Transport Strategy - World...
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Transport Strategy Transition, Reform, and Sustainable Management
Transcript of Transport Strategy - World...
Transport StrategyTransition, Reform,and Sustainable Management
As Vietnam becomes richer it faces challenges in adapting its infrastructurepolicies and institutions. While the old challenges of providing basic servicesto all remain, new challenges are emerging, such as accessing new sources offinance, refining planning processes, preparing for rapid urbanization,improving the efficiency of infrastructure service providers, developingstronger institutions to encourage private finance of infrastructure or directprivate provision of infrastructure, and developing more targeted approachesto poverty alleviation.
This report on Transport Strategy - Transition, Reform, and SustainableManagement is one of six volumes dealing with Vietnam's InfrastructureChallenge. Other volumes deal with Infrastructure Cross Sectoral Issues,Water and Sanitation, Electricity, Telecommunications, and UrbanDevelopment.
The work for these reports was carried out between 2004 and 2006 byWorld Bank staff and consultants. The reports have been revised to takeaccount of comments made by the Government in workshops during May15-17, 2006. The comments of numerous colleagues from the World Bank,the United Kingdom's Department for International Development Bank, theAsian Development Bank, and the Japan Bank for International Cooperationare gratefully acknowledged.
Vietnam’s infrastructure challenge
CAAV Civil Aviation Administration of VietnamCIENCO Civil Engineering Construction CorporationCO Carbon MonoxideCPC Communes Peoples' CommitteesCPRGS Comprehensive Poverty Reduction and Growth StrategyDAF Development Assistance FundDPI Department of Planning and InvestmentDDoT District Departments of TransportDWT Dead Weight TonnageFDI Foreign Direct InvestmentGDP Gross Domestic ProductGMS Greater Mekong Sub-regionGoV Government of VietnamGRIPS The National Graduate Institute for Policy Studies (Japan)GSO General Statistics Office of VietnamHDM4 Highway Development and Management SystemHPC Hanoi People's CommitteeICD Inland Container DepotICOR Incremental Capital-Output RatioIDA International Development Association (the World Bank)LDIF Local Development Investment FundMARD Ministry of Agriculture and Regional DevelopmentMOF Ministry of FinanceMOT Ministry of TransportMPI Ministry of Planning and InvestmentMTEF Medium Term Expenditure FrameworkMTRR Multimodal Transport Regulatory ReviewNLF National Logistics ForumNPTS National Program on Traffic SafetyNTSC National Transportation Safety CouncilNVOCC Non Vessel-Operating Common CarrierNWTC Northern Waterway Transport CorporationODA Official Development AssistancePDoTs Provincial Departments of Transport
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Abbreviations
PER-IFA Public Expenditure Review and Integrated Fiduciary AssessmentPIP Public Investment ProgramPMD Prime Ministerial DecisionPMU Project Management UnitPDOT Provincial Department of TransportPPC Provincial People's CommitteesPPI Private Participation in InfrastructurePTA Provincial Transport AuthoritiesRMMC Road Management and Maintenance CompanyRNIP Road Network Improvement ProjectRRMU Regional Road Management UnitsSEDP Socio-Economic Development PlanSEDS Socio-Economic Development StrategySOCB State-Owned Commercial BankSOE State-Owned EnterpriseSWTC Southern Waterway Transport CorporationTD Transport Department (of MoT)TDSI Transport Development and Strategy InstituteTEC Transport Engineering CompanyTEU Twenty Foot Equivalent UnitTRAMOC Traffic Management and Operation CenterTRANSERCO Transportation CooperationTSDS Transport Sector Development StrategyTUPWS Transport and Urban Public Works ServicesVAC Vietnam Airlines CooperationVEC Vietnam Expressway CorporationVHLSS Vietnam Household Living Standards SurveyVICT Vietnam International Container Terminal VLA Vietnam Land AdministrationVINALINES Vietnam National Shipping LinesVITRANSS Vietnam's Transport Strategy StudyVIWA Vietnam Inland Waterway Administration VND Vietnamese DongVNRA Vietnam Railway AdministrationVRA Vietnam Road AdministrationVRC Vietnamese Railway CorporationWTO World Trade Organization
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1 OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11.2 Transport Sector Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.2.1 Enhancing Efficiency in Resource Utilization and Service Delivery . . . . . . . . . . . . . . . .21.2.2 Establishing a sustainable financing framework for the sector . . . . . . . . . . . . . . . . . . . . .51.2.3 Facilitating Sustainable Urban Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71.2.4 Managing the negative impacts of transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81.2.5 Developing Institutional and Human Capacity to Respond to the Sectors
Evolving Needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .91.3 Two priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
2 POLICY AND INSTITUTIONAL FRAMEWORK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
2.1 Sector Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .112.2 Key Strategy and Policy Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .112.3 Governing Sectoral Policies and Plans; and Laws and Regulations . . . . . . . . . . . . . . . . . . . . . . .122.4 Planning and Programming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
3 SECTOR STRUCTURE AND OWNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
3.1 Demand for Transport Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .153.2 Transport Infrastructure and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
4 EXPENDITURES AND FINANCING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
4.1 High rate of growth in transport expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .194.2 Local government expenditures growing fast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .194.3 Growth in recurrent expenditures not keeping up with capital expenditures . . . . . . . . . . . . . .214.4 Majority of spending is on roads: the sub sectoral expenditure distribution . . . . . . . . . . . . . . .214.5 Sources of Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .214.6 Financing Local Government Transport Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .234.7 Future Expenditure Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .234.8 Composition of Spending within Proposed Envelope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .254.9 Sustainable Financing for Transport Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
5 SECTOR PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
5.1 Contribution to overall growth and poverty reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .275.2 Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
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Table of Contents
5.3 Safety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .285.4 Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .305.5 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .315.6 Affordability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
6 MAIN ISSUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
6.1 Efficiency in Resource Utilization and Service Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .366.2 Financial Sustainability of the Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .426.3 Urban Transport Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .446.4 Mitigating the Negative Impacts of Transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .466.5 Institutional and Human Resource Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
7 AN AGENDA FOR THE NEXT DECADE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
7.1 Enhance Efficiency in Resource Utilization and Service Delivery . . . . . . . . . . . . . . . . . . . . . . . . .517.2 Financial Sustainability of the Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .567.3 Facilitating Sustainable Urban Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .607.4 Managing the Negative Impacts of Transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .617.5 Institutional and Human Capacity Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63
Annex 1: Policy and Institutional Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69Annex 2: Sector Struãcture and Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83Annex 3: Table A7 Capital and Recurrent Transport Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . .91Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .93
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1.1 Introduction
Solid contribution to growth and povertyreduction. The transport sector has contributedpositively to the economic growth of Vietnamover the past decade and has helped reducepoverty directly through better linkages tomarkets, education and health facilities andindirectly through its contribution to growth.This is evident from surveys indicating thatinvestment location in northern Vietnam, forexample, was heavily influenced by transportimprovements. The impact on poverty reductionis reflected in studies showing that investing 1%of provincial GDP in transport infrastructurecould reduce poverty by 0.5-1.0% and that aninvestment of US$50 million in transport in the 15poorest provinces could reduce poverty by 6-7%.
Some old challenges remain; some new onesemerge. The rapid growth in transportinfrastructure and services over the past decadehas created new demands and challenges for thetransport sector. Fast economic growth hascontributed to high rates of urbanization, rising
traffic accident rates, new capacity constraints,and a large increase in asset preservationrequirements to meet the fast expansion oftransport assets. Other impediments reside in thesector's policy, planning, budgeting, regulatory,and implementation frameworks. While theseinstitutional issues have no doubt resulted insome inefficiency in resource allocation andservice delivery in the past, they have not heldback the progress of the sector whose primaryobjective was a massive rollout of infrastructure.
The figure below summarizes the results of arecent review assessing the effectiveness oftransport policies, legislation, regulations andtheir implementation, highlighting areas whereattention is needed. Three issues stand out: theroad sector, which typically receives 80-90% ofnational government funding for the transportsector, fairs poorly with respect to policy andpolicy implementation; the urban transportpolicy environment needs significantimprovements; and implementation regulationsin general are weak, a limitation that cuts acrossmany sub sectors.
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Part I
Overview
1.2 Transport Sector Goals
To continue to support rapid economic growthand further contribute to poverty reductionduring the next stage of Vietnam's economicdevelopment, the transport sector will need toovercome its challenges and work towardachieving five broad goals: (1) enhancingefficiency in both resource utilization and servicedelivery, (2) establishing a sustainable financingframework for the sector, (3) facilitatingsustainable urban growth, (4) managing the
negative impacts of transport; and (5) developinginstitutional and human capacity to respond tothe sector's evolving needs.
1.2.1 Enhancing Efficiency in ResourceUtilization and Service Delivery will require anumber of actions by GoV:
A results-oriented integrated planning process.There tends to be a gap between broadgovernment strategies and detailed sectoral plansand little coordination between spatial andeconomic development plans. Moreover a
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Basic Policies Policy Implementation
Mar
ket
entry
/lice
nsin
g
Com
petit
ion/
SOE
role
Safe
ty/e
nviro
nmen
t
Pla
nnin
g/in
vest
men
t
Pric
ing/
cost
reco
very
Legi
slat
ion
Impl
emen
ting
regu
latio
ns
Impl
emen
ting
mec
hani
sms
Out
com
e/
over
all
perf
orm
ance
Road Transport S ervices n.a.
Road Infrastructure n.a. n.a.
Ports and Related Infrastructure
Railway Services & Infrastructure
Urban Transport
Inland Water Transport Services n.a.
International Shipping n.a.
Coastal Shipping n.a.
Inland Waterway Infrastructure n.a. n.a. International Air Transport Services Domestic Air Transport Services
Air Transport Infrastructure
Multimodal Transport n.a. n.a. n.a.
Good promising
Fair In progress
Poor n.a Not applicable/significant
SourcesUrban sub sector: assessment by World Bank staff; All other sub sectors: World Bank-Meyrick and Associates (2006); Vietnam Multimodal Transport Regulatory Review.
fragmentation of responsibilities for developingplans often results in long "wish lists" of projectsmany of which are not consistent, viable orfunded. A results-oriented planning process atboth national and provincial levels would helpalign sector and national goals towards desiredoutcomes. Under such a framework, MoT andother responsible agencies would definemeasurable outcomes reflecting sector goals andultimately resulting in specific projects andreforms to achieve these goals.
At present, the planning process at bothnational and provincial levels can also becharacterized by suboptimal resource allocation.There is misallocation (i) between newinvestment and maintenance; (ii) among modeswith the inland waterways receiving asignificantly smaller share of funding than iscommensurate with their important role; and (iii)in the selection of investments within each subsector.
The ongoing Medium Term ExpenditureFramework (MTEF) pilots could help remedymany of the problems in the planning process byremoving the rigidities in resource allocation andstrengthening integrated planning. This wouldrequire the establishment of sound criteria forprioritization in the MTEF and the empowermentof the Inter-Ministerial Task Force established tooversee the implementation of the pilots.
Investing in asset preservation.While government transport strategiesand plans highlight maintenance as apriority, the amount of resourcesallocated to road maintenance indicateotherwise with at most 50% of thenecessary maintenance expendituresbeing made at both national and locallevels. The deferred maintenancecoupled with the high rate ofinvestment in new transportinfrastructure over the past five yearswould suggest that expenditures on
maintenance will have to grow faster than thoseon capital investment to ensure that the country'stransport infrastructure is not run down.Simulations show that if expenditures on nationalroad maintenance remained at their "current"levels over a 10 year period, the condition of thenetwork would substantially deteriorate withabout 34% being in poor condition including 55%of the high traffic volume network. Although a10-year strategic plan for national roadmaintenance was developed using HDM4models, and has been approved by the PrimeMinister in 2004, it is still not being used in thepreparation of annual maintenance workprograms. While the MTEF can provide someflexibility in shifting resources from newinvestment to maintenance, this will noteliminate the need for developing an assetpreservation framework and for implementingthe strategic plan for national road maintenance.
Asset preservation at the local level.Evidence from road condition surveys from 16provinces suggests that shifting resources fromroad rehabilitation to periodic maintenancewould result in a significant improvement inthe overall condition of the local road network.Data from the surveys show that only 34% ofthe district road network is in good or faircondition. Estimates suggest that resourcesused for periodic maintenance should be
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increased from their current level of about 10% ofthe overall budget to 50%.
Multimodal transport and modern logisticsfor trade led growth and efficient distribution.Vietnam's economic growth requires efficientmultimodal and logistics services to support bothinternational trade and internal distribution.These services are currently at their infancy inVietnam. Logistics costs, assessed to be roughlysimilar to China, are high at about 15%-20% ofGDP, double the cost in industrialized countries.A significant proportion of this cost is associatedwith holding inventories, a result of underdeveloped logistics systems. Reducing thelogistics cost by 10% would result in resourcesavings equivalent to 1.5%-2.0% of GDP.
A recently completed Multimodal TransportRegulatory Review (MTRR) in Vietnam indicatesthat new and revised laws and regulationsprovide a good facilitating environment butimplementation mechanisms need to bestrengthened and clarified. A commonunderstanding between the Ministries ofTransport, Trade, and Planning and Investmenton the definition and coverage of logisticsservices as referred to in the 2005 Commerce Lawis lacking. Coordination between the threeministries is necessary before the implementingregulations for the Commerce Law are finalized.
The role of MoT's Transport Department inintegrated multimodal transport planning needsto be clearly defined, and the department'scapacity strengthened. To help increase theefficiency of the logistics industry, MoT maywish to encourage logistics providers to establisha National Logistics Forum (NLF) financed by itsmembers to identify the industry's needs and toconsult with the government on an appropriatecourse of action. One of the first tasks of the NLFcould be the definition and estimation of aLogistics Index to be updated annually to bettermonitor logistics costs. As a counterpart to theForum, an Inter-Ministerial Logistics Committee
would help liase with the Forum as well ascoordinate government policies affectinglogistics and multimodal transport. Themandate of the GMS Transport FacilitationCommittee could be broadened to enable it toplay the role of the proposed Inter-MinisterialCommittee.
SOE reforms are key to an efficient sector.MoT's debt has been recently estimated at VND19.5 trillion, about 1.5% of the country's GDP.This figure excludes the debt that has beenaccumulated at the provincial level. State bankshave provided loan rollovers as in many cases theinterest payments due are in excess of theborrowing enterprise's capitalization. Thecurrent debt situation of construction SOEs andtheir urgent and serious need for financing forcesthem to submit low "survival" bids to securecontracts, a practice which ultimately results inlow quality works and delayed implementation.Moreover, current practices coupled with a lackof performance incentives do not foster acompetitive, transparent or efficient operatingenvironment.
MoT has some elements of a phasedequitization plan for its SOEs in place. Theobjective of equitization, the methodology forenterprise selection and the details need to beclear and transparent. It is essential to accountfor the debt situation of the SOEs accurately andfor the government to explain the basis forbailing out some SOEs, as is likely to happen,and for letting others go bankrupt. A firmtimetable for this process together with strictmonitoring of its implementation by aninteragency taskforce from MoT and MoF (andpossibly others) increases the possibility ofsuccess of the SOE equitization and reformprogram and the chances of achieving thedesired implementation efficiencies.
The benefits of a sound regulatoryframework will not be achieved without clearand transparent implementing regulations.
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The recently completed regulatory review(MTRR) shows that the transport laws passed inthe past few years provide a sound basis for theefficient operation of transport sub sectors.Nonetheless, the implementing regulations forthese laws require strengthening to ensure thatthe principles of competition and transparencygovern all business and investment licensingmatters, and that private sector participation,both domestic and foreign, is encouraged toenhance operational and managerial efficiencyand quality, and increase investment.
Full efficiencies in the ports and maritime subsector, in particular, are not being fully exploitedas there is still no clear delineation betweendevelopment, operations and regulation. WhileCai Lan port is being operated under aconcession, this was awarded to a state ownedcompany on the basis of a negotiated contractwithout the benefit of competitive selection.
Paving local roads
An issue of significant financial and economicconsequence is the paving of provincial andrural roads to avoid the annual financialburden of maintaining unpaved roads. Thedecision whether to pave a road or not shouldbe based on a life cycle cost analysis of thedifferent alternatives that would include
investment costs, maintenance costs over thelife of the road and the benefits to road users.The analysis would take into account thedifferent topographic and climatic conditionsof each location. Using this approach wouldensure that the limited resources can beoptimized and the appropriate surfacingoption for each region used. The decisionshould not be influenced by the ability tosecure one time State budgetary allocationsfrom the national government.
1.2.2 Establishing a sustainable financingframework for the sector - Strict expenditurecontrols coupled with an increase in resourcemobilization for the sector are essential foradequate and sustainable funding.
A fiscally-constrained programming process.The Government of Vietnam made investment intransport infrastructure a key priority in its 2001-2005 PIP and expenditures reached 4.5% of GDPin 2002, a relatively high figure by most regionaland international standards. However, 35% oftotal central transport expenditures wereapproved by the Prime Minister but not allocatedfunding resulting in a critical and unsustainabledebt situation for many state-ownedconstruction companies. While such expenditurelevels can be justified and indeed are necessary
during periods of heavy rebuilding,programming needs to be fiscallyconstrained within the availableresource envelope.
Expenditure controls can beestablished by making the availabilityof financing a requirement forapproving projects at both nationaland local levels and by replacing thecurrent lax requirements for lendingby some SOCBs by rigorouscommercial criteria. The MTEF couldplay a role towards achieving these
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objectives by ensuring that the proposedinvestment outlays fall within the availableresource envelope.
An agenda for resource mobilization.Nevertheless, it is highly unlikely that the recentexpenditures levels can be sustained in the longrun, not only because of the unsustainable SOEdebt situation but also because 35% of centraltransport expenditures are being financed byconcessional ODA that may no longer beavailable by the end of the decade and that willbe, to some degree, replaced by competitivelypriced loans.
In defining an agenda for resourcemobilization, it is important to distinguishbetween two different levels in the financingframework:
The first level involves the ultimate payersfor the infrastructure and associated services.These are typically the direct beneficiaries, andthe general public paying through governmenttaxes and other revenues. A toll road providesan example where users may pay the full cost,or only a share with the government (generalpublic) paying the shortfall. To this extent,increasing the share that is paid by thebeneficiaries of a road, (or port or bus service)would reduce the share paid by thegovernment. Mechanisms for mobilizingresources from beneficiaries in return forimprovements to transport services andinfrastructure include increasing user charges(by raising existing levels or reducing the fuelsubsidy and using the savings). Anotheravenue would be to capture a proportion of theincrease in land values associated with largetransport improvements.
The second level deals with the financiers ofthe infrastructure. Infrastructure can be financedby the government (central or local) or by theprivate sector. The central government hasfinanced the vast majority of national-levelinfrastructure mostly through the budget but
also by issuing a significant amount of bonds(30% of MoT's projects between 2001 and 2005were financed by government bonds).Municipal finance, which includes governmentbonds and local development investment funds(LDIFs), is being utilized with some success inVietnam's two largest cities. It is important torealize, however, that for most other cities andprovinces, it will take several years before LDIFscan become an important contributor to thefinancing of infrastructure. It may be morepractical and sustainable at this point to considerestablishing local development funds at aregional level. The sustainable growth of thissource of financing requires strong governanceand an arms length relationship with theProvincial Peoples' Committees. For bothnational and municipal bonds, when financingextends beyond toll roads, or other assets thatcan generate sufficient revenues to cover theircosts, a careful analysis of the fiscal capacity ofthe government is necessary.
Another important source of finance is theprivate sector. The contribution of private capitalto the financing of transport infrastructure inVietnam remains low. This source of financingcan play a more prominent role in financinghighways and expressways, and thedevelopment and upgrading of ports andairports. There are two main advantages toinvolving the private sector. The first is thatmobilizing resources relieves some of the pressureon the scare budgetary resources and reduces theneed for additional government borrowing. Thesecond is that the private sector is betterpositioned to bear certain risks. Key to tappingthis source is the development of a framework forprivate participation. The framework needs to setthe principles for efficient risk sharing, to definehow contingent liabilities will be managed, and toidentify appropriate institutional and regulatorystructures. Within the parameters of theframework, the different models of private
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participation can be considered and themost suitable used. It is recommendedthat the framework evolve gradually overtime starting with a series of simpleprojects and building on the gainedexperience.
1.2.3 Facilitating Sustainable UrbanGrowth
Ha Noi and Ho Chi Minh City alonecontribute more than one quarter of thecountry's GDP. Consequently, it isessential that Vietnam's major cities havean efficient transport system to continue tosupport the country's economic growth. Thepredominant challenge for Vietnam's major citiesin the coming decades will be facilitating spatialgrowth for future urbanization. Successfuldevelopment of affordable and efficient, highcapacity, public transport systems-bus basedsystems in the short term, with a role for urbanrail in the longer term-that ensures high qualityaccess to commercial areas and central businessdistricts, will be critical to facilitate continuedurban growth. An urban planning focus isessential to ensure that growth is coordinatedalong high density corridors and that the benefitsof investments in public transport and roadinfrastructure are complementary. This wouldalso help avoid the severe congestion that wouldresult from unstructured peri-urban growth.
However (a) rigidities in the planning process,(b) the lack of metropolitan/regional institutionsthat can coordinate between local governments toenhance development across jurisdictionalboundaries, and (c) weaknesses in the regulatorycapacity hamper a coordinated planningapproach. Moreover, the absence of a wellfunctioning land market, despite some progressin recent land reforms, distorts land prices andcomplicates the planning process. A results-based approach and a strategic review of the
resource mobilization framework are asimportant for cities as they are at the nationallevel. They provide incentives to identifyincremental low-cost solutions given fiscalconstraints and ways in which cities can developrevenue bases that reflect growth in theunderlying economy
A framework for the sustainable developmentand operation of a public transport system needsto be developed. At present, bus routes in Ha Noi,for example, are allocated to operators in an ad-hocmanner even though operators receive significantsubsidies. Subsidies are based on regular detailedcost audits despite the limitations of such a system.A recommended alternative would be to awardbus routes on the basis of fixed-term contractsestablished by competitive bidding.
Municipal governments in both HCMC andHa Noi subsidize both bus purchase andoperations. The sustainability of these subsidiesis in question. In 2003, revenues generated bypublic bus services in Ha Noi covered less than50% of their operating costs and the gap isexpected to further widen as ridershipincreases. There is some potential to reduceoperating costs but it will be difficult to recoveroperating and investment costs withoutincreasing fares. While, at present, there is astrong political will in both Ha Noi and HCMC
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to underwrite the promotion of public transportwith public subsidy, if the subsidies continue togrow at the projected rates, it would be necessaryto ensure that the deficits/subsidies can besustained. The deficits need to be projected andsources for financing them identified.
1.2.4 Managing the negative impacts oftransport is essential for the sustainability ofthe sector. Poor traffic organization remains acritical issue contributing to accidents,congestion and consequently air pollution,despite concerted efforts in both Ha Noi andHCMC focusing on safety and trafficmanagement.
Positive road safety management steps are beingtaken in Vietnam. Some performance targetshave been set, a National Program on TrafficSafety (NPTS) was developed and acomprehensive program of work has beenspecified. Nevertheless, accidents and fatalitiesremain a problem, particularly the high levels ofmotorcycle-related accidents in Ha Noi andHCMC. While the death toll of 9.4 per 10,000vehicles in 2003 compares favorably to othercountries in Asia, data collection of trafficaccidents is not yet adequate and the real numberof casualties is likely to be much higher. About80% of all accidents in 2003 were caused by poordriver behavior, and about one half ofroad accidents were on national roadsparticularly those passing throughpopulated areas and one quarteroccurred on urban roads. The"urbanization" of road space inVietnam remains a major contributingfactor to high accident rates as manypeople live within a few meters of theroad side.
Implementation of the NPTSremains weak and fragmented. Thereare gaps in the proposed NPTS and no
clear articulation of priorities for action based ona strategic analysis of the problems. Proposedactivities and interventions lack adequate finance,proper coordination and planning. In some casesthey do not adequately reflect good practice. Astatute in the law that provides a waiver tomotorcycle users from an obligation to wearhelmets inside city limits is inconsistent with thegovernment policy in this regard, particularlywhen intra cerebral hemorrhage (common tomotorcycle accident victims) was considered amajor cause of hospital death in Vietnam in astudy carried out a few years ago. There is a needto step up the implementation of the NPTS.
There is a perception that internationalgood practice in traffic management is notcompletely transferable. The situation isexacerbated by the lack of a culture of trafficmanagement. Such a culture is currentlyinhibited by excessive fragmentation ofresponsibilities between different elements ofthe Public Works Department (responsiblefor planning, designing, implementation andsome elements of enforcement) and the trafficpolice (responsible for operations and mostenforcement). Efforts to control congestionby limiting motorcycle ownership in theurban districts of Ha Noi and HCMC by fiatare not equitable and have not proven to beeffective.
8
Though Vietnam has successfully phased outlead from gasoline, both Ha Noi and HCMC haveair quality problems. Analysis of available datafrom Ha Noi suggests that transport is asignificant contributor to particulates (PM10 andPM2.5), Ozone formation and locally to CarbonMonoxide (CO) and old motorcycles and dieseltrucks are the biggest polluters in aggregate.Though some policies are in place to inspect andcontrol emissions from four-wheeled vehicles,motorcycle emissions are uncontrolled. Tocontrol pollution, both Ha Noi and Ho Chi MinhCity need to develop a better understanding oftransport's contribution to pollution and asappropriate develop control strategies includingpromotion of non-motorized modes for shorttrips and the development of inspection andmaintenance programs.
1.2.5 Developing Institutional and HumanCapacity to Respond to the Sector's EvolvingNeeds
A long term capacity development framework tosupport the necessary reforms. Theaccomplishment of the transport sector's goalsrequires significant capacity development. Toavoid ad hoc and incomplete institutional reformand capacity development initiatives that areoften not very effective, a comprehensivecapacity development framework with a realisticlong term view for implementation needs to bebuilt. This would address needs at three mainlevels: the enabling environment (policies andlaws)-building on the findings from the recentlycompleted regulatory review, organizationaldevelopment, and human resourcedevelopment.
Strengthen implementation capacity. Withsome exceptions, implementation of works hasoften suffered from inefficiency and lowquality. This can be attributed to the weakperformance of PMUs, contractors and
supervision consultants and the lack of a cleardefinition of accountability and oversight roles.There is no incentive system to encourageefficiency and timely implementation.Performance is not assessed against welldefined targets and the criteria for selectingcentral and provincial PMUs to manageimplementation of new projects are unclear.This issue, which has not received the necessarygovernment attention, needs to be addressedwith some urgency to avoid significant losses inresources. Even in the presence of a soundincentive system, the current system of projectmanagement through PMUs has a fundamentalweakness when it comes to long term capacitydevelopment in MoT. While timely andsatisfactory project implementation is animportant goal for GoV and developmentpartners alike, building capacity in the lineministry is even more important for the sector'sdevelopment and projects' sustainability. Thelatest version of the construction lawrecommends moving PMUs under the modaladministrations such as VRA and VIWA. Atransition plan needs to be prepared and theprocess started as soon as possible.
A major contributor to the low quality ofinfrastructure is the limited effectiveness ofsupervision consultants. PMUs do not typicallyempower them. They are often bypassed withSOE contractors reporting directly to PMUs andsometimes even to upper levels of managementat MoT. To help ensure good quality ofimplementation, the roles of the PMU, asrepresentative of the Client, the supervisingengineer and the contractor should be clearlydefined and adhered to.
Resettlement is considered one of the largestcontributors to implementation delays intransportation projects. Through various decreesand laws, however, GoV has considerablyimproved its resettlement policies and continuesto work on remaining issues.
9
Better governance framework. The recentcorruption incident surrounding PMU-18 hashighlighted weaknesses in the current governanceframework. It also shows the conflict of interestthat can arise in the award of contracts todependent agencies under the ministry or theprovince. Procurement within the sector suffersfrom collusion at many levels of the process. Thiscontributes to both inefficiency in implementationand low quality of construction. Evidence fromprocurement associated with World Banktransport projects suggests that the fullycompetitive award of contracts has not beenachieved yet. For example, evidence from ex-postprocurement reviews highlights a trend towardscollusion of bidders sometimes with theinvolvement of the contract-awarding authorities,and the artificial restriction of competition bylimiting the sale of bidding documents. Statecontrol of prices is another area that limits trulycompetitive bidding.
GoV needs to speed up measures to increasetransparency in procurement as well as augmentthem by other policies. GoV is undertakingseveral measures to limit collusion. These includemeasures to increase transparency such as thepublishing of all requests for proposals in MPI'sgazette and on its website. A draft procurementlaw that provides a complaint mechanism is beingdiscussed. Decree 80 requires communityparticipation in, and supervision of, local decisionmaking processes. There will be a need todevelop the capacity of the relevant procurementauthorities to strengthen their ability to identifycollusion between contractors. Transparency canbe further increased by making access to bidding
documents freely available. Having arepresentative from the community sit on the bidevaluation panel is another way to reducecollusion. Without an effective sanctionmechanism, it is unlikely that the complaintsmechanism in the draft law will curb collusion. Acentralized database needs to be established tosupport the black listing approach followed byGoV. At present, firms blacklisted due tocollusion in one province can still be awardedcontracts in other provinces due to a lack of sucha database.
1.3 Two priorities
The proposed recommendations for the sector areinterlinked and the success of one component isoften dependent on the success and progress ofothers. Moreover, the difficulty inimplementation, the resource mobilizationrequirements and the time horizon foraccomplishing the reforms vary from onecomponent to another. Given the financial and,more importantly, the institutional capacityconstraints, facing GoV and MoT, short runpriorities need to be specified within a largerreform framework to ensure consistency intimeliness of implementation.
As such, the two urgent priorities are (a) theSOE reforms that would enhance sector efficiencyand financial sustainability, lead to better qualityof works, and contribute to better governance;and (b) the development of an effective assetpreservation framework to avoid the large lossesof resources that Vietnam has invested in itstransport infrastructure over the past decade.
10
2.1. Sector Objectives
The government's objective for the sector is todevelop a modern transport system that provideshigh quality, efficient and affordable transportservices in a safe and environmentally soundmanner. 2
2.2 Key Strategy and PolicyConsiderations
The 2004 Transport Sector Development Strategy(TSDS) to 2020 supports Vietnam's variouseconomic development plans, notably, the tenyear (2001-2010) Socio Economic DevelopmentStrategy (SEDS) and the Comprehensive PovertyReduction and Growth Strategy (CPRGS). SEDSidentifies the upgrading of Highway No. 1 andthe construction of the Ho Chi Minh Highway astwo priorities and strongly endorses thedevelopment of public transport services andlong term transport planning in large cities. SEDSalso cites the rising rate of traffic accidents as aconcern. SEDS' emphasis and priorities differwithin Vietnam's 3 focal economic zones and 8regions. The main elements of TSDS are:● A balanced approach to transport
development capitalizing on the country'sgeographical shape.
● Prioritization of maintenance and upgradingof existing assets.
● Prioritization of rural transport infrastructureespecially in mountainous and remoteregions.
● Prioritization of new investments in thenorth-south backbone, important economiczones, large urban areas and key links toneighboring countries.
● Prioritization mass transit systems in theurban sector.
● Increasing the local content in ship andautomobile construction and repair.
● Increasing the share of domestic enterprises inthe international transportation ofVietnamese goods.TSDS highlights several policies to govern
implementation. These include:● Targeting domestic and foreign sources of
finance, both private and public, and chargingusers for the construction and maintenance ofinfrastructure when possible.
● Encouraging private sector participation byspeeding up the equitization of state-ownedenterprises and separating state managementfrom operations and business.
● Ensuring transport safety and environmentalprotection in transport related activities.
11
1. This section summarizes a few of the key aspects of the policy and institutional frameworks. The details of theframeworks are presented in Annex 1.
2. Adapted from “Vietnam’s Transport Development Orientation for the Next Decades” on MOT’s website:http://www.mt.gov.vn.
Part II
Policy and Institutional Framework1
12
● Utilizing new technologies and processes intransport-related construction andoperations.
2.3 Governing Sectoral Policies andPlans; and Laws and Regulations
Road Infrastructure and Transport Services
Prime Ministerial Decision (PMD) 162/2002,which sets out the government's policy fornational, provincial, urban and rural roads,contains some general statements on the aim toenhance maintenance capacity, but the focus is onnew infrastructure needs, particularly for nationalroads. The Decision set as targets the sealing of allnational and provincial roads by 2005 and 2010respectively, and the upgrading of 90% of all ruralroads to all-weather roads by 2010. The Decisionalso lists over 1,400 kms of 4/6 lane expresswaysto be built by 2010 but contains relatively littleabout sources of finance. It foresees the use of tollsand an additional fuel tax and identifies a numberof steps to attract further ODA and FDI. TheDecision directs the government to considerestablishing a Road Maintenance Fund. The Fundproposed by MoT was opposed by the Ministry ofFinance as it appeared to be more broadly definedin scope as a Transport Sector Fund.
Urban Transport
Developing policy for urban transport is theresponsibility of the cities subject to centralgovernment approval for major plans andinvestments. Urban transport policies are devisedto support cities accommodate the significantincreases in population particularly in HCMC andHa Noi which are forecast to triple theirpopulations between 2000 and 2020. PMD162/2002 sets some targets for urban roads for HaNoi, Ho Chi Minh City and medium size cities for
the short, medium and long term. For Vietnam'stwo largest cities, the strategic foci are to promoteand develop public transport, and to develop roadinfrastructure to alleviate congestion and open upnew areas for urbanization.
Maritime and Shipping
The government's strategy is to rehabilitateexisting key facilities, focus on the construction ofdeepwater ports in the focal economic zones toserve vessels over 30,000 DWT while alsodeveloping small scale satellite ports to serve thelocal economy. Two of the government's keyport projects are Van Phong, a transshipmentport in Khanh Hoa in central Vietnam and CaiMep, a deep sea port in Vung Tau to servesouthern Vietnam. The rehabilitation andconstruction of a total of 114 ports in 8 port
13
complexes is planned by 2010. As a matter ofgovernment policy, the construction of new portsor berths that would compete with existingnational ports is prohibited. The Governmentalso plans to develop its fleet of container vesselsand tankers, and ship building facilities. A newmaritime code was approved by the NationalAssembly in 2005 and came into effect in January2006.
Inland Waterways
The government's main objectives for the sectorare modernizing inland waterway navigation tomeet international standards and furtherdeveloping its fleet of vessels. The Government'smaster plan for developing Vietnam's inlandwaterway system though 2020 lists landingstages and ports to be upgraded and equippedwith modern loading equipment (targeting atleast one port/landing stage per province,mostly in the south) and identifies severalwaterway channels for improvement. The sectoris governed by the 2005 Law on inland waterwaynavigation. The implementing regulations forthis law have not been finalized yet.
Railways
Prime Ministerial Decision 34/2003/QÐ-TTg(March 2003) established the state-ownedVietnamese Railway Corporation (VRC) tooperate the railways. Decree 34/2003/ND-CP(April 2003) placed the policy and regulatoryfunctions within the Vietnam RailwayAdministration (VNRA), a modal administrationunder MoT. VNRA is responsible for thedevelopment of the rail sector and also overseesthe performance of VNC. The new railway law
that was passed by parliament in June 2005provides a framework for separatinginfrastructure and operations, and for thepossible operation of trains by third parties. Theimplementing regulations have not beenfinalized yet.
Civil Aviation
PMD No. 206/2004/QD-Ttg identifies theupgrading and expansion of existinginternational and domestic airports, and thebuilding of new ones as objectives for the sector.Specific airports throughout the country arementioned in the Decision. The construction ofLong Thanh International airport in Dong Naiprovince to replace Tan Son Nhat airport in HoChi Minh City at the estimated cost of US $3billion for the first phase (2006-2010) is the largestairport project currently under consideration.
Multi Modal Transport
MoT stresses the goal of achieving optimumtransport conditions on the entire networkthrough the efficient use of different transportmodes of transport and the utilization ofadvanced technologies, especially multi-modaltransport technology in cargo handling.3Government Decree No. 125/2003/ND-CPdefines the scope and regulations forinternational multi-modal activities carried outby national and foreign entities. Certain articlesof the Commerce Law also sets rules forcommercial activities relating to logistics services;and a number of government decisions definecustoms procedures relating to the movement ofgoods and vessels by international multi modaltransporters.
3. “Vietnam’s Transport Development Orientation for the Next Decades” on MOT’s website:http://www.mt.gov.vn
14
Table A1 in Annex 1 provides the main legaland regulatory provisions governing thetransport sector in Vietnam.
2.4 Planning and Programming
The Ministry of Transport (MoT) has theresponsibility for planning, managing andmaintaining national transport infrastructure, andfor assisting local governments in project selection.MoT prepares long term transport strategies, 5
year plans for inclusion in the Public InvestmentProgram and one year plans for inclusion in theannual State Budget. While transport strategiesgenerally transcend local government boundaries,the 5-year and annual plans prepared by MoT arelimited to national infrastructure.
The details for planning and programming arepresented in Annex 1. Figure A1 and Table A2 inthe annex respectively present key transport-related government institutions; and the sector'smain players and their roles.
15
3.1 Demand for Transport Services
The demand for transport grew slightly faster thanGDP between 1999 and 2005. Over this period,annual growth rates in freight and passengerdemand measured in ton/passenger km were 12%and 10% respectively (see Table 1). Road remains adominant mode, accounting for 67% of tons movedbut coastal shipping accounts for 71% of all ton-kmdue to its dominance in long-distance movements.Reflecting Vietnam's rapid growth in trade, annual
throughput of sea ports doubled from 56 million tonsin 1998 to 114 million tons in 2003; and cargo flowsthrough southern ports in 2000 exceeded forecastsmade two years earlier in the National TransportDevelopment Strategy (VITRANSS) by 50%.5
The increase in market share of coastalshipping between 1999 and 2005 came at theexpense of roads and inland waterways.Nevertheless, the freight task (ton-kilometers) forboth modes increased during that periodalthough the growth rate for waterways was
Part III
Sector Structure and Ownership4
4. This section provides a summary of the sector structure. For more details see Annex 2.5. “Vietnam, Managing Public Expenditure for Poverty Reduction and Growth, Public Expenditure Review and
Integrated Fiduciary Assessment”, Volume II Sectoral Issues, Page 29.
Table 1:Domestic Transportation Volume 1999-2005
M ode 1999 2003 2005
Goods Transport
1000 tons % M ilton-km
% 1000 tons
% M ilton-km
% 1000 tons
% M ilton-km
%
Annualincrease inton-km (% )
Railways 5,146 2.7 1,445 3.6 8,385 3.2 2,725 4.5 8,838 2.7 2,948 3.6 13Roads 132,137 69.5 7,160 17.8 175,856 67.3 9,403 15.4 211,556 65 11,262 13.9 8Waterways 39,887 21.0 3,968 9.8 55,258 21.1 5,141 8.4 69,933 22 4,785 5.9 3
Coastal 13,006 6.8 27,620 68.5 21,811 8.3 43,513 71.3 33,798 10 61,872 76.3 14
Aviation 42 0 106 0.3 90 0.1 211 0.4 104 0 229 0.3 14
Total 190,219 100 40,295 100 261,401 100 60,992 100 324,229 100 81,096 100 12Passenger Transport
Mil pass. % Mil pass-km
% Mil pass.
% Mil pass-km
% Mil pass. % Mil pass-km
% Annualincrease inpass-km (% )
Railways 9.3 1.3 2,722 8.8 11.6 1.0 4,069 9.2 12.8 1.0 4,582 8.6 9Road 588.4 80.9 22,053 71.1 926.2 83.7 29,181 66.6 1,076.5 84.9 34,436 64.6 8Waterways 125.7 17.3 2,110 6.8 161.7 14.6 3,282 7.5 169.3 13.3 3,420 6.4 8Aviation 2.7 0.4 4042 13 4.5 0.4 7,112 16.2 6.3 0.5 10,670 20.0 17Other 1.3 0.1 80 0.3 2.2 0.3 142 0.5 2.5 0.3 189 0.4 15
Total 727.4 100 31,007 100 1,106.2 100 43,786 100 1,267.4 100 53,297 100 10
Sources: 99 and 03 data from Statistical Year Book 2004, 05 data from General Statistical Office website.
Mode
GoodsTransport 1000 tons 1000
tons1000tons% Milton -
km% Milton -
km% Milton -
km
Annualincrease in ton-km (%)
Annualincrease in
pass-km (%)
16
Tabl
e 2.
N
etw
ork
Size
and
Ow
ners
hip
Stru
ctur
e fo
r Inf
rast
ruct
ure
and
Serv
ice
Prov
ider
s
Con
struc
tion
Se
ctor
Sc
ale
Man
agem
ent
Impl
emen
tatio
n
Mai
nten
ance
O
pera
tions
Road
s N
atio
nal
17,3
00 k
m
MoT
’s PM
Us
SOEs
und
er M
oT’s
Cie
ncos
, pr
ovin
cial S
OEs
, priv
ate
sect
or c
ompa
nies
.
Road
Man
agem
ent a
nd
Mai
nten
ance
Com
pani
es
(RM
MC
s) un
der V
RA’s
4 RR
MUs
an
d PD
OTs
P
rovin
cial
Dist
rict
Com
mun
e T
otal
17,4
49 k
m
36,3
72 k
m
131,
455
km
Prov
incia
l PM
Us;
MoT
’s PM
Us fo
r O
DA
supp
orte
d pr
ojec
ts.
Prov
incia
l/Dist
rict S
OEs
and
pr
ivate
sect
or c
onstr
uctio
n co
mpa
nies
Prov
incia
l/Dist
rict S
OEs
and
pr
ivate
sect
or c
onstr
uctio
n co
mpa
nies
. C
omm
une
labo
r use
d fo
r m
aint
enan
ce o
f com
mun
e ro
ads
Truc
king
serv
ices p
rovid
ed b
y SO
Es a
nd
priva
te se
ctor
com
pani
es.
Urba
n TTr
ansp
ort
Han
oi: 6
91
buse
s, ca
pacit
y:
40,5
00 (2
004)
H
CM
:296
1 bu
ses (
June
20
05)
PMUs
und
er T
UPW
S an
d cit
ies.
SOEs
atta
ched
to M
oT, T
UPW
S an
d cit
ies.
Bus s
ervic
es a
re p
rovid
ed b
y TRA
NSE
RCO
, a
state
owne
d op
erat
or u
nder
Han
oi’s
Peop
le’s C
omm
ittee,
and
by p
rivat
e op
erat
ors i
n HC
MC
(the
larg
est t
wo
oper
ator
s are
Sai
gon
Bus,
an S
OE
and
Saig
on S
tar,
a jo
int ve
ntur
e).
HPC
is ab
out
to in
trodu
ce p
rovid
e op
erat
ors.
Railw
ays
2,63
2 km
30
0 lo
cos
Railw
ay P
MU
impl
emen
ts in
vestm
ent p
roje
cts
SOEs
und
er V
RC.
Railw
ay c
ompa
nies
und
er V
RC
Viet
nam
Rai
lway
s Cor
pora
tion
(VRC
) op
erat
es tw
o pa
ssen
ger c
ompa
nies
and
on
e fre
ight
com
pany
In
land
WW
ater
ways
8,
000
km u
nder
na
tiona
l mgm
t; 1,
800
km u
nder
lo
cal m
gmt;
83,0
00 b
oats
(3.7
mil
dwt)
MoT
’s PM
U-W
and
VI
WA’
s PM
U SO
Es a
ttach
ed to
MO
T an
d pr
ovin
cial g
over
nmen
ts
• VI
WA’
s rive
r sta
tions
and
por
t au
thor
ities
man
age
mai
nten
ance
. •
VIW
A’s s
ubsta
tions
car
ry o
ut
mai
nten
ance
of N
avai
ds.
• SO
Es u
nder
take
dre
dgin
g m
aint
enan
ce w
orks
• La
rge
barg
es a
re o
wned
and
op
erat
ed b
y bot
h SO
Es a
nd th
e pr
ivate
sect
or.
• Sm
all c
ount
ry b
oats
are
priva
te se
ctor
ow
ned
and
oper
ated
. •
The
maj
ority
of p
orts
and
land
ing
stage
s ope
rate
d by
pro
vince
s; a
few
key r
iver p
orts
oper
ated
by V
IWA.
Po
rts a
nd
S Ship
ping
80
por
ts 92
8 ve
ssel
s (1.
8 m
il dw
t)
PMUs
impl
emen
t ne
w in
vestm
ent
proj
ects
SOEs
und
er th
e W
ater
way
Con
struc
tion
Cor
pora
tions
an
d th
e C
IEN
CO
s.
Ports
and
SO
Es u
nder
VI
NAL
INES
.. •
VIN
ALIN
ES o
pera
tes th
e m
ajor
por
ts (H
ai
Phon
g, D
anan
g, S
aigo
n, C
an T
ho).
• Sh
ippi
ng a
nd fr
eigh
t for
ward
ing
serv
ices o
ffere
d by
SO
Es, p
rivat
e co
mpa
nies
and
join
t ven
ture
s with
fo
reig
n co
mpa
nies
.
17
significantly lower than that of all other modes.Rail plays a less significant role and its marketshare remained the same between 1999 and 2005.Although starting from a low market share, airtransport has seen its share for passengersincrease significantly between 1999 and 2005.
3.2 Transport Infrastructure andServices
Transport infrastructure in Vietnam continues tobe nearly exclusively provided, owned, financed,built and operated by the public sector, eitherdirectly through the government or by way ofquasi-independent SOEs. Whether responsibilityfor the infrastructure lies with the national or localgovernment typically depends on the level ofgovernment that financed and built theinfrastructure. Private investment in the sectorhas been very low accounting for less than 2% oftotal capital expenditures on transport during thelast decade.6
Transport services include a mixture of privateand public operators depending on the sub sector.All rail services in the country are provided underpublic ownership. Most ports remain verticallyintegrated public operations in which the publicsector owns and operates infrastructure andterminals. Many of the larger trucking and bargeenterprises are also state owned. However, fortrucking and barging services there are also largeand vibrant private sectors.
Table 2 presents a breakdown of transport assetsby level of management, as well as the ownershipstructure for infrastructure and service providers.
The implementation of national transportationconstruction projects in all sub sectors is managed
by Project Management Units (PMUs).Construction of national projects is typicallycarried out by SOEs attached to MoT andprovincial governments as well as private sectorcompanies. MoT has over 200 SOEs-most ofwhich are grouped in 12 corporations (includingthe 5 Civil Engineering ConstructionCorporations-CIENCOs). The corporations act asholding companies only in an administrativesense but do not own their member SOEs. Theprimary activity of over 100 of these SOEs isconstruction. While in principle SOEs areindependent business entities, in practice they aretypically assigned tasks by MoT. Local levelprojects are carried out by provincial and districtSOEs and private companies. All companies haveto compete for their assignments under generalbidding (or limited bidding) guidelines. It isbelieved that SOEs are awarded the majority ofthe tasks and often sub contract to private firms.
In large cities, private sector companiescompete with Transport Engineering Companies(TECs) under the local governments' Transportand Urban Public Works Services (TUPWS)departments to undertake transport constructionworks. Small to medium maintenance jobs onnational roads are awarded directly to RegionalRoad Maintenance Companies (RRMCs) withinthe Vietnam Road Administration. For largemaintenance works, RRMCs compete againstother SOEs. Local roads are maintained byprovincial and district SOEs as well as privatecompanies. Commune labor is used formaintenance of commune roads. TECs undertakemaintenance works in cities.
Annex 2 provides more details on ownershipstructure for the sector.
6. Contractual commitments between 1994 and 2003 totaled US $125 million (US $100 for ports, US $15 million foran airport and US $10 million for a toll road). Source: PPI database. These figures record investments promised at thetime of contracting.
18
19
4.1 High rate of growth in transportexpenditures
Table 3 shows that real expenditures ontransport increased 21% per annum between1994 and 2002. The large increase reflects thestrong commitment of the government tomodernize the transport system to supporteconomic growth and is consistent with itspolicy to prioritize investments in transportinfrastructure. During this period, transportexpenditures grew three times as fast as theeconomy peaking at 4.5% of GDP in 2002 andaveraging 3.2% over that period.7 The increasein transport expenditures is also evident intheir rising share in total governmentexpenditures from 7.8% in 1994 to 17.6% in2002. Growth in transport spending duringthis period was characterized by tremendousfluctuation falling to a low of 6% in 2000 onlyto rise to a high of 50% the following year. Thelarge increase in transport spending in 2001can be attributed to the emphasis on transportinfrastructure in the 2001-2005 PublicInvestment Program.
4.2 Local government expendituresgrowing fast
Local government spending on transportincreased from 0.8% of GDP in 1998 to 1.9% in 2002(see Table 3). This reflected an average real growthrate of 23% per annum during this period, slightlyhigher than the comparable growth rate fornational government expenditures (20% perannum). The relatively faster growth of localgovernment spending resulted in a rising share oflocal governments in total government transportexpenditures from a low of 31% in 1998 to a highof 44% in 2002 although these figures most likelyunderestimate local government shares.8 Theincrease is consistent with the government'scommitment to decentralize decision making inthe sector and emphasize development of ruralaccess. Spending on local transport infrastructureis not being carried out by local governments only.The recently completed Public ExpenditureReview (PER) in Phu Tho and Vinh Long indicatedthat private contributions in the two provincesadded another 25% and 7.5% respectively to localgovernment expenditures on transport.9
Part IV
Expenditures and Financing
7. There is a large discrepancy between expenditure figures sourced from MOT and those sourced from MOF.MoF’s figures which reflect the formal State Budget are significantly lower than those of MoT indicating that MoT’sexpenditures are financed outside the scope of the formal budget. This issue is discussed later under “Sources ofFinancing”.
8 The underestimation is due to the facts that Table 3 has been constructed using a hybrid data set: centraltransport expenditures from MoT and local transport expenditures from MoF and that MoF figures are significantlylower than those of MoT. When MoF figures are used for both central and local expenditures, the local governmentshare increases to over 50%.
9. See section on financing local transport expenditures below for a further discussion of this issue.
20
Tabl
e 3
Ove
rvie
w o
f Tra
nspo
rt S
ecto
r Ex
pend
iture
sBi
llion
of r
eal 1
994
Viet
nam
ese
Don
g
19
94
1995
19
96
1997
19
98
1999
20
00
2001
20
02
Avg*
Tota
l Tra
nspo
rt Ex
pend
iture
s
3,55
8 N
.A
N.A
6,
726
7,36
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9,56
9 14
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16
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-
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857
2,82
8 4,
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5,04
7 5,
679
6,00
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325
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200
-
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endi
ture
s 1,
395
N.A
N
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2,14
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314
3,31
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564
6,03
4 7,
192
3,70
8
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apita
l Exp
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s 2,
538
N.A
N
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5,55
0 6,
168
7,88
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34
14,8
98
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6
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1,02
0 N
.A
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175
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1 1,
526
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266
Pe
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tage
Gro
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94--9
7 (a
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98
1999
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Avg*
* To
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22
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19
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1995
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96
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1999
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2001
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Avg*
To
tal T
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Expe
nditu
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2.0%
N
.A
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4.
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4.5%
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- C
entra
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s 1.
2%
1.5%
1.
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1.9%
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-
Loca
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ture
s 0.
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N.A
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0.9%
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1.2%
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1.7%
1.
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-
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xpen
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res
1.4%
N
.A
N.A
2.
3%
2.3%
2.
8%
2.6%
3.
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4.0%
2.
7%
- Re
curre
nt E
xpen
ditu
res
0.6%
N
.A
N.A
0.
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0.5%
0.
4%
0.4%
0.
4%
0.4%
0.
5%
Perc
ent o
f Tra
nspo
rt Ex
pend
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s
199
94
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19
96
1997
19
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-
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61%
N
.A
N.A
68
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63
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63%
58
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62
.5%
-
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pend
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s 39
%
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31
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37%
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37.5
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s 71
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83%
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%
88%
87
%
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90
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-
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rrent
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s 29
%
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N
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17%
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%
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13
%
11%
10
%
15%
* Av
erag
es fo
r tra
nspo
rt ex
pend
iture
s ex
pres
sed
in V
ND
and
as
perc
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of G
DP
and
tota
l pub
lic e
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(in th
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st co
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n) d
o no
t tak
e th
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and
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into
cons
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they
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t ava
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e.**
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aliz
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row
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te b
ased
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199
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d 20
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N.A
.: N
ot a
vaila
ble
Sour
ces:
94-9
8 da
ta fr
om "V
ietn
am, M
anag
ing
Publ
ic R
esou
rces
Bet
ter,
Publ
ic E
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Revi
ew 2
000"
; oth
er c
entra
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endi
ture
dat
a fro
m M
oT; o
ther
loca
l exp
endi
ture
dat
a fro
mM
oF; G
DP
data
from
Wor
ld B
ank
Dev
elop
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ase:
web
site
http
://dd
p.w
orld
bank
.org
/ddp
/hom
e.do
4.3 Growth in recurrentexpenditures not keeping up withcapital expenditures
Both capital and recurrent transport expenditureshave experienced real growth over the pastdecade. Real capital expenditures grew more thanthree times as fast as recurrent expendituresaveraging 25% per annum between 1994 and 2002compared to 6% for recurrent expenditures (seeTable 3). The difference is more pronounced forcentral government expenditures where capitalexpenditures grew at an average annual rate morethan six times that of recurrent expenditures (25%versus 4%--see Table A7 in Annex 3).
While recurrent local expenditures grew at areasonable real rate of 13%, their growth laggedbehind capital expenditures that grew at anaverage rate of 24% during the same period.Figure 1 shows the declining share of recurrentexpenditures in overall transport spending bynational and local governments between 1994 and
2002. One should note, however, that the figuresare averages and that there is likely to be largevariations among provinces.
4.4 Majority of spending is on roads:the sub sectoral expendituredistribution
Government expenditures on the road sub sectorfar exceed those on all other transport sub sectorscombined averaging about 85% between 1994 and2005. The share of the road sector has increasedfrom 77% of the total in 94 to 84% in 2002 (see Table4). The shares of the maritime and rail sectorsdropped slightly during the same period while theshare of inland waterways dropped from 3.6% in 94to 2.2% in 2005.
4.5 Sources of Financing
Financing Central Government TransportExpenditures
21
22
The 2005 PER shows that, between 1999 and2002, the state budget has funded about 65% oftotal commitments in the sector through theannual budgeting process (see Table 5). Thebalance of 35% has been approved by the PrimeMinister but not allocated funding in the annualbudget process. These outstandingcommitments totaled VND 14.4 trillion between1999 and 2002. The 2000 PER showed thatbetween 1997 and 1998, MoT's reportedexpenditures were 40% and 65% higherrespectively than MoF's allocations through thebudgetary process. Over this period MoT hasrelied on its attached companies to undertake the
unfunded mandates on the assumption fundswould be approved later. This placed asignificant debt burden on contractors and thestate banks providing them credit.
Almec (2005) estimates that between 2001 and2005, a total of VND 64,145 billion was invested innational and local projects under MoT's control.10
Figure 2 shows that the bulk of the financing camefrom ODA (42%), followed by State bonds (30%).Deducting the ODA share from the State Budget,the state financed about 20% out of its ownresources. Loans from state owned commercialbanks (SOCBs) funded an additional 3% whileBOT accounted for 5% of the total.
Table 4: Government Expenditures on Transport
1994 ….. 1997 1998 1999 ....... 2002 ….. 2005 Avg Roads 76.9% 88.3% 85.7% 84.3% 87.7% 84.2% 84.5% IWW 3.4% 2.0% 2.8% 1.7% 1.6% 2.2% 2.3% Rail 6.3% 4.2% 5.9% 5.9% 5.8% 6.1% 5.7% Maritime 5.4% 1.4% 1.9% 4.2% 2.0% 5.2% 3.4% Others 7.0% 4.1% 3.7% 3.9% 2.8% 2.3% 4.0%
Table 5: Central Level Expenditure and Funding Sources (Billion VND- unless otherwise indicated)
1999 2000 2001 2002 Total % of total exp.
Total Expenditure 8,080 8,397 11,593 13,494 41,564 Total budget from MOF: State Budget ODA
5,901 2,373 3,528
6,391 2,797 3,594
6,582 2,293 4,289
8,305 4,504 3,801
27,179 11,967 15,212
65.4 28.8 36.6
Total outstanding commitments 2,179 2,006 5,011 5,189 14,385 34.6
10. Source: Ministry of Transport and Department for International Development, “Strategic Review of TransportDonor’s Support to the Government of Vietnam’s Socio-Economic Development Plan (SEDP) for 2006-2010”, June 2005.
Sources: 94-98 data from "Vietnam, Managing Public Resources Better, Public Expenditures Review 2000",99-04 "Vietnam, Managing Public Expenditures for Poverty Reduction and Growth: Public ExpendituresReview and Integrated Fiduciary Assessment 2005", 05 data from "Medium Term Fiscal and Expenditure Framework 2006-2008"
Source: Vietnam, Managing Public Expenditures for Poverty Reduction and Growth: Public Expenditures Review and IntegratedFiduciary Assessment 2005".
23
However, there is a lack of clarity with respectto sources of financing and considerable difficultyin reconciling available data. For example, if themajority of transport expenditures financedoutside the normal budgetary process wassourced from bonds issued by the centralgovernment as indicated in Almec (2005),transport and construction SOEs would not befacing a serious, and increasing, debt problem. Inaddition, it is not known how BOT investmentswere financed and to what extent theDevelopment Bank of Vietnam (formerlyDevelopment Assistance Fund-DAF) was used infinancing transport expenditures.
4.6 Financing LocalGovernment TransportExpenditures
Data is lacking on the sources of financefor local governments. What is clear isthat some provinces use their ownrevenues and residents' contributionsin addition to state budgetaryallocations to finance transportinfrastructure. A detailed study ofprovincial public expenditures in PhuTho and Vinh Long indicated that state
budgetary allocationsrepresented 40% and 33%only of their respective totalexpenditures on transport.People's contributions wereapproximately 7% of thetotal for Vinh Long and 20%for Phu Tho (see Table 6).While there is likely to besome double counting ofexpenditures by ministriesand targeted programs in thelocal government estimates,the figures indicate thatactual expenditures aresignificantly higher than
those provided by MoF.
4.7 Future Expenditure Requirements
Various estimates have been made of futureinvestment requirements in the transport sectorthrough 2010 and 2020. Annual projections varyfrom a low of VND 24 trillion to a high of VND 99trillion up to 2010. The lower figure is sourcedfrom the comprehensive VITRANSS studyundertaken in year 2000 to provide a basis for atransport master plan through 2010. The higher
Table 6: Financing Transport Expenditures in Phu Thoand Vinh Long
MoF (State Budget) 40% 33% Local Government financing outside State Budget
40% 60%
Private contributions 20% 7% Total 100% 100%
Source: Vietnam, Managing Public Expenditures for Poverty Reduction and Growth: Public Expenditures Review and Integrated Fiduciary Assessment 2005”.
figure was more recently estimated from theVietnam Transport Strategy to 2020 which wassubmitted by MoT to the Prime Minister onDecember 31, 2002. Almec (2005) compiled morerecent figures and data and arrived at a value ofVND 72 trillion per annum for 2006-2010. Table 7shows the proposed transport investment as perthe 2020 Transport Strategy. The desired annualtransport investment between 2002 and 2020 iseven higher (than 2002-2010 annual average) atVND 118 trillion (US$7.5 billion) per year, withalmost 60% of the total in rail and urbantransport. To place these figures in perspective,the 2002 transport expenditures were VND 24trillion.
Using actual GDP figures for 2002-2005(estimated for 2005) and assuming a real growth inVietnam's GDP of 7% per annum between 2005
and 2010, the estimated requirement forgovernment expenditures on transport asproposed in the 2020 Transport Strategy is about12% of cumulative projected GDP. If the mostrecent figures in Almec (2005) are used, transportexpenditures would be slightly less than 8% ofGDP.11 These expenditure levels are clearly toohigh and cannot be achieved without significantlyneglecting other equally vital sectors of theeconomy. Most likely these represent "wish lists"which are to be trimmed down later.
A more reasonable and sustainable level oftransport expenditures would be 3.5 - 4.0% ofGDP, roughly half of what has been recentlycompiled by Almec. This level is higher than whatVietnam averaged between 1994 and 2002 (3.2%)but lower than the 2001-2 expenditure levels. Itwould yield a range of 164 to 210 VND trillion, an
24
Table 7: Proposed Investment in Transport Infrastructure (Billion of Current Vietnamese Dong)
2002 --2010
pperiod 2011 --2020
pperiod
Annual aaverage
2002 --2010
Annual aaverage
2002 --2020
Road: In which: Expressway National Highway Provincial Road
245,990 56,570
139,420 50,000
328,530 158,530 125,000 45,000
30,749 7,071
17,428 6,250
31,918 11,950 14,690 5,278
Railway: In which: Express Railway Normal Railway
218,661 204,000 14,661
393,576 361,500 32,076
27,333 25,500 1,833
34,013 31,417 2,596
Maritime 20,387 65,000 2, 548 4,744 Inland Waterways 4,673 4,507 584 510 Civil Aviation 17,880 36,330 2,235 3,012 Urban Transport (Hanoi & HCMC) In which: Road Railway Supporting public trans.
195,886 129,385 56,501 10,000
423,595 221,448 193,147
9,000
24,486 16,173 7,063 1,250
34,416 19,491 13,869 1,056
Rural Transport 86,500 77,850 10,813 9,131 Total 789,977 1,329,388 98,747 117,744 Source: Submission by MoT to Prime Minister, December 2002.
11. Almec 2005, “Strategic Review of Transport Donors’ Support to Vietnam’s 2006-2010 SEDP”.
25
annual average of 33 to 42 VNDtrillion.
4.8 Composition ofSpending within ProposedEnvelope
The Prime Ministerial Decisionoutlining the Transport SectorDevelopment Strategy to 2020identifies the maintenance of existingassets as one of several priorities.Given the typically highsocioeconomic returns onmaintenance, the large and rapidly increasingtransport capital stock, and the fact thatmaintenance expenditures underperformed the2001-05 plan, maintenance ought to be the toppriority for the transport sector in 2006-10 SEDP.Using the same target for maintenanceexpenditures as set in the 2001-5 SEDP andadding the shortfall in maintenance spendingduring that period indicates a requirement ofabout VND 22 trillion. A second priority, from apractical standpoint, is the completion of ongoingprojects. Almec (2005) estimates the requirementsto complete ongoing national, and ODA-financedlocal, projects in 2006-10 at VND 75 trillion. This
would leave a total of VND 67 trillion to VND 113trillion for both the completion of any ongoinglocal projects as well as for new projects (seeTable 8).
4.9 Sustainable Financing forTransport Expenditures
Two of the challenges facing the sector are theprioritization of expenditures within a smallerbudget envelope and the determination of a morebalanced sustainable financing structure. Theseissues are addressed in the sections on main issuesand recommendations.
Table 8:
Proposed Spending Composition for 2006-10 (Trillion of VND)
GDP GDP
Proposed Expenditure Envelope for Transport 164 210 Maintenance (national and local) 22 Ongoing national projects 75 Ongoing local projects and all new projects 67 113
26
5.1 Contribution to overall growth andpoverty reduction
The transport sector has contributed positively tothe economic growth of Vietnam over the pastdecade and has helped reduce poverty directlythrough better linkages to markets, education andhealth facilities and indirectly through itscontribution to growth. Of the various studiesthat have documented the contribution oftransport and infrastructure in general to growthand poverty alleviation in Vietnam, GripsDevelopment Forum (2003) shows thatdeveloping large-scale transport infrastructure inVietnam helped in opening up new businessopportunities and promoting incomediversification and off-farm employment. Thestudy also showed that such infrastructurefacilitated the spread of economic linkagesbetween growth centers and theirsurrounding rural areas, proving the vitalimportance of connecting remote areas totrunk routes with feeder roads to achievepoverty-reducing growth.
A survey carried out in the course of thestudy indicated that 90% of theinvestments in the Ha Noi-Hai Phongcorridor would not have taken place had itnot been for the improvements in thenational highway connecting the two cities
(NH 5) providing a reliable link to Hai Phongport. The large scale improvements succeeded increating income earning opportunities for thepoor as well. In analyzing the linkages betweeninfrastructure investment and poverty reduction,Larsen et al (2004) found that spending 1% ofprovincial GDP in Vietnam on transportinvestment will reduce poverty by 0.5%-1% andthat a US$50 million transport investment in the15 poorest provinces would reduce poverty by6%-7%. 12
5.2 Quality
National Roads
The percentage of paved national roads is a useful
27
Part V
Sector Performance
12. Larsen, Pham and Rama (2004), “The Impact of Infrastructure Development on Rural Poverty Reduction inVietnam”.
28
indicator of the quality of a country's mostimportant road network.13 Eighty four percent ofVietnam's national roads are currently paved upfrom 61% in 1997. The current percentage ofpaved national roads is reasonable by regionalstandards (see Table 9). The condition of thenetwork has also improved with the percentage ingood condition increasing from 37% in 1999 to45% (good and average 66%) in 2002. Theimprovement in the quality of the networkappears to be largely driven by new constructionrather than by the maintenance of the existingcapital stock because expenditures on periodicand routine maintenance of national roadsbetween 1998 and 2002 were less than half the ofthe maintenance needs as estimated by VRA in itsTen-Year Strategic Maintenance Plan.14
Local Roads
It is difficult to obtain accurate information aboutthe condition of provincial, district andcommune roads and it is highly likely that thereare large inter-provincial variations in thecondition of local road networks. Nevertheless,provincial fieldwork, and evidence from on-going projects indicate that provincial roads ingeneral are in poor condition. Data from 16provinces, where detailed road conditionsurveys were carried out, show that only 34% ofthe district road network is in good or faircondition. This is corroborated by the fact thatlocal government expenditures on roadmaintenance cover no more than 20% of therequirements for an average-condition roadnetwork.
Rail Infrastructure
Communication equipment is outdated and only40% of the railway stations are suppliedwith semi-automatic signals. The qualityof the rail and bridges is poor and manylines do not meet modern technicalstandards. Most of the investment in thesector is in strengthening bridges andkeeping the network from deterioratingfurther. As a result train operatingspeeds are low at 40 and 22 km/h forpassenger and freight trains respectively.
5.3 Safety
The most serious implication of the rapidgrowth in the transport sector has been alarge increase in the number of accidentsby all modes, particularly road transport.
13. The percentage of all (rather than national) paved roads is sometimes used as a measure of quality but this canbe misleading and has to be interpreted with caution. For low traffic volumes, well-maintained gravel roads can bethe desired standard and quality..
14. World Bank, 2003. “Project Appraisal Document for the Road Network Improvement Project”, page 4.
Table 9.Percentage of National Roads that are Paved inSelect Asian Countries
Country Length (kms) % Paved
Philippines1 (2004) 28,266 70 Philippines2 (1981) 23,835 44 Vietnam3 (2004) 17,295 84 Vietnam4 (1997) 15,100 61 Thailand5 51,544 98 Myanmar5 28,790 80
Sources: 1.Philippines 2003, DPWH website: http://www.dpwh.gov.ph/infrastructure/stat_JUNE182000.htm; 2. National Transport Planning Project, 1981; 3. Vietnam Road Authority; 4. VITRANSS; 5. ASEAN Statistical Yearbook 2004
Road Accidents
Traffic accidents increased dramatically from 1999to 2002, before dropping in 2003 (see Table 10).Implementation of Decree 13 adopted by thegovernment to improve traffic safety througheducation, awareness campaigns, driving tests,vehicle examination, monitoring and enforcementof traffic laws and improvement of black spots hasbeen the main reason for the improvement. While
the death toll of 9.4 per 10,000 vehicles in 2003compares favorably to other countries in Asia, (seeTable 11), data collection of traffic accidents is notyet adequate and the real number of casualties islikely to be much higher.
According to the National Transportation SafetyCouncil (NTSC) of Vietnam, 80% of all accidents in2003 were caused by poor driver behavior including33% for speeding, 17% for dangerous overtaking,16% for driver fatigue and 6.5% for drunkendriving. The condition of roads and vehicles was a
minor cause of accidents.About one half of roadaccidents were on nationalroads particularly those passingthrough populated areas, andone quarter occurred on urbanroads. The "urbanization" ofroad space in Vietnam is amajor contributing factor tohigh accident rates as manypeople live within a few metersof the road side.
Urban road safety inparticular is a problem. Whilestatistics on accidentsresulting in non-seriousinjuries are consideredunreliable due to substantialunder-reporting, it appearsthat there are 800/900 roadfatalities per annum inHCMC and 400/500 in HaNoi, 70% of which are cyclistsor motorcyclists
Accidents on other modes
Reported traffic accidents onother modes of transport didnot increase significantlybetween 2000 and 2004. In2004, there were 1,044accidents including 350
29
Table 10.Road Accidents
Year of
aaccidents %
iincrease of
ffatalities %
iincrease Number IInjured
% iincrease
1999 21,538 3.8 7,095 11.0 24,179 5.2 2000 23,327 8.3 7,924 11.7 25,693 6.3 2001 25,831 10.7 10,866 37.1 29,449 14.6 2002 27,993 8.4 13,186 21.4 30,999 5.3 2003 20,774 -27.2 11,864 -8.1 20,704 -33.8 2004 17,663 -15 12,230 3.1 15,417 -25.5 2005 14,643 -17.1 11,507 -5.9 12,030 -22.0
Source: NTSC, 2006.
Table 11.Road Fatality Rates in Select Countries
Country 100,000 people vehicles
Vietnam (2005) 13.6 6.6 Vietnam 14.1 9.4 Philippines* 0.9/5 2.9/16.0 Bangladesh 1.7 44 India 6.3 20 Pakistan 3.2 17 China 8.2 67.2 Indonesia 4.6 4.5 Malaysia 25.9 12.2
Sources: NTSC 2004 and 2006 for Vietnam; all other countries: Estimating Global Road Fatalities, Dept. for International Development (2000), International Road Federation; * Official statistic/estimate adjusting for under-reporting
fatalities resulting from the use of railways, inlandwaterways and coastal shipping. The 2004estimates were up 10% from 2000. This reflects anannual increase of 3% which is significantly lessthan annual growth in non-road passenger/tonkms during this period.
5.4 Efficiency
National Road Network Efficiency
Between 1999 and 2002, the 4-lane national roadnetwork almost doubled from 2 to 3.9% of the totalnetwork and the 2/3-lane network increased from 36to 66%. Bridges are still a weak link inthe system, with 30% of the 4,100bridges restricted to low loads and20% narrow. Improvements innetwork capacity and connectivityhave led to truck speeds increasingfrom 40 to 50 km/h on average andbus speeds increasing from 50 to 60km/h and reaching 70-80 km/h onsome routes.
Railway Operating Efficiency
Despite a network which is small,old and has received negligibleinvestment for upgrading, VRC hasperformed reasonably well.Vietnam does not have theconcentrated flows of bulk rawmaterials or the long-distanceswhich give rise to heavy rail freightflows. However, its eight lines servehigh density passenger corridors.Taking freight and passenger traffictogether, traffic density is about 2.3million traffic units/route-km perannum, which is relatively lowcompared to other countries in theregion (see Table 12).
The average passenger train load in Vietnam isaround 370 passengers which is relatively high,but average freight load of 225 tons is low as aresult of low axle-weight infrastructure, shortcrossing loops and possible suboptimal freightoperating plans.
VRC is overstaffed. Labor productivity of 124,000traffic units/employee is low, even by regionalstandards. This compares with 548,000 units inThailand and 610,000 units in Indonesia (see Table 12).
Efficiency of Utilization of Country BoatsWhile there are tens of thousands of small"country" and ferry boats, their utilization is very
30
Table 12.Rail Network Utilization
Country
(Units per route --Km)
millions
Annual Traffic (Units pper employee)
tthousands
Vietnam 2.3 124 Thailand 3.2 158 Indonesia 4.0 610 China 27.7 1061 European Union 3.6 691
Nguöìn Source: International Union of Railways and World Bank analysis
low with each vessel only operating around 223km per month. According to VIWA much of thislow utilization can be attributed to poor loadingand unloading facilities along the rivers andcanals which result in slow turnaround of vessels.
Port Efficiency
Although still lower than in the more modernports of the region, port efficiency in Vietnam hasincreased and costs have come down. Accordingto Vinalines, throughput on container berthsranges from 20 to 25 units per hour in Saigonport and 30 units in the new port of Cai Lan inQuang Ninh province and general cargothroughput is 1,500 tons/gang/day. Thesecompare very favorably with performance inother ports of the region. An internationalcomparison reveals that the tariff at Saigon portis also quite competitive with other feeder portsin ASEAN and China (see Figure 3).
5.5 Access
Rural Access
The number of communes lacking access todistrict centers was reduced by more thanhalf, from over 600 in 1999 to 269 in 2005. The2005 figure represents slightly over 2% ofVietnam's 10,602 communes. Between 1999and 2003, the number of people living within 2km of an all weather road increased from 73 to76% of the population, a much higherpercentage than that for other countries atsimilar income levels (Figure 4-left panel).The increase in the national level of ruralaccess in Vietnam represents improved accessfor close to an additional 2.5 million people.Given the evidence of the strong negativerelationship between poverty and access(Figure 4-right panel), the increased access islikely to have contributed to the impressivepoverty reduction in Vietnam.
31
32
Urban mobility
The dominance of motorcycles is perceived asserving the urban population well. For example,the HCMC Transport Study of 1998 showedaverage speeds for motorcycles of 18-22 km/h ininner areas compared to 13-26 km/h for cars.The level of urban personal mobility, even for thepoor, appears to be greater than that in manyricher countries. However, this situation is likelyto change given the increasing congestion andnumber of accidents associated with the mix oftwo and four wheel, and motorized and non-motorized, vehicles. In a recently conductedsurvey of 20,000 households in Ha Noi, over fiftypercent considered congestion to be worse than itwas five years earlier.15
5.6 Affordability
Trucking costs are comparable to those inThailand and 40% lower than those in thePhilippines. Similarly, intercity bus fares are25 and 37% lower than those in Thailand andthe Philippines respectively. However, there
is evidence from recent evaluations ofNational Highway 1, and surveys of busoperators, that savings in operating costs arenot being passed on to customers in the formof lower prices (GRIPS Development Forum,Nov 2003).
In Ho Chi Minh City, public transport remainsvery unreliable and unattractive. For an averagetrip length and income, the journey to workwould cost up to 9% of income which is high byAsian norms (up to 5%).
Fuel pricing policy: Although Southeast Asia'sthird-largest oil producer, Viet Nam spends morethan half of its oil revenues on importingpetroleum products and is exposed to the sameprice volatilities as other oil importing countries.In an attempt to minimize the impact of theseshocks the Government has traditionallymanaged fuel prices. The long term impact of thispolicy has been a fuel subsidy for the consumer.
Compared with other countries in the regionthis subsidy does not seem excessive, see figureabove. However the medium term trend of risingoil prices has considerably increased the level of
15. HAIDEP, 2005, “Hanoi Urban Environment Fact Book, Opinions of 20,000 households”.
33
financing this policy requires. For example thepetroleum fuel import subsidy is estimated tohave grown from 0.3 trillion dong (US$19 million)in 2003 to 4.5 trillion dong (US$360 million) in2004. This trend has continued with the
government calculating that the total cost of thesubsidy for 2005 was 13 trillion dong (US$0.8billion or 1.6% of GDP); in spite of fuel pricesbeing raised by over 50 percent between February2004 and May 2006.
Historical Fuel Price data
25 26 26 27
32
50
0
10
20
30
40
50
60
70
1995 1998 2000 2002 2004 2006
Fu
el
Pri
ce
US
Ce
nts
pe
r li
ter
Vn Diesel US Diesel Crude Oil
Note: 2006 data spot price for May from various sources earlier figures from GTZ Fuel price survey
Diesel Fuel Subsidy comparison (Nov. 2004 Data - Source: Fuel Prices in ASEAN countries GTZ 2005)
0
10
20
30
40
50
60
70
Myana
mar
Indon
esia
Brune
i
Malays
ia
Vietna
m
Philip
pines
Thail
and
Sing
apor
e
Cambo
dia
Lao
PDR
Timor
Leste
US
Ce
nts
pe
r li
ter
High Subsidy Medium Subsidy Taxation
China 43 US Cents pe
US 57 US Cents per
Note: In GTZ international comparisons the US price is used as a benchmark for subsidy/taxation neutral price policy. i.e.: over the US price is taxed fuel and under the US price is subsidized.
Sources WB-ESMAP report: 'Coping with High Oil Prices' 2006 (unpublished draft); Asian Development Outlook 2005 Update - Thechallenge of higher oil prices; Fuel Prices in ASEAN countries GTZ
Figure 5 Figure 6
34
Vietnam's transport strategies over the pastdecade have served the country well and havecontributed to remarkable economic growth andpoverty reduction. During that decade, thegrowth in transport infrastructure and useoutpaced GDP growth. This rapid growth intransport has created new demands andchallenges for the sector. Fast economic growthhas contributed to high rates of urbanization,rising traffic accident rates, new capacityconstraints, and a large increase in assetpreservation requirements to meet the fastexpansion of transport assets. Otherimpediments reside in the sector's policy,planning, budgeting, regulatory, andimplementation frameworks. While theseinstitutional issues have no doubt resulted insome inefficiency in resource allocation andservice delivery in the past, they have not heldback the progress of the sector whose primaryobjective was a massive rollout ofinfrastructure.
Figure 7 summarizes the results of arecent review assessing theeffectiveness of transport policies,legislation, regulations and theirimplementation, highlighting areaswhere attention is needed. Three issuesstand out: the road sector, whichtypically receives 80-90% of nationalgovernment funding for the transportsector, fairs poorly with respect topolicy and policy implementation; theurban transport policy environment
needs significant improvements; andimplementation regulations in general areweak, a limitation that cuts across many subsectors.
These weaknesses can be translated into fivemain challenges for the sector: (1) how to increaseefficiency in both resource utilization and servicedelivery, (2) how to achieve fiscally-constrained andsustainable financing, (3) how to facilitate growth forfuture urbanization, (4) how to mitigate the negativeimpacts of transport, and (5) how to developinstitutional and human capacity to meet the sector'sneeds. While there are clear linkages between theseissues, they can all be attributed to a large degree tothe policy and planning frameworks. These providean overall umbrella that governs regulatory choices,institutional frameworks, planning andprogramming processes, project implementationmechanisms and service delivery options. For thepurposes of discussion, however, the issues have
35
Part VI
Main Issues
been structured under the five challenges. Figure 8shows the organization of the presentation in thissection.
6.1 Efficiency in Resource Utilizationand Service Delivery
Gaps in the planning framework; and thefragmented nature of the planning process
There tends to be a gap between broad
government strategies and detailed sectoralplans, as well as a fragmentation in theresponsibilities for developing plans. In addition,economic development and spatial plans areoften not well integrated. Consequently, theproposed investments listed in the various plansmay not be always consistent, viable or have therequired financing.
GoV develops long term national strategiesfor economic growth and poverty reduction,notably the Comprehensive Poverty Reduction
36
Figure 7: Transport Sector Assessment
Basic Policies Policy Implementation
Mar
ket
entry
/lice
nsin
g
Com
petit
ion/
SOE
role
Safe
ty/e
nviro
nmen
t
Pla
nnin
g/in
vest
men
t
Pric
ing/
cost
reco
very
Legi
slat
ion
Impl
emen
ting
regu
latio
ns
Impl
emen
ting
mec
hani
sms
Out
com
e/
over
all
perf
orm
ance
Road Transport S ervices n.a.
Road Infrastructure n.a. n.a.
Ports and Related Infrastructure
Railway Services & Infrastructure
Urban Transport
Inland Water Transport Services n.a.
International Shipping n.a.
Coastal Shipping n.a.
Inland Waterway Infrastructure n.a. n.a. International Air Transport Services Domestic Air Transport Services
Air Transport Infrastructure
Multimodal Transport n.a. n.a. n.a.
Good promising
Fair In progress
Poor n.a Not applicable/significant
Sources: Urban sub sector: assessment by World Bank staff; All other sub sectors: World Bank-Meyrick and Associates (2006);Vietnam Multimodal Transport Regulatory Review.
37
and Growth Strategy (CPRGS) and the 10-yearStrategy for Socio-Economic Development.These outline national, regional and sectoraldevelopment objectives in terms ofmodernization, growth and contribution to GDP.Based on these strategies, line ministries preparetheir respective strategies and plans to helpachieve the country's development goals. MoT'splans typically include detailed lists ofinvestments in all its sub sectors. A missing linkbetween the high level strategy document and thedetailed lists of investments in the plans is howthese investments will contribute towards theachievement of Vietnam's development
objectives and, at a more practical level, howthese investments will be realized.
An illustration from the port sectordemonstrates the missing step in the planningframework. To support the government'sdevelopment strategy in pursuing export-ledgrowth, MoT prepared a detailed master plan toupgrade and develop over one hundred ports.However, some of the key questions that are notaddressed adequately are what role the largenumber of ports would play, what alternativeshave been examined, how improvements andnew construction are going to be financed, andwhether policy, regulatory, or institutional
Efficiency FinancialSustainability
UrbanTransport Issues
Negativeimpacts oftransport
Capacity
● Gaps in planning;and fragmentation inresponsibilities
● SuboptimalResource Allocationo New investment
versusmaintenance
o Intermodalmisallocation
o Prioritization ofexpenditures
o Paving local roads● Inefficiency and high
indebtness of SOEs● Underdeveloped
multimodal andlogistics services
● Inefficiencies in theRegulatoryFramework
● Inadequateexpenditurecontrols
● Unsustainablefinancingstructure
● A fragmentedplanning process
● Inefficiencies inthe publictransportregulatory system
● Unsustainableurban financingparadigm
● Trafficmanagementissues
● Traffic safety● Congestion● Environmental
issues
● Implementationcapacity
● Governance inprocurement
● Collusion● Enforcement
capacity● Local
governments
Figure 8: Structure of Discussion
reforms will be necessary for the sub sector to beable to meet its targets.
The current planning framework also involvesthe development of a large number of plans someof which overlap in geographical coverage, scopeand sub sector. MoT's Transport Developmentand Strategy Institute (TDSI) prepares long andmedium term national transport strategies andplans; MoT's sectoral departments developnational modal strategies and plans; andProvincial Departments of Transport (PDoTs)prepare provincial transport plans. Moreover,plans are developed for each of the nine economicregions as well as for each of the three focaleconomic zones. At present, it appears that thesenational plans are not well integrated orconsistent with one another or with provincialand city transport plans.
Fragmentation in planning also extends tolocal governments. While they are subject to dualsubordination, decentralization has affordedthem considerable autonomy in decision making.Provincial and city government transportauthorities prepare their plans that are thenapproved by the People's Committees andCouncils and are then submitted to MPI. Thesetransport authorities request and receiverecommendations on their plans from MoT butare not obliged to follow them. At present thereis no coordinating mechanism to ensureconsistency between national and local plans, andthe adherence of local plans to broad planningguidelines.
Suboptimal Resource Allocation
Suboptimal resource allocation is prevalentthroughout the planning process at both nationaland local levels. There is misallocation (i)between new investment and maintenance-resulting in a serious asset preservation problem;(ii) among modes; and (iii) in the selection ofinvestments within each sub sector. At the local
level, a particular concern is the rising tendencyto pave roads to avoid the annual expendituresassociated with the maintenance of unpavedroads.
New investment versus maintenance: under-investing in asset preservation - The principle ofdual budgeting, in which planning andbudgeting decisions are split, creates a"disconnect" between planning for newinvestment and asset preservation. With theexceptions of VRC, Vinalines and VAC thatgenerate revenues and hence have some controlover their expenditures, approvals of capital andrecurrent expenditures are granted by twodifferent government offices and it is not possiblefor MoT to reallocate funds among the two uses.Dual budgeting practices typically result ininadequate budgets for asset preservation, andreduce the effectiveness of the planning process.
National roads provide a clear case whereplanning for new investment and planning forasset preservation are two independentprocesses. In principle, VRA is responsible forboth planning the development of the nationalhighway system and managing its maintenancebut this does not appear to be the case with VRA'sresponsibility largely limited to maintaining onehalf of the network. While government transportstrategies and plans highlight maintenance as apriority, the amount of resources allocated toroad maintenance indicate otherwise with atmost 50% of the necessary maintenanceexpenditures on national roads being made. Thedeferred maintenance coupled with the high rateof investment in new transport infrastructureover the past five years would suggest thatexpenditures on asset preservation will have togrow faster than those on capital investment toensure that the country's transport assets are notrun down. Moreover, the process of settingpriorities for road maintenance needsimprovement. The basis for allocation at presentis technical engineering criteria; socio economic
38
efficiency is ignored. Although a 10-yearstrategic plan for national road maintenance hasbeen developed using HDM4 models, and hasbeen approved by the Prime Minister in 2004, it isstill not being used in preparing annualmaintenance work programs.
There is evidence, based on data from 16provinces where detailed road condition surveyswere carried out, that expenditures on local roadmaintenance are a relatively small fraction of theneeds (about 20%). The data also shows that 57%of the network, currently in poor condition couldbe brought to good condition through periodicmaintenance activities. However, the lack ofreliable data makes it difficult to systematicallyidentify variations across provinces, districts andcommunes to assess the nature and extent of theproblems and to better allocate the nationalgovernment's resources.
The importance of jointly planning andbudgeting capital and maintenance allocationsstems from a) the need to better plan future assetpreservation requirements commensurate with theincrease in the capital stock and b) to ensure to theextent possible that Vietnam is reaping the highest
possible socio economic returns from itsinvestment in the transport sector. As an exampleof the high returns that maintenance projectstypically generate, the first year annual netpreservation program under the World Bank-supported Road Network Improvement Project(RNIP) is projected to have a 50% rate of returncompared to the 38 and 25% on two highwayprojects completed under Bank financing in 2002.16
Moreover, while returns to investment in newinfrastructure tend to decrease over time as moreand more transport projects are undertaken andkey bottlenecks relieved, the same is not true forasset preservation. Maintenance restores theinfrastructure to a good condition at a fraction ofthe cost of reconstructing it.
Intermodal misallocation - The basis forallocation across sub sectors is not clear.Expenditures on waterways, in particular, havefallen well below the expenditure levels proposedin the PIP. While it cannot be argued thatsocioeconomic efficiency criteria formed the basisof the allocation in the plan, the proposedexpenditure levels for waterways seem plausiblegiven the volumes carried on the waterways and
their importance in the Mekong andRed River Deltas where theyaccount for about 70% of ton-Kmsmoved. Budgetary allocations forthe sector cover routinemaintenance of the navigationsystem, small-scale dredging andsome upgrading of river ports.Rarely are there sufficient funds forcapital improvement.
The impact of underinvestmentin a particular sub sector could alsoextend beyond reducing thedemand and levels of service
39
16 While one should not form an opinion on the basis of a sample of two projects, particularly when financed bythe World Bank (as the selection would neither be random nor representative), the significantly higher returns onmaintenance are generally the case.
associated with that mode to inefficiencies inmulti modal transport. The utilization ofwaterways would further increase if betterlinkages to coastal shipping could beaccommodated through efficient investments inIWW and intermodal facilities.
Prioritization of expenditures - Scarcity ofresources dictates that they be allocated to the usethat generates the highest socio-economic returnsirrespective of whether the project in question is anew port or the maintenance of a national road.Aside from the issue of suboptimal intermodalallocation and inadequate prioritization betweenasset preservation and new investment discussedabove, there are also inefficiencies in identifyingnew investments and determining maintenancepriorities.
The medium and long term investment planscontain lists of transport projects that are perceivedto provide ideal connectivity and access. Typicallyonly a fraction of these projects are implementeddue to resource scarcity and some of the projectsthat are implemented were not in the plan. Thebasis for the selection of the projects that areultimately implemented is not clear.However, there are indications that theefficiency of capital use in Vietnam has beendeclining over the past decade. The rise inthe Incremental Capital Output Ratio(ICOR) for Vietnam over the past decade ismuch higher than would be suggested byan increase in the capital intensity of thecountry's production processes and wouldimply that Vietnam is not realizing thehighest socioeconomic returns from itsinvestment, a large proportion of which istransport infrastructure.17 Even thoughICOR has not been estimated for the
transport sector, the lack of clear and consistentselection criteria would suggest that there is roomfor improving project selection efficiency.
Another contributor to the inadequateprioritization is the weaknesses in many of thefeasibility studies. One of the common shortcomingsin Vietnam (and many other countries) is an excessivefocus on a proposed project's technical aspects withlittle, often inadequate, attention paid to the demandand market side.
Paving local roads - Suboptimal resourceallocation is also a concern at the local levelparticularly with respect to decisions to paveroads. The decision to pave a road or not shouldbe based on economic efficiency criteria thatreflect special climactic, geographic and othertechnical factors. Gravel roads may not beoptimal, for example, in regions that experiencehigh rainfall and are prone to flooding.18
However, there seems to be some bias towardspaving roads using ad hoc allocations from theState budget to avoid the annual costs ofmaintenance associated with unpaved roads. Inprinciple, this strategy will reduce the
40
17. Section I, Chapter 1 on Cross Sectoral Issues.18. Intech Associates et al in “Rural Road Gravel Assessment Programme””, for example, show that gravel roads
are not ideal for all situations and that, under certain conditions of rainfall and flooding, they can suffer unsustainabledeterioration.
maintenance burden in the short run but in thelong run provinces will face a deterioratingnetwork and significant costs associated withrehabilitation.
Where maintenance budgets are insufficientthere is a perverse incentive for provincialofficials to over invest in new construction tooffset the inevitable deterioration of the roadand displeasure of the local constituents. It isalso easier for such a bias to exist in the absenceof a well informed public who can assess thebenefits and costs of the various options.
Inefficiency and high indebtedness ofconstruction SOEs
Over 100 of MoT's 226 SOE's are involved inconstruction activities. MoT's debt has beenrecently estimated at VND 19.5 trillion, about1.5% of the country's GDP.19 This figure excludesthe debt that has been accumulated at theprovincial level and is believed to be substantialas well. State banks have provided loan rolloversas in many cases interest payments due are inexcess of the borrowing enterprise'scapitalization. The current debt situation ofconstruction SOEs and their urgent and seriousneed for financing forces them to submit low"survival" bids to secure contracts, a practicewhich ultimately results in low quality works anddelayed implementation. This practice mayrelieve insolvency for short periods but isunlikely to prevent bankruptcy. Moreover,current practices coupled with a lack ofperformance incentives do not foster acompetitive, transparent or efficient operatingenvironment.
MoT has some elements of a phasedequitization plan in place. Neither is themethodology for the selection of the enterprises
to be equitized, nor are the other details of theprocess known.
Underdeveloped multimodal and logisticsservices
Vietnam's economic growth requires efficientmultimodal and logistics services to support bothinternational trade and internal distribution.These services are currently at their infancy inVietnam. Logistics costs, assessed to be roughlysimilar to China, are high at about 15-20% ofGDP, double the cost in industrialized countries.A significant proportion of this cost is associatedwith holding inventories, a result of underdeveloped logistics systems.
A recently completed Multimodal TransportRegulatory Review (MTRR) in Vietnam indicatesthat new and revised laws and regulationsprovide a good facilitating environment butimplementation mechanisms need to bestrengthened and clarified. A commonunderstanding between the Ministries ofTransport, Trade, and Planning and Investmenton the definition and coverage of logisticsservices as referred to in the 2005 Commerce Lawis lacking.
Fragmented planning also reduces thepotential effectiveness of multimodal transport.Despite the 2003 law on internationalmultimodal transport, plans are still preparedwith a single-mode focus with little attention tomultimodal planning. This is understandablegiven that plans are prepared by modaladministrations under MoT with littlecoordination among them on strategicmultimodal connectivity and efficiency. Notonly will the strategic advantages in seamlesstransfers between coastal shipping, inlandwaterways, roads and rail not be exploited but
41
19. MPI, the Public Investment Program.
the full returns to an investment in a sub sectormay not be realized. For example, the benefits ofdeveloping ports to handle 40 foot containerswill not be fully realized if roads cannot handlethe corresponding axle loads and containers willhave to be unstuffed and restuffed at ports.
Inefficiencies in the regulatory framework
The recently completed regulatory review(MTRR) shows that the transport laws passed inthe past few years provide a sound basis for theefficient operation of transport sub sectors.Nonetheless, implementing regulations forthese laws require strengthening to ensure thatthe principles of competition and transparencygovern all business and investment licensingmatters, and that private sector participation,both domestic and foreign, is encouraged to
enhance operational and managerial efficiencyand quality, and increase investment.
Full efficiencies in the ports and maritime subsector, in particular, are not being fully exploitedas there is still no clear delineation betweendevelopment, operations and regulationresponsibilities. While Cai Lan port is beingoperated under a concession, this was awarded toa state owned company on the basis of anegotiated contract without the benefit ofcompetitive selection. Competition in serviceswithin a port is still rare.
6.2 Financial Sustainability of theSector
Inadequate expenditure controls
GoV made investment in transport infrastructurea key priority in its 2001-2005 PIP. Consequentlyexpenditures in the sector reached 4.2 and 4.5% ofGDP in 2001 and 2002 respectively. Theseexpenditure levels are relatively high by bothregional and international standards but can bejustified and indeed are necessary during periodsof heavy rebuilding. It is highly unlikely,however, that they can be sustained in the longrun.
Of concern, however, is that 35% of totalexpenditures were approved by the PrimeMinister but not allocated funding. This in itselfmay not be a problem as the PIP acknowledgesthat the State Budget will not suffice toimplement the identified projects and encouragesgovernment entities to pursue other sourcesincluding subsidized state debt as long as theborrowing entity will have the capacity to repaythe debt. The shortfall has been financed largelyby State credit and State bonds sold primarily toSOCBs and other large institutional investors.The bonds typically have 5-10 year maturities andare used to finance off-budget expenditures. Thegovernment's intention is to use these bonds to
42
43
raise VND 63 trillion (US$ 4 billion) by 2010 tofinance infrastructure projects including thenorth-south Ho Chi Minh Highway, roads alongthe borders with China and Cambodia, andirrigation projects in the disaster-prone centralprovinces.
The formal reason for keeping these bonds off-budget is to comply with the State Budget Law'slimit on the budget deficit. However, thispractice reduces fiscal transparency. Moreover,given the low direct revenue generation of mostof the transport sector, debt repayment or bondredemption is clearly an issue. So far, the issue ofdebt is being addressed, with little success,through ad hoc payments from MoF in anattempt to control the large, and escalating, debtof the construction sector.
Unsustainable financing structure
The current financing paradigm is notsustainable. MoT's debt to SOCB was recentlyreported at VND 19.5 trillion, about 1.5% of GDP.These figures do not include the debt that hasbeen built up at the provincial level wherespending beyond formal budgetary allocationsand weak controls were also common. In a recentanalysis of expenditure systems in Vinh Longand Phu Tho, it was found that transportexpenditures reported by PDoTs were 3 and 2.5times respectively MoF-reported figures.
Even if expenditure levels dropped from 4.5%to a more sustainable 3-3.5% of GDP, it is highlyunlikely that they would be sustained withoutchanges to the existing financing structure. Thisis not only because of the unsustainable SOE debtsituation but also because 35% of centraltransport expenditures between 1999 and 2002
were financed by concessional ODA that may nolonger be available by the end of the decade andthat will be, to some degree, replaced bycompetitively priced loans.
Vietnam's user charges for the road sub sectorinclude surcharges on diesel and gasoline, licenseand inspection fees and toll revenues. Table 13shows the values of these user charges for 2001.While these revenues are more than sufficient tocover road maintenance expenditures, they arealready part of the State Budget. Consequently,the quest to rely more on user charges to createfiscal space would require increasing existingrates and tolling more roads where possible.
Preliminary findings of the Medium TermExpenditure Framework (MTEF)
Recognizing the problems in the planning andbudgeting processes and the need for strong linksand good coordination between them, GoVembarked on a pilot MTEF program in 2005.20
MTEFs provide a series of scenarios for sectoralor provincial government spending andallocation over a period of 3-5 years. They areprepared within the context of a sustainablemedium term fiscal envelope for each
20. Recommendations to pilot MTEFs in several sectors and provinces was made in 2000 but implementationstarted in 2003. Four pilot sectors have been identified (education, health, transport and rural development) as wellas four pilot provinces (Binh Duong, Ha Noi, Ha Tay and Vinh Long). Implementation for the transport sectorstarting.started a few months ago.
Table 13.Revenues from Road User Charges (2001)
VND Billion
Fuel Surcharge 2,537 License/inspection fees 2,583 Toll Charges 551 Total 5,671
Source: Vietnam: Managing Public Expenditure for PovertyReduction and Growth: Public Expenditure Review andIntegrated Fiduciary Assessment 2005
sector/province. In principle, the scenarios forcapital and recurrent expenditures would beprepared in an integrated way removing thecurrent "disconnect" between planning for newinvestment and maintenance, and possiblyremoving rigidities in reallocating budgetaryresources between the two spending categories.This approach if successful would help shiftresources to asset preservation.
The early results of the MTEF highlight theneed for further work on strengthening theprogram. Figure 9 sets out the medium termfinancial plan for MoT between 2005 and 2008showing baseline expenditures for the sector (forongoing projects), the planned level ofinvestment as set out by MoT, and the likelyfinancing sources
It is of particular concern that baselineexpenditure for the period, which reflectscommitments for ongoing construction projects andthe existing level of asset preservation, exceeds theavailable sources of finance by 14%. When newinitiatives (including ODA-funded projects) areincluded, the financing gap increases to over 50%.
Projected sources of financing still rely heavilyon the state budget and state bonds with no cleartransition during the 3-year period to reduce thisdependence. Bonds are expected to finance 55%of the total with road user charges and feesadding another 7%. If the ceiling remains asdefined in the MTEF, 90% of the state's capitalbudget will be for ODA funded projects. Thepreliminary results of the MTEF also indicate thatthe proposed level of recurrent expenditurescontinues to be eroded as a proportion of totalexpenditures, and would be expected to dropfrom 10% in 2002 to about 8% in the MTEF.
6.3 Urban Transport Issues
From an urban transport perspective, thepredominant challenge for Vietnam's major cities inthe coming decades will be facilitating spatialgrowth for future urbanization. As clear from thesector assessment summarized in Figure 7, the mainimpediments to a more efficient performance of thesector lie in the governing policy and planningframeworks. Traffic accidents, congestion and
pollution, major concerns inurban areas are addressedunder the negative impacts oftransport (Section 4).
A fragmented planningprocess
Cities face many of theproblems in planning thatwere discussed above.Responsibilities areexcessively fragmented: bothHa Noi and HCMC havedifferent agencies planningand implementing rail andbus systems with minimalcoordination. Existingtransport master plans for the
44
-60,000
-30,000
0
30,000
60,000
90,000
120,000
150,000
Source of funds Baseline expenditure Baseline + new
State budget - recurrent State budget - capital Fees - tolls etc Government bonds Fuel subsidyBaseline recurrent Base + New recurrent Baseline - capital Base + New capital
Figure 9: Projected Levels and Sources of Finance and Expenditures for MoT—2005-2008
Sources: Medium Term Fiscal and Expenditure Framework 2006-2008
major cities include very expensive investment'wish-lists' formulated without budget constraints.A strong focus that ensures that growth iscoordinated along high density corridors and thatthe benefits of investments in public transport androad infrastructure are complementary is lacking.Presently, unstructured peri-urban growth runsthe risk of causing severe congestion (which wouldinhibit growth after a point). Rigidities in theplanning process and the lack ofmetropolitan/regional institutions that cancoordinate between local governments tominimize the incentives for jurisdictionalboundaries to distort development hamper acoordinated planning approach. The absence of awell functioning land market, despite someprogress in recent land reforms, distorts landprices and complicates the planning process.
Inefficiencies in the public transportregulatory system
The capacity/authority of public regulatoryagencies in Ha Noi and Ho Chi Minh City needsto be strengthened. Routes are allocated tooperators in an ad-hoc manner even thoughoperators receive significant subsidies. Subsidiesare based on regular, detailed cost audits. Such asystem has significant and well knownlimitations: (i) there is asymmetry of informationin that the operator always knows much morethan the regulator and has no incentive to revealtrue costs; (ii) operators have no incentives toincrease efficiency and reduce their costs; and (iii)monitoring costs are very high for government.
Unsustainable urban financing paradigm
According to the 2020 Transport Strategy (seeTable 7), 30% of the planned investments intransport are for Ha Noi and Ho Chi Minh City.While these targets are high and unlikely to bemet, current sources for financing urban
infrastructure need to be augmented. Localgovernments have expressed an interest inprivately owned and operated BOT type systemsand presently, negotiations are underway withprivate/bilateral financiers in both Ha Noi andHCMC to finance (and in some cases operate)urban rail links. A particular challenge indeveloping effective strategies to govern the roleof the private sector is the efficient allocation ofrisk in a manner that facilitates investment whilelimiting the city's exposure and protecting publicinterests.
At present, municipal governments in bothHCMC and Ha Noi subsidize bus service, bothbus purchase and operations. In 2003, revenuesgenerated by public bus services in Ha Noicovered less than 50% of their operating costs.These figures are expected to increase asridership rises. Analysis of bus operating datasuggests that while there is some potential forreducing operating costs (primarily by increasingbus utilization rates and with small increases inlabor productivity rates), it will be difficult for thebus systems to recover operating and investmentcosts without increasing fares.
Traffic management issues
Poor traffic organization remains a critical issuecontributing to accidents, congestion andconsequently air pollution, despite concertedefforts in both Ha Noi and HCMC focusing onsafety and traffic management. There is aperception that international good practice is notcompletely transferable. The situation isexacerbated by the lack of a culture of trafficmanagement. Such a culture is currentlyinhibited by excessive fragmentation ofresponsibilities between different elements of thePublic Works Department (responsible forplanning, designing, implementation and someelements of enforcement) and the traffic police(responsible for operations and most
45
enforcement).A major weakness in traffic management
concerns the urban poor and disadvantaged.There are inadequate facilities for pedestrians,cyclists, and the disabled. Pedestrianmovements in major cities are inhibited by aninadequately maintained sidewalk system, withwidespread commerce and parking obstructingpedestrian movement as well as very poormanagement of pedestrian movements atintersections. These concerns are exacerbated inthe case of people with disabilities whoselivelihoods are seriously imperiled by non-inclusively designed and inadequately managedpedestrian facilities. Though close to 25% ofvehicular trips in Ha Noi and HCMC and morein other cities are made on cycles, little attentionis paid to cyclists' needs and bicycle security is aserious problem. Even though Ha Noi hasdeveloped a network of cycle-only lanes, there isno enforcement and those lanes are extensivelyused by cars for parking.
6.4 Mitigating the NegativeImpacts of Transport
Poor traffic organization remains a critical issue
contributing to accidents, congestion andconsequently air pollution.
Transport Safety21
Positive road safety management steps are beingmade in Vietnam. Some performance targetshave been set. Coordination arrangements havebeen put in place, with the establishment of theNTSC. A National Program on Traffic Safety(NPTS) was developed and a comprehensiveprogram of work has been specified.Nevertheless, accidents and fatalities remain aproblem, particularly the high levels ofmotorcycle-related accidents in Ha Noi andHCMC.
Moreover, and despite the positive stepstaken, a picture still emerges of ineffectiveperformance management, weak implementationarrangements and fragmented intervention.Ministries, development partners, businesses,and non-governmental organizations areengaged in road safety issues and much work hasbeen done but this has not yet translated into acohesive strategy or a set of well-coordinatedactions.
There are gaps in the proposedNPTS and an absence of clear prioritiesfor action based on a strategic analysisof the problem. Proposed activitiesand interventions lack adequatefinance, proper coordination andplanning. In some cases they do notadequately reflect good practice.There is also a serious lack of capacity,resources and skills within theagencies responsible for programdelivery, and responsibilities andaccountabilities within and across
46
21. This section is based on Annex 5 of the June 12-30, 2003 Aide Memoire, "World Bank Transport Safety StrategyReview".
47
agencies and levels of government remainunclear.
A statute in the law that provides a waiverfrom an obligation to wear helmets inside citylimits is inconsistent with government policy inthis regard, particularly when intra cerebralhemorrhage (common to motorcycle accidentvictims) was considered a major cause of hospitaldeath in Vietnam.22
Congestion
Efforts to control the rapidly increasingcongestion in Ha Noi and HCMC havefocused on limiting motorcycle ownership inurban districts by fiat. Such controls areneither equitable nor effective as the ruleshave been easily circumvented by registeringvehicles outside the restricted districts.
Environmental concerns
Though Vietnam has successfully phased outlead from gasoline, both Ha Noi and HCMC haveair quality problems. Analysis of available datafrom Ha Noi suggests that transport is asignificant contributor to particulates (PM10 andPM2.5) and Ozone formation, and locally toCarbon Monoxide (CO). Old motorcycles anddiesel trucks are the biggest polluters inaggregate. Though some policies are in place toinspect and control emissions from four-wheeledvehicles, motorcycle emissions remainuncontrolled.
6.5 Institutional and Human ResourceCapacity
Modernizing the transport sector to be able torespond to new demands and challenges requiressignificant capacity development at both theinstitutional and human resource levels.
Implementation capacity
Project management and implementation. Inprinciple, the mandate of a PMU is to safeguardproject performance objectives. PMUs serve asfocal points of accountability and responsibilityreporting to governments and to developmentpartners providing financial support to theproject. It is also hoped that in building thecapacity of PMUs, there would be spilloversthat would enhance implementation capacity inMoT and its agencies. PMUs have not beenconsistently successful in discharging of theirresponsibilities in project management andthere has been little, if any, capacitydevelopment at the central level, a finding in noway unique to PMUs in Vietnam.
Moreover, the criteria for selection of central-and provincial-level PMUs to manage the
22. Viet Nam – Growing healthy: a review of Viet Nam 's health sector, World Bank. 2001
implementation of new projects are unclear.Performance of PMUs is not assessed against welldefined targets and there is no incentive systemthat would encourage efficiency and timelyimplementation. Ability and competence levelsvary largely among the different PMUs, a factthat can clearly affect both implementation andproject quality. There is no systematic way forsharing good (and bad) experiences amongPMUs. As a result, knowledge accumulation isslow and it is not uncommon for different PMUsto get caught up in the same implementationdelay.
For state corporations in transport (VRC,Vinalines, Vinashin and VAC), the larger issue iscommercialization. In the absence of a commercialorientation or an incentive framework, thecorporations' PMUs will have no incentive toincrease efficiency and raise quality.
Absence of clear accountability and oversightroles. The quality of construction varies but isoften low. While several factors contribute tothis outcome, one of the main reasons is thelimited effectiveness of supervision consultants.PMUs do not typically empower supervisionconsultants, who are often bypassed withcontractors reporting directly to PMUs andsometimes even to upper levels of managementat MoT. Accountability and oversight roles arenot clearly defined. The weak capacity ofsupervision consultants further contributes tolow quality. Moreover, the current debt situationof construction SOEs and their urgent andserious need for financing results in low bids tosecure contracts, a practice which ultimatelyresults in low quality and delayedimplementation as discussed above.
SOEs under State Corporations and theCiencos implement a significant share of MoT's
transport projects. As the Ciencos are attached toMoT, PMUs and supervision consultants canoften exert no influence over contractors. Inaddition, even if supervision consultants wereempowered, their level of effort is restricted byestablished "cost norms" that would not enablethem to carry out their responsibilitiesadequately, further contributing to the poorquality of construction.
Lengthy approval process: Project approvalprocesses are lengthy, tedious and not alwaysclearly defined. The objective of some of therequired steps is unclear and the duration of anapproval process tends not to be known withcertainty. This adds an element of inefficiencythrough uncertainty and increased cost, and couldalso limit the pool of bidders interested inimplementing transport projects in Vietnam. Asan example of the complexity of the process, theengineering designs of road projects often have tobe approved by the implementing PMU, VRA,MoT, PDoT, MARD, VNRA, and the Road andRailway Traffic police department. While each ofthese agencies may be safeguarding someparticular interest, it is not clear, that all have thecapacity to approve designs nor is it obvious thatthey should be approving such designs. Delays inapproval often lead to the expiration of the validityof the designs which results in renegotiation of thescope of works, modification in designs and costlyvariation orders.
Resettlement issues: Resettlement isconsidered one of the largest contributors toimplementation delays in transportationprojects, particularly donor supported projects.23
In addition to the lack of sufficient resources, theoften inadequate capacity of staff implementingresettlement policies, the lack of awareness ofproject-affected people of resettlement policies
48
23. Vice Prime Minister Vu Khoan stated at the opening ceremony of the Donors Advisory Conference held inHanoi on June 19-20, 2003 that resettlement is the most difficult issue for projects and not the lack of funds, and thatdisbursement of ODA funds was slow due to resettlement.
and the general lack of transparency often lead toinequity in resettlement, complicate the processand delay implementation. The difference inresettlement regulations between GoV anddonors often results in further delays inresettlement.
Through various decrees and laws, GoV hasconsiderably improved its resettlement policies.Some of the key issues that remain are withrespect to consultations with communities to beresettled, independent monitoring of theimplementation of resettlement plans andcompensation for illegal occupants.
Governance capacity
The recent corruption incident surroundingPMU-18 has highlighted weaknesses in thecurrent governance framework. Part of theproblem can be attributed to weaknesses inproject management and implementation andthe absence of clear accountability and oversightroles as discussed above. In addition,procurement within the sector suffers fromcollusion at many levels of the process. Thiscontributes to both inefficiency inimplementation and low quality of construction.Evidence from procurement associated withWorld Bank transport projects suggests that thefully competitive award of contracts has notbeen achieved yet. For example, evidence fromex-post procurement reviews highlights a trendtowards collusion of bidders sometimes with theinvolvement of the contract-awardingauthorities, and the artificial restriction ofcompetition by limiting the sale of biddingdocuments. In some cases the range of bidprices are so close to each other that it is veryunlikely that a competitive process has takenplace.
The PMU-18 corruption incident highlightedthe conflict of interest that can arise in the awardof contracts to dependent agencies under the
ministry or the province. Although MoT hasadvanced its equitisation program a lot remainsto be done to make the companies fullyindependent.
State control of prices is another area thatlimits truly competitive bidding. Undercompetitive bidding, the cost estimate is onlyintended as a guide with the winning bid comingin below or above that estimate. However, thereis still a tendency for authorities to control thebidding process so that bids do not come in toofar from the cost estimate. This is a legacy of thepast where the cost estimate was also the pricepaid to the state enterprise for implementing thework.
Enforcement capacity
Weak compliance with regulations very oftenrenders them ineffective and hinders thedevelopment and efficient operation of the sector.The trucking industry, for example, which hasbeen deregulated with no entry to barriers(except for a joint venture requirement for foreignfirms) and freely negotiated tariffs remains in alow-quality-of-service equilibrium, in large partdue to the lack of effective enforcement oftechnical (quality and safety) regulations andinsufficient demand for high quality services. Alarge proportion of the trucking fleet is old, andnon-compliant with technical regulations onvehicle quality and condition. Commensuratewith the quality of trucks, tariff rates are low.These rates in turn inhibit investment in theindustry and discourage modernization and theprovision of higher quality services. While thedemand for such services is developing asVietnam continues to expand into moresophisticated manufactures where timely andreliable delivery are important, enforcingregulations will help speed up the developmentof the sector to modern standards.
Seafood exports, an important source of
49
50
foreign exchange for Vietnam, can be adverselyaffected if certain regulations are not enforced.Refrigerated trucks have often been reported tobe of low quality and have discouraged someinternational shippers from exporting seafood.While, this has not impacted the rapid growth inseafood exports, it clearly could if the issue is notpromptly addressed.
The problem of vehicle overloading is notunique to Vietnam and is quite common inmany developing countries. It is caused byineffective and weak enforcement and lack ofsufficient (functioning) weigh bridges.Attempts over the years to deal withoverloading by strengthening enforcement andby adding new weigh bridges have not bornemuch fruit. Given the prevalence of overloadingand the poor track record in controlling it, it maybe practical to start considering second bestsolutions that acknowledge the existence ofoverloading. Comparing the costs imposed onMoT and road users as a result of truckoverloading to the cost of designing and
building the roads to higher standardsthat can withstand higher axle loads(while observing road safety codes) wouldhelp determine whether it may beadvisable to design the roads for higheraxle loads or not.
Weak information systems at the locallevel
The lack of basic reliable informationsystems at the local government levelcoupled with the fact that provincial
governments are not required to report theirtransport expenditures to MoT make it difficult toassess actual expenditures and conditions of localtransport infrastructure. The issue is all the moreimportant to the national government becauselocal governments receive about half of the statebudgetary allocation to transport. Informationsystems are necessary to help provincialgovernments plan their network needs andwould enable the national government to bettertarget its resources. At present, it is common torely to varying degrees on communitycontributions and labor in undertaking themaintenance of commune and village roadnetworks. The sustainability of this strategy islikely in the more prosperous areas but quiteunlikely in the remote areas which tend to bepoorer and more sparsely populated. Havingbetter information could help shift (more)resources from the national government towardsthe poorer provinces reducing the maintenanceburden on these communities.
The main challenges facing the transport sectoras identified in the previous section are (1) toincrease efficiency in both resource utilization
and service delivery, (2) to achieve fiscally-constrained sustainable financing, (3) to facilitategrowth for future urbanization, (4) to mitigate thenegative impacts of transport and (5) to developinstitutional and human resource capacity to meetthe sector's needs. Recommendations in this sectionfollow the same structure and are summarized at theend of this section in Table 14. They are divided inthe table on the basis of the implementation horizoninto short term recommendations (to be completedwithin 3 years) and medium to long termrecommendations (to be completed in 4 - 10 years).
7.1 Enhance Efficiency in ResourceUtilization and Service Delivery
Develop a results framework mappingmeasurable outcomes to sector goals
When developing the overall strategic directionfor the transport sector, it is important to alignsector and national goals at both national andprovincial levels towards desired outcomes.Under such a framework, MoT and otherresponsible agencies would define measurableoutcomes reflecting sector goals and ultimatelyresulting in specific projects and reforms toachieve these goals. Finally, to determine thesuccess in achieving these goals, it is necessary todefine measurable performance indicators.
Figure 10 provides a stylized and partialframework for the strategic direction of thetransport sector. It is intended to demonstrate thelinks between the indicators and the goals of thesector. By developing such a framework, GoVcan clearly establish which interventions to use intargeting each of the sector's goals as well as theresource cost and sources of finance associatedwith each goal.
Goal number 2, for example, in Figure 10 is toreduce costs and increase efficiency by investingin the expansion and maintenance of roads andwaterways. The interventions to achieve this goalin this stylized example are the construction ofthe Ho Chi Minh Highway, an expresswayprogram, a maintenance program and therehabilitation of the main inland waterways.Even if all these interventions were successfullyundertaken, one can not be certain that thespecific goal was accomplished. To ascertain thatefficiency has improved and cost of freight hasdropped, it would be necessary to measure traveltime and freight tariffs, the key performanceindicators for this goal.
Rationalize the transport planning process
To ensure consistency between economic andspatial development plans and among thedifferent transport plans, it is proposed that eachof the modal administrations attached to MoTdevelop prioritized plans in collaboration withTDSI and the Transport Department (TD) of
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Part VII
An Agenda for the Next Decade
52
Figure 10. Stylized Strategic Direction of Transport Sector and Key Performance Indicators
MISSION OF THE TRANSPORT SECTOR
ImproveMobility ofPeople in
Rural Areas
ReduceCosts andImprove
TransportEfficiency
ImproveMobility ofPeople and
Goods in UrbanAreas
ReduceTraffic
Accidentsand
Fatalities
Goal No5……………
Goals ofthe
Transportsector
… andstrategy
… by investing inand maintaining all-year round accessto poor communesin the North, West,Mekong and RedRiver Delta
■ Bond Issue (250million USD)
■ People and Stateworkingtogether--communitycontribution(xx USD)
■ Donor project 1(xx USD)
■ Donor Project 2(xx USD)
AdditionalHouseholdsprovided withaccess to an allweather road within2 kms
Indicator 2
Indicator 3
… by investing inexpansion andmaintenance ofmain roads, canalnetworks,provincialconnecting roadsand feeder ways.
■ Construction ofHCM Highway(XX USD)
■ ExpresswayProgram (xxUSD)
■ Rehabilitation ofmain IWW xxUSD)
■ MaintenanceProgram (xxUSD)
Reduced travel timeon improvednational andprovincial roads
Reduced passengerand freight tariffs
Increase in volumeof freight
… by supportingurban strategicplanning, trafficmanagement,public transport andinvestments inurban roads inmajor cities.
■ Hanoi busimprovements(xxUSD)
■ Construction ofcities ring roads(xx USD)
■ Development ofmass transit (xxUSD)
Travel time onimproved urbanroads
Outcome indicatoron public transport
Indicator 3
… by strengtheningthe National TrafficSafety Committeeand implementingroad safetyprograms
■ VRA blackspotimprovementprogram (xxUSD)
■ GoV propagandacampaigns (xxUSD)
■ Safe HighwayProgram (xxUSD)
Reduced number ofaccidents, injuryand fatalities inproject corridors
Performance targetsfor National RoadSafety Strategyachieved
■ by……..■ …….
…….……..……..…
Project/Intervention1
Project/Intervention2
Project/Intervention3
Indicator 1
Indicator 2
Indicator 3
… with KeyPerfor-mance
Indicat-ors(KPIs)
Source: Adapted from Vietnam Country Portfolio Review prepared by R. Nanjia and V. Gyllerup
MoT. Prioritization in developing transportplans needs to start early in the process within theadministrations and with strong TDSI and TDinvolvement. These plans will form the basis forlong term national transport plans. Regionaltransport plans whether for one of the ninegeographical regions or one of the three focaleconomic zones would be a subset of the nationalplan.
The credibility of the formulated plans is alsoessential to attract private sector investors. Withuncertainty regarding future plans, manyinvestors lack the confidence to finance toll roadsor ports for example, two potential areas forprivate sector participation. Prioritized andresource-constrained plans can reduceuncertainty while remaining flexible as plansevolve over time.
At the local level, decentralization has vestedprovincial and city governments with considerableautonomy in decision making, indeed a desirableachievement but some harmonization in planningis still necessary. Providing MoT a formal role inthe review of local development plans ensures theirintegration and consistency with nationalprograms and adherence to planning guidelines.The proposed oversight role for MoT is alsoimportant in ensuring that decisions at the locallevel are based on socio economic efficiency criteriaand are less politicized particularly in light of theinevitable mismatch between the tenure of localelected officials and the significantly longer life oftransport infrastructure.
Leverage the ongoing development of theMTEF as a reform tool to address theweaknesses in planning and to improveresource allocation
MTEFs address the fragmentation in decisionmaking through the establishment of a WorkingGroup with representatives of MoT, MoF andMPI. The Working Group in turn reports to an
Inter-Ministerial Task Force consisting ofmembers of the same three ministries. Theempowerment of the Task Force and its supportby senior government members is essential forthe successful implementation of MTEFs and fortheir potential replication throughout thecountry.
Given that the MTEF for the transport sector isstill at a relatively early stage, this is a goodopportunity to ensure that as many as possible ofthe elements necessary to overcome the existingweaknesses of the current planning system are inplace and to link the implementation of MTEF toother planning reforms.
MTEF can provide the missing link in theplanning process. At the outset, it is important todefine where MTEFs fall in the planningframework and what linkages they will have tothe SEDPs and PIPs. The various alternativesneed to be considered with perhaps differentsectors experimenting with different roles for theMTEF. This planning tool can be used to remedythe weakness in the current planning systemstemming from a direct progression from broadlystated development goals and strategies to longlists of detailed investments with little attention tobudgetary constraints and financing, thecontribution of these investments to thedevelopment goals, and possible alternatives.
Apply MTEF at the sectoral, not the modal,level. To ensure that as many as possible of thebenefits of the MTEF are realized, it is importantthat it is developed at the sectoral level and that itcovers all transport sub sectors. However, ifdeemed necessary due to limited capacity, aninitial focus of the MTEF in transport can be theroad sector. Given the large share of resourcesdedicated to roads, significant benefits could bederived from an efficient allocation to this subsector. Nevertheless, capacity would have to bebuilt rapidly to move to a sector wide applicationto avoid the inefficiency of independent modalplanning.
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10
Establish and apply sound criteria forspending in the MTEF. A prerequisite for asuccessful MTEF is the establishment of soundcriteria for rationalizing expenditures. Atpresent, little use is made of rigoroussocioeconomic efficiency criteria in appraisingexpenditures. Little benefit will come out of theMTEF if such criteria are not established andstrictly adhered to. The natural leader forestablishing these criteria and overseeing theirapplication is MPI. The process requiresparticipation by the ministries piloting the MTEFperhaps as a first stage, and a later expansion toother line ministries. Developing andimplementing these institutional changesrequires strong political support complementedby ample and continuous capacity building overseveral years.
The ongoing pilot MTEFs in four provincescan play an important role in improving theplanning, budgeting and resource allocationprocesses. These exercises need to be observedcarefully to see how they can be improved andreplicated in the rest of the country. Ifimplemented satisfactorily, the MTEF wouldhelp provincial governments determine theallocation between asset management andupgrading on a sound basis as well aspotentially reduce the burden of financing thatis currently faced by some small localcommunities.
Paving local roads: An issue of significantfinancial and economic consequence is the pavingof provincial and rural roads often to avoid theannual financial burden of maintaining unpavedroads. The decision whether to pave a road or notshould be based on a life cycle cost analysis of thedifferent alternatives that would includeinvestment costs, maintenance costs over the life ofthe road and the benefits to road users. The analysiswould take into account the different topographicand climatic conditions of each location. Using thisapproach would ensure that the limited resources
can be optimized and the appropriate surfacingoption for each region used.
MoT is currently undertaking surfacing trialsin 8 geographically distinct provinces todetermine the most appropriate surfacingsolution given climate, terrain, availability ofmaterials, traffic levels and capacity forsubsequent maintenance.
The decision to pave the road should not beinfluenced by the ability to secure one time Statebudgetary allocations from the nationalgovernment. In this regard, there is a need forboth local and national governments to providethe right incentives to invest in road maintenance.Provincial departments of transport need to begiven more flexibility reallocate budgets betweennew construction and maintenance activities.
Require a balanced analysis of proposedtransport investments. A common practice byengineering firms when preparing feasibilitystudies for projects, some of which areunsolicited, is to provide too much detail on thetechnical aspects of the project with little, oftenpoor, analysis of the demand and the economicimpacts. A balanced approach that also ensureshigh quality analysis of the projects' economicand social benefits is necessary to minimizesuboptimal allocation of resources. Moreover,subjecting unsolicited proposals to the samerigorous standards of appraisal would enhanceefficiency in resource allocation.
Invest in asset preservation
While the MTEF can provide some flexibility inshifting resources from new investment tomaintenance, this will not eliminate the need fordeveloping an asset preservation frameworkand for implementing the strategic plan fornational road maintenance. The 10-yearstrategic plan for national road maintenancethat has been developed using HDM4 modelsand has been approved by the Prime Minister
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should be relied on in the preparation of annualmaintenance work programs.
Based on road condition surveys in 16provinces and other field investigations, it isrecommended that expenditures on local roadmaintenance be increased dramatically. Morespecifically, an appropriate budget split would be6% for routine maintenance, 50% for periodicmaintenance and 44% for rehabilitation. To betterallocate resources between and within provinces,the ROADNAM road management systemshould be extended to all provinces in thecountry.
Enhance the capacity for multimodaltransport and logistics planning andimplementation
Following the recommendations of the MTRR,implementation regulations need to bestrengthened and clarified. A commonunderstanding between the Ministries ofTransport, Trade, and Planning and Investmenton the definition and coverage of logisticsservices as referred to in the 2005 Commerce Lawneeds to be developed before the implementingregulations for the Commerce Law are finalized.
The role of MoT's Transport Department inintegrated multimodal transport planningneeds to be clearly defined, and thedepartment's capacity strengthened. To helpincrease the efficiency of the logistics industry,MoT may wish to encourage logistics providersto establish a National Logistics Forum (NLF)financed by its members to identify theindustry's needs and to consult with thegovernment on the appropriate course ofaction. One of the first tasks of the NLF couldbe the definition and estimation of a LogisticsIndex to be updated annually to better monitorlogistics costs. As a counterpart to the Forum,an Inter-Ministerial Logistics Committeewould help liaise with the Forum as well as
coordinate government policies affectinglogistics and multimodal transport. Themandate of the GMS Transport FacilitationCommittee could be broadened to enable it toplay the role of the proposed Inter-MinisterialCommittee.
Articulate then implement SOE reforms andequitization plans
MoT has some elements of a phased equitizationplan for its SOEs in place. The objective ofequitization, the methodology for enterpriseselection and the details need to be clear andtransparent. It is essential to account for the debtsituation of the SOEs accurately and for thegovernment to explain the basis for bailing outsome SOEs, as is likely to happen, and for lettingothers go bankrupt. If the plan is to start withsmaller SOEs, the reasons and implications needto be articulated. A firm timetable for this processtogether with strict monitoring of itsimplementation by an interagency taskforce fromMoT and MoF (and possibly others) increases thepossibility of success of the SOE equitization andreform program and the chances of achieving thedesired implementation efficiencies.
Modernize and strengthen the regulatoryframework
The recently completed regulatory review(MTRR) shows that the transport laws passed inthe past few years provide a sound basis for theefficient operation of the transport sub sectors.Nonetheless, the implementing regulations forthese laws require strengthening to ensure thatthe principles of competition and transparencygovern all business and investment licensingmatters, and that private sector participation,both domestic and foreign, is encouraged toenhance operational and managerial efficiencyand quality, and increase investment.
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Full efficiencies in the ports and maritime subsector, in particular, are not being fully exploited.There needs to be clear separation between theregulatory and operating functions and morecompetition between stevedoring providers in,and between, ports. Perhaps more importantlyconcessions for managing and developing portsneed to be based on competitive and transparentselection. The replication of sole sourcing in theaward of concession contracts as in the case of CaiLan port will not ensure efficiency in investmentand operations. While it is possible to argue onthe basis of certain indicators that indeed some ofVietnam's key ports are competitive and comparefavorably to well run ports in the region, this isdespite of existing regulations and not a result ofan efficient regulatory framework for portdevelopment.
While GoV's motivation for themodernization of its transport regulatoryframework is to enhance the efficiency of thesector and the overall economy, the governmentcan use its imminent joining of the WTO tocommit to undertake the changes faster to realizethe desired efficiencies.
7.2 Financial Sustainability of theSector
Tighten expenditure controls
Stronger links between planning andbudgeting need to be instituted to avoid theworsening of the existing debt situation ofnational and provincial state owned constructionenterprises. Making the availability of financinga requirement for approving projects at bothnational and local levels will serve as a control onspending. The current lax requirements forlending by some SOCBs need to be replaced byrigorous commercial criteria with the debtcapacity of the enterprise and the project carefullyexamined. This will limit the availability of
financing to projects and enterprises that canrepay the debt. The ongoing MTEF in transportand in four provinces (as pilots) serves as animportant instrument in this regard but needs tobe complemented by government regulationsplacing tighter controls on the ability of SOEs toborrow from SOCBs and on SOCBs to lend.
Develop a sustainable financing structure
The main objective is not to increase currentspending levels as a share of GDP which are atfairly high levels but to develop a sustainablefinancing paradigm for the sector with lessreliance on the State Budget. In identifying sucha paradigm, it is important to distinguishbetween two different levels in the financingframework. The first level involves the ultimatepayers for the infrastructure and associatedservices and the second one deals with thefinanciers of the infrastructure.
Paying for infrastructure and services
The ultimate payers are typically the directbeneficiaries and the general public payingthrough government taxes and other revenues.A toll road provides an example where usersmay pay the full cost, or only a share with thegovernment (general public) paying theshortfall. To this extent, increasing the sharethat is paid by the beneficiaries of a road, (orport or bus service) would reduce the sharepaid by the government. Mechanisms formobilizing resources from beneficiaries inreturn for improvements to transport servicesand infrastructure include increasing usercharges (by raising existing levels or reducingthe fuel subsidy and using the savings).Another avenue would be to capture aproportion of the increase in land valuesassociated with large transport improvements.These are discussed below.
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● Consider increasing user charges by raisingtheir existing levels and/or by reducing thefuel subsidy and using savings towardsmaintenanceIncreasing user charges is appealing and
there has been some evidence that road users aremore willing to pay for the use of the road if theirpayments are directly linked to the maintenanceof the road network. Presently, all user chargeshowever, are part of the State Budget.Consequently generating more financialresources through user charges requires raisingexisting rates. One possibility is to increase thefuel levy by a certain percentage to be earmarkedfor maintenance of roads and inland waterways.This would provide an additional source, eventhough through the State Budget, but may havemore political support than an unlinked priceincrease particularly if the high rates of returnand future cost savings associated withmaintenance are publicized.
An alternative to raising user charges is toreduce the fuel subsidy and use a proportion ofthe savings for the maintenance of transportinfrastructure. This approach may also encounterless opposition in that the savings are beinginvested in the improvement of road conditions,and transport infrastructure in general, whichcould ultimately reduce the cost oftransportation. An analysis of the impacts ofreducing the fuel subsidy which has indeedreached high levels needs to be carried out. Aproportion of the savings from the reduction inan economy wide fuel subsidy could be bettertargeted towards needy groups. Concerns aboutinflation would need to be carefully assessed.While prices will increase once the subsidy isremoved, this will be a one time change in theprice level. Moreover, freight costs would beexpected to come down once the savings areinvested in asset preservation.
It is proposed that the increase in user chargesand/or savings in fuel subsidies would only
finance a proportion of maintenance. The balancewould continue to be financed from the existingsources in the State Budget. This would have theadvantage of linking a user charge to clearimprovements without distorting the decisionmaking process.● Capture a proportion of the increase in the
value of the land resulting from transportimprovementsTransport projects, particularly large scale
ones, often result in an increase in the value ofsurrounding land. The government can capturea proportion of the increase in land valueassociated with a transport project by buying acertain area of the land at the pre-improvementrate and later selling the acquired plots at theappreciated rate. Japan and Hong Kong, amongothers, have used this scheme to financetransport infrastructure. In addition, aproportion of the increase in property taxrevenues associated with a project can be usedtowards financing the project. GoV may wish toconsider developing a framework to helpfinance transport infrastructure using theseschemes.
Financing infrastructure
Infrastructure can be financed by the government(central or local) or by the private sector. Atpresent, there is too much reliance on thegovernment. As this is not sustainable, the role ofthe private sector has to be fully explored.● Develop a framework for private sector
participation in infrastructure financeThe contribution of private capital to the
financing of transport infrastructure in Vietnamremains low. This source of financing can play amore prominent role in financing highways andexpressways, and the development andupgrading of ports and airports, among othertypes of investment. Key to tapping this source isthe development of a framework for private
57
participation. The framework would set theprinciples for efficient risk sharing, define howcontingent liabilities will be managed, andidentify appropriate institutional and regulatorystructures. Within the parameters of theframework, the different models of privateparticipation can be considered and used. It isrecommended that the framework evolvegradually over time using a series of simpleprojects and building on the gained experience.
The risk/reward tradeoff. Some level ofgovernment support or guarantee of traffic levelsand/or revenues is not uncommon particularlywith respect to toll road financing. Long termconcessions for port development andmanagement following the land lord modelwhere the state owns the land, or the port ifdeveloped, and the private sector receives a long
term concession for managing (and sometimesdeveloping) the port has become one of the morecommon structures for operating ports. Whiletraffic through the port and potential competitionare important issues, there have been fewer casesof state guarantees of traffic than there have beenin toll roads.
Figure 11 shows that the government's financialexposure can vary significantly depending on thelevel and type of support it offers to privateinvestors in toll road arrangements.24 Indeveloping a framework for private participationin toll roads, the government needs to define theextent to which it is willing to provide guarantees,if at all, on traffic/revenues, and the rewardscommensurate with the risk exposure. At afundamental level, a government guarantee oftraffic or revenues does not seem like a wise idea.
Traffic risk is a commercial/demandrisk that a private entrepreneur wouldelect to bear for the right payoff.Evidence, however, indicates thatgovernments have provided andcontinue to provide some form ofguarantee of traffic levels.
The Korean government, forexample, employed a certain modelaccording to which it guaranteed acertain level of traffic per annum,typically a percentage less than theforecast. If this level was not met,the government would compensatethe concessionaire. If the forecastedlevel was exceeded the governmentwould receive a share of theadditional toll revenues, hencereceiving its reward for undertakingthe risk. A different model would beto ensure that the returns earned bythe concessionaire are lower than
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24 . While there are many risks associated with toll roads, the focus below is on traffic/revenue risk, an importantrisk to which there is no general consensus on how it should be borne.
● Grant● Subordinated loan
● Minimum traffic or revenue guarantee● Shadow tolls
● Equity guarantee
● Debt guarantee
● Exchange rate guarantee
● Revenue enhancements
● Concession extension
High
Impact onability to
raisefinancing
Low Government financial exposure
Source: "Private Financing of Toll Roads" G Fisher and S. Babbar
High
Figure 11: Government Support and Exposure in Toll RoadArrangements
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what would they would have been if there hadbeen no guarantees. Other forms of support,short of guarantees, are extending the tenure ofthe concession to allow the concessionaire to earnhis agreed upon return, providingconcessionaires with subordinated loans ifrevenues fall below certain levels (as in the case ofMexico and Hungary), and designing revenue-bound rather than time-bound concessioncontracts (as in the case of Chile).25 None of theseschemes is perfect and the pros and cons need tobe considered when developing the toll roadframework.
Managing contingent liabilities. Any form oftraffic or revenue guarantee provided by thegovernment creates a contingent liability. Withoutdeveloping a framework for managing risk, foraccounting for these possible liabilities and forpaying them if they materialize, the GoV couldend up exposing itself to significant financial risk.While it has not been uncommon for manydepartments and ministries of finance to providethe guarantees and be concerned about thecontingent liabilities once they occur, there havebeen other more prudent approaches. Oneapproach is for the Ministry of Finance to computethe expected annual payout on contingentliabilities undertaken on behalf of projects of eachline ministry and subtract the expected payoutsfrom the annual budgetary allocation for theconcerned ministry. These payouts are creditedback to the line ministry ex post in the event thatthe contingent liability does not materialize.Under this model, each line ministry is responsiblefor any contingent liabilities it creates.
Institutional and regulatory structures. TheVietnam Expressway Corporation (VEC) hasbeen recently established to develop, finance,and manage expressways. MoT is at present inconsultation with a number of development
partners to define the responsibilities of VEC.One of the expected roles of VEC is lettingconcession contracts. Concessionaires, whetherprivate, public or joint ventures, would build theroads, operate and maintain them. It is essentialthat concessionaries be selected through acompetitive and transparent process. Most tollroads are regulated by contracts which clearlydefine pricing and adjusting mechanisms ratherthan by a regulator.● Develop a framework for the use of national
government bondsThirty percent of MoT's projects between
2001 and 2005 were financed by governmentbonds. Before issuing any further bonds forfinancing infrastructure, it would be advisablefor the government to develop a framework thatsets conditions for bond issuance for transportinfrastructure. One of the major considerationsfor issuing bonds is whether the asset to befinanced will generate revenues or not. Inprinciple, toll roads, lend themselves to financingusing the receipts from bond sales. Whether thegovernment finances the toll road on its own orin partnership with the private sector, bondscould be used to finance the government's share.This is only applicable to limited access roadsand expressways where tolling is both practicaland traffic volumes adequate to providesufficient revenues to meet interest and principalrepayment. Once the toll roads have reached alevel of maturity in terms of traffic and debtrepayment, they will generate a surplus cashflow beyond the associated bond servicingrequirements. The surplus can be then usedtoward the development of new roads.● Develop a framework for municipal finance
At present, municipal finance is utilized withsome success in Vietnam's two largest cities.This source can continue to make significant
25. Revenue bound contracts are defined in terms of achieving a certain level of revenues measured in presentvalue terms irrespective of the time frame.
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contributions to infrastructure finance in largecities. However, it is unlikely that sub nationalborrowing can be relied on in many other citiesor provinces as a significant source of localgovernment revenue in the short term. This isdue primarily to the high cost of infrastructure,relative to income levels and size of towns andprovinces.
A sound framework for municipal finance isnecessary for the development of this market. Itwill enable large cities to continue to mobilizelocal funds in a sustainable and prudent manner,and will help other provinces and cities developtheir capacity to be able to realize this source offinancing. Likely sources of municipal financingare bonds and local development investmentfunds (LDIFs).
Similar to the case of national governmentbonds, municipal bonds can be used to financetoll roads where the toll revenues providesufficient assurance of payment. Using theseinstruments to finance non-toll roads requires amore careful analysis of the fiscal capacity of thelocal government.
LDIFs are emerging as an important source ofsub national finance for infrastructure investmentin Ha Noi and Ho Chi Minh City. It is importantto realize, however, that for most other cities andprovinces, it will take several years before LDIFscan become an important contributor to thefinancing of transport infrastructure. It may bemore practical and sustainable at this point toconsider local development funds established at aregional level. The sustainable growth of thissource of financing requires strong governanceand an arms length relationship with theProvincial Peoples' Committees. The strength ofthese funds would be in their ability to issuecorporate bonds on a commercial basis and on thesoundness of their investments. This, in turn,requires robust legal and regulatory frameworksas well as institutional and human capacitydevelopment. It is imperative that all projects
financed by LDIFs be subject to rigorous appraisaland the practice of exempting certain projectsfrom analysis based on the source of financing bereconsidered and stopped as this clearlyundermines the efficiency and transparency of theinvestment process.
GoV has recently disembarked on a study toassess the conditions associated with the use ofexisting LDIFs and to outline general optionsfor moving forward. The recommended nextsteps are to carry out a more detailedinstitutional analysis of existing LDIFs, theirprocesses and procedures to fully assess theircapacity, as well as a detailed financial analysisof LDIF accounts to better understand thefinancial picture and to help develop consistentstandards of financial management.
7.3 Facilitating Sustainable UrbanGrowth
Strengthen the planning and regulatoryprocesses
● Develop metropolitan/regional institutionsEffective planning for urban transport can be
successful only if strongly linked to the urbanplanning process. To ensure this link, there is aneed to develop metropolitan/regionalinstitutions to coordinate between localgovernments and drive a flexible planningprocess. These institutions also need tostrengthen their implementation and monitoringcapabilities to manage urban growth effectively.● Develop efficient, high capacity, public
transport systemsThe limitations on the role that will be
played by motorcycles as trip lengths grow,and the fact that private automobiles willcontinue to play a minor role in the coming twodecades point to the need for another mode oftransport. Successful development of efficient,high capacity, public transport systems-bus
based systems in the short term, with a role forurban rail in the longer term-that ensure highquality access to commercial areas and centralbusiness districts, will be critical to facilitatecontinued urban growth. To overcome thefragmentation in planning, it is critical that allelements of the public transport system arecoordinated, integrated and present the'customer' a seamless experience. Unifiedresponsibilities would help in prioritizingexpenditures and would demonstrate thatsome investments (such as urban metrosystems), however beneficial, may need to bedeferred to the future.● Continue the land reform process
Though the current land law is a step in theright direction in recognizing market values ofland, there are still various issues that need to beaddressed with respect to the process of landtakes for public infrastructure. Additionalreforms are still needed to normalize urban landtitles and to tie compensation levels to marketvaluations of land so that the land-take processcan be streamlined in an equitable andtransparent manner.● Continue the reform process in public bus
transportIt is recommended that bus routes be awarded
on the basis of fixed-term contracts established bycompetitive bidding. International experiencesuggests that minimizing the financial burdenassociated with a particular level-of-service andfare level can be effectively achieved this way andis preferred to the current ad hoc manner ofawarding routes and subsidies based on detailedcost audits. Further, it is important that the publicregulatory agency retains control of planning,and revenue management functions across allmodes of public transport to remove one of theoversight biases. The capacity of regulatoryagency needs to be developed to meet its newresponsibilities.
Develop a sustainable financing paradigm forpublic transport
In 2003, revenues covered less than half the cost ofproviding bus services. At present, there is astrong political will in both Ha Noi and HCMC tounderwrite the promotion of public transportwith public subsidy. If subsidies continue to growat the rate ridership has grown, and is forecast tocontinue to grow, it would be necessary to ensurethat the deficits/subsidies can be sustained.Deficits need to be projected and their financingsources identified.
Adapt international traffic managementpractices and develop new ones.
Traffic organization will improve with theimplementation of the proposed national transportsafety strategy. Other interventions with a moredirect focus on traffic management are alsonecessary. While indeed international goodpractices are not fully transferable, the standardtools of international traffic management such asround-abouts and junction channelization can bemodified for a predominantly motorcycle trafficstream and be effectively used in the Vietnam. Theuse of these tools together with traffic lights,medians, and an enhanced focus on a properlymaintained secondary road system willsignificantly enhance the efficiency of traffic flows.There is also a need to create a culture of trafficmanagement based on pilots and a willingness toexperiment. A requisite for creating such a cultureis better coordination between the Departments ofPublic Works and the Traffic Police.
7.4 Managing the Negative Impactsof Transport
Implement transport safety plan
A transport safety strategy for Vietnam was
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developed in mid 2003 building on the roadsafety priorities identified in the NationalProgram for Traffic Safety. The aim of thestrategy was to more sharply focus thespecification, the targeting and delivery ofproposed interventions as well as support abroader range of initiatives within anintegrated safety management framework.
The implementation of the strategy isplanned in three phases: an 'establishment'phase, a 'growth' phase and a 'consolidation'phase. Each 5-year phase is intended to createthe knowledge and experience necessary tomove efficiently and effectively to the nextphase. For example, it is unrealistic to setambitious national, city and provincialperformance targets until the data analysis toolshave been built and some quality data have beencollected. Likewise, it is unrealistic to identifyand establish sustainable funding mechanismsbefore cost-effective approaches have beenidentified and robust business planningprocesses and related financial managementsystems have been established.
The emphasis at present is the first phase whichaims to educate and enforce a substantial shift fromlow levels of road user compliance with existingsafety standards and rules to considerably higherlevels of compliance. Preparation for the secondphase will also start during the first phase. Initiativeswill be started with the aim of improving safetystandards and rules and extending their application,further improving compliance within a robustperformance management framework andconsolidating implementation arrangements.Among the urgent and necessary short termmeasures is the need to amend the statute in the lawthat provides a waiver from the obligation to wearhelmets inside city limits. Detailed actions arepresented in the Transport Safety Strategy Review.26
Develop a policy for managing congestion
Policies to limit congestion have not bornemuch fruit. There is a need in both Ha Noi andHo Chi Minh City to develop a comprehensivepolicy on managing congestion that includesconsideration of restrictions on ownership anduse of both motorcycles and cars, a parkingpolicy, promotion of non-motorized modes forshort trips and more effective trafficmanagement. Though car ownership is low (inpart because of high auto taxes levied by theCentral Government, and some municipalregulations such as a requirement in Ha Noi todemonstrate availability of parking before anauto can be registered) there is an urgent needto focus on auto use restrictions. Motorizationlevels are rising, and even a small increase inauto traffic will significantly increasecongestion. In the longer term, cities need toconsider market-based methods to manageprivate vehicle ownership (auctioning titles)and use (congestion charges, parking charges).In this context, the development of a currentvehicle registration system for all vehiclesincluding motorcycles which requires users toupdate their registration regularly (annually,every two years) will be key to enforcementefforts. Such a system is a basic tool that willalso be a cornerstone of any attempts tomanage traffic compliance, safety and airquality.
Develop pollution control strategies
To control pollution, both Ha Noi and Ho ChiMinh City need to develop a betterunderstanding of transport's contribution topollution and as appropriate develop controlstrategies including promotion of non-motorized modes for short trips and the
26. Annex 5 of the June 12-30, 2003 Aide Memoire, “World Bank Transport Safety Strategy Review”.
development of inspection and maintenanceprograms.
7.5 Institutional and Human CapacityDevelopment
Develop a long term capacity developmentframework
The accomplishment of the transport sector'sgoals requires significant capacity development.To avoid ad hoc and incomplete institutionalreform and capacity development initiativesthat are often not very effective, acomprehensive capacity developmentframework with a realistic long term view forimplementation needs to be prepared. Thiswould address needs at three main levels: theenabling environment (policies and laws)-building on the findings from the recentlycompleted regulatory review, organizationaldevelopment, and human resourcedevelopment.
Strengthen implementation capacity
● Consider alternative project managementstructures and design sound incentivesystemsProject management systems vary from
individual PMUs managing individual projectsto a central authority responsible for all projects.The legal status and independence of PMUs canalso vary from stand alone PMUs to onesattached or better integrated with centralimplementing agencies or ministries.Irrespective of the management systems used forproject management, an incentive system needs
to be designed to ensure that the desiredobjectives are satisfactorily accomplished.Performance is to be assessed against clearlydefined targets, with rewards for goodperformance and strict penalties for poorperformance.
Even in the presence of a sound incentivesystem, the current system of projectmanagement through PMUs has afundamental weakness when it comes to longterm capacity development in MoT. Whiletimely and satisfactory project implementationis an important goal for GoV and developmentpartners alike, building capacity in the lineministry is even more important for thesector's development and projects'sustainability. The latest version of theconstruction law recommends moving PMUsunder the modal administrations such as VRAand VIWA. It is the recommendation of thisreport that this process is started as soon aspossible.
Implementation through a central levelagency or ministry has a clear advantagewhen it comes to building long term capacity.This is also consistent with the need tostrengthen the overall planning of the sectorwhere one body is responsible formanagement of the network. But the focus onthe management of a particular project mightnot be as strong. The Bank's experience inLatin America indicates that the advantagesof implementation through central (orintegrated) units far exceed those ofautonomous units in terms of ownership,learning and sustainability.27 Lao PDRprovides a good example from the region forimplementation through a central agency.28
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27. Thematic Review on Project Implementation Units, An Analysis of Ongoing and Completed Projects in LatinAmerica and the Caribbean, By Daniel Boyce and Afef Haddad, March 2001.
28. Development partners worked with the government to promote the “One Country-One System” principle whereunique management systems are endorsed and used by all. Implementation, which was handled by four separate projectimplementation units (PIUs) – one for each donor – was shifted to the Ministry’s Department of Roads.
● Define clearly the roles and responsibilities ofPMUs, contractors and supervisionconsultants; and enforce contractsTo avoid the dilution of the roles of
supervision consultants, and often PMUs, inensuring good quality and timelyimplementation, responsibilities of the differentplayers have to be clearly defined contractuallyand contracts need to be enforced. Unless MoTcan maintain an arms length from itsimplementing SOEs, indeed a difficult task, thequality of implementation will continue to be inquestion and supervision consultants will havelittle value added. This is a further argument forthe equitization of MoT's SOEs. Figure 12provides the main roles for the client, engineerand contractor during contract implementation. Ifquality is to be maintained these roles have toundertaken independently of each other.● Simplify the Approval Process
The first step in simplifying the approval
process is to carry out an audit of the requiredapprovals. The purpose for each approval andthe time it usually takes to secure it are then to beexamined with the objective of eliminating andcombining approvals, and shortening durationswhere possible. Once the process is simplifiedand durations for approvals defined, MoT canwidely publish the new rules using the differentmedia channels including the internet to ensurewide circulation and transparency.
Simplifying the system of approvals,shortening the duration needed to secure them,removing uncertainty and openly publishing thenew rules are likely to have many benefits. Notonly will this improve the project planningprocess and enhance the business environment, itwill also reduce the probability of expiration inthe validity of bids submitted due to the presentlengthy approval processes.● Harmonize the different resettlement
policies
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Vietnam's resettlement policies have comemuch more in line with those of the developmentpartners recently. But some differences remain.The complexity and confusion that emanate fromthe need to adopt different resettlement policiesdepending on whether the project is receivingfinancing from the World Bank, otherdevelopment partners or only from thegovernment needs to be reconsidered followingthe "one country, one system" principle. Alldevelopment partners and GoV need to worktogether on converging on a common set ofresettlement policies. Recently, the World Bankhas sanctioned the piloting of country systemsunder certain conditions of equivalence ofpolicies. Throughout this ongoing process ofevolving resettlement policies, it is important thatsufficient attention be devoted to capacitybuilding particularly at the local level to ensureawareness of the different policies until one set ofpolicies is adopted.
Speed up the implementation of measures tostrengthen governance
Following the corruption incident in PMU-18,GoV needs to speed up measures to increasetransparency in procurement as well asaugment them by other policies. GoV isundertaking several measures to limit collusion.These include measures to increasetransparency such as the publishing of allrequests for proposals in MPI's gazette and onits website. A draft procurement law thatprovides a complaint mechanism is beingdiscussed. Finally, Decree 80 requirescommunity participation in, and supervision of,local decision making processes. A move tofully competitive award of contracts willimprove the quality of construction and the costeffectiveness of investment.
There will be a need to develop the capacity ofthe relevant procurement authorities to
strengthen their ability to identify collusionbetween contractors. Transparency can befurther increased by making access tobidding documents freely available. Havinga representative from the community sit onthe bid evaluation panel is another way toreduce collusion. Without an effectivesanction mechanism, it is unlikely that thecomplaints mechanism in the draft law willcurb collusion. A centralized database needsto be established to support the black listingapproach followed by GoV. At present, firmsblacklisted due to collusion in one province canstill be awarded contracts in other provinces dueto a lack of such a database.
The issue of conflict of interest also needs to betackled directly. Ministry and provincial staffshould be made aware of situations which wouldconstitute conflict of interest. Companiescompeting for MoT contracts should havecomplete financial, legal and managerialautonomy from the ministry to be eligible. Theparticipation of dependent agencies should alsobe limited.
Develop the capacity of the Vietnam RoadAdministration
Even though VRA was established to manage thedevelopment and asset preservation of thenational road network, this has not been the caseand the responsibilities are fragmented betweenVRA and other departments within MoT. Toraise the efficiency and effectiveness of planningin the road sector, VRA needs to be empoweredand the capacity of its staff developed. As VRAhas received, and continues to receive capacitybuilding under different projects and programs,some of which are supported by developmentpartners, MoT and VRA need to coordinate thedifferent efforts to ensure direct, sound andpractical linkages to the management systemsand reforms being implemented.
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Strengthen enforcement and compliance
It is important that Vietnam develop andimplement a system for vehicle inspection thatensures that standards are adhered to. Theimplementation can be phased starting with citiesand regions where the problem is perceived to besevere. The initial focus can also be limited totrucks. Implementation in other geographicalregions and for other modes can then follow.
Traditional approaches to enforcement oftruck loads in many developing countries havenot been very successful. This would warrantexperimenting with new approaches, some ofwhich accept the fact that truck overloading willexist. A combination of measures addressingboth the supply and demand side of the issue canbe considered. There is a need to assess thetradeoff between building the road to a higherstandard (to withstand higher axle loads) andbuilding it to normal standards andrehabilitating it upon damage. By carrying out adetailed analysis using field surveys and theHDM models that have been recentlyoperationalized by VRA, it would be possible todetermine the standard of pavement that wouldlead to the least cost to society under differentscenarios of overloading. The analysis can beexpanded to include the impact of differentpermissible axle loads on the cost of freight aswell. The results could be tested at a small scalein specific regions.
Irrespective of the permissible axle loads,some level of enforcement is necessary. Moreeffective control could be achieved by
involving road users in the management of thevehicle inspection stations and by focusinginspection on key roads for freight movementwhere overloading is typically common. A pilotproject for controlling truck overloading usingperformance pay schemes in managing theweigh stations is producing positive results inSumatra, Indonesia but has not been inoperation long enough to prove sustainable.
Develop capacity at the local level
Better decision making at the local level requiresfurther capacity development. For the effectivepreservation of local transport networks, it isnecessary to develop a simple informationdatabase of existing assets and their conditions asa first step towards efficient management. Theexistence of this information would increase theawareness of the central government of the needsof the different provinces. Developing thecapacity of local governments to better managetheir assets needs to be a priority. MoT is theideal candidate to play a central role in buildingcapacity of local governments in this area. Inaddition, and apart from building capacity oflocal governments, there is a need to providesome basic training to the general public at thelocal level to help them understand the basis forresource allocation.
In developing the capacity of the ProvincialTransport Authorities (PTA), it is important toensure that these efforts are well coordinated andintegrated with overall capacity building effortsat the provincial government level.
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Issue Actions for the Short Term (within 3 years)
Actions for the Medium to Long Term (4-10 years)
Enhance efficiency in resource utilization and service delivery
• Develop a results framework • Modal administrations to develop transport plans in close collaboration TDSI and TD • Provide MoT a formal oversight role over local transport plans • Leverage the pilot MTEF (nationally and locally) to improve planning and resource allocation • Apply economic efficiency criteria in the appraisal of transport investment; and require adequate analysis of demand • Develop a framework for sustainable asset preservation for national and local roads; and start implementing the government-approved 10-year plan for national road maintenance • Enhance the capacity for multimodal transport and logistics services
o Develop a common understanding between the Ministries of Trade, Transport, and Planning and Investment on the definition and coverage of logistics services before implementing regulations of the Commerce Law are finalized o Develop a National Logistics Forum and an Inter-Ministerial Logistics Committee o Develop a Logistics Index
• Articulate time bound SOE reform and equitization plans; and continue implementation • Strengthen regulatory framework
o Clarify implementing regulations to ensure that the principles of competition and transparency govern the sector o Separate regulatory and operating functions for the port sector
• Institutionalize the use of the results framework • MoT to fully integrate spatial and economic development plans • Roll out the implementation of MTEF in all provinces • Implement the framework for asset preservation, starting with national roads and then moving to local roads • Complete the SoE reforms and equitization plans • Continue to modernize the regulatory framework.
Achieve sustainable financing for the sector
• Tighten expenditure controls o Make the availability of financing a requirement for approving projects o SOCBs to apply commercial criteria for lending to SOEs
• Develop a sustainable financing structure including a:
o Framework for private sector participation and risk management o Framework for use of national government bonds o Framework for use of municipal finance starting with large cities
• Implement 3-5 projects involving private sector participation and build on the experience to further develop the private participation framework • Expand framework to medium level cities and regions
Table 14: The Way Forward
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Facilitate growth for future urbanization
• Strengthen planning and regulation o Establish metropolitan and regional institutions clearly defining roles and responsibilities o Develop efficient, high capacity, public transport systems o Continue the reform in public bus transport
• Identify the sources for financing public transport deficits in the short run; and develop a sustainable paradigm for financing in the long run • Adapt international traffic management practices
• Develop the capacity of these institutions to effectively manage urban growth • Continue the land reform process • Implement the paradigm for financing public transport • Create a culture of traffic management based on pilots and develop new practices
Mitigate negative impacts of transport
• Speed up the implementation of Phase 1 of the approved transport safety plan • Develop a policy for managing congestion; and start implementation using pilot projects in major cities • Develop a better understanding of transport’s contribution to pollution; and develop pollution control strategies
• Continue the phased implementation of the safety plan • Extend the implementation to other regions and use a broader range of market-based instruments to manage private vehicle ownership and use • Implement, and refine, the existing pollution control strategies
Develop institutional and human resource capacity
• Develop a long term comprehensive capacity development framework; and start a phased implementing of the framework • Strengthen implementation capacity
o Consider alternative project management structures and design sound incentive systems clearly defining the responsibilities of PMUs, contractors and supervision consultants; and prepare a transition plan o Simplify the project approval process o Harmonize resettlement policies
• Speed up the implementation of measures to strengthen governance • Empower VRA, prepare a phased plan for capacity development and start implementation • Strengthen enforcement and compliance
o Develop and implement a system for vehicle inspection starting with cities with severe problems o Identify and asses new approaches to manage vehicle overloading; and experiment with pilot programs
• Start a phased program for developing capacity at the local level by providing training and developing simple information databases of existing assets in a few provinces.
• Continue the phased implementation of the long term capacity development framework • Implement the desired project management system • Continue the implementation of VRA’s capacity development plan • Expand the vehicle inspection program to other parts of the country • Ensure effective control of axle roads • Implement programs for controlling vehicle overloading • Extend the local level capacity development program to other provinces
Sector Objectives
The government's objective for the sector is todevelop a modern transport system thatprovides high quality services and efficient andaffordable transport and ensures transportsafety and sound environmental practices.29
Key Strategy and Policy Considerations
Prime Ministerial Decision (PMD) No.206/2004/QD-Ttg dated December 10, 2004outlines the Transport Sector DevelopmentStrategy (TSDS) to 2020. TSDS has beendeveloped to support Vietnam's variouseconomic development plans, notably, the tenyear (2001-2010) Socio Economic DevelopmentStrategy (SEDS) and the ComprehensivePoverty Reduction and Growth Strategy(CPRGS). In addition to generalrecommendations on developing transportinfrastructure and services, SEDS specificallymentions the upgrading of Highway No. 1, theconstruction of the Ho Chi Minh Highway andthe development of roads leading to the bordersof neighboring countries in the Greater MekongSub-region as priorities. SEDS stronglyendorses the development of public transportservices and long term transport planning inlarge cities and cites the rising rate of trafficaccidents as a concern.
Vietnam has found success in its trade-led
growth agenda and its medium and long termsocio economic development plans continue tosupport this strategy devoting particularattention to the three economic focal zones in thenorth, center and south. These zones,particularly, the northern and southern focalones are perceived as economic engines ofgrowth that can pull surrounding regions out ofpoverty and help propel the entire countryforward. Socio economic development plans arealso developed for Vietnam's eight regions:northeast, northwest, Red River delta, north-central, central-coast, central highlands, southeast and the Mekong delta.
Naturally, the emphasis and priorities varyamong the regions depending on the maineconomic activities in the region and thecomparative advantage of each transport mode.For the northern, Red River delta andsoutheastern regions, the socioeconomicstrategies emphasize the up-gradation ofseaports, airports and main national highwaysand corridors leading to the ports and borders aswell as transport corridors linking Ha Noi to itsneighboring provinces and feeder routesconnecting to these corridors. For the threecentral regions, the priorities are deep sea portsand road connectivity to the central highlands aswell as to Lao PDR and Cambodia. For theMekong delta, the emphasis is on upgradingand completing the road and inland waterwaynetworks. National roads connecting provincialtowns, inter-district and rural networks, river
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Annex 1
Policy and Institutional Framework
29. Adapted from “Vietnam’s Transport Development Orientation for the Next Decades” on MOT’s website:http://www.mt.gov.vn.
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ports and the upgrading of bamboo bridges areamong the plans' key priorities.
TSDS articulates policies, sets priorities anddefines some targets for transport infrastructure,services, and industry. Some of the strategy andpolicy statements are general while others aresub sector specific. The latter are presented inthe discussion of the respective sub sectorsbelow. The main elements of the strategy are:● A balanced approach to transport
development taking into account thecountry's geographical shape.
● Prioritization of maintenance andupgradation of existing assets.
● Prioritization of rural transportinfrastructure especially in mountainous andremote regions.
● Prioritization in new investment to thenorth-south backbone, important economiczones, large urban areas and key links toneighboring countries.
● Prioritization in the urban sector to masstransit.
● Increasing the local content in ship andautomobile construction and repair.
● Increasing the share of domestic enterprisesin the international transportation ofVietnamese goods.TSDS lists several policies that are to govern
the implementation of the developmentstrategy. These include:● Targeting domestic and foreign sources of
finance, both private and public, andcharging users for the construction andmaintenance of infrastructure wheneverpossible.
● Encouraging private sector participation byspeeding up the equitization of state-ownedenterprises and separating state
management from operations and business.● Ensuring transport safety and
environmental protection in all transportrelated business.
● Utilizing new technologies and processes inconstruction and operations.
Governing Sectoral Policies andPlans; and Laws and Regulations
Road Infrastructure and Transport Services
The road sector is the only transport sectorwhose policy has been articulated in a PrimeMinisterial Decision (PMD). PMD 162/2002 setsout the government's policy for the national,provincial, urban and rural roads.30 While theDecision contains some general statements onthe aim to enhance maintenance capacity, thefocus of this policy document is on newinfrastructure needs, particularly for nationalroads. The Decision presents the Government'splan to cap ownership of motorcycles inVietnam to 13 million in 2005 and to restrictannual growth using economic and technicalmeasures to less than 10% beyond 2005. Littleattention is given to road safety in the document.
The Decision states that all national roadswill be sealed by 2005. It identifies the nationalroads that will be upgraded or constructedwithin each of Vietnam's three main economiczones and the north-south backbone. It also listsover 1,400 kms of 4/6 lane expressways to bebuilt by 2010.
The Decision sets the standards to whichcertain classes of provincial roads will be raisedand states that 60% of provincial roads will besealed by 2005 and 100% by 2010. Decision162/2002 has also set the targets of 60% all
30. Prime Minister Decision No. 162/2002/QD-TTg “Approving the Planning and Development of Vietnam’sland-road communications and transport sector till 2010 and Orientations till 2020”, November 2002.
weather rural roads by 2005 to increase to 90%by 2010. Eighty percent of all rural roads willhave a hard surface by 2005, of which 30% willbe concretized.
The policy statement contains relatively littleabout sources of finance. It foresees the use oftolls and an additional fuel tax and identifies anumber of steps to attract further ODA and FDI.The Decision states the intention to consider theformation of a Road Maintenance Fund. Thishas been a strong objective of MoT, but anattempt to include provision for such a fund inthe Road Law was rejected by the Ministry ofFinance as it appeared broadly defined in scopeas a Transport Sector Fund.
The major law governing the road sector islaw No. 26/2001/QH10 which was passed bythe Xth National Assembly of the SocialistRepublic of Vietnam, at its 9th session in 2001.Although known as the Law on Road Traffic, thescope of the law is broad as it covers bothinfrastructure provision and road use. The Lawon Road Traffic establishes traffic and roadsafety rules, defines six classes of roads (nationalhighways, provincial roads, district roads,commune roads, thoroughfares, and special-useroads) and the responsibilities for their financingand administration.
Government Decree No.186/2004/ND-CPwas passed in 2004 to define issues that wereonly broadly addressed in the law. Amongothers, the Decree established technicalstandards for the definition of the different roadclasses, identified some principles forinfrastructure planning and project approvaland defined regulations to govern BOT schemesfor roads, land acquisition and environmentalassessment.
Urban Transport
Developing policy for urban transport is theresponsibility of the cities although the central
government retains great influence through itsrole as the approving authority for major plansand major investments. Both HCMC and HaNoi are forecast to triple their officialpopulations in the 2000-2020 periods. Urbantransport policies are devised to support citiesaccommodate the significant increases inpopulation. PMD 162/2002 sets some targets forurban roads for Ha Noi, Ho Chi Minh City andmedium size cities for the short, medium andlong term. For Vietnam's two largest cities, thestrategic foci are to promote and develop publictransport, and to develop road infrastructure toalleviate congestion, and as appropriate open upnew areas for urbanization.
Following with the SEDS, in the past fewyears both Ha Noi and HCMC have madeconcerted efforts to promote public transport asa key element of their urban transport strategies.In 1998, the Prime Minister issued DecisionNo.108/1998/Qd-TTG on the general planningof Ha Noi up to 2020. The plan foresees thedevelopment at the periphery of the city, mostlyto the west of Ha Noi. It sets targets for the useof space by transport projects at 25% of urbanland and 25 square meters per person. The planalso sets the goals of a 30% mode share forpublic transport in 2010 and a 50% share for2020. It provides guidelines for bus planning(scheduling, planning of terminals, spacing ofstations, etc) and gives priority to theconstruction of an urban railway system. Overthe course of a series of decisions (No. 34/2003NQ/HD, and No. 72/2004/QD-UB followingNo. 71/2004/QD-TTg of the Prime Minister), HaNoi PC established priorities to promote publictransport and to reform the public bus sector.The City is also planning a mass transit systemthat includes BRT corridors and various railsystems (including a light-rail system andsuburban rail lines).
HCMC PC's plans are likewise articulated byDecisions No. 02/2001/CT-UB, No.
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45/2002/QD-UB and 2002 Official letters No.89/UB-DT and No. 1637/UB-DT which lay out apilot 'model bus scheme' to encourage bus use.The city's master plan focuses on bus systemdevelopment through 2010 and significantinvestments in urban rail by 2020 and has set thegoal of raising the public transport mode shareto 20% by 2010, a 6-fold increase over 2005ridership levels. Both Ha Noi and HCMC arealso taking a series of complementary steps tolimit the ownership and use of motorcycles.
Maritime and Shipping
A number of documents articulate thegovernment's policy on port development. Themost important are the policy on maritimetransport development (2003 Decision No.1195/2003/QD-TTg), the seaports networkdevelopment master plan to 2010 (1999 PrimeMinisterial Decision No. 202/1999/QD-TTg)and a document issued by the Vietnam NationalMaritime Bureau (Vinamarine).31 The strategyis to rehabilitate existing key facilities, focus onthe construction of deepwater ports at the focaleconomic zones to serve vessels over 30,000DWT while also developing small scale satelliteports to serve the local economy. Two of thegovernment's key projects are Van Phong, atransshipment port in Khanh Hoa in centralVietnam and Cai Mep, a deep sea port in VungTau to serve southern Vietnam. Therehabilitation and construction of a total of 114ports in 8 port complexes is planned by 2010. Asa matter of government policy, the constructionof new ports or berths that would compete withexisting national ports is prohibited.
In addition to port development, theGovernment plans to develop its fleet ofcontainer vessels and tankers, and ship
building facilities. Vinamarine has set a targetof a 30%-40% Vietnamese share of theinternational maritime shipping of Vietnamesegoods by 2010.
Until the end of 2005, maritime operationswill be governed by the 1990 Maritime Code ofVietnam. It was revised and approved by theNational Assembly in May 2005 and comes intoeffect in January 2006. Ninety percent of thearticles in the 1990 Code have been revised.The implementation of the Maritime Code issupported by several legal documents. Amongthe key documents are Government DecreesNo. 10/2001/ND-CP of 2001 addressingmaritime service provision, No. 40/1998/ND-CP on the conditions for granting shippingbusiness permits, No 160/2003/ND-CP onopening and closing of seaports, maritimesafety, and procedures for investment andconstruction of seaports. The Code regulatesthe sea-going ships' registration andownership, seaports and port authority, cargoand related matters.
Inland Waterways
Prime Ministerial Decision No.16/2000/QD-TTg ratifies the master plan for thedevelopment of Vietnam's inland waterwaysystem though 2020. The plan lists landingstages and ports that will be upgraded andequipped with modern loading equipment(targeting at least one port/landing stage perprovince, mostly in the South) and identifiesseveral waterway channels for improvementand upgrading. The government's objectiveslisted in the plan also include the modernizationof inland waterway navigation to meetinternational standards and the building ofinland waterway vessels. The Decision requires
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31. “The Development of Vietnam’s Sea Port System till the year 2010” Document is on the MoT’s website:http://www.mt.gov.vn.
MoT to submit to the Prime Minister proposalson possible sources of finance and policies formobilizing capital.
The sector is governed by the recently passedLaw No. 23/2004/QH 11 on Inland WaterwayNavigation. The law addresses both the use anddevelopment of the waterways. Issues coveredunder use include conditions to ensure safety forpeople, infrastructure and vessels. The lawprovides guidelines for the planning,management, construction and maintenance ofinfrastructure. The implementing regulationshave not been finalized yet.
Railways
Prime Ministerial Decision 34/2003/QÐ-TTgissued in March 2003 established the state-owned Vietnamese Railway Corporation (VRC)to operate the railways. Decree 34/2003/ND-CP issued in April 2003 placed the policy andregulatory functions within the VietnamRailway Administration (VNRA), a modaladministration under MoT. VNRA isresponsible for the development of the railsector and also oversees the performance ofVNC. A new law (NA No.35/2005/QH11) waspassed by parliament in June 2005. The lawprovides a framework for separatinginfrastructure and operations, and for thepossible operation of trains by third parties. Theimplementing regulations have not beenfinalized yet.
Civil Aviation
PMD No. 206/2004/QD-Ttg outlines theupgrading and expansion of existinginternational and domestic airports, and the
building of new ones as objectives for the subsector. Specific airports throughout the countryare mentioned in the Decision. The constructionof Long Thanh International airport in Dong Naiprovince to replace Tan Son Nhat airport in HoChi Minh City at the estimated cost of US $3billion for the first phase (2006-2010) is thelargest airport project currently underconsideration.
The Law on Civil Aviation passed inDecember 1991 and amended in June 1995together with a number of other decisions anddecrees govern the aviation sector in Vietnam.They regulate (i) aircraft registration andownership; (ii) use and management of airportsand landing areas; (iii) aircrew; (iv) navigationalissues; and (v) other activities and functions suchas cargo movements, fare setting, and liability.The amended law clarifies the role of statemanagement in civil aviation including airportsand landing areas. Under this amendment, theairport authority, which used to be the AirportDepartment under the Ministry of Transport,Communication and Post, was recast as aSpecialized Agency for State Management ofCivil Aviation (also known as the Civil AviationAdministration of Vietnam-CAAV) reportingdirectly to the Council of Ministers.
Multi Modal Transport
MoT stresses the goal of organizing "optimumtransport conditions on the entire network byproperly distributing modes of transport andusing advanced technologies, especially multi-modal transport technology in cargohandling".32 Government Decree No.125/2003/ND-CP of October 2003 stipulates thescope and regulations for international multi-
73
32. “Vietnam’s Transport Development Orientation for the Next Decades” on MOT’s website:http://www.mt.gov.vn
74
modal activities carried out by national andforeign entities. Certain articles of theCommerce Law also define rules forcommercial activities relating to logisticsservices; and a number of decisions definecustoms procedures relating to the movementof goods by international multi modaltransporters, as well as to vessel movement.
Table A1 provides the main legal andregulatory provisions governing the transportsector in Vietnam.
Planning and Programming
The Ministry of Transport (MoT) has the
responsibility for planning, managing andmaintaining national transport infrastructure,and for assisting local governments in projectselection. MoT prepares long term transportstrategies, 5 year plans for inclusion in the PublicInvestment Program and one year plans forinclusion in the annual State Budget. Whiletransport strategies generally transcend localgovernment boundaries, the 5-year and annualplans prepared by MoT are limited to nationalinfrastructure. Figure A1 present's keygovernment institutions related to the transportsector and Table A2 presents the key playersinvolved in the transport sector and the rolesthey play.
75
Table A1: Main Legal and Regulatory Provisions Governing the Transport Sector
Sector Legal Provision Purpose
Transport Sector Development Strategy To 2020 (PMD No.206/2004/QD-Ttg)
Articulates Vietnam’s transport policies, set priorities and defines some targets for transport infrastructure, services and industries.
Transport Responsibilities of Ministry of Communication and Transport (Gov. Decree No.34/2003/ND-CP)
Specifies functions, responsibilities, and organization of Ministry of Communication and Transport.
Road Transport Plans To 2010 and Orientation to 2020 (PMD No.162/2002/QD.TTg)
Sets out government policy for national, provincial, urban and rural roads.
Road and Traffic Law (NA Order No. 26/2001/QH10)
Establishes traffic and road safety rules, defines six classes of roads and the responsibilities for their financing and administration.
Management of Road Infrastructure (Gov. Decree No.186/2004/ND-CP)
Establishes technical standards for the definition of the different road classes; and defines procedures for infrastructure planning and project approval.
Establishment of Vietnam Investment and Expressway Development Corporation (VEC) (MoT Decision No. 3033/QD-BGTVT, October 2004)
Specifies the broad responsibilities for VEC. Organizational and operational charter of the company to be established by the Board of Directors.
Roads
Vehicle inspection -nationwide (Ministry of Transport Decision No. 4134/2001/QD-BGTVT)
Defines rules and procedures for 4-wheel motor vehicles to undergo regular vehicle inspection for technical safety and environment protection
Inland Waterway Development Master Plan to 2020 (Prime Minister Decision No.16/2000/QD-TTg)
Lists landing stages, ports and waterways to be upgraded; outlines targets for the development of a fleet of inland waterway vessels. Inland
waterways Law on Inland Waterw ay Navigation (NA Order No. 23/2004/QH11)
Regulates inland waterway activities, infrastructure, vessels, and safety.
Establishment of Vietnam Railway Corporation -VRC (PMD No.34/2003/QÐ-TTg)
Establishes the corporation as the operator of rail services.
Establishment of Vietnam Railway Administration -VNRA (Decree No. 34/2003/ND-CP)
Places policy, development and regulatory functions in VNRA.
Railways
Railway Law (NA Order No. 35/2005/QH11)
Regulates railway activities, including investment, construction, and management of infrastructure, management of vehicles and participants on train operations, railway traffic, safety.
Urban Transport Hanoi
General Planning for Hanoi to 2020 (PMD No. 108/1998/QD-TTG)
Provides guidelines and targets for public transport development and operations; and for land use by transport infrastructure.
76
Table A1: Main Legal and Regulatory Provisions Governing the Transport Sector (continue)
Bus regulation in Hanoi (Decisions No. 34/2003/NQ-UB, and No. 72/2004/QD-UB following PMD No. 71/2004/QD-TTg)
Promotes public transport. Sets provisions allowing private sector participation in the provision of public bus services; sets the principles for developing a bus transport master plan and the role of the state in managing public transport.
HOUTRANS (official status not yet clear)
Master plan that lays out investment strategy including a focus on bus development until 2010.
Public Transport in HCMC (Decisions No. 02/2001/CT-UB, No. 45/2002/QD-UB and Official letters No. 89/UB-DT and No. 1637/UB-DT)
Plan to promote public transport. Describes ‘Model Bus’ scheme on pilot routes with increased frequencies new (government subsidized) buses and associated improvements in infrastructure.
Ho Chi Minh City
Urban traffic congestion prevention program in HCMC Decision No. 72/2005/QD-TTG
5 point program on urban traffic congestion prevention. Includes technical measures, education and enforcement, traffic management, construction of new infrastructure projects; and enhancing public transport while restraining private vehicle ownership and use.
Policy on Maritime Transportation Development (PMD No. 195/2003/QD-TTg)
Sets goals for the country’s maritime transport development plan through 2010 with orientation towards 2020.
Seaports Network Development Master Plan to 2010 (PMD No. 202/1999/QD-Ttg)
Specifies the improvement and upgrading of existing seaports in eight port groups; and the development of related infrastructure and navigation services.
Maritime Code (National Assembly Order in 1990; revised in May 2005)
Regulates sea-going ships’ registration and ownership, seaports and port authority, cargo and related matters.
Maritime Business Conditions (OG Decrees No. 10/2001/ND-CP)
Regulates maritime business activities and conditions.
Private Shipping Enterprises (OG Decree No.40/1998/ND-CP)
Regulates licensing conditions and procedures for private shipping enterprises.
Maritime and Shipping
Management of Maritime Activities (Decree No. 160/2003/ND-CP)
Regulates opening and closing of seaports, and maritime safety; sets procedures for investment and construction of seaports
Civil Aviation Law on Civil Aviation (NA Order in 1991; amended in 95)
Provides for the technical and economic regulation of airports, aircraft and navigation.
International Multimodal Transportation (Gov Decree No. 125/2003/ND-CP and Circular No 10/2004/TT-BGTVT)
Stipulate scope and regulations for international multimodal activities.
Law on Commerce (NA order No. 10/2005/XX)
Defines rules relating to logistics services
Custom Procedures on Goods (Decision No. 125/2004/QD-BTC)
Defines the procedures on goods carried by international multi-modal transport
Custom Procedures on seagoing vessels (Decision No. 57/2003/QD-BTC)
Defines the procedures on seagoing vessels entering, departing and transiting Vietnam
Multi modal transport
Electronic Data Interchange (EDI) (Decision No. 149/2005/QD-BTC
Standardizes custom procedures for use with EDI (using pilot projects in Ho Chi Minh City and Hai Phong)
77
Table A2: Policy, Regulatory and Oversight Responsibilities
Sector Ministry/Administration Responsibility
Ministry of Transport (MoT)
Through its different modal administrations and departments, its mandate is: • Planning, managing and maintaining national infrastructure
through its different departments and administrations. • Assisting local governments in developing transport plans and
selecting transport projects • Managing public bus transport plans by approving cities
master plans Transport Development Strategy Institute (TDSI) -under MoT
• Develops long and medium term transport sector strategies and plans (in collaboration with modal administrations)
Transport
Department of Planning and Investment (DPI) -under MoT
• Integrates investment plans prepared by modal administrations for submission to MPI for inclusion in the PIP and to MOF for inclusion in the State Budget.
Vietnam Expressway Corporation (VEC) -under MoT
Mandated by MoT • develop, finance, manage and maintain expressways • collect toll revenues • invest in off road construction and services (such as rest
areas) Vietnam Road Administration (VRA) —under MoT VRA operates through 4 Regional Road Management Units (RRMUs )
• Plans and manages the development of the national road network.
• Maintains the national road network National roads
Designated Provincial Departme nts of Transport (PDoTs).
• Mandated by MoT/VRA to manage half of the national road network
VRA • Performs a central planning and advisory role for the local road network.
Provincial Departments of Transport (PDOTs),
• Develop provincial, district and commune transport strategies • Plan and manage the construction of provincial road
networks. • Maintain provincial road networks. • Support district and commune governments in planning the
maintenance of their networks Provincial People’s Committees (PPC)
• Approve provincial transport strategies and plans.
Local roads: (Provincial, District and Commune)
District Departments of Transport (DDoTs), and Communes Peoples’ Committees (CPC )
• Approve district and commune transport plans.
78
Table A2: Policy, Regulatory and Oversight Responsibilities (Continue)
Peoples Committees • Approve key issues such as fares, opening and closing of routes, schedules and subsidies.
Transport and Urban Public Works Services (TUPWS )
• Develops cities’ transport strategies • Plans and manages construction. • Maintains urban transport infrastructure • Manages bus transport • Coordinates planning and implementation of traffic
management with Police Traffic Police under the Public Security Department
• Enforces traffic management including the operation of traffic signals in coordination with TUPWS
Urban Transport: Hanoi HCMC
Mass Transit Planning Agencies (Hanoi Agency for Transport Planning, HCMC Rail Planning Board)
• Plans (and finds ways to implement) rail-based mass transit plans.
Vietnam Railways Administration (VNRA) —unde r MoT
• Plans and manages the development of the sub sector • Regulates the sub-sector
Railways
Vietnam Railway Corporation (VRC)
• Sole provider of rail services • Manages enterprises that carry out construction and
maintenance activities, and other commercial activities unrelated to rail
Vietnam Inland Waterways Administration (VIWA) —under MoT
• Plans and manages 75% of the network, navigational aides and port facilities
Inland Waterways
PDOTs and Provincial Departments of Agriculture (PDAs)
• Plans and manages the remainder of the network and port facilities
Vietnam Maritime Administration (VINAMARINE) under MoT
• Plans the sub sector • Develops and maintains channels and buoys • Manages pilotage and port administration • Regulates port operations • Operates a number of small ports • Plans for developing the shipping industry • Issues registry certificates for sea going vessels over 100
DWT.
Maritime and Ports
Vietnam National Shipping Lines (Vinalines) —under PM’s office
• Operates the majority of Vietnam’s ports • Operates seven shipping companies accounting for the
majority of the national fleet Vietnam Land Administration
(VLA) • Approves Category B and C projects (less than VND 400
billion) before MoT submission to MPI if land falls under its management.
Ministry of Natural Reso urces and the Environment (MNRE)
• Reviews and approves Environmental Impact Assessments of national transportation projects.
Ministry of Planning (MPI) • Approves Category B and C projects (less than VND 400 billion) for inclusion in PIP and State Budget.
79
Table A2: Policy, Regulatory and Oversight Responsibilities (Continue)
Ministry of Finance (MoF) • Implicitly approves maintenance budgets of MoT’s modal administration (except for VRC) before inclusion in the State Budget.
Prime Minister’s Office • Approves Category A projects (more than VND 400 billion) • Administrative authority over VAC, Vinalines, VRC, Vinashin.
National Assembly
• Approves projects of national importance such as national security and defense projects.
• Implicitly approves all national transport investments included in the annual State Budget.
80
Capital Planning
National Government Investments -investments financed and administered by NG
The Transport Development Strategy Institute(TDSI) within MoT develops the long termtransport sector strategies to support thecountry's socio economic development strategiesand plans. In addition, modal administrationsunder MoT develop their respective strategiesand plans. More specifically, the Vietnam RoadAdministration (VRA), the Vietnam InlandWaterway Administration (VIWA), theVietnam Railway Administration (VNRA), theVietnam National Maritime Bureau(VINAMARINE) and the Civil AviationAdministration of Vietnam (CAAV) formulateinvestment plans for roads, inland waterways,seaports and airports respectively and submitthem to the Department of Planning andInvestment (DPI) within MoT. These planstypically identify investments and total costs forthe next 5-10 years and are prepared to meet thedevelopment goals without much attention tobudget constraints. Provincial and citygovernments participate in the identification anddefinition of national projects in their provinces.
The long term transport strategies and plansare used as a basis for preparing 5 yearinvestment programs that also include annualprojected expenditures and potential sources offinancing. These plans are submitted to DPI forinclusion in the PIP. It is not clear however,whether the selection process is based on socio-economic efficiency criteria or not. DPI thencollates the different investment lists with theexpected sources of financing and MoT submitsa comprehensive list to the Ministry ofPlanning and Investment (MPI).
Similar to the investments listed in long termtransport strategies, investments proposed for
the PIP do not appear to be constrained byresource availability. In the PIP, MPI identifiesthe readily available sources of financing, andproposes other sources to fill the gap. The PIP asa whole does not require approval from theNational Assembly but projects in the Programrequire government approval. Projects ofnational importance such as national securityand defense projects are approved by theNational Assembly; those costing over VND 400billion are approved by the Prime Minister; andthose costing less than VND 400 billion areapproved by MPI. Road projects costing lessthan VND 400 billion also have to be approvedby the Vietnam Land Administration (VLA)before submission by MoT to MPI if the roadsfall under VLA's management. Feasibilitystudies are typically the basis for granting theseapprovals. The Ministry of Natural Resourcesand the Environment (MNRE) reviews andapproves environmental impact assessments fortransport projects.
The annual investment program prepared byMoT and submitted to MPI to secure the annualbudgetary appropriation does not alwaysinclude the projects that were listed in the PIP.Some projects are added while others areremoved. Typically, projects listed in the PIPrequire a larger budget than is allocated to MoTin the annual State Budget. It is not clear,however, how the subset of projects that isproposed by MoT and ultimately selected byMPI and MoF for inclusion in the State Budget isdetermined.
Local Government Investments -Investments by provincial, district andcommune governments
Planning at the local government level issubject to the dual subordination principle asexplained in Chapter 1, Section III. Theeffectiveness of this subordination varies in the
81
82
higher and lower level local governments. Theprovincial departments of transport (PDoTs)develop transport strategies, long-term plans,5-year plans and annual plans for provinces,districts, and communes and submit them forapproval to the Provincial Peoples'Committees (PPCs). The situation is similarfor large cities where the Transport and UrbanPublic Works Services (TUPWS) play thesame role of PDoTs. In preparing thesestrategies and plans for transport projects, theprovincial and city authorities must consultMoT and obtain their recommendations, butdo not have to follow them. In the case ofcertain urban projects, recommendations mustalso be sought from the Ministry ofConstruction as well.
District and commune governments aresubject to more binding dual subordination.Their transport plans have to be approved bytheir respective Peoples' Committees (PCs) aswell as by the PDoTs. PPCs, in turn, incorporateplans from their specialized departments into ageneral plan that is submitted to MPI. Provincesand cities receive block grants from the StateBudget as approved by the National Assemblyand have considerable flexibility in how theyallocate it.
Maintenance
At the National Level
Modal administrations either attached to MoTor the Prime Minister's office prepare themaintenance plans for national infrastructure.Some of the income generating administrationssuch as CAAV and Vinalines use their own
resources for infrastructure maintenance; whileothers submit their plans through MoT to MoFfor budgetary allocations. Plans are revisedbased on actual allocations from MoF.
VRA is responsible for the maintenance ofthe national road networks. It preparesmaintenance plans for half the network usingits Regional Road Management Units(RRMUs) and delegates the preparation of theother half to designated PDoTs. In 2004, VRAprepared a 10-year strategic plan for themaintenance of the national road networkusing HDM-4 models. Although the strategicplan was approved by the Prime Minister, it isstill not being used as a basis for thepreparation of annual maintenance plans.
VRC, the railways operating SOE, under theoversight of the Prime Minister's office, submitsits infrastructure maintenance plans directly toMoF and sends MoT a copy for informationalpurposes. Maintenance of rolling stock isfinanced directly from VRC's own revenues.
At the Local Level
PDoTs and Traffic Inspection andManagement Departments under TUPWS incities prepare their annual maintenance plansbased on network length and condition and therequests received from districts and communesand submit them to the PCs for approval. PCsincorporate the plans (including those ofdistricts and communes) in the provincialrecurrent budget and submit it to MoF. Eachprovince receives an aggregate recurrent budgeteach year from MoF and allocates it among thedifferent uses and to districts and communes atits own discretion.
Increasing Demand for Transport34
The demand for transport grew slightly fasterthan GDP between 1999 and 2005. Annualgrowth in freight and passenger demandmeasured in ton/passenger km was 10% overthis period (see Table 1). Road remains a
dominant mode, accounting for 65% of tonsmoved but coastal shipping accounts for 76% ofall ton-km due to its dominance in long-distancemovements. Reflecting Vietnam's large growthin trade, the annual throughput of sea portsdoubled from 56 million tons in 1998 to 114million tons in 2003. Cargo through southern
83
Annex 2
Sector Structure and Ownership33
33. This section provides a summary of the sector structure. For more details see Annex 2.34. This section is adapted from “Vietnam, Managing Public Expenditure for Poverty Reduction and Growth,
Public Expenditure Review and Integrated Fiduciary Assessment”, Volume II Sectoral Issues, Page 29.
Table 1: Domestic Transportation Volume 1999-2005
Goods Transport 1000
ttons % Mil
tton-kkm % 1000 ttons %
Mil tton-kkm % 1000 tons %
Mil tton-kkm %
Increase iin ton -kkm
(%) Railways 5,033 3.6 1,397 3.1 8,133 4.2 2,664 4.2 8,838 2.7 2,948 3.6 13 Roads 83,354 60 5,701 13 116,759 61 7,684 12 211,556 65 11,262 13.9 12 Waterways 35,826 26 3,589 8 46,056 24 4,590 7.3 69,933 22 4,785 5.9 5 Coastal ways
15,910 11 34,240 76 21,042 11 47,616 76 33,798 10 61,872 76.3 10
Aviation 42 0 102 0.2 90 0 257 0.4 104 0 229 0.3 14 Total 140,166 100 45,028 100 192,080 100 62,810 100 324,229 100 81,096 100 10
Passenger Transport
1000 ppass. %
Mil ppass -kkm %
1000 ppass. %
Mil ppass -kkm %
1000 ppass. %
Mil ppass -kkm %
Annual IIncrease in pass --km (%)
Railways 9,252 1.4 2,721 9.3 11,564 1.4 4,069 10 12,778 1.0 4,582 8.6 9 Road 554,523 84 19,671 67 727,286 85 25,827 65 1,076,467 85 34,436 64.6 10 Waterways 89,745 14 2,702 9.2 110,255 13 2,781 7 169,336 13 3,420 6.4 4 Coastal ways
800 0.1 84 0.3 870 0.1 70 0.2 2,523 0.2 189 0.4 14
Aviation 2,731 0.4 4,116 14 4,503 0.5 7,021 18 6,339 0.5 10,670 20.0 17 Total 657,050 100 29,293 100 854,477 100 39,767 100 1,267,443 100 53,297 100 10 Source: Vietnam, Managing Public Expenditure for Poverty Reduction and Growth, Public Expenditure Review and Integrated Fiduciary Assessment”, Volume II Sectoral Issues.General Statistic Office
84
68
ports in 2000 exceeded the forecast made twoyears earlier in the National TransportDevelopment Strategy (VITRANSS) by 50%.
Rail plays a less significant role, although interms of ton-km its share increased from 3% to4%, taking market share from both roads andwaterways, and registering the second highestgrowth rate between 1999 and 2003. Inlandwaterways have seen their market share fallover the period, partly because of improved
alternatives but also because of lack ofinvestment in that sub sector. Although startingfrom a low market share, air transport has alsoseen its share for both passengers and goodsincrease significantly between 1999 and 2005.Cargo moved by air seems to be travelingrelatively shorter distances as ton-km droppedslightly between 2003 and 2005 despite anincrease in total tonnage during that period.
85
Tabl
e A4
: N
etw
ork
Size
and
Ow
ners
hip
Stru
ctur
e fo
r In
fras
truc
ture
and
Ser
vice
Pro
vide
rs
Cons
tructi
on
Secto
r Sc
ale
Man
agem
ent
Impl
emen
tatio
n
Mai
nten
ance
O
pera
tions
Road
s N
atio
nal
17,3
00 k
m
MoT
’s PM
Us
SOEs
und
er M
oT’s
Cie
ncos
, pro
vincia
l SO
Es, p
rivat
e se
ctor
com
pani
es.
Road
Man
agem
ent a
nd
Mai
nten
ance
Com
pani
es
(RM
MC
s) un
der V
RA’s
4 RR
MUs
P
rovin
cial
Dist
rict
Com
mun
e TT
otal
17,4
49 k
m
36,3
72 k
m
131,
455
km
Prov
incia
l PM
Us;
MoT
’s PM
Us fo
r O
DA su
ppor
ted
proj
ects.
Prov
incia
l/Dist
rict S
OEs
an
d pr
ivate
secto
r co
nstru
ction
com
pani
es
Prov
incia
l/Dist
rict S
OEs
and
pr
ivate
secto
r con
struc
tion
com
pani
es.
Com
mun
e la
bor u
sed
for
mai
nten
ance
of c
omm
une
road
s
Truc
king
serv
ices p
rovid
ed b
y SO
Es a
nd p
rivat
e se
ctor c
ompa
nies
.
Urba
n TTr
ansp
ort
Hano
i: 69
1 bu
ses,
capa
city:
40,5
00 (2
004)
PMUs
und
er T
UPW
S an
d cit
ies.
SOEs
atta
ched
to M
oT, T
UPW
S an
d cit
ies.
Bus s
ervic
es a
re p
rovid
ed b
y TRA
NSE
RCO
, a
state
own
ed o
pera
tor u
nder
Han
oi’s
Peop
le’s
Com
mitt
ee, a
nd b
y priv
ate
oper
ator
s in
HCM
C
(the
larg
est t
wo o
pera
tors
are
Saig
on B
us, a
n SO
E an
d Sa
igon
Sta
r, a
join
t ven
ture
). H
PC is
ab
out t
o in
trodu
ce p
rovid
e op
erat
ors.
Railw
ays
2,63
2 km
30
0 lo
cos
Railw
ay P
MU
impl
emen
ts in
vestm
ent p
roje
cts
SOEs
und
er V
RC.
Railw
ay c
ompa
nies
und
er
VRC
Vi
etna
m R
ailw
ays C
orpo
ratio
n (V
RC) o
pera
tes
two
pass
enge
r com
pani
es a
nd o
ne fr
eigh
t co
mpa
ny
Inla
nd
WWat
erwa
ys
8,00
0 km
un
der n
atio
nal
mgm
t; 1,
800
km
unde
r loc
al
mgm
t; 83
,000
boa
ts (3
.7 m
il dw
t)
MoT
’s PM
U-W
and
VI
WA’
s PM
U SO
Es a
ttach
ed to
MO
T an
d pr
ovin
cial g
over
nmen
ts
• VI
WA’
s rive
r sta
tions
an
d po
rt au
thor
ities
man
age
mai
nten
ance
. •
VIW
A’s s
ubsta
tions
ca
rry o
ut m
aint
enan
ce o
f N
avai
ds.
• SO
Es u
nder
take
dr
edgi
ng m
aint
enan
ce
work
s
• La
rge
barg
es a
re o
wned
and
ope
rate
d by
bo
th S
OEs
and
the
priva
te se
ctor.
• Sm
all c
ount
ry b
oats
are
priva
te se
ctor o
wned
an
d op
erat
ed.
• Th
e m
ajor
ity o
f por
ts an
d la
ndin
g sta
ges
oper
ated
by p
rovin
ces;
a fe
w ke
y rive
r por
ts op
erat
ed b
y VIW
A.
Ports
and
SSh
ippi
ng
80 p
orts
928
vess
els
(1.8
mil
dwt)
PMUs
impl
emen
t ne
w in
vestm
ent
proj
ects
SOEs
und
er th
e W
ater
way
Con
struc
tion
Cor
pora
tions
an
d th
e C
IEN
CO
s.
Ports
and
SO
Es u
nder
VI
NAL
INES
.. •
VIN
ALIN
ES o
pera
tes t
he m
ajor
por
ts (H
ai
Phon
g, D
anan
g, S
aigo
n, C
an T
ho).
• Sh
ippi
ng a
nd fr
eigh
t for
ward
ing
serv
ices
offe
red
by S
OEs
, priv
ate
com
pani
es a
nd jo
int
vent
ures
with
fore
ign
com
pani
es.
86
Transport Infrastructure and Services
Transport infrastructure in Vietnam continues tobe nearly exclusively provided, owned, financed,built and operated by the public sector, eitherdirectly through the government or by way ofquasi-independent SOEs. Whether theresponsibility for the infrastructure lies with thenational or local government typically dependson the level of government that financed andbuilt the infrastructure. Private investment in thesector has been very low accounting for less than2% of total capital expenditures on transportduring the last decade.35
Transport services include a mixture ofprivate and public operators depending on thesub sector. All rail services in the country arecurrently provided under public ownership.Most ports remain vertically integrated publicoperations in which the public sector owns andoperates infrastructure and terminals. Many ofthe larger trucking and barge enterprises are alsostate owned. However, for the trucking andbarging services there are also large and vibrantprivate sectors.
Table A4 presents a breakdown of transportassets by level of management, as well as theownership structure for infrastructure andservice providers.
The implementation of national transportationconstruction projects in all sub sectors is managedby Project Management Units (PMUs). MoT hasten PMUs; VRC and VRA have four PMUs each;and Vinamarine and VIWA have one each. Forlocal level projects, provincial PMUs-attached toprovincial governments oversee implementation.Ha Noi and Ho Chi Minh City have three PMUseach. The criteria for awarding projects todifferent PMUs are not clear.
Construction of national projects is typicallycarried out by SOEs attached to MoT andprovincial governments as well as private sectorcompanies. MoT has over 200 SOEs-most ofwhich are grouped in 12 corporations (includingthe 5 Civil Engineering ConstructionCorporations-CIENCOs). The corporations act asholding companies only in an administrativesense but do not own their member SOEs. Theprimary activity of over 100 of these SOEs isconstruction. While in principle SOEs areindependent business entities, in practice they aretypically assigned tasks by MoT. Local levelprojects are carried out by provincial and districtSOEs and private companies. All companieshave to compete for their assignments undergeneral bidding (or limited bidding) guidelines.It is believed that SOEs are awarded the majorityof the tasks and often sub contract to privatefirms.
Private sector companies compete withTransport Engineering Companies (TECs)under TUPWS to undertake transportconstruction works in large cities.
Small to medium maintenance jobs on nationalroads are awarded directly to Regional RoadMaintenance Companies (RRMCs) within VRA'sRRMUs. For large maintenance works, RRMCscompete against other SOEs. Local roads aremaintained by provincial and district SOEs as wellas private companies. Commune labor is used formaintenance of commune roads. TECs undertakemaintenance works in cities.
Roads
Table A5 shows the breakdown of the roadnetwork in Vietnam. Not uncommonly, localroads constitute the bulk of the road network
35. Contractual commitments between 1994 and 2003 totaled US $125 million (US $100 for ports, US $15 millionfor an airport and US $10 million for a toll road). Source: PPI database. These figures record investments promised atthe time of contracting.
87
accounting for over 90% of its total length.The number of 4-wheel vehicles grew slightly
faster than GDP increasing from 400,000 in 1997 to600,000 in 2002, or 7.5 vehicles per 1000population. Trucks make up 30% of the fleet, but80 % of them is small to medium size and only 10% are modern articulated trucks (see Table A6). In2004, about half of the truck fleet was over 10years old and 14% over 20 years old. Between2000 and 2003, motorcycles grew rapidly at over20 % per annum and totaled over 11 million in2003 or 140 per 1000 people. If motorcycles areincluded, this gives Vietnam a very high rate ofmotorization for its income level; a rate that ismore than double that of countries at moreadvanced stages of their economic developmentsuch as the Philippines.
VRA has eight freight units and one passengertransport unit providing transport services.These units are only responsible for about 5% oftotal movement. Primarily they operate routesproviding fixed rate, subsidized, services in themountainous, low income, regions. The privatesector supplies over 90% of total service and doesnot operate on fixed tariff schedules. There areover 1000 private companies involved in roadtransport, mostly of small and medium size, withless than 50 vehicles. Container transport by roadoperates without price controls.
VRA was established in 1993 as MoT'ssubordinate agency responsible foradministering the road transport system. TheVietnam Expressway Corporation (VEC) wasrecently established as a joint-stock company
Table A5: Road Length in km by Category and Pavement type
Category Paved Gravel Earth Total % Paved
National 14,441 600 2,254 17,295 83.5 Provincial 11,657 533 9,552 21,762 53.6 District 9,106 2,077 33,830 45,013 20.2
Urban 4,041 68 2,543 6,654 60.7 Commune 2,922 52,446 76,087 131,455 2.2 Total 42,167 55,744 124,268 222,179 19.0
Table A6: Vehicle Fleet
Cars and Utility 285,000 303,627 346,218 Truck 130,800 144,526 162,552 Articulated truck 12,500 13,317 15,185 Bus 65,000 69,250 78,962
675,000
Sub total 500,000 532,681 607,400 675,000 Motorcycles 6,478,000 8,395,835 10,273,000 11,379,000
Source: VRA 2004.
Source: Vietnam: Managing Public Expenditure for Poverty Reduction and Growth: Public Expenditure Review and IntegratedFiduciary Assessment 2005
under the management of MoT and has beenmandated to develop, invest in, operate andmaintain the expressway system in Vietnam. Themajor state holders include the State (VECreceives funds from the State budget) and otherSOEs such as Cienco 1, Cienco 5, Cienco8,Vietnam Insurance (B?o Vi?t), and Vinashin.The corporation will also raise capital from thesale of toll collection rights at two stations onNational Highway 1A.
Vietnam has recently made a commitment tothe WTO that, upon accession, foreign investorswill be allowed to provide passenger and freighttransport services through JVs. The foreignpartner's contribution will not exceed 49% of totallegal capital.
Rail
The network consists of 7 lines with a total lengthof 2,632 km. All lines are single track, mostlymeter gauge, with a few standard gauge anddouble gauge towards the Chinese border. Thereare over 1,800 bridges (57,044m) and 39 tunnels(11,513 m) and 281 stations.
VRC is the sole supplier of rail services in Vietnam.Following corporatisation, VRC's internal businesshas been restructured into four main business groups:two passenger train operating entities (North andSouth), a freight train operating company and a loosergrouping of regional infrastructure administrations.The train operating entities are quasi-independentmanagement and accounting entities. VNRAremains responsible for planning development of thesector, for new construction and for securingresources for maintenance. VRC pays 10% of its grossrevenues as a track access charge. These funds aregenerally used toward infrastructure maintenance.
Maritime
Vietnam has over 80 sea ports, totaling 22,000 mof wharfs with 2.2 million sq m of quays and 1
million sq m of docks. The large ports inVietnam have traditionally been developed bythe government through Vinamarine and turnedover to Vinalines for operation. Localgovernments manage about 20 ports, andseveral national- or local-level SOEs operatespecialized ports. The main ports are Hai Phongin the north and Saigon in the south, but both areestuarine ports, distant respectively 30 and 90km from the sea, i.e. with access limited tosmaller ships. The annual throughput of theports has increased rapidly, almost doublingover the last five years, from 56 million tons in1998 to 114 million tons in 2003. Ports in thesouthern Focal Economic Zone still account fortwo thirds of total throughput.
There has been some foreign investment in theport sector. For example, the VICT containerterminal in HCMC is 90% foreign owned, theInterflour grain port (with capacity to handlePanamax vessels) in Vung Tau is a 100% foreignowned.
The fleet of vessels has also expanded from atotal number of 679 and capacity of 1.6 millionDead Weight Tons (DWT) in 2000 to 928 vesselsand capacity of 1.8 million DWT in 2003; anannual increase of 12% and 4% in vessel numberand capacity respectively.
Although port operations are divided amongfive separate companies, they are all part ofVinalines, which also operates seven shippingcompanies that account for the majority of thenational fleet. Port charges pertaining to vesselsare set by the MoF and most of them do not varyfrom one region or port to another. Cargohandling charges are set by port operators,service providers or by negotiation.
While foreign ownership of ports is possible,there are restrictions on the provision of portand shipping services by foreign enterprises.With the exception of ship agency serviceswhich are not open to any degree of foreignparticipation, other services can be offered by
88
joint ventures provided the foreign entities' sharein the enterprise does not exceed 49%.
Logistics and Multi modal Transport
The transport logistics business tends to be aprivate, market-led activity and Vietnam has awide range of logistics providers. These includefreight forwarders, vessel charters, warehouse andICD operators, shipping agents and non vessel-operating common carriers (NVOCCs), customsclearance agents, trucking companies, bargeoperators, stevedoring companies, etc. The SOEsinvolved in transport, e.g. Vinatrans and Viefracht,also provide forwarding and storage servicesthrough their subsidiaries. Foreign companies areallowed to provide logistics services only throughjoint ventures. Many of the major logisticscompanies e.g. Maersk, APL, TNT, Khune andNagel, etc. offer individual services but not anintegrated logistics service.
Inland Waterways
Vietnam has 41,000 km of natural waterways, ofwhich 8,000 km are used commercially. Ofthese, VIWA manages about 6000 km as well asthe main river ports; local governments managethe balance of the commercial waterways. Riverboats and barges have rapidly developed. In1999, there were 63,600 units with a capacity of1.7 million DWT and 197,000 passenger seats. In2003 this had increased to 83,000 boats with acapacity of 3.7 million DWT and 280,000passenger seats. In addition there are tens ofthousands of small "country" boats and ferryboats.
Despite limited investment, the waterwaysremain attractive for the transport of coal, rice,sand, stone, gravel, and other usually high weightlow value goods; and livelihoods and personaltransport depend heavily and successfully onwaterway transport in the delta regions of the
Mekong and Red River.The inland waterway system is managed by
nine state waterway management companies;and river ports are managed by three portauthorities. Inland waterway transport servicesare provided by SOEs operating under two statecorporations attached to MoT (NorthernWaterway Transport Corporation (NWTC) andSouthern Waterway Transport Corporation(SWTC)); specialized state-owned transportcompanies under other ministries carryingmaterials to cement plants, paper mills andconstruction material enterprises; and private for-hire operators. Private operators have expandedtheir market share significantly in recent years.Foreign companies can provide transport serviceson the waterways through joint ventures inwhich the foreigner's share does not exceed 49%.Freight and passenger transport rates are freelydetermined by negotiation.
Urban Transport
Motorcycles are the primary mode of transport inboth Ha Noi and Ho Chi Minh City accountingfor 60% to 65% of vehicular trips, with bicyclesaccounting for another 25%. Automobilesaccount for less than 5% of trips in both cities andownership is relatively low though growingrapidly. In HCMC, the number of registeredautomobiles increased from 137,000 in 2001 toabout 245,000 in 2004. Buses account for about7% of vehicular trips in Ha Noi.
At present, bus services in Ha Noi are providedby Transerco, a state owned operator attached tothe People's Committee of Ha Noi, that managesseveral operating companies; and all busesproviding public transport services are owned bythe city government. Revenues accrue toTRAMOC and all routes are operated undernegotiated gross cost contracts between TRAMOCand TRANSERCO with back to back contractsbetween TRANSERCO and the operating
89
90
companies. Decision 71/2004/QD-UB issued bythe city of Ha Noi, encourages the participation ofthe private sector in the provision of bus servicesand two private companies have been recentlyselected to operate six routes but contracts have notbeen finalized yet.
In HCMC, bus services are offered byover 30 operators, the majority of which
are small privately owned cooperatives.Route planning is fragmented and servicestend to be unprofitable and the citygovernment is in the process ofconsolidating operators. The City is alsoworking with Russian, Japanese andGerman investors on plans to construct anumber of urban rail lines.
91
Tabl
e A7
:Ca
pita
l and
Rec
urre
nt T
rans
port
Exp
endi
ture
s
(Billi
on o
f rea
l 199
4 Vi
etna
mes
e Do
ng---
unles
s oth
erwi
se in
dica
ted)
19
94
1995
19
96
1997
19
98
1999
20
00
2001
20
02
Avg
Cen
tral T
rans
port
Expe
nditu
res
2,16
3 2,
857
2,82
8 4,
583
5,04
7 5,
679
6,00
5 8,
325
9,31
8 5,
200
- C
apita
l Ex
pend
iture
s 1,
340
1,95
2 1,
895
3,63
3 4,
156
4,84
7 5,
151
7,23
4 8,
213
4,26
9 -
Recu
rrent
Exp
endi
ture
s 82
3 90
5 93
3 95
0 89
2 83
1 85
4 1,
092
1,10
5 93
2
Loca
l Gov
ernm
ent E
xpen
ditu
res
1,39
5 N
.A
N.A
2,
143
2,31
4 3,
314
3,56
4 6,
034
7,19
2 3,
708
- C
apita
l Ex
pend
iture
s 1,
198
N.A
N
.A
1,91
8 2,
013
3,03
8 3,
187
5,60
0 6,
685
3,37
7 -
Recu
rrent
Exp
endi
ture
s 19
7 N
.A
N.A
22
5 30
1 27
6 37
7 43
4 50
7 33
1 Pe
rcen
tage
Gro
wth
19
95
1996
19
97
1998
19
99
2000
20
01
2002
Av
g
Cen
tral T
rans
port
Expe
nditu
res
32
%
-1%
62
%
10%
13
%
6%
39%
12
%
20%
- C
apita
l Ex
pend
iture
s
46%
-3
%
92%
14
%
17%
6%
40
%
14%
25
%
- Re
curre
nt E
xpen
ditu
res
10
%
3%
2%
-6%
-7
%
3%
28%
1%
4%
94--
97 (a
nnua
lized
) 19
98
1999
20
00
2001
20
02
Avg
Loca
l Gov
ernm
ent E
xpen
ditu
res
15%
8%
43
%
8%
69%
19
%
23%
-
Cap
ital
Expe
nditu
res
17%
5%
51
%
5%
76%
19
%
24%
-
Recu
rrent
Exp
endi
ture
s 5%
34
%
-8%
36
%
15%
17
%
13%
Perc
ent o
f Res
pecti
ve T
rans
port
Expe
nditu
res
1994
19
95
1996
19
97
1998
19
99
2000
20
01
2002
Av
g
Cen
tral G
over
nmen
t
-
Cap
ital
Expe
nditu
res
62%
68
%
67%
79
%
82%
85
%
86%
87
%
88%
78
%
- Re
curre
nt E
xpen
ditu
res
38%
32
%
33%
21
%
18%
15
%
14%
13
%
12%
22
%
Loca
l Gov
ernm
ent
- C
apita
l Ex
pend
iture
s 86
%
N.A
N
.A
89%
87
%
92%
89
%
93%
93
%
90%
-
Recu
rrent
Exp
endi
ture
s 14
%
N.A
N
.A
11%
13
%
8%
11%
7%
7%
10
%
Sour
ces:
94-9
8 da
ta fr
om “
Viet
nam
, Man
agin
g Pu
blic
Reso
urce
s Bet
ter,
Publ
ic Ex
pend
iture
s Rev
iew
2000
”; o
ther
cen
tral e
xpen
ditu
re d
ata
from
MoT
; oth
er lo
cal e
xpen
ditu
re d
ata
from
MoF
;
Annex 3
92
93
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