Greater Mekong Subregion Kunming–Hai Phong Transport Corridor – Noi Bai–Lao Cai Highway Project

(RRP VIE 33307)

Project Number: 33307 Loan Numbers: Loan XXXX-VIE, Loan XXXX-VIE(SF), Loan XXXX-VIE(SF) 10 October 2014

Viet Nam: Greater Mekong Subregion Kunming–Hai Phong Transport Corridor—Noi Bai–Lao Cai Highway Project (Additional Financing)

Project Administration Manual

Contents

ABBREVIATIONS

I. PROJECT DESCRIPTION 1

II. IMPLEMENTATION PLANS 1

A. Project Readiness Activities 1 B. Overall Project Implementation Plan 2

III. PROJECT MANAGEMENT ARRANGEMENTS 3

A. Project Implementation Organizations – Roles and Responsibilities 3 B. Key Persons Involved in Implementation 5 C. Project Organization Structure 5

IV. COSTS AND FINANCING 6

A. Detailed Cost Estimates by Expenditure Category 6 B. Allocation and Withdrawal of Loan Proceeds 7 C. Detailed Cost Estimates by Financier 8 D. Detailed Cost Estimates by Outputs/Components 9 E. Detailed Cost Estimates by Year 10 F. Contract and Disbursement S-curve 11 G. Fund Flow Diagram 12

V. FINANCIAL MANAGEMENT 12

A. Financial Management Assessment 12 B. Disbursement 13 C. Accounting 14 D. Auditing 14

VI. PROCUREMENT AND CONSULTING SERVICES 15

A. Advance Contracting and Retroactive Financing 15 B. Procurement of Goods, Works and Consulting Services 15 C. Procurement Plan 16 D. Consultant's Terms of Reference 16

VII. SAFEGUARDS 16

VIII. GENDER AND SOCIAL DIMENSIONS 16

IX. PERFORMANCE MONITORING, EVALUATION, REPORTING AND COMMUNICATION 16

A. Project Design and Monitoring Framework 16 B. Monitoring 16 C. Evaluation 17 D. Reporting 17 E. Stakeholder Communication Strategy 17

X. ANTICORRUPTION POLICY 17

XI. ACCOUNTABILITY MECHANISM 18

XII. RECORD OF PAM CHANGES 18

DESIGN AND MONITORING FRAMEWORK 19

Project Administration Manual Purpose and Process

1. The project administration manual (PAM) describes the essential administrative and management requirements to implement the project on time, within budget, and in accordance with Government and Asian Development Bank (ADB) policies and procedures. The PAM should include references to all available templates and instructions either through linkages to relevant URLs or directly incorporated in the PAM.

2. The Vietnam Expressway Corporation (VEC) is wholly responsible for the implementation of ADB financed projects, as agreed jointly between the borrower and ADB, and in accordance with Government and ADB’s policies and procedures. ADB staff is responsible to support implementation including compliance by VEC of their obligations and responsibilities for project implementation in accordance with ADB’s policies and procedures.

3. At Loan Negotiations the borrower and ADB shall agree to the PAM and ensure consistency with the Loan agreement. Such agreement shall be reflected in the minutes of the Loan Negotiations. In the event of any discrepancy or contradiction between the PAM and the Loan Agreement, the provisions of the Loan Agreement shall prevail.

4. After ADB Board approval of the project's report and recommendations of the President (RRP) changes

in implementation arrangements are subject to agreement and approval pursuant to relevant Government and ADB administrative procedures (including the Project Administration Instructions) and upon such approval they will be subsequently incorporated in the PAM.

Abbreviations

ADB - Asian Development Bank ADF - Asian Development Fund AFS - audited financial statements DMF - design and monitoring framework EIA - environmental impact assessment EMP - environmental management plan LAR - land acquisition and resettlement LIBOR - London interbank offered rate PAM - project administration manual MOT - Ministry of Transport NBLC-EPMU - Noi Bai-Lao Cai expressway project management unit OCR - ordinary capital resources PAM - project administration manual PRC - People’s Republic of China RRP - report and recommendation of the President to the Board SBV - State Bank of Vietnam SOE - statement of expenditure SPS - Safeguard Policy Statement VEC - Vietnam Expressway Corporation

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I. PROJECT DESCRIPTION

1. The Noi Bai–Lao Cai Highway is an integral section of the eastern link of the Greater Mekong Subregion Northern Economic Corridor, connecting Kunming in Yunnan province of the People’s Republic of China (PRC) with Ha Noi, and the Hai Phong and Cai Lan ports in Viet Nam. The existing national roads between Ha Noi and Lao Cai are narrow, with a large number of bridges with limited capacity, and there is substantial ribbon development on most of their length. By constructing the Noi Bai–Lao Cai Highway, the Kunming–Hai Phong Transport Corridor will be completed. Poverty in the project area is largely a result of inadequate access to the national roads, caused by poor local road infrastructure. People living below the poverty line are suffering from limited access to economic opportunities, education, and health services. The Highway will decrease the cost of travel, which will encourage economic growth in the project area, provide employment opportunities for the local population, and improve access to social services.

2. The expected impact from the Project is sustainable economic growth and strengthened connectivity with PRC in the project area and along the Kunming–Hai Phong Transport Corridor. The expected outcome is international and local traffic use an efficient, safe, and reliable express route from Noi Bai to Lao Cai on the border with PRC.

3. The outputs are: (i) a 244 km Noi Bai–Lao Cai Highway with a high standard, (ii) VEC’s institutional and financial management capacity strengthened, and (iii) HIV/AIDS, human and illicit drugs trafficking program to minimize local population exposure. The additional loans will finance cost overruns of the civil works contracts.

II. IMPLEMENTATION PLANS

A. Project Readiness Activities

Months

Indicative Activities 1 2 3 4 5 6 7 8 Who responsible

1 Loan negotiations √ ADB, SBV, MOT, VEC

2 ADB Board approval √ ADB

3 Loan signing √ ADB, SBV

4 Government legal opinion provided

√ SBV

5 Loan effectiveness √ ADB

6 Retroactive financing actions √ ADB

ADB = Asian Development Bank, MOT = Ministry of Transport, SBV = State Bank of Vietnam, VEC = Vietnam Expressway Corporation

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B. Overall Project Implementation Plan

Activities

2008 2009 2010 2011 2012 2013 2014 2015 2016

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

A. DMF

1. Civil Works

2. Capacity Development of VEC

3. HIV/AIDS, Human Trafficking Prevention Program

B. Management Activities

Consultant selection procedures

Procurement plan key activities to procure contract packages

Communication strategy key activities

Land acquisition and resettlement key activities

Environment management plan key activities

Annual/Mid-term review

Additional financing processing

Additional loan disbursement

Project completion report

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III. PROJECT MANAGEMENT ARRANGEMENTS

A. Project Implementation Organizations – Roles and Responsibilities

Project Stakeholders Management Roles and Responsibilities

Government Provide policy guidance to VEC

Sign the Loan Agreement Monitor the investment program implementation and

provide respective coordination and facilitation Allocate and release counterpart funds Endorse to ADB the authorized staff with approved

signatures for withdrawal applications processing Process and submit to ADB any request, when required,

for reallocating the loan proceeds Comply with loan covenants

MOT Undertake policy dialogue with ADB and provide policy guidance to VEC and other line agencies

Review progress of the Project implementation Handle cross-sectoral issues related to the Project Comply with loan covenants

VEC Act as the focal point for inter-agency coordination and communication with ADB and the other relevant agencies of the Borrower

Carry out consultant recruitment and procurement activities

Supervise the consultants and civil works contractors under the Project

Prepare the necessary documentation for the withdrawal of Loan proceeds

Prepare regular periodic progress reports and project completion reports and timely submission to ADB

Comply with loan covenants

ADB Approve the procurement activities

Undertake semi-annual review to assess: (i) progress of the resettlement and civil works; (ii) environmental impact mitigation works; (iii) disbursement progress; (iv) compliance with the loan covenants; and (v) potential risks for achieving the Project outcome.

Disburse the Loan proceeds to the consultants and the civil works contractors

Regularly post on ADB website the updated project information documents for public disclosure, and also the safeguards documents as per disclosure provision of the ADB safeguard policy statement

Ensure compliance of all loan covenants

Project supervision Assist VEC with implementation of the resettlement plan for the Project

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consultant Assist VEC in ensuring compliance with ADB's

environmental guidelines, the approved initial environmental examination, and site-specific EMPs of the Project

Function as the engineer in administering all civil works contracts and ensuring completion of construction of the components in accordance with the contract provisions

Undertake road safety audits and road safety awareness campaigns

Assist VEC with the implementation of an HIV/AIDS and human trafficking awareness program

Establishing a project performance monitoring system Prepare periodic reports to VEC

Civil works contractors Prepare a site-specific EMP for each civil works contract

Conduct the civil works Comply with the approved EIA and site-specific EMPs

External resettlement monitoring

provide an independent periodic review and assessment of (i) achievement of resettlement objectives; (ii) changes in living standards and livelihoods; (iii) restoration of the economic and social base of the affected people; (iv) effectiveness and sustainability of entitlements; and (v) the need for further mitigation measures as required.

Prepare a monitoring report summarizing all activities and covering all aspects of resettlement monitoring and, if required, suggest time-bound and specific mitigation measures.

External environment monitoring

Undertake independent periodic reviews to verify the monitoring information on EMP implementation and assess if the EMP provisions (mitigation, monitoring, reporting, etc.) are being implemented as required.

Prepare a monitoring report providing details of the methodology used; findings (results of desk review, site observations, consultations, and interviews), recommendations; and other relevant information to support the findings (minutes of meetings, photo-documentation, etc.).

External auditing Audit VEC’s detailed consolidated project accounts in accordance with International Standards on Auditing, and financial statements.

Prepare an annual audit report, which should include a separate audit opinion on the use of the imprest account, and the statement of expenditure procedures, and an audited financial statements report.

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B. Key Persons Involved in Implementation

Executing Agency Vietnam Expressway Corporation Officer's Name Mr. Le Kim Thanh

Position Project Director Telephone (+84-211) 626-5168 Email address thanhlk6188@gmail.com

Office Address Huu Thu Hamlet, Kim Long Commune, Tam Duong, Vinh Phuc, Viet Nam

ADB

Transport and Communication Division, Southeast Asia Department

Staff Name Mr. Hideaki Iwasaki Position Director Telephone No. (+63-2) 632-5413 Email address hiwasaki@adb.org

Mission Leader Staff Name Mr. Yasushi Tanaka Position Principal Transport Specialist Telephone No. (+63-2) 632-5657 Email address ytanaka@adb.org

C. Project Organization Structure

Project Supervision Consultants

External Environmental

Monitor

External Resettlement

Monitor

Vietnam Expressway Corporation Noi Bai-Lao Cai Highway Project Management Unit

Ministry of Transport

Other

Ministries

People’s Committee of

Hanoi

Provincial People’s

Committees

ADB

Civil Works Contractors

Equipment Supplier

External Auditor

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IV. COSTS AND FINANCING

4. The project is estimated to cost $1,441.7 million. ADB’s additional loans will finance the whole cost overruns of the civil works contracts, including all local taxes and duties imposed on these, and may also finance local transportation and insurance costs. All financing charges are to be capitalized. The Government’s additional counterpart funds will finance the cost for highway facility and the additional cost for the land acquisition and resettlement. Tax and duties on the goods and services for the civil works and highway facility are estimated at 12% of the base cost, consisting of 10% for value-added taxes and 2% for duties. In all, taxes and duties are estimated at $12.0 million equivalent. 5. The government has requested an additional loan of $117.0 million from ADB’s ordinary capital resources to help finance the Project. The loan will have a 30-year term, including a grace period of 7 years, an annual interest rate determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility, a commitment charge of 0.15% per year (the interest and other charges during construction to be capitalized in the loan), and such other terms and conditions set forth in the loan and project agreements. Also, the government has requested a regular-term loan in various currencies equivalent to $16.09 million and a hard-term loan in various currencies equivalent to $13.91 million from ADB’s Special Funds resources to help finance the project. The loans will have a 25-year term, including a grace period of 5 years, an interest rate of 2.0% per annum, and such other terms and conditions set forth in the loan and project agreements.

A. Detailed Cost Estimates by Expenditure Category

($ million)

Total Cost

a

% of Total Base Cost

A. Investment Costs

1 Civil Works 110.00 77.0%

2 Equipment 22.30 15.6%

3 Land Acquisition and Resettlement 10.50 7.4%

Subtotal (A) 142.80 100.0%

Total Base Cost 142.80 100.0%

B. Contingencies

1 Physical 15.40 10.8%

2 Price 3.80 2.7%

Subtotal (B) 19.20 13.5%

C. Financing Charges During Implementation

1 Interest During Implementation 19.70 13.8%

2 Commitment Charges 0.30 0.2%

Subtotal (C) 20.00 14.0%

Total Project Cost (A+B+C) 182.00 127.5% a ADB finances all taxes and duties. The amounts for each expenditure item presented

within the table are inclusive of local taxes and duties. Source: Asian Development Bank

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B. Allocation and Withdrawal of Loan Proceeds

Table 1: OCR Loan

Number Item Amount Allocated For ADB Financing

($)

Percentage of ADB Financing from the Loan Account

1 Works 88,000,000 80.00 percent of total expenditure

2 Interest and Commitment Charge 17,500,000 100.00 percent of amounts due

3 Unallocated 11,500,000

Total 117,000,000

Table 2: ADF Loan (Regular-Term)

Number Item Amount Allocated For ADB Financing

($ equivalent)

Percentage of ADB Financing from the Loan Account

1 Works 11,800,000 10.73 percent of total expenditure

2 Interest Charge 1,340,000 100.00 percent of amounts due

3 Unallocated 2,950,000

Total 16,090,000

Table 3: ADF Loan (Hard-Term)

Number Item Amount Allocated For ADB Financing

($ equivalent)

Percentage of ADB Financing from the Loan Account

1 Works 10,200,000 9.27 percent of total expenditure

2 Interest Charge 1,160,000 100.00 percent of amounts due

3 Unallocated 2,550,000

Total 13,910,000

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C. Detailed Cost Estimates by Financier

($ million)

ADB (OCR) ADB

(ADF Regular-Term) ADB

(ADF Hard-Term) Government

Amount % of Cost Category Amount

% of Cost Category Amount

% of Cost Category Amount

% of Cost Category

Total Cost

a

Item (A) (A/E) (B) (B/E) (C) (C/E) (D) (D/E) (E)

A. Investment Costs

1 Civil Works 88.00 80.0% 11.80 10.7% 10.20 9.3% 0.00 0.0% 110.00

2 Equipment 0.00 0.0% 0.00 0.0% 0.00 0.0% 22.30 100.0% 22.30

3 Land Acquisition and

Resettlement

0.00 0.0% 0.00 0.0% 0.00 0.0% 10.50 100.0% 10.50

Subtotal (A) 88.00 61.6% 11.80 8.3% 10.20 7.1% 32.80 23.0% 142.80

B. Contingencies 11.50 59.9% 2.95 15.3% 2.55 13.3% 2.20 11.5% 19.20

C. Financing Charges

During Implementation

17.50 87.5% 1.34 6.7% 1.16 5.8% 0.00 0.0% 20.00

Total Project Cost (A+B+C)

117.00 64.3% 16.09 8.8% 13.91 7.7% 35.00 19.2% 182.00

% Total Project Cost 64.3% 8.8% 7.7% 19.2% 100%

a ADB finances all taxes and duties. The amounts for each expenditure item presented within the table are inclusive of local taxes and duties. Source: Asian Development Bank

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D. Detailed Cost Estimates by Outputs/Components

Item

($ million)

Total Cost

Civil Works Capacity Development of VEC

HIV/AIDS and Human Trafficking

Prevention Program

Amount

% of Cost Category Amount

% of Cost

Category Amount

% of Cost

Category

A. Investment Costsb

1 Civil Works 110.00 110.00 100.0% 0.00 0.0% 0.00 0.0%

2 Equipment 22.30 22.30 100.0% 0.00 0.0% 0.00 0.0%

3 Land Acquisition and Resettlement 10.50 10.50 100.0% 0.00 0.0% 0.00 0.0%

Subtotal (A) 142.80 142.80 100.0% 0.00 0.0% 0.00 0.0%

B. Contingencies

1 Physicalc 15.40 15.40 100.0% 0.00 0.0% 0.00 0.0%

2 Priced 3.80 3.80 100.0% 0.00 0.0% 0.00 0.0%

Subtotal (B) 19.20 19.20 100.0% 0.00 0.0% 0.00 0.0%

C. Financing Charges During Implementatione

1 Interest During Implementation 19.70 19.70 100.0% 0.00 0.0% 0.00 0.0%

2 Commitment Charges 0.30 0.30 100.0% 0.00 0.0% 0.00 0.0%

Subtotal (C) 20.00 20.00 100.0% 0.00 0.0% 0.00 0.0%

Total Project Cost (A+B+C) 182.00 182.00 100.0% 0.00 0.0% 0.00 0.0% a ADB finances all taxes and duties. The amounts for each expenditure item presented within the table are inclusive of local taxes and duties. b In May 2014 prices. c Physical contingency computed at 10% of base costs. d Price contingencies computed at 1.6% on foreign exchange cost in 2014 and 1.1% in 2015, and local currency cost 6.5% in 2014 and 7.2% in 2015, includes provision for

potential exchange rate fluctuation under the assumption of a purchasing power parity exchange rate. e Includes interest and commitment charges. Interest during construction for OCR loan has been computed at the five-year forward London interbank-offered rate plus a spread

of 0.5% and maturity premium of 0.2%. Interest for ADF loan during construction has been computed at 2.0% per annum during the grace period Source: Asian Development Bank

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E. Detailed Cost Estimates by Year

($ million)

Total Costa

Item 2015 2016

A. Investment Costs

1 Civil Works 110.00 110.00 0.00

2 Equipment 0.00 0.00 0.00

3 Land Acquisition and Resettlement 0.00 0.00 0.00

Subtotal (A) 110.00 110.00 0.00

B. Contingencies 17.00 0.00 17.00

C. Financing Charges During Implementation 20.00 5.00 15.00

Total Project Cost (A+B+C) 147.00 115.00 32.00

% Total Project Cost 100.0% 78.2% 21.8%

a ADB finances all taxes and duties. The amounts for each expenditure item presented within the table are inclusive of local taxes and duties. The total cost amount represented in this table is the sum of all ADB funds for the project.

Source: Asian Development Bank

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F. Contract and Disbursement S-curve

6. The additional loans will be disbursed to the civil works contractors immediately after the additional loans become effective. Same as the original loan disbursement arrangements, the OCR loan will finance 80% of the cost overruns and the ADF loan will finance 20% of the cost overruns for the civil works. The contract award and disbursement projections are shown in Tables 1, 2, and 3 below. In the second quarter of 2015, the additional loans will retroactively finance cost overruns paid by the Government.

Table 1: Contract Awards and Disbursement Projections for OCR Loan

Contract Awards ($ million)

Disbursements ($ million)

Year Q1 Q2 Q3 Q4 Total Q1 Q2 Q3 Q4 Total

2015 0.00 88.00 0.00 0.00 88.00 0.00 35.72 14.78 11.21 61.71

2016 0.00 0.00 0.00 0.00 0.00 26.29 0.00 0.00 0.00 26.29

Table 2: Contract Awards and Disbursement Projections for ADF Loan (Regular-term)

Contract Awards ($ million)

Disbursements ($ million)

Year Q1 Q2 Q3 Q4 Total Q1 Q2 Q3 Q4 Total

2015 0.00 11.80 0.00 0.00 11.80 0.00 4.79 1.98 1.50 8.27

2016 0.00 0.00 0.00 0.00 0.00 3.53 0.00 0.00 0.00 3.53

Table 3: Contract Awards and Disbursement Projections for ADF Loan (Hard-Term)

Contract Awards ($ million)

Disbursements ($ million)

Year Q1 Q2 Q3 Q4 Total Q1 Q2 Q3 Q4 Total

2015 0.00 10.20 0.00 0.00 10.20 0.00 4.14 1.71 1.30 7.15

2016 0.00 0.00 0.00 0.00 0.00 3.05 0.00 0.00 0.00 3.05

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G. Fund Flow Diagram

ADF (Direct Payment – after VEC certification) OCR (Direct Payment – after VEC certification) Withdrawal application Claim Project

Agreement Cash flow Payment request flow Agreement

Loan Agreement

Subsidiary Loan Cost for

Agreement resettlement Liquidation

Counterpart fund documents arrangements Payment

Claims

ADB = Asian Development Bank, ADF = Asian Development Fund, OCR = ordinary capital resources, VEC = Vietnam Expressway Corporation. Source: Asian Development Bank.

V. FINANCIAL MANAGEMENT

A. Financial Management Assessment

7. The Financial Management Assessment reveals that VEC has no serious obstacles to financial management for the project implementation the original loan and additional financing. VEC have extensive experience in implementing projects financed by ADB, and other external international financial institutions. VEC is adequately staffed with experienced and qualified financial management professionals. Since the accounting staff in the VEC are experienced in financial management practices for projects funded by ADB and VEC have satisfactory financial management arrangements in terms of funds flow, staffing, accounting policies and procedures, segregation of duties, budget control, cash and bank management, reporting, internal control, and external audit, and information systems, the financial management capacity and arrangement for project implementation for the original loan and the additional financing is adequate. VEC has submitted external auditor’s report to ADB on time. There have been no major audit issues identified either in the audit opinion or the management letter. The financial management risk is considered low.

ADB

Government

Civil Works Contractors

Provincial People’s

Committees

Equipment Supplier

VEC

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8. VEC had difficulty in meeting the financial covenants, i.e. debt service coverage ratio higher than 1.2 and debt-to-equity ratio lower than 90:10 by 2020. The Government was to onlend the original OCR and ADF loans to VEC, but cancelled the onlending arrangement for the original ADF loan and on-grants it to VEC instead. World Bank’s IDA loan and JICA’s loans are also on-granted to VEC now. Consequently, VEC’s financial conditions substantially improved, and it is expected that VEC will meet the above financial covenants.

B. Disbursement

9. The Loan proceeds will be disbursed in accordance with ADB’s Loan Disbursement Handbook (2012, as amended from time to time),1 and detailed arrangements agreed upon between the Government and ADB. 10. VEC will be responsible for (i) preparing disbursement projections, (ii) requesting budgetary allocations for counterpart funds, (iii) collecting supporting documents, and (iv) preparing and sending withdrawal applications to ADB. 11. If imprest account(s) are subsequently proposed and approved by ADB, separate imprest accounts should be established and maintained by funding source. The total outstanding advance to the imprest accounts, in aggregate, should not exceed the estimate of ADB’s share of expenditures to be paid through the imprest account for the forthcoming 6 months. The imprest account is to be used exclusively for ADB’s share of eligible expenditures. VEC who established the imprest account in its name is accountable and responsible for proper use of advances to the imprest account. VEC may request for initial and additional advances to the imprest account(s) based on an Estimate of Expenditure Sheet2 setting out the estimated expenditures to be financed through the account(s) for the forthcoming six (6) months. Supporting documents should be submitted to ADB or retained by the borrower in accordance with ADB’s Loan Disbursement Handbook when liquidating or replenishing the imprest account. 12. ADB's statement of expenditures (SOE) procedure may be used for reimbursement and liquidation of advances to the imprest accounts (if use of such accounts is subsequently approved by ADB). The SOE ceiling is $100,000 equivalent per individual payment. SOE records should be maintained and made readily available for review by ADB's disbursement and review mission or upon ADB's request for submission of supporting documents on a sampling basis, and for independent audit.3 Reimbursement and liquidation of individual payments in excess of the SOE ceiling should be supported by full documentation when submitting the withdrawal application to ADB. When VEC requests ADB to finance eligible expenditures retroactively, reimbursement procedure is used. ADB reimburses the loan funds to VEC’s designated bank account. 13. Before the submission of the first withdrawal application, the Government should submit to ADB sufficient evidence of the authority of the person(s) who will sign the withdrawal applications on behalf of the borrower, together with the authenticated specimen signatures of each authorized person. The minimum value per withdrawal application is $100,000 equivalent, unless otherwise approved by ADB. Individual payments below this amount should generally be paid from the imprest account(s) (if use of such accounts is subsequently approved by ADB) or by VEC and subsequently claimed to ADB through reimbursement. ADB reserves the right not

1 Available at: http://www.adb.org/Documents/Handbooks/Loan_Disbursement/loan-disbursement-final.pdf

2 Available in Appendix 10B of the Loan Disbursement Handbook

3 SOE form is available in Appendix 9B of the Loan Disbursement Handbook.

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to accept WAs below the minimum amount. 14. MOT transfers the Government’s counterpart funds to VEC. VEC will directly disburse the counterpart funds to the supplier of the electric, communication, and tolling systems and associated facilities. For the land acquisition and resettlement, Ha Noi City People’s Committee, and Vinh Phuc, Phu Tho, Yen Bai, and Lao Cai Provincial People’s Committees will pay costs for the land acquisition and resettlement activities and request VEC to disburse the counterpart funds to the expenditures. 15. MOT will disburse cost overruns if the cost overruns occur before the additional loans become effective. ADB will retroactively finance eligible expenditures incurred4 and paid by MOT within 12 months before loan agreement signing up to 20% of the additional loan amount.

C. Accounting

16. VEC will maintain, or cause to be maintained, separate books and records by funding source for all expenditures incurred on the project following cash-based accounting system following the Government’s financial regulations. VEC will prepare consolidated project financial statements in accordance with the government's accounting laws and regulations which are consistent with international accounting principles and practices.

D. Auditing

17. VEC will cause the detailed consolidated project financial statements to be audited in accordance with International Standards on Auditing, by an independent auditor acceptable to ADB. The audited project financial statements together with the auditors’ opinion will be submitted in the English language to ADB within six months of the end of the fiscal year by VEC. 18. VEC will also cause the entity-level financial statements to be audited in accordance with International Standards on Auditing, by an independent auditor sound and generally acceptable in the relevant industry. The audited entity-level financial statements, together with the auditors’ report and management letter, will be submitted in the English language to ADB within one month after their approval by the competent authority. 19. The annual audit report for the project accounts will include an audit management letter and audit opinions which cover (i) whether the project financial statements present a true and fair view or are presented fairly, in all material respects, in accordance with the applicable financial reporting framework; (ii) whether loan and grant proceeds were used only for the purposes of the project or not; (iii) the level of compliance for each financial covenant contained in the legal agreements for the project; (iv) use of the imprest fund procedure; and (v) the use of the statement of expenditure procedure certifying to the eligibility of those expenditures claimed under SOE procedures, and proper use of the SOE and imprest procedures in accordance with ADB’s Loan Disbursement Handbook and the project documents. 20. Compliance with financial reporting and auditing requirements will be monitored by

4 Expenditure incurred is defined as acceptance by VEC of Interim Payment Certificate (IPC) certified by the

engineer for the civil works under the project. IPCs accepted by VEC after the loan closing date for the original loans (31 December 2014) are not eligible for disbursement from the original loans, and if IPCs accepted by VEC after 31 December 2014 need to be disbursed from the original loans, the loan closing date should be extended.

15

review missions and during normal program supervision, and followed up regularly with all concerned, including the external auditor. 21. The Government and VEC have been made aware of ADB’s policy on delayed submission, and the requirements for satisfactory and acceptable quality of the audited project financial statements.5 ADB reserves the right to require a change in the auditor (in a manner consistent with the constitution of the borrower), or for additional support to be provided to the auditor, if the audits required are not conducted in a manner satisfactory to ADB, or if the audits are substantially delayed. ADB reserves the right to verify the project's financial accounts to confirm that the share of ADB’s financing is used in accordance with ADB’s policies and procedures. 22. Public disclosure of the project financial statements, including the audit report on the project financial statements, will be guided by ADB’s Public Communications Policy (2011)6. After review, ADB will disclose the project financial statements for the project and the opinion of the auditors on the financial statements within 30 days of the date of their receipt by posting them on ADB’s website. The Audit Management Letter will not be disclosed.

VI. PROCUREMENT AND CONSULTING SERVICES

A. Advance Contracting and Retroactive Financing

23. Advance contracting is not required. The additional loans will finance only cost overruns of the existing civil works contracts for packages A1-A8. 24. Retroactive financing will be undertaken in conformity with ADB’s Procurement Guidelines (March 2013, as amended from time to time) (ADB’s Procurement Guidelines).7 The maximum amount of eligible expenditures is $23.4 million for OCR and $6.0 million for ADF, which are equivalent to 20% of the total ADB additional loans, incurred and paid for by the Government before loan effectiveness, but not more than 12 months before the signing of the loan agreement.

B. Procurement of Goods, Works and Consulting Services

25. All procurement of goods and works to be financed by ADB loans was undertaken in accordance with ADB’s Procurement Guidelines. The civil works contractors for packages A1-A8 were selected through the international competitive bidding procedures. Procurement of the

5 ADB Policy on delayed submission of audited project financial statements:

When audited project financial statements are not received by the due date, ADB will write to the executing agency advising that (i) the audit documents are overdue; and (ii) if they are not received within the next six months, requests for new contract awards and disbursement such as new replenishment of imprest accounts, processing of new reimbursement, and issuance of new commitment letters will not be processed.

When audited project financial statements have not been received within 6 months after the due date, ADB will withhold processing of requests for new contract awards and disbursement such as new replenishment of imprest accounts, processing of new reimbursement, and issuance of new commitment letters. ADB will (i) inform the executing agency of ADB’s actions; and (ii) advise that the loan may be suspended if the audit documents are not received within the next six months.

When audited project financial statements have not been received within 12 months after the due date, ADB may suspend the loan.

6 Available from http://www.adb.org/documents/pcp-2011?ref=site/disclosure/publications

7 Available at: http://www.adb.org/Documents/Guidelines/Procurement/Guidelines-Procurement.pdf

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equipment packages B2: operation and maintenance equipment and B3: laboratory equipment was undertaken through the international competitive bidding procedures in accordance with ADB’s Procurement Guidelines. Procurement of the equipment package B1: electric, communication, and tolling system and associated facilities to be financed from the counterpart funds was undertaken according to the Government’s procurement procedures.

26. The project supervision consultant was selected through the quality-and-cost based selection procedure according to ADB’s Guidelines on the Use of Consultants under the original loan project.

C. Procurement Plan

27. There is no procurement planned under the additional financing. All the cost overruns will be paid to the existing contractors as variation to their contracts.

D. Consultant's Terms of Reference

28. There is no consulting service to be financed by the additional loans.

VII. SAFEGUARDS

29. The safeguard category of the additional financing is C for environment, involuntary resettlement, and indigenous people, because the additional financing only bridge cost overrun.

VIII. GENDER AND SOCIAL DIMENSIONS

30. There is no gender and social dimensions in the additional financing, which is to bridge cost overrun.

IX. PERFORMANCE MONITORING, EVALUATION, REPORTING AND COMMUNICATION

A. Project Design and Monitoring Framework

31. The Design and Monitoring Framework is provided in Appendix 1.

B. Monitoring

32. Project performance monitoring. VEC, assisted by the project supervision consultants, established baseline data for the performance indicators and targets for evaluating project performance in relation to the Project's impacts, outcomes, and outputs. The performance indicators and targets will be measured 6 months and 3 years after project completion, and compared with the baseline data. VEC will submit a report summarizing key findings of the project performance monitoring and evaluation to ADB.

33. Compliance monitoring: ADB, with representatives from the government and VEC, undertakes regular reviews of the Project at about 3-month intervals to assess compliance with

17

the loan covenants. In addition, VEC submits quarterly project progress reports to ADB with an update of the status of the project covenants.

C. Evaluation

34. A project completion review mission will be fielded about 1 year after completion of the Project. There will also be special reviews as required to address issues that arise during project implementation.

D. Reporting

35. The NBLC-EPMU, on behalf of VEC, made satisfactory arrangements for reporting the progress of project implementation. The NBLC-EPMU is monitoring project implementation in accordance with the implementation schedule, and keeps ADB informed through quarterly progress reports of any significant deviations from the schedule. The quarterly reports summarize information in detailed Project reports, including basic data related to the Project, utilization of funds, achievement of immediate development objectives, implementation progress, environmental management and monitoring, land acquisition and resettlement progress, compliance with loan covenants, and major issues and problems. Within 6 months of physical completion, the NBLC-EPMU will submit through VEC a project completion report to ADB, which will provide a detailed evaluation of the project design, costs, performance of the project supervision consultants and contractors, the above performance indicators, social and environmental impacts, economic and financial assessment, and such other details as may be requested by ADB.8

E. Stakeholder Communication Strategy

36. A Project website, accessible by the general public, was established to disclose information about various matters concerning the Project, including general Project information, safeguards, procurement, Project progress, and contact details in the English and Vietnamese languages. The website also provides a link to ADB's Integrity Unit9 for reporting to ADB any grievances or allegations of corrupt practices arising out of the Project and Project activities. With regard to procurement, the website includes information on the list of participating bidders, name of the winning bidder, basic details on bidding procedures adopted, amount of contract awarded, and the list of goods, works and consulting services procured.

X. ANTICORRUPTION POLICY

37. ADB reserves the right to investigate, directly or through its agents, any violations of the Anticorruption Policy relating to the Project.10 All contracts financed by ADB shall include provisions specifying the right of ADB to audit and examine the records and accounts of the executing agency and all Project contractors, suppliers, consultants and other service providers. Individuals/entities on ADB’s anticorruption debarment list are ineligible to participate in ADB-financed activity and may not be awarded any contracts under the Project.11

8 Project completion report format is available at: http://www.adb.org/Consulting/consultants-toolkits/PCR-Public-

Sector-Landscape.rar 9 Available at: http://www.adb.org/Integrity/complaint.asp

10 Available at: http://www.adb.org/Documents/Policies/Anticorruption-Integrity/Policies-Strategies.pdf

11 ADB's Integrity Office web site is available at: http://www.adb.org/integrity/unit.asp

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38. To support these efforts, relevant provisions are included in the loan agreement and the bidding documents for the Project. To ensure transparency and good governance, VEC publicly discloses on its website information on how loan proceeds are being used. For each procurement contract VEC will disclose (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 services purchased, and (vi) intended and actual utilization of loan proceeds under each contract. VEC also discloses details of resettlement reports on its website. The website is updated within two weeks of each contract being awarded. Also, VEC submits internal and external resettlement monitoring reports to ADB every quarter. The resettlement reports are uploaded onto VEC’s website within two weeks of their submission. Moreover, the Government ensures that all of VEC’s project staff are fully aware of and comply with the Government’s and ADB’s procedures, including, but not limited to, procedures for (i) implementation, (ii) procurement, (iii) use of consultants, (iv) disbursement, (v) reporting, (vi) monitoring, and (vii) prevention of fraud and corruption.

XI. ACCOUNTABILITY MECHANISM

39. People who are, or may in the future be, adversely affected by the project may submit complaints to ADB’s Accountability Mechanism. The Accountability Mechanism provides an independent forum and process whereby people adversely affected by ADB-assisted projects can voice, and seek a resolution of their problems, as well as report alleged violations of ADB’s operational policies and procedures. Before submitting a complaint to the Accountability Mechanism, affected people should make a good faith effort to solve their problems by working with the concerned ADB operations department. Only after doing that, and if they are still dissatisfied, should they approach the Accountability Mechanism.12

XII. RECORD OF PAM CHANGES

40. This PAM describes the essential administrative and management requirements to implement the additional financing for the project. ADB, the government, and VEC prepared this PAM during the fact-finding from 5 to 16 May 2014. This PAM was discussed during the loan negotiations for the additional loans on 9 October 2014. All revisions/updates during course of implementation should be retained in this Section to provide a chronological history of changes to implemented arrangements recorded in the PAM.

12

For further information see: http://www.adb.org/Accountability-Mechanism/default.asp.

Appendix 1

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DESIGN AND MONITORING FRAMEWORK

Design Summary Performance Targets and Indicators with Baselines

Data Sources and Reporting Mechanisms

(Overall Project)

Assumptions and Risks

(Overall Project)

Impact Current Project

Sustainable economic growth and strengthened connectivity with PRC in the project area and along the Kunming–Hai Phong Transport Corridor Overall Project

Unchanged

Current Project

1. Average per capita income in Vinh Phuc, Phu Tho, Yen Bai and Lao Cai provinces reached the national average by 2016 (Baseline: $890/person in Vinh Phuc, $420/person in Phu Tho, $360/person in Yen Bai, and $360/person in Lao Cai in 2008)

2. Annual border trade at Lao Cai increased from $477 million in 2006 to at least $800 million in 2016 (Baseline: $110 million for export and $541 million for import in 2008)

Provincial statistical report

Road traffic census

Assumptions

Streamlined cross border operation and minimal barriers to trading and mobility

Complementary government and donor projects for rural development are implemented

Risks

Political factors increase barriers to cross-border trade

Custom control statistics

3. Overall poverty incidence in the project area reduced from 51.9% in 2004 to 15% in 2016 (Baseline: 11.3% in Vinh Phuc, 16.7% in Phu Tho, 20.4% in Yen Bai, and 33.2% in Lao Cai in 2008)

Provincial statistical reports

4. Number of new small and medium businesses and employment for local people in project influence area increased by 70% in 2016 (Baseline: 1,501 firms in Vinh Phuc, 1,733 firms in Phu Tho, 732 firms in Yen Bai, and 802 firms in Lao Cai in 2008)

Socioeconomic and person-trip surveys

5. Awareness of risks for HIV/AIDS, sexually transmitted infections, illicit drugs and human trafficking improved by 2016 (Baseline: no campaign started in 2008)

Overall Project

Unchanged

Monitoring by the Ministry of Health

Appendix 1

20

Design Summary Performance Targets and Indicators with Baselines

Data Sources and Reporting Mechanisms

(Overall Project)

Assumptions and Risks

(Overall Project)

Outcome

Current Project

International and local traffic use an efficient, safe, and reliable express route from Noi Bai to Lao Cai on the border with PRC Overall Project

Unchanged

Current Project

1. Travel time from Noi Bai to Lao Cai reduced from 7–10 hours to 3–4 hours in 2014 (Baseline: 8 hours for passenger cars, 9 hours for buses, and 12 hours for trucks in 2008)

2. Traffic volume: 18,000 for Noi Bai–Viet Tri section; 6,500 for Viet Tri–Yen Bai section; and 4,700 for the Yen Bai–Lao Cai section in 2014 (Baseline: 20,000-25,000 for Noi Bai–Viet Tri section; 6,000-12,000 for Viet Tri–Yen Bai section; and 3,500 for the Yen Bai–Lao Cai section in 2007)

Traffic count and travel-time surveys

Tolling data

Assumptions

Assumed economic growth rates materialize

Counterpart financing and human resources are available to carry out the Project

Contiguous section Shilin–Menzi–Hekou is completed by 2009 on PRC side

Lao Cai–Hekou border is operated based on GMS Cross-Border Transport Agreement

Access roads to the highway are improved and have adequate capacity

Risks

Toll revenue is lower than expected because of low traffic demand

Human and illicit drugs trafficking and prevalence of HIV/AIDS increase because of the highway

3. Ten percent of road container freight originating in Kunming going to ports in PRC divert to the Kunming–Hai Phong Transport Corridor (Baseline: no data available in 2008)

Custom control data at Lao Cai cross-border facilities

Interviews with freight forwarders in Kunming and Hai Phong Port Authority

4. Less than five fatalities per billion vehicle-km on the highway during 2012–2021 (Baseline: 18 fatalities for Noi Bai–Viet Tri section; 6 fatalities for Viet Tri–Yen Bai section; and 6 fatalities for the Yen Bai–Lao Cai section in 2008)

Accident statistics from Ministry of Transport

5. Operation of more than 30 long-distance buses on the highway in a day and local bus service availability in all the districts of project influence area (Baseline: from Ha Noi, 49 buses to Yen Bai, 31 buses to Lao Cai, 0 buses to Kunming in operation per day in 2009)

Interviews with bus companies

6. Development of international free-trade zone and industrial parks along the project highway (Baseline: Lao Cai free-trade zone under construction in 2008)

Economic and industrial statistics from Ministry of Planning and Investment

7. Expansion of the expressway network under VEC managing projects (Baseline: 349 km expressway under construction in 2009)

Business plan and financial statement of VEC

8. No increase of HIV/AIDS cases in the project area (Baseline: 3,631 cases in Vinh Phuc, 8,195 cases in Phu Tho, 2,646 cases in Yen Bai, and 549 cases in Lao Cai in 2009)

Monitoring by the Ministry of Health

Appendix 1

21

Design Summary Performance Targets and Indicators with Baselines

Data Sources and Reporting Mechanisms

(Overall Project)

Assumptions and Risks

(Overall Project)

Overall Project

Unchanged

Outputs Output 1 Current Project

The 244 km of Noi Bai–Lao Cai Highway, with 10 grade-separated interchanges and five service areas, is constructed to a high standard and operational Overall Project

Unchanged

Current Project

1. Travel distance from Noi Bai to Lao Cai reduced from 298 km to 255 km in 2014

2. Highway capacity: increased by 80,000 vehicles per day on Noi Bai–Yen Bai section; and by 20,000 vehicles per day on Yen Bai–Lao Cai section by 2014

3. Transportation cost reduced by 20% for trips along the highway in 2014

4. Environment at project site protected and adverse environmental impacts mitigated

5. Quality of life restored to at least the same level as before land acquisition

6. Highway O&M systems and facilities installed

7. Road safety enhanced by raising awareness among local people

Overall Project

Unchanged

Project completion report

Transport cost survey

Resettlement monitoring by VEC and an independent organization

Environmental monitoring reports

Assumptions

Detailed highway design and detailed measurement survey for land acquisition and resettlement are completed as scheduled

Procurement of civil works is completed as scheduled

Provincial governments carry out land acquisition and compensation, and income restoration program in accordance with the REMDP

Environmental management plan is implemented by contractors

Health authorities carry out health campaigns

Output 2 Current Project

Institutional and financial management capacity of VEC strengthened Overall Project

Unchanged

Current Project

1. Capacity of VEC in project management, procurement, environmental impact assessment and monitoring, resettlement, corporate finance, and highway O&M

2. Sufficient net revenue stream to cover debt service on annualized basis

Overall Project

Unchanged

Organization structure of VEC, number of directors and experts in VEC

Financial statement of VEC

Risks

Delays in completion of procurement and/or resettlement delay start of construction

Contractors fail to perform as required

Inadequate attention or funding given to EMP, health plan, and income restoration program

Output 3 Current Project

HIV/AIDS, human and illicit drugs trafficking program minimize local population exposure to these issues.

Current Project

1. Risks for HIV/AIDS, human and illicit drugs trafficking mitigated

Overall Project

Unchanged

Monitoring by the Ministry of Health

Appendix 1

22

Design Summary Performance Targets and Indicators with Baselines

Data Sources and Reporting Mechanisms

(Overall Project)

Assumptions and Risks

(Overall Project)

Overall Project

Unchanged

Activities with Milestones (Overall Project) Inputs Loan ADB

$1,092.3 million (current) $147.0 million (additional) $1,239.3 million (overall) Government

$5.6 million (current) $35.0 million (additional) $40.6 million (overall) VEC

$161.8 million (current) $0.0 million (additional) $161.8 million (overall)

1.1 All land acquisition and resettlement activities are completed by June 2014.

1.2 Livelihood development and income restoration programs started at all the project sites by October 2013.

1.3 The civil works are completed by December 2014. 1.4 Procurement of equipment for highway operation and maintenance is

completed by December 2014. 2. Project supervision consulting services started in November 2009 and

completed in December 2014 3. HIV, illicit drugs, and human trafficking prevention program started in

February 2010 and completed in October 2013

LAR = land acquisition and resettlement, PRC = People’s Republic of China, VEC = Vietnam Expressway Corporation. Source: Asian Development Bank