Completion Report

Project Number: 42039-035 Loan Number: 2959 September 2018

Viet Nam: Power Transmission Investment Program (Tranche 2) This document is being disclosed to the public in accordance with ADB’s Public Communications Policy 2011.

CURRENCY EQUIVALENTS

Currency Unit – dong (D)

At Appraisal At Project Completion (31 October 2012) (30 November 2016)

D1.00 = $0.000048 $0.000044 $1.00 = D20,829.0

D22,724.6

ABBREVIATIONS

ADB – Asian Development Bank AFD CAP CPMB

– – –

Agence Française de Développement corrective action plan Central Power Project Management Board

DDR – due diligence report DMF – design and monitoring framework DSCR – debt service coverage ratio EIA EIRR

– –

environmental impact assessment economic internal rate of return

EMP EVN

– –

environmental management plan Viet Nam Electricity

FIRR – financial internal rate of return GDP – gross domestic product IEE LIBOR

– –

initial environmental examination London interbank offered rate

LIC – local implementation consultant MFF NPT

– –

multitranche financing facility National Power Transmission Corporation

ODA O&M PDP

– – –

overseas development assistance operation and maintenance power development master plan

PMB PPER

– –

power project management board project performance evaluation report

PRC – People’s Republic of China REMDP RoW SFR

– – –

resettlement and ethnic minority development plan right-of-way self-financing ratio

SPMB TA

– –

Southern Power Project Management Board technical assistance

WACC – weighted average cost of capital

WEIGHTS AND MEASURES

GW – gigawatt (1,000,000 kilowatts) GWh – gigawatt-hour (1,000,000 kilowatts-hour) hectare km

– –

ha kilometre

kV – kilovolt

kWh – kilowatt-hour MV – megavolt (1,000 kilovolts) MVA – megavolt-amperes (1,000 kilovolts-ampere) MW – megawatt (1,000 kilowatts) TWh – Terawatt-hour (1,000,000,000 kilowatts-hour)

NOTES

(i) The fiscal year (FY) of the Government of Viet Nam ends on 31 December

(ii) In this report, “$” refers to United States dollars.

Vice-President Stephen Groff, Operations 2 Director General Ramesh Subramaniam, Southeast Asia Department (SERD) Country Director Eric Sidgwick, Viet Nam Resident Mission, SERD Team leader Hyunjung Lee, Senior Energy Economist, SERD Team members Do Thuy Huong, Project Analyst, SERD

Renalyn Padilla, Senior Operations Assistant, SERD Minnie Zarah Ramas, Project Analyst, SERD Au Minh Tuan, Senior Project Officer (Energy), SERD

Indah Setyawati, Senior Safeguard Specialist (Resettlement), SERD

Kyoko Uematsu, Safeguards Specialist, SERD

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page

BASIC DATA i

I. PROJECT DESCRIPTION 1

II. DESIGN AND IMPLEMENTATION 1

A. Project Design and Formulation 1 B. Project Outputs 2 C. Project Costs and Financing 3 D. Disbursements 4 E. Project Schedule 4 F. Implementation Arrangements 4 G. Technical Assistance 5 H. Consultant Recruitment and Procurement 5 I. Safeguards 5 J. Monitoring and Reporting 9

III. EVALUATION OF PERFORMANCE 9

A. Relevance 9 B. Effectiveness 10 C. Efficiency 10 D. Sustainability 11 E. Development Impact 11 F. Performance of the Borrower and the Executing Agency 13 G. Performance of Cofinanciers 13 H. Performance of the Asian Development Bank 13 I. Overall Assessment 14

IV. ISSUES, LESSONS, AND RECOMMENDATIONS 14

A. Issues and Lessons 14 B. Recommendations 15

APPENDIXES 1. Design and Monitoring Framework 16 2. Project Cost at Appraisal and Actual 18 3. Project Cost by Financier 19 4. Disbursement of ADB Loan Proceeds 21 5. Contract Awards of ADB Loan Proceeds 22 6. Chronology of Main Events 23 7. Project Implementation Schedule 25 8. Summary of Contracts Funded by ADB 27 9. Land Acquisition and Resettlement 29 10. Economic Evaluation 40 11. Financial Evaluation 46 12. Compliance with Loan Covenants 53

BASIC DATA

A. Loan Identification

1. Country Viet Nam 2. Loan number and financing source 2959-VIE/OCR 3. Project title Power Transmission Investment

Program (Tranche 2) 4. Borrower Socialist Republic of Viet Nam 5. Executing agency National Power Transmission

Corporation 6. Amount of loan $110,190,000.00 7. Project completion report number 1726 8. Financing modality multitranche financing facility

B. Loan Data

1. Appraisal – Date started – Date completed

24 August 2012 31 October 2012

2. Loan negotiations – Date started – Date completed

31 October 2012 31 October 2012

3. Date of Board approval 5 December 2012 4. Date of loan agreement 21 December 2012 5. Date of loan effectiveness – In loan agreement – Actual – Number of extensions

21 March 2013 31 May 2013 -

6. Project completion date – Appraisal – Actual

30 May 2016 30 September 2016

7. Loan closing date – In loan agreement – Actual – Number of extensions

30 November 2016 30 November 2016 -

8. Financial closing date – Actual

29 September 2017

9. Terms of loan – Interest rate – Maturity (number of years) – Grace period (number of years)

LIBOR + 0.40% per annum 30 7

10. Terms of relending (if any) – Interest rate

– Maturity (number of years) – Grace period (number of years) – Second-step borrower

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11. Disbursements

a. Dates

Initial Disbursement 12 Nov 2013

Final Disbursement 19 May 2017

Time Interval 42 months

Effective Date 31 May 2013

Financial Closing Date 29 Sept 2017

Time Interval 52 months

b. Amount ($million)

No. Category

Original Allocation

(1)

Increased during

Implementation (2)

Canceled during

Implementation (3)

Last Revised

Allocation (4=1+2–3)

Amount Disbursed

(5)

Undisbursed Balance (6 = 4–5)

1 Civil Works 19.47 0.00 1.31 18.16 16.78 1.39

2 Equipment 65.98 0.00 24.08 41.90 43.89 (1.99)

3 Consulting Services

1.74 0.00 0.00

1.74 0.52 1.22

3A Management Efficiency of NPT

0.30 0.00 0.00

0.30 0.00 0.30

3B Implementation Support Consultants

1.44 0.00 0.30 1.44 0.52 0.92

4 Interest and Commitment Charges

4.78 0.00 0.00 4.78 1.66 3.12

5 Unallocated 18.22 0.00 16.22 2.00 0.00 2.00

Total 110.19 0.00 41.60 68.58 62.85 5.73

NPT = National Power Transmission Corporation

12. Local costs (financed)

– Amount ($million) $16.78 – Percent of local costs 27% – Percent of total costs 7%

C. Project Data

1. Project cost ($ million)

Cost Appraisal Estimate Actual

Foreign exchange cost ADB Foreign exchange cost AFD

110.19 100.00

62.85 59.45

Local currency cost 250.78 115.78 Total 460.97 238.08

2. Financing plan ($ million)

Cost Appraisal Estimate Actual

Implementation cost Borrower financed 201.62 115.78 ADB financed 110.19 61.19 AFD financed 100.00 59.45 Total implementation cost 411.80 236.42

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Cost Appraisal Estimate Actual

Interest during construction costs Borrower financed 44.38 0.00 ADB financed 4.79 1.66 AFD financed 0.00 0.00 Total interest during construction cost 49.17 1.66

3. Cost breakdown by project component ($ million)

Component Appraisal Estimate Actual

A. Base Cost 1. Component 1: Expanded Transmission Network 2. Component 2: Improved Operational Effectiveness 3. Component 3: Project Implementation Support Subtotal (A)

335.89

0.00 11.20

347.09

225.23

0.00 11.19

236.42

B. Contingencies C. Financial Charges During Implementation

64.71 49.16

0.00 1.66

Total (A+B+C) 460.97 238.08

4. Project schedule

Item Appraisal Estimate Actual

Date of contract with consultants Local Environment Specialists Local Resettlement Specialists Independent Monitoring Consultants (Resettlement)

Q4 2012 Q4 2012 Q1 2013

Q1 2013 Q1 2013 Q2 2014

Civil works contract Date of award Q1 2013 Completion of work Q3 2015 Q2 2016 Equipment and supplies Dates First procurement Q3 2011 Last procurement Q1 2014 Completion of equipment installation Q3 2016 Start of operations Q3 2016 Completion of tests and commissioning Q3 2016 Beginning of start-up Q3 2016 Other milestones

Project Completion

Q2 2016

Q4 2016

5. Project performance report ratings

Implementation Period Single Project Rating

From 1 January 2012 to 31 December 2012 On track From 1 January 2013 to 31 December 2013 From 1 January 2014 to 31 December 2014 From 1 January 2015 to 31 December 2015 From 1 January 2016 to 31 December 2016

On track On track On track On track

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D. Data on Asian Development Bank Missions

Name of Missiona Date No. of

Persons

No. of Person-

Days Specialization of Membersb

Fact Finding Mission 22–26 Jul 2012 3 15 a, b, c Inception Mission 14–22 June 2013 2 18 a, c Safeguards Review Mission No. 1 15–18 Jul 2013 2 8 b, d Loan Review Mission No. 1 27 Nov–11 Dec 2013 5 75 a, b, c, d, e Safeguards Review Mission No. 2 31 Mar–8 Apr 2014 2 18 b, d Midterm Review Mission 10–25 Nov 2014 5 80 a, b, c, d, f Safeguards Review Mission No. 3 9–12 Mar 2015 2 8 b, d Safeguards Review Mission No. 4 Loan Review Mission No. 2

21 Apr 2015 10–18 Sept 2015

2 5

4 45

b, d c, g, d, e, h

Safeguards Review Mission No. 5 3 Dec 2015–8Jan 2016 2 74 d, i Loan Review Mission No. 3 18 Jan–2 Feb 2016 5 80 a, c, d, g, h Safeguards Review Mission No. 6b 8–11 Mar 2016 2 8 d, i Loan Review Mission No. 4 4-8 Apr 2016 4 20 a, c, h, j Safeguards Review Mission No. 7 10–20 Jul 2016 2 22 d, i Safeguards Review Mission No. 8 9–13 Oct 2017 2 10 d, i Project Completion Review Mission No.1 Project Completion Review Mission No.2

29 Nov–9 Dec 2016 23 Oct–2 Nov 2017

6 4

66 44

c, e, h, I, j, k a, e, h, j

Project Completion Review Mission – Safeguards

3–8 Dec 2017

2

12

d, i

a a = energy specialist (mission leader); b = senior safeguards specialist (environment); c = senior project officer (energy); d = social development specialist (responsible for social safeguard); e = project analyst; f = finance specialist; g = principal energy specialist (mission leader); h = safeguards specialist; I = staff consultant; j = energy economist (mission leader); k = senior operation assistant b Combined with other projects in the area.

I. PROJECT DESCRIPTION

1. The Power Transmission Investment Program was designed as a multitranche finance facility (MFF) supporting the Government of Viet Nam’s National Power Sector Development Master Plan (PDP) VII. 1 The MFF was approved in December 2011 for $730 million with four tranches.2 The National Power Transmission Corporation (NPT) is the executing agency for all tranches. The impact of the MFF is meeting electricity demand growth from industrial, commercial, and residential consumers throughout Viet Nam. The outcome of the MFF is enhanced capacity of Viet Nam’s transmission network by accomplishing the three outputs (i) expanded transmission network (physical investment); (ii) improved operational effectiveness and efficiency (nonphysical investment); and (iii) project implementation support (nonphysical investment). This project completion report (PCR) focuses on tranche 2 (the project) of the MFF.

2. The MFF follows two previous ADB-financed projects for power transmission development in Viet Nam.3 The MFF was consistent with the country’s increasing priority on power transmission expansion to meet rapidly growing electricity demand when transmission and distribution remained managed by the public sector, while power generation was open to the private sector. During 2004–2016, Viet Nam’s rapid economic development was fueled by a stable and reliable electricity supply, which led to increased electricity demand from industrial development and private consumption. Average annual electricity demand growth was 12% during this period and electricity consumption increased from 45.6 terawatt-hours (TWh) in 2004 to 159.8 TWh in 2016. Peak demand grew from 9.5 gigawatts (GW) to 28.1 GW in the same period.

3. The project supported the expansion of the major 500 kV transmission backbone line connecting Central Viet Nam to South Viet Nam and two 220 kV transmission lines in Ho Chi Minh City. These transmission lines and associated substations were to contribute to better balanced regional power load systems, remove transmission bottlenecks, facilitate power transfers, and reduce transmission system losses and voltage fluctuations. The other tranches also supported critical sections of the 500 kV and 220 kV transmission lines and substations. The tranche 1 project, closed in December 2016, enhanced the transmission networks in the eastern side of Ha Noi and the ring road transmission network in Ho Chi Minh City. The tranche 3 project is still being implemented to strengthen various 500 kV and 220 kV transmission lines and substations in Central and South Viet Nam. The tranche 3 project is expected to close on 30 June 2020.

II. DESIGN AND IMPLEMENTATION A. Project Design and Formulation

4. The project design and formulation under the MFF modality was appropriate. The MFF was formulated to provide long-term, consistent, predictable, and coordinated support for physical and nonphysical investments in line with the National Power Development Master Plan VII (PDP VII). The PDP VII identified multiple power generation and transmission projects to be

1 ADB. 2011. Report and Recommendation of the President to the Board of Directors on a Proposed Multitranche

Financing Facility to the Socialist Republic of Viet Nam for the Power Transmission Investment Program. Manila (MFF 0066).

2 The first tranche (Loan 2848) of $120.5 million was approved in December 2011, followed by the second tranche (Loan 2959) of $110.19 million in December 2012, and the third tranche (Loan 3374) of $231.31 million in December 2015. The fourth tranche did not proceed in 2017 due to the government’s public debt ceiling.

3 ADB. 2004. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Socialist Republic of Viet Nam for the Northern Power Transmission Sector Project. Manila; ADB 2005. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Socialist Republic of Viet Nam for the Northern Power Transmission Expansion Sector Project. Manila.

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implemented in 2011–2020, which aimed to add 8,372 km of 500 kV transmission lines, 15,942 km of 220 kV transmission lines, 43,850 MVA of 500 kV/220 kV substation transformer capacity, and 74,926 MVA of 220 kV/110 kV substation transformer capacity. The PDP VII estimated a total investment cost of $7,780 million, comprising physical and nonphysical investments, to support electricity transmission and distribution. The government also set targets to reduce technical transmission and distribution losses from 10% in 2010 to 9% in 2015 and 8% in 2020.

5. The project was well aligned with ADB’s Energy Policy (2009), addressing its three pillars, (i) promoting energy efficiency and renewable energy; (ii) maximizing access to energy for all; and (iii) promoting energy sector reform, capacity building, and governance toward achieving ADB’s vision of a region free of poverty.4 The project was consistent with the energy sector focus in ADB’s country partnership strategy for Viet Nam, 2012–2015, i.e. energy efficiency, renewable energy, and the expansion of the power transmission network.5

6. At the time of appraisal in 2012, the project implementation arrangements involved all relevant key agencies and the project formulation process was deemed satisfactory. The project had a provision for retroactive financing, not exceeding 20% of the loan amount. There were no changes in project design during implementation.

B. Project Outputs

7. The first output was to expand the transmission network and included three subprojects in Central and South Viet Nam: (i) the 500 kV Pleiku–My Phuoc–Cau Bong transmission line (437.5 km), (ii) the 220 kV Cau Bong–Duc Hoa transmission line (14.8 km), and (iii) the 220 kV Cau Bong–Hoc Mon–Binh Tan transmission line (13.4 km). The first subproject aimed to construct one of the major and strategic 500 kV national backbones connecting the central and south grids, to transmit the power generated in the central and north regions to major load centers in the south and to improve the reliability of national 500 kV transmission lines. The latter two subprojects aimed to enhance the stability and reliability of the transmission system and transfer the redundant capacity of existing substations (220kV Duc Hoa substation and 500kV Cau Bong substation) to Ho Chi Minh City and Long An Province to increase power supply in Ho Chi Minh City’s industrial parks. All three subprojects were constructed as envisaged and have created better conditions for the developing economy in the central and southern parts of Viet Nam. The first output was achieved as envisaged.

8. The second output was improved operational effectiveness and efficiency of NPT. Under this output, NPT’s financial capacity was to be strengthened to achieve (i) debt-service-coverage ratio of 1.5; (ii) self-financing ratio of 25%; and (iii) debt-to-equity ratio of 75:25 by 2015 and maintain these ratios thereafter. In addition, output 2 was to enhance NPT’s accounting, financial management, planning and control, following initial support from the tranche 1 project. However, NPT was unable to use loan proceeds for capacity building under tranches 1 or 2 due to government regulations (introduced after loan approval) that restricted the use of overseas development assistance (ODA) loans for nonphysical investments. Instead, NPT used its own funds and technical assistance (TA) from ADB and other development partners. ADB’s two TA projects supplemented NPT’s own capacity-building activities to improve transmission operations, especially in the areas of business development, planning and management, financial

4 ADB. 2009. Energy Policy of the Asian Development Bank. Manila. 5 ADB. 2012. Country Partnership Strategy: Viet Nam, 2012–2015. Manila.

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management, and transmission pricing calculation.6 As a result, organizational and staff capacity in NPT has improved and NPT’s financial performance has progressively improved. For example, its debt-service-coverage ratio had improved from 1.0 in 2011 to 1.6 in 2015. As shown in Appendix 1, design and monitoring framework (DMF) targets to provide training to at least 20 staff were exceeded. The second output was achieved as envisaged.

9. The third output was project implementation support. It was initially designed to provide broad support for detailed engineering design, construction supervision, procurement, safeguards compliance, and preparation of subsequent tranches of the investment program. However, the project mainly financed safeguards compliance, as NPT’s weak capacity to meet ADB’s safeguards requirements was identified as an issue by an earlier ADB transmission project (footnote 3). During project implementation, NPT and its power project management boards (PMBs) established social and environmental safeguard units. Staff in these units received support and on-the-job training in preparing and implementing environmental and social safeguard measures. 7 Regarding detailed engineering design, construction supervision, and procurement, NPT used its staff or hired technical consultants. Their technical designs and constructed transmission lines met international standards. As the project progressed, NPT procurement practices became more streamlined with an average of three procurement contracts per subproject. This is significantly less than 10–20 procurement contracts per subproject in 2011. The preparation of an Initial Environmental Examination (IEE) for subsequent tranche 4 project was also supported under this output. The third output was achieved as envisaged.

10. All DMF outcome and output targets and indicators at appraisal and completion are shown in Appendix 1.

C. Project Costs and Financing

11. The total project cost of tranche 2 was estimated at $460.97 million, of which $110.19 million (23.9%) was to be financed by ADB from its ordinary capital resources; €75 million ($100 million equivalent; 21.7%) was to be financed by Agence Française de Développement (AFD) in parallel with ADB; and $250.78 million (54.4%) was to be financed by NPT. The actual total cost was $238.08 million, significantly lower than the estimated cost by $222.89 million or 48.4%. ADB cancelled $41.61 million in March 2015 and $5.73 million at loan closing in September 2017, resulting in a final ADB loan amount of $62.85 million (57.0% of the original ADB loan amount). AFD’s final loan amount was $59.45 million and NPT’s final financing amount was $115.7 million. The cost breakdown by project category is in Appendix 2. The project financing plan is summarized in Appendix 3.

12. ADB-financed project activities experienced significant cost underruns mainly because (i) two large compensators estimated at $19 million (17.2% of the original ADB loan amount) were removed from bid documents for the 500 kV Pleiku–My Phuoc–Cau Bong transmission line subproject,8 (ii) updating cost estimates during project preparation was inflexible during the government’s ODA approval process, (ii) the cost estimation methodology at appraisal following

6 ADB. 2010. Technical Assistance to the Socialist Republic of Viet Nam for Increasing the Efficiency of the National

Power Transmission Corporation through Targeted Capacity building. Manila; and ADB. 2012. Technical Assistance to the Socialist Republic of Viet Nam for Electricity Transmission Pricing Review in the Context of Power Sector Restructuring. Manila.

7 ADB provided several safeguard training sessions to NPT and the PMBs. In 2015, a two-day environmental and social safeguard training was provided for the PMBs by ADB staff consultants. In the following years, the PMBs have participated in training courses organized by ADB.

8 At the technical design stage, NPT decided to defer this grid stability equipment to a later date as they were not immediately needed and the cost was high compared to the expected benefits.

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the government norms led to higher estimates than actual prices and contingencies; (iv) the cost estimates for goods packages were based on past contracts supplied by foreign suppliers when there was limited competition, which were far higher than the actual prices; (v) the majority of bidding was carried out in 2012 when there was a major reduction in material and equipment prices because of a global economic slowdown; and (vi) additional cost savings were achieved through the international competitive bidding process.

D. Disbursements

13. ADB disbursed a total of $62.85 million from ordinary capital resources out of the original loan amount of $110.19 million and financially cancelled $47.34 million (43.0%). Disbursement was satisfactory but lower than anticipated after 2014 due to cost savings from the removal of large equipment, competitive bidding, and other reasons mentioned in para. 12. Project disbursement followed ADB’s Loan Disbursement Handbook (2007, as amended from time to time). The direct payment procedure was used without difficulties. There were no issues identified by NPT regarding disbursement of counterpart funds for taxes and duties, land acquisition, safeguards mitigation measures, and project implementation support services. Appendix 4 and 5 show the disbursement and contract awards schedules at project appraisal and completion.

E. Project Schedule

14. The project was closed on 30 November 2016 as designed. Activities were implemented on schedule, except for a 4-months delay in completing the 220 kV Cau Bong–Hoc Mon–Binh Tan transmission line subproject due to resettlement issues. NPT often submitted quarterly progress reports and safeguard monitoring reports late, but through ADB review missions and other communication channels, such as emails and faxes, reporting delays didn’t hinder project implementation and all three subprojects were completed without significant delays. The project was financially closed on 29 September 2017, 10 months after the loan closing date due to delays in the submission of the final withdrawal application and PMB staff changes. Appendix 6 provides the chronology of events and Appendix 7 provides a comparison of the planned versus actual implementation schedule.

F. Implementation Arrangements

15. The project was implemented without any changes in implementation arrangements. NPT was the executing agency. NPT was formed in 2008 as a subsidiary of Viet Nam Electricity (EVN) and is responsible for the country’s 500 kV and 220 kV transmission facility investment, operation, and maintenance. Three regional PMBs under NPT implement investment projects in the northern, central, and southern regions. For the project, the central power project management board (CPMB) and the southern power project management board (SPMB) were the implementing agencies and prepared detailed technical designs, procurement and disbursement documents, and safeguard plans for NPT’s approval. The CPMB and SPMB had extensive construction management experience and were able to adopt most ADB guidelines quickly, which contributed to the successful completion of the subprojects. However, they had limited experience in meeting ADB’s safeguard requirements, therefore, NPT recruited safeguard consultants following the project design. Overall, the project implementation arrangements are assessed as adequate.

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G. Technical Assistance

16. ADB approved TA in the amount of $1,500,000 on 3 December 2010 to support project preparation and due diligence for tranche 1 of the MFF.9 The TA became effective on 8 August 2011 and was extended three times for a cumulative 42 months to support the preparation of other tranches, including tranche 2. The TA budget was almost fully utilized, with an undisbursed balance of $56,000 at its closing on 5 December 2016. The TA provided 39 person-months of international consultant services and 35 person-months of national consultant services. An international consulting firm was engaged for 50 person-months of services and the rest were procured as individual consultants. The TA successfully supported ADB and NPT in carrying out advance actions, project administration, procurement assessment, and safeguard compliance.

H. Consultant Recruitment and Procurement

17. Consultant recruitment. The CPMB and SPMB engaged individual consultants in accordance with ADB’s Guidelines on the Use of Consultants (2010, as amended from time to time). For each subproject under the CPMB and SPMB, three individual consultants supported social and environmental safeguards compliance. Each individual consultant was engaged for 24–30 months. In addition, an international environmental safeguards consultant was engaged by NPT to support environmental safeguards implementation and monitoring. The consultant recruitment process experienced delays of 6–12 months compared to the projected schedule due to the prolonged time for consultant selection required by multiple approving authorities.

18. Procurement. For the 500 kV Pleiku– My Phuoc–Cau Bong transmission line subproject, NPT entirely financed the excavation and construction of tower foundations, which commenced in July 2012. ADB and AFD financed the equipment packages for this subproject, which used ADB- and AFD-approved bidding documents issued in October 2012. For the other two subprojects, ADB financed all works and equipment packages. The detailed engineering designs and bidding documents were prepared by NPT staffs and its consultants hired by using its own funds. All ADB-financed works and goods were procured in accordance with ADB’s Procurement Guidelines (2010, as amended from time to time). Contracts were awarded mostly on schedule. A total of 26 procurement contracts were financed by the ADB loan, of which 10 were for works and equipment, while the remaining packages were for environmental and resettlement consultants. Appendix 8 lists works, goods, and consulting services procured under the ADB loan.

I. Safeguards

19. Environmental safeguards. The project was classified as category B based on ADB’s Safeguard Policy Statement (2009). The IEEs, including environmental management plans (EMPs) were approved and disclosed on ADB’s website in July 2012. The IEEs were prepared based on information gathered in the environmental impact assessment approved in 2011 by the Ministry of Natural Resources and Environment and combined with information from field verification inspections and additional consultations. The EMP proposed appropriate mitigation measures, assigned responsibility to relevant agencies, and set up effective monitoring and supervision tools. Although construction of the 500 kV Pleiku–My Phuoc–Cau Bong transmission

9 ADB. 2010. Viet Nam: Power Transmission Investment Program (MFF). Manila (TA-7742-VIE).

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line subproject had already started at appraisal, an environmental compliance audit was not conducted.10

20. During the construction phase, the PMBs, assisted by several consultants, supervised and monitored the contractors’ EMP implementation to ensure compliance with government and ADB’s requirements. The PMBs submitted quarterly environmental monitoring reports until the third quarter of 2016 through NPT. A total of 28 environmental monitoring reports were submitted and disclosed on ADB’s website. Upon completion of the construction, the subprojects were handed over to power transmission companies, which have been implementing the EMPs during operations, including regular measurement of electromagnetic fields and vegetation clearance along the transmission line routes.

21. A major environmental impact was the clearing of 40 hectares (ha) of forest within the 500 kV Pleiku–My Phuoc–Cau Bong transmission line right-of-way (RoW). While the forest is not a legally protected area, one of its useful functions is erosion prevention. To offset the loss, the CPMB transferred D10.28 billion to the provincial forest development and protection funds in three provinces (Gia Lai, Dak Lak, and Dak Nong) for 145.56 ha of afforestation, although the approved IEE and national regulations require only an equivalent area of afforestation. The afforestation has been carried out by provincial people’s committees with funding from several entities, including the CPMB. According to the CPMB, which has been monitoring implementation of the afforestation program quarterly, acacia and apitong have been planted on 122 ha. The trees have grown to 4–6 meters tall as of May 2018. No protected areas are impacted by the project. Other environmental impacts and occupational and community health and safety risks have been mitigated and monitored during construction and operation. There are no pending grievances.

22. Social safeguards. The project was classified as category A for resettlement and as category B for indigenous people based on ADB’s Safeguard Policy Statement (2009).11 The project affected a total of 10,520 households and organizations, higher than 4,902 households estimated at appraisal. A total of 1,119 ethnic minority households were affected by the construction of the 500 kV Pleiku–My Phuoc–Cau Bong transmission line, slightly higher than the 1,039 households estimated at appraisal. Combined resettlement and ethnic minority development plans (REMDPs) and resettlement plans were prepared in 2012. The difference between the estimated affected households and the actual number of affected households is attributed mainly to the fact that the original REMDPs and resettlement plans included only households impacted by permanent land acquisition and could not define the number of households who would be affected by the RoW.12 The increase in the number of affected households caused a significant cost increase for land acquisition and resettlement by 50.5%, from D839.1 billion (equivalent to $36.92 million) to D1,263.1 billion (equivalent to $55.57 million). In terms of displaced households, the original REMDPs and resettlement plans estimated that 333 households would be displaced. However, 541 households were relocated.

10 For projects involving facilities and/or business activities that already exist or are under construction, ADB’s

Safeguard Policy Statement (2009) requires the borrower and/or client to undertake an environment and/or social compliance audit (para.12, Appendix 4).

11 ADB. 2012. Periodic Financing Request Report on Multitranche Financing Facility (MFF) to the Socialist Republic of Viet Nam for the Power Transmission Investment Program, Tranche 2. Manila.

12 For the transmission line projects, the anchor tower general locations can be identified during the basic design process. However, the specific locations of the suspended towers could not be identified accurately at that time and thus the complete impacts within the transmission line RoW could not be determined before final design by the contractor and was not completed before work commenced. At the time of REMDP finalization, total compensation payments were D 1,921 million (equivalent to $84,500).

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23. Of the 1,119 affected ethnic minority households, 346 were in Gia Lai province, 341 in Dak Lak province, 213 in Dak Nong province, and 219 in Binh Phuoc province. The main ethnic minority groups include Ede, Jarai, Stieng, Nung, Tay, Dao, and Muong. The main impacts on ethnic minority households were permanent land acquisition due to the construction of tower foundations and impacts on trees and crops. Fifty-three ethnic minority households were severely affected due to a loss of 10% or more of their productive landholdings. Forty-one ethnic minority households had to relocate, including one in Gia Lai, three in Dak Lak, seventeen in Dak Nong, and twenty in Binh Phuoc. A project resettlement site was not constructed because the number of displaced households was scattered along the routes and they all opted to self-relocate; most of them had enough remaining land area to rebuild their houses; and those that did not, moved to an existing resettlement site developed by the province, close to their former residences. Therefore, the project did not break the ethnic communities’ relationships, nor did it affect their traditions and customs. There were also no impacts on customary land and ancestral territories of the ethnic communities. Four due diligence reports (DDRs) were prepared related to ethnic minorities. The DDRs identified gaps in implementation and principles related to compensation, assistance for resettlement, grievance redress, and ethnic minority development. The corrective action plans (CAPs) included actions related to (i) consultation with the ethnic minority groups, (ii) legal assistance from the government in case the ethnic minority households lodged complaints, and (iii) cash allowances for ethnic minority households to fund traditional rituals when moving their houses. The progress of CAP implementation was reported in the monitoring reports and discussed during regular ADB review missions.

24. All subprojects’ civil works commenced prior to the updating of REMDPs and resettlement plans. For the 500 kV Pleiku–My Phuoc–Cau Bong transmission line subproject, NPT used its own funds for work contracts and started construction in July 2012 before ADB approved the loan in December 2012. At appraisal, ADB conducted due diligence and prepared the DDR with CAPs for this subproject in November 2012CPMB disclosed the information to the relevant government authorities and affected households and implemented the CAP under ADB’s supervision.13 For the other two subprojects, the recruitment of individual safeguards consultants was delayed. The preparation of updated resettlement plans and their approval by ADB was in July 2014, while the construction of the 220 kV Cau Bong–Duc Hoa transmission line had started in December 2013 and the 220 kV Cau Bong–Hoc Mon–Binh Tan transmission line had started in February 2014. To address these issues, a total of eight DDRs with CAPs for the three subprojects were prepared including four DDRs related to ethnic minorities (para. 23) during 2014–2015 and disclosed on the ADB website. An ADB social development specialist carried out thirteen missions focused on safeguard issues and conducted monitoring activities during the project implementation period. The progress of the CAPs implementation was regularly reported in the monitoring reports and discussed during regular ADB review missions. A total of 50 social safeguard monitoring reports were prepared, submitted, and disclosed on the ADB website.

25. The PMBs, supported by individual consultants, monitored compensation, assistance, and resettlement; and updated REMDPs, resettlement plans, and DDRs. The consultants prepared and submitted through the PMBs quarterly monitoring reports that complied with the government’s and ADB’s requirements, although sometimes with delay and of poor quality. Furthermore, the Vietnamese Land Law (2003) was revised in 2013, which led to further delays and difficulties in applying the compensation rates that were in the original resettlement plans and REMDPs. To address these issues, ADB fielded special missions to monitor and guide the executing and implementing agencies to expedite and take remedial actions to ensure compliance with ADB’s safeguards policy. All land acquisition and resettlement activities ultimately met government and

13 The DDR was disclosed on the ADB website in August 2015.

8

ADB safeguard requirements (Appendix 9). Complaints received during tranche 2 implementation were as follows: (i) for the 500 kV Pleiku–My Phouc–Cau Bong transmission line subproject: 1,733 cases; (ii) for the 220 kV Cau Bong–Hoc Mon–Binh Tan transmission line subproject: 37 cases; (iii) for the 220 kV Cau Bong–Duc Hoa transmission line subproject: 15 cases. As of 31 May 2018, as reported by the PMBs, there are no outstanding grievance cases left unresolved.14

26. By September 2018, D5.5 billion (equivalent to $243,333) were yet to be disbursed to a total of 106 affected households, consisting of 104 affected households under the 220 kV Cau Bong–Hoc Mon–Binh Tan transmission line subproject and 2 affected households under the 500 kV Pleiku-My Phuoc-Cau Bong transmission line subproject. The main reasons for undisbursed compensation for the 220 kV Cau Bong–Hoc Mon–Binh Tan transmission line subproject are (i) the inability to locate the entitled landowners (they are not living in the project areas) and (ii) the complexity of clarifying inheritance rights from deceased affected people to determine who may be entitled to compensation. Due to these difficulties, NPT has transferred these outstanding compensation amounts to the escrow accounts of the respective district state treasuries and are committed to monitor disbursements to the affected households until completion.15 For the 500 kV Pleiku-My Phuoc-Cau Bong transmission line subproject, though the REMDPs were completed, compensation payments remain outstanding for two out of the four affected households identified under its associated facilities as of September 2018.16 While waiting for their compensation plan to be approved by the government, NPT made advance payments to two affected households based on the draft compensation plan that was agreed by the affected households. NPT has committed to work with the government to complete the compensation payments for the other two affected households. The draft compensation plan is expected to be approved by the government by the end of October 2018.

27. Safeguard unit. The MFF was designed to enhance the safeguard capacity in NPT and the PMBs. However, only one fulltime safeguard staff was appointed in NPT and responsible for both environmental and social safeguards for all NPT projects. Despite ADB’s request, NPT was unable to increase the number of safeguard staff due to budget constraints. On the other hand, the PMBs have established compensation departments with 28 staff in CPMB in 2014 and 27 staff in SPMB in 2012. The CPMB and SPMB also established a four-person working group to carry out environmental and social safeguards activities for ODA-funded projects. Although the PMBs stated that the capacity of their safeguards units was sufficient to handle all their projects, they often appeared overloaded and unable to manage the consultants and prepare internal and external monitoring reports in time.

14 The complaints were mainly about (i) compensation rates for land (in all provinces and all subprojects); (ii)

compensation rates for rubber and coffee trees (mainly in 500 kV Pleiku-My Phuoc-Cau Bong transmission line); (iii) requests for relocation (mainly of more than 100 encroached households in Dak Nong Province); (iv) inadequate detailed measurement surveys; and (v) the verification of affected land origins (land ownership history records). Those complaints were resolved following the steps stipulated in the Law on Complaint and Denunciation (2011).

15 Compensation for the households was deposited to their bank account with the agreement of three parties, (i) SPMB, (ii) the District Compensation Board, and (iii) the respective bank. The disbursement can only occur once the three parties sign. SPMB is committed to report to ADB for each case with relevant vouchers and documents. To search for the missing households, the District Compensation Resettlement boards (DCARBs) and Commune People’s Committee have announced three times via public notice boards. The DCARBs and SPMB also have made announcement in newspapers (normally the Sai Gon Giai Phong newspaper).

16 Due to rapidly increasing loads at the 500 kV Pleiku substation, NPT constructed an additional 500 kV Pleiku 2 substation using its own funds, and in March 2016, changed the connecting point of the 500 kV Pleiku-My Phuoc-Cau Bong transmission line from the 500 kV Pleiku substation to the 500 kV Pleiku 2 substation with two new connection lines. Because of this route change, the 500kV Pleiku 2 substation and the two new connection lines were identified as associated facilities, for which a DDR was prepared to verify the resettlement activities of those facilities in compliance with ADB’s safeguard policies and disclosed on the ADB website in December 2017.

9

J. Monitoring and Reporting

28. Loan covenants were generally complied with, except for two loan covenants that were not complied and eight loan covenants that were partially complied. Non-compliance was because works contracts funded by NPT for the 500 kV Pleiku–My Phuoc–Cau Bong transmission line subproject were awarded (i) before the EMP was prepared and updated, final resettlement plans were approved by ADB and (ii) before environmental and social safeguards monitoring consultants were engaged. The two loan covenants related to land acquisition and involuntary resettlement were partially complied, as civil works commenced prior to updating resettlement plans. The required resettlement plans were then updated for all three subprojects. There were also instances where compensation payments were delayed. However, CAPs were prepared and implemented. The loan covenant for environment was partially complied as an environmental compliance audit was not conducted for the 500 kV Pleiku–My Phuoc–Cau Bong transmission line subproject which construction had already started at the time of appraisal. Covenants for human and financial resources to support safeguards were also partially complied. The CPMB and SPMB established safeguard units and equipped them with staff in charge of ODA projects. However, NPT had only one staff in charge of environmental and social safeguard matters for all ODA projects, and CPMB and SPMB’s safeguard units, although established, were not adequately staffed, which resulted in limited quality assurance. Financial covenants on self-financing ratios were partially complied due to NPT’s unexpected significant short-term financial obligations in 2014. Further, the auditor’s opinion on NPT’s compliance with financial loan covenants was not included in its annual financial statements and audited project financial statements. Covenants related to monitoring were also partially complied. Twenty-eight environmental monitoring reports and fifty social monitoring reports were submitted and disclosed from January 2014 to November 2016. However, most of the reports were submitted late, of poor quality, and required several revisions. ADB review missions reminded both NPT and the PMBs to submit the reports and/or revise deficient versions. Finally, NPT has not disclosed the required information on its website, but instead, only limited information via newspapers. Notwithstanding the above issues, project execution or ongoing operation of project-supplied facilities was not substantially impacted. At project completion, the borrower and executing agency’s compliance with the conditions and covenants of the loan agreement is assessed as satisfactory. No covenants were modified, suspended, or waived during implementation. The status of compliance with loan covenants is in Appendix 12.

29. NPT and the PMBs have adequate and qualified staff that are familiar with the planning, implementation, and operation of transmission networks, including financial management, although NPT still lacks safeguards capacity (para. 27). As an autonomous legal entity, NPT’s revenues, expenses, assets, liabilities, and equity are accounted separately from the EVN and, as such, NPT is responsible for its financial sustainability. However, in practice, it has limited management autonomy from the EVN. NPT’s capital and operating budgets, including its ability to borrow, are all reviewed and approved by EVN. During the project implementation period, the transmission tariff was increased every year from D78.0/kWh in 2012 to D83.3/kWh in 2013, D86.4/kWh in 2014, and D104.0/kWh in 2015. As a result, NPT’s financial performance has progressively improved.

III. EVALUATION OF PERFORMANCE

A. Relevance

30. The project is assessed relevant. To support the priority investments and reform framework identified in the PDP VII, the MFF tranches were adequately designed to enhance the

10

capacity of the transmission network to balance power loads in Northern, Central, and Southern Viet Nam. The tranches were also adequately designed to mitigate the risks identified in ADB’s previous energy programs by (i) ensuring a high degree of readiness with detailed technical designs, government approvals, and advanced procurement in place before a tranche is approved; (ii) implementing procurement plans with an appropriate number of procurement contracts per subproject, and (iii) building the capacity of NPT staff to prepare and implement safeguard compliance documents and measures.17

31. The use of the MFF modality also provided the flexibility to sequence transmission network investments in response to (i) the development of new power generation capacity, (ii) changes in load forecast and the commissioning of new power plants, and (iii) the finalization of technical designs. Although tranche 1 experienced a year delay in procurement, tranche 2 achieved a high degree of project readiness for subproject implementation. The MFF modality also provided the advantage that the savings from both tranches were returned to the MFF pool so that the funds could be used for later tranches.18

32. The project remained relevant at completion. Despite the government restrictions on using loan funds for nonphysical investments introduced during project implementation (para 8), NPT timely addressed them by leveraging the required funds from its own resources and available TA funds, which facilitated the project implementation and achieving the outputs.

B. Effectiveness

33. The project is rated effective. It was completed on time and the project outcomes and outputs were fully achieved, except for the indicator on NPT’s self-financing ratio target, which deteriorated only in 2014 due to NPT’s unexpected significant short-term financial obligations. However, this was not a systematic problem. NPT’s financial and operational capacity had been strengthened during project implementation through the capacity building activities. The project has contributed to balancing power loads in Northern and Southern Viet Nam by constructing a new 500 kV transmission line linking Central and Southern Viet Nam, and important 220 kV transmission lines in Ho Chi Minh City. The project was also an integral part of a highly effective energy sector investment program that enabled the growth of power supply to keep pace with the 10.8% annual growth in demand during 2011–2016 and a reduction of power system losses to 7.7% in 2016 from 10.2% in 2010. With huge investment needs identified in the PDP VII, ADB responded effectively to government requests for development partners to support expansion of the national transmission system with this MFF and its tranches. However, the project experienced significant delays and challenges in meeting social safeguard requirements.

C. Efficiency

34. The project is rated efficient. The economic internal rate of return (EIRR) was calculated and confirmed the substantial economic benefits of the project. The economic analysis used a time-slice approach based on the subprojects’ contribution to reducing transmission system

17 ADB. 2009. Country assistance program evaluation for the Socialist Republic of Viet Nam, 1999–2008. Manila. The

study identified efficiency issues related to implementation delays in energy sector programs, in particular (i) lengthy government administrative and approval procedures involving several ministries; (ii) many layers of approval for procurement, construction, land acquisition, and safeguards; (iii) delays in finalizing detailed technical designs; (iv) small procurement packages in the interest of attracting local bidders; and (v) limited trained human resources to implement safeguard measures in an effective and timely way.

18 Due to public debt ceiling, the government could not process tranche 4 in 2017 and the remaining loan savings were cancelled.

11

losses and to increasing incremental energy supplied to customers located in Southern Viet Nam, especially in and around Ho Chi Minh City, assuming that other investment in generation and transmission proceeded as planned. The ex-post evaluation resulted in an EIRR of 18.8%. These benefits are higher than envisaged at appraisal (18.5%) due to the significant decrease in actual costs, which is partly offset by slower demand growth than originally forecasted. There is also an additional positive impact from the inclusion of an estimate of the benefits from increased system reliability resulting from the project. If demand growth had been at rates forecasted at appraisal, the expected EIRR would be higher at 20.3%. The economic reevaluation is in Appendix 10.

D. Sustainability

35. The project is assessed likely sustainable. NPT is a state-owned transmission company and one of EVN’s subsidiaries. NPT will continue to operate, maintain, and manage the project assets. National regulations stipulate that 2% of the investment cost is allowed for operation and maintenance (O&M) of the transmission facility. The project facilities visited during loan review missions and the project completion mission were well maintained and in good condition, with regular O&M scheduled as envisaged at appraisal. There are regular annual O&M staff training programs for regular repairs and special maintenance, underpinning sustainable operation of these assets. The likelihood that the project outcome and outputs will be maintained over the economic life of the project is high.

36. The financial internal rate of return (FIRR) of the project is evaluated at 8.6%. This is above the weighted average cost of capital (WACC) of 5.7%. The 500 kV Pleiku - My Phuoc - Cau Bong transmission line subproject has a FIRR higher than anticipated at appraisal, but other two subprojects have a FIRR lower than anticipated at appraisal. This result can be attributed to the slower demand growth than projected at appraisal and offset by the significant decrease in actual costs. However, all subprojects and the project as a whole demonstrate FIRRs higher than the WACC at evaluation and, therefore, contribute a net financial surplus to NPT. The financial evaluation is in Appendix 11.

37. The future sustainability of the project will depend on NPT’s financial performance and, ultimately, tariff reforms in Viet Nam. Market-based tariff reforms were initiated in 2009 and tariff levels have improved towards full cost recovery. The tariff regulation approved in 2017 incorporated a lower threshold of 3–5% for tariff adjustment, which allows the EVN to adjust retail tariffs within this threshold without seeking government approval.19 The updated transmission tariff regulation formulated with ADB TA support, 20 provides incentives to improve the operating efficiency and performance of NPT. The government plans to develop a new electricity retail tariff structure to reduce cross-subsidies and better target low-income households, which will improve the efficiency of the tariff pricing mechanism in Viet Nam.

E. Development Impact

38. Economic impacts. Adequate and reliable power supply is an essential prerequisite for Viet Nam’s socio-economic development. The high concentration of industrial plants and general economic development require a reliable and continuous supply of electricity, especially in dynamic development centers in the Southeast, Central Highlands, and Red River Delta. Without adding generation capacity and expanding the transmission network, the main load centers in

19 Prime Minister Decision 24/ 2017/QĐ-TTg dated 30 June 2017. 20 ADB. Socialist Republic of Viet Nam: Electricity Transmission Pricing Review in the Context of Power Sector

Restructuring. https://www.adb.org/projects/42039-032/main

12

these regions were expected to suffer a worsening electricity supply deficit, which would then affect the production capacity for domestic consumption and for export and reduce economic growth potential. The country’s sustained economic growth (average annual growth rate of 6% during 2012–2017) would not have been possible without sufficient transmission network infrastructure, especially the 500 kV Pleiku– My Phuoc–Cau Bong transmission line financed by the project.

39. Poverty alleviation and social aspects. Viet Nam has made remarkable progress in expanding access to electricity. The percentage of households without electricity fell from 22% in 1999 to less than 2% in 2017. Those communities that are not yet connected to the grid are mainly in the less developed and sparsely populated mountainous areas of the northwest and central highlands. Gradually increasing tariffs to cover the costs associated with expanding power generation and transmission increase the basic cost of living and have a greater impact on lower-income groups by reducing the amount of disposable income. However, the poorest households in Viet Nam spend less than 2.5% of their household income on meeting electricity bill payments. All households’ first 50 kWh is priced at 92% of the national average price and the second block (50–100 kWh) at 95% of the national average price. Any usage over 100 kWh is priced above the average tariff. Poor households and those eligible for social welfare who use less than 50 kWh of electricity per month receive monthly cash subsidies to cover the first 30 kWh of electricity on their bill.

40. The enhanced transmission network capacity financed by the project has contributed to balancing the power loads, especially in the major load centers in Ho Chi Minh City that are critical for industrial and commercial expansion, market-based agricultural development, and residential consumers’ consumption. It has also facilitated further expansion of the distribution network to reach the remaining portion of the unconnected population. In rural areas, a reliable and improved electricity supply has improved the productivity, efficiency, and quality of agricultural production, especially in the central highlands where there are considerably higher rates of poverty than elsewhere in Viet Nam. The poor, including the large number of rural-urban migrants found in Ho Chi Minh City, benefit from the increased demand for labor resulting from the improved electricity supply to industrial and commercial employers in urban and peri-urban areas, and from improving the quality of life generally.

41. The direct social impacts of the project on affected households have been appropriately mitigated, with affected households physically relocated outside of the designated RoW for safety reasons or duly compensated considering the potential reduction of land values affected by the project (paras. 22-26).

42. Design and monitoring framework impact indicators. The project impact was defined as enhanced capacity to balance power load in Southern Viet Nam and had two indicators: (i) electricity supply increase by 2016 with a target of 100,000 GWh from 39,000 GWh in 2009 and (ii) system loss reduction with a target of at least 9% from 10% in 2010. The first target was not fully achieved as the electricity supply increased to 81,398 GWh by 2016 but the second target was achieved as the system loss was reduced to 7.7% by 2016. Underachievement of the first target was due to slower growth in demand and not attributed to the project.

43. ADB results indicators. The project constructed 437 km of 500 kV transmission lines and 28.2 km of 220 kV transmission lines.

13

44. Overall development impact is assessed as highly satisfactory considering the significant positive economic, poverty, and social impacts induced from the project and the achievements described in paras. 42-43.

F. Performance of the Borrower and the Executing Agency

45. Performance of contractors and suppliers. The performance of civil works contractors and suppliers was generally satisfactory. All equipment suppliers were able to make deliveries in accordance with their approved contract schedules. The local technical consultants’ performance was assessed as less than satisfactory due to the inaccuracy of project cost estimates and poor quality of the reports. The performance of environmental consultants, local resettlement consultants, and independent monitoring organization consultants was assessed as less than satisfactory, as their frequent turnover or poor performance impacted the quality of reports and caused delays in the submission of reports to ADB.

46. Performance of the borrower and the executing agency. The borrower, the Socialist Republic of Viet Nam, authorized NPT, the executing agency, to coordinate project implementation with ADB and the PMBs. NPT provided counterpart funds as specified in the loan agreement. NPT ensured that procurement plans were implemented properly and there were no delays in the submission of procurement-related documents for ADB approval. There was a period when safeguards policy requirements were incomplete (paras. 19–26). However, the government and NPT made significant efforts and allocated resources to meet the requirements. Throughout the course of the project, the government and NPT were responsive to the requests of ADB. There were the delays in the submission of progress reports and safeguards monitoring reports, which, however, were resolved during ADB review missions. Despite some deficiencies during the early stages of project implementation regarding safeguard compliance, overall, the performance of the borrower and the executing agency is assessed as satisfactory.

G. Performance of Cofinanciers

47. The government of Viet Nam requested AFD to provide €75 million ($100 million equivalent) to finance equipment for the 500 kV Pleiku–My Phuoc–Cau Bong transmission line in parallel with ADB. On 12 July 2012, AFD’s Board of Directors approved its cofinancing. During implementation, AFD informed ADB that the AFD loan agreement had been duly executed and delivered, and all conditions precedent to its disbursement had been fulfilled. ADB maintained a good working relationship with AFD and conducted joint project review missions. AFD financed three packages: the supply of equipment, supply of steel towers, and supply of insulators and fittings for the 500kV Pleiku–My Phuoc–Cau Bong transmission line. AFD’s assistance for these packages was adequate and executed on time.

H. Performance of the Asian Development Bank

48. Performance of the Asian Development Bank. ADB conducted regular loan review missions, a midterm review, many safeguard review missions, several special-purpose missions, and project completion review missions. ADB was responsive to the borrower’s requests and those of NPT and the PMBs. There was a time when social safeguard requirements were incomplete due to the limited capacity of NPT and the PMBs. However, ADB fielded 13 safeguard missions from 2013 to 2017 to closely monitor the project and ensure requirements were met. For the 500 kV Pleiku-My Phuoc-Cau Bong transmission line subproject for which construction had already started before project approval, an environmental compliance audit was not conducted, and the social safeguard DDR was prepared at appraisal but not disclosed on the ADB website

14

until later. However, the CAP in the DDR was implemented by the CPMB and monitored by ADB. In addition, a total of eight DDRs with corrective action plans were prepared for each segment and were implemented and monitored closely; and fifty social monitoring reports were prepared and disclosed on the ADB website. ADB’s approval of withdrawal applications and all payment to consultants, contractors, and suppliers were timely. ADB staff spent adequate time training PMB staff on project implementation procedures and provided relevant guidelines in a satisfactory and timely manner. NPT and the PMBs appreciated ADB’s guidance and advice on technical and implementation issues, preparation, and evaluation of bid documents, and other matters of loan administration. Despite the time it took to resolve some outstanding safeguards requirements, overall, ADB’s performance is assessed as satisfactory.

I. Overall Assessment

49. The overall project rating is successful. The outcome was achieved and all three transmission lines under the project were constructed and commissioned on time. The project helped Viet Nam achieve its ambitious energy sector development goals. The project has also contributed to rapidly expanding the power system while improving overall efficiency by reducing system losses and making it possible to transmit electricity from new lower-cost generation plants, and to balancing regional loads between Northern, Central, and Southern Viet Nam.

Table 1: Overall Ratings Criteria Rating

Relevance Relevant Effectiveness Effective Efficiency Efficient Sustainability Likely sustainable Overall Assessment Successful Development impact Highly satisfactory Borrower and executing agency Satisfactory Performance of Asian Development Bank Satisfactory

Source: Asian Development Bank.

IV. ISSUES, LESSONS, AND RECOMMENDATIONS

A. Issues and Lessons

50. At appraisal, the construction of the 500 kV Pleiku–My Phuoc–Cau Bong transmission line already started using NPT’s own funds and therefore, due diligence for environment and social safeguards should have been noted in the main project document and an environmental compliance audit should have been conducted. For social safeguards, although the DDR was prepared at appraisal and implemented by NPT, it wasn’t disclosed on the ADB website. It was only disclosed in 2014 when the design consultants conducted the detailed land acquisition and resettlement survey and prepared the DDRs reflecting an updated socioeconomic profile of the affected districts and communes. For other 220 kV transmission lines, civil works commenced before the resettlement plans were updated.

51. In this regard, the document preparation for land acquisition and resettlement should start much earlier than in this project. Resettlement consultants should be engaged at least 6 months before the scheduled start of civil works and require close coordination with the contractors preparing final design, and the time for their contract should cover the resettlement plan implementation period. Safeguard consultants should be recruited through a firm instead of on an individual basis as their frequent turnover or poor performance impacted the quality of reports and delayed activities.

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B. Recommendations

52. Future monitoring. All project outputs have been achieved and subprojects are fully operating as planned. However, social safeguard requirements should be monitored until compensation payments are fully disbursed (para 26). The project assets are integrated into the national power transmission system rather than comprising a set of stand-alone investments. The focus of monitoring and evaluation of grid development projects will be on NPT’s overall progress and performance.

53. Cost estimation. To avoid significant cost underruns in future projects, it is recommended ADB due diligence build on the executing agencies completed pre-feasibly study and refer to market rates for similar investments in the country.

54. Design and monitoring framework. It is recommended that the DMF indicators are established more accurately to assess benefits attributable to the project. For example, electricity supply increase is not solely attributed to the improved transmission network capacity and rather determined by actual demand growth. Therefore, whether electricity demand growth is met would have been a more appropriate impact indicator. For the outcome, the additional transmission capacity attributable to the project would be more appropriate.

55. Further action or follow-up. The financial sustainability of the project depends on the right transmission tariff pricing mechanism and right incentives for NPT to improve its operational efficiency. For this reason, it is important that ADB continues to assist the government in improving performance-based transmission pricing regulations and other tariff regulations.

56. Timing of the project performance evaluation report. It is recommended that the project performance evaluation be scheduled in Q1 2019.

57. Covenants. The covenants in the loan and project agreements were relevant and, therefore, should be maintained in their existing form.

58. Capacity building. It is recommended that ADB continue to provide NPT and the PMBs with training in the areas of procurement, disbursement, and safeguards. For social safeguards, the staff of the compensation departments of the PMBs should be given more intensive and targeted training. In addition, due to frequent staff turnover, it is recommended to increase capacity building activities through informal workshops in addition to regular training programs offered by ADB and other development partners. Lastly, ADB can encourage knowledge sharing among the PMBs. One area can be resettlement, in which the PMBs have achieved different levels of performance.

16 Appendix 1

DESIGN AND MONITORING FRAMEWORK

Design Summary Performance Indicators and

Targets Achievements at Completion

Impact Enhanced capacity to balance power load in southern Viet Nam

Electricity supply increases to 100,000 GWh by 2016 (2009 baseline: 39,000 GWh) System losses reduced to at least 9% by 2016 (2010 baseline: 10%)

Partially achieved due to slower growth in demand than projected. Electricity supply increased to 81,398 GWh in 2016 Substantially achieved. System losses reduced to 7.7% in 2016

Outcome Strengthened financial and operational capacity of NPT

High quality trained staff in investment planning and management in place by 2016 (at least 20 staff trained)

Achieved. NPT conducted many training programs in various areas, including but not limited to investment planning and management, and exceeded the targeted number of participants

Outputs Component 1. Expanded Transmission Network Energized transmission lines Component 2. Improved Operational Effectiveness and Efficiency of NPT Strengthened financial capacity of NPT

By April 2016: 500kV transmission lines expanded by 437km (2010 baseline: 3,987km) 220kV transmission lines expanded by 28.2km (2010 baseline: 10,820km) Progressive improvement in self-financing ratio: 20% in 2013 and 2014, and 25% in 2015 (2011 baseline: 1%) Progressive improvement in debt-service-coverage ratio: 1.3 in 2013 and 2014, and 1.5 on 2015 (2011 baseline: 1.0)

Achieved. 500 kV transmission lines expanded by 437 km Achieved. 220 kV transmission lines expanded by 28.2 km Partially achieved 2013: 21.5% 2014: 14.7% (due to its unexpected significant short-term financial obligations) 2015: 31.2% 2016: 33.1% Substantially achieved 2013: 1.94 2014: 1.70 2015: 2.26 2016: 1.94

Appendix 1 17

Design Summary Performance Indicators and

Targets Achievements at Completion

Strengthened operational capacity Component 3: Project Implementation Support Enhanced streamlined project implementation Strengthened safeguard compliance management Effective support in design and construction

Progressive improvement in debt-to-equity ratio: 85:15 in 2013; 80:20 in 2014, and 75:25 in 2015 (2011 baseline: 87:13) High quality trained staff in investment planning and management in place by 2015 (at least 20 staff trained) Number of procurement contracts per subproject is on average 2–5 by 2012, and thereafter (2011 baseline: 10-20 contracts) Established operational environmental and social safeguard units with full time trained staff within NPT and PMBs by 2014, and thereafter Prepared technical designs and constructed transmission lines in accordance with international standards and code of conduct by 2012, and thereafter

Substantially achieved 2013: 66:34 2014: 72:28 2015: 74:26 2016: 73:27 Achieved. NPT conducted many training programs in various areas, including but not limited to investment planning and management, and exceeded the targeted number of participants Achieved. An average of three procurement contracts per subproject achieved under the project Achieved. Safeguard units were established in PMBs. A total of 32 staff from PMBs and NPT trained in workshops organized by ADB and World Bank on the subjects of (i) resettlement and (ii) management of social and environmental risks in power projects Achieved. Vietnamese standards were strictly applied for constructions of transmission lines. These Vietnamese standards are mostly based on Russian and European standards

D = Dong; GWh = gigawatt hours, kV = kilovolts, NPT = National Power Transmission Corporation, PMB = Power Project Management Board. Source: Asian Development Bank and National Power Transmission Corporation.

18 Appendix 2

PROJECT COST AT APPRAISAL AND ACTUAL ($ million)

Appraisal Estimate Actual

Item

Foreign Exchange

- ADB

Foreign Exchange

- AFD Local

Currency Total Cost

Foreign Exchange - ADB

Foreign Exchange -

AFD Local

Currency Total Cost

A. Base Cost 1. Component 1: Expanded Transmission Network Civil Works and Construction:

85.45 86.20 164.25 335.89 43.89 59.45 121.89 225.23

a. 500kV Pleiku-My Phuoc-Cau Bong Transmission Line

53.09 86.20 102.89 242.18 33.94 59.45 53.09 146.49

b. 220kV Cau Bong-Duc Hoa Transmission Line c. 220kV Cau Bong-Hoc Mon Transmission Line

Land Acquisition & Resettlement

8.16

24.19

0.00

0.00

0.00

0.00

4.71

13.39

43.27

12.87

37.58

43.27

5.40

4.55

0.00

0.00

0.00

0.00

4.68

37.91

26.20

10.08

42.46

26.20

2. Component 2: Improved Operational Effectiveness

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

3. Component 3: Project Implementation Support

1.74 0.00 9.46 11.20 0.52 0.00 10.67 11.19

Subtotal (A) 87.19 86.20 173.70 347.09 44.41 59.45 132.56 236.42 B. Contingencies

18.22

13.80

32.70

64.72

0.00

0.00

0.00

0.00

C. Financing Charges During Implementation

4.78 0.00 44.38 49.16 1.66 0.00 0.00 1.66

Total (A+B+C) 110.19 100.00 250.78 460.97 46.07 59.45 132.56 238.08

ADB = Asian Development Bank, AFD = Agence Française de Développement, NPT = National Power Transmission Corporation Source: ADB.

Appendix 3 19

PROJECT COST BY FINANCIER

Table A3.1: Project Cost at Appraisal by Financier ($ million)

ADB

AFD NPT

Total Costa

Amount % of Cost Category Amount

% of Cost Category Amount

% of Cost Category

Amount {D}

Item {A} {A/D} {B} {B/D} {C} {C/D}

A. Investment Costs

1. Component 1: Expanded Transmission Network

85.45 25.44% 86.20 25.66% 164.25 48.90% 335.89

2. Component 2: Improved Operational Effectiveness 3. Component 3: Project Implementation Support

0.00

1.74

0.00%

15.54%

0.00

0.00

0.00%

0.00%

0.00

9.46

0.00%

84.46%

0.00

11.20

Subtotal (A) 87.19 25.12% 86.20 24.84% 173.70 50.04% 347.09

B. Contingencies 18.22 28.15% 13.80 21.32% 32.70 50.23% 64.72 C. Financial Charges During

Implementation 4.78 9.72% 0.00 0.00% 44.38 90.28% 49.16

Total Project Cost (A+B+C) 110.19 23.90% 100 21.69% 250.78 54.41% 460.97 % Total Project Cost

100%

ADB = Asian Development Bank, AFD = Agence Française de Développement, NPT = National Power Transmission Corporation a Includes taxes and duties.

Source: ADB, NPT and AFD reports.

20 Appendix 3

Table A3.2: Project Cost at Completion by Financier ($ million)

ADB

AFD NPT

Total Costa

Amount % of Cost Category Amount

% of Cost Category Amount

% of Cost Category Amount

{D} Item {A} {A/D} {B} {B/D} {C} {C/D}

A. Investment Costs

1. Component 1: Expanded Transmission Network

60.67 26.94% 59.45 26.40% 105.11 46.67% 225.23

2. Component 2: Improved Operational Effectiveness 3. Component 3: Project Implementation Support

0.00

0.52

0.00%

4.65%

0.00

0.00

0.00%

0.00%

0.00

10.67

0.00%

95.35%

0.00

11.19

Subtotal (A) 61.19 25.88% 59.45 25.15% 115.78 48.97% 236.42

B. Contingencies 0.00 0.00% 0.00 0.00% 0.00 0.00% 0.00

C. Financial Charges During Implementation 1.66 100.00% 0.00 0.00% 0.00 0.00% 1.66

Total Project Cost (A+B+C) 62.85 26.40% 59.45 25.97% 115.78 48.63% 238.08 % Total Project Cost

100%

ADB = Asian Development Bank, AFD = Agence Française de Développement, NPT = National Power Transmission Corporation a Includes taxes and duties.

Source: ADB, NPT and AFD reports.

Appendix 4 21

DISBURSEMENT OF ADB LOAN PROCEEDS

Table A4.1: Annual and Cumulative Disbursement of ADB Loan Proceeds ($ million)

Annual Disbursement Cumulative Disbursement

Year Amount

($ million) % of Total Amount

($ million) % of Total

2013 10.52 16.74 2014 36.49 58.06 10.52 16.74 2015 9.67 15.38 47.01 74.80 2016 5.65 8.99 56.68 90.18 2017 0.52 0.83 62.33 99.17 Total 62.85 100.00 62.85 100.00

ADB = Asian Development Bank. Source: ADB.

ADB = Asian Development Bank. Source: ADB.

22 Appendix 5

CONTRACT AWARDS OF ADB LOAN PROCEEDS

Table A5.1: Annual and Cumulative Contract Awards of ADB Loan Proceeds ($ million)

Annual Contract Awards Cumulative Contract Awards

Yeara Amount

($ million) % of Total Amount

($ million) % of Total

2013 38.49 62.90 2014 22.30 36.44 38.49 62.90 2015 0.36 0.58 60.79 99.34 2016 0.03 0.05 61.15 99.93 2017 Total

0.01 61.19

0.03 100.00

61.18 61.19

99.98 100.00

ADB = Asian Development Bank. a Classified by contract signing dates. Source: Asian Development Bank.

ADB = Asian Development Bank. Source: ADB.

Appendix 6 23

CHRONOLOGY OF MAIN EVENTS

Date Milestone Event

2010 28 October 3 December

Completion of engineering designs for 220 kV Cau Bong- Duc Hoa transmission line Approval of project preparatory assistance (TA 7742-VIE: Power Transmission Investment Program (MFF))

2011 10-19 August 16 December 30 December

Fact finding mission for preparing the MFF MFF Board Approval Completion of engineering designs for 220 kV Cau Bong- Hoc Mon – Binh Tan transmission line

2012

16-27 April July 22–26 July

Joint consultation mission with AFD Construction 500 kV Pleiku-My Phuoc-Cau Bong transmission line began Fact-finding mission fielded

24 August Management review meeting 10 September 30 October 5 December 21 December 2013 31 May 14-21 June 12 July

Submit PFR Report to ADB management Loan negotiations Board approval of Tranche 2 (L2959-VIE) Signing loan agreement Loan effectiveness Inception Mission On-lending agreement between AFD and NPT signed

15–18 July 22 August August 3 September 16 September 27 November –11 December 19 December 2014 14 February 28 April 5 May 12 March 31 March–8 April 10-25 November

Safeguards review mission No.1 SBV sent list of signatures specimens of authorized official from PMUs NPT set up a working group, comprised of members from various operational departments NPT/CPMB met the conditions for withdrawal for Category 2A (equipment for 500 kV Pleiku-My Phuoc-Cau Bong transmission line) Date of contract award for package 2: supply of conductor, earthwire, OPGW & fitting, primary equipment for bay and accessories of 220 kV Cau Bong-Hoc Mon-Binh Tan transmission line Loan review mission No.1 Construction 220kV Cau Bong- Duc Hoa transmission line began Construction 220 kV Cau Bong- Hoc Mon- Binh Tan transmission line began Completion of equipment installation of 500 kV Pleiku-My Phuoc-Cau Bong transmission line Construction, test and commissioning of 500 kV Pleiku-My Phuoc-Cau Bong transmission line completed Date of contract award of package 1: supply of steel towers of 220 kV Cau Bong-Hoc Mon-Binh Tan transmission line Safeguards review mission No.2 Midterm review mission

2015 11 March 9–12 March 21 April

Partial cancellation of $41.6 million of loan proceeds Safeguards review mission No.3 Safeguards review mission No.4

24 Appendix 6

10 July 10–18 September 30 November 16 December 23 December 2016 3 December 2015–8 January 2016 18 January–2 February 2 March 8–11 March 4-8 April 10–20 July 17 September 24 September 30 November 29 November –9 December 2017 29 September 9–13 October 23 October–2 November 3–8 December

Contract between SPMB and Resettlement National Safeguard Specialist terminated. National Social Safeguard Specialist took over remaining deliverables. Loan review mission No.2 220 kV Cau Bong- Hoc Mon- Binh Tan transmission line subproject completed Completion of equipment installation of 220 kV Cau Bong- Duc Hoa transmission line Construction, test and commissioning of 220 kV Cau Bong- Duc Hoa transmission line completed Safeguards review mission No.5 Loan review mission No.3 Transfer of loan administration to Viet Nam Resident Mission Safeguards review mission No. 6 Loan review mission No.4 Safeguards review mission No.7 Completion of equipment installation of 220 kV Cau Bong- Hoc Mon- Binh Tan transmission line Completion of construction, test and commissioning 220 kV Cau Bong- Hoc Mon- Binh Tan transmission line Loan closing date Project completion review mission No.1 Final cancellation of unutilized loan proceeds of $5.7 million and financial closing of loan account Safeguards review mission No.8 Project completion review mission No.2 Project completion review – safeguards

ADB = Asian Development Bank, CPMB = Central Power Project Management Board, EVN = Electricity of Viet Nam, kV = kilovolt, MFF = multitranche financing facility, NPT = National Power Transmission Corporation, OPGW = overhead power ground wire, PCR = Project Completion Report, PFR = periodic financing request, SPMB = Southern Power Project Management Board, TA = technical assistance. Source: Asian Development Bank

Appendix 7 25

PROJECT IMPLEMENTATION SCHEDULE

Activities

2011 2012 2013 2014 2015 2016 2017

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

A. DMF

1. Expanded Transmission Network

1.1 Award of contracts-Plan

1.1 Award of contracts-Actual

1.2 Construction and commissioning-Plan

1.2 Construction and commissioning-Actual

1.3 Implementation of REMDP and EMP-Plan

1.3 Implementation of REMDP and EMP-Actual

2. Improved Operational Effectiveness and Efficiency

2.1 Transmission charge increases-Plan

2.1 Transmission charge increases-Actual

2.2 Training seminars-Plan

2.2 Training seminars-Actual Deferred to tranche 4

3. Project Implementation Support

3.1 Consolidation of procurement packages-Plan

3.1 Consolidation of procurement packages-Actual

3.2 Appointment design and construction supervision support-Plan

3.2 Appointment design and construction supervision support-Actual

3.3 Establishment of safeguard units-Plan

3.3 Establishment of safeguard units-Actual

3.4 Appointment of independent monitoring-Plan

3.4 Appointment of independent monitoring-Actual

3.5 Appointment of tranche 3 preparation-Plan

3.5 Appointment of tranche 3 preparation-Actual

B. Management Activities

1. Procurement

1.1 Bidding Documents-Plan

1.1 Bidding Documents-Actual

1.2 Approval of bidding documents-Plan

26 Appendix 7

EMP = environmental management plan, REMDP = resettlement and ethnic minority development plan, Q1 = first quarter, Q2 = second quarter, Q3 = third quarter, Q4 = fourth quarter. Source: Asian Development Bank and National Power Transmission Corporation

1.2 Approval of bidding documents-Actual

1.3 Advertisement-Plan

1.3 Advertisement-Actual

1.4 Bid evaluation-Plan

1.4 Bid evaluation-Actual

1.5 Approval-Plan

1.5 Approval-Actual

1.6 Negotiations-Plan

1.6 Negotiations-Actual

1.7. Consulting services-Plan

1.7. Consulting services-Actual

2. Monitoring

2.1. Resettlement-Plan

2.1. Resettlement-Actual

2.2 Annual Review-Plan

2.2 Annual Review-Actual

2.3 Mid-Term Review-Plan

2.3 Mid-Term Review-Actual

3. Reporting

3.1 Project accounts-Plan

3.1 Project accounts-Actual

3.2 Audited financial statements-Plan

3.2 Audited financial statements-Actual

3.3 Progress Reports-Plan

3.3 Progress Reports-Actual

3.4 Completion Report-Plan

3.4 Completion Report-Actual

Appendix 8 27

SUMMARY OF CONTRACTS FUNDED BY ADB

PCSS No.

Contractor Description Nature of Contract

Procurement Mode

Contract Amount

($ equivalent)

A. Category 01: Civil Works 0009 Song Da 11 Thang

Long JSC Construction and Erection of 220kV Cau Bong-Duc Hoa Transmission Line (Package 3. Lot 1)

Works ICB 3,458,865

0011 PCC1 joint venture with VNECO

Construction of 220kV Cau Bong-Hoc Mon-Binh Tan Transmission Line and Extension Bays (Package 3. Lot 2)

Works ICB 6,839,180

0012 VNECO joint venture with PCC1

Construction of 220kV Cau Bong-Hoc Mon-Binh Tan Transmission Line and Extension Bays (Package 3. Lot 2)

Works ICB 6,484,330

B. Category 02: Equipment 0001 Jiangsu Zhongtian

Technology Co. Ltd.

Supply and Delivery of Optical Ground wires and Accessories (Package 32)

Goods ICB 1,166,672

0002 Wuxi Jiangnan Cable Co. Ltd.

Supply and Delivery of Conductors, Ground wires for the 500kV Pleiku-My Phuoc-Cau Bong Transmission Line (Package G30.2)

Goods ICB 14,142,288

0003 LS Vina and Thinh Phat Consortium

Supply and Delivery of Conductors, Ground wires (Package 30. Lot 30.1)

Goods ICB 10,249,091

0004 CADIVI-Thinh Phat

Supply and Delivery of Conductors for the 220kV Cau Bong-Duc Hoa Transmission Line and 220kV Cau Bong-Hoc Mon-Binh Tan Transmission Line

Goods ICB 2,497,673

0005 Thinh Phat Real Estate Cables JSC

Supply and Delivery of Conductors, Ground wires (Package 30. Lot 30.1)

Goods ICB 8,385,602

0006 Thinh Phat Real Estate Cables JSC

Supply and Delivery of Conductors, Ground wires (Package 30. Lot 30.1)

Goods ICB 2,051,741

0007 Thanh Long JSC and Steel Structure Manufacture JSC

Supply and Delivery of Steel Towers for the 220kV Cau Bong-Duc Hoa Transmission Line and 220kV Cau Bong-Hoc Mon-Binh Tan Transmission Line

Goods ICB 5,398,683

28 Appendix 8

PCSS No.

Contractor Description Nature of Contract

Procurement Mode

Contract Amount

($ equivalent)

C. Category 03: Consulting Services 0008 Duong Dinh Dung Local Environment

Specialist Consulting Services

ICS 10,892

0010 Duong Dinh Dung Local Environment Specialist

Consulting Services

ICS 41,346

0013 Nguyen Thi Thuy Hang

Local Safeguards Specialist (Environment)

Consulting Services

ICS 29,079

0014 Do Phu Hai Local Safeguards Specialist (Resettlement)

Consulting Services

ICS 34,704

0016 Cherry Rivera International Environment Specialist

Consulting Services

ICS 58,188

0017 John Meisner International Environment Specialist

Consulting Services

ICS 75,665

0018 Romeo Cleto International Social Safeguards Specialist

Consulting Services

ICS 69,679

0019 Dung Dinh Dung Local Environment Specialist

Consulting Services

ICS 6,439

0020 Le Kim Anh Local Environment Specialist

Consulting Services

ICS 14,154

0022 Nguyen Truong Thong

Local Social Safeguards Specialist

Consulting Services

ICS 13,842

0023 Luu Van Huyen Local Social Safeguards Specialist

Consulting Services

ICS 14,172

0024 Ashley Bansgrove International Environmental Safeguards Specialist

Consulting Services

ICS 103,842

0025 Asia Pacific Consultant JSC

Independent Monitoring for Resettlement

Consulting Services

QCBS 28,869

0026 Nguyen Trung Thong

Local Social Safeguards Specialist (Resettlement)

Consulting Services

ICS 19,332

Total 61,193,790 ADB = Asian Development Bank, ICB = international competitive bidding, ICS = individual consultant selection, JSC = joint stock company, kV = kilovolt, PCC = Power Construction Company, PCSS = procurement contract summary sheet number, QCBS = quality- and cost-based selection. Source: Asian Development Bank.

Appendix 9 29

LAND ACQUISITION AND RESETTLEMENT

I. Background and Context 1. In 2011, ADB approved the multitranche financing facility (MFF) Power Transmission Investment Program, which is an integral part of the National Power Development Master Plan VII (PDP VII) of Viet Nam. The MFFs aim to expand the country’s transmission network and contribute to improve the system’s reliability and quality of electricity supply to industrial, commercial, and residential consumers in the northern, central, and southern region of Viet Nam. The specific objectives of the project are to (i) facilitate power transfers; (ii) remove transmission bottlenecks; and (iii) reduce transmission losses and voltage fluctuations. The National Power Transmission Corporation (NPT) is the executing agency for all tranches and its power project management boards (PMBs) are implementing agencies. External consultants were engaged to support and complement the staff in NPT and the PMBs with activities involving (i) procurement; (ii) construction supervision and management; (iii) implementation of social safeguards measures; and (iv) on the job-training to effectively prepare and implement social safeguards measures for subsequent financing tranches. 2. The scope of the tranche 2 includes the following outputs:

(i) Output 1: Expanded Transmission Network (ii) Output 2: Improved Operational Effectiveness and Efficiency of NPT; and (iii) Output 3: Project Implementation Support

3. Among the above listed outputs, only output 1 triggered safeguard requirements. Under output 1, three subprojects were completed and operationalized as follows: (i) 500 kV Pleiku-My Phuoc-Cau Bong transmission line in May 2014; (ii) 220 kV Cau Bong-Duc Hoa transmission line in December 2015; and (iii) 220 kV Cau Bong-Hoc Mon and Binh Tan Branch transmission line in September 2016. Table A9.1 summarizes the key features of the tranche 2 subprojects.

Table A9.1: Features of the Tranche 2 Subprojects

No. Subproject Starting Point Ending Point Length (m)/ Area (m2)

Provinces

1 220 kV Cau Bong-Hoc Mon-Branch to Binh Tan transmission line

500kV/220kV Cau Bong Substation

Hoc Mon Substation

15.94 km Ho Chi Minh City

2 220 kV Cau Bong-Duc Hoa transmission line

Nhuan Duc Commune, Cu Chi district, Ho Chi Minh city

Duc Hoa Substation

13.42 km Ho Chi Minh City and Long An province

3 500 kV Pleiku-My Phuoc-Cau Bong transmission line

Pleiku substation at Chu Pah District in Gia Lai Province

500kV Cau Bong substation, Cu Chi District, Ho Chi Minh City

436.673 km Gia Lai, Dak Lak, Dak Nong, Binh Phuoc, Binh Duong and Ho Chi Minh City

Source: Resettlement and ethnic minority development plans and resettlement plans (2012 and 2014) and due diligence reports (2015) prepared for the subprojects and final external monitoring reports (2016).

4. Due to the scale of the subprojects, the tranche 2 subprojects’ resettlement activities were subject to Viet Nam’s 2003 and 2013 Land Laws and other national, provincial, and local

30 Appendix 9

regulations. As an ADB-financed project, it was also subject to ADB’s Safeguard Policy Statement (2009). II. Scope of Land Acquisition and Resettlement Impacts 5. The tranche 2 project required the land for the construction of transmission towers and substations. The transmission lines required a right-of-way (ROW) causing restrictions on land use within the ROW. This resulted in permanent land acquisition, temporary land occupation, physical displacement/relocation and/or house demolition of three households. The project did not require the construction of a resettlement site because the number of displaced households was scattered along the routes and they all opted to self-relocate; the majority of them had enough remaining land area to rebuild their houses; and those that did not, either self-relocated to a new place or moved to a resettlement site developed by the province, which was close to their former residences as well as plantation area. The Project was categorized A for involuntary resettlement (IR) as the impacts on affected people (AP) were considered significant, with 598 households being severely affected. As for indigenous peoples (IP), the project was categorized B as the social assessment and analysis prepared for the project determined that the one of the three subprojects, i.e. the 500 kV Pleiku-My Phuoc-Cau Bong transmission line subproject, would affect 1,119 ethnic minorities in four provinces, namely Gia Lai, Dak Lak, Dak Nong, and Binh Phuoc. 6. The Project affected a total of 10,520 households and organizations. Originally, in the Resettlement and Ethnic Minority Development Plans (REMDPs) and Resettlement Plans (RPs) prepared in 2012, it was estimated that a total of 4,902 households would be affected. This difference can be attributed to households separating to set up their own household. Furthermore, the difference is also because the original RPs and REMDPs only accounted for the affected household impacted by permanently land acquisition and did not define the number of households who would be affected by the ROW. In terms of displaced households, the original REMDPs and RPs estimated that 333 households would have to relocate. However, 541 were relocated during the project implementation. There was also a slight difference in terms of the area subject to permanent land acquisition and land use restrictions. The difference in the scope of land acquisition and resettlement impacts between the original plans and actual in 2015 and 2016 was due to emerging cases of households purchasing land after RP updating. Table A9.2 summarizes the planned and actual resettlement impacts.

Table A9.2: Summary of Resettlement Impacts

Item Unit REMDPs/RPs (2012&2014)

Actual

Total affected households and organizations HH &

organization 4,902 HHs and local institutions

10,520 HHs and local institutions

Physically displaced households HH 333 541

Residential house demolition house 333 541

Permanent LA m2 378,759.1 410,549.13

HHs affected by permanent LA HH 1,082 5,697

Restrictions on land use within ROW m2 11,615,944.7 11,584,666.8

Resettlement costs D 839,106,491,100 1,263,122,931,743

HH = household, LA = land acquisition, m2 = square meter, ROW = right-of-way, RP = resettlement plan, D = Vietnamese dong. Source: REMDPs and RPs (2012 and 2014) and DDRs (2015) prepared for the subprojects and final external monitoring reports (2016).

Appendix 9 31

III. Assessment of Impacts and Resettlement Planning 7. In 2012, a total of five Resettlement Plans (RPs) and four combined Land Acquisition and Resettlement and Ethnic Minority Development Plans (REMDPs) were prepared for three subprojects under tranche 2; one for each province to secure approval of government officials from the project provinces and city. The RPs and REMDPs were prepared in accordance with Vietnamese laws and ADB’s safeguard policies and procedures. During the feasibility study and preliminary design, the design consultants together with central power project management board (CPMB) and southern power project management board (SPMB) studied and compared different alternatives of the substation locations and route alignments of the transmission lines in order to minimize land acquisition and resettlement impacts. The design consultants and the PMBs decided on the shortest routes. Such routes were relatively close to public roads to avoid land acquisition for access roads and the transmission line alignments were selected to avoid traversing or running close to sensitive locations, such as historic and cultural places, gasoline, explosive storages, and areas with high trees. Routes were also consulted with local governments and affected people to avoid passing through densely populated areas. The ADB-funded project preparatory technical assistance consultants worked with the design consultant to prepare the RPs and REMDPs. 8. In 2014, the design consultants conducted the detailed land acquisition and resettlement (LAR) survey. This was set as the cut-off date. Following the announcement of the cut-off date, the survey team comprised of District Land Fund Development Centers (DLFDCs), representatives of CPMB and SPMB, departments of Natural Resources and Environment, and representatives of local authorities (communes and hamlets), conducted a detailed measurement survey (DMS) of the LAR impacts. In 2014, the Loan Implementation Consultants (LICs) supported the PMBs to update the RPs of the 220 kV Cau Bong-Duc Hoa transmission line subproject and 220 kV Cau Bong-Hoc Mon-Branch to Binh Tan transmission line subproject, reflecting updates/changes in detailed designs of the subprojects and revisions to the 2003 Viet Nam Land Law. LICs updated the RPs by July 2014 and these documents were then approved by ADB. These updated RPs reflect an updated socioeconomic profile of the affected districts and communes. The socioeconomic profile is based on secondary data, including information about population and households, land area and land use, economy and industry, and income. The updated RPs include results from surveys of an average of 20% of affected households reflecting their socioeconomic profiles, gender, age structure, educational level, living space, arable land, household properties, and income sources and levels. For the two 220 kV transmission line subprojects, the construction of tower foundations commenced before the approval of the updated RPs; therefore, two Due Diligence Reports (DDRs) for the respective subprojects were prepared in 2015 to review and verify whether the resettlement activities conducted in compliance with the RPs’ principles and regulations. 9. In addition, for the 500 kV Pleiku-My Phuoc-Cau Bong transmission subproject, during project implementation, civil works commenced before the RPs/REMDPs were prepared and approved in 2012. In fact, the construction of tower foundations commenced in 2012 before the prepared REMDPs and RPs were approved by ADB. As such, one DDR for six provinces and 1 city was prepared in 2012. It was only in 2014 that the LIC was recruited, who would have been responsible to update the RP/REMDP. However, as construction of the 500 kV Pleiku-My Phuoc-Cau Bong was completed, the RP/REMDPs were not updated. Instead in 2015, another set of six DDRs with Corrective Action Plans (CAPs) were required to be prepared for all six provinces and one city, to verify whether resettlement related activities were conducted in compliance with the entitlements and principles set out in the original RPs and REMDPs. The implementation of the DDRs and CAPs ensured that the compensation and assistance activities met the requirements

32 Appendix 9

set out in the RPs and REMDPs. Progress was regularly reported in the monitoring reports and discussed during regular ADB review missions. 10. Furthermore, the 2003 Vietnamese Land Law was revised in 2013. This led to delays and difficulties in applying compensation and support policies and rates that were reflected in the original RPs/REMDPs. The main difference between the 2003 and 2013 Vietnamese Land Law is the requirement to have the compensation price evaluated by an independent organization. This process causes delays in the paying out of compensation. Table A9.3 summarizes the planning and preparation steps for social safeguards.

Table A9.3: Planning and Preparation Steps Year Step

2011 The NTP engaged its engineering consulting company for technical studies and feasibility study report

2012 The design consultant and the consultants of ADB prepared the draft RPs and REMDPs (5 RPs and 4 REMDPs) and one DDR for 500 kV Pleiku-My Phuoc-Cau Bong Subproject

2013 The detailed design consultant conducted survey and prepared detailed design

2014 The local government set the cut-off date, and the DMS working team led by the district land fund development centers undertook the DMS

2014 Socioeconomic survey and public consultations were conducted with the affected households

2014 The loan implementation consultants assisted in updating the RPs (2 updated RPs for 220 kV transmission line subprojects)

2015 8 DDRs for the three subprojects were prepared with corrective action plans and disclosed on ADB website.

DDR = due diligence report, DMS = detailed measurement survey, REMDP = resettlement and ethnic minority development plan, RP = resettlement plan Source: Compiled from RPs and REMDPs (2012 and 2014) and DDRs (2015) prepared for the subprojects.

11. Impact analysis included loss of land; demolition of residential houses and structures; impacts on household utilities; and other impacts. Impact assessments such as on health, education, food security, social capital, and culture, showed that LAR did not have serious impacts. Table A9.4 presents a summary of assessment of key impacts.

Table A9.4: Summary Assessment of Key Resettlement Impacts Impact Types Step

Land acquisition

Permanent land acquisition affected 89 communes of 26 districts in seven provinces and city. The area of permanent land acquisition was estimated at 378,759.1 m2 in the 2012 REMDPs and RPs and 2014 updated RPs. Permanent land acquisition affected 1,082 households and organizations in the 2012 RPs and REMDPs and 2014 updated RPs. Among them, 323 lost 10% or more of their productive landholdings, thus were considered severely affected households per the project policies. The remaining affected households would not lose significant income.

Demolition of residential houses

There were no houses to be demolished under the 220 kV transmission lines. According to the regulations, houses are allowed to exist under the 220 kV transmission lines. For the 500 kV transmission line subproject, a total of 333 households were identified to be relocated against the actual number of 541 relocated households. However, resettlement sites were not developed for these households as they opted to self-relocation and rebuild their houses on the remaining area.

Nonresidential land structures,

Similar to impacts on residential houses, for the 220 kV transmission line subprojects, structures are allowed to exist under the 220 kV transmission lines. According to the 2014 updated RPs, no structure was affected permanently. 922 structures including bathroom, kitchen, latrines, and livestock shelters were also affected under the 500 kV

Appendix 9 33

trees and crops

transmission line subproject. In addition, 593,139 trees of different kinds were affected due to their heights which did not ensure the safety distance with the transmission lines, thus would be cut down.

Other impacts There were no other impacts on public structures nor business households. A total 1,344 vulnerable households, including 1,119 ethnic minorities, 186 female-headed households, and 39 poor households, were affected by the subprojects.

REMDP = resettlement and ethnic minority development plan, RP = resettlement plan Source: Compiled from RPs and REMDPs (2012 and 2014) and DDRs (2015).

IV. Consultation, Participation, and Grievance Redress Mechanism 12. The project’s measures for consultation and participation aimed to (i) solicit opinions and suggestions from the affected households and (ii) reduce grievances and disputes during the preparation and implementation of the RPs and REMDPs. During project preparation, SES and public consultations helped in preparing the RPs and REMDPs. Local governments and design consultants had conducted public consultation activities in the affected communes to disseminate project information and received feedback on resettlement and livelihood restoration measures. The draft RPs and REMDPs were disclosed to the affected households through public posting at the Commune People’s Committees’ (CPCs) offices and distribution of project information booklets (PIBs) describing compensation policies, their entitlements, and grievance redress mechanism (GRM) and so on. Measures ensuring public participation during implementation included:

(i) Land acquisition announcements through public posting at the CPCs’ offices and public meetings to disclose land acquisition area, compensation rates, and resettlement schemes;

(ii) Dissemination of compensation and resettlement policies to the affected households and local authorities;

(iii) Affected households participating in the DMS process and verification of the DMS results through field survey and public posting of the results at the CPCs’ offices;

(iv) Participation of local authorities and affected households in resettlement implementation and monitoring.

13. In addition, a grievance redress mechanism (GRM) comprising four steps as delineated in the RPs addressed questions and complaints pertaining to the land acquisition, compensation and resettlement. The GRM aimed to (i) obtain opinions and suggestions from AHs and (ii) reduce grievances during the preparation and implementation of the RPs. According to the results of the internal and external monitoring reports, the most common grievances and concerns were related to the exact location of the affected lands, compensation for structures on land, and verification of land ownership records. In addition, there were some queries on the health effect of magnetic field when the transmission line is put into operation. All above grievances and complaints were received, reviewed, and processed by CPMB and SPMB, the concerned District Compensation Boards, and the CPCs. Grievances were redressed by promptly responding in written form. Furthermore, community meetings were organized at the CPCs’ offices to speed up the redress process. In general, the GRM worked effectively. Most of complaints were addressed right at the first CPC level or at the second district level. The PMBs actively participated in the grievance redress process. Through interviewing with the affected households, it was noted that most of the affected persons were satisfied with the result of the grievance redress.

34 Appendix 9

V. Compensation, Resettlement, and Rehabilitation Measures 14. The project’s resettlement and rehabilitation objective was to ensure the relocation and livelihood restoration of the affected people under the project. The local governments, therefore, adopted and implemented a range of compensation, resettlement, and rehabilitation measures in the RPs and REMDPs to restore or improve the living standards of affected people. The following were the measures discussed: 15. House Reconstruction. The measures for 541 affected households who lost their residential houses under the 500 kV Pleiku-My Phuoc-Cau Bong transmission line subproject included cash compensation at replacement cost for demolished houses, moving subsidy, and rental allowances. For houses within the RoW of the 220 kV transmission lines, they were entitled for support for improvement of installing fireproof materials and lightning arrestors. In addition, the affected nonresidential structures were compensated at replacement cost. The affected households had a choice between self-relocation and relocation at the resettlement sites. Due to the nature of the linear project where the relocated households are scattered along the route, the relocated households opted for self-relocation on the remaining land area. There were three households who did not have enough remaining land to rebuild their houses; these households moved to a resettlement site developed by the province. The resettlement site was close to their former residences as well as plantation area. 16. Land Compensation and Restoration of Production. The measures for affected households who lost land included cash compensation for land and crops and economic rehabilitation package including (i) life stability supports for affected households losing 10% or more of their productive landholdings; (ii) job changing and creation supports for affected households losing agricultural land; (iii) vocational training for agricultural production and nonfarm employment for eligible households who have demands. Cash compensation was preferred by affected households due to their own ideas on sources of income (cash compensation might provide them with a wider range of opportunities for income restoration and improvement and/or with education or training opportunities for their children). Land acquisition and compensation were completed, except for a few cases where land ownership and verification of entitlements are still being resolved. Agricultural skills and nonagricultural vocational trainings were available to affected households who demanded improvements to their income-generating capacity. The support for vocational trainings were paid together with the compensation payment. The applications of unit prices for losses were found to be in compliance with Vietnamese regulations and the RPs. 17. The final monitoring results show that the land acquisition impacts on affected households were mitigated satisfactorily, as the provision of compensation and supports to restore income and livelihoods of the affected households have helped them stabilize after resettlement and minimize adverse impacts on livelihood activities. According to their self-assessment, 21.6% of the affected households of the 220 kV Cau Bong-Duc Hoa transmission line subproject and 23.2% of the households of the 220 kV Cau Bong-Hoc Mon-Binh Tan transmission line subproject have reported their lives are better than pre-project level due to better housing and purchasing new properties. The majority of the affected households assessed that their living conditions have not changed as the impacts did not adversely affect their livelihoods and incomes. Only a small number of households, 7.84% and 9.1% under two 220 kV transmission line subprojects, assessed that their living conditions were worse as they were concerned about the impacts of electromagnetic fields on their health. Regarding the 500 kV transmission line subproject, most affected households agreed that their income barely changed because of the project; a small number of households said that their income increased as they were engaged in small business

Appendix 9 35

and services. The improvement of infrastructure has made their trade and services easier while saving travel expenses. Table A9.5 below summarizes the measures in the RPs and their implementation status.

Table A9.5: Compensation and Resettlement Measures

Impact Types Measures in the RPs/REMDPs Implementation Status

Land acquisition As a priority, allocation of replacement land with equal features, locations, full titles of both husbands and wives, and without charges and fees or cash compensation at replacement cost; Support for restrictions on land use Economic rehabilitation package for severely affected households Cash compensation for trees and crops Bonus allowance if land is handed over in a timely manner according to province’s regulation

Compensation at market price for affected lands and allowances equal to 60% to 80% of compensation rates for affected lands within ROW paid. Life stability supports provided; job changing and creation supports provided; vocational training course provided. Cash compensation at market prices for affected trees and crops paid. Bonus allowances for affected households handing over land in a timely manner were provided.

House demolition Compensation at replacement cost Relocation allowances Rental allowances

AHs received compensation for the structures and no deductions were made for the value of the salvageable material from their original structures. It meant that new structures will be built with better quality than the original ones. Relocation allowances and rental allowances were provided per province’s regulations.

Restrictions on land use

Support for restrictions on land use within ROW Support for utilization of restricted houses and structures and impacts on daily life activities Support for improvement of installing fireproof materials and lightning arrestors

Allowances equal to 60% to 80% of compensation rates for affected lands within ROW paid. For houses and structures within ROW (220 kV transmission lines), allowances for restriction on land use were paid. Supports for installation of fireproof materials and lightning arrestors provided.

Severely affected households

Assistances to restore livelihoods and incomes following acquisition of agricultural land or other productive assets

Cash assistance equal to 30 kg of rice valued at market price per month per household member for 3 to 36 months depending on land loss ratio were provided. Allowance for life stabilization is equal to 1.5 to 5 times of compensation rate for agricultural land for households losing productive land regardless of severity of impacts. Vocational training: AP received one apprenticeship card and could select any training course depending on their need.

Vulnerable households (the poor, ethnic minorities, war

Assistance to the poor and vulnerable households to improve their socioeconomic conditions

Poor households were provided with cash assistance equal to 30 kg of rice at market price per each family member per month for at least 6 months.

36 Appendix 9

Impact Types Measures in the RPs/REMDPs Implementation Status

invalid persons, female headed households with dependents, and the elderly)

For other vulnerable households, cash allowance of D 2 million at the minimum were provided, depending on the regulations of each province/city.

Source: Compiled from RPs and REMDPs (2012 and 2014) and DDRs (2015) prepared for the subprojects.

18. According to ADB’s Safeguard Policy Statement (2009) and the government of Viet Nam’s policies on compensation, assistance and resettlement, the implementation of the RPs ensured that all affected people were compensated for their damages at replacement cost and proposed life rehabilitation methods to help them to improve or at least maintain living standards and income generation capability to the pre-project level. Compensations and assistance of losses and resettlement activities commenced in 2014 and was completed in 2016. Based on the RPs, REMDPs and data provided by CPMB and SPMB, the total amount of paid compensation and assistance for affected households in project was roughly D 1,263.1 billion. Table A9.6 provides total compensation made for each subproject.

Table A9.6: Total Compensation Made for Each Subproject (D)

Tranche/ subproject

Compensation for land

Compensation for houses and

structures

Compensation for trees and

crops

Total amount of

assistances

Total compensation

amount already paid

Amount to be paid

1

500kV Pleiku-My Phuoc-Cau Bong TL

565,713,173,793

271,890,579,682

11,012,777,199

22,084,028,940

870,700,559,614

0

2 220kV Cau Bong-Duc Hoa TL

18,519,496,293

2,222,339,555

5,185,458,962

48,150,690,361

74,077,985,171

0

3

220 kV Cau Bong-Hoc Mon-Binh Tan TL

28,932,336,948

5,922,175,868

1,554,876,077

276,395,341,771

312,804,730,664

5,147,984,717

Total 613,165,007,

034 280,035,095,

105 17,753,112,2

38 346,630,0

61,072 1,257,583,2

75,449 5,539,65

6,294

TL: transmission line Source: Summary from final monitoring reports of three subprojects, 2016

VI. Gender Issues 19. According to the monitoring results, the level of equality of women and men is relatively high in the project area. Women in the households not only do housework but also contribute to household incomes. The consultation results and monitoring surveys show that women have performed their role in both family’s and community’s decision-making process. The participation of women and Women’s Union during the series of public meetings, DMS and complaint compensation process was relatively high. In addition to that, women’s participation has also extended to the members of DCARB and DMS team. According to the internal monitoring results, female-headed households and poor women received special attention and were provided with adequate assistances in income and livelihood restoration. These households have participated in the public meeting, and freely voiced issues during the consultation and compensation process and proactively participate in the decision making.

Appendix 9 37

VII. Resettlement Monitoring and Evaluation 20. Monitoring included both internal and external monitoring. The PMBs with assistance from LICs conducted internal monitoring on regular land acquisition and resettlement activities. Two external monitoring consultants, each under one PMB, were responsible for external monitoring and evaluation. The external monitoring evaluated outcomes of resettlement as well as periodic monitoring of implementation of the RPs and REMDPs. The internal monitoring under CPMB has produced five monitoring reports, and under SPMB twenty-five reports. The external monitoring consultants under CPMB produced twenty-five monitoring reports and under SPMB eight reports on the delivery of compensation and resettlement of affected households, including the final reports on post-resettlement evaluation. VIII. Outstanding Issues in RP Implementation 21. By the end of 2017, most of the affected households have received compensation and assistances, therefore, there are no major outstanding issues related to resettlement activities of three subprojects. During the project implementation, the PMBs have closely cooperated with the local authorities and affected households to address the issues while ADB has also recorded these issues and provided guidance to accelerate the complete solutions to the outstanding cases through review missions and staff consultancies. The general progress as of now is as follows: 22. 500 kV Pleiku-My Phuoc-Cau 3Bong Transmission Line. The implementation of REMDPs was completed as of December 2017. However, there is an emerging issue related to newly identified associated facilities (500 kV Pleiku 2 substation and two connection lines),1 for which a Due Diligence Report is required by ADB to verify the resettlement activities of this substation in compliance with ADB’s safeguard policies. With the support of ADB staff consultancy, a DDR with the recommended corrective action plan (CAP) was prepared. NPT has been monitoring the implementation of the CAP to avoid complaint from the affected communities. While waiting for their compensation plan to be approved by the government, NPT made advance payments to two affected households based on draft compensation plan that was agreed by affected households. NPT will continue to work with the government to complete the compensation payments for the other two affected households. The draft compensation plan is expected to be approved by the government by the end of October 2018.

1 The 500 kV Pleiku-My Phuoc-Cau Bong transmission line as designed and constructed has the beginning point

from the 500 kV Pleiku Substation and ending point at the 500 kV Cau Bong Substation (the total length is 437 km). As the 500 kV Pleiku Substation became overloaded after the 220 kV Hatxan-Pleiku Transmission Line came into operation, CPMB has built a new substation, which is the 500/220 kV Pleiku 2 substation in 2015 and put into operation since January 2016. The Pleiku 2 substation is about 10 km from the 500 kV Pleiku substation. In March 2016, CPMB has removed all equipment (financed by ADB) of the 500 kV Pleiku-My Phuoc-Cau Bong transmission line to the Pleiku 2 substation and connected this transmission line to the Pleiku 2 substation through two new connection lines. As such, the two new connection lines connecting to the 500 kV Pleiku-My Phuoc-Cau Bong are identified as associated facilities of the project and the new substation, with the equipment financed by ADB, is also associated facility of the project. Taking into account that the Pleiku-My Phuoc-Cau Bong transmission line has been completed the construction and energized since April 2014, but the official loan closing date of the Loan 2959 is November 2016 while the removal of the connection point of the project is in March 2016. Furthermore, LIC and EMA are not aware of this removal activity of the transmission line and CPMB did not report to ADB regarding this. Because both new connection lines required land acquisition; in order to verify their compliance with the RP and REMDP implementation, a due diligence report for the associated facilities is required.

38 Appendix 9

23. 220 kV Cau Bong-Duc Hoa Transmission Line. The implementation of the subproject RP is complete. 24. 220 kV Cau Bong-Hoc Mon-Binh Tan Branch Transmission Line. The implementation of the subproject RP is almost complete. There are 104 affected households are yet to receive their entitled compensation. The compensation of the remaining affected households will be transferred to the respective district state treasury. 25. Main causes for issues in RP implementation. All of the subprojects’ civil works commenced prior to the approval to the final REMDPs and RPs. This was due to delays in DMS implementation and compensation plan preparation by the local authorities. Furthermore, the delays and difficulties in land acquisition and resettlement implementation of energy projects are attributed to the following situations:

- Permanent land acquisition is only caused by tower foundations and thus the number of severely affected households is not large. However, the locations of the suspended towers were not identified accurately and impacts within the transmission line RoW were not determined completely until later stage during implementation of the transmission line subprojects. The transmission line subproject also impose restrictions on land use within the RoW and such affected area is large, particularly within the 500 kV transmission line’s RoW. Consequently, the total number of the affected households increased significantly;

- Affected people not being direct beneficiaries of the projects; - Difficulties in determining temporary impacts and ROW impacts.

26. In addition, other common and external factors that contributed to the delays and difficulties in the project implementation include:

- Revisions of 2003 Land Law to 2013 Land Law led to delays and difficulties in applying compensation and support policies and rates; and the time for valuation and approval of specific prices for land acquisition took nearly one year;

- Difficulties in verifying land ownership records because the affected households often purchase land through unofficial written agreements without following the procedures to change the owner; and

- Due to the linear features of transmission line projects, the project traverses many provinces and districts and a large number of stakeholders were involved. Implementation of the Vietnamese Land Law slightly differs from province to province and makes RP/REMDP implementation a challenge.

IX. Lesson learned 27. In general, the implementation of compensation and resettlement for three subprojects under tranche 2 have complied with the provisions set out in the RPs and REMDPs. Information disclosure and community consultation were carried out adequately in an open and transparent manner. The DMS of the affected assets was conducted with the participation of the affected households and compensation plans were prepared in accordance with the policies and entitlements provided in the RPs and REMDPs. The compensation payment procedures were assessed by the relevant parties as simple and each affected household was informed of the venue and schedule of the compensation payments. Grievances and complaints were received and recorded during the project implementation. However, complexity of land ownership records, unclear land management history, and difficulty and lengthy internal verification and approval

Appendix 9 39

processes resulted in delayed preparation of compensation plans and subsequent compensation payments. Lessons learnt from the preparation and implementation of the project are as follows:

- Stakeholder consultation. Early dialogue among stakeholders (relevant ministries, provincial authorities, executing and implementing agencies, and organizations responsible for land acquisition and resettlement, and ADB) on policy issues such as regulation of compensation rates for ROW is very important. The compensation rate must follow the latest government regulation (Land Law 2013) that is based on the market price, which is consistent with ADB policy and the policy provisions in the RP/REMDPs.

- Advanced land acquisition and institutional capacity. Advanced land acquisition followed by the construction of transmission towers were special conditions of the project. The activities were conducted before the preparation of safeguard documents as required by ADB policy. There was no mechanism in place to postpone the civil works activities to ensure that all the required documents and compensation were completed before the civil works started. This was mainly due to the limited capacity of CPMB and SPMB in managing safeguard issues. Careful due diligence and institutional assessment on safeguard management need to be done during project preparation, so capacity building action plans can be prepared.

- Implementation procedures. It is necessary to shorten the time for appraisal and approval of the compensation rates as well as time for their appraisal and approval. Land acquisition and compensation for impacts of transmission line projects should be carried out at the same time for both permanent land acquisition and impacts within the RoW. In order to do so, the project owner should completely hand over each segment to the Land Fund Development Center together with the clearance markers of tower foundations and the right-of-way.

- Timely preparation and submission of safeguards documents would have improved project implementation and enabled the project to remain on schedule.

- Close collaboration and timely communication among stakeholders to resolve land acquisition and ROW problems is important. Public consultations before and during implementation is helpful to address arising and potential complaints from affected people.

- Income/livelihood restoration. The resettlement/compensation/assistance planning in restoring the living conditions should take account of the changing situation in the project area including how other developments might affect the area in the future. These future anticipated changes could then be incorporated into the livelihood restoration programs. AHs must obtain awareness of opportunities, and vocational trainings, small credits schemes, etc., which should be tailored to the current situation and ease their entry into new working environments.

- Stakeholder coordination. It is important that the project owner consults regularly with the local authorities, particularly those agencies implementing the land acquisition activities. Information related to planning and project implementation decisions should be disclosed in a transparent manner to the land users and affected communities.

- Project owners should provide information and technical specifications of the transmission line to the Land Fund Development Centers because this will help them to define lost assets under the ROW.

- The recruitment of consultants should be expedited for timely updating of the project safeguard documents. Consultant recruitment schedules should align with the project implementation plan.

40 Appendix 10

ECONOMIC EVALUATION

I. INTRODUCTION

1. Tranche 2 of the Power Transmission Investment Program supported a total of three transmission subprojects, undertaken by the National Power Transmission Corporation (NPT). This evaluation has updated the economic analysis of the subprojects at the time of appraisal of each request for financing.

2. With the rapid expansion of new power generation and electricity imports from neighbouring countries, 500 kV and 220 kV transmission lines and associated substations need to be strengthened and developed to better balance regional power load systems by removing transmission bottlenecks, facilitating power transfers, and reducing transmission system losses and voltage fluctuations. The subprojects formed part of a major expansion of the transmission network plan under the PDP VII,1 which in total included adding 8,372 km of 500 kV transmission lines, 15,942 km of 220 kV transmission lines, 43,850 MVA of 500 kV/220 kV substation transformer capacity, and 74,926 MVA of 220 kV/110 kV substation transformer capacity. The government also set targets to reduce technical transmission and distribution losses from 10% in 2010 to 9% in 2015 and 8% in 2020.

3. At the time of appraisal of the subprojects under tranche 2, national electricity supply was projected to grow by 11.2% annually between 2015 (the planned commissioning date of most subprojects) and 2020 and by 7.7% between 2020 and 2030.2 However, actual growth was slower than projected, with actual supply in 2015 being 160TWh compared to a projected 194 TWh, or 18% lower. The updated power development master plan issued in 2016 reduced the projected annual growth rate to 2020 to 10.7%, starting from this lower base, and slightly raised the projected 2020 to 2030 annual growth rate to 8.0%.3

4. Demand growth in Viet Nam is concentrated in the southern region where industrial development is concentrated and where the main commercial hub, Ho Chi Minh City, is located. However, most low-cost generation sources are in northern Viet Nam. The expansion of the transmission system, of which the subprojects form a part, will facilitate the transfer of lower-cost electricity from north to south.

II. APPROACH AT APPRAISAL

A. Economic Cost-Benefit Analysis

5. Overall approach. The appraisal considered the incremental benefits and costs resulting from a comparison of the with- and without-project cases. As the subprojects are integral parts of the national power system expansion plan, their costs and benefits were aggregated to calculate the resulting economic internal rate of return (EIRR). The tranche 2 appraisal assumed a 30-year economic life for the subprojects considered.

1 Power Development Master Plan VII (PDP VII), approved by Prime Minister Decision 1208/QD-TTg in July 2011. 2 Actual electricity generation and purchases in 2010 totaled 86TWh and was projected to reach 194TWh in 2015,

330TWh in 2020 and 695TWh in 2030. 3 Revised PMP VII, approved by Prime Minister Decision 428/QD-TTg in March 2016. Actual electricity generation and

purchases in 2015 totaled 160TWh and are projected to reach 265TWh in 2020 and 572TWh in 2030.

Appendix 10 41

6. Benefits and costs valued. The incremental benefits of the project valued at appraisal were the increase in incremental energy supplied to customers and the reduction in transmission losses, which allows deferral of new investment.4 The impacts of the project were estimated from load-flow calculations conducted by the Institute of Energy showing the with- and without-project cases, and which show the contribution of the subprojects to reducing transmission system losses and to increasing energy supplied. All three transmission lines developed under tranche 2 were identified as both reducing transmission losses and increasing energy supplied to customers located in southern Viet Nam, in particular, in and around Ho Chi Minh City.

7. Benefits and costs not valued. The individual facilities will also contribute to improving the reliability of supply by helping to meet (n-1) criteria.5 This was not valued at appraisal due to the difficulties in estimating the resulting reduction in unserved energy.6 Environmental impacts were also not valued as these are uncertain. The subprojects will defer new investment and, therefore, may reduce carbon emissions. However, at the same time, the subprojects may also facilitate increased development of domestic coal-fired generation in northern Viet Nam to supply demand growth in southern Viet Nam that would otherwise be met from imported coal and natural gas-fired generation. The balance between these impacts is not known.

B. Valuation of costs

8. Subproject costs. Financial costs of the individual subprojects were converted to economic costs by splitting investment and O&M costs between traded goods and services, non-traded goods and services, labour, and taxes and duties; and applying appropriate economic resource adjustment factors for Viet Nam. For tranche 2 subprojects, investment costs were split as follows: 27% to traded goods and services, 34% to non-traded goods and services, 30% to labour, and 9% to taxes and duties. The O&M costs for tranche 2 subprojects were split in the same proportions. Traded goods and services were multiplied by the shadow exchange rate factor of 1.1. The prices of non-traded goods and services are assumed to reflect the economic values and so no conversion was applied. The costs of labour were multiplied by the shadow wage rate factor of 0.9. As taxes and duties are transfer payments, these were excluded from the economic costs.

C. Valuation of benefits

9. Valuation of system loss reduction. The reduction in transmission system losses was valued at the resulting savings in investment costs. This avoided cost was calculated as the long-run marginal cost of existing and new coal and gas-fired power plants, including an allowance for capital costs. For tranche 2, this was set as 2,085 D/kWh. For the purposes of converting to economic values, the avoided cost was assumed to be comprised of 85% traded goods and services, 5% non-traded goods and services, and 10% labour. The high share of traded goods

4 The original appraisal document refers to reductions in system losses as being a non-incremental benefit but

calculates their value as if an incremental benefit. The evaluation has assumed these are an incremental benefit, consistent with the actual approach followed at appraisal, and has corrected the terminology used throughout.

5 It is standard in transmission planning to ensure that networks can meet what is termed “(n-1) criteria”. This means that the loss any single network component (e.g. a transmission line or substation) does not result in system failure. In practical terms, this requires duplication or other back-up arrangements for most assets. The subprojects included in the tranche are primarily required to ensure system reliability by meeting these criteria.

6 The estimated quantity of unserved energy depends on the expected frequency of failures of different system components and how the load flows on the system respond to these failures with and without the subprojects. This information was not available to the required level of detail at appraisal.

42 Appendix 10

and services reflects the high share of traded fuel costs and imported equipment in total avoided costs.

10. Valuation of increased power supply. The increase in power supplied was valued at the willingness to pay of consumers, which was proxied by the forecast average retail tariff. This represents the bottom end of the willingness to pay range as consumers would never choose to consume where the price exceeds their willingness to pay. As such, it is a conservative assumption. The average retail tariff was assumed to reach 1,665 D/kWh in 2015 at the commissioning of the subprojects and to then increase by 2.0% annually in real terms until 2030, after which it remains flat. An allowance for the estimated change in consumer surplus was also added, valued at half of the difference between the cost of the alternative supply source (assumed to be self-supply thought diesel generation) and the actual tariff. In the absence of willingness-to-pay estimates, the assumed price elasticity of demand of -0.43 was used as a proxy to measure the consumer surplus. All incremental benefits were considered non-traded. Increased power supplies were assumed to have an incremental cost of 1,437 D/kWh. The derivation of this value was not explained in the appraisal documentation.

III. APPROACH AT EVALUATION

11. Changes from appraisal. The following changes to the methodology used at appraisal have been made:

(i) The actual subproject costs are used.

(ii) The estimates of benefits have been adjusted for differences between actual demand growth and that forecast at the time of appraisal. This is explained further below.

(iii) The estimated long-run marginal cost of supply has been updated and the same incremental cost applied to the estimation of both benefits from reduced system losses and increased energy supplied. At appraisal, a different incremental cost was applied to each without explanation. The basis for the updated cost is explained further below.

(iv) The estimate of the willingness-to-pay for increased supply has been updated to reflect actual tariff levels (used as the proxy for willingness-to-pay at appraisal).

(v) An allowance has been made for the improvements in reliability resulting from the subprojects, which was not included at appraisal.

12. Conversions to economic costs are made using the same coefficients and the same shadow exchange rate and wage rate as applied at appraisal.

13. Adjustments for slower demand growth. Actual electricity supplied has been lower than that projected at the time of the appraisal. In 2015, total supply was 160 TWh, some 18% below the level projected in the PDP VII. The updated PDP VII, issued in 2016, projects supply in 2020 to be 20% below the previous projections and in 2030 to be 18% below the previous projections.7

7 Power Development Master Plan VII (PMP VII), approved by Prime Minister Decision 1208/QD-TTg issued in July

2011. Actual electricity generation and purchases in 2010 totaled 86TWh and was projected to reach 194TWh in 2015, 330TWh in 2020 and 695TWh in 2030. Under the revised PMP VII, approved by Prime Minister Decision

Appendix 10 43

This has been recognized in the evaluation by scaling down non-incremental flows (reduced system losses) and incremental flows (increased availability of supply) forecast in each year at appraisal by the difference in projected total supply volumes between the original and updated PMP VII. For example, the projected volumes in 2020 used for evaluation are 20% below those used at appraisal.

14. Updated incremental cost of supply. An allowance has been made for the cost of incremental energy supplied under the subprojects, estimated at 1600.04 D/kWh. This represents the benchmark best new entrant cost in 2018, as established by the Ministry of Industry and Trade (MOIT), representing its assessment of the least-cost means of meeting demand growth and, therefore, the savings made from reducing that growth.8 This has been converted to economic costs using the same coefficients as applied at appraisal for Tranche 2, which were 76% to traded goods and services, 5% to non-traded goods and services, 10% to labour and 9% to taxes and duties. The same value is used to estimate the benefits of incremental reductions in system losses which defer the need for new generation investment.

15. Valuation of increased power supply (willingness to pay). At appraisal, the value of increased power supply was valued at the forecast average retail tariff. As noted, this is a very conservative assumption in that this represents the lower bound of willingness-to-pay.

16. Actual increases in retail tariffs in Viet Nam have not matched those forecasted at appraisal.9 The estimate of the willingness-to-pay has been accordingly adjusted to match the actual retail tariff to 2018. From 2019 onwards, the average tariff is assumed to increase by 2% annually in real terms, reflecting expected tariff increases and the impacts of growing incomes on willingness-to-pay for electricity.

17. The calculation of the increase in consumer surplus is estimated using the difference between the alternative supply cost and the average retail tariff. The same price elasticity of demand as at appraisal, of -0.43, has been applied.

18. Valuation of increased reliability (reduction in unserved energy). The appraisal did not include estimates of the value of increased reliability resulting from the subprojects, despite this being one of the main identified benefits. In the absence of system-wide studies, the value of this benefit has been approximated as the product of the carrying capacity of the transmission lines included in the subprojects (representing the maximum size of lost system component that they can replace) multiplied by the reduction in minutes lost multiplied by the cost to the consumer of unserved energy. The carrying capacity is estimated as the surge impendence limit for a transmission line of the respective voltage.10 The reduction in minutes lost is estimated as the reduction in EVN’s reported System Average Interruption Duration Index (SAIDI, expressed in minutes/customer/year) between 2012 and 2016, assuming the subprojects delivered an

428/QD-TTg in March 2016, electricity generation and purchases are projected to reach 265TWh in 2020 and 572TWh in 2030.

8 This is the ceiling price for a new 2x600MW coal plant using imported coal (MOIT Decision 354/QD-BCT dated 25 January 2018).

9 The approved average retail tariff was increased to 1,622 D/kWh in March 2015. It subsequently remained unchanged until November 2017 when it was raised to 1721 D/kWh (Minister of Industry and Trade Decision 4495/QD-BCT). The average change in real terms over this period was -0.1% annually. By contrast, the appraisal assumed a retail tariff of 1,665 D/kWh in 2015 increasing at 2.0% annually in real terms.

10 The assumed surge impendence limits are 850 MW for a 500 kV line and 134MW for a 220 kV line (https://neos-guide.org/sites/default/files/line_flow_approximation.pdf).

44 Appendix 10

equivalent improvement in reliability in the parts of the system to which they are connected.11 The cost of unserved energy is assumed equal to the cost of alternative supply (i.e., the fuel cost of a diesel generator as estimated above).

IV. RESULTS

19. Summary of results. The resulting estimated EIRR and economic net present value (ENPV) at ADB’s standard social discount rate of 12% (as applicable at the time of project appraisal) for the aggregated subprojects is in Table A10.1. For comparison, the EIRR and ENPV estimated at appraisal for the tranche 2 aggregated subprojects are also shown. The calculation of the cost and benefit analysis is in Table A10.2.

20. The estimated EIRR for the aggregated subprojects is 18.8%. The ENPV is D4,511.4 billion. The conclusion is that the project has provided a net economic benefit for Viet Nam.

21. The EIRR becomes higher and the ENPV becomes smaller than expected at appraisal due to the significant decrease in actual costs of the project, which is partly offset by slower demand growth. There is also an additional positive impact from the inclusion of an estimate of the benefits from increased system reliability resulting from the project. If demand growth had been at rates forecasted at appraisal, the expected EIRR would be even higher at 20.3%.

Table A10.1: Results of Economic Evaluation

EIRR ENPV @ 12%

D billion

At evaluation All subprojects 18.8% 4,511.4 At appraisal All subprojects 18.5% 5,201.8

EIRR = Economic Internal Rate of Return, ENPV = Economic Net Present Value Source: Asian Development Bank estimates

11 EVN in its Annual Report shows SAIDI as 8,077 minutes/customer/year in 2012 reducing to 1,651

minutes/customer/year by 2016. Earlier and later data is not available but these years in any case span the period of implementation of the subprojects. It is recognized that this is an approximation.

Appendix 10 45

Table A10.2: Economic Cost-Benefit Analysis

Year Costs Benefits Net Benefits

Capital Cost O&M Cost

Incremental

Generation Total Costs

Avoided

System

Losses

Value of

Avoided

Losses

Additional

Supply

Value of

Additional

Supply

Consumer

Surplus

Reduction

in Unserved

Energy

Total

Benefits

D bn D bn D bn D bn GWh D bn GWh D bn D bn D bn D bn D bn

2012 (1,034) - - (1,033.5) - - - - - - - (1,033.5)

2013 (1,539) - - (1,539.3) - - - - - - - (1,539.3)

2014 (1,539) - - (1,539.3) - - - - - - - (1,539.3)

2015 (770) (48.8) (1,499.4) (2,317.9) 11.1 17.4 851.9 1,381.8 102.2 382.9 1,884.2 (433.6)

2016 - (97.6) (3,762.6) (3,860.3) 12.6 19.7 2,137.8 3,467.5 256.5 382.9 4,126.6 266.3

2017 - (97.6) (3,947.9) (4,045.5) 14.1 22.0 2,243.1 3,859.5 332.8 382.9 4,597.2 551.7

2018 - (97.6) (4,142.6) (4,240.2) 15.8 24.7 2,353.7 4,049.9 349.2 382.9 4,806.6 566.4

2019 - (97.6) (4,350.8) (4,448.4) 17.6 27.5 2,472.0 4,338.5 386.1 382.9 5,135.0 686.5

2020 - (97.6) (4,572.2) (4,669.9) 19.4 30.2 2,597.8 4,650.5 424.0 382.9 5,487.6 817.7

2021 - (97.6) (4,845.8) (4,943.4) 21.4 33.4 2,753.2 5,027.3 466.4 382.9 5,909.9 966.5

2022 - (97.6) (5,202.9) (5,300.6) 36.2 56.6 2,956.1 5,505.8 516.5 382.9 6,461.8 1,161.2

2023 - (97.6) (5,590.3) (5,688.0) 51.5 80.5 3,176.2 6,034.0 569.4 382.9 7,066.7 1,378.8

2024 - (97.6) (6,012.4) (6,110.0) 67.5 105.4 3,416.0 6,619.4 625.0 382.9 7,732.6 1,622.6

2025 - (97.6) (6,472.2) (6,569.9) 83.9 131.0 3,677.3 7,268.2 683.3 382.9 8,465.4 1,895.5

2026 - (97.6) (6,971.6) (7,069.2) 100.9 157.6 3,961.0 7,985.5 744.1 382.9 9,270.0 2,200.8

2027 - (97.6) (6,988.7) (7,086.3) 118.4 184.9 3,970.7 8,165.2 750.8 382.9 9,483.7 2,397.4

2028 - (97.6) (7,005.8) (7,103.4) 136.5 213.2 3,980.5 8,348.9 754.2 382.9 9,699.1 2,595.7

2029 - (97.6) (7,022.9) (7,120.5) 155.3 242.6 3,990.2 8,536.6 754.4 382.9 9,916.4 2,795.9

2030 - (97.6) (7,040.0) (7,137.6) 174.6 272.7 3,999.9 8,728.5 751.2 382.9 10,135.4 2,997.8

2031 - (97.6) (7,040.0) (7,137.6) 194.2 303.2 3,999.9 8,903.1 742.9 382.9 10,332.1 3,194.5

2032 - (97.6) (7,040.0) (7,137.6) 194.2 303.2 3,999.9 9,081.2 731.4 382.9 10,498.6 3,361.0

2033 - (97.6) (7,040.0) (7,137.6) 194.2 303.2 3,999.9 9,262.8 716.5 382.9 10,665.4 3,527.8

2034 - (97.6) (7,040.0) (7,137.6) 194.2 303.2 3,999.9 9,448.1 698.3 382.9 10,832.4 3,694.8

2035 - (97.6) (7,040.0) (7,137.6) 194.2 303.2 3,999.9 9,637.0 676.8 382.9 10,999.9 3,862.3

2036 - (97.6) (7,040.0) (7,137.6) 194.2 303.2 3,999.9 9,829.8 652.0 382.9 11,167.8 4,030.2

2037 - (97.6) (7,040.0) (7,137.6) 194.2 303.2 3,999.9 10,026.4 623.9 382.9 11,336.3 4,198.7

2038 - (97.6) (7,040.0) (7,137.6) 194.2 303.2 3,999.9 10,226.9 592.4 382.9 11,505.3 4,367.7

2039 - (97.6) (7,040.0) (7,137.6) 194.2 303.2 3,999.9 10,431.4 557.6 382.9 11,675.0 4,537.4

2040 - (97.6) (7,040.0) (7,137.6) 194.2 303.2 3,999.9 10,640.1 519.3 382.9 11,845.5 4,707.9

2041 - (97.6) (7,040.0) (7,137.6) 194.2 303.2 3,999.9 10,852.9 477.8 382.9 12,016.7 4,879.1

2042 - (97.6) (7,040.0) (7,137.6) 194.2 303.2 3,999.9 11,069.9 432.8 382.9 12,188.8 5,051.1

2043 - (97.6) (7,040.0) (7,137.6) 194.2 303.2 3,999.9 11,291.3 384.4 382.9 12,361.8 5,224.1

2044 - (97.6) (7,040.0) (7,137.6) 194.2 303.2 3,999.9 11,517.1 332.5 382.9 12,535.7 5,398.1

2045 - (97.6) (3,520.0) (3,617.6) 97.1 151.6 1,999.9 5,873.7 138.6 382.9 6,546.8 2,929.2

EIRR 18.8%

ENPV @ 12% 4,511.4

46 Appendix 11

FINANCIAL EVALUATION

I. INTRODUCTION

1. Tranche 2 of the Power Transmission Investment Program supported a total of three transmission subprojects, undertaken by the National Power Transmission Corporation (NPT). Appraisal was conducted in 2012 for subprojects expected to reach commissioning in 2015. The individual subprojects and the estimated capital costs at appraisal and actual capital costs of each are shown below. For two of the three subprojects, actual costs were significantly below estimated costs, while for the third they exceeded estimated costs.

Table A11.1: Subproject Estimated and Actual Capital Costs

Estimated a Actual b Sub-Project D billion D billion

1 500kV Pleiku - My Phuoc - Cau Bong Transmission Line 6,579.3 3,998.2 2 220kV Cau Bong - Duc Hoa Transmission Line 302.0 282.3 3 220kV Cau Bong - Hoc Mon Transmission Line 864.6 1,111.8 Total 7,745.9 5,382.3

a Estimated costs at appraisal include physical contingencies, taxes and duties b Actual costs as reported by NPT, including taxes and duties. USD-denominated amounts were converted at an exchange rate at loan closing date (30 November 2016) Sources: ADB and NPT

II. NPT’s FINANCIAL PERFORMANCE SINCE APPRAISAL

2. NPT’s financial performance has improved over the period since appraisal. It has consistently met agreed covenants except for failing to meet target self-financing ratio in one year. This improving performance can be attributed to a combination of increasing transmission tariffs and sales leading to rapid revenue growth and a doubling of operating profits between 2013 and 2016. This has enabled NPT to sustain an increasing level of debt, which rose by 45% or almost D20 trillion between 2013 and 2016. Key financial indicators and ratios for NPT are reported below in Table A11.2.

3. However, NPT continues to generate very low returns on equity and on assets. This implies a continued reliance on debt for future investment and that the government is providing an effective subsidy by accepting returns well below the government’s own cost of financing.

Table A11.2: Sub-Project Estimated and Actual Capital Costs

2013 2014 2015 2016

Transmission tariff D/kWh 83.3 86.4 104 104

Change %pa 3.7% 20.4% 0.0%

Transmitted energy TWh 112.881 124.144 139.76 156.16

Change %pa 10.0% 12.6% 11.7%

Revenues D billion 9.403 10.79 14.622 16.292

Change %pa 14.8% 35.5% 11.4%

Cost of goods sold D billion 7.594 8.165 11.141 12.627

Change %pa 7.5% 36.4% 13.3%

Operating profit D billion 1.809 2.625 3.481 3.665

Self-Financing Ratio 21.5% 14.7% 31.2% 33.1%

Debt/Equity times 2.0 2.6 2.9 2.8

Debt Service Coverage Ratio times 1.9 1.7 2.3 1.9

Quick ratio times 0.82 1.21 1.11 1.13

Appendix 11 47

2013 2014 2015 2016

Return on Equity 0.4% 0.8% 1.1% 1.1%

Return on Assets 0.2% 0.3% 0.3% 0.3%

Sources: ADB calculations from NPT financial statements.

III. METHODOLOGY AT APPRAISAL

4. Methodology. The financial analysis conducted ahead of the approval of each tranche followed the same methodology. The incremental revenues less incremental costs accruing to NPT as a result of each subproject were estimated and the resulting financial internal rate of return (FIRR) compared to the weighted average cost of capital (WACC) of NPT. The financial analysis concluded that each individual subproject and each tranche as a whole had an FIRR in excess of NPT’s WACC and, therefore, that they generate a net financial surplus for NPT. The analysis was conducted using constant prices (i.e., excluding inflation).

5. Revenues. Incremental revenues for each subproject were calculated as the incremental energy transferred through the subproject (net of transmission losses) valued at NPT’s transmission charge. As the subprojects are integral parts of NPT’s transmission network, incremental energy flows and the resulting incremental revenues are not necessarily attributable entirely to the individual subproject. To allow for this, associated transmission facilities were identified. Incremental revenues were then apportioned between the subproject and these associated facilities in accordance with their respective shares of the total capital investment and operating costs of the subproject and all associated facilities.

6. Energy flows. The estimated incremental energy flows and proportion of the resulting incremental revenues attributed to each subproject are shown below.

Table A11.3: Subproject Incremental Energy Flows and Revenue Allocation

At commissioning Maximum flows Share of

Year Energy flows a

Year reached

Energy flows

revenues

Subproject GWh pa GWh pa

1 500 kV Pleiku - My Phuoc - Cau Bong transmission line

2015 3,581 2031 9,917 100%

2 220 kV Cau Bong - Duc Hoa transmission line

2015 495 2016 585 44%

3 220 kV Cau Bong - Hoc Mon transmission line

2015 1,575 2026 4,275 42%

pa = per annum a For subprojects commissioning partway through a year, an annualised value is shown Sources: ADB Periodic Financing Request Reports

7. Costs. Incremental costs were calculated as the capital investment cost of the subproject plus an allowance for operating and maintenance (O&M) costs. This allowance was set at 2.0% of capital costs.

8. Useful lives. 500 kV and 220 kV transmission lines are assumed to have a useful life of 30 years.

9. Taxes. Calculations of the FIRR and WACC are made on a post-tax basis. At the time of appraisal, Viet Nam’s corporate tax rate at the time of the tranche 2 appraisal was 25%. This was lowered to 22% in 2014 and to 20% in 2016.

48 Appendix 11

IV. METHODOLOGY AT EVALUATION

10. Methodology. The financial evaluation follows the same methodology as for the appraisal conducted for tranche 2. However, estimates of incremental revenues and costs have been updated using the most recent information.

11. Revenues. NPT’s actual transmission charges to 2017 have been used in the calculation of incremental revenues for the financial evaluation. From 2018 onwards, transmission charges are assumed to remain constant in real terms. This profile is based on an assessment of existing regulations governing electricity tariffs in Viet Nam.1

12. Energy flows. At the time of appraisal of the subprojects under tranche 2, national electricity supply was projected to grow by 11.2% annually between 2015 (the planned commissioning date of the majority of the subprojects) and 2020 and by 7.7% between 2020 and 2030.2 Actual growth was slower than projected with actual supply in 2015 being 160 TWh compared to a projected 194 TWh, or 18% lower. The updated power development master plan issued in 2016 reduced the projected annual growth rate to 2020 to 10.7%, starting from this lower base and slightly raised the projected annual growth rate from 2020 to 2030 to 8.0%.3

13. For the financial evaluation, the incremental energy flows used at appraisal have been adjusted to reflect these differences between actual and updated electricity supply. The starting value for each subproject, in the year of commissioning, has been reduced to match the percentage difference between actual and projected supply in 2015. This lower starting point has then been rolled forward at the same facility-specific growth rates as used at appraisal until the maximum flows over each facility are reached, after which flows are assumed to be constant over the facility’s remaining useful life. The shares of the resulting incremental revenues allocated to the subproject remain unchanged from those used at appraisal.

14. To illustrate this, the original appraisal of the 500kV Pleiku – My Phuoc – Cau Bong transmission line subproject assumed annualised incremental energy flows in the first year of operation of 1,791 GWh, and that these would reach a maximum of 9,917 GWh in 2031 and remain constant thereafter. The rate of growth between the date of operation and reaching the maximum flow was 6.6% annually. For this evaluation, the starting flow has been scaled down by 17.7%, to 1,474 GWh, in line with the difference between projected and actual national supply in 2015. This lower starting value is then assumed to grow at 6.6% annually, as in the appraisal, until it reaches the maximum of 9,917 GWh. This occurs in 2035, a four-year delay relative to the assumptions made at appraisal.

1 Under the most recent regulation (Prime Minister Decision 24/2017/QD-TTg), EVN may increase electricity retail

tariffs for rising input costs on its own cognizance for increases from 3% to 5%. Higher increases of up to 10% require approval from the Minister for Industry and Trade and, above this, from the Prime Minister. Increases take place within an allowed range for tariffs. For 2016-20, the permissible range for average retail electricity tariffs has been set at 1,606.19 to 1906.42 D/kWh (Prime Minister Decision 34/2017/QD-TTg). The average tariff was raised to 1,720.65 D/kWh in November 2017 (Minister of Industry and Trade Decision 4495/QD-BCT). This implies the maximum further increases allowed from 2017 to 2020 total 11% or an average of 3.5% annually. Current Vietnamese CPI (January 2018) is 2.65%, implying an annual real increase of only around 0.85% is permitted while remaining within the approved range. This has been reduced to zero as a conservative assumption.

2 Power Development Master Plan VII (PMP VII), approved by Prime Minister Decision 1208/QD-TTg issued in July 2011. Actual electricity generation and purchases in 2010 totaled 86TWh and was projected to reach 194TWh in 2015, 330TWh in 2020 and 695TWh in 2030.

3 Revised PMP VII, approved by Prime Minister Decision 428/QD-TTg in March 2016. Actual electricity generation and purchases in 2015 totaled 160TWh and are projected to reach 265TWh in 2020 and 572TWh in 2030.

Appendix 11 49

15. Costs and taxes. Actual subproject capital costs are used, and estimated O&M costs updated accordingly. The calculation of taxes has been updated to reflect current corporate tax rates and the use, by NPT, of a 10-year asset life for the purposes of calculating depreciation allowances in the income statement.

V. WEIGHTED AVERAGE COST OF CAPITAL

16. Methodology. The WACC has been calculated as the weighted average of the cost of equity and debt used to fund the project. The cost of equity has been calculated using the capital asset pricing model, as at appraisal, updated to reflect changes in market conditions since appraisal. The cost of debt has been calculated using the same assumptions as at appraisal, which reflect the agreed terms of the ADB loan.

17. Cost of equity at appraisal. The cost of equity at appraisal was estimated using market data for the USA and for Thailand. The market return on equity was estimated as the sum of the risk-free rate (Rf), proxied by the yield on 10-year US Treasury notes. The equity risk premium (Rm – Rf) was estimated by comparing the return on the S&P500 index to the risk-free rate. This premium represents the return on the equity market as a whole. The return on any individual company depends on its risk relative to that of the market, which is measured by its equity beta. An equity beta of less than 1.0 indicates the individual company is less risky (equity prices are less volatile) than the market as a whole while an equity beta of greater than 1.0 indicates that it is riskier.

18. The tranche 2 appraisal estimated this equity beta with reference to the average betas for 62 electricity utilities in the USA and six entities, primarily engaged in electricity generation, listed on the Stock Exchange of Thailand. The equity beta for each was deleveraged4 (adjusted for capital structure) to obtain an average asset beta of 0.48 for US utilities and 0.40 for Thai utilities. Based on this, an asset beta of 0.45 was assumed for NPT. This was then relevered, using NPT’s capital structure, to obtain an equity beta for NPT of 2.53.5 Finally, to reflect the different market conditions between the USA and Viet Nam, a country risk premium of 6.0% was added, using estimates from the Stern School of Business at New York University, which are a common source for such adjustments. The resulting nominal after-tax cost of equity was estimated at 23.1% for appraisal of tranche 2.

19. Cost of equity at evaluation. The cost of equity used for evaluation has been estimated using the same methodology as for appraisal. The values for the risk-free rate, equity risk premium and country risk premium have been updated using the same sources as applied at appraisal. However, the assumed equity beta has been replaced by another estimate. The value used at appraisal, 2.53 appears implausibly high for a regulated electricity transmission business even

4 The asset beta is the average of the equity beta and debt beta, weighted by the share of each in capital structure. It

is common to assume that the debt beta is zero. To estimate the equity beta of a firm using evidence from another firm with a different capital structure, the equity beta for the comparator firm is first delevered to obtain an asset beta using the comparator’s capital structure and then relevered using the capital structure of the firm of interest to obtain its equity beta.

5 This follows from the assumption that the debt beta is zero and, therefore, that the full risk represented by the asset beta can be allocated to equity. As a result, a low gearing implies a very high equity beta. As argued below, this results in implausibly high beta estimates. For highly-geared entities, it is more realistic to expect that some risk falls on lenders (i.e., the debt beta is greater than zero) given that a small reduction in earnings may be sufficient to wipe out the equity in the entity. This would then mean a lower equity beta than would be implied from the simple approach applied at appraisal. The evaluation addresses this by using a direct comparison of estimated equity betas without delevering and then relevering these estimates.

50 Appendix 11

given the uncertainties prevalent in Viet Nam’s existing regulatory framework.6 For comparison, US software firms and upstream oil and gas firms, both of which operate in much more volatile environments, have average equity betas of around 1.6. A review of recent regulatory decisions on equity betas for electricity networks shows these range from 0.54 to 1.13 with an average of around 0.7. Given this, the estimation of NPT’s cost of equity for evaluation purposes uses an equity beta of 0.9, towards the upper end of the range of recent regulator decisions internationally. The resulting estimated cost of equity relative to that used at appraisal of tranche 2 is shown below in Table A11.4.

Table A11.4: Cost of Equity

Component Appraisal Evaluation

Risk-free rate (US 10-year) 1.8% 2.9% Equity risk premium (S&P500) a 6.0% 5.7% Equity beta 2.53 0.90 Country risk premium b 6.0% 5.2% Nominal. after-tax, cost of equity 23.1% 13.2%

a 12-month average of S&P500 return over 10-year US Treasury bond yield (http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/implpr.html)

b Professor Aswath Damodaran, New York University (http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html)

Source: Asian Development Bank estimates

20. Cost of debt. The cost of debt at appraisal was estimated at 4.1% in nominal after-tax terms and -0.7% in real terms for tranche 2. The nominal cost of debt for tranche 2 was estimated at appraisal as the financial internal rate of return from projected cash inflows and outflows, rather than representing the estimated cost of ADB loans. Cash flows denominated in US dollars were converted to Vietnamese dong using projected exchange rates in the relevant year. The nominal cost estimated in this way, therefore, captures the estimated foreign exchange exposure of the loan, as borne by NPT.

21. For the evaluation, the actual cost of the ADB loan has been used. This is equal to LIBOR plus 0.60% less a credit of 0.20% and plus a maturity premium of 0.20%.7 The indicative 20-year fixed swap rate for US dollar-denominated loans as at the time of evaluation, of 3.283%, has been applied.8 This gives a nominal after-tax cost of debt of 3.883% and a real cost of debt of 1.2%.

22. WACC for evaluation. The calculation of the resulting estimated WACC used in the financial evaluation, of 3.2%, is shown below in Table A11.5. This is equivalent to the after-tax real value of 3.4% used in the tranche 2 appraisal. The lower estimated cost of equity used for the evaluation leads to a lower WACC compared to that applied at appraisal.

Table A11.5: Calculation of Weighted Average Cost of Capital

Component Equity Debt Total

Amount, Tranche 2 (US$ million) 103.32 357.65 460.97 Weighting 22.4% 77.6% 100.0% After-tax nominal rate 13.2% 3.9%

6 The equivalent average equity beta for US power utilities is 0.59. This implies that NPT’s earnings could be five or

more times more volatile than that of a comparable US power utility, which appears implausible. 7 The loan agreement is available at: https://www.adb.org/sites/default/files/project-document/75545/42039-035-vie-

mlo1.pdf 8 Indicative lending rates as at 22 May 2018, available at: https://www.adb.org/sites/default/files/page/227681/adb-

indicative-rates-22May2018.pdf

Appendix 11 51

After-tax real rate 10.3% 1.2% Weighted real WACC 2.3% 0.9% 3.2%

Source: Asian Development Bank estimates

VI. RESULTS

23. Summary of results. The resulting estimated FIRR at evaluation and financial net present value (FNPV) at WACC for each of the subprojects under tranche 2 and for the tranche as a whole are shown in Table A11.6 and the calculation of the FIRR is in Table A11.7.

24. All subprojects and the tranche as a whole demonstrate an FIRR in excess of WACC at evaluation and, therefore, are considered to be contributing a net financial surplus to NPT. Two subprojects show a decrease in FIRR from that estimated at appraisal. This result can be attributed to the slowdown in electricity supply growth relative to that projected at appraisal, which led to lowered incremental revenues although it was offset by the decrease in actual costs.

Table A11.6: Results of Financial Evaluation

Evaluation Appraisal

FIRR FNPV @ 3.2%

FIRR

Sub-Project D billion

1 500 kV Pleiku - My Phuoc - Cau Bong transmission line 9.2% 5,393.6 8.8% 2 220 kV Cau Bong - Duc Hoa transmission line 4.9% 61.5 6.2% 3 220 kV Cau Bong - Hoc Mon transmission line 7.0% 767.0 13.1% Total 8.6% 6,222.1 n/a

FIRR = Financial Internal Rate of Return, FNPV = Financial Net Present Value Source: Asian Development Bank estimates

52 Appendix 11

Table A11.7: Financial Analysis for Tranche 2

8. Total

Year Incremental revenues Incremental costs Net Revenues

Energy Revenues Capital O&M Tax Total

GWh D bn D bn D bn D bn D bn D bn

1 - - (1,139.5) - - (1,139.5) (1,139.5)

2 - - (1,697.1) - - (1,697.1) (1,697.1)

3 - - (1,697.1) - - (1,697.1) (1,697.1)

4 2,326 190.9 (848.6) (53.8) - (902.4) (711.5)

5 5,042 410.7 - (107.6) - (107.6) 303.1

6 5,471 442.1 - (107.6) - (107.6) 334.5

7 5,855 472.2 - (107.6) - (107.6) 364.5

8 6,251 503.6 - (107.6) - (107.6) 396.0

9 6,678 537.4 - (107.6) - (107.6) 429.7

10 7,139 573.5 - (107.6) - (107.6) 465.9

11 7,635 612.3 - (107.6) (0.0) (107.7) 504.7

12 8,170 653.9 - (107.6) (6.3) (114.0) 540.0

13 8,747 698.6 - (107.6) (13.0) (120.7) 577.9

14 9,369 746.5 - (107.6) (127.8) (235.4) 511.1

15 10,041 797.9 - (107.6) (138.1) (245.7) 552.2

16 10,766 853.1 - (107.6) (149.1) (256.7) 596.4

17 11,548 912.4 - (107.6) (160.9) (268.6) 643.8

18 12,047 960.9 - (107.6) (170.7) (278.3) 682.6

19 12,519 1,010.1 - (107.6) (180.5) (288.1) 721.9

20 13,023 1,062.4 - (107.6) (191.0) (298.6) 763.8

21 13,559 1,118.2 - (107.6) (202.1) (309.8) 808.5

22 14,131 1,177.7 - (107.6) (214.0) (321.7) 856.0

23 14,740 1,241.1 - (107.6) (226.7) (334.3) 906.7

24 14,777 1,244.9 - (107.6) (227.4) (335.1) 909.8

25 14,777 1,244.9 - (107.6) (227.4) (335.1) 909.8

26 14,777 1,244.9 - (107.6) (227.4) (335.1) 909.8

27 14,777 1,244.9 - (107.6) (227.4) (335.1) 909.8

28 14,777 1,244.9 - (107.6) (227.4) (335.1) 909.8

29 14,777 1,244.9 - (107.6) (227.4) (335.1) 909.8

30 14,777 1,244.9 - (107.6) (227.4) (335.1) 909.8

31 14,777 1,244.9 - (107.6) (227.4) (335.1) 909.8

32 14,777 1,244.9 - (107.6) (227.4) (335.1) 909.8

33 14,777 1,244.9 - (107.6) (227.4) (335.1) 909.8

34 14,777 1,244.9 - (107.6) (227.4) (335.1) 909.8

35 14,777 1,244.9 - - (249.0) (249.0) 995.9

36 - - - - - - -

37 - - - - - - -

38 - - - - - - -

39

FIRR 8.6%

FNPV @ 3.23% 6,222.1

Appendix 12 53

COMPLIANCE WITH LOAN COVENANTS

Covenant Reference in Loan

Agreements

Status of Compliance

General

1 The procurement of Goods, Works and Consulting Services shall be subject to and governed by the Procurement Guidelines, and the Consulting Guidelines, respectively.

Schedule 4, para. 1

Complied.

2 All terms used in this Schedule and not otherwise defined in this Loan Agreement have the meanings provided in the Procurement Guidelines and/or the Consulting Guidelines, as applicable.

Schedule 4, para. 2

Complied.

Goods and Works

3 Except as ADB may otherwise agree, Goods and Works shall only be procured on the basis of the methods of procurement set forth below: (a) International Competitive Bidding; (b) National Competitive Bidding; and (c) Shopping.

Schedule 4, para. 3

Complied.

4 The methods of procurement are subject to, among other things, the detailed arrangements and threshold values set forth in the Procurement Plan. The Borrower may only modify the methods of procurement or threshold values with the prior agreement of ADB, and modifications must be set out in updates to the Procurement Plan.

Schedule 4, para. 4

Complied.

Domestic Preference

5 The NPT may grant a margin of preference in the evaluation of bids under international competitive bidding in accordance with paragraphs 2.55(a) and 2.56 of the Procurement Guidelines for domestically manufactured Goods.

Schedule 4, para. 5

Complied.

National Competitive Bidding

6 The Borrower and ADB shall ensure that, prior to the commencement of any procurement activity under national competitive bidding, the Borrower’s national competitive bidding procedures are consistent with the Procurement Guidelines. Any modifications or clarifications to such procedures agreed between the Borrower and ADB shall be set out in the Procurement Plan. Any subsequent change to the agreed modifications and clarifications shall become effective only after approval of such change by the Borrower and ADB.

Schedule 4, para. 6

Complied.

Conditions for Award of Contract

7

NPT shall not award any Works contract which involves environmental impacts until: (a) NPT has incorporated the relevant provisions from the EMP into the Works contract; and

Schedule 4, para. 7

Not complied. The works contract financed by NPT was issued before ADB prepared and

54 Appendix 12

Covenant Reference in Loan

Agreements

Status of Compliance

(b) Consultants to support environmental safeguard implementation and monitoring have been engaged.

approved the loan to finance equipment for the 500 kV Pleiku–My Phuoc–Cau Bong transmission line subproject. At ADB’s appraisal, environmental compliance audit was not conducted. For other two subprojects, environmental safeguard monitoring consultants were engaged after work contracts issued.

8 NPT shall not award any Works contract which involves involuntary resettlement impacts, until (a) NPT has prepared and submitted to ADB the final RP based on the Project's detailed design, and obtained ADB's clearance of such RP, and (b) consultants to support involuntary resettlement implementation and monitoring have been engaged.

Schedule 4, para. 8

Not complied. The works contract financed by NPT was issued before ADB prepared and approved the loan to finance equipment for the 500 kV Pleiku–My Phuoc–Cau Bong transmission line subproject. At ADB’s appraisal, DDR was conducted, and CAP prepared and implemented by NPT and monitored by ADB, but they were not disclosed on the ADB website. For other two subprojects, social safeguard monitoring consultants were engaged after work contracts issued.

Consulting Services

9 Except as ADB may otherwise agree, and except as

set forth in the paragraph below, NPT shall apply

quality- and cost-based selection for selecting and

engaging Consulting Services.

Schedule 4, para. 9

Complied.

10 NPT shall recruit the individual consultants for (a) environment, (b) involuntary resettlement, and (c) preparation for PFR 3 in accordance with

Schedule 4, para. 10

Complied.

Appendix 12 55

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Agreements

Status of Compliance

procedures acceptable to ADB for recruiting individual consultants.

Industrial or Intellectual Property Rights

11 (a) NPT shall ensure that all Goods and Works

procured (including without limitation all computer

hardware, software and systems, whether

separately procured or incorporated within other

goods and services procured) do not violate or

infringe any industrial property or intellectual

property right or claim of any third party.

(b) NPT shall ensure that all contracts for the

procurement of Goods and Works contain

appropriate representations, warranties and, if

appropriate, indemnities from the contractor or

supplier with respect to the matters referred to in

subparagraph (a) of this paragraph.

Schedule 4, para. 11

Complied.

12 NPT shall ensure that all ADB-financed contracts

with consultants contain appropriate

representations, warranties and, if appropriate,

indemnities from the consultants to ensure that the

Consulting Services provided do not violate or

infringe any industrial property or intellectual

property right or claim of any third party.

Schedule 4, para. 12

Complied.

ADB’s Review of Procurement Decisions

13 Contracts procured under international competitive

bidding procedures and contracts for Consulting

Services shall be subject to prior review by ADB,

unless otherwise agreed between the Borrower and

ADB and set forth in the Procurement Plan.

Schedule 4, para. 13

Complied.

Implementation Arrangements

14 The Borrower and NPT shall ensure that the Project

is implemented in accordance with the detailed

arrangements set forth in the FAM. Any subsequent

change to the FAM shall become effective only after

approval of such change by NPT and ADB. In the

event of any discrepancy between the FAM and this

Loan Agreement, the provisions of this Loan

Agreement shall prevail.

Schedule 5, Para. 1

Complied.

56 Appendix 12

Covenant Reference in Loan

Agreements

Status of Compliance

Environment

15 The Borrower shall cause NPT to ensure that the

preparation, design, construction, implementation,

operation and decommissioning of the Project and

all Project facilities comply with (a) the Borrower’s

all applicable laws and regulations relating to

environment, health and safety; (b) the

Environmental Safeguards; and (c) all measures

and requirements set forth in the IEE, the EMP, and

any corrective or preventative actions set forth in a

Safeguards Monitoring Report.

Schedule 5, Para. 2

Partially complied. Although construction work of the 500 kV Pleiku–My Phuoc–Cau Bong transmission line subproject had already started at appraisal, an environmental compliance audit was not conducted.

Land Acquisition and Involuntary Resettlement

16 The Borrower shall cause NPT to ensure that all

land and all rights-of-way required for the Project

are made available to the Works contractor in

accordance with the schedule agreed under the

related Works contract and all land acquisition and

resettlement activities are implemented in

compliance with (a) the Borrower’s all applicable

laws and regulations relating to land acquisition and

involuntary resettlement; (b) the Involuntary

Resettlement Safeguards; and (c) all measures and

requirements set forth in the RP, and any corrective

or preventative actions set forth in the Safeguards

Monitoring Report.

Schedule 5, Para. 3

Complied.

17 The Borrower shall cause NPT to ensure (a) that the

local authorities do not commence any land

acquisition and relocation activities until the updated

RP has been prepared following detailed design,

and (b) that the updated RP has been reviewed and

approved by ADB. The Borrower shall cause NPT to

further ensure that the Affected Persons are

compensated at replacement cost and assisted

before they are displaced from their houses, land,

and assets. No Affected Persons shall be displaced

until suitable alternative land within the same or a

neighboring commune has been allocated to them

or compensation has been paid that is sufficient to

purchase suitable alternative land within the same

or a neighboring commune

Schedule 5, Para. 4

Partially complied. Civil works commenced under the works contract financed by NPT before ADB prepared and approved the loan to finance equipment for the 500 kV Pleiku–My Phuoc–Cau Bong transmission line subproject. For other two subprojects, civil works commended before resettlement plans were approved by ADB. However, a total of eight DDRs with CAPs prepared and fully implemented.

Appendix 12 57

Covenant Reference in Loan

Agreements

Status of Compliance

18 The Borrower shall cause NPT to carry out internal

monitoring of involuntary resettlement activities and

updating of the RPs and submit quarterly Safeguard

Monitoring Reports to ADB together with the

quarterly Project reporting requirements. The

Borrower shall cause NPT to ensure that an

independent external monitoring body or person is

engaged. External monitoring reports shall be

submitted to ADB every 6 months. Internal and

external monitoring reports shall be uploaded onto

ADB website, until involuntary resettlement and

income restoration programs are completed. The

monitoring reports shall include resettlement audit

statements and shall be verified by such

independent resettlement monitoring body or

person.

Schedule 5, Para. 5

Complied.

19 Without limiting the application of the Involuntary

Resettlement Safeguards or the RP, the Borrower

shall cause NPT to ensure that no physical or

economic displacement takes place in connection

with the Project until:

(a) compensation and other entitlements have

been provided to the Affected Persons in

accordance with the RP; and

(b) a comprehensive income and livelihood

restoration program has been established in

accordance with the RP.

Schedule 5, Para. 6

Partially complied. There were instances where project activities took place before compensation and other entitlements provided. However, DDRs with CAPs were prepared and fully implemented.

Indigenous Peoples

20 The Borrower shall cause NPT to ensure that the

preparation, design, construction, implementation

and operation of the Project and all Project facilities

comply with (a) all applicable laws and regulations

of the Borrower relating to indigenous peoples; (b)

the Indigenous Peoples Safeguards; and (c) all

measures, and requirements set forth in the

REMDP, and any corrective or preventative actions

set forth in a Safeguards Monitoring Report.

Schedule 5, Para. 7

Complied.

Human and Financial Resources to Implement Safeguards

Requirements

21 The Borrower shall cause NPT to make available

necessary budgetary and human resources to fully

implement the EMP and the RP.

Schedule 5, Para. 8

Partially complied. CPMB and SPMB established safeguard units and equipped with staff in charge of ODA

58 Appendix 12

Covenant Reference in Loan

Agreements

Status of Compliance

projects. However, NPT has only one staff in charge of environmental and social safeguard matters for all ODA projects, which resulted in limited quality assurance.

Safeguards-Related Provisions in Bidding Documents and

Works Contracts

22 The Borrower shall cause NPT to ensure that all

bidding documents and contracts for Works contain

provisions that require contractors to:

(a) comply with the measures relevant to the

contractor set forth in the IEE, the EMP and the RP

and any corrective or preventative actions set forth

in a Safeguards Monitoring Report;

(b) make available a budget for all such

environmental and social measures; and

(c) provide NPT with a written notice of any

unanticipated environmental, resettlement or

indigenous peoples risks or impacts that arise

during construction, implementation or operation of

the Project that were not considered in the IEE, the

EMP, and the RP.

Schedule 5, Para. 9

Complied.

Safeguards Monitoring and Reporting

23 The Borrower shall cause NPT to do the following:

(a) submit quarterly Safeguards Monitoring

Reports to ADB until the Project completion and

disclose relevant information from such reports to

the Affected Persons promptly upon submission;

(b) if any unanticipated environmental and/or

social risks and impacts arise during construction,

implementation or operation of the Project that were

not considered in the IEE, the EMP, the RP and

REMDF, as applicable, promptly inform ADB of the

occurrence of such risks or impacts, with detailed

description of the event and proposed corrective

action plan; and

(c) report any actual or potential breach of

compliance with the measures and requirements set

Schedule 5, Para. 10

Complied.

Appendix 12 59

Covenant Reference in Loan

Agreements

Status of Compliance

forth in the EMP, and the RP promptly after

becoming aware of the breach.

Prohibited List of Investments

24 The Borrower shall cause NPT to ensure that no

proceeds of the Loan are used to finance any

activity included in the list of prohibited investment

activities provided in Appendix 5 of the SPS.

Schedule 5, Para. 11

Complied.

Civil Works under Component 1(i)

The Borrower shall ensure that, in connection with

the civil works under Component 1(i) to be financed

by the Borrower, IEE, RP, REMDP, the corrective

action plan and any revisions thereto cleared by

ADB are fully implemented. The Borrower shall

submit to ADB an appropriate documentation

thereto for review and concurrence.

Schedule 5, Para. 12

Complied.

Gender

25 The Borrower shall cause NPT to implement the

Project in accordance with ADB’s Policy on Gender

and Development (1998). In particular, the Borrower

shall cause NPT to ensure that women will have

equal access to Project information and benefits,

including the opportunities to participate in Project

planning and implementation.

Schedule 5, Para. 13

Complied.

26 The Borrower shall cause NPT to ensure that

resettlement and ethnic minority development plans

are prepared and implemented taking into

consideration that (a) 100% of female headed and

ethnic minority affected households are consulted;

(b) the respective women union participates actively

in consultations and compensation committees; and

(c) fair compensation of all households irrespective

of income level, ethnic group or headed by

female/male is provided.

Schedule 5, Para. 14

Complied.

Works Contract

27 The Borrower shall cause NPT to ensure that all

Works contracts incorporate provisions and budgets

to the effect that contractors will: (a) comply with

applicable core labor standards, labor laws and

incorporate applicable workplace occupational

safety norms; (b) disseminate, or engage

appropriate service providers to disseminate

information on the risks of sexually transmittable

infections, including HIV/AIDS, to the employees of

Schedule 5, Para. 15

Complied.

60 Appendix 12

Covenant Reference in Loan

Agreements

Status of Compliance

contractors engaged under the Project and to

members of the local communities surrounding the

Project facilities, particularly to females; (c) not

differentiate payment between men and women for

work of equal value; (d) not employ child labor; (e)

eliminate any form of discrimination in respect of

employment; and (f) to the extent possible,

maximize employment of women, local poor and

disadvantaged persons for construction purposes,

provided that the requirements for efficiency are

adequately met.

Power Sector and Tariff Reform

28 The Borrower shall take necessary measures to

restructure its power sector into a competitive

market. Such measures shall include, but not limited

to, appropriate amendments to the existing 2005

Electricity Law of the Government.

Schedule 5, Para. 16

Complied.

29 The Borrower shall continue to implement effective

electricity tariff reforms which set the transmission

charges at a level to cover costs and help finance

part of the planned transmission expansion and

ensure long-term financial sustainability of power

sector entities.

Schedule 5, Para. 17

Complied.

30 Notwithstanding paragraph 17 above, the Borrower

shall continue to implement appropriate tariff

schemes and social safety nets to ensure continued

affordability of electricity to the poor.

Schedule 5, Para. 18

Complied.

Counterpart Funding

31 The Borrower shall cause EVN, through NPMB and

CPMB, to ensure that civil works contracts will have

provisions to maximize employment of local poor

persons, to the extent possible, who adequately

meet the job and efficiency requirements for

construction of the transmission lines and

substations. Such workers shall be provided with

adequate on-the-job training.

Schedule 5, Para. 19

Complied.

Financial Matters

32 Except as otherwise agreed by ADB, the Borrower

shall ensure that a transmission charge is set and

implemented so that NPT can achieve the financial

ratio as provided.

Schedule 5, Para. 20

Complied. During the project implementation period, transmission tariffs increased annually from D77.99/kWh in 2012

Appendix 12 61

Covenant Reference in Loan

Agreements

Status of Compliance

to D83.3/kWh in 2013, D86.4/kWh in 2014, and D104.0/kWh in 2015.

33 For the purposes of this paragraph, all financial

calculations, ratios and financial covenants shall be

applied in respect of NPT’s operations only.

Except as ADB shall otherwise agree, the Borrower

shall ensure that for each of its fiscal years after its

fiscal year ending 31 December 2013 NPT meets

the following requirements:

(i) NPT will generate funds from internal sources

equivalent to not less than (A) 20% in its fiscal years

2013 and 2014, and (B) 25% in its fiscal year 2015,

and thereafter of the annual average of NPT's

capital expenditures incurred, or expected to be

incurred, for that fiscal year.

(ii) The net revenues of NPT will be at least the

following relative to the debt service requirements of

NPT: (A) 1.3 times in its fiscal years 2013 and 2014,

and (B) 1.5 times in its fiscal year 2015, and

thereafter.

(iii) NPT's ratio of debt to equity will be at least (A)

85:15 in its fiscal year 2013, (B) 80:20 in its fiscal

year 2014, and (C) 75:25 in its fiscal year 2015, and

thereafter.

(iv) Before December 31 in each of its fiscal

years, NPT will, on the basis of forecasts

satisfactory to ADB, review whether it would meet

the requirements set forth in paragraphs 21(a)(i) to

(iii) above in respect of such year and the next

following fiscal year and will furnish to ADB a copy

of such review upon its completion.

(v) If any such review shows that NPT would not

meet the requirements set forth in paragraphs

21(a)(i) to (iii) above for NPT's fiscal years covered

by such review, the Borrower, through EVN, will

promptly take all necessary measures to enable

NPT to meet its requirements, including but not

limited to, adjustments of transmission charges,

financial and institutional restructuring including the

provision of financial assistance.

Schedule 5, Para. 21

Partially complied, as self-financing ratio in 2014 deteriorated due to its unexpected significant short-term financial obligations in 2014.

62 Appendix 12

Covenant Reference in Loan

Agreements

Status of Compliance

34 The Borrower shall cause NPT to strengthen its

financial sustainability throughout the

implementation of the Investment Program through,

but not limited to: (a) the undertaking of asset

revaluation, (b) management and staff training in

financial management, planning, control,

accounting, and budgeting; and (c) the application

of up to date accounting and financial management

and planning tools and procedures.

Schedule 5, Para. 22

Complied.

Reporting and Auditing

35 The Borrower shall cause NPT to prepare regular

progress reports for submission to ADB on a

quarterly basis. Such reports shall include: (a) a

narrative description of the Project's physical

progress during the period; (b) changes in the

implementation schedule; (c) implementation

progress of financial improvement measures

including management and staff training; (d)

performance of the Project implementation

consultants; (e) a description of problems

encountered and anticipated with suggested

corrective action; (f) a description of implementation

of the EMPs and RPs including status of satisfactory

completion of compensation, resettlement and

rehabilitation activities; and (g) a summary financial

account, including Project expenditures during the

reporting period, year-to-date, and total expenditure

to date.

Schedule 5, Para. 23

Partially complied. The submission of progress reports was frequently delayed and sometimes made on a semiannual basis.

36 The Borrower shall ensure the following:

(a) Within 6 months after the end of the fiscal

year, NPT submits audited (i) Annual Project

Accounts (APA) and (ii) Annual Financial

Statements (AFS). The APA will contain detailed

descriptions of the sources of receipts and

expenditures. The AFS will consist of an income

statement, balance sheet, statement of cash flows

and related notes to financial statement. The AFS

will be consolidated for all of NPT's operations;

(b) The accounts will be prepared using

International Financial Reporting Standards and the

audit will be carried out using International

Standards on Auditing;

(c) The auditors will be required to provide an

opinion on NPT's compliance with the financial

covenants in this Loan Agreement and indicate the

Schedule 5, Para. 24

Partially complied. All APAs and AFSs received in time, however, auditor’s opinion was not provided on NPT’s compliance with the financial covenants and the details of the actual calculations for all ratios was not indicated.

Appendix 12 63

Covenant Reference in Loan

Agreements

Status of Compliance

details of the actual calculations for all ratios, in

conformity with the definitions contained in this Loan

Agreement;

(d) Except as otherwise agreed by ADB, NPT will

continue its practice of retaining external auditors

satisfactory to ADB to audit its AFS and APA. The

memorandum of issues identified during the audit

process (i.e., management letter) will be attached to

the respective reports; and

(e) For future contracts or contract revisions with

external auditors, the terms of reference of the

external auditors will be provided to ADB.

UXO Clearance

37 For any Works supported under the Project, the

Borrower shall ensure that NPT will not issue a

notice to proceed with such Works, until it has

confirmed that the related construction site is free

from any UXOs.

Schedule 5, Para. 25

Complied.

Governance and Anticorruption

38 The Borrower and NPT shall comply with ADB’s

Anticorruption Policy (1998, as amended to date)

and the Combating Money Laundering and the

Financing of Terrorism Policy (2003). The Borrower

acknowledges that ADB, consistent with its

commitment to good governance, accountability,

and transparency, reserves the right to investigate

directly, or through its agents, any possible corrupt,

fraudulent, collusive, or coercive practices relating

to the Investment Program. In particular, the

Borrower shall ensure that NPT includes in the

bidding documents and in all contracts financed by

ADB in connection with the Project: (a) provisions

specifying the right of ADB to audit and examine the

records and accounts of NPT, and all contractors,

suppliers, consultants, and other service providers

as they relate to the Project; (b) periodic inspections

of the contractor’s activities related to fund

withdrawals and settlements are carried out by NPT;

and (c) the auditors engaged by NPT have the right

to conduct random or spot audits of contract

implementation activities under the subprojects.

Schedule 5, Para. 26

Complied.

39 The Borrower and NPT shall ensure that staff are

fully knowledgeable of and comply with the

Government’s and ADB’s procedures, including, but

Schedule 5, Para. 27

Complied.

64 Appendix 12

Covenant Reference in Loan

Agreements

Status of Compliance

not limited to, procedures for (a) Project

implementation, (b) procurement, (c) use of

consultants, (d) disbursement, (e) reporting, (f)

monitoring, and (g) prevention of fraud and

corruption.

Public Disclosure

40 The Borrower shall cause NPT to publicly disclose

on its website information how the Loan proceeds

are being used, presenting (a) award of Goods

and/or Works contracts including (i) the list of

participating bidders, (ii) name of the winning bidder,

(iii) basic details on bidding procedures adopted, (iv)

amount of the contract awarded, (v) list of Goods

and/or Works, and (vi) intended and actual

utilization of Loan proceeds under each contract,

and (b) internal and external resettlement reports.

The website will be updated within 2 weeks after: (a)

each award of contract, (b) each submission of the

external monitoring agency’s quarterly resettlement

reports, and (c) each submission of NPT’s internal

quarterly resettlement reports.

Schedule 5, Para. 28

Partially complied. NPT did not publicly disclose on the NPT website these required information but It disclosed the results of the bid evaluation on Viet Nam News and Vietnamese Procurement Newspaper. NPT submitted (i) environmental and social monitoring reports on a quarterly basis to ADB, which have been disclosed on ADB’s website and posted in communes’ bulletin board as necessary.

ADB = Asian Development Bank, CAP = corrective action plan, DDR = due diligence report, NPT = National Power Transmission Corporation, RP = resettlement plan, UXO = unexploded ordnance Source: ADB

Appendix 12 65

COMPLIANCE WITH LOAN PARTICULAR COVENANTS

Covenant

Reference in Loan

Agreement

Status of Compliance

(a) The Borrower shall cause the Project to be carried out with due diligence and efficiency and in conformity with sound applicable technical, financial, business, and development practices. (b) In the carrying out of the Project and operation of the Project facilities, the Borrower shall perform, or cause to be performed, all obligations set forth in Schedule 5 to this Loan Agreement and the Project Agreement.

Section 4.01 Complied.

The Borrower shall make available, or cause to be made available, promptly as needed, and on terms and conditions acceptable to ADB, the funds, facilities, services, land and other resources, as required, in addition to the proceeds of the Loan, for the carrying out of the Project.

Section 4.02 Complied.

The Borrower shall ensure that the activities of its departments and agencies with respect to the carrying out of the Project and operation of the Project facilities are conducted and coordinated in accordance with sound administrative policies and procedures.

Section 4.03 Complied.

The Borrower shall cause NPT to enable ADB's representatives to inspect the Project, the Goods and Works, and any relevant records and documents.

Section 4.04 Complied.

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

Section 4.05 Complied.

(a) The Borrower shall exercise its rights under the Subsidiary Loan Agreement in such a manner as to protect the interests of the Borrower and ADB and to accomplish the purposes of the Loan. (b) No rights or obligations under the Subsidiary Loan Agreement shall be assigned, amended, abrogated or waived without the prior concurrence of ADB.

Section 4.06 Complied.

ADB = Asian Development Bank, NPT = National Power Transmission Corporation Source: ADB