Province and Phu Tho Province;

construction package 2 (CP2), covering Yen Bai Province; and construction package 3 (CP3), covering Lao Cai Province. In addition, VNR was responsible for ensuring the availability of funds for land acquisition and resettlement. RPMU was responsible for the project’s day-to-day

operation, with support from the construction supervision consultant. 2. The Provincial People’s Committee (PPC) was responsible for initiating the detailed measurement survey (DMS) at the district level, approving the unit costs for computing

compensation and allowances, and approving the detailed compensation plans of affected households. While resettlement funds came from the national government, it was not unusual for the PPC to first advance the amount to start land acquisition and civil works in any district.

3. The District People’s Committee, through the District Compensation, Assistance, and Resettlement Board (DCARB), was the PCC’s main arm in carrying out the DMS—holding

consultations with the affected households, preparing and approving compensation plans, paying compensation and allowances, and resolving grievances of affected households. In Yen Bai City and Lao Cai City, the Center for Land Fund Development (CLFD) served as the technical arm of the city Compensation, Assistance, and Resettlement Board (CARB), conducting CARB tasks on

the ground. At the village level, the Commune People’s Committee—or the Ward People’s Committee in cities—assisted the CARB in facilitating meetings, carrying out the DMS, and resolving complaints of affected households.

B. Resettlement Plan Updating and Concurrence by ADB

4. Responsibility for preparing the URP for each construction package rested mainly on the

RPMU. Data for the URPs came from the DMS, public consultations, and replacement cost surveys, which DCARB and/or CLFD carried out. However, DCARB and/or CLFD apparently conducted the DMS and estimated replacement costs for affected assets, including allowances, not necessarily to update the resettlement plan but mainly to prepare compensation plans of

affected households. The conduct of the DMS and calculation of compensation and allowances by the CARBs did not align with the pace of RPMU’s resettlement plan updating activities. It is clear the URPs were prepared to satisfy the requirement of the Asian Development Bank (ADB),

while the DMS was done mainly to prepare compensation plans, as required by law to facilitate payment of compensation, regardless of the URPs.

5. The CARBs conducted the DMS, prepared compensation plans, and delivered compensation at their own pace. This is not to say that this arrangement was intentional. URP preparation, DMS completion, and compensation plan preparation were simply not well orchestrated, resulting in some instances where affected households’ compensation and

allowances were paid and the project right-of-way (ROW) cleared ahead of an approved URP.

1 Ownership of the project was transferred to the Ministry of Transport (MOT) in August 2014. The Railway Projects

Management Unit (RPMU) was renamed PMU-Rail.

Appendix 11 47

This was made possible because the PPC advanced funds for land acquisition and resettlement. However, while compensation was sometimes paid in advance of ADB’s concurrence to a URP,

affected households were not displaced or required to hand over their properties prior to receiving full compensation.2

Table A11.1: Summary of Approved Construction Packages

Province District 2010 2011 2012 2013 2014 2015 2016 Total

CP1 (URP Concurred by ADB on 14 Oct 2013)

Vinh Phuc Binh Xuyen - - - 1 1 - 2

Phu Tho Ha Hoa - - 1 - - - 1

Viet Tri - - - 4 3 - 1 8

Total - - 1 5 4 - 1 11

CP2 (URP Concurred by ADB on 10 Nov 2011)

Yen Bai Tran Yen - 8 1 9 - 1 - 19

Van Yen - 11 2 4 - - - 17

Yen Bai

City

- 7 1 2 - - - 10

Total - 26 4 15 - 1 - 46

CP3 (URP Concurred by ADB in December 2013)

Lao Cai Lao Cai City

7 21 9 6 8 17 6 74

Bao Thang - 4 5 9 1 - - 19

Bao Yen - - 1 2 4 - - 7

Total 7 25 15 17 13 17 6 100 ADB = Asian Development Bank; CP = contract package; URP = updated resettlement plan Source: Projects Management Unit (Railway).

C. Anticipated and Actual Land Acquisition and Resettlement Impacts

6. At appraisal in 2006, the resettlement plan estimated 591 affected households (2,378 persons), of which 411 were in the project ROW (i.e., track alignment and station widening) and

180 were to be displaced in developing two relocation sites in Lao Cai (i.e., Pho Moi and Van Hoa). Among the affected households in the project ROW, 208 were identified as severely affected, including 93 that would lose 10% or more of productive landholdings and 122 that would

lose entire homes and have to relocate.3 All 180 affected households to be displaced by the development of the relocation sites would lose their homes entirely. The area of landholdings to be permanently acquired in the project ROW was estimated at 155,000 square meters (m2),

including 29,000 m2 of residential land, 42,000 m2 of agricultural land, 60,000 m2 of garden land, 19,000 m2 of forestland, and 5,000 m2 of communal land. The 69,000 m2 of landholdings to be acquired for the relocation sites included 16,000 m2 of residential land and 53,000 m2 of garden land. In addition, 161 affected households were identified to be vulnerable—with 32 ethnic

minority households, 84 households headed by women with dependents, 25 poor households, 8 households with disabled household heads, and 12 landless households.

7. As implemented, 1,225 households (about 4,445 persons) were adversely affected by the project, of which 62 were found in CP1, 478 in CP2, and 685 in CP3. Of the total affected households, 224 lost 10% or more of productive landholdings and 580 lost entire homes and had

2 This was consistent with Schedule 5, Para. 8 of the loan agreement. 3 Some of the affected households belonged to both groups of severely affected households, i.e., losing 10% of

productive assets and relocating.

48 Appendix 11

to relocate. Included in the 575,454 m2 of project-acquired landholdings were 357,798 m2 of agricultural land, 56,552 m2 of residential land, and 161,104 m2 of communal and other types of

land. A total of 308 affected households, including 48 ethnic minority households (12 in Yen Bai and 36 in Lao Cai), were found to be vulnerable. The more than 270% increase (from what was anticipated during appraisal) in the area of project-acquired landholdings was mainly because of the increased number of relocation sites that had to be developed. For instance, the Lang Den

Relocation Site had to be expanded (commonly referred to as Lang Den Relocation Site Phase 2) to accommodate second-generation affected households (i.e., married members of the nuclear family that were living with the affected households at the time of the DMS).

Table A11.2: Anticipated Versus Actual Land Acquisition and Resettlement

Particulars Unit of

Measure

Anticipate

d Actual

%

Difference

AHs Number 591 1,225 107.3

AHs lost 10% or more of productive land

Number 93 224 140.9

Relocating AHs Number 302 580 92.10

Vulnerable AHs Number 161 308 91.3

Permanent land acquisition m2 155,000 574,454 270.6 AH = affected household, m2 = square meter. Sources: Project preparatory technical assistance report, updated resettlement plans, and Projects Management Unit (Railway).

D. Compensation Policies and Standards

8. Project resettlement principles and entitlements, as detailed in the agreed resettlement

plan and contained in the loan agreement, served as the basis for computing levels of compensation and other entitlements, including various cash allowances. The project resettlement policy was based on Viet Nam’s laws (e.g., 1993 land law, Decree 197/2004/ND-CP,

Decree 84/2007/ND-CP, and Decree 69/2009/ND-CP) and ADB’s Policy on Involuntary Resettlement (1995). There were cases when the CARBs, such as those in Yen Bai Province and Lao Cai Province, initially deducted about 20% from the full replacement cost of affected structures because these were built on officially classified agriculture land. Following complaints

from affected households and ADB’s intervention, this was corrected. By 2013, all affected households had received the full replacement cost for their affected structures.

E. Resettlement Implementation—Consultation, Negotiation and Grievance Redress

9. As mandated by law and the project resettlement policy, the DMS was conducted with

the participation of affected households. DCARB and commune officials would first discuss the

DMS process with the affected households in a public meeting, followed by the households completing self-declaration DMS forms. CARB and Commune People’s Committee personnel would later visit each affected household and check each affected asset, comparing their findings

with what the household had indicated in the form. Representatives from both affected households and the survey team (e.g., commune officials) would sign the resulting DMS. On the basis of the price frames determined by a PPC-commissioned independent body, DCARB

calculated the compensation and applicable allowances for affected households and prepared their compensation plans. The compensation plans were posted in commune and ward offices for viewing by interested parties, especially affected households.

Appendix 11 49

10. DCARB and CLFD spearheaded public information and consultation activities, in addition to handling complaints from affected households. Complaints mainly concerned the unit costs

used for calculating the replacement cost for affected landholdings and structures. CLFD personnel confided that the most challenging part of their work was determining the official classification of affected landholdings. In several instances, affected households were found to have built houses and similar structures on agriculture land.

11. Affected households seemed adequately aware of the grievance redress process. The CARBs kept copies of all complaints. Most complaints were resolved at the commune and district

levels. By the end of 2016, there were no outstanding or unresolved resettlement issues. 12. Following ADB’s concurrence to the URPs, land acquisition and resettlement was carried

out quite smoothly. Civil works contractors were not issued notice to commence works until the area for construction was free from encumbrances. 4 URP implementation encountered some delays mainly because of changes in technical design (e.g., Co Phuc Station in Yen Bai) and a fund shortage for the completion of the Lang Den Relocation Site Phase 2, the clearance of the

1-hectare (ha) VNR property at Lao Cai Station, and the payment of D6 million cash assistance to vulnerable affected households in Lao Cai. Home plots at Lang Den Relocation Site Phase 2 were finally awarded to second-generation affected households in September 2016, while

disbursement of cash assistance to all vulnerable affected households in Lao Cai was completed in October 2016. For the clearing of the 1 ha VNR property at Lao Cai Station, one household still remains at the property. However, with the Ministry of Transport (MOT) decision to delete the 1

ha property from the project scope, this household is technically not an affected household anymore.5 In October 2016, PMU-Rail reiterated MOT’s decision to discontinue clearing of the 1 ha property.6

F. House Relocation and Income Restoration

13. The project had 10 relocation sites—three in Yen Bai and seven in Lao Cai. The People’s Committee of Lao Cai City built two of the relocation sites in the city (i.e., B9 and Duyen Hai) even

before the railway project. In Yen Bai, 44 affected households that had lost entire homes opted to get a plot in one of three relocation sites in the province. Home plots at the relocation sites ranged from 120 m2 to 200 m2, and the average unit cost of each home plot was D150,000 per m2.

Relocating affected households received their home plots in 2012. At first, affected households at the relocation sites had difficulties getting electric connections and/or drilling wells, but these problems were subsequently resolved.

14. In Lao Cai, 674 affected households opted for a plot at the province’s seven relocation sites. The average plot size ranged from 80 m2 to 120 m2. With the exception of B9 and Duyen Hai—which existed before the project and where the plot unit cost that affected households had

to pay averaged D2 million per m2—the average plot unit cost that affected households had to pay in relocation sites ranged from D200,000 per m2 to D1.5 million per m2. Affected households were provided rental allowances covering the period of handover and awarding of home plots at

the relocation sites. In January 2016, relocated affected households at Pho Moi, Ho So 6, Lang Den, and Bac Duyen Hai relocation sites complained about inadequate streetlights and defective roadside drainage. These problems were resolved by the second quarter of 2016.

4 This was consistent with Schedule 5, Para. 10 of the loan agreement. 5 When ADB in April 2015 gave its concurrence to MOT’s intention to delete the clearing of the 1 ha from project scope,

the MOT initially still intended to clear the property of all occupants. 6 Per ADB advice, PMU-Rail deposited in an escrow account the proffered compensation of the remaining household

at the 1 ha VNR property.

50 Appendix 11

15. The income restoration program for severely affected households as envisaged in the

URPs did not materialize. During the extended delay in preparing acceptable URPs for CP2 and CP3, provincial and district authorities of Lao Cai and Yen Bai on their own initiative provided income rehabilitation assistance to affected households through vocational trainings and access to credit facilities. As a result, when PMU-Rail conducted a comprehensive needs assessment of

severely affected households in the first quarter of 2015, it was found out that there was no longer any need for an income restoration program since severely affected households had already restored their standards of living to pre-project levels.

G. Resettlement Cost and Payment of Compensation

16. The total amount of compensation and allowances paid to affected households, excluding

the cost of constructing the relocation sites, amounted to VND103,145,436,514. Compensation and allowances for affected households were given at the commune offices.

Table A11.3: Resettlement Cost

Province Resettlement Cost (D)

Vinh Phu 510,387,000

Phu Tho 1,593,571,000

Yen Bai 25,494,480,549

Lao Cai 75,546,997,965

Total 103,145,436,514 Source: Projects Management Unit (railway).

E. Monitoring and Evaluation

17. RPMU hired the external monitor on 30 August 2011, following a series of reminders from ADB. The External Monitoring Agency submitted 14 reports, the last of which was a resettlement implementation completion report dated December 2015. For internal resettlement monitoring,

RPMU until the second quarter of 2013 had included land acquisition and resettlement updates in project quarterly reports. Upon ADB’s advice, in February 2014 RPMU submitted the first semiannual internal monitoring report, prepared by the construction supervision consultant and

covering July–December 2013. In total, five semiannual internal monitoring reports were submitted, with the last one covering July–December 2015. The March–April 2014 ADB review mission found the External Monitoring Agency and internal monitoring reports satisfactory.

F. Conclusions and Lessons Learned 18. There are no outstanding resettlement issues in the project. By the third quarter of 2016,

all affected households had received their compensation and allowances. The compensation and allowances provided were consistent with the project resettlement policy. However, the preparation of URPs acceptable to ADB for all construction packages lagged behind

compensation plan completion and approval by district and provincial authorities. RPMU ’s preparation of the URPs and the CARBs’ preparation of compensation plans were not aligned. The CARBs apparently carried out compensation plan preparation and approval, as well as payment of compensation, oblivious of the need for RPMU to also prepare the URPs. This

eventually led to the payment of compensation and clearing of the project ROW ahead of an approved URP (particularly in Lao Cai), which was not in full accord with Schedule 5, Para. 7 of the loan agreement. Nonetheless, affected households received their compensation prior to

Appendix 11 51

displacement and the commencement of civil works in any project component. This was in full compliance with Schedule 5, Para. 8 of the loan agreement. The principal lesson from the project

is that compensation plan preparation should always be viewed as part of the resettlement plan updating. Project authorities need to clearly explain this to provincial and district authorities to ensure all activities related to the preparation and implementation of land acquisition and resettlement are aligned.

52 Appendix 12

RATING OF PROJECT PERFORMANCE

Rating Criteria Criteria Weight

Assessment Score Weighted Average Score

Comments

Relevance 0.25 S 2 0.50 The project design was adequate to achieve the intended results and therefore is rated relevant.

Effectiveness 0.25 LS 1 0.25 The outcomes were not achieved. The project is rated less than effective.

Efficiency 0.25 LS 1 0.25

The recalculated EIRR and FIRR are below the expected benchmarks. Delays and cost overruns were another element of inefficiency. The project is rated less than efficient.

Sustainability 0.25 LS 1 0.25

VNR’s financial condition and its firm plan to complete the project line as originally envisaged are likely to restore the project line’s competitiveness. The project is rated likely sustainable.

Overall Assessment

1.00 LS 1.25 The overall rating is less than successful.

EIRR = economic internal rate of return, FIRR = financial internal rate of return, LS = less than successful, S = successful, VNR = Viet Nam Railways. Note: Highly successful (HS) >2.7; 2.7 < successful (S) >1.6; 1.6 < less than successful (LS) >0.8; unsuccessful (US) ≤ 0.8.