document of the world bank · 2016. 7. 17. · hcmc ho chi minh city . hcmc pc ho chi minh city...

Document of The World Bank

Report No: ICR2375

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-34750 IDA-47080)

IN THE AMOUNT OF SDR 127.50 MILLION AND SDR 58 MILLION (US$ 166.34 MILLION AND US$ 90 MILLION EQUIVALENT)

TO THE

SOCIALIST REPUBLIC OF VIETNAM

FOR A

HO CHI MINH CITY ENVIRONMENTAL SANITATION (NHIEU LOC-THI NGHE BASIN) PROJECT

December 20, 2012

Vietnam Sustainable Development Unit Sustainable Development Network East Asia and the Pacific Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective June 30, 2012

Currency Unit = Vietnam Dong (VND) 1.00 = US$ 0.000047

US$ 1.00 = 20,880

FISCAL YEAR January 1 – December 31

ABBREVIATIONS AND ACRONYMS

ADB Asian Development Bank APL Adaptable Programmatic Loan BOQ Bill of Quantities CBA Cost Benefit Analysis CAS Country Assistance Strategy CCTV Closed Circuit Television CMC Construction Management Consultants CSO Combined Sewer Overflow DCA Development Credit Agreement DO Dissolved Oxygen DOF Department of Finance DWD Drainage and Wastewater Division EMP Environmental Management Framework ERR Economic Rate of Return FDI Foreign Direct Investment GIS Geographic Information System GDP Gross Domestic Product GSO General Statistics Office HCMC Ho Chi Minh City HCMC PC Ho Chi Minh City People’s Committee ICB International Competitive Bidding IDA International Development Association JICA Japanese International Cooperation Agency KPI Key Performance Indicators MIS Management Information Systems MOF Ministry of Finance NLTN Nhieu Loc-Thi Nghe NPV Net Present Value O&M Operation and Maintenance PAD Project Appraisal Document PDO Project Development Objective PHRD Policy and Human Resources Development

PMU Project Management Unit PPF Project Preparation Facility QA/QC Quality Assurance / Quality Control QAE Quality at Entry QAG Quality Assurance Group RAP Resettlement Action Plan RF Results Framework SAWACO Saigon Water Company SCADA Supervisory Control and Data Acquisition SCFC Steering Center for Flood Control SOE State Owned Enterprise TBM Tunnel Boring Machine UDC Urban Drainage Company UTMD Urban Transport Management Department WWTP Waste Water Treatment Plant

Vice President: Pamela Cox Country Director: Victoria Kwawa Sector Manager: Jennifer Sara

Project Team Leader: Dean Cira ICR Team Leader: Victor Vazquez Alvarez

VIETNAM Ho Chi Minh City Environmental Sanitation

(Nhieu Loc – Thi Nghe) Project

CONTENTS

Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph

1. Project Context, Development Objectives and Design ............................................... 1 2. Key Factors Affecting Implementation and Outcomes .............................................. 5 3. Assessment of Outcomes .......................................................................................... 13 4. Assessment of Risk to Development Outcome ......................................................... 19 5. Assessment of Bank and Borrower Performance ..................................................... 20 6. Lessons Learned ....................................................................................................... 24 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......... 26 Annex 1. Project Costs and Financing .......................................................................... 27 Annex 2. Outputs by Component ................................................................................. 28 Annex 3. Economic and Financial Analysis ................................................................. 33 Annex 4. Bank Lending and Implementation Support/Supervision Processes ............ 41 Annex 5. Beneficiary Survey Results ........................................................................... 44 Annex 6. Stakeholder Workshop Report and Results ................................................... 45 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ..................... 46 Annex 8. Supporting Documents (Institutional Analysis and Environmental Data) .... 51 Annex 9. Photos ............................................................................................................ 58

A. Basic Information (some fields are entered by the system) Country: Vietnam Project name: Ho Chi Minh City Environmental Sanitation

(Nhieu Loc – Thi Nghe Basin) Project

Project ID: P052037 L/C/TF Number(s): IDA-34750 and IDA-47080

ICR Date: 12/31/2012 ICR Type: Core

Lending Instrument: Specific Investment Loan

Borrower: Vietnam

Original total commitment: $283 million Disbursed amount: $248 million

Environmental category: Full Assessment [Focal Area—for GEF only]:

Implementing Agencies: The Project Management Unit, Department of Transportation, Ho Chi Minh City

Co-financiers and Other External Partners: PHRD Grants (2)

B. Key Dates (all fields are entered by the system)

Process Date Process Original Date Revised/Actual Date(s)

Concept review: 09/28/1999 Effectiveness: 02/03/2002 02/03/2002

Appraisal: 10/16/2000 Restructuring(s): 12/19/2007 2007,6/24/2008, 4/14/2009, 9/17/2009,4/6/2010, 12/29/2011, 4/19/2012

Approval: 03/20/2011 Mid-term Review: 09/18/2006

Closing: 12/31/2007 06/30/2012

C. Ratings Summary C.1 Performance Rating by ICR Outcome: MS Risk to Development Outcome [or Global Environment Outcome]:

Moderate

Bank Performance: MS Borrower Performance: MS C. 2 Detailed Ratings of Bank and Borrower Performance

Bank Ratings Borrower Ratings

Quality at Entry: MS Government: MU

Quality of Supervision: MS Implementation Agency/Agencies:

MS

Overall Bank Performance: MS Overall Borrower Performance: MS

C.3 Quality at Entry and Implementation Performance Indicators (all fields are entered by the system)

Implementation Performance Indicators QAG Assessments (if any) Rating

Potential Prob. Project at any time(Yes/No): Yes Quality at Entry (QEA): MS

Problem Project at any time(Yes/No): Yes Quality of Supervision (QSA): MS

DO[GEO] rating before Closing/Inactive status: S

D. Sector and Theme Codes (the original column is entered by the system—the same as in SAP/AUS)

Original Actual Sector Code (as % of total Bank financing) 1. Wastewater Collection and Transportation 60% 22% 2. Sanitation 33% 69% 3. Central government administration 7% 9% Original Priority Actual Priority Theme Code (Primary/Secondary) 1. Urban services and housing for the poor 67% 31% 2. Pollution management and environmental health 33% 69%

E. Bank Staff (some fields are entered by the system)

Positions At ICR At Approval

Vice President: Pamela Cox Jemal-ud-din Kassum

Country Director: Victoria Kwakwa Andrew D. Steer

Sector Manager: Jennifer Sara Keshav Varma

Project Team Leader: Dean A. Cira Alan Coulthart

ICR Team Leader: Victor Vazquez Alvarez

ICR Primary Author: Victor Vazquez Alvarez, Linh X. Le

F. Results Framework Analysis Project Development Objective Make sustainable improvements to the public health and well-being of around 1.2 million residents of Ho Chi Minh City, particularly the poor, and promote increased economic development in the commercial center of the city. This will be achieved by reducing wastewater pollution and the occurrence of flooding and by developing a more efficient institution to manage drainage and wastewater services. Revised Project Development Objective

To reduce the incidence of flooding and increase the collection of wastewater in the Nhieu Loc-Thi Nghe (NLTN) Basin in HCMC, in an environmentally and financially sustainable manner. (a) PDO [GEO] Indicator(s) ─ from Project Appraisal Document (Indicators entered from the ISR) Baseline Values from Project Outcome Indicators/Date of Value (from approval documents)

Baseline Value Original Target Values

(from approval documents)

Formally Revised Target Values

Actual Values Achieved

at Completion or Target Years

PDO Indicator 1: Reduction in the number of households affected by two year return period storm

Value (quantitative or

Qualitative)

0

N/A 96,000 88,000

Date achieved 01-Jan-2007 31-Dec-2009 30-Jun-2012 Comments

(incl. % achievement)

Indicator introduced at restructuring. PAD mentions reduction in flooding in 10 locations of the NLTN basin without further specification. 92% of target achieved

PDO Indicator 2: Increase in the number of households whose wastewater is collected and disposed of safely


Qualitative)

0

N/A 240,000 265,800



Indicator introduced at restructuring. It includes the connection of the 30% households in the basin that were not connected in year 2000, plus the safe disposal of wastewater from all households in the basin. 100% achieved

PDO Indicator 3: Improvement in the water quality of the NLTN Canal measured by the average level of dissolved oxygen (DO)


Qualitative)

0.3 - 1

N/A 4

1.6

Date achieved 01-Jan-2007 31-Dec-2009 November-2012

Comments (incl. %

achievement)

Indicator introduced at restructuring. Latest measurement on November, 2012 when there were some sewers discharging wastewater. Target is expected to be achieved in next 6-9 months after natural canal flushing. 40% achieved

PDO Indicator 4: Implementation of the agreed tariff schedule by the People's Committee of Ho Chi Minh City


Qualitative)

250 VND/m3

N/A 450 VND/m3 480 VND/m3



Introduced at restructuring. 450 was the target for 2009. Target not updated after 2009. Considering there was no tariff in place before the project, this indicator shows important progress. Partially achieved

(b) Intermediate Outcome Indicator(s) - from Project Appraisal Document Baseline Values from Project Outcome Indicators/Date of Value (from approval documents)

Baseline Value Original Target Values

(from approval documents)

Formally Revised Target Values

Actual Values Achieved

at Completion or Target Years

IO Indicator 1: KM of wastewater interceptor constructed Value

(quantitative or Qualitative)

0

8.4 8.4 9.1

Date achieved 01-Jan-2001 01-Jan-2001 31-Dec-2009 30-Jun-2012 Comments


Indicator introduced at restructuring. The original target was not included in the RF of the PAD but in Annex 2. 108% of target achieved

IO Indicator 2: KM of combined primary and secondary sewers replaced and constructed. Value


0

72 59.5 51.5



Indicator introduced at restructuring. Original target of 72 km not included in the RF of the PAD but in Annex 2. 8 km reduction from target as some of the existing pipes were found to be in good conditions. 100% achieved

IO Indicator 3: KM of sheet piles installed for canal embankments Value


0

18 18 16.8



Indicator introduced at restructuring. Original target not included in the RF of the PAD but in Annex 2. Difference of 1.2 km was due to parts of the canal where it was not possible to install the sheet piles. 100% achieved

IO Indicator 4: Cubic Meters of sludge and excavated material dredged. Value


0

1,100,000 1,029,000 1,050,000



Indicator introduced at restructuring. The original target of 1,100,00 cubic meters was not included in the RF of the PAD but in Annex 2. 102% achieved

G. Ratings of Project Performance in ISRs (all fields are entered by the system)

No Date ISR Archived DO IP

Actual Disbursements

(USD) 1 05/02/2001 Satisfactory Satisfactory 0.00 2 12/21/2001 Satisfactory Satisfactory 0.00 3 05/15/2002 Satisfactory Satisfactory 1.69 4 12/10/2002 Satisfactory Satisfactory 3.69 5 06/04/2003 Satisfactory Satisfactory 4.89 6 12/08/2003 Satisfactory Unsatisfactory 7.90 7 06/03/2004 Satisfactory Satisfactory 14.29 8 12/21/2004 Satisfactory Satisfactory 18.83 9 04/20/2005 Satisfactory Moderately Satisfactory 20.15

10 11/30/2005 Satisfactory Unsatisfactory 24.73 11 06/09/2006 Moderately Satisfactory Unsatisfactory 28.55 12 10/13/2006 Moderately Satisfactory Moderately Satisfactory 30.68 13 05/18/2007 Unsatisfactory Unsatisfactory 42.65 14 12/19/2007 Moderately Satisfactory Moderately Satisfactory 53.45 15 06/18/2008 Moderately Satisfactory Moderately Satisfactory 65.70 16 02/19/2009 Moderately Satisfactory Moderately Satisfactory 104.65 17 01/10/2010 Moderately Satisfactory Moderately Satisfactory 149.62 18 02/21/2011 Satisfactory Moderately Satisfactory 179.50 19 12/10/2011 Satisfactory Satisfactory 201.87 20 07/08/2012 Moderately Satisfactory Moderately Satisfactory 227.38

H. Restructuring (if any)

RestructureDate(s)

Board Approved

PDO Change

ISR Ratings at Restructuring

Amount Disbursed at

Restructuring (US$ mil)

Reason for Restructuring & Key Changes Made

DO

IP

12/19/2007 No MS MS 53.45 Extended closing date by 6 months to 06/30/2008

06/24/2008 No MS MS 65.70 Extended closing date by 18 months to 12/31/2009

04/14/2009 Yes MS MS 113.42 Modify PDOs, associated outcomes and monitoring indicators to better measure results and reflect institutional changes in the sector

09/17/2009 No MS MS 138.35 Extend closing date by 6 months to 06/30/2010 to allow task team process the AF operation

04/06/2010 No MS MS 159.53 Approve Additional Financing of 58M XDR and extend closing date of both credits to December 31, 2011

12/29/2011 No S S 207.90 Extend AF closing date by 6 months to 6/30/2012

04/19/2012 No S S 211.63 Reallocate between disbursements categories in Original Credit, and change the retroactive financing date from January 1, 2010 to May 25, 2009 for the AF Credit.

If PDO[GEO] and/or Key Outcome Targets were formally revised (approved by the original approving body) enter ratings below:

Outcome Ratings

Against Original PDO[GEO]/Targets MU (39% weight)

Against Formally Revised PDO[GEO]/Targets MS (61% weight)

Overall (weighted) rating MS

I. Disbursement Profile (system generated graph)

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1. Project Context, Development Objectives and Design

1.1 Context at Appraisal The main issues in the urban sanitation sector at the national level by the time of project appraisal were: (a) insufficient capital investment to replace decaying infrastructure and to keep pace with rapid urban growth; (b) the frequent flooding that occurs in cities because of undersized drains and inadequate routine maintenance, (c) severe pollution of water courses, particularly in densely populated areas of cities, because there was no provision for wastewater separation and treatment; and (d) weak utility agencies. Specific issues relating to implementation at the municipal government level were: (a) fiscal decentralization not matching the pace of executive decentralization; and (b) limited institutional capacity. Government's sector strategy aimed to: (a) put sector financing on a new footing by gradually eliminating the need for Government subsidies for operation and maintenance, through the introduction of wastewater charges; (b) reduce flooding by allocating more resources to increase the capacity, and expand the coverage of drainage; (c) gradually introduce wastewater treatment; and (d) strengthen institutional capacity in the sector. The largest cities, where the problems are most acute, were to be given highest priority. Government's environmental policy recognized the principle that the polluter should pay and was committed to moving in that direction. Implementation responsibilities for sector projects have been devolved from the national to the provincial/city level. HCMC, with assistance from the Japanese Government, prepared an Urban Drainage and Sewerage Master Plan in 1999 based on this strategy. Rationale for Bank involvement To promote urban environmental improvements it had been Central Government's practice to allocate funds for environmental investments on a grant basis. There were, however, insufficient resources to meet the enormous demand throughout the country. Financial projections made at the time of project preparations showed that the city had the capacity to borrow for the wastewater component and meet the counterpart costs, but not to meet the cost of borrowing for the drainage component1. Ninety percent of the cost of the drainage works financed by IDA was to be on-granted by central Government. Moreover, the project was also intended to make an important contribution to the emerging decentralization agenda, since most of the planning and approval processes would be done at the local level.

1 In view of HCMC’s robust economy over the previous decade, the city agreed to borrow 90% ($59.8 million) of the cost of the wastewater component (36% of the total investment) and to provide $33.6 million from general city revenues.

2

The project aimed to address the backlog of deferred investment by expanding the capacity and coverage of drains in the basin and by increasing the hydraulic capacity of the Nhieu Loc Thi Nghe (NLTN) canal. These investments were key components of the Urban Drainage Strategic Plan approved by Ministry of Construction (MOC) in 1999, whose objectives focused on elimination of flooding, the improvement of wastewater collection and strengthening the public institutions responsible for urban drainage. The project was aligned with the CAS goal of raising productivity through infrastructure development by reducing the cost of doing business and by enabling the city to create a more favorable impression on potential investors through environmental improvement.

1.2 Original Project Development Objectives (PDO) and Key Indicators PDO: To make sustainable improvements to the public health and well-being of around 1.2 million residents of Ho Chi Minh City, particularly the poor, and promote increased economic development in the commercial center of the city. This will be achieved by reducing wastewater pollution and the occurrence of flooding and by developing a more efficient institution to manage drainage and wastewater services. Key Indicators: PAD, page 2, included: (a) Reduced incidence, particularly amongst the urban poor, of water-related and vector-borne diseases, measured by trends in annual cases treated and deaths arising from: diarrhea, dysentery, cholera, and typhoid in the project area; (b) Improved environmental conditions in the NLTN basin and greater business activity, as evidenced by increased business investment and higher commercial and residential property values; (c) Institutional improvements will be measured by: (i) the reduction in flooding at areas where inundation regularly occurs at present, (ii) the water quality of the NLTN canal, (iii) and the percentage of operation, maintenance and depreciation costs that are met from wastewater revenue.

1.3 Revised PDO and Key Indicators, and reasons/justification The PDO and Key Indicators were revised during project restructuring in 2009. The new PDO was: to reduce the incidence of flooding and increase the collection of wastewater in the NLTN basin in HCMC, in an environmentally and financially sustainable manner. The new performance indicators included: a) Reduction in the number of household affected by two year return period storm. b) Increase in the number of households whose wastewater is collected and disposed of safely. c) Improvement in the water quality of NLTN canal. d) Implementation of agreed tariff schedule by the Ho Chi Minh People’s Committee.

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1.4 Main Beneficiaries The target population was approximately 1.2 million people living in the NLTN basin2. A significant proportion fell into the low-income category as indicated by the fact that only 73% had piped water connections and only 70% had sanitation facilities connected to the existing sewerage network. The Urban Drainage Company (UDC) and the Steering Center for Flood Control (SCFC) stood to benefit from the project’s specific institutional strengthening activities to support ongoing reforms in the wastewater sector. By reducing flooding and improving water quality in the canal, the project was expected to bring general benefits to the city's economy as a whole, and private benefits to individual households. In particular it was projected to improve the health of women and children, who had the greatest exposure to unsanitary conditions.

1.5 Original Components ($ appraised, $ actual) Component 1 – Wastewater (US$ 60.2 million, US$ 70.7 million). This component included an interceptor sewer of 8.4 km long collecting wastewater from the combined sewers. The interceptor runs parallel to, and largely under, the NTLN Canal and was designed to divert excess runoff into it through 56 Combined Storm Overflow chambers (CSOs). This component also financed a wastewater pumping station into which the interceptor sewer discharges by gravity. The pumping station was designed to pump up to 64,000 m3/hr through a 0.8 km outfall built as a 3 meter diameter tunnel under the Saigon River discharging through a diffuser designed to maximize mixing and dilution in the East bank of the river3. Component 2 – Drainage (US$ 96.9 million, US$ 216.3 million): This component entailed: (i) replacement and extension of 72 km of combined primary and secondary sewers, to reduce flooding and overflows of combined storm water and wastewater onto the streets4; (ii) dredging, transportation and disposal of approximately 1,100,000 m3 of sludge and excavated material to increase the hydraulic capacity of the NLTN canal, and related strengthening of 18 km of canal embankments; (iii) field investigation of some 54 km of pre-1954 brick secondary combined sewers using Closed Circuit Television (CCTV) techniques and design and rehabilitation of up to 30 km, where necessary; (iv) extension of around 270 km of tertiary sewers to connect the 30% of the houses in the basin, mainly occupied by low-income families and that were not connected to the system. Provision was also made to procure some specialized maintenance equipment and computer hardware and software (total estimated cost US$1 million) for UDC.

2 This corresponds to the 240,000 households whose wastewater is collected and safely disposed. See definition of this indicator for more detail. 3 The entire interceptor-pumping station system was also designed to function as an innovative canal flushing mechanism to enable stagnant water to be drawn off from the upper sections of the canal into the interceptor to maintain an optimal water quality in the canal during the dry season, when there is insufficient natural flushing. 4 The original design included works in difficult areas where drainage would require pumping. Therefore these areas were finally excluded from the project and the target of 59.5 km was adopted at restructuring.

4

Component 3 - Technical Assistance (US$ 14.4 million, U$ 21.7 million). This component included: (a) detailed design of the wastewater component; (b) construction management; and (c) institutional strengthening. The institutional strengthening was designed to support UDC as service provider in the process of corporatization and overall sector restructuring. In addition to assisting in corporate planning, this component aimed to develop capacity to procure and supervise service contracts covering operation and maintenance activities.

1.6 Revised Components: n/a

1.7 Other significant changes The project was restructured and the DCA amended several times during implementation: The project underwent one level I and several level II restructurings. In December 2007 an extension was agreed in a two-step process: the Bank agreed to a two year extension conditioned to the achievement of agreed targets in an initial six months extension period. These targets were satisfied and the two year extension period was conceded. Further, the project underwent a level I restructuring in March 2009 to modify the Project Development Objectives, associated outcomes and corresponding monitoring indicators. This restructuring also reflected the new institutional changes occurred in the drainage and wastewater sector in HCMC, where asset ownership and management was transferred to the newly established Steering Center for Flood Control (SCFC), so the Urban Drainage Company (UDC) became responsible for operation (see Annex 8 for more details). In October 2009, the original credit closing date was further extended to June 30, 2010. In April 2010 an Additional Credit of SDR 58 million was approved together with a new closing date in December 31, 2011 for both Credits. The closing date for the Additional Credit was subsequently extended to June 30, 2012 through a new restructuring approved on December 29, 2011. The total commitment was US$ 283 million while the disbursed amount is US$ 248 million. Section 2.2 provides more details on the undisbursed amount of US$ 35 million. Finally, the project was restructured for last time in April 2012 to: (a) reallocate among disbursement categories of the proceeds in the Original Credit, and (b) change the retroactive financing date from January 1, 2010 to May 25, 2009 for the Additional Credit.

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2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry Background analysis: Project preparation started in 1998. A PMU had been already established back in 1994 and was in charge of implementing urban upgrading activities in the canal banks. From 1993 to 2000 the city had already spent US$ 120 million for an urban development program in the NLTN basin. The Bank put in place a highly and relevantly qualified team capable of acting as informed counterparts to the construction supervision consultants and the PMU. The client spent sufficient money on preparation comprising 2 PHRD grants and a PPF. A detailed assessment of the existing wastewater infrastructure, the status of the canal, the number of beneficiaries and the institutional arrangements in place for wastewater and drainage management in the city was carried out during project preparation. Financial assessments included an analysis on cost recovery mechanisms, surveys on willingness to pay, amounts to be charged and the phasing of full cost recovery based on a recently passed decree to recover full costs in the wastewater and drainage sector from users by 2006. Feasibility studies were assessed by the Bank team and contrasted through several field visits. The technical analysis also included site selection for works and the use of appropriate construction techniques. Lessons learnt regarding Bank’s sector experience included the acknowledgement of the institutional reforms necessary to pursue the sustainability of the interventions. The intention was therefore to avoid focusing exclusively on infrastructure development but to also support sector management at the lowest appropriate level to ensure responsiveness to consumers and on developing legal, regulatory and financial frameworks to provide adequate incentives for service providers to meet demand in an efficient and accountable manner. The technological complexity of the intervention was also well understood by the time of project preparation, with some construction techniques such pipe-jacking being used for the first time in Vietnam. Government’s Commitment and Stakeholder participation: Extensive dialogue was held during the preparation stage with all relevant ministries and city departments. Public consultation was conducted during project preparation, including project beneficiaries and relevant stakeholders. Around 1000 beneficiary households in the project area were surveyed to determine socio economic characteristic, their priorities amongst a range of infrastructure improvements and corresponding willingness to pay for those. Women’s Union groups assisted with consultations with the Project Affected Families. Assessment of Risks: The most substantial risk identified was related to the slow implementation due to procurement processing delays. Technical Assistance on procurement to all levels in Government was planned as the main mitigation measure, although this was measure was not implemented with the intensity it deserved. The

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relevance of this issue influenced the overall project risk which was rated as high. Technical problems during construction of the interceptor and outfall and the occurrence of indiscriminate dumping of garbage affecting water quality and flooding were also identified as a risks rated as low. The mitigation measure for the solid waste was the reliance on an ADB project on solid waste management to be implemented in parallel. Solid waste dumping is now one of the main problems during the operational stage (see section 4). In retrospect, an additional risk that should have been included related to the need for UDC to recover O&M costs. Assessment of project design: Project design responded to a clear need to mitigate flooding and improve the sanitary conditions in the NLTN basin through the development of wastewater collection and drainage infrastructure and institutional strengthening of the sector. A Project Information Center was set up and built in the project area to provide residents with information on all aspects of the project and facilitate the provision of inputs from users to designs and measures to mitigate the impact of construction. Overall, the project was prepared to respond to these sector challenges, its design followed an approved master plan and the emerging devolution priorities, and project preparation included extensive stakeholder consultations. In addition, the project had carried out quite a few advanced actions related to having bidding documents for a significant number of contracts prepared and ready by effectiveness. However, some shortcomings should be mentioned:

PDO indicators and the Results Framework defined at appraisal could have been more precisely defined to ensure achievability and attribution, and as such, they had to be restructured later during implementation (see Section 2.3).

Despite intensive efforts to determine a realistic schedule for the different review and approval processes and project implementation, the final agreed schedule proved to be overly ambitious for a complex project of this kind and the actual time needed was much longer than expected. The low capacity of the PMU also delayed project effectiveness. Some elements of the wastewater component, mainly the interceptor and the pumping station are now considered to be over-dimensioned as the design used daily consumption rates of 400 liters per capita 2030, a number that seems unrealistically high5, both in terms of population projections as well as per capita consumption rates. A more optimal design may have been to use a lower wastewater per capita and population projection figure. The project included an activity on improving and expanding the tertiary network and therefore improving household connectivity, to be financed by the local districts as part

5 Data from SAWACO in 2009 showed 175 lpc. The Bank is preparing a second phase of the project were a WWTP to treat wastewater from the NLTN basin is being prepared. The FS are considering 200 lpc in the year 2045.

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of their regular responsibilities. This activity was essential for the successful collection of wastewater in the basin and the fact that it was not financed and controlled by the Bank or the City, but by district authorities, created a risk of weak control over its monitoring and achievement. By the end of the project, it was difficult to measure the number of households that had been connected during the project implementation period, and as such an indicator on the progress made to expand the tertiary network could have helped to monitor this activity more closely. An additional preparation shortcoming was the methodology used for the original project economic analysis. Although the work included a least cost analysis and willingness to pay survey, the final result presented at that time has made it difficult to assess the economic efficiency of the project at completion (see Section 3.3 for more details). The PAD and original DCA included the need for UDC to recover Operations and Maintenance costs, plus a provision for depreciation, interest and taxes by the time of project completion, which seemed too ambitious for a city that had not yet established a wastewater tariff at the time of project preparation and knowing how difficult it is to create a culture of payment for sanitation services. This was later addressed in the restructuring (section 2.3).

Finally, given the high risk of the project identified at appraisal, the low familiarity with large Bank projects by the local government and the low capacity of implementing units, the Bank could have encouraged the borrower to increase the amount of funds allocated for institutional strengthening.

2.2 Implementation This was technically a very large and complex project that entailed considerable engineering challenges and, as usual for these types of disruptive infrastructure works undertaken in congested consolidated urban areas, underwent significant implementation difficulties. The project was restructured seven times, including mostly extensions and AF, and a level I restructuring to revise the PDO and KPIs as indicated in section 1.7. It was finally completed with a total accumulated delay of 4.5 years and an increase in cost of US$ 116 million. The extra cost, mostly due to delays and severe inflation in 2008, was covered with an additional credit and Government funds. The main causes of delay are discussed below: It took longer than expected to meet the conditions for effectiveness, mostly due to time needed to review the Sub-loan Agreement between UDC and MOF, the insufficient capacity of the PMU and the late appointment of consultants to monitor the RAP. Also the project Feasibility Study had to be reapproved by the Prime Minister because the project cost breakdown changed following negotiations when better costs emerged following the preparation of detailed designs. Once effective, the project started at a very slow pace. One cause was the unfamiliarity with the ICB procurement processes, which were the largest associated with any project

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in Vietnam up to that date, and the extra time needed in the multiple review layers by the Vietnamese Government, both at the city and ministerial level. Despite the move to decentralization, the scale of the project led city officials to seek ministerial level reviews and approvals. Design reports, bidding documents, cost estimates, procurement plans, evaluation reports and contract awards had to be reviewed by various city departments, the People’s Committee and the Ministry of Construction. Additionally, all procurement decisions, including relatively minor revisions to cost estimates, had to be approved by the Prime Minister’s office. Decree 209-2004 ND/CP on Quality Management of Construction Works on QA/QC for construction works requiring additional information 6 from the Contractor further contributed to extended approval times. A second main cause of delay relates to the high construction risk of the project due to the complexity of some works and the bad soil conditions of HCMC, particularly during the rainy season. This led to the occurrence of a series of unexpected incidents. The poor performance of key contractors also exacerbated some of these challenges:

• Numerous problems occurred in the construction of the interceptor and the upgrading of the canal. The implementation period for these two contracts was 5 and 3 years longer than originally planned respectively. Inadequate staffing, lack of attention to health and safety conditions in the working place and use of inappropriate construction techniques and construction equipment are some of the main problems related to these packages.

• Although considered in the project design, the need to relocate a 2 meter diameter water main turned to be a very delicate operation, given the exact location of the pipe and the fact that the pipe was the only source of water for about 4 million people. Due to the refusal of the main contractor to carry out this operation, the Saigon Water Corporation (SAWACO) was instructed by HCMC PC to take responsibility for implementing this activity. This caused delays and required a Bank procurement policy waiver for establishing a single source selection process.

• Other unexpected incidents included temporal loss of Tunneling Boring Machines in three occasions, including one in the bed of the Saigon River where a cable snarled up the tunneling machine for an extended period of time.

The complexity of the construction in the city was also related to the need to operate in reduced spaces within dense urban areas of narrow roads and busy traffic. The project location is in the densest and highly populated HCMC city center and this obliged construction crews to operate mostly only at night, the only time when trucks were

6 Requirement for the completion of the measurement acceptance documentation and preparation of variation documents based on agreed rates, and the attendant time needed.

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allowed to come into the city. Lack of coordination among the different city departments to issue working permits to relocate urban utilities underground, together with the lack of information on the location of urban infrastructure from these utilities and the time taken to issue traffic control permits were also important causes of delay. Other unexpected contractual problems occurred during implementation:

• During project implementation the contractor responsible for upgrading the canal (Package 10) was included in the Bank’s debarment list following sanctions related to a project in the Philippines. The Bank determined that no additional financing could be used to cover additional costs of this package and therefore the decision was made to terminate that contract and rebid the remaining works under that contract. It took about one year to complete that process.

• Packages 11, 12 and 13 for the upgrade and extension of primary and secondary sewers had to be restructured and the bidding process repeated three times due to the insufficient number of bids and price offers above cost estimates. This alone caused two years of delay (see section 2.4 for more details).

Implementation progress was rated as unsatisfactory before the Mid-Term Review due to the poor progress achieved in the construction of the wastewater component and the delay of more than 3 years in the start of the main contracts for the drainage component. In 2007, the Bank communicated to the Borrower that it would was ready to bring the project to a closure if a realistic comprehensive implementation plan to deliver the project by December 2009 was not put immediately in place. This plan was prepared and agreed with Borrower. It included the resolution of a series of urgent technical issues and a reevaluation of the implementation targets. This moment represented a turn-around for the project, and significant improvements were noted starting in 2008, when the PC delegated further the approval responsibilities to the PMU. The average bidding time was reduced from 12 months to 4 months. The project was upgraded from MU to MS for the remaining life of the project and with the subsequent extensions and additional financing, needed to cover the extra costs of delays and the high inflationary period in 2008, it was possible to conclude all project activities by June 2012.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization Design: At the time of appraisal, and as with many other Bank projects at this time, less emphasis was placed on the adequate definition of results framework and development indicators. In this case, although the original project indicators were relevant to the project objective, the key performance indicators defined at appraisal were later assessed to be too broad and difficult to measure and they could not be solely attributed to project interventions, so they were modified at the restructuring in 2009. This change presented an additional constraint to carrying out a realistic monitoring progress towards results, as

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the quality of the baseline information made it difficult to monitor progress and assess results. The changes in the PDO and RF were made following recommendations given by a Country Program Review and QAG assessments. The PDO and KPIs were redefined in a simpler and results-based manner, and these changes have allowed a more quantitative measurement of results which are more directly linked to the project activities. The restructuring also modified the financial covenant in the DCA related to the establishment of wastewater tariffs. While the original covenant indicated the need to recover O&M and depreciation costs by 2006, the modification just mentioned the need to establish the tariff and for the corresponding revenues to be exclusively applicable in the wastewater and drainage sector. In retrospect, the PDO indicator on financial sustainability could have been defined in terms of levels of cost recovery as this is more informative than a tariff. Section 3.5 (b) offers more details on these achievements in the sector.

Implementation: project progress was regularly monitored and reported in periodic progress reports, ISRs and AMs. The Bank held regular well-staffed missions to measure physical, financial environmental, resettlement and land acquisition progress, which were reported in the semi-annual progress reports. External resettlement and environmental monitoring reports were prepared and submitted quarterly and later twice per year. The PMU provided updates of all key monitoring indicators including land and property values in the project area and the incidence of water related diseases (before the restructuring), and on the extent and duration of flooding events; the quality of water in the main canal; and the wastewater tariff (after restructuring). Utilization: project indicators are being and will continue to be used by SCFC to monitor the impact of floods in the NLTN basin. This is relevant to the operation of the pumping station and sluice gates at the mouth of the canal 7. Monitoring the wastewater flow and water quality in the interceptor will be used for the design of Phase II (new interceptor and wastewater treatment plant), which is now under preparation by the Borrower and Bank. Water quality in the canal and the river at the discharge point will continue to be monitored as part of regular environmental surveillance to ensure pollution levels do not go above established limits, so in case of that happening, the existing mitigation mechanisms could be activated, such as the flushing of the canal through the opening the two control gates installed for this purpose.

7 The Borrower is involved in the construction of sluice gates and a pumping station at the mouth of the NLTN canal as a flood control mechanism. The works are expected to be completed in October 2013.

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2.4 Safeguard and Fiduciary Compliance

Social Safeguards.

During the project, and in terms of the adverse impact, the actual number of affected households has resulted as estimated for the case of land acquisition at the waste water pumping station. However, the number of affected businesses actually affected is only one third (3,350) of that estimated at the beginning of the project due to the improved construction methods that were adopted to help reduce the adverse impact on local businesses along the streets. In terms of compliance with social safeguards policy, both RAP 1 for the wastewater pumping station and RAP 2 for the adverse impact on the local businesses along the streets, were monitored. For RAP 2, however, some affected households (their shop/business had access limited due the construction site) did not benefit from the tax exemption from local tax agency because of the difficulties in determining whether the adverse impact due to shop access restriction affected the income of the local business. According to the independent monitoring consultant, 36% of affected local businesses benefited from tax exemptions because their shops were obstructed by construction sites which are assumed to affect the business income. There was always a social specialist as part of the supervision missions to monitor the implementation of social safeguards and to help build capacity for PMU. There was an excellent collaboration between the PMU, the independent monitoring consultant and the Bank’s task team in monitoring and solving issues related to land acquisition and compensation for affected businesses in a timely manner. Environmental Safeguards: The project was designated as category “A” with two safeguard policies triggered: OP 4.01 on environmental Assessment and OP 4.12 on Involuntary Resettlement. Consequently, a comprehensive Environmental Impact Assessment, Environmental Management Plan, and Resettlement Action Plan were carried out in close conformity with Bank and Vietnamese national policies. Environmental and social factors were adequately incorporated in project design.

No unforeseen adverse environmental impacts arose during implementation. Effective mitigation measures were taken promptly to ensure that all environmental indicators remained within acceptable levels. Public consultations and information disclosure were carried out continuously through community meeting, hotline, public media, newspapers, internet and environmental protection campaigns.

Monitoring results show that there are non-significant impacts on NLTN canal water during the construction phase. The new sewerage system avoids the discharge of about 400.000 m3/day of combined wastewater-runoff to the canal, contributing significantly to the improvement of water quality. (Annex 8. Section 2 includes more detailed information on water quality).

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About 1,050,000 m3 of sludge were dredged out from NLTN canal, and has been safely and legally disposed: no water sources were polluted at the site and no complaints were recorded from local residents at the sludge disposal sites. Environmental quality monitoring after closing the dumping site did not find any problems on soils and surface water.

Environmental auditing reports from the independent environmental consultant and quarterly EMP implementation reports from the Construction Management Consultants were submitted to the Bank regularly. Requirements of the Environmental Management Plan have been fully addressed, with great care taken to minimize traffic and other disruptions in the vicinity of construction sites. Safety, both of the public and workers, has been given high priority on the construction sites.

Financial Management: The Financial Management reviews in regular supervision missions identified that an adequate financial management system was in place that could provide, with reasonable assurance, accurate and timely information that Bank loan proceeds were being used for the intended purposes. The reviews also recognized adequacy of financial management staffing, accounting and internal control systems, maintenance of supporting documents in the Project and implementation of auditor recommendations for annual audit. Financial Management was rated Moderately Satisfactory mainly due to periodically late audit reports submission from 2007 to 2010 and challenges related to contract management, in particular regular failures to extend contract closing dates in a timely way and generally loose contract management controls. There was also a lack of coordination between accounting and procurement departments in managing these contracts.

A total amount of US$ 35 million will remain undisbursed after project completion. The reasons for this are related to payments assumed by client, omissions and overestimation of the scope of work during the preparation of the additional financing, overestimation of future inflation and unexpected favorable fluctuation of SDR-USD exchange rate.

Procurement: Generally the procurement guidelines were complied with. However the procurement did not meet the expected schedule causing delays to the overall project implementation. The unfamiliarity with ICB processes was an issue in the beginning. Initial decisions on awarding large packages 7 and 10 took longer than expected as, among other reasons, procurement advisory consultants questioned the quality of the methodologies proposed by the bidder and disagreed with many of the unit rates included in the pre-selected winning bids, which were considered in many cases about 30% below market rates at the time and consequently considered that works could not be satisfactorily and safely implemented with such rates. The activities related to these unrealistically low priced components ended up causing problems during contract implementation as the contractor tried to cut costs. This issue has been a source of controversy and is further analyzed in section 5.1 and in annex 7.

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The first attempt to procure major civil works for extension and replacement of sewers using larger packaging approach (Packages 11, 12 and 13) and prequalification had failed due to the low number of applicants interested. To address the situation, the Bank had agreed with the PMU to repackage those three contracts into six smaller ICB ones and procure using post qualifications. Nevertheless, the second attempt also failed because the bid prices offered exceeded the approved cost estimates and the PMU strongly insisted for rebidding despite the Bank's advice for reconsideration since the cost excesses were not substantial.

2.5 Post-completion Operation/Next Phase UDC has now been contracted by SCFC to run and maintain the system of wastewater collection and drainage in the city. They will operate the wastewater pumping station, maintain the facilities and monitor the water quality in the canal. The operation of the system is challenging because certain elements of it can be operated differently according to the existing flow conditions on dry or wet weather and up or low tides (draw off chambers in the upper canal, pumping timing and power, and sluices plus additional pumping in the entrance of the canal). UDC has received training for the operation of the pumping station and is now conducting regular monitoring of the water flow and quality. At the same time SCFC will be involved in the implementation of Phase II, which will be centered on the construction of a wastewater treatment plant and the continuation of the interceptor and additional collection of sewage in District 2. This will be the natural continuation of the project as it will treat the wastewater that is now being discharged into the Saigon River. Institutionally, the operation of the pumping station, together with the maintenance of the entire system (collector and sewers) will considerably increase system operating costs. These costs will further increase in the future when the WWTP is in place (see annex 3). Therefore, it has been agreed with the city that a realistic roadmap to increase the water tariff, and the associated wastewater component, should be put in place with the objective to achieve operational cost recovery and financial sustainability of the service in the future.

3. Assessment of Outcomes

3.1 Relevance of Objectives

RATING: Satisfactory At project completion the project’s objective, design and implementation remain relevant to the current the CPS (2012-2016) by (i) contributing towards environmental sustainability through improving sanitation systems and pollution control; and (ii) mitigating the vulnerability at the household level from natural hazards. At project

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completion all components and activities also remained relevant to achieving the objectives of HCMC of complying with the strategic lines of the wastewater master plan.

3.2 Achievement of Project Development Objectives RATING: Moderately Satisfactory Achievement with respect to revised PDO: Overall, the objective of reducing the incidence of flooding and increase the collection of wastewater in the Nhieu Loc-Thi Nghe (NLTN) basin in HCMC, in an environmentally sustainable manner has been achieved. From the institutional and financial perspective, while the wastewater tariffs and cost recovery are still low, the sector has made considerable progress to set the foundation for improved sustainability. The project has had a transformational impact on the city in making it more livable and contributing to improve its economic competitiveness. The PDO was largely achieved despite the delays and extra costs during implementation undermining its efficiency. For these efficiency reasons, the rating of PDO achievement is rated as Moderately Satisfactory. Reduction in the number of household affected by two year return period storm The combined sewerage and drainage network has been upgraded through the extension of 51.5 km of renewed or newly constructed primary and secondary sewers. Moreover, the hydraulic capacity of the NLTN canal has been augmented by dredging and removing 1,050,000 cubic meters of sediments and sludge. During rainy days, combined rainfall runoff and sewage from households is discharged through the upgraded network into the Combined Sewer Overflows in the main interceptor along the canal. Part of the flow goes through the interceptor and the pumping station, and is discharged into the Saigon River. Flow volumes exceeding the design capacity of the interceptor8 will be discharged in the canal. The entire drainage system is now able to absorb a two year return period storm. The PMU has estimated that the upgrading of the drainage system will benefit 88,000 households which will no longer suffer the consequences of flood events of this magnitude. This implies an achievement of 90% compared with the initial target of 96,000. The difference corresponds to the reduction in the length of sewers constructed as due to adjustments during construction. This indicator can be considered achieved.

8 The CSOs have the capacity to absorb the design wet weather flow, which is calculated as approximately a factor of 2 of the dry weather flow (wastewater from households).

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Increase in the number of households whose wastewater is collected and disposed of safely Since before the project 30% of the NLTN households were not connected to the sewerage network, and that network was discharging in the canal, this indicator aimed to measure: (i) the connection of the 30% of households, and (ii) the safe collection and disposal of wastewater from the totality of households in the basin by discharging it in the river rather than in the canal. As mentioned, the upgraded combined sewerage system is discharging wastewater in the 59 CSOs (three more than designed) and 9.1 km long interceptor. Wastewater is then pumped under the Saigon River at the new pumping station and discharged in the outfall at the East bank of the river. The interceptor CSOs, pumping station and outfall were completed according to the original design. Surveys conducted at the time of project completion indicate that 375 km of new tertiary sewers have been built or upgraded by the district authorities since 2001, 175 more than the target. This means that about 265,800 households (almost every household in the basin) are now connected to the network. The upgraded network is connected to the interceptor and pumping station and wastewater discharged in the Saigon River as planned, and therefore safely disposed. Consequently, this indicator is considered achieved. Improvement in the water quality of NLTN canal As a result of wastewater being diverted to the interceptor, the water quality in the canal is expected to improve considerably. The flushing mechanism interceptor-drawn off gates-canal should also contribute to moving stagnant water during the dry season. Water quality in the canal has been monitored before, during and after project implementation (annex 8, section 2). The latest water quality testing conducted in November shows levels of DO of 1.6 mg/ l on average. This is consistent with the fact that, at that time, there were still some CSOs discharging water in the canal, as it took time after completion to do the connection to the interceptor. The target value can therefore not yet considered to be achieved. However, it is expected that water quality in the canal will gradually improve in the next 6 to 9 months, once the canal has been sufficiently flushed out. Continued and periodic monitoring will be carried out by SCFC. Results will continue to be monitored and reported to the Bank. Implementation of agreed tariff schedule by the Ho Chi Minh People’s Committee The target value established for the year 2009 was 450 VND per m3 on average. That year the average tariff was 271 VND per m3. Today SCFC collects 10% of the water bill, which translates, approximately, into 480 VND / m3. It is difficult to estimate what the target tariff should be today, as no milestones beyond 2009 were set up at the time of

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restructuring. The financial covenant in the restructured FA indicated the need to establish a tariff and to ring-fence the sector financially, so revenues from tariffs are kept within the sector. These targets, more realistic than the original ones on full cost recovery, have been met. However, revenues from tariffs are not sufficient today to cover operational costs, and compared to other cities in Vietnam, 10% of the water bill is considered low. Considering the situation at the beginning of the project when there were no tariffs, important progress was achieved, with a sector institutionally well-defined and cost recovery starting to take off 9. Has a target been set for this indicator beyond 2009, a higher value would have been expected for 2012, and therefore this indicator can be considered partially achieved. Annex 3 analyzes this situation in more details.

3.3 Efficiency Rating: Moderately Satisfactory Economic: A combination of cost benefit and least-cost analysis was used at appraisal to measure the economic impacts of the project. The analysis considered that it was not possible to value in monetary terms the environmental, health and economic benefits derived from the increase in land values along the canal, so the analysis was only partially completed showing a negative NPV of VND 256 billion and an ERR of 9.9%. The least-cost analysis concluded that the selected option was the least expensive to attain the objectives of the project. A willingness to pay survey was also conducted, where habitants of the NLTN basin recognized the impacts of flood as the most important problem, so they were willing to pay up to VND 300 billion for improving sanitary conditions in the basin. Overall, it was difficult to integrate the conclusions of the three methodologies and therefore the analysis was not robust. This put constraints on the assessment of the economic efficiency of the project at completion. This ICR used the initial CBA to estimate the economic impact of the project at completion. Although part of the cost overruns during implementation was attributable to the high inflationary period between 2007 and 2009, project delays and other causes of cost overruns negatively influenced the economic impact of the project. Some key project benefits, such as those related to flood impact reduction, could only be validated after flood events will indeed occur. However, if the hypothesis that the same benefits as estimated at appraisal apply (since all project activities were completed as designed), the effect of the delays and non-inflationary cost overruns would be a reduction in VND 100 billion in net present value terms (US$ 5 million) compared with what was initially estimated, and a difference of 1.8 points less in the ERR.

9 In the context of the preparation of phase II (new WWTP), the need to establish a tariff roadmap aiming at cost recovery is being discussed.

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However, benefits from the avoided capital and operation costs of septic tanks for new constructions in the basin, should not be considered today as current city regulations still mandate the construction of septic tanks for all new constructions in the districts within the basin. Moreover, the evident transformation along the canal due to the project and other complementary interventions by the city (traffic improvements, sidewalk widening, gardens), evidence the economic benefits associated by these interventions. Analyzing differences in land value prices increases between the canal area and other areas in the city center, it was now possible to estimate this benefit at around VND 2800 billion. Under these two considerations, the analysis shows a positive NPV of VND 80 billion and economic rate of return of 13.2% (VND 330 billion and ERR 3.3 % higher than estimated at appraisal). Annex 3 offers more detailed information on this analysis. Financial: The financial sustainability of the sector alone still has to be proved. Tariffs in the wastewater and drainage sector were established for the first time in 2001. The goal was to recover full costs by 2006. By that time these targets proved too ambitious and new targets were set: by 2009 a tariff of VND 450 / m3 was established but not achieved. Today, the cost recovery rate through tariffs is still lower than planned and the sustainability of the sector depends on the provision of city subsidies. There is little predictability of such subsidies, as they vary from year to year according to the city budget allocation needs. The tariff rate is today fixed as a percentage of the water bill. Although this arrangement is to be reviewed periodically, the annual increases in revenue depend exclusively on the increases in the water tariff which is revised by the city on an annual basis. This arrangement presents some challenges as these annual tariff review increases are more influenced by the financial situation and interests of the Water Supply Company than by those of SCFC. Estimates on affordability show that there is margin to increase revenues from tariffs. SCFC will assume a considerable increase in O&M costs this year with the operation of the pumping station which is depending on the good maintenance of the sewers and interceptor to avoid garbage to obstruct the system. Such increase in costs, estimated at VND 116 billion for 2013 will need to be added to others related to the operation of the new sluice gates and pumping station at the mouth of the canal to be in operation in 2014. With phase II in the pipeline, the need to increase the financial independence of the sector to guarantee its future sustainability is clear. More details are included in Annex 3.

3.4 Justification of Overall Outcome Rating Rating: Moderately Satisfactory The relevance of the revised PDO was satisfactory because it was well aligned with the Borrower’s strategy and with the CPS throughout the project’s life cycle. The activities of the project were also successfully completed as designed, and the revised objectives have

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been largely achieved, but with a lower efficiency than expected due to the delays and cost overruns. Achievement of Project Development Objectives has been assessed with respect to the original PDO and RF and the revised ones following the formula provided in the ICR guidelines.

Achievement with respect to original PDO: There is no doubt that the project has contributed to the higher level objective of improvements to the public health and well-being of the residents of HCMC and promoted economic development in the commercial center of the city. However, attribution and monitoring were difficult to measure as these objectives were too broad. For this reason the achievement against the original DO is rated as Moderately Unsatisfactory.

The MU rating for the original PDO and KPIs carries 39% of weight and the MS rating for the revised PDO and KPIs carry 61% of weight To take into account the disbursements level at the time of the restructuring. Overall, the weighted PDO rating is MS.

3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development This project did not include activities specifically focused on improving the lives of particular target groups, with the exception of the expansion of tertiary sewers to the unconnected, which are supposed to be the poorer areas of the basin and the construction of a number of public toilets financed by city districts. Yet, it is well known that economically disadvantaged populations suffer disproportionately from a poor living environment. In this case, the poorest were the ones suffering the worst consequences of the frequent flooding and unsanitary conditions, so, although there is no supporting data to justify this fact, those groups are likely to have benefitted most from the project. The analysis conducted in annex 3 shows that the water, wastewater and drainage services are affordable by the entire population, including the poor. (b) Institutional Change/Strengthening

The institutional transformation of the wastewater and drainage sector in the city was remarkable, which the project has supported. In the year 2000, these services were provided by a department of the municipal government with low quality of service and with no provisions for financial sustainability. The sector underwent important institutional reforms and today it is in a better position to provide higher quality services to the habitants of HCMC. The main change was the separation between the ownership of the infrastructure and responsibility for the service provision (SCFC) and the operation (UDC).

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More specifically, UDC operates as a Public Service Enterprise. It uses corporate accounting and works under a service contract with SCFC based on agreed unit rates and measured volumes of work. The rates are proposed by UDC annually and negotiated with SCFC under the supervision of the Department of Transport and Public Works, and with the approval of DOF. UDC is responsible for Level 2 and Level 3 (primary and secondary) sewers and part of Level 1 (the non-navigable sections of canals). UDC is also assuming the operation of the existing wastewater treatment plants and will assume the operation of the pumping station under this project. District Urban Management Units are responsible for Level 4 (tertiary) sewers. SCFC has also been strengthened. It now follows a new Development Plan, has an Information Management strategy which will be soon implemented and a new Operations and Maintenance manual which is shared with UDC. Its staff has been trained in English, financial management, administration, and environmental management. However, as discussed in section 3.3, the level of financial sustainability of the service provision is still weak for the level of service that the new infrastructure in place is designed to provide. This raises alerts on the need to improve the predictability of revenues in the medium term that guarantee a sound operation and maintenance of the systems. (c) Other Unintended Outcomes and Impacts (positive or negative) The project upgraded the canal area avoiding wastewater being diverted in the canal, rebuilding the canal banks, dredging it to increase its capacity and avoid overflows during intensive rainy periods. While these interventions are central to the project objectives, they were also triggers to others funded by the city, such as improvements in parallel and adjacent streets, widening sidewalks or new gardens along the canal. The whole set of interventions have transformed this part of the city from a marginal big open sewer to a dynamic radiant neighborhood. Private investment in the form of small businesses and new residences along the canal are significantly increasing and the new spaces along the canal are being used for social and recreational purposes. (See Annex 8 for photographs from before and after the project). In addition, although this was not conceived specifically as a climate change adaptation project, the new infrastructure in place will strengthen HCMC’s more densely populated wards’ resilience to flood events, which under the most probable climate change scenarios are increasing in frequency and intensity.

4. Assessment of Risk to Development Outcome Rating: Moderate Currently, illegal solid waste dumping in the sewers and canal is a major problem and a threat for the adequate operation of the system and the drainage capacity of the basin.

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This is the cause of a considerable additional effort to keep the facilities in good condition and to avoid obstructions in the pumping station. Clear measures need to be put in place to reduce this problem to a minimum. There is already an Information Education and Communication program implemented by the city authorities that should be continued and expanded. Installation of additional screening at road gullies/catchpits within the NLTN basin should be adopted commencing with a survey, to be conducted soon, and preparation of a cost estimate. This should also be well coordinated with a sound solid waste management policy in the city. Operation and Maintenance costs are likely to further increase due to the operation of the new facilities. Costs are expected to keep rising in the long term with the future operation of a new waste water treatment plant. For that reason, it is important to ensure predictable revenue that allows allocating enough funds to carry out the required O&M activities. This flow of funds should ideally be coming from a progressively increasing wastewater tariff, entirely directed to the provision of wastewater and drainage services, and a progressively shrinking subsidy. With this purpose, during the preparation of phase II, the municipal government has committed to update the city’s tariff roadmap for the next years. Adequate operation of the pumping station, in coordination with the pumps and sluice gates at the mouth of the canal requires a sound knowledge of all the variables involved, such as the runoff levels related to the intensity and duration of a specific rainfall event, the hydraulic capacity and concentration time in the canal, the tides…etc. In that sense UDC will benefit from additional training and capacity building activities. 5. Assessment of Bank and Borrower Performance. 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Satisfactory The project was well justified and its objectives were closely aligned with the CAS and the Borrower’s policy instruments such as the HCMC Wastewater Master Plan. The project was prepared with sufficient time, taking advantage of the progress made by the local government in the previous six years in transforming the area around the canal in the NLTN basin. Feasibility studies were also prepared way in advance, and served as basis to elaborate the corresponding bidding documentation. By the time of project approval, technical designs and bidding documents for an amount of US$ 60 million were ready as a requirement of the Bank’s readiness filter for projects in Vietnam. Detailed designs were approved with some delays due to small discrepancies with the preliminary designs at the FS. There are also some emerging concerns of overdesign of

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the sewerage component of phase I, derived from an overestimation of the wastewater production and future population. Yet, since the capacity of the drainage system is not high (2 year return period storm), the interceptor and pumping station also provide some additional drainage capacity to the system during storm events10. The Bank team during preparation, mostly based in Vietnam, was well staffed, with senior expertise in all fields. The team was able to engage with other development partners in the sector (JICA, Finnish Cooperation, PHRD) so additional funds were used during preparation to conduct various preliminary studies. Extensive consultations were effectively carried out with all relevant project stakeholders, and particularly with project beneficiaries and project affected people. In the context of the decentralization agenda, the team put considerable effort to try to understand the time requirements for approval processes within the Government and tried to set up a realistic implementation agenda for the project. Yet, these assumptions did not fully capture the political implications around this important project, and setting up a longer implementation period would have been more appropriate. The decision to introduce activities of technical assistance for the preparation of technical designs and for construction management was the right one. Certainly the challenges during implementation would have been magnified if this valuable support was not in place. As mentioned, there were several shortcomings at the design stage. The economic analysis could have been better defined. If CBA was not feasible due to the difficulty of collecting relevant data on benefits, then the analysis could have more effectively focused on fully developing the cost-effectiveness methodology, making explicit each alternative and its corresponding costs in more detail. The assumption that no septic tanks would be needed for new construction after the project completion has not proven to be appropriate, as there is still no wastewater treatment plant in place. Also, for a project with works of such complex technical requirements, more emphasis could have been given to preparing more detailed technical specifications and pre-qualification criteria to better ensure the use of more appropriate construction techniques and methodologies. In addition, the results framework selected to monitor the results of this project could have been better defined as indicated in section 2.3. The PDO was too broad and ambitious so it was not possible to attribute it to project interventions. However, this issue was not uncommon at the time of project preparation. The task team reacted to this issue and elaborated a more realistic set of indicators during the project restructuring in 2009. Likewise, the financial covenant indicating the need to recover O&M costs, plus

10 The capacity of the interceptor is about 6% of the canal capacity.

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depreciation and interests by 2006 included in the DCA was not realistic. This was also amended during the restructuring. (b) Quality of Supervision Rating: Moderately Satisfactory Starting early during implementation, project supervision was planned and carried out effectively. Supervision teams were appropriately staffed to address and report on implementation issues as they emerged. The team concentrated from the beginning on solving the challenges related to the various causes of delays. Official supervision missions were planned twice a year, but one or two additional follow-up missions were carried out to provide implementation support. By 2006 the accumulated delay was considerable and the team correctly downgraded project implementation to MU, and U the next year. The team made remarkable efforts through the entire project life to maintain constant contact with project authorities and to offer strong support to try to resolve the many pending issues. The Bank rightly took determined actions to elevate communications at the adequate city and ministerial levels. These actions proved to be the right ones, as they often derived in continued progress, making it possible to bring the project to an end. It would have been beneficial for the restructuring to modify the PDO and RF earlier instead of 8 years into implementation. Several restructuring happened before that, and could have included these changes to a revised the DO and KPIs. The amount of undisbursed funds at project closing is significant, as US$ 35 million, and had it been detected earlier, the funds could have been cancelled reprogrammed to other IDA operations in Vietnam. For all the reasons explained in section 2, this was a project that was very difficult to supervise. Yet, despite of all the difficulties, the Bank team saw things through and made the right choices to bring the project to a successful completion. The Bank team gave adequate support to the client in all project supervision activities. It showed proactivity and flexibility by amending the legal agreements and restructuring the project to improve the results framework and reflect the new implementation arrangements resulting from a new institutional framework in the sector. When the pace of implementation picked up in 2008 the team envisioned a successful completion of the project and rightly requested the corresponding closing date extensions and additional financing. This proved to be the correct decision as all the project activities were successfully completed within six months later of the closing date established in the Additional Financing project paper. (c) Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory

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Consistent with the Bank’s performance at quality at entry and during supervision, the Overall Bank Performance is rated as Moderately Satisfactory. 5.2 Borrower Performance (a) Government Performance Rating: Moderately Unsatisfactory National and local authorities showed commitment to the project from the moment of project design to the final day of completion. Reflection of this are the institutional reforms in the wastewater and drainage sector such as the implementation of the wastewater tariff in 2001, and the subsequent increases in 2004, 2006, 2008 and 2010, or the establishment of SCFC and corporatization of UDC. Counterpart funding has been adequate for this project, covering certain key components such as the Saigon River Crossing or the expansion of the tertiary sewer network and resettlement compensation. It was expected that decentralization would streamline the different approval processes, but because of how new this project was city officials continued to follow old procedures and perhaps certain risk aversion attitude towards the magnitude of the project contributed to impose additional clearance procedures. The times for these additional clearances were also unpredictable, even when the Bank team had made an important effort to come up with a realistic implementation agenda considering these factors. Delays worsened with time and the reaction from the government side to speed things up was too slow. During project preparation these processes should have been better mapped and anticipated so as to better schedule project implementation. The accumulated delay and lack of apparent willingness to change this slow pace ended up being a major constraint affecting implementation progress and at some point the entire project was at risk of being canceled. The institutional changes in the wastewater and drainage sector could have been better explained to the Bank so the activities under component 3 on Institutional Strengthening could have been implemented as programmed, avoiding inefficiencies due to repeated changes in scope and focus. The year 2008 marked an inflexion point with key supervision tasks being delegated to the municipal level. By that critical moment at the end of 2007, the city Government showed greater commitment by endorsing a new implementation plan, and by taking decisive actions such as allowing for more flexible and longer construction working hours, and delegating some of the decision-making processes to the PMU. It also held high level meetings with the contractors to solve the pending issues.

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(b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory The overall PMU performance in conducting designs reviews and implementing environmental and social safeguards measures is considered moderately satisfactory. The quality of monitoring and reporting on the project indicators was sometimes irregular, but the PMU maintained strong commitment to solve the obstacles causing delays, which was key to be able to upgrade the project implementation to MS and pursue the consequent restructurings, AF and corresponding extensions. The PMU could have enforced more strongly the obligation of the contractors to comply with health, safety, environmental and traffic requirements. This could have reduced some of the delays occurring during project implementation. Another related issue found was the lack of enforceability of penalties included in the contracts to the bad performance local contractors, where there appears to be reluctance to retain liquidated damages. In general, the PMU's handling of procurement processes satisfactorily complied with the agreed procurement procedures with good reputation. Nonetheless, during the execution of some contracts, the PMU did not fully comply with the Bank's prior review procedures for the modifications of signed contracts which has caused significant difficulties to the Bank's review and clearance of such modifications. During regular supervision mission and in annual audited financial reports, the Bank task team and the auditor respectively have raised some recommendations to improve the Project accounting and internal control system such as upgrading the Project accounting software, archive accounting data, insufficient counterpart fund allocated, contract management system. The PMU has implemented these recommendations throughout the years. The improvements in the efficiency of project implementation were also consequence of an increasing capacity in financial management, procurement and technical supervision, thanks in part to the influence of the technical assistance on institutional strengthening and the close collaboration on a day to day basis with the construction supervision consultants. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory Considering the progress made in overcoming the initial challenges during implementation, the Overall Borrower Performance is considered to be Moderately Satisfactory.

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6. Lessons Learned

Transformational Project and perseverance against odds: This was a high risk project that ended up having a transformational impact in HCMC. The Bank has made a considerable impact by staying engaged through thick and thin on a project that was critical to improving the life of the residents of NLTN basin. Political economy issues: A key lesson learned is the importance of the need to understand the political economy around the institutional decentralization process in Vietnam. Despite intensive efforts to set up a realistic implementation agenda, it was not possible to predict the time for approval processes on the government side or the reasons behind the additional reviews at different government levels. Decree 209: The application of decree 209 requiring additional information from the Contractor in certification processes introduced new delays in the implementation of construction projects. It would be therefore useful for the Government to review this policy with the purpose of simplifying payment processes to contractors, reducing bureaucratic constraints in project implementation and consequent delays. Construction in dense urban environments: In cities like HCMC urban utilities need to start thinking of mapping their infrastructure using GIS tools. This will facilitate coordination when building or maintaining new or existing networks (including electricity, water, wastewater, telecom and transport). Project implementation period: large infrastructure investments in challenging urban environments need sufficient implementation time. In such cases, phasing of the investments should be considered - either through an APL or through discrete Bank projects where it is clear that activities can start and finish within 5 years. Need for a septage management strategy: In the process of modernization of urban sanitation the city needs to have a comprehensive and integral vision of the key challenges in the sector, and future interventions will have to be coherent with this vision. The majority of the city habitants still rely on septic tanks which are not regularly emptied or maintained and septage not safely treated or disposed. A combination of a short and long term strategy to address this issue is urgently needed. Household connectivity should be better integrated in the project. This project only included tertiary sewers and household connections as an indirect activity to be financed by local districts. Fortunately, the expansion of the tertiary network matched the pace of expansion of the primary and secondary network financed by the project. However, there was a risk of this not happening if it is not monitored closely. Failing to connect the households could have had the consequence of failing to achieve the main project goals. Financial sustainability of the wastewater sector cannot be overlooked. The project was initially unrealistic in aiming at full cost recovery. However, progress has been made since the establishment of tariffs more than one decade ago. Next interventions in the

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sector will need to comprehensively address this issue of sustainability to avoid putting the future investments at risk. Stronger financial independence of the sector through increasing revenues from tariffs is desired and a long term realistic tariff increase roadmap is needed for that purpose. Linkage between wastewater and solid waste sectors needs to be addressed. Last, solid waste management has proven to be strongly linked to the wastewater sector, as illegal dumping in the streets results in higher than expected maintenance costs of the network in order to avoid undesired problems in the sewers and pumping station. Continuity should be given to the measures put in place by the city together with others like imposing fines or engaging district authorities in environmental surveillance activities and promoting community-based environmental protection action.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners Borrower/implementing agencies: The ICR was shared with Government authorities from the Department of Transport, SCFC and the Project Management Unit. The main observations made are the following:

- The interceptor and pumping station have been also designed for flood alleviation purposes.

- The relocation of the water main was delayed mainly because the contractor of package 10 refused to undertake that activity. Once SAWACO assumed the responsibility for the work, it was carried out without further delays.

- The low rate of application of penalties to low performance contractors is due to

the lack of specific clauses in the contractual conditions for imposing penalties to the contractors.

- An important lesson learned could be added regarding contract management: it should be adequately strengthened, allowing for the mobilization of the necessary resources.

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Annex 1. Project Costs and Financing Table 1. Project Cost by Component (in US$ equivalent)

Component Original

Costs Revised Costs (including AF) Actual Estimate Amounts IDA Difference

Total IDA Counterpart Total IDA Counterpart Wastewater 60.2 89.2 79.7 9.5 70.7 62.89 7.81 Drainage 96.9 202.0 182.8 19.2 216.3 166.76 49.54 Technical Assistance 14.4 19.9 19.6 0.3 21.7 18.35 3.35 Vehicles and Equipment

0.9 0.9 0.9

Land Acquisition 3.3 3.3 3.3 2.3 2.30 Incremental Operating Costs of the PMU

1.6 1.6

1.6 5.0 5.00

Price Contingencies 22.5 Total Costs 200 316.9 283.0 33.9 316.0 248.0 68.0 35.0 Table 2. Financing

Source of Funds Appraisal Estimate

Revised Estimates

Actual/Latest Estimate

Percentage of Appraisal

Percentage of Revised

Estimates IDA Credits 166.34 283.0 248.0 149.09% 87.63% Counterpart Fund 33.62 33.9 68.0 202.26% 200.59%

Total 199.96 316.9 316.0 158.03% 99.72%

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Annex 2. Outputs by Component

OUTPUTS BY COMPONENTS

Component 1: Wastewater The project designed to have the wastewater diverted from the combined sewers around 56 combined storm overflow chambers into an interceptor sewer 8.4km long running parallel to, and largely under, the NLTN Canal. The interceptor discharges by gravity into a Wastewater Pumping Station, equipped with mechanical screens to remove solids, and discharges through an outfall. The outfall is built as a tunnel which discharges into the Saigon River through a diffuser designed to maximize mixing and dilution. To improve the canal water quality in the dry season, when there is limited natural flushing of the canal and a tendency for septic conditions to develop, two special draw-off chambers will be located in the upper section of the canal to enable low quality to be drawn off into the interceptor sewer. After completion, the project constructed: As Appraised As Implemented (i) 8.4 km of wastewater interceptor with inside diameter of 3000mm;

• 9.051km of wastewater interceptor, of which 1.217km with an inside diameter of 2500mm and 7.834km with an inside diameter of 3000mm;

(ii) around 56 combined storm overflow (CSOs) chambers from 4m to 6m deep with plan dimensions varying from 2m to 4m wide by 4m to 6m long;

• 59 combined storm overflows (CSOs) chambers from 4m to 6m deep with plan dimensions varying from 2x4m to 4x6m;

(iii) 2 canal flushing chambers; • Done as designed (iv) 0.8km of outfall to the Saigon River with inside diameter of 3000mm;

• 0.82km outfall to the Saigon River with inside diameter 3000mm;

(v) a wastewater pumping station, with a hydraulic capacity of 64,000 m3/hr comprising of 6 mechanically cleaned bar screens, 12 constant speed, submersible non-clog pumps, each capable of pumping 6400 m3/hr against a 20m head; and

• Done as designed

(vi) a control and data acquisition system (SCADA) to monitor and control canal water quality.

• Done as designed

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Component 2: Drainage Component Under the Drainage Component, the project completed the following tasks: As Appraised As Implemented (i) Replacement and extension of 72km of combined primary and secondary sewers comprising pipes from 0.6m to 1.8m and culverts from 1.2m to 4m wide in the basin to reduce flooding and overflows of combined stormwater and wastewater onto the streets;

• Replaced and extended 51.521km of combined primary and secondary sewers comprising pipes from 0.6m to 2m in diameters and culverts from 1.2m to 5m wide in the basin

(ii) Dredging, transportation and disposal of approximately 1,100,000m3 of sludge and excavated materials to increase the hydraulic capacity of NLTN, and related strengthening of 18km of canal embankments;

• Dredged, transported and disposed approximately 1,050,000 m3 of sludge and excavated material to increase the hydraulic capacity of the canal; Strengthened 16.778km of canal embankments using sheet piles, the difference was due to the fact that not the whole canal bank could be strengthened with sheet piles. Where not possible, such as at the foot of a bridge, a structure was put in place to secure the surrounding area.

(iii) field investigation of some 54km of pre-1954 brick secondary combined sewers using CCTV techniques and deign and rehabilitation of up to 30km, where necessary;

• Investigated of some 54km of pre-1954 brick secondary combined sewers using CCTV techniques, and redesigned and rehabilitated 5.171km of these sewers;

(iv) extension of around 270km of tertiary sewers with diameter less than 0.4m to connect the 30% of mainly low-income houses in the basin that are not currently linked to the system.

• Extended around 375km of tertiary (level 4) sewers, using local resources.

Component 3: Technical Assistance and Institutional Strengthening (i) Design Consultant: Detailed design for the wastewater component was carried out by CDM International Inc. using a Project Preparation Advance. This contract was awarded on July 12, 2000 with a Contract Completion Date of December 31, 2001. The design for the drainage component was also carried out by CDM International Inc. as part of the project implementation and was completed in April 2005. (ii) Construction Supervision Consultant: The contract was signed with CDM International Inc. on August 15, 2003, 3 years after the Procurement Notice. For assessment of CDM performance under this assignment please refer to Section 5 of the ICR.

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(iii) Institutional Strengthening and Capacity Building: The Institutional Strengthening work was aimed at helping UDC adapt to its new role as an operational Public Service Enterprise with a guaranteed revenue stream (and therefore responsible for repaying the loan in the future). In addition to corporate planning and financial aspects, the technical assistance was expected to help UDC develop capacity to procure and supervise service contracts covering operation and maintenance activities. At appraisal, the technical assistance to UDC included: (a) a corporate plan; (b) an upgraded financial accounting system; (c) environmental standards, monitoring procedures, and public awareness campaigns; (d) procedures for contracting operation and maintenance work; (e) preventative maintenance procedures and related costing methods for maintenance work; (f) an integrated MIS; and (g) a human resource development strategy and related training. The contract was signed with COLENCO on February 27, 2004 but was not completed until June 30, 2010, more than two years after the anticipated date of March 01, 2008. However, the outputs done within the first 18 months were largely lost due to several institutional rearrangements in 2005-2006 and 2008, which reassigned the role of asset management vis-à-vis this project first to the Urban Transport Management Department 1 (UTMD1) within the Department of Transport & Public Works, and then to the Flood Control Center (FCC) – or the Steering Center for Flood Control (SCFC)11 as it is known today – in 2008 (details of the rearrangements are illustrated below). With such rearrangements, the scope of work under this contract was revised significantly, and COLENCO was asked to shift their focus to UTMD1 and SCFC. It was at least fortunate that the staff members from UTMD1 drainage and wastewater divisions were reassigned to SCFC and therefore the training program retained a level of continuity. Within this package 3, COLENCO provided the following technical assistance to the project: As Appraised As Implemented (a) a corporate plan; • A Business Planning template was also

delivered to UDC before the rearrangements;

• An organization plan for UTMD1/Drainage and Wastewater Divisions

• A Development Plan has been prepared and approved for SCFC;

(b) an upgraded financial accounting system;

• The procurement for 15B (Accounting and Financial Management System), and 15C (Integrated Operation and

11 The ICR will refer to this institution as SCFC for consistency

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Maintenance Management System) was significantly delayed due to delays in other projects in the city. Therefore the procurement of these packages was canceled during the supervision mission in April 2011.

(c) environmental standards, monitoring procedures, and public awareness campaigns;

• Two courses in environmental management (28 teaching hours in total) were delivered as part of the professional training program in part (g) below;

• Public Relation & Community Education Strategy and some relevant activities were developed and proposed to UTMD1 but were not approved in time. Currently activities are undertaken under this Strategy with funding from the city.

(d) procedures for contracting O&M work; • A draft management contract for the operation and maintenance of the NLTN Pumping Station and an option report were delivered.

(e) preventative maintenance procedures and related costing methods for maintenance work;

• An O&M Manual, as approved and accepted by PMU and SCFC in 2010, and training was provided by construction contractor on O&M procedures to UDC and SCFC staff;

(f) an integrated MIS; • COLENCO delivered an MIS Strategy and bidding documents for the hardware and systems software platform (Package 14B) and for a Web Portal and associated software (Package 15A). But the procurement was canceled during the supervision mission in April 2011 due to delays in related projects of the city and not having sufficient time for the procurement and implementation processes.

(g) a human resource development strategy and related training.

• An HR Strategy for UTMD1/Drainage and Wastewater Divisions and job TORs;

• Assessment of training needs and a proposed training program to address those needs for UTMD1 and SCFC;

• 15 training courses (25 participants/course) for UTMD1 and SCFC staff with total time of 208 teaching hours on topics including (1)

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general management and administration; (2) management information systems; (3) environmental management; and (4) out-contract management;

• English communication courses in 2 phases for a total number of 70 participants from SCFC, UDC, and PMU.

(iv) External Environment Monitoring: the work was contracted out to ENTEC on August 8, 2003 and has been carried out up to April 30, 2012. ENTEC has regularly conducted environmental quality monitoring at agreed sites and prepared auditing reports under the supervision and review of the Bank’s environment specialist. At the start, there were some issues with ENTEC duplicating some of the work done by CDM environmental specialists to measure health, environment, safety and traffic aspects, and consequently a lack of independent judgment of ENTEC on some measurements. However, these issues were addressed and resolved between ENTEC and the project team. The environmental monitoring reports have been included in the aide memoires and discussed with the client along the supervision period. (v) Financial Auditing responsibility was contracted to PricewaterhouseCoopers (FY2002-2007), AASC (FY2008), and KPMG (FY2009-2011). They have all fulfilled their responsibility and submitted auditing reports on time to the Bank’s Financial Management Specialist to discuss key issues for improvement with the PMU. (vi) Independent Monitoring of RAP implementation: In 2001, HADECON was awarded the contract which they completed in December 2012. HADECON submitted reports to the PMU and the Bank’s social development specialists to monitor the implementation of the RAP as required.

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Annex 3. Economic and Financial Analysis

Economic Analysis Economic Background: Ho Chi Minh City has continued to lead the economic growth of the country in the last decade. Average annual GDP growth between 2005 and 2010 has been consistently over 10 %. Exports from the city make up to 40% of the entire country. As of June 2006, the city has been home to three export processing zones and twelve industrial parks. Ho Chi Minh City is the leading receiver of foreign direct investment in Vietnam, with 2,530 FDI projects worth 16.6 $ billion at the end of 2007. Project Benefits and Costs: The project objectives remained unchanged and focused on avoiding frequent floods in the basins and improving the sanitary conditions of households in the NLTN basin. Despite delays, all project activities were completed as planned. The economic justification of the project was initially assessed through a cost–benefit analysis at appraisal that was complemented with a least-cost analysis due to the difficulties in quantifying health, environmental and new economic development-related benefits. However, the least cost analysis did not clearly state the different technical alternatives to achieve the project objectives and its corresponding costs, and therefore the conclusions of the economic analysis were not clear. The assessment was further complemented with a socio-economic user survey that confirmed that the need to solve the frequent flooding problems and unsanitary conditions of the basin was considered a high priority among NLTN dwellers. Their willingness to pay was broadly consistent with the proposed tariff for the wastewater service at that time. In order to have a sense of how the economic analysis results could have changed after project completion due to implementation delays and cost overruns, an exercise was now conducted to update the cost-benefit analysis by using the hypothesis that, as all project activities have been completed as planned, the key assumptions behind some project benefits would still hold. Costs estimated at appraisal were then expressed in real terms, discounting the effect of inflation. The discount factor used and the time life of the new infrastructure was maintained for the purpose of this update: 12% and 45 years after completion, respectively. This analysis estimates the NPV in the year base (1999) and ERR. The results of this analysis are shown below: Project costs: Annex 2 summarizes the final project costs compared to costs estimated at appraisal. The project had an extra cost of US$ 89 million in nominal terms. This difference is reduced to US$ 26 million if the effects of inflation are discounted12. Project

12 In real prices of 1999.

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activities were completed with a total accumulated delay of almost 5 years. Consequently, the NPV of the total costs (capital and future expected O&M) after project completion is estimated at VND 847,7 billion compared to VND 1,233.8 billion at appraisal. Project benefits: At appraisal, the following were expected to be the main economic benefits from the project: Reduced flood damage: Reduced flood damage was estimated on the basis of a survey of damage to households caused by a 5-year storm, which occurred in HCMC in 1994. The costs included physical damage to property and possessions, cleanup, loss of commercial goods and loss of trading income. The analysis estimated that these costs were equivalent to VND 34.1 million per hectare (US$ 2,436/ha) of area flooded. The benefits associated to the project were calculated with the reduction of flooded area due to the new drainage infrastructure. The flooded area was calculated using the SWMM hydraulic model. This exercise assumes that, as the scope of the drainage works were constructed with no or small variations related to the design, the benefit of avoided damage due to floods remains the same. The NPV of reduced flood damage considering project delays is now estimated at VND 182 billion compared to VND 384 billion at appraisal. Avoided cost of Private Flood Protection: This benefit accounts for the monetary value of physical modifications to private properties made as preventive measures for flood protection assuming that these works would be no longer needed as a consequence of reduction in flood events due to the project. This update assumes that this hypothesis is still valid and therefore the economic value is only updated to the new timeline. This benefit is now estimated at a NPV of VND 153.2 billion compared to VND 292 at appraisal. Time savings: At appraisal, it was estimated that avoided floods will also mitigate the frequent traffic disruptions within the basin. Data from surveys showed that the average storm delayed traffic by about 30 minutes on average. Using data from traffic counts and overlapping it with flood maps, it was assumed that 20 % of the traffic could be affected during a storm. Using the average wage rate, this benefit was estimated in VND 115 billion. Assuming that these hypotheses are still valid, and the annualized benefits are only adjusted to the new timeline, the updated associated benefit is a NPV of VND 65 compared to VND 115 calculated at appraisal. Savings in installation and desludging of septic tanks: At appraisal, it was assumed that all new constructions in the NLTN basin after project completion would not be required to build septic tanks since households could directly connect to the new sewer system., Consequently, it was assumed that there would be a saving in both the investment in septic tanks of future constructions and the corresponding desludging services. This benefit was estimated at VND 129 billion. However, and despite the completion of the new sewerage network in the basin as planned (included tertiary sewers and household connections), current regulation still mandates the construction of septic tanks in consolidated urban soil also for new buildings. There is no signal that this regulation will

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be eliminated in the short or medium term. Consequently this benefit is today estimated at zero. Public Health Benefits: The initial analysis acknowledged the potential of the project to improve the sanitary and health conditions of the residents in the basin. However, it did not quantify them due to the complexity of attributing these benefits to the project. For the same reasons this component was also not quantified this time. Data from the Department of Health collected up to 2006 shows certain improvement in the incidence of cases of malaria, dysentery, diarrhea or typhoid and it is very possible that the improvement of sanitary conditions in the basin, although not much advanced in 2006, could have contributed to this progress. Encouraging New Investments and Economic Development: the other benefit that was not calculated at appraisal was the increase in land value in the areas around the canal, mainly due to the difficulty of predicting the nature of the development that would take place and speculating on future property values. However, now that the project is completed, it is indeed possible to estimate this benefit. Property prices in areas around the canal were collected after project completion. The difference of land value in these areas before and after the project was compared with the average difference before and after the project in other areas of the basin. The table below shows the results of the survey:

Table 1: Land price increases. (Source: PMU)

Land prices in USD / m2 (average)

Year 1999 Year 2012 Increase

Area around the Canal

195 2140 1945

Average of other areas in the Basin

1950 2855 905

Therefore, an economic benefit of US$ 1040 / m2 could be attributed to the interventions around the area of the canal. These are mainly the improvements in the canal, but also the works on parks and conditioning in the area financed by the city. Therefore an assumption was made that 70% of the associated benefits of increased land value could be associated to the project. Calculating the area of the first line of properties along 8 km of canal gives a total benefit of VND 4,077 billion. It is assumed that this is benefit is materialized through transactions occurring during the next five years following project completion, giving a total NPV of VND 528. Cost-benefit analysis summary: The main results of the updated CBA are included in the table 2 below. The first column indicates the results of the analysis at appraisal. It showed a negative NPV of VND 251 billion and a ERR of 9.9 percent, acknowledging that the health

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benefits and the benefits derived from the increase in land value prices were not possible to calculate. A sensitivity analysis was also conducted at that time accounting for possible delays during implementation and also capital costs overruns. This analysis showed that a capital cost overrun of 20% implied a loss of NPV of VND 232 billion and a reduction in the ERR of 1.4 percent (second column). The consequences of a delay of two years would decrease in the NPV an additional VND 18 billion. The third column shows the effects of the project delays and cost overruns in the overall net benefits at completion without considering the benefits from higher land prices along the canal. This stills considers the expected benefits from avoiding septic tank constructions in the future. The NPV under these hypothesis is VND 100 billion lower with respect to the original estimated NPV and the ERR would be 1.8 points less. The fourth column includes the effect of the increase of land value along the canal due to the project, which is significant. The introduction of this factor changes the overall result of the analysis, showing a positive NPV and increase in the ERR. Here the benefits from avoiding septic tank construction were not considered for the reasons explained before. It is important to note that if the city allows for direct connection to the new combined system avoiding the construction of new septic tanks in future constructions during the life of the project, additional benefits could be added. Last, the negative environmental externalities created by the discharge of raw sewerage in the Saigon river should also be taken into consideration in a more detailed analysis. Table 2. Net Present Value and ERR of the investment at Appraisal and Completion

At appraisal

At appraisal with 20% increase in CAPEX

ICR without land value effect

ICR with land value effect and no benefits from septic tanks

Costs (1,233.8) (1,465.5) (847.7) (847.7) Capital (1,158.6) (1,390.3) (813.7) (813.7) O&M (75.2) (75.2) (34.0) (34.0) Benefits 982.4 982.4 496.9 928.3 Flood Damage Avoided 384.0 384.0 181.8 181.8 Savings in Flood Protection 292.3 292.3 153.2 153.2 Time Savings 115.4 115.4 65.1 65.1 Savings in Septage installation 129.5 129.5 65.6 0.0 Savings in Septic servicing 61.2 61.2 31.1 0.0 Health Savings 0.0 0.0 0 0 Land Appreciation Along the Canal 0.0 0.0 0 528.1 Net Benefits (251.4) (483.1) (350.8) 80.6 ERR 9.9% 8.5% 8.1% 13.2%

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Financial Analysis

The assumptions and policy principles ruling the sector identified at appraisal were: a) that the urban economy in Ho Chi Minh City could directly support a higher proportion of infrastructure investments and b) that it is more efficient and equitable to recover the costs of wastewater services through user charges than via general taxation. Consistent with these principles, this project was implemented with an IDA credit that was on-lent to the city and user charges were applied to recover part of the cost of operating the sewerage and drainage network.

Wastewater tariffs were introduced for first time in 2001 and the policy at that time aimed to recover by the year 2006: i) operations, maintenance and capital depreciation of wastewater assets under this project and the similar JBIC project in THBN basin; and ii) operation and maintenance of the combined sewerage system plus depreciation of associated maintenance equipment. The wastewater fee is collected by the water company and is established at 10% of the amount billed. SAWACO retains around 3-4% of the generated revenue to cover administration costs and the rest is transferred to the Department of Finance which is responsible for allocating SCFC’s annual budget and providing SCFC with a regular revenue stream to cover its operational costs.

Although decree 88/2007 still requires full cost recovery for the sector, the targets on cost recovery initially set for this project were acknowledged to be too ambitious during project restructuring and new targets were set at that time: VND 450 / m3 by the year 2009 which was supposed to cover a significant part of the O&M costs and on track to achieving operational cost recovery in subsequent years. The financial covenant of the project was relaxes to ensure at least that the entire revenue coming from the wastewater tariff was fully transferred to SCFC.

However, by 2009 the wastewater fee was lower than the target and cost recovery rate through user fees today is still low. The following table summarizes the financial situation of SCFC:

Table 3. Costs and revenues in the Wastewater Sector. Source: SCFC, 2012.

VND billions / Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Total Budget for O&M * 63 62 65 74 102 201 244 288 386 427 N/A

Total Expenditure (VND billion, including O&M, Depreciation, Interest and Taxes ) 59.2 58.7 61.5 70 96.6 190 230 272 353 413 N/A

Revenue (VND billion) 55.5 52.4 59.4 65.9 75 93 140 169 241 260 N/APercentage of Cost Recovery with respect to O&M budget

88% 84% 91% 89% 73% 46% 57% 59% 62% 61% N/A

Domestic wastewater tariff up to 4m3 per person per month (VND/m3)

264 264 264 250 250 250 300 350 400 440 480

Commercial wastewater tariff (VND /m3) N/A 264 264 400 400 400 700 800 900 1350 1520Institutions wastewater tariff (VND/m3) N/A 264 264 400 400 400 600 700 800 810 930

Source: SCFC

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* SCFC provided budget for years 2010 and 2011. The O&M budget for previous years has been estimated using the proportion between O&M budget and Total costs for the years 2010 and 2011. Actual O&M needs have not been provided by the PMU and could be higher than budget amount.

Data on costs provided by SCFC do not reflect real O&M needs, but only the actual expenditure. Data on real O&M budget for years 2010 and 2011 indicate that actual allocation for O&M is lower than the real needs. This fact has been constantly pointed out by the Bank during supervision missions. Figure 1: Cost recovery in the wastewater sector. (Source: SCFC, 2012)

The table and graph show a constant increase in SCFC costs from the year 2002 and the increasing difficulty to recover costs through revenues from user fees. The completion of the project and other improvements in the sewerage network in the city will imply a considerable increase in SCFC running costs in 2013. Thus, the operation of the pumping station (VND 27 additional billion in 2013), new sewers (89 additional billion in 2013, of which 14 are for the in the NLTN basin) are the most significant examples. SCFC will also assume in 2013 the operation of the sluice gates and pumping station at the mouth of the NLTN canal, which will also contribute to increase the budget. Figure 2 below, shows a prediction made on future costs and revenues considering the new costs indicated before and future ones if phase II (new WWTP and possible extension of sewerage in District 2) is completed in the year 2017.

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Figure 2: O&M Costs and Revenues from Tariffs in the Sector Tariffs The wastewater tariff has been evolving since its establishment in 2001. By definition, revenue from the wastewater fee is subject to the increase in the water tariff, which is revised and approved every year by the People’s Committee. Increases in the wastewater tariff itself are reviewed less frequently. Table 4 below shows the evolution of the water tariff, tariff revenue and the operation costs of the water supply company:

Table 4. Tariffs, Costs and Revenues. SAWACO. Under this arrangement the challenge is for the city to define tariff levels that suits both the water supply and sewerage sectors. According to the current numbers it seems that SCFC is in more urgent need to increase tariff levels. The current tariffs both in the water and wastewater sectors are way below the projections made in the year 2000, which were

Period starting from 3/2000 7/2004 01/2009 3/2010 01/2011 01/2012Water tariff 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

DomesticWithin the quota 1700 1700 1700 1700 2700 2700 2700 2700 2700 2740 4000 4400 4800

> 4m3 to 6m3/capita/month 2500 2500 2500 2500 5400 5400 5400 5400 5400 5440 7500 8300 9200

> 6m3 - 10m3/capita/month 3200 3200 3200 3200

> 10m3/capita/month 4000 4000 4000 4000Institutions

Within the quota 2200 2200 2200 2200Over the quota 3000 3000 3000 3000

Production 4000 4000 4000 4000 4500 4500 4500 4500 4500 4540 6700 7400 8200Services 6500 6500 6500 6500 8000 8000 8000 8000 8000 8000 12000 13500 15200

Operation Costs (million VND) 340 847 397 845 425 506 486 783 939 051 1 154 294 1 208 251

Revenues from Tariffs (million VND) 448 684 501 206 520 170 561 732 742 395 960 199 1 015 285 1 110 223 1 203 915 1 301 683 1 897 910 2 313 593

6000 6000

8000

6000 6000 6000

8000 8000 8000 8000

9300

8040 10000 1100010500

81006040 7100

40

projecting a water tariff in 2010 of VND 6200 in the lower block and a wastewater tariff of VND 1300, more than 5 times the actual tariff in that year. Affordability An analysis on affordability is useful to understand the margin to increase tariffs in the next years. Using income per capita data from the last GSO survey in 2010, a low income 4 member household paid about 1.6 % of its income the water bill13. Assuming that 5% would be a reasonable threshold, it means there is, in theory, margin to increase the tariff level if there is also willingness to pay for sanitation services.

13 4 member household with two adults making VND 1.54 million on average and each consuming 3 m3 per capita per month.

41

Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/ Specialty

Lending Alan Coulthart Lead Municipal Engineer EASUR TTL Alex Bakalian Senior Water Supply Specialist LCSWS Peer Reviewer Alex McPhail Senior Economist FFPSI Peer Reviewer Cliff Garstang Lawyer Hong Vu Social Specialist Social Specialist Lanfranco Blanchetti-Revelli Social Specialist Social Specialist

Ming Zhang Economist EASUR Economist

Luiz Claudio Tavares Sr Water & Sanitation Specialist EASUR Sanitation Engineer

Stuart Whitehead Financial Analyst Nguyen Cong Thanh Program Officer EASUR Operations Cuong Duc Dang Operations Officer EASUR Operations Dennis Long Environment Specialist Environment Patchamuthu Illangovan Environment Specialist Environment Nipa Siribuddhamas Financial Specialist Finance

Behdad Nowroozi Sr Financial Management Specialist EAPCO Finance

Omowunmi Ladipo Sr Financial Management Specialist LOAAS Finance

Supervision/ICR Dean Cira Lead Urban Specialsit EASVS Team Leader Cuong Duc Dang Sr Urban Specialist EASVS Operations

Arish Adi Dastur Urban Specialist EASIN Urban Development

Yoonhee Kim Urban Economist LCSUW Urban Development

William D. Kingdom Lead Water and Sanitation Spec SASDU Water & Sanitation

Hung Duy Le Sr Urban Spec. EASVS Urban Development

Hung Viet Le Sr Financial Management Specialist EAPCO Finance

42

Laurent Msellati Manager LCSSD Operations

Hoa Thi Mong Pham Sr Social Development Specialist EASVS Social Development

Tuan Anh Le Social Specialist Social Development

Cung Van Pham Sr Financial Management Specialist EAPFM Finance

Quynh Xuan Thi Phan Financial Officer GEF Finance Tran Thi Thanh Phuong Sr Environmental Specialist EASVS Environment Kien Trung Tran Sr Procurement Specialist EAPPR Procurement Mai Thi Phuong Tran Financial Management Specialist EAPFM Finance Hien Minh Vu Program Assistant EACVF Administrative

Hong Vu Sr Operations Officer EASSO - HIS Operations

Victor Vazquez Alvarez Young Professional EASIN ICR Team Leader Linh X. Le Research Analyst EASVS Economist

(b) Staff Time and Cost

Stage of Project Cycle

Staff Time and Cost (Bank Budget Only)

No. of staff weeks USD Thousands

(including travel and consultant costs)

Lending FY97 1.78 FY98 27.26 FY99 47.54 FY00 70 197.84 FY01 64 147.38 FY02 0.00 FY03 0.00 FY04 0.00 FY05 0.00 FY06 0.00 FY07 0.00 FY08 0.00

Total: 134 421.80

Supervision/ICR FY97 0.00

43

FY98 0.44 FY99 0.40 FY00 0.00 FY01 8 8.99 FY02 25 55.65 FY03 40 99.97 FY04 27 54.22 FY05 17 42.05 FY06 15 42.38 FY07 25 64.37 FY08 31 98.06

Total: 188 466.53

44

Annex 5. Beneficiary Survey Results Districts and Ward authorities, responsible for the extension and upgrade of tertiary sewers and ensuring household connections to the network, were consulted on the total number of households that are still not connected today. Lists of all households in the basin by district and ward and its status with respect to connectivity were reviewed by consultants hired by the project. Results show that only 570 households out of 266,000 remain today unconnected. This reflects a connectivity ratio of almost 100%.

45

Annex 6. Stakeholder Workshop Report and Results A workshop was conducted in HCMC with representatives from main beneficiaries groups. In total, 50 people participated in the workshop. Consolidated comments were received from the 13 training workshops carried out in local communities about protecting the environment of the canal. The presentation presented public suggestions on areas such as (1) developing rules and regulations; (2) strengthening reinforcement mechanism; (3) scaling up public education campaigns; as well as (4) some technical solutions to continue improving the environment around the canal. The main part of the workshop was used for the community representatives to share additional comments over different areas: Benefits of the canal:

• Numerous comments focused on the quality of life improvements, such as (i) reduced concerns for traffic accidents since they can walk safely on the large sidewalk; (ii) new safe space for hanging out, exercises, etc.; (iii) less time spent on anti-flood measures; and (iv) an overall ease being around the canal, as opposed to the avoidance before. One woman felt very proud as she witnessed youngsters stopping to take pictures with the nice sight around the canal.

• For former residents on the bank of the canal from the early 1980's to the 1990's, it was a life-changing experience from their unstable lifestyle before. With the resettlement well done, these households were given a new apartment and money to stabilize, settle, and develop their lives. In Vietnamese, the adage "settled housing brings professional prosperity" is well appreciated by these residents.

Suggestions/Actions for the next steps: • Build public toilets and trash cans, with frequent collection by the city's Urban

Environmental Sanitation Company. • Address the remaining issues of garbage cleaning for the drains and the canal,

including the installation of additional screens. • Scale up the public education campaigns to stress the importance of environment

protection. • Establish clear regulation on environmental protection and strengthen

enforcement mechanism, especially regarding local businesses. • Coordinate and distribute a uniform guidance across districts on best practices.

46

Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR The Borrower has prepared a Project Completion Report submitted to the Bank on October 31 2012. The following is a summary of more relevant sections and conclusions: Strategic Context The Project aimed to make a significant contribution to the Bank’s overarching goal of alleviating poverty by improving the living conditions of the urban poor in HCMC, who suffer disproportionately from the consequences of flooding and pollution. It will also address the CAS goal of Raising Productivity through Infrastructure by reducing the cost of doing business and by enabling the city to create a more favorable impression on potential investors through environmental improvements. Decentralization will also be supported by providing direct support to HCMC municipal government and by strengthening its institutional capacity. Key issues related to Project Design Of significant relevance to the design is the geotechnical condition in the Project area, which is indeed variable. This is clearly indicated in the design and is shown on the borehole logs provided to the Contractors. Where geotechnical condition represents a major factor in construction activities (e.g., construction of interceptor), the BOQ allocates the item “Soil Boring and Testing” for Contractor to offer the price in his Bid Documents. Variable geotechnical condition is already known at the bidding time, and further investigations do not reveal significant differences. A comparison of geotechnical data obtained by the design consultant and by the Contractor indicates that there is no substantial difference. Key issues related to Construction The shafts should preferably have been hydraulically jacked into the ground. Instead, the Contractor chose a cheaper method of allowing the shafts to sink by gravity. This is cheaper but less predictable and takes longer. The quality of the interceptor is acceptable and conforms to the Technical Specifications. The alignment accuracy of the pipe jacking is remarkable. The pipe manufacturing is of a very high quality. Some contractors (Packages 7 and 10) quoted very low prices for certain components and this resulted in an overall low bid price that helped them win the contract. Obviously the Contractor would suffer from financial loss for the underpriced component, so he found excuses not to undertake his work. The Employer had to assign another party to undertake the refused work – at a price much higher than the original bid price. As an illustration, the bid price for soil improvement work of Package 10 was so badly underpriced; it was not even enough to buy cement alone. A number of contractors often stated that they had financial constraints. Some contractors appeared to focus all their attention on the one activity where they could recover

47

reasonable costs. There was a risk that activities in which there was little cost recovery might become neglected. In fact, the contractors proposed, and was accepted, that some components be removed from the original scope of work. This created a bad precedent in that any contractor could propose to remove components that did not yield profits to them. Similarly, the poor attention to compliance to health, safety, environmental and traffic requirements (largely due to contractors’ reluctance to spend money) resulted in various orders for work suspension, which was a totally unacceptable situation. There was also a concern that the “sudden sinking” was due to uncontrolled excavation and over excavation. The technique of sinking by excavation is too uncontrolled and imprecise for the upper soft layers, this method should only be used once the soft layer has been penetrated and the shaft is vertical, after 10m. It may also be found necessary to jack once the shaft reaches harder layers at depth. In fact, the three events of TBM sinking could have been avoided if the respective Contractors had taken more care in implementation and had used better equipment. Significant delays in implementation were also due to the fact that ICB procurement was still relatively new to Vietnam and approvals remained highly centralized. There were significant delays due to various factors. However, as the Project progressed, HCMC agencies have improved their procedures to facilitate implementation. Other contract management issues: During the bidding and contract negotiation, it requires adding some specific conditions of the contract (COPA) for dealing related issues i.e. imposing penalties for sectional non-performance/non-compliance or safeguards non-compliance; or opening a separate account for respective contract. The contract management during the implementation should be adequately strengthened for mobilization of necessary resources and preventing multiple subcontracting. Risk Assessment The SCFC will continue contracting UDC to operate and maintain the system properly. HCMC is committed to increasing wastewater charges to a level sufficient for cost recovery. Even though HCMC leadership is committed to keep the canal clean and has given instructions to concerned Districts to take needed actions, indiscriminate dumping of garbage into NLTN Canal represents a challenge. Construction risks were confirmed but not due to unforeseen problems as suspected during preparation: although geotechnical conditions in HCMC are complex, there are technologies and equipment to overcome these conditions. The Interceptor Contractor did not adequately control his operations and used unsophisticated equipment for pipe jacking, resulting in failures and delays. As the Contractor tried to cut costs to fulfill prior low bid price, he opted to adopt poor construction method.

48

Environmental risks during construction were mitigated. Water quality monitoring results indicated that in sections of the NLTN Canal where dredged materials were transferred or transported, water quality was practically the same as “before” situation. There are no discernible risks related to the sustainability of the Project outcomes in the future. The capacity is in place to properly operate and maintain the system properly. Achievement of Objectives

- The reduction of pollution in the Nhieu Loc–Thi Nghe Canal, and throughout the basin in general, has been achieved. The Project has designed a post-construction monitoring program to determine the degree of this improvement.

- Food reduction throughout the Nhieu Loc–Thi Nghe Basin has been achieved.

- The development of UDC into a well-managed and efficient wastewater utility has been procedurally set-up, and UDC has been contracted to operate and maintain the Project’s Pumping Station starting July 2010.

As a result, the physical objective of creating sustainable improvements to the public health and well-being of around 1.2 million residents within the NLTN Basin, particularly the poor, has been achieved. The goal of achieving increased economic development in the commercial center of the city is not immediately apparent. However, the unpleasant environment once caused by the septic canal and the flooded streets within the basin has now been replaced with a pleasant waterway and flood-free streets which are more conducive to development. The NLTN Basin is now a place to live healthily and work effectively, not one to avoid. Assessment of Institutional Strengthening Capacity building was carried out in financial management, business plan formulation, human resource development, management information system (MIS) development, skill development in operation and maintenance, and in environmental management. A professional team has been formed through training programs in drainage and sewerage system management, financial management, management information system, system operation, and consultancy in urban drainage, wastewater collection and treatment, etc. The city was committed to cost recovery after the year 2004. HCMC authorities increased the tariffs at different periods. During 2004-2009, Ho Chi Minh City collected VND 536 billion from household wastewater fees but only VND 36 billion from industrial wastewater fees. The wastewater tariffs have benefited Ho Chi Minh City's finances and provide a more reliable means to finance an adequate level of drainage maintenance. Bank Performance

49

The Bank provided valuable guidance to the PMU in relatively new areas of project management such as site clearance and resettlement, dispute resolution, and environmental auditing. The Bank’s guidelines in procurement, disbursement, contract management, etc. had to be strictly complied, which caused delays up to the issuance of Decree No. 16/2005/NĐ-CP of the Government (2/7/2005) on the management of work construction investment projects. It took considerable time to resolve unexpected situations in the tendering process so that the solutions satisfied both Bank’s guidelines and Vietnam’s regulations. This achievement was not easy. Also, too many tendering works required both approvals from the Vietnamese side and no-objection from the Bank. This made tendering process extremely time-consuming and consequently led to cost escalation. For more effective coordination between the Borrower and the Lender, it is necessary that the Bank pays more attention to Borrower’s ideas, rather than imposing its own procedures. On the other hand, Vietnam should develop regulations more compatible with the international community, as “global integration” – or “hội nhập” – has been repeatedly encouraged by the Government of Vietnam. Government and PMU performance Project implementation is a process of complex coordination among parties. In reality, there is no common norm for such coordination when there are discrepancies between Borrower’s regulations and Lender’s practices. HCMC PC: During the first stage, the role was simply to submit technical documents for appraisal by central ministries before the latter presented those documents for Prime Minister’s approval. Therefore, HCMC PC’s interest during the first stage was limited. With decentralization policy from the central Government, HCMC PC had a right to delegate to the Department of Transport (as the Project Owner) authority to approve important matters in the Project such as the amended bidding plan, the amended budget, tender documents and bid evaluation results. Through this delegation, project implementation was accelerated, fulfilling the Bank’s requirements for Credit Agreement extension. PMU: During the beginning stage, PMU personnel lack experience related to ODA projects so they could not address effectively all unexpected situations. Therefore the tendering for Wastewater packages was delayed. Later on, the PMU learned their lessons and improved its performance in tendering for Drainage packages. During the process of project implementation the PMU’s capacity in tendering, contract management, financial management, site clearance and compensation was gradually strengthened. Lessons Learned

50

For complex works like this, more attention should be given to preparing more detailed Technical Specifications and Pre-Qualification criteria in the bidding documents. There should be “floor prices” for some critical components which costs are well known, e.g., water main relocation. In this Project, the bid price for water main relocation was unrealistically low: 17.7% of the approved estimated cost whereas the bid prices of two other bidders were comparable to the estimated cost. Contractors’ progress should be more tightly controlled by defining detailed benchmarks that the Contractors must achieve, or else they will be penalized. Contractors could be required to purchase adequate insurance in order to cover damages caused to the third parties, e.g., house cracking due to Contractors’ activities. This was the first massive urban upgrading project in HCMC, in dense traffic streets. Difficulties and constraints, as well as costs and time associated with them, were somewhat underestimated. It was the first major ODA project in HCMC, thus several issues have arisen regarding the discrepancies between Vietnam’s regulations and funding agency’s requirements. In spite of various difficulties that caused delays and cost overruns, overall the Project has remarkably achieved its objectives. Above all, construction works were maintained at high quality standards. The Project represents a major undertaking by Ho Chi Minh City and the World Bank to bring immediate benefits in environmental improvements and urban upgrading, and long term benefits in health improvement and economic productivity. The NL-TN Canal, with its clear water and green space along its banks, will provide an attractive urban ecological setting for City residents to relax and enjoy modern city life. Benefits in spin-off development, like office buildings, catering industry, retails and services (including tourism) are expected – and in fact they are already happening. Above all, this comprehensive sewerage/drainage system using proven technology may have been designed and built with foreign expertise at the start but later with substantial involvement of domestic companies and city institutions, who are now better equipped to handle similar works on their own in the future. The Project is sustainable as HCMC citizens are paying reasonable fees for system maintenance, operation, and depreciation for reinvestment in the future.

51

Annex 8. List of Supporting Documents

1. Institutional Framework of the Sewerage and Drainage Sector in HCMC

53

Institutional Strengthening activities in component 3 were initially planned according to the existing institutional framework in 2001, where UDC was both the infrastructure owner and service provider. This structure was later modified, in part also with the support of the institutional strengthening activities of the project. The People’s Committee issued a formal decision on September 8, 2006 making the Urban Transport Management Department (UTMD), and its Drainage and Wastewater Division Department (DWD) responsible for managing and financing the city's drainage and wastewater facilities. Later in 2009, the Steering Center for Flood Control (SCFC) was established as the new institution responsible for the provision of sewerage and drainage services, reporting directly to the PC. The responsibilities from DWD were then transferred to SCFC and the activities of institutional strengthening were redirected to this new institution and UDC was converted into a SOE.

2. Environmental Monitoring and Water Quality Data For Ho Chi Minh City Environmental Sanitation Project (NL-TN Basin), Environmental monitoring program is executed in accordance with environmental control request originated in environmental impact assessment process of NL-TN project as shown in Table 1, including:

• Monitoring of Sai Gon River surface water quality (twice a month); • Monitoring of NL-TN canal surface water quality (twice a month); • Monitoring of Rach La canal surface water quality(once a month); • Monitoring of Rach Chiec canal surface water quality (once a month); • Monitoring performance of pumping station (noise); • Monitoring soil quality at sludge disposal site (2 times).

Table 1: Environmental Monitoring Implementation Plan

Sampling position Parameters Sampling time Frequency Implementation status

Data collection period

1. Outfall construction water quality Sai Gon River: 03 locations near the outfall construction and 01 location has highest concentration of pollution

SS, COD, pH, DO, BOD, Ammonia, Fecal Coliforms

Before, during and after the construction

Twice at high and low tide.

Before construction process

3/2012

In construction process

5/2012

After construction process

6/2012

2. Water quality during dredging and disposal of materials

54

- Estuary of NL-TN canal.

SS, COD, pH, DO, BOD

Before, during and after the construction

Twice a month In construction process

From 07/2009 to now

- Rach La - An Thoi Dong site. - Rach Chieu - Da Phuoc site

Once a month - Hg, As, Cd, Pb, Total Cr - Oil, pesticide

During and after the construction

02 times, repeated for parameter exceeding allowable limits

Finished 5/2011 and 9/2012

3. Soil quality (*) Rach Chieu - Da Phuoc site

- Hg, As, Cd, Pb, Total Cr - Pesticide

After closing the disposal site

01 time Finished 9/ 2012

4. Water quality at startup NL-TN canal : 6 locations

Flow, SS, COD, pH, BOD, DO, Ammonia, Fecal coliform

Every hour, four full tidal cycles

Four times/a year

Not yet After commissioning (100% sewer hookup)

Pump station: Influent chamber Sai Gon river: 03 locations near the outfall construction & 01 location has highest concentration of pollution

- Pre-startup: 2 full tidal cycles before commissioning 24h - Operation: Every hour, 4 full tidal cycles (48h)

5. Noise Pump station : 1m and 6m from equipment Pump station: 1m from nearest noise sensitive receiver.

Wind direction, speed, humidity, temperature, and noise (dB)

5 minutes 2 times Finished Prior to end of commissioning

1 hour

6. Flooding reduction NL-TN canal: 6 locations Flow, Tide

level, survey cross section

Every hour, 2 days with storm day.

Twice/year Completed once time

After commissioning

(*) To be measured at the end of disposal operation

The results of the monitoring are compared with Vietnam standards: The surface water quality assessment standard: QCVN 08: 2008/BTNMT;

55

The wastewater quality assessment standard: QCVN 14:2008/BTNMT, QCVN 40:2011/BTNMT;

The soil quality assessment standard: TCVN 5297:1995, TCVN 5960:1995, QCVN 03:2008/BTNMT, QCVN 15:2008/BTNMT

The air quality assessment standard: QCVN 05:2009/BTNMT, QCVN 06:2009/BTNMT, QCVN 19:2009/BTNMT, QCVN 20:2009/BTNMT,

The noise assessment at residential compound and public standard: QCVN 26:2010/BTNMT;

SURFACE WATER QUALITY Trends of NL-TN water quality Sampling locations: NM1: is at 0.2m depth at the estuary of NL-TN, NM2 is at 0.2m depth and 100m from S-NLTN; and NM3: is at 0.2m depth and 100 m from the dredging site .

5

6

7

8

9

Bsl (1

)Bs

l (2)

7/09(

1)7/0

9(2)

8/09(

1)8/0

9(2)

9/09(

1)9/0

9(2)

10/09

(1)

10/09

(2)

11/09

(1)

11/09

(2)

12/09

(1)

12/09

(2)

1/10(

1)1/1

0(2)

3/10(

1)3/1

0(2)

Bsl1

Bsl2

1/11(

1)1/1

1(2)

2/11(

1)2/1

1(2)

3/11(

1)3/1

1(2)

4/11(

1)4/1

1(2)

5/11(

1)5/1

1(2)

6/11(

1)6/1

1(2)

7/11(

1)7/1

1(2)

8/11(

1)8/1

1(2)

9/11(

1)9/1

1(2)

10/11

(1)

10/11

(2)

11/11

(1)

11/11

(2)

12/11

(1)

12/11

(2)

3/12(

1)3/1

2(2)

4/12(

1)4/1

2(2)

5/12(

1)5/1

2(2)

6/12(

1)6/1

2(2)

7/12(

1)7/1

2(2)

9/12(

1)9/1

2(2)

11/12

(1)

11/12

(2)

pH

TIMENM1 NM2 NM3

0

1

2

3

Bsl(2

)1/1

0(1)

1/10(

2)3/1

0(1)

3/10(

2)

Bsl1

Bsl2

1/11(

1)1/1

1(2)

2/11(

1)2/1

1(2)

3/11(

1)3/1

1(2)

4/11(

1)4/1

1(2)

5/11(

1)5/1

1(2)

6/11(

1)6/1

1(2)

7/11(

1)7/1

1(2)

8/11(

1)8/1

1(2)

9/11(

1)9/1

1(2)

10/11

(1)

10/11

(2)

11/11

(1)

11/11

(2)

12/11

(1)

12/11

(2)

3/12(

1)3/1

2(2)

4/12(

1)4/1

2(2)

5/12(

1)5/1

2(2)

6/12(

1)6/1

2(2)

7/12(

1)7/1

2(2)

9/12(

1)9/1

2(2)

11/12

(1)

11/12

(2)

DO

TIMENM1 NM2 NM3 QCVN 08_B2

56

0

40

80

120

Bsl (1

)Bs

l (2)

7/09(

1)7/0

9(2)

8/09(

1)8/0

9(2)

9/09(

1)9/0

9(2)

10/09

(1)

10/09

(2)

11/09

(1)

11/09

(2)

12/09

(1)

12/09

(2)

1/10(

1)1/1

0(2)

3/10(

1)3/1

0(2)

Bsl1

Bsl2

1/11(

1)1/1

1(2)

2/11(

1)2/1

1(2)

3/11(

1)3/1

1(2)

4/11(

1)4/1

1(2)

5/11(

1)5/1

1(2)

6/11(

1)6/1

1(2)

7/11(

1)7/1

1(2)

8/11(

1)8/1

1(2)

9/11(

1)9/1

1(2)

10/11

(1)

10/11

(2)

11/11

(1)

11/11

(2)

12/11

(1)

12/11

(2)

3/12(

1)3/1

2(2)

4/12(

1)4/1

2(2)

5/12(

1)5/1

2(2)

6/12(

1)6/1

2(2)

7/12(

1)7/1

2(2)

9/12(

1)9/1

2(2)

11/12

(1)

11/12

(2)

TSS


0

40

80

120

Bsl (

1)Bs

l (2)

7/09

(1)

7/09

(2)

8/09

(1)

8/09

(2)

9/09

(1)

9/09

(2)

10/0

9(1)

10/0

9(2)

11/0

9(1)

11/0

9(2)

12/0

9(1)

12/0

9(2)

1/10

(1)

1/10

(2)

3/10

(1)

3/10

(2)

Bsl1

Bsl2

1/11

(1)

1/11

(2)

2/11

(1)

2/11

(2)

3/11

(1)

3/11

(2)

4/11

(1)

4/11

(2)

5/11

(1)

5/11

(2)

6/11

(1)

6/11

(2)

7/11

(1)

7/11

(2)

8/11

(1)

8/11

(2)

9/11

(1)

9/11

(2)

10/1

1(1)

10/1

1(2)

11/1

1(1)

11/1

1(2)

12/1

1(1)

12/1

1(2)

3/12

(1)

3/12

(2)

4/12

(1)

4/12

(2)

5/12

(1)

5/12

(2)

6/12

(1)

6/12

(2)

7/12

(1)

7/12

(2)

9/12

(1)

9/12

(2)

11/1

2(1)

11/1

2(2)

COD


0

20

40

60

80

Bsl (

1)Bs

l (2)

3/10

(1)

3/10

(2)

Bsl1

Bsl2

1/11

(1)

1/11

(2)

2/11

(1)

2/11

(2)

3/11

(1)

3/11

(2)

4/11

(1)

4/11

(2)

5/11

(1)

5/11

(2)

6/11

(1)

6/11

(2)

7/11

(1)

7/11

(2)

8/11

(1)

8/11

(2)

9/11

(1)

9/11

(2)

10/1

1(1)

10/1

1(2)

11/1

1(1)

11/1

1(2)

12/1

1(1)

12/1

1(2)

3/12

(1)

3/12

(2)

4/12

(1)

4/12

(2)

5/12

(1)

5/12

(2)

6/12

(1)

6/12

(2)

7/12

(1)

7/12

(2)

9/12

(1)

9/12

(2)

11/1

2(1)

11/1

2(2)

BOD

TIMENM1 NM2 NM3 QCVN 08_B2 The results show that baseline water in NL-TN is often inferior to QCVN 08: 2008 class B2. In general, dredging operation cause minor local impacts on water quality, however,

57

after dredging water quality has been likely improved indicated by increase of DO and decrease of BOD and COD. Water quality has improved over time, but will not reach the target levels until the canal has been sufficiently flushed. Map of the sampling locations:

58

Annex 9. Photographs

Before Improvement

Before Improvement

Nhieu Loc–Thi Nghe Canal: During Construction ...

and ... After improvement

Nhieu Loc–Thi Nghe Canal: During Construction ...

and ... After improvement

59

Package 7: Shaft construction, with 2 softeyes

Package 7: Interceptor jacking

Package 8: Pumping station: Working day...

... and night

60

Package P10: Capbeam rebars and formwork

installation

Package 10: Pile installation from barge

NHIEU LOC-THINGHEINTERCEPTOR

TYPICAL COMBINEDSTORM OVERFLOWCANAL FLUSHING &

FLOW MONITORINGLOCATION

CANAL FLUSHING &FLOW MONITORING

LOCATION

Saigon River

NHIEU LOC-THINGHE CANAL

OUTFALLDIFFUSER PIPE

WASTEWATERPUMPINGSTATION

RIVER CROSSINGPIPELINE VIATUNNELThis map was produced by the Map Design Unit of The World Bank.

The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.

0 500 1000

METERS

VIETNAM

HO CHI MINH CITYENVIRONMENTAL SANITATION

PROJECTNHIEU LOC-THI NGHE BASIN

NHIEU LOC-THI NGHE BASIN(PROJECT AREA BOUNDARY)

COMBINED SEWER IMPROVEMENTS

DREDGED CANAL

NHIEU LOC-THI NGHE INTERCEPTOR

WASTEWATER PUMPING STATION

RIVER CROSSING PIPELINE

STORM OVERFLOW SITES

CANAL FLUSHING AND FLOWMONITORING LOCATION

IBRD 31221R

DECEMBER 2012

Gulf of Thailand

10

100 105 110

100 105 110

15

20

15

10

Hanoi

Ho Chi Minh City

MYA

NM

AR

CAMBODIA

LAOP.D.R.

THAILAND

CHINA

VIETNAM

See insetat right

ProjectArea

TienGiang

LongAn

TayNinh

BinhDuong

DongNai

T.P. HoChi Minh

Ho Chi Minh City