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Document ofThe World Bank

ReportNo: 18732-VN

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT OF SDR 72.8 MILLION

TO THE

SOCIALIST REPUBLIC OF VIETNAM

FOR THE

MEKONG DELTA WATER RESOURCES PROJECT

March 15, 1999

Rural Development & Natural Resources Sector Unit (EASRD)East Asia and Pacific Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective as of July 1, 1998)

Currency Unit Vietnam Dong$1.00 = VND 13,000VND 1.00 = US$0.000077

FISCAL YEARJanuary 1 - December 31

WEIGHTS AND MEASURESMetric System

ABBREVIATIONS AND ACRONYMS

BRTL - Barinh Taliem SubprojectCERWAS - Center for Rural Water Supply and Environmental Sanitation (MARD)CPO - Central Project OfficeCWIP - Commune Clean Water Improvement PlanDARD - (Provincial) Department of Agriculture and Rural DevelopmentEAP - Environmental Action PlanGOVN - Government of VietnamIMC - Irrigation Management CompanyIRP - IDA's on-going Irrigation Rehabilitation Project (Cr. 2711)MARD - Ministry of Agriculture and Rural DevelopmentMDMP - Mekong Delta Master PlanMOF - Ministry of FinanceMPI - Ministry of Planning and InvestmentMRC - Mekong River CommissionO&M - Operation and MaintenanceOX - Omon-Xano SubprojectPAF - Project Affected FamiliesPCERWAS - Provincial Center for Rural Water Supply and SanitationPPC - Provincial People's CommitteeQP - Quanlo-Phuonghiep SubprojectRAP - Resettlement Action PlanRWSS - Rural Water Supply and SanitationSBV - State Bank of VietnamSIO - Subproject Implementation OfficeSMT - South Mang Thit SubprojectTN - Tiep Nhat SubprojectTDP - Tertiary Development Plan

Vice President: Jean-Michel Severino, EAPCountry Director: Andrew D. Steer, EACVF

Sector Manager: Geoffrey B. Fox, EASRDTask Team Leader: Mei Xie, EASRD

Socialist Republic Of VietnamMekong Delta Water Resources Project

Table of Contents

PAGE NO.

A. Project Development Objective ........................................................... 2

1. Project development objective and key performanceindicators ................................................. 2

B. Strategic Context .......................................................... 2

1 . Sector-related CAS goal supported by the project ............................... 22. Main sector issues and Government strategy ....................................... 23. Sector issues to be addressed by the project and strategic choices ...... 3

C. Project Description Summary .......................................................... 3

1. Project components ................. 3.....................................32. Key policy and institutional reforms supported by the project ............ 43. Benefits and target population ....................................................... 54. Institutional and implementation arrangements ................................... 5

D. Project Rationale .......................................................... 8

1. Project alternatives considered and reasons for rejection. 82. Major related projects financed by the Bank and/or other

development agencies .93. Lessons learned and reflected in project design. 94. Indications of borrower commitment and ownership .105. Value added of Bank support in this project .10

E. Summary Project Assessment .......................................................... 10

1. Economic .102. Financial .113. Technical .114. Institutional .125. Social .146. Environmental .157. Participatory approach .16

PAGE NO.

F. Sustainability and Risks.......................................................................... 16

1. Sustainability ...................................................... 162. Critical risks ...................................................... 173. Possible controversial aspects ................................................... ... 18

G. Main Credit Conditions ......................................................... 18

1. Effectiveness ...................................................... 182. Dated covenants ...................................................... 18

H. Readiness for Implementation ............................... .......................... 19

I. Compliance with Bank Policies ......................... 20

ANNEXES

Annex 1. Project Design Summary .21Annex 2. Detailed Project Description .24Annex 3. Estimated Project Costs .32Annex 4. Economic and Financial .33Annex 5. Procurement and Disbursement Arrangements .47

Table A. Project Costs by Procurement Arrangements ............... ................. 50Table A1. Consultant Selection Arrangements ................................................ 51Table B. Thresholds for Procurement Methods and Prior Review .. 52Table C. Allocation of Loan Proceeds .......................................................... 52

Annex 6. Project Processing Budget and Schedule ............................. ................ 53Annex 7. Documents in Project File ......................................................... 54Annex 8. Statement of Loans and Credits ......................................................... 55Annex 9. Vietnam at a Glance ......................................................... 57Annex 10. Social Impact Summary ......................................................... 59Annex 11. Environmental Review Summary ....................................................... 66Annex 12. Rural Water Supply and Sanitation Component .................................. 73

MAPS

Project area and subprojects: IBRD 29653, 29654, 29655, 29656

Socialist Republic of VietnamMekong Delta Water Resources Project

Project Appraisal Document

East Asia and Pacific Regional Office

Date: March 15, 1999 Task Team Leader/Task Manager: Mei XieCountry Manager/Director: Andrew Steer Sector Manager/Director: Geoffrey FoxProject ID: VN-PE-4845 Sector: Agriculture / Natural Program Objective Category: Environmentally Sustainable

Resources DevelopmentLending Instrument: Specific Investment Loan Program of Targeted Intervention: [] Yes [x ] No

Project Financing Data [ Loan [x ] Credit [] Guarantee [ Other

For Loans/Credits/Others:Amount: SDR 72.8 million (US$101.8 million equivalent)Proposed terms: [ Multicurrency [ Single currency, specify in US$

Grace period (years): 10 [] Standard [ Fixed [ LIBOR-basedVariable

Years to maturity: 40Commitment fee: 0.5%

Service charge: 0.75%Financing plan (USSm):

Source Local Foreign TotalGovernment 32.3 - 32.3 (22%)IDA 36.8 65.0 101.8 (69 %)Beneficiary contribution 13.5 - 13.5 (9 %)

Total 82.6 65.0 147.6 (100 %)Borrower: The Government of Vietnam (GOVN)Guarantor:Responsible agency: Ministry of Agriculture and Rural Development (MARD)

Estimated disbursements (Bank FY/US$M): 1999 2000 2001 2002 2003 2004 2005Annual 0 11.1 24.2 29.2 24.6 8.0 4.7

Cumulative 0 11.1 35.3 64.5 89.1 97.1 101.8

Project implementation period: 6 years Expected effectiveness date: 5/31/1999 Expected closing date: 06/30/2005

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A: Project Development Objective

1. Project development objective and key performance indicators (Annex 1):

The project objective is to increase agricultural production, reduce rural poverty, improveliving conditions in the project area, and facilitate sustainable water resources development andmanagement in the Mekong Delta. The project would support integrated water resourcesdevelopment by completing and improving irrigation, drainage, flood protection, and salinityintrusion control. This would allow multiple cropping in areas that are now limited to a single wetseason crop or to unstable two crops. The project would provide clean water to a rural populationthat does not have quality water supply for drinking and domestic uses, and support communityparticipation in water delivery. It would also support the establishment of an appropriateinstitutional framework for improved water resources planning, management and monitoring.Performance indicators are: (a) increase in triple and double cropped areas; (b) increase in water feecollection; (c) increase in number of people served with clean water and improved sanitation; (d)formulation and adoption of a policy statement and preparation of an options paper for an improvedinstitutional framework for Delta-wide water resources management; and (e) establishment of aDelta-wide water resources management body.

B: Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project (Annex 1):

CAS document number: 18375-VN. Date of latest CAS discussion: September 22, 1998

The CAS places great emphasis on IDA support for accelerated rural development andincome generation for alleviating rural poverty through, inter alia, development and improvement ofinfrastructure such as irrigation and rural roads. Nearly 80% of the country's population and 90% ofthe poor live in rural areas. Thus rural development is essential for growth and poverty reduction.The sector goal is to assist the GOVN in accelerating rural development, increasing agriculturalproduction, raising rural incomes, generating employment and improving management of naturalresources, of which water resources form an important part. The CAS also recognizes theimportance of water supply in improving rural living conditions. The proposed project would helpachieve these sector related CAS goals.

2. Main sector issues and Government strategy:

The Water Resources Sector Review for Vietnam (1996), which was jointly carried out bythe GOVN and external agencies including ADB, FAO, UTNDP, NGOs, and the Bank, reviewed keyissues in the water sector and highlighted the inadequate and deteriorated irrigation and flood controlinfrastructure, and the importance of proper water control for agriculture and rural development.Despite high levels of rainfall, irrigation is the backbone of Vietnam's rice agriculture and accountsfor over 90% of total water demand. The Water Sector Review called for priority to be given toinvestments in completion and rehabilitation of irrigation infrastructure to increase the efficiency ofexisting systems at relatively low cost, rather than expanding new areas.

The Government Decision No. 99 (1996) by the Prime Minister called for increasingagricultural productivity and improving water control in the Mekong Delta and highlighted it as ahigh priority of the Government in the 1996-2000 public investment program. The country's newWater Law (May 1998) has adopted the framework for integrated water resources managementamong sub-sectors, based on hydrological boundaries. This is in line with the Bank's WaterManagement Policy (1993). The Delta is Vietnam's rice bowl and one in five Vietnamese lives inthe Delta. The Delta's agriculture, which accounts for nearly 30% of national GDP, 40% ofagricultural production and more than 80% of rice export, will continue to play a key role insupporting the country's economy and in the alleviation of rural poverty. Sustainable development of

the Mekong Delta is central to achieving the country's targets for sustained growth. Although theDelta produces the bulk of Vietnam's rice, there are areas in the Delta where the farmers are amongthe country's poorest people. Salinity and acidity related poor drinking water supply conditions,hard living conditions caused by flooding and inundation, and inadequate rural transport, allcompare unfavorably with other areas in the country. Further, there is currently no Delta-wide bodyto address the emerging and potential problems in Delta-wide water management. TheGovernment's strategy for the inner part of the lower Delta is to support public investment toimprove water control and other services and raise production levels and rural incomes to reachthose of the mid-upper Delta. In the coastal areas of the lower Delta, the strategy is to supportbrackish and marine aquaculture development and protection of coastal resources. These strategiesare strongly supported by the CAS and the Bank's Rural Sector Strategy for Vietnam (1998).

3. Sector issues to be addressed by the project and strategic choices:

The project strategically addresses two major issues in the water sector in Mekong Delta: (a)Need for Integrated Water Resources Management. Although there has been a large increase oftriple cropped areas in the mid-upper Delta where freshwater is available all year round, in the lowerDelta, growth options are severely constrained by sea-water intrusion into the agricultural area,which limits the availability of freshwater in the dry season, and by annual inundation and floodingdue to poor drainage. A key requirement in enhancing the productivity of the agricultural sector andincreasing the living standards of rural population, especially in the lower Delta, is to improve andrehabilitate water control infrastructure-salinity intrusion, irrigation, drainage, flood protection andrural drinking water supply. This called for design of an integrated approach. (b) Absence of aDelta-wide Institutional Framework. There are emerging problems in Delta-wide watermanagement. The recent Water Law stipulates water development and management based onhydrological boundaries and provides a window of opportunity to initiate the process of establishinga Delta-wide body for water management. Given the importance of the commitment of the 12provinces in the Delta to the establishment of such a body, a consultative and participatory approachis envisaged under the project.

The broad criteria, which guided the choice of the proposed project and its scope and design,are: (i) consistency with the thrust of the Water Sector Review and the Mekong Delta Master Plan;(ii) Government priorities for regional poverty alleviation; (iii) economic and environmentalviability; (iv) readiness; and (v) implementation capacity.

C: Project Description Summary

1. Project components (see Annex 2for description and Annex 3for cost):

The proposed project would support: (i) Improvement of water resources infrastructure infive subproject areas (which are divided by hydrological boundaries) with a total area of 535,000 ha(about 14% of the Mekong Delta in Vietnam). All subprojects are in the lower Delta, except theOmon-Xano (OX) subproject which is in the lower end of the mid-Delta. The basic approach to thesubprojects in the lower Delta is to prevent salinity intrusion with sluice gates on canals serving theagricultural areas, together with improvement of existing irrigation systems. This would create afresh water environment to allow an additional crop to be grown in the dry season. Improvement ofdrainage in the wet season would secure the second or third crop. Existing canals would be enlargedwhere necessary and the density of secondary canals would be increased to improve water deliverycapacity for both irrigation and drainage. The OX area is above the salinity line and freshwater isavailable all year round. The main aim there would be to improve flood protection and drainagethrough extension of embankments, building of drainage control sluices, and completion ofsecondary canals. The project would facilitate local water and land transport through improvedcanals, and embankment and canal connected rural roads. It would also finance land acquisition,resettlement and compensation incurred due to the above works. (ii) Provision of domestic water

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supply through wells, pumps and piped systems for remote and scattered small communities in watershort-areas, and sanitation improvement. (iii) Establishment/strengthening of water resourcesplanning, management and monitoring in the project provinces and in the Delta, and of projectmanagement at central, provincial, commune and farmer levels.

Component Category Cost Incl. % of IDA- % of IDA-Conting. Total financing Financing(US$ m) (US$m)

1. Improvement of Water Physical 131.6 89 % 87.8 67%Resources Infrastructure

Primary canal systems .. 54.3 37% 48.1 89%

Secondary canal systems .. 22.6 15% 20.6 91%

Tertiary canal systems .. 12.7 9% - 0%

Embankments, bridges, roads .. 19.7 13% 17.9 91%

Land acquisition, PAF Compensation 21.0 14% - 0%resettlement and compensation

PAF training, DMS, etc. Institutional 1.2 1% 1.2 100%

2. Improvement of Rural Water Physical, 5.7 4 % 3.9 68 %Supply and Sanitation Institl.build.

Clean water provision Physical 5.1 3% 3.7 73%

Improving sanitation Physical 0.6 0.4% 0.2 33%Institl.build.

3. Institutional Support Institl.build. 10.3 7 % 10.1 98%

Strengthening of Delta-wide Institl.build. 0.9 1% 0.9 100%water resources management

Improvement of Institl.build. 0.4 0.3% 0.4 100%environmental monitoring

Engineering design, Management 6.8 5% 6.6 97%management, supervision

Training, TA for Institl.build. 2.2 2% 2.2 100%implementation, RAP monitoring Management

Total 147.6 100% 101.8 69%

2. Key policy and institutional reforms supported by the project:

The project would support an integrated approach to improving water resourcesmanagement systems through salinity intrusion control; provision of freshwater; flood protection;improvement in drainage, navigation and transport; and improvement in clean water provision andsanitation for the rural population. It would support enhancements of the water quality and flowmonitoring networks and improved institutional framework for Delta-wide water resources

management (section E.4 and Annex 2). The project would support water sector policies relating todecentralization of management systems, and improved cost recovery for both irrigation systems(Annex 4) and clean water supply systems. The GOVN is preparing a National Rural Water Supplyand Sanitation Strategy, with the aim to gradually move to full cost recovery and a demand-responsive approach that provides consumers with the levels of service that they want and arewilling to pay for. Through implementation of the rural water supply component, the project wouldpilot and test some of the ideas of the evolving national strategy, including community demand-driven clean water provision, community based participatory planning and management, and greatercost recovery of both capital investment and system O&M (Annexes 2 and 12).

3. Benefits and target population (see Annex 4):

Although the Mekong Delta as a whole is not the poorest region in Vietnam, large parts ofthe project area are relatively poor compared to the Delta average. Among the 20 project districts, 12have higher poverty rates than the average of the Delta, and in 3 districts poverty is higher than theaverage of the country. Another recent poverty report shows that the project covers six out of eightpoorest districts in the Delta that are also ranked among the poorest country-wide. The project willalso benefit ethnic minorities: about 21% of project area households are Khmer andHoa people.The direct benefits would accrue to the population in the project area through increase in agriculturalproduction, flood protection, drainage improvement, better road and water transport, provision ofclean water supply and sanitation, and increased rural employment through agriculturalintensification. The indirect benefits would accrue from processing, marketing and distribution ofincreased agricultural production; sustainable management of the Delta's water resources throughestablishment of an appropriate Delta-wide institutional framework; delivery of more efficientirrigation services through strengthening of IMCs; and improved sustainability of irrigation servicesthrough enhanced participation of beneficiaries in the planning, implementation and O&M ofirrigation infrastructure, and through increased water fee collection.

The quantified benefits include: (i) the increase in agricultural production (0.5 million ton ofpaddy at full development in year 2008, and production of a variety of non-rice crops) due toincrease in cropping intensity to 2.1 with the project, compared to 1.7 in 1997 and a projected 1.8without the project; this would benefit directly about 610,000 people; (ii) increased on-farmemployment generation (about 80,000 person-years per annum); and (iii) expanded coverage ofclean water supply and sanitation (to about 280,000 un-served or under-served rural population).Taking into account the fact that some families would derive more than one benefit, about 45-50% ofthe 332,000 farming households in the project area are expected to be direct beneficiaries (about onemillion people). In addition, a substantial number of rural and urban households would have non-quantified benefits, including: (i) indirect, off-farm employment generation from processing,marketing and distribution of the increased agricultural production; this will benefit owner-operators,tenants as well as land-less laborers; (ii) protection of property and agricultural crops, and improvedliving conditions, and access to education and health facilities in the flood season through floodprotection and drainage; (iii) increased employment through project civil works construction; and(iv) improved water resources planning and management at the Delta-wide, provincial and farmlevels. A gender analysis shows that there are no significant constraints on project benefits accruingto women. Indeed, women, as the primary collectors and managers of water in most households,would benefit in particular from more convenient access to safe water and sanitation facilities, whichwould mean savings in time and effort for them, and better family health status resulting fromadoption of improved hygienic practices.

4. Institutional and implementation arrangements (see PIP):

Oversight. To coordinate implementation, an Inter-Ministerial Project Steering Committeewill be established (section G.l.a), with the Minister or Vice-Minister of MARD as the chair. TheCommittee will include representatives from MPI, MOF, SBV, as well as chairmen/vice-chairmen of

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concerned PPCs. The TOR for the Steering Committee were reviewed by IDA during negotiationsand found satisfactory. GOVN will delegate responsibility for project implementation to MARDwhich will act through its Central Project Office (CPO), which will be assisted by the relevantdepartments and subsidiary agencies at central and provincial levels. The Vice-Minister of MARD incharge of water resources construction will be appointed Project Director. The CPO Director will bethe Project Manager (section G. 1 .c).

Overall implementation. Project coordination will be based on the successful implementationstructure designed for the on-going IDA-IRP, with some modifications. CPO, established underIRP, will be responsible for overall coordination to ensure that project implementation is in line withthe Credit Agreement. It will be responsible for coordinating and approving the annual work plansof the Sub-project Implementation Offices (SIOs) and PCERWASs; procurement planning;budgeting; procurement under ICB; reporting to IDA on physical and financial progress; processingdisbursement applications and SOEs; managing the special account; and facilitating technicalassistance services, institutional strengthening and training. CPO will be responsible for monitoringimplementation of RAP and EAP. Experienced CPO staff in the areas of resettlement, procurement,and accounting will be stationed at SIOs at the start of the project to helpSIO staff get familiar withIDA procedures, and may be demobilized after SIOs are judged to have gained sufficientknowledge. Staff experienced with rural water supply & sanitation (RWSS) will be recruited (orseconded from CERWAS) to help coordinate implementation of the RWSS component. They willreview the Commune Clean Water Improvement Plans (CWIPs) submitted byPCERWASs, monitorthe project related activities and keep up-to-date accounts of PCERWASs.

Component implementation. MARD will entrust implementation of project components(except tertiary canal development, RWSS and a part of institutional strengthening) to two SIOs--MARD's existing Hydraulic Construction Management Board in Vinh Long for the SMT subproject,and the Hydraulic Construction Management Board in Can Tho for all other subprojects (sectionG.l.c). SIOs, acting as resident project engineer, will be responsible for construction planning;preparation of bid documents for submission to CPO for prior review; tendering of small contractsand NCB; contracting, supervising and controlling the quality of construction; and implementationof EAP and RAP. They will be assisted by CPO, CPO's consultants and provincial agencies. SIOswill contract out the detailed engineering design of civil works to engineering design companies.DARDs, as part of their current mandate, will participate in the technical discussion of detailedengineering designs, assist SIOs in legal matters relating to land acquisition and compensation, andprovide agricultural extension services and farner training.

IMCs (where they exist) and DARDs (where IMCs do not yet exist), in consultation withconcerned stakeholders, will prepare and implement annual tertiary development plans (TDP) intheir respective provinces. Following the practice in the Mekong Delta, earthworks of tertiary canaland on-farm development will be constructed by beneficiaries through their own labor contributionswherever secondary canals are in place. CPO consultants will assist IMCs and DARDs in preparingthe TDP using Participatory Rural Appraisal (PRA) technique. The TDP will be approved by theconcerned PPCs before being sent to CPO. IMCs will also be responsible for O&M of completedprimary and secondary canals and structures financed under the project (except for some largemaintenance works, which will continue to be handled by DARD, since IMCs are not yet properlyequipped to handle these), and for collecting water fees.

MARD will entrust PCERWAS for implementation of the RWSS component (sectionG.l.c). PCERWAS will provide technical support to communes for preparing CWIPs (includinginformation necessary for communes to make informed choices among feasible technical options,levels of service, costs for water supply improvement, financing options for capital investment, and

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O&M arrangements). It will also help communes develop skills and organizations for operating andmaintaining simple water supply systems. CWIP will be submitted to provincial RWSS Committeeswhere they exist (or PPC where RWSS committees do not exist) for approval. Each PCERWAS willconsolidate CWIPs and submit them quarterly to CPO for review and budget allocations. It willprefinance, with Government funds, the works approved by PPC and agreed with CPO. It willcontract engineering consultants to prepare detailed designs, andwill be responsible for constructionsupervision and quality control with participation from the communes in co-signing for acceptanceof detailed engineering designs and completed civil works before payment is made to thecontractors, and for administration of repayments from the communes and use for other needycommunes. PCERWAS will sign Memoranda of Understanding with the Provincial Women'sUnions (PWU) to conduct participatory hygiene promotion, health training, campaigns at thecommune and household level, and to manage revolving funds for the construction of sanitationfacilities (see Annex 12 for details).

MARD will entrust CPO to implement the institutional support component. CPO will hireconsultants to assist it in project supervision, in support to IMCs and farmer groups, and in carryingout the two studies--improving hydraulic modeling and strengthening Delta-wide water management(section E.4 and Annex 2). It will be responsible for preparing project training plans for staff inMARD, CPO, SIOs, PCERWASs, DARDs and IMCs and for farmers (section G.2, covenant-1).Detailed TOR for technical assistance for project supervision and the two studies, and for trainingplans were reviewed by IDA and included in the PIP. For the second study--strengthening of thewater resources management framework--a two-phase approach will be adopted. The Inter-Ministerial Project Steering Committeewill be responsible for policy decisions regarding Delta-widewater management. Since the project covers only six of the 12 provinces in the Delta, a provision ismade that, whenever delta-wide issues are discussed, the Steering Committee would invite all DeltaPPCs, and other relevant agencies such as the Vietnam National Mekong Committee (NMC) to itsmeetings. Before the commencement of Phase-I, the Steering Committee will agree on the TOR, andconfirm cooperation from all the provinces for the various aspects of the study. Phase-II would onlyproceed after a Delta-wide body is established. The body would decide on specific studies andtechnical advice to be funded in this phase, based on the priorities it determines for Delta-wide watermanagement. The establishment and effectiveness of the Delta-wide body will require strongownership of the process by the public and private stakeholders in the Delta provinces. Participationof stakeholders in the process (assembling data, raising provincial concerns, and drawingrecommendations) is, therefore, essential. The precise mechanism for the extent of participation(including formation of a coordination team or working group, workshops, seminars, etc.) will bedetermined by the Steering Committee at the start of the study.

Accounting, financial reporting and auditing. CPO will be responsible for financialmanagement, reporting, supervision and arranging for auditing of all project activities. A SpecialAccount will be set up under the project for the IDA credit in a commercial bank acceptable to IDA,and will be managed by CPO. Financial records will be kept for all project-related expendituresusing accounting principles and practices acceptable to IDA. An action plan to improve the financialmanagement capacity (section E.4) was agreed with the main implementing agencies and included inthe PIP. The project accounts will be audited annually (section G.2, covenant-2).

Monitoring and evaluation. The project will have a 6-year implementation period.Monitoring of project activities will be maintained at overall, subproject and provincial levels. CPOwill monitor and evaluate the physical and financial progress of the project, based on periodicprogress reports from SIOs and PCERWAS. Semi-annual reports will be submitted for IDA review(section G.2, covenant-3). CPO has set up a monitoring system under the IRP to track projectimplementation, costs, budgets, procurement and disbursement. This monitoring system will be

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improved and fully computerized under the proposed project to monitor the physical progress,project impact (through beneficiary surveys and impact assessments), and the agreed performanceindicators, and to update the PIP periodically. CPO, with the assistance of its consultants, will installthe improved system in SIOs and PCERWAS by early 2000 (section G.2, covenant-4). Indicators(Annex 1) to help assess project impact have been agreed with CPO. Project outputs and impact,based on the indicators, will be reviewed by IDA supervision missions during the mid-term review(early 2002) and at completion (mid-2004). An implementation completion report will be preparedwithin six months after the Credit closes (section G.2, covenant-5).

D: Project Rationale

1. Project alternatives considered and reasons for rejection:

Project areas. Four subprojects in the lower Delta and one in the mid-Delta were selectedbased on a set of economic, social and environmental factors (section B.3). Two additional areas,both in the upper Delta, were originally proposed to be included in the project: one in the Plain ofReeds, where severe acid sulphate soils are dominant, and one in the deep-flooded area. They wererejected due to: (i) the uncertainties regarding the potential environmental impact of reclaimingsevere acid sulphate land; and (ii) the potential impact on fish migration and the lack of floodplanning for the Delta's deep-flooded areas. The area adjacent to the QP subproject area, Phase-III,was included in the feasibility study. However, the major part of the land has severe acid sulphatesoils and is currently used for brackish water shrimp farming. Conversion of the area into fresh waterfarming would eliminate all the shrimp and cause farmers to switch to paddy or fresh water fishfarming. This could substantially reduce the income of successful shrimp farmers. The economicand social tradeoffs were unclear, and the suitability of land for such conversion was alsoquestioned. This area was, therefore, excluded from the project after reviewing potential socio-economic, agronomic and environmental impacts.

Design concepts. In the lower Delta, a favorable water regime for agricultural productionrequires structures to control sea-water intrusion, and there are few alternatives to the basic designconcepts. The Mekong Delta Master Plan (MDMP) studied numerous land and water developmentscenarios, and recommended the subprojects among priority investments that could bring substantialsocio-economic benefits without significant adverse impacts on the Delta environment. Thesubprojects--SMT, QP, BRTL and TN--would complete the on-going salinity control and drainageimprovement works, which were initiated over the last decade. In the feasibility study, variants suchas the capacity and location of canals and sluices to minimize costs and resettlement impacts wereconsidered through mathematical modeling within the basic project concept.

The OX subproject is located at the downstream end of the shallow-flooded area in the mid-Delta. Heavy rainfall, low land elevations, and the prevailing hydraulic regime of the Bassac riverimply that without a water control system, adequate drainage is impossible, and the area andpopulation will continue to suffer from flooding and depressed production. The MDMP studiedthree options, and main canal protection was recommended due to its positive impact on agricultureand property. During project preparation, a new option was reviewed to exclude the northern part ofthe subproject from the proposed water control system to reduce costs and resettlement impacts.During consultations, the affected provinces and local people rejected this option due to the fact that,in the northern area: (i) yields of the autumn-winter paddy crop are low (2.8 tlha, compared to apotential of 4t/ha) and uncertain due to annual floods; (ii) farmers themselves have built field bundsto protect against floods but the bunds are not high enough nor adequate; (iii) heavy rains cannot bedrained in a timely manner; and (iv) flood protection works would benefit not only agriculture butalso improve rural livelihoods. Thus, the option recommended by the MDMP was chosen.

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Implementation alternatives. An alternative implementation arrangement for the RWSScomponent through the SIO was considered to make coordination simpler. It was rejected as it goesagainst the principle of decentralized management and adds an administrative layer which couldcause delays in disbursement and implementation.

2. Major related projects financed by the Bank and/or other development agencies:

Sector Project Latest Supervision (Form590) RatingImplementation Development

Bank-financed Progress (IP) Objective (DO)

Reservoir/irrigation development Dau Tieng Irrigation Closed S(south-central Vietnam) FY 78 (US$60 million)

Irrigation rehabilitation, O&M Irrigation Rehabilitation FY94 S Simprovement (north-central VN) (SDR 67 million)

Coastal resources development and Coastal Wetlands To be approved Naprotection (Mekong Delta) FY99 (US$52 million)

Inland navigation Inland Waterways S SFY98 (US$85 million)

Rural credit support Rural Finance S SFY97 (US$122 million)

Agricultural support facilities, IPM, Agricul. Rehabilitation S Scrop diversification FY95 (US$96 million)

Rural transportation Rural Transport S SFY97 (US$55 million)

Other development agenciesUNDP/WB/MRC: Land and water Mekong Delta Master Plan Completedresources planning (MDMP) 1993

ADB: Agricultural support, rural Rural Sector Development On-goingroads, irrigation, water supply

Netherlands: Mekong Delta-wide Mekong Delta Groundwater Started in 1998groundwater investigation, modeling Study

SIDA/DANIDA/MRC: Delta acidity Mekong Delta Water Quality On-goingand water quality monitoring Monitoring (1987-)IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory)

3. Lessons learned and reflected in project design:

IDA has extended two credits for irrigation development in Vietnam. Drawing on thePCR/PAR and an OED review in 1995 of the Dau Tieng project, an OED paper "Irrigation inSoutheast Asia", and on the experience from the on-going IRP and similar water resources projectsin India, China, the Philippines, etc., the following lessons were incorporated in the preparation ofthis project:

* Adequate design of the project's major works prior to project implementation is essential toensure timely implementation. During preparation, substantial attention and resources were

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devoted to ensure that detailed engineering design and bid documents for the first year of projectimplementation were prepared before credit approval (section H).

* External technical assistance in procurement and construction supervision is necessary becauseof CPO's relative inexperience with ICB procedures and inadequacies in the quality control ofconstruction. This lesson was identified during IRP preparation. To improve quality at entry,technical assistance was given to the GOVN during preparation in areas of environmentalassessment, resettlement, procurement planning, economic analysis, and hydraulic modeling.Continued technical assistance would be provided under the project for implementation.

* Measures to ensure timely and effective tertiary development are needed to capture themaximum development benefits, and sophisticated O&M routines should not be imposed onfarmers. A tertiary development component has been included in the project to support theconstruction of simple structures, and farmers would contribute labor to earthworks (sectionsC.4 and E.4).

* Institutional and policy support to central, local agencies and farmer groups is important toproject success. The project provisions in this regard are detailed in section E.4.

* It is important to have beneficiary participation in project planning and implementation. Thiswas an important part of project preparation (section E.7) and will be so for implementation(section C.4).

4. Indications of borrower commitment and ownership:

The Prime Ministerial Decision No. 99 specifically indicated that the improvement of waterresources infrastructure in the Mekong Delta is of high priority in the 1996-2000 public investmentprogram and for external donor support. Strong borrower commitment is evidenced by the fact thatproject preparation and design are well advanced and bids for 1999 works are under preparation(section H), and the institutional arrangements for implementation are in place (section C.4). TheBorrower has requested retroactive financing for works started in 1998. CPO organized a pre-project training workshop in July 1998 on procurement for subproject staff, and is planning two pre-project training courses on resettlement policy, procedures and IDA requirements in early 1999, forrepresentatives from SIO, DARD, communes and PAF.

5. Value added of Bank support in this project:

Insufficient domestic resources and the large investment requirements of this projectnecessitate external financing. In the absence of IDA support, the construction of salinity controland irrigation improvement works will continue, but at a much slower pace, with disparateinterventions dependent on the availability of Government funds. During project preparation,IDA'sinvolvement helped improve the technical, social and institutional aspects by drawing oninternational experience, and by introducing participatory project planning at commune levels.During project implementation, IDA's involvement is likely to facilitate an integrated approach towater resources development and management, and a more effective monitoring and evaluation ofproject impact. IDA's presence is also expected to play a catalytic role in mobilizing donor supportfor the establishment of a Delta-wide mechanism to improve water management. Innovativeimplementation arrangements for demand-driven services and community-participation will beintroduced for rural clean water provision. Moreover, given the large number of project-affectedpeople due to land acquisition, the application of IDA's resettlement guidelines will ensure fairtreatment of PAF, close supervision and adequate monitoring.

E: Summary Project Analysis

1. Economic (Annex 4): [x] Cost-Benefit Analysis: NPV=US$ 168 million; ERR= 30%

The ERR of the project is relatively high due to sunk costs in the form of a large number ofexisting unfinished or deteriorated water infrastructure which the project would complete orrehabilitate. It is calculated on 89% of project base costs plus physical contingencies. The ERR

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ranges from 15% to 45% for different sub-projects. Sensitivity analysis shows the robustness of theERR under various adverse scenarios. However, the ERR is quite sensitive to a delay in therealization of benefits (a two years' delay in benefits would lower the ERR to 12%), which may becaused chiefly by delays in completing tertiary canals. Implementation of tertiary developmentwould, therefore, need to be closely monitored during supervision (sections C.4, E.4, and G.2,covenant-9).

2. Financial (Annex 4):

Typical crop and farm budgets were constructed to estimate the impact of the project onfarm income. Farm budgets cover owner-operated farms of average size in the five sub-project areas(between 0.87 ha in OX to 1.65 ha in QP). For each sub-project area, the farm budgets showdifferent improvements, such as a change from seasonal (rainfed) rice to double rice with irrigation,from double rice to triple rice, or to double rice with one upland crop. As shown in Table below,farm households cultivating triple rice or double rice plus an upland crop will have substantialincreases in income. These income increases will make it feasible to achieve higher cost recovery asit will be necessary to introduce water fee collection in one province and increase it in all projectprovinces to a level adequate to cover at least the cost of incremental O&M of project-financedwater infrastructure (see discussion of cost recovery in Annex 4).

Net Financial Benefits From Increased Cropping Intensit_y for an Average Far of 1.25 haWithout (1998 prices) With (1998 prices) Incremental Increase

Cropping US$/year Cropping US$/year US$/year %Seasonal Rice 229 Double Rice 626 397 173Seasonal Rice 229 Triple Rice 1137 908 396Seasonal Rice 229 Double Rice/Corn 1030 801 349Seasonal Rice 229 Sugarcane 609 380 166Double Rice 625 Triple Rice 1137 512 82Double Rice 625 Double Rice/Corn 1030 405 65

3. Technical:

The design and construction of irrigation canals and sluices is well established in theMekong Delta, and this experience has been reflected in project preparation. Irrigation, drainage andlocal water transport systems share the same canals and waterways in the Delta, which arehydraulically operated by tides from the South China Sea and the Gulf of Thailand. No centrallycontrolled pumps or large regulators exist. The Delta's water delivery system differs fromconventional irrigation systems in upland areas, where accurate surveys, careful design, check dropstructures and outlets at frequent intervals are required and need to be maintained. All that is neededin the Mekong Delta is a ditch branching off from secondaries and connecting to the field. At thefield level, low-lift pumps are commonly used by farmers in the Delta to control water in and out oftheir fields according to crop needs. They pump water for irrigation during the dry season when thewater level in the canals is lower than the field level, and, in some places, for drainage during therainy season when the tidal drain is inadequate. Sluices for seawater intrusion control have verticalswing gates, which are regulated automatically by differences in the hydraulic heads at the gatescreated by each tide. They have been successfully used in the Delta and in the project area. Themanual operation of the sluices during changes of seasons and at necessary intervals for flushing ortransport is simple. However, they require a certain degree of technical knowledge in order tocontrol upstream water levels, to accommodate drainage requirements and flushing needs, and toreduce the impediment to local transport. This is an area where improvement could be achievedthrough better hydraulic modeling and training of the operating staff. Technical assistance will beprovided under the project.

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Combating seawater intrusion in the dry season has been a major topic of study by theMDMP (1993), as excess withdrawals could result in increased saltwater intrusion in the lowerreaches of the Mekong, which could reduce freshwater availability and adversely affect agriculturein these areas, in which this proposed project is located. The MDMP recommended minimumadditional withdrawals (compared to the 1991 situation) in the lowest flow month of April. Since theMDMP, two major events have occurred that put the above constraint in a new perspective. First,the development of rice cultivation in the Delta has been at the high end of early projections. As aresult, the GOVN has invested in measures to prevent salinity intrusion further inland and to protectthe agricultural zone in the downstream parts of the Delta. Second, short duration, 90-day ricevarieties have been introduced in recent years and are now widely used by farmers in the Delta. Thishas given farmers more flexibility regarding the time of seeding. In particular, summer-autumn ricecan start in early May, instead of April, which is the lowest flow month. Hence, irrigation demand inApril for the current level of rice production is much less than anticipated in the MDMP (e.g. in thewest Bassac region, the actual water demand is now only 83 cms, compared to 388 cms in 1991).Together, these two events have had positive impact on combating saline water intrusion in theDelta and on the sustainability of rice production, not only in the project area but also in otherdownstream areas of the Delta. Hydraulic modeling simulated that, with the project, all intakeswould be within acceptable saline levels for irrigation in the critical dry months. A water quality andflow monitoring component has been included in the project to verify the model's predictions, and tomonitor changes in saline intrusion.

Water availability is strongly correlated with saline intrusion in the Delta during the dryseason. Mean flows in the Mekong River range from 33,340 cubic meters per second (cms) inSeptember to 2,500 cms in April. In January, the peak irrigation period for the dry season (winter-spring) crop, the mean flow is 7,300 cms and the 1-in-10 year flow is 7,100 cms, compared to thetotal demand of about 1,500 Cms now in the Delta. Incremental water use, with the project, isexpected to be 112 cms, a negligible amount compared to the Mekong flow. There is sufficient waterto meet the demands of irrigation and other uses. For the lowest flow month of April, mathematicalmodeling simulated that the incremental water requirement of the project would be about 21 cms,less than 1% of the Mekong flow even under a condition of 1-in-10 year low flow. Water demandsin the OX subproject area are actually expected to fall as a result of the project. Improvements indrainage would save farmers the cost of pumping in the wet season, and would at the same time givefarmers confidence to delay the planting of the autumn-winter rice. In turn, farmers could delayplanting of the summer-autumn rice to wait for the rain in early May and save the pumping cost ofdry season irrigation in March/April. Hydrological modeling showed that more than adequate watersupplies would be available in all subproject areas.

Scheduling of construction was carefully planned, taking into consideration the cost-effectiveness of the water control systems, agricultural needs of the project area, budget allocations,land acquisition and resettlement needs, and contracts management capacity of SIOs.

4. Institutional:

Implementation management: The institutional arrangements for implementation, describedin section C.4, have worked well in the on-going IDA-IRP. CPO staff are now familiar with IDArequirements. With additional staff, CPO should have adequate capacity to implement the project.PCERWASs have substantial experience in implementing UNICEF RWSS programs. The SIOshave managed considerable irrigation construction and land acquisition in Government fundedprojects. However, they have limited experience with internationally funded projects, and wouldneed to be trained, especially in procurement and resettlement. For this reason, CPO has arranged,using government funds, three pre-project training courses--one for SIOs in procurement and two forrepresentatives from SIO, DARDs, communes and PAF on resettlement (section D.4). At the start of

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the project implementation, CPO would station its staff in the subproject areas (section C.4).Technical assistance and training would also be provided for supervision, management and specifictechnical areas. With these measures, implementation capacity is not foreseen as a major risk.

Financial management: The financial management system in CPO was found to begenerally adequate under the IDA-IRP. Independent audits of the IRP accounts have not shownmajor problems. During preparation, IDA also carried out an assessment of the financialmanagement capacity of the implementing agencies and found the accounting systems in CPO, SIOsand sample PCERWASs to be generally satisfactory, with regard to the materiality of expenditures atvarious levels. Certain weaknesses were identified, particularly in one SIO. An action plan, as partof PIP, has been agreed with the main implementing agencies to remedy these weaknesses, improveaccounting and financial control systems and practices, establish acceptable procedures for financialreporting, and define the account coding structure (section G.2, covenant-6).

Water management: The project's institutional interventions would address watermanagement issues at the Delta level, the provincial level, and the farmers' organization level:

(a) Delta Level: Intensive development has been occurring in the Delta in recent yearswhich is at the higher end of the range projected in MDMP. Some of the current and potentialproblems are: increased water usage in upstream provinces impacting on dry season supplies of fairquality water in lower provinces; flood mitigation proposals in upstream provinces having possibleadverse impacts on adjacent areas and a change in downstream flow behavior; drainage schemeshaving potential adverse impacts on adjacent areas or on lower provinces; changed sluice gateoperation leading to good impact on one province and potential adverse impact on another; waterplanning in one province maximizing local benefits but achieving less than optimum on an inter-provincial basis; and inadequate O&M for major works in one province leading to adverse effects inothers. There is no mechanism at present to bring together all affected parties on a regular basis sothat a common understanding of these problems can develop and acceptable solutions found. Theseexisting and emerging conditions clearly point to the need for some forn of Delta-wide watermanagement coordinating and regulatory agency. The opportunity for creating such a body ispresented by the recently-enacted Water Law, which calls for an integrated approach to waterresources management based on hydrological boundaries, and MARD is planning to use the MekongDelta as one of the three pilot areas. The project would use this opportunity to assist the MARD inthis endeavor through: (i) the formulation and adoption of a policy for improved water managementin the Delta; a study of options for the institutional framework and consultation with stakeholders ona preferred option; and, if a Delta-wide body is approved by the GOVN, drafting of decrees onimplementation arrangements, preparation of an institutional support program and action plan forcapacity building under the new arrangements, and undertaking of priority studies identified by thenew Delta-wide body; and (ii) provision of overseas study tours for relevant central and provincialgovernment officials to see examples of river basin management.

(b) Provincial Level: According to existing decrees, Irrigation and Drainage ManagementCompanies (IMCs) are expected to be autonomous and self-financing using collection of water fees.In four of the six project provinces, IMCs have been recently established and are collecting waterfees (in one province, water fee is being collected although there is no IMC). The remaining two areexpected to be set up soon. However, they are under-staffed, under-funded, and weak in technicaland financial management. Not only water fee collection is totally inadequate to cover the O&Mneeds, but the expenditures (water fees plus budgetary subsidies) by the provinces on O&M of waterinfrastructure are far below requirements (details in Annex 4). There is also a fragmentation of andunclearly defined responsibility for O&M. It is recognized that the development of self-financingIMCs can only be achieved in the long run, and the role of DARD, and the district, commune andvillage level administration, in O&M will, therefore, continue in the foreseeable future. With this

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recognition, the project will: (i) support the establishment of IMCs in Bac Lieu and Kien Giangprovinces (section G.2, covenant-7(a)); (ii) support the introduction of water fees and gradualincrease in self-financing of the IMCs through an increase in water fee collection in all sixprovinces (section G.2, covenant-7(b) and 7(c)); (iii) provide consultancy to assist in preparation ofan IMC Improvement Plan (section G.2, covenant-8), which will include, inter alia, a review of thestructure of existing IMCs and recommendation on streamlining or reorganization if needed; analysisof the desirability of establishing Boards for the IMCs, and having farmer representation on theBoards; and an assessment of the efficiency of the IMCs based on the need for O&M and foroperating sluices, and recommendation on improvement measures and procedures. If requested bythe provinces of Bac Lieu and Kien Giang, the consultants will also assist them in setting up IMCs;and (iv) provide local and overseas training to IMC staff to improve IMC performance in thetechnical and financial aspects of water management.

(c) Farmers' Organization Level: Although various forms of farmer groups exist throughoutthe Delta, their strength, dynamism and role in tertiary development and O&M vary. There aresignificant differences in official views in the provinces regarding the need for formal or informalfarmer groups and their potential role vis-a-vis commune and district administration in irrigationinfrastructure construction, O&M and water fee collection. Given these differences among theprovinces, and the fact that the project area is only a small part in some provinces, a uniform,project-wide approach to farmer irrigation management is not considered appropriate at this stage.Thus the project would support development of farmer groups in a decentralized manner by theprovinces through preparation and implementation of annual tertiary development plans (TDP)(section G.2, covenant-9). This will enable farmers to assume full responsibility at the tertiary level,and to play a gradually increasing role in O&M of secondary canals and structures. The TDP (seeAnnex 2 for details) will include information on, inter alia, inventory of existing farmer groups;need (if any) for formalizing and/or strengthening existing and establishing new farmer groups; need(if any) for formal contracts between the farmer groups and the IMC (or communes where the IMCdoe not exist) for tertiary canal development and maintenance; timetable of activities relating tostrengthening farmer groups; and training plan for farmers (emphasis being on water management,financial management, and agricultural training for non-rice diversified crops, and taking intoaccount the special needs of women, particularly for preparing them for leadership roles in farmergroups, and of Khmer people). The project will provide consultancy support to assist the provincesin the preparation of TDP. The consultants will also propose to the provinces pilot programs forincreasing farmer groups' involvement in O&M of secondary canals and structures and water feecollection, where relatively strong farmer groups exist.

5. Social (Annex 10):

Land acquisition. The population in the project area is about 2.3 million. Overall, the socialimpact of the project is expected to be highly positive (section C.3). The main potential adverseimnpact relates to land acquisition from project affected families (PAF). Due to enlargement andexcavation of over 3,000 km of canals and embankments, and building or repair of 188 controlsluices, land acquisition and leasing would total 3,960 ha, of which only 30% (1,217 ha) wouldconstitute permanent losses to water bodies, canals and structures, and the remaining 70% temporaryoccupation of land during the period of construction.

Impact. In the Mekong Delta, people have tended to settle densely along the river leveesand canal banks, creating typical ribbon settlements stretching tens of kilometers. Due to this patternof settlement, land acquisition would affect 34,004 PAF (8% of the population in the project area).An estimated 1,655 PAF would be relocated, mostly within their existing communes or villages.The remaining 32,349 PAF would loss partial assets, but would not be displaced. The impactanalysis reveals that: (i) over 93% of PAF are farmers, and thus are expected to get significantagricultural benefits from the project; (ii) almost complete existing registration of agricultural lands

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will strengthen the rights of the PAF and effectively limit the possibility of encroachment; and (iii)the impact on the majority of PAF would be a loss of small strips of land that represent around 5% oftheir current landholding. Although this loss is expected to be offset in economic terms byproductivity gains resulting from the project and higher land values due to access to supply offreshwater, compensation will be provided to the PAF in line with the Bank OD 4.30. A majority ofPAF welcome the project, as they see the benefits that would result from improved water systems fortheir farmns and families.

Throughout preparation, attention was given to protecting the interests of people to beadversely affected by the project. Socio-economic surveys and three detailed door-to-doorinventories and consultation were carried out to determine the exact impact on PAF. Changes inengineering designs to adjust structural layouts, bypasses and alternative locations were made tominimize the adverse impact of land acquisition, and these changes have reduced the number of PAFsignificantly, especially those to be displaced. A Resettlement Action Plan (RAP) was prepared (asummary is in Annex 10), with a policy framework for resettlement, corresponding entitlements forvarious categories of PAF, budget provision and implementation arrangements. The RAP isgenerally in line with the OD4.30, and is satisfactory to IDA. The RAP has already been approved(on January 4, 1999) by the Vice-Minister of MARD. All provinces have set up operationalresettlement departments and resettlement committees-from provincial and district to communelevels. SIOs have had considerable experience in resettlement activities over the past decade. CPO,which is the implementing agency for the on-going IDA credit on Irrigation Rehabilitation Project,has gained considerable experience with IDA resettlement requirements. It has started training SIOand DARD staff to implement the RAP. During project implementation and detailed measurementsurveys, effort and adjustments will continuously be made in detailed engineering design to furtherminimize the adverse impact on PAF. Close monitoring and supervision will also be provided(section G.2, covenant 10).

In accordance with IDA OD 4.20, an Ethnic Minority Development Plan (EMDP) wasprepared (summarized in Annex 10). The main ethnic minority in the project area is the Khmergroup, representing 19% of the project population. The Khmer people live mainly in Tra Vinh andSoc Trang provinces. As the project area is mostly inland from the coast, the majority of the Khmerenjoy a higher living standard, due to better agricultural and market opportunities, compared to thoseliving closer to the coast, although the Khmer land holdings are generally smaller and incomes lowerthan those of the majority Kinh group. In the project area, almost all the Khmer people are paddyfarmers, practicing the same farming activities as the Kinh. Thus, they would be among importantproject beneficiaries and would benefit from the project in the same way as the Kinh. However,since Khmer farmers often rely exclusively on agriculture for their income, whereas Kinh farmerstend to have a more diversified income, the project could prove especially significant for Khmerfarmers. Consultation with the Khmer, as well as the Kinh, took place during preparation. Khmerleaders and officials participated in project planning. There is full endorsement of the project fromfarmers belonging to different ethnic groups. The EMDP includes programs to: (i) help theminorities better benefit from the project; and (ii) mitigate the adverse impacts of land acquisition,by ensuring that special attention is given to the Khmer PAF, including targeted extension supportfor production, better information dissemination, and rehabilitation and compensation of Khmeraccording to their cultural preferences. In the project area, UNDP also has a Poverty AlleviationProgram for assisting the Khmer group.

6. Environmental assessment (Annex 11): Environmental Category: B

This is an Environmental Category B project since the development under the project wasfound to have relatively limited potential for adverse impact, and for those potential adverse impacts,there exist reasonably straightforward and well-known mitigation measures. In the project area,virtually all the land is already used for agriculture, infrastructure and settlements, and the project

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activities would not impact upon critical natural habitats. The main potential environmental issuesthat were reviewed include: (1) leaching of acids; (2) conversion of seasonal, brackish water areasinto year around freshwater areas; (3) reduction of flood-plain fisheries; (4) impact on water qualitydue to increased application of agro-chemicals; (5) increased tidal levels due to sluice gate andembankment construction; and (6) disruption of canal transport due to sluice closure. Each of thesepotential impacts and their mitigation actions for each sub-project were identified in acomprehensive environmental review and are documented in environmental and fisheries reports(see Project Files). Annex 11 summarizes the specific nature of each impact and provides a synopsisof the mitigation and implementation arrangements that will be used under the project. It alsosummarizes the planned monitoring programs, to be financed by the project, for water quality andquantity, and for fisheries, and identifies technical assistance to be provided for integrated rice-fishculture to replace fisheries losses.

7. Participatory approach ( Annex I0):

a. Primary beneficiaries will be farmers in the project areas. The secondary beneficiarieswill be traders and land-less laborers who will benefit from increased production and ruralemployment, and officials in the line and implementation agencies who will benefit frominstitutional strengthening under the project. During preparation, participatory approaches wereused, mainly the Participatory Rural Appraisal (PRA), and consultations with stakeholders atprovincial, districts and commune levels in the form of planning meetings, workshops, field andhousehold visits, farmer interviews, and social surveys. The feedback from the consultationsprovided basis for adjustments to the engineering design and for the formulation of EAP and RAP tomitigate the potential adverse project impact. Despite the substantial number of people affected byland acquisition, a majority of PAF surveyed welcomed the project, but emphasized fair and timelycompensation. PRA focused on commune level consultation and participation through workshops insubproject areas, village meetings and farmer interviews at selected communes. Its purpose was toinform the communities and assess the perception of the project among farmers. The feedbackhighlighted, inter alia: (i) a strong demand for capital investment in agriculture, irrigation/drainageand flood protection infrastructure, and the farmers' desire for an early completion of the project; (ii)farmers' desire for tertiary control structures linking to secondary canals; (iii) farmers' willingness totake part in the management of tertiary systems; (iv) concerns about poor rural water supply andwomen's health; and (v) concerns of shrimp farmers in converting to freshwater farming. Thefeedback has influenced project design in such aspects as location of canals, embankments andsluices; rural water supply arrangements; implementation arrangements; support for tertiarystructures; and treatment of shrimp farming. During implementation, beneficiary participation willtake the form of farmers responding to a more favorable water regime by contributing to thedevelopment of tertiary and on-farm systems, and community-based activities in clean waterprovision and sanitation improvement.

b. Other stakeholders. During preparation, meetings and exchange of information tookplace with local universities, research institutes, provincial and district Women's Unions, NGOs,local staff from UNICEF and UNDP in the provinces, ADB, Mekong River Commission, VietnamMekong Committee, and bilateral donors. Information was exchanged with teams working on otherIDA projects. Continued collaboration with stakeholders during implementation is planned.

F: Sustainability and Risks

1. Sustainability:

Despite some risks (section F.2), the project appears sustainable from the technical,agronomic, institutional, financial, and economic points of view.

The technical solutions for water resources works are well-practiced in the Delta, as

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considerable development has already taken place over the last decade using local expertise. Theproject structures are spread over a large area and, therefore, any errors in design, construction oroperation will be localized and easily corrected. Implementation supervision by international andlocal consultants, and updating of the hydraulic model to improve the efficiency of sluice operation,would ensure relatively high technical standards.

Agrononic issues are fairly minor. Rice, the main project output, will continue to beattractive in the Delta for a long time to come, given reasonably good world rice price forecasts, andavailability of markets and technological packages. But there are general risks involved in triplecropping of rice, including pest build-up and removal of soil nutrients. The rice varieties, which areincreasingly used by farmers in the Delta, are resistant to major pests like rice blast and brown planthopper. Together with the increasing use of IPM (being supported by FAO and IDA), these varietieswill have a positive effect on sustainability of rice cultivation in the project area. As for the ricemarketing system, the incremental rice production from the project area could strain the system inthe next few years. Although the sharp increase in rice production in the Delta in recent yearssuggests that public and private supporting services are largely effective in providing credit, inputsand marketing, the rice marketing system is under-funded, particularly with regard to milling,drying, storage and transport facilities. This results in a deterioration of grain quality and farn-gateprices lower than they should be. Policy-induced inefficiencies in rice marketing result fromcontrols on internal and foreign trade, including parastatal monopoly in exporting, and pricecontrols. Out-moded and inadequate port facilities and the poor trading skills of the parastatalsresult in relatively low export prices. The GOVN is working with DANIDA and FAO on improvingrice marketing infrastructure, and with ADB and IFPRI on policy reform. This project was,therefore, not considered an appropriate vehicle to address the rice marketing issue.. Further, theproject will give farmers an opportunity to grow non-paddy crops in the dry season, and therebylessen their market risks. As for the upland crops--mainly maize, sugarcane, and vegetables--thedomestic prices are attractive, and marketing, particularly of maize and sugarcane, is not a problem.However, cultivation of double rice and an upland crop is still in the early stage, and the ongoingpilots need to be closely monitored during supervision.

Institutionally, the project will use existing agencies (CPO/SIO for water infrastructure,PCERWAS for rural water supply and sanitation, and provincial DARDs/IMCs for O&M of majorwater infrastructure) (section C.4 and E.4). Further, consultancy support would be provided toimprove institutional capacity, and strengthen farmer groups for a larger role in development andO&M of water infrastructure. Financially, the net returns from increased agricultural productionunder the project would be quite attractive (Annex 4) and would sustain farner interest, and effortswould be made under the project to increase water fee collection to provide for incremental O&M ofproject-financed infrastructure (section E.4). The economic viability of the project does not appearin doubt, and sensitivity analysis shows the robustness of the ERR (Annex 4).

2. Critical Risks (reflecting assumptions in the fourth column of Annex 1):

Risk Risk Risk Minimization MeasureRatin~____________________________

Annex 1 "from outputs to objective"Major agricultural support systems-- N No project specific measures are needed, as deficiencies incredit, marketing, inputs-are not the support services are being addressed by other IDAfunctional, and the rice marketing projects and other multi-lateral institutions.system, in particular, is under strain dueto incremental rice production.____ __

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Major natural disasters occur affecting M Although the 1997 typhoon was devastating, typhoons arethe project area, such as typhoons, rare in the Mekong Delta. The project design standardextreme low flow or extreme floods from reflects 1/20 year floods for embankments, and 1/10 year 5-the Mekong. day maximum storm for drainage capacity.Sluices are not properly operated; canals M The project will provide training/TA; a study on upgradingand sluices are not maintained hydraulic modeling to improve sluice operations;adequately. strengthening of IMCs; support for increasing water fee

collection to increase O&M resources; and support for farmerparticipation in O&M.

Lack of political commitment of GOVN M While the commitrent of the GOVN does not appear to be into implement the Water Law, and of the doubt, the commitment of the Delta provinces is yetDelta provinces to make joint effort unknown, and will be built up through a consultation process.towards coordinated Delta watermanagement.Provincial governments are not willing to M Consultation and dialogue will be carried out regularlyreorganize/streamline IMCs and expand during supervision and consultancy assistance will befarmer participation in O&M provided.Annex 1"from components to outputs"Implementing capacity of CPO, SIOs, N Consultancy assistance would be provided.and PCERWASs turns out to be weak.Counterpart funding is delayed, and S RAP costs have been cautiously estimated. IDA financingaffects construction schedule, especially share is 91% for civil works, and will also cover part of RAPsince land acquisition and compensation costs (including monitoring and training). GOVN is puttingis a substantial part of counterpart high priority on the counterpart funds issue under thisfunding. project. Further, close monitoring and supervision would be

_____________ _ _.___ Wprovided.Tertiary canal earthworks are not carried M Preparation of annual tertiary development plans is required,out or delayed. and their implementation will be closely monitored.Communities are not willing to share M National RWSS policy is moving towards full cost recovery;capital and maintenance costs and and PCERWAS will be responsible for implementing theresponsibilities. component and assisting the communes in preparing CWIPs

with technical assistance from CPO consultants.Overall Risk Rating M I

Risk Rating -H (High), S (Substantial), M (Moderate), N (Negligible)

3. Possible Controversial Aspects: None.

G: Main Credit Conditions

1. Effectiveness:

a. GOVN to establish the Project Steering Committee (section C.4).

b. CPO, following the Bank consultant guidelines, to hire an independent agency to carryout the monitoring of RAP (including EMDP) implementation.

c. MARD to appoint CPO as the main project implementation agency with overallcoordination responsibility; MARD to appoint the two SIOs for implementation ofirrigation, drainage and flood control activities in the respective subproject areas;MARD to appoint the six PCERWAS for implementation of the RWSS component; andMARD to appoint Project Director and Project Manager (section C.4).

2. Dated Covenants:

1) By September 30 of each year, starting 1999, CPO will submit to IDA for approval atraining plan for local and overseas study tours, training courses and workshops for thefollowing year (section C.4). The training would include programs at central,

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provincial, project and farmer levels.

2) The project accounts (including the Special Account and the Statement of Expenditures)will be audited annually by independent auditors acceptable to IDA, and audit reportswill be forwarded to IDA within six months after the end of each year (section C.4).

3) CPO will submit, by March 31 and September 30 each year, for IDA review semi-annual progress reports of works and activities carried out.

4) CPO will improve the monitoring system, which was set up under the IDA-IRP (Cr.2711), to track project physical progress, costs, budgets, procurement and disbursement;to regularly update the PIP; and to monitor and evaluate the agreed performanceindicators. The improved monitoring system will be installed at CPO, SIOs andPCERWASs by March 31, 2000.

5) An implementation completion report will be prepared within six months after Creditclosing.

6) CPO will prepare a manual of accounting instructions, acceptable to IDA, by June 30,1999, incorporating the financial management actions specified in the PIP (section E.4).CPO will, in the execution of the project, ensure compliance with these accountinginstructions, and with procedures acceptable to IDA.

7) (a) IMCs will be established in Bac Lieu and Kien Giang provinces by September 30,1999 and June 30, 2001 respectively;

(b) By December 31, 2001, water fees will be introduced in Bac Lieu province, and willbe adequate to meet incremental O&M needs of project-financed waterinfrastructure in the province; and

(c) By December 31, 2001, total water fee collection in Tra Vinh, Vinh Long, SocTrang, Can Tho and Kien Giang provinces will increase to a level adequate to meetat least the incremental O&M needs of project-financed water infrastructure in thoseprovinces (section E.4).

8) By December 31, 2001, CPO will prepare, with the assistance of its consultants, andsubmit for IDA review, an IMC Improvement Plan relating to their mandate, structure,operational efficiency, and need (if any) for farmer representation at various levels ofthe IMC; and propose pilot programs for increasing farmer groups' involvement inO&M of secondary canals and structures, and water fee collection (section E.4).

9) By August 31 each year, starting 1999, each provincial DARD will submit to CPO anannual Tertiary Development Plan (TDP, approved by PPC) for the following year. BySeptember 30 of each year, CPO will submit for IDA review the TDP, andrevise/implement the TDP taking into account IDA's comments (section E.4).

10) By September 30 each year, starting 1999, CPO will furnish to IDA: (i) for approval, anirrigation subproject-based RAP implementation annual plan for the following year,prepared in accordance with the RAP, which includes the number of PAFs to beaffected, detailed measurement surveys, valuation of assets, estimated cost, budgetallocation, preparation of resettlement sites where necessary, and a time-table toimplement such plans prior to commencement of works; and (ii) for review, a RAPimplementation progress report from CPO and an assessment report by an independentmonitoring agency of the resettlement work done in the previous year.

H: Readiness for Implementation[x1 The engineering designs for the first year's project implementation are complete, including threesluices, two canals, and one bridge in SMT subproject; eight secondary sluices, four secondary

- 20 -

canals, one segment of embankment, and boat-lifts in OX subproject; and one main canal in QPsubproject. Retroactive financing is expected for part of the works started in 1998.

[x] Bid documents for the first year's project implementation are ready. Standard bid documentsagreed under the IRP will be used. Five NCB packages were prepared as part of the projectfeasibility study, and are pending for MARD approval.

[x] CPO submitted a draft PIP for IDA review, which was discussed during negotiations, and therevised PIP of February 25, 1999 was agreed between IDA and the Borrower.

I- Compliance with Bank Policies[x] This project complies with all applicable Bank policies, i.e. OD4.30 onInvoluntary Resettlementand OD4.20 on Ethnic Minorities (details in section E.5 and Annex 10); OP/BP 10.02 on FinancialManagement (details in section E.4); and OP 7.50 "International Waters" (see below).

The Mekong River has six riparians-China, Myanmar, Thailand, Laos, Cambodia andVietnam. The project is located in the down stream end of the River, before the River empties intothe sea. The project qualifies for the exception to notificationallowed in para.7(a) (i) and (ii) of theOD 7.50 "International Waters", as: (i) it is an on-going scheme, with minor additions or alterations;and (ii) the increase or decrease in water withdrawal as a result of the project will not change theproject's nature, or expand its scope and extent as to make it appear a new or different scheme.However, OP 7.50 requires compliance with existing agreements among the riparians. Contact withthe Mekong Secretariat confirmed that the above Mekong Agreement requires notification andconsultation among riparians prior to proceeding with major diversion schemes. Recognizing thatVietnam in the case of this proposed project is in the downstream end of the Mekong River, theMekong Secretariat suggested that in accordance with the Agreement, GOVN should, in the spirit ofgood will and cooperation, inform the MRC Joint Committee about the project. MARD and theVietnam National Mekong Committee sent an official notification with project summary and maps tothe MRC Joint Committee on March 16, 1998. The National Mekong Committee also copied theabove project information to China and Myanmar.

Task Team Leader: AfrMei Xie (EASRD)

Sector Manager: o )

Country Director:

- 21 -PAD Annex 1: Project Design Summary

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Annex 1Vietnam: Mekong Delta Water Resources Project

Project Design Summary

Narrative Summary Key Performance Indicators Monitoring and Critical Assumptions/RisksEvaluation

Sector-related CAS Continued reductions in poverty Regular policy (Goal to Bank Mission)Goal: rates in rural areas and sectoral Overall economic stability of the

dialogue with the countryReduce rural poverty and Increased IDA lending to rural Governmentsupport accelerated rural and natural resources Government remains committeddevelopment, including management Comparison of to rural development and toirrigation infrastructure census indicators reduction of poverty.

Development of water resources from sources ofSupport Government's in an integrated way and moving Government and Government remains committedcommitment to towards river basin /hydrological external agencies to sustainable natural resourcessustainable management boundary-based planning and managementof natural resources management ESW Evaluation

Project Development la. Proxy indicators for CPO's (Objective to CAS Goal)Objective: increased agricultural beneficiary la. 1 No major decline in world

production, incomes and surveys and rice price (risk negligible: see1. Increase agricultural employment; and reduced rural progress reports sensitivity analysis in Annex 4)production, reduce rural poverty:poverty and improve MARD's and la.2 No major decline in farmliving conditions in the 1997 early 2002 mid 2004 DARD's gate prices of upland crops, suchproject area through Triple rice crop (ha): statistical reports as maize, sugarcane, vegetables;integrated water 53,100 60,000 75,000 and availability of markets andresources development. Double rice plus upland (ha): Evaluation by technological packages (risk

0 10,000 30,000 IDA during mid- negligible: Section F andterm (early 2002) sensitivity analysis in Annex 4)and completion(mid 2004) 1 a.3 No significant delay inreviews tertiary development (risk

moderate: sensitivity analysis inProgress reports Annex 4; and TDP in Annex 2)from CPO

lb. Water fee collection (at lb. Political willingness toleast doubling by early 2002, introduce water fee collection incompared to 1997 baseline one province and increase waterfigure of 17 billion Dong) as an fee collection in the other fiveindicator of increased fnancial PCERWAS' provinces (risk moderate).capacity of provinces to provide progress reportsadequate O&M of project- lc. Demand-driven approachcreated water infrastructure. Evaluation by succeeds; communes have the

IDA at mid-term capacity to prepare and1 c. Provision of clean water and completion implement Clear Waterand improved sanitation to rural Improvement Plans (riskhouseholds (110,000 households moderate)by early 2002 and 280,000households by mid-2004).

2. Support sustainable 2a. Issuance of a policy Progress reports 2a./2b. Commitment by GOVNwater resources statement and preparation of an by the CPO to implement the Water Law (rsk


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management in the Delta options paper on integrated consultant team negligible); and commitment bywater resources management for the Delta provinces to make jointthe Delta by end 2000. effort towards coordinated Delta

water resources management (risk2b. Establishment of a Delta- moderate).wide water resourcesmanagement body through aconsultation process by early2002.

Outputs: Fresh water available for CPO surveys and (Outputs to Objective)1. Saline water intrusion irrigation in presently saline assessmentinto the project area areas affected by sea water reports 1. Major agricultural supportreduced; freshwater intrusion during the months of systems such as credit, marketingsupply for irrigation low river flows. Field inspections and input supply are largely insecured. and fanner place in the project area (risk

Drainage capacity in the area is interviews by negligible); and rice marketing2 Drainage capacity in improved shown by SIWP IDA supervision system, in particular, respondsthe area is improved. monitoring of flow levels during missions adequately to incremental rice

October as representative month. production (risk moderate).3 Flood risk in the DARD statisticalproject area mitigated. The maximum water level in reports 2. No major natural disasters

October in OX subproject is affect the project area, such as4. Access to safe lower inside the area compared SIWP typhoons, extreme low flow,drinking water and better to outside by project completion environmental extreme floods from the Mekongsanitation for dispersed (by some 80 cm at the KH9 and river flow (risk moderate).rural population upstream sluice and some 25 cm monitoringimproved. at the KH9 downstream sluice). reports 3. Sluices are properly operated;

canals and sluices are maintained5. Environmental and Coverage for rural clean water adequately (risk moderate).river flow monitoring supply is increased (currentlynetwork improved. 30-60%). 4. Provincial governments are

willing to streamline IMCs and6. Implementation of the Thirty environmental and river expand farner participation inWater Law initiated in flow monitoring stations are O&M (risk moderate).the Mekong Delta by upgraded by early 2002.strengthening delta-wide 5. Commitment by GOVN toinstitutional framework A policy statement on an implement the Water Law (ifor integrated water improved Delta institutional negligible); and commitment byresources planning and framework for integrated water the Delta provinces to make jointmanagement. management is adopted. effort towards coordinated Delta

water resources management (risk7. Delta hydraulic Delta hydraulic models (flows, moderate).modeling improved. salinity, floods) are upgraded.

8. Project management Training programs (seminars,capacity at central, workshops, study visits) areprovincial and commune carried out for project staff in thelevels strengthened. central and provincial levels, andIMCs and farner groups for farmers and IMCs, and TAstrengthened. provided.

Project Components: Inputs: (Components to Outputs)(see Annex 2) Construct or rehabilitate 188 CPO semi-1. Complete and primary and secondary sluices. annual progress 1. Adequate implementingrehabilitate water monitoring capacity of CPO, SIOs, andresources development Improve and excavate 2,633 km reports. PCERWASs; and construction on


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works (incl. irrigation main, primary and secondary schedule (risk negligible).and drainage, salinity canals. Two SIOs'intrusion control, flood quarterly 2. Timely counterpart fundsprotection) Develop 112,000 ha of tertiary progress reports. available, especially for land

canals and on-farm systems. acquisition and compensationla. Improve primary Disbursement (risk substantial).

water delivery system Extend and upgrade 368 km of records.canal embankment. 3. No significant delay in tertiary

lb. Improve and Audit reports. development (risk moderate: seecomplete secondary Build 65 km of access roads sensitivity analysis in Annex 4;water delivery system connecting to sluices and canals IDA field and TDP in Annex 2)

inspection andlc. Develop tertiary Build or upgrade 112 canal supervision 4. Demand-driven approach

and on-farm system connected rural bridges and 67 reports. succeeds; communes have theboatlifts. capacity to prepare and

Id. Build and extend implement CWIPs and are willingcanal connected roads 2a. Provide clean water to to share capital and O&M costsand embankments dispersed, small and remote rural and maintenance responsibilities.

communities by constructing (risk moderate).2. Expand and improve small-scale piped water supply PCERWAS'rural water supply and systems and point source progress reports. 5. No major natural disasterssanitation supplies. affect the area, such as typhoons,

extreme low flow or extreme2a. Clean water 2b. Undertake sanitation and floods from the Mekong (risk

supply program safe water awareness campaigns moderate).and hamlet-level participatory

2b. Sanitation hygiene education.improvement program

2c. Construct basic household-level sanitation facilities.

2d. Design and undertakeresearch on appropriatehousehold-level sanitationtechnologies.

3. Institutional support 3a. Consultancy, TA and Progress reportsfor Delta water planning, training by the CPOmonitoring, and consultant teammanagement; for project 3b. Install/upgrade 30implementation; and for monitoring stations for waterstrengthening of IMCs quality/flow network.and farmer groups. I I I

- 24 -PAD Annex 2: Project Description

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Detailed Project Description

1. The Mekong Delta. The Mekong Delta covers an area of 45,000 km2, of which 39,000km2 lies within the borders of Vietnam (Map 29653). The Mekong River, as it enters Vietnamfrom Cambodia, splits into three main branches before entering the sea, the Bassac, the Co Chien,and the Cua Dai. The Mekong is a typical monsoon river with high flows from July to Septemberand receding flows until the low months of March and April. The Tonle Sap in Cambodia acts asnatural reservoir that regulates the flow of the Mekong. Water flows into the Tonle Sap in theflood season and out of the lake in the dry season. Many man-made canals, some of them datingback more than a century to open the area for settlement and agriculture, traverse the Delta.

2. In terms of its water regime, the Delta can be divided into the upper Delta, the middleDelta, and the lower Delta. In the monsoon season, the upper Delta is flooded in most years to adepth of one to two meters, but the mid-and lower Delta are only shallow-flooded by the Mekongand its branches. As the flow in the Mekong recedes in the dry season, salt water enters thelower Delta. In April, the month of lowest river flow, the salt/fresh water interface reaches some60-70 km from the coastline. In the lower Delta, salinity intrusion limits farmers to a single wet-season crop of rice because the water in the canals is too saline for irrigation in the dry season. Inthe upper and mid-Delta, the water quality is suitable for year-round irrigation and large areashave been developed for double and triple cropping of rice.

3. The 12 provinces in the Delta have 2.7 million ha of agricultural land, of which 2 millionha is rice land. In the fresh water areas, most farmers raise more than one crop of rice, but in theareas affected by saline intrusion the farmers are limited to a single crop. Where farmers growthree crops, annual production from a single ha of 15 tons of paddy (un-milled rice) is notuncommon. For the Delta as a whole, the planted area of rice grew from 2.2 million ha in 1985to 3.4 million ha in 1996. In the same period, paddy production has grown from 7 million tons to15 million tons (1997). Other crops take up 0.7 million ha, of which field crops (maize, sugarcane, oilseeds) account for 0.4 million ha and the rest is tree crops mainly in household plots.

4. Irrigation and Drainage. The hydraulic systems of the Mekong Delta are unusual inthat irrigation and drainage are controlled by complicated tidal influence from two directions--theSouth China Sea (semi-diurnal) and the Gulf of Thailand (diurnal). The amplitude variesbetween 3 m in the South China Sea to 0.5 m in the Gulf of Thailand. The systems are in contrastto typical gravity irrigation that involves a diversion dam or a pumping station to raise water to alevel from which it can flow by gravity canals. In the Delta, it will be extremely costly, and posemany technical and social problems, to create a gravity system. Irrigation and drainage in theDelta is founded on the many natural and man-made channels that serve as primary andsecondary systems. The farmers, sometimes with help of local governments, have constructedtertiary channels from which they irrigate their fields. During the dry season when the waterlevel in the canals is below ground level, and the tides are not high enough for irrigation, farmersuse their own low-lift-pumps to bring water to their fields. The same channels and waterwaysthat provide water for irrigation also serve as drains. At the end of the flood season, water drainsfrom the farmers' fields mostly by gravity. But, in some areas, farmers who triple crop have todrain their fields with low-lift pumps.


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5. The supply of water from the branches of the Mekong is more than sufficient to meet thedemands of irrigators and other users. The only water constraint is in the lower Delta during themonths of saline intrusion -- a problem that will be addressed by the proposed project. Waterallocation on a large scale between different areas is unfeasible and in fact unnecessary; periodicclosing of the main waterways will require large structures and cause interference with watertransportation. But within individual subprojects, some degree of water management control isneeded. For example, in the areas there are structures to protect the areas from flooding thatrequire coordinated operation of the control gates. In the lower Delta, there is a need forcentralized management of the operation of the sluices to control salt-water intrusion and topromote drainage. At the farm level, several factors make water management simple, effectiveand largely under the control of the individual farmers. First, the farm plots are laid out in such away that each farmer is able to pump from a tertiary whenever he needs water. This means thatfarmers have considerable freedom in their choice of crops and crop calendars. Second, thesecondaries and tertiaries are sized to permit the movement of small boats and, therefore, theyhave ample capacity to deliver water as well as providing some daily storage.

Component 1: Improvement of Water Resources Infrastructure (US$131.6 million)

6. General. The proposed project would cover five subproject areas (maps) with a totalarea of 535,000 ha (about 14% of the Mekong Delta in Vietnam). The subprojects South MangThit (SMT; 225,680 ha), Quanlo-Phuonghiep (QP; 178,900 ha), Baring-Talim (BRTL; 31,000ha) and Tiep Nhat (TN; 54,000 ha) are in the lower Delta. The Omon-Xano subproject (OX;45,430 ha) is in the middle Delta. Each area is an independent hydraulic unit.

7. An in important objective of the subprojects in the lower Delta is to exclude salinityintrusion by building sluice gates on waterways entering the agricultural areas. This will create afresh water environment that will allow crops to be grown in the dry season. Without salinitycontrol, farmers on large areas are at present limited to a single wet-season rice crop. With theproject, there will be a considerable increase in double cropping of rice and also some increase inthe triple cropped area. Farmers will also have the opportunity to grow upland crops in the dryseason as an alternative to rice.

8. In all of the subprojects, existing main, primary and secondary canals will be improved toprovide for more rapid and effective drainage. Some new secondaries will be built to enhancewater delivery, and tertiaries will be built where necessary. The same channels and waterwaysthat provide water for irrigation also serve as drains. Existing embankments that protect landfrom high flood levels will be extended and upgraded, to also carry rural roads.

9. The basic design of sluices is now standardized throughout the Delta, but the widths of asluice and the number of gates vary according to the size of the waterway and the drainage areaupstream of the sluice. The sluices are of the type with vertical axis swing gates, and can beoperated automatically by hydraulic heads created by each tide, or semi-automatically withmanual intervention, depending on the operating modes. In the dry season when the river flowlevels are low and outside salinity levels are high, the gates are kept mostly closed and openedperiodically to freshen the water in the upstream gates. In the wet season, the gates can be set toopen at low tide to drain water and to close at high tide. In addition to salinity control, the sluiceswould improve drainage significantly by removing large net excess outflows to the sea at eachtide cycle.


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10. Work on the main and primary canals will consist mainly of restoring them to theiroriginal condition in places where years of silt build up have reduced the cross section. Thecanals would have a design bottom width of 7-12 m and bottom levels of -3 m MSL, but somewould be wider or deeper. This design is based on mathematical models of the entire subprojectsystem and of the Delta. Secondaries serve about 500-1000 ha and are typically spaced about 2-3km apart. They are generally made about 12 m wide with bottom widths of up to 6-7 m, and 2-3m deep to accommodate small boat traffic. Although the canals serve dual purposes of irrigationand drainage, the latter determines the size of the canals. Navigation also influences the designcapacity. These canals would be openly connected to main canals or provided with smallculverts or water control gates, depending on land elevation relative to prevailing water levelfluctuations in each subsystem. Small secondary culverts with slide gates would be provided toconnect the secondaries to tertiary canals. Tertiaries would be developed in areas wheresecondary systems have been improved or developed and dry season cropping is to grow. Theyare usually placed at intervals of about 250m, with a bed width of about 1-m, and a depth of 1-1.2m, and serve about 25-50 ha. Farm holdings are arranged so that each farmer has direct access toa tertiary. During the low flow season when the water level in the canals drop to below the fieldlevel and tides are not high enough to reach the field, low-lift pumps are commonly used byfarmers (para.4), either by individual farm households or by a group of farmers. The pumps areof low costs, and locally made. They are also used for boat engines. Parts and maintenance arewidely available. Farmers apply various types of simple structures, such as small cross damswith earth and straws, when they need to store water in the field. The tradition in the Delta is forfarmers to build and maintain tertiaries.

11. Embankment would be extended or upgraded to join the existing embankment to provide,in combination with the sluices, a defense line against flooding and saline intrusion from the mainrivers during periods of severe storms and high tides, and to close off smaller canals connected tothe main rivers. It would generally have a top width of 4-6 m and would also serve as ruralroads. Small culverts along the embankments connecting to smaller canals would be built orrepaired for flushing. Access roads would be constructed to facilitate building of the sluices.Materials from dredging of canals would be used to improve canal embankments that wouldserve as rural roads, to improve local transport. Bridges would be built or upgraded in connectionwith the sluices and canal improvement works. The project also includes boatlifts (capable oftransferring small boats of up to 2 tons) and landing stages at the sluices to pass small boats whenthe sluices are closed. The existing and proposed water control works in the subprojects aresummarized in the attached Table.

12. South Man Thit Subproject (US$67.5 million). It lies between the Bassac and the CoChien and is bounded by the SMT river to the north where freshwater intakes are located (Map29654). The central and southern part of the area suffers severely from seawater intrusion in thedry season, and from inundation in the wet season in depression areas. These constraints limitthe scope for intensified agriculture and increasing farm income. To overcome the constraints,the concept of the subproject is to make use of the large daily variations in water levels createdby tides on the main rivers surrounding the area. The tides are high enough to convey fresh waterfrom intakes in the SMT River in the north towards the central and southern areas, and drainexcess water to the South China Sea, provided that canal capacities are sufficient. This will becombined with salinity control structures in the south to prevent intrusion of seawater unsuitablefor irrigation, and thus to increase freshwater supply. Since mid 1970s, construction of salinesluices and improvement of the canals have started in a piece meal fashion. With the project,


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farmers in virtually all of the subproject area will be able to triple or double crop. The sluicesand the dredging of the canals will also reduce flooding in the late monsoon months.

13. A mathematical model study carried out during the feasibility study finds that allwaterways south of the SMT have to be gated to prevent salinity intrusion. The salinitysimulation models used during project preparation specified the critical boundary conditions as:(i) tide and wind data of 1990 that led to unusually severe saline intrusion conditions, equivalentto 1-in-1 0 year low inflow from the Mekong; and (ii) upstream irrigation demand consistent withannual paddy production of 20 million tons, compared to 15 million tons at present. Hydraulicmodeling simulated that, with the project, all intakes would be within acceptable saline levels forirrigation in the critical dry months, even under the severe conditions described above. A waterquality and flow monitoring component has been included in the project to verify the model'spredictions, and to monitor changes in saline intrusion (para. 21).

14. Omon-Xano Subproject (US$20.2 million). The subproject is located above the salineline in the mid-Delta where freshwater is available all year round (Map 29656). Most secondaryand tertiary canals already exist. Its main aim there is to provide flood protection and drainage.Floods up to 1 m occur every year between August and October. These are caused by acombination of heavy rains, limited drainage capacity of the canals, and high water levels in theBassac. These conditions severely hamper- local population from increasing agriculturalproductivity and living standards. In particular, yields of the summer-autumn rice crop are held toabout 2.8t/ha, compared to a potential of 4 t/ha if the flood constraint were to be removed. Tocope with the above situation, in some places farmers have gradually heightened their field bundsto prevent inundation before harvest of the autumn-winter crop. However, the bunds are neitherhigh enough nor adequate. During the flooding every year, local life is disrupted. Without a betterwater control system, sufficient drainage is impossible and the local population will continue tosuffer from the hardship. The works will include (a) three drainage control sluices to connect thetwo existing primary canals; (c) small sluices at the junctions of the secondary and primarycanals; and (c) flood levees that will also serve as a rural road. The water control concept of thesubproject follows the recommendations of MDMP and the Delta's flood control strategy. Withthe project, the living conditions of local population would be improved, the yield is expected toincrease and production more stable. In the central and southem parts of the subproject, doublecropping could shift to triple.

15. Quanlo-Phunghiep, Barinh-Taliem and Tiep Nhat Subprojects (US$43.9 million).The three subproject areas are adjacent (Map 29655), divided by main canals. Most of the areasare located in one province at the downstream end of the Bassac River close to the coast.Although they are each an independent hydraulic unit, their hydrological and hydraulicconditions, development constraints, and design concepts are similar. The aims of the subprojectsare to complete a system of works that will prevent salinity intrusion in the dry season, andenhance drainage in the wet season.

16. The QP lies east from the Bassac and extends in a broad tract of land parallel to thecoastline. Some sluices have been built in the 1990s and these have already had an impact onagriculture. Three primary canals will be enlarged to bring additional water to the subprojectarea. Nang Mau 2 extends from the Bassac to the Nga Nam Phu Loc, which joins the main QPcanal and then runs through the subproject area. It is to be widened from 10 to 13 m anddeepened by one meter. Hoa Binh crosses the project area and joins the Song Cai, the large riverthat comes in from the Gulf of Thailand. It is to be widened from 12m to 16 m and deepened


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from -1.5 to -3 bed level. Cai Trau Phu Loc joins the Nga Nam Phu Loc to the Cai Trau Sluice.It is to be widened from 10 to 13 m and deepened by one meter. A mathematical model hasconfirmed that these canals will provide a year round supply of fresh water to QP and adjacentareas. The BRTL and TN subprojects adjoin QP to the east. Some of the sluices there were builtsome 40 years ago and will be repaired and new sluices will be built to complete the worksneeded to prevent salinity intrusion, and canals will be upgrade to facilitate drainage and waterdelivery. Without salinity control, farners are at present limited to wet-season rice cultivation.With the project, there would be a considerable increase in dry-season irrigation, leading todouble and triple cropping. Farmers would have the opportunity to grow upland crops in the dryseason as an alternative to rice. Returns on investment are expected to be the highest in thoseareas which at present have few other investment opportunities and would remain undevelopedwithout freshwater.

Table: Works Under the ProjectItems Units South Mang Omon Quanlo-/1 Total

Thit Xano Puonghiep ProjectPrimary Sluices 13 3 10 26Prinary Canals km 222.5 - 242.5 465Embankment km 105 119 197.9 421.9Bridges X 67 - 42 109

Secondary Sluices 92 32 14 138Secondary Canals km 461 95.5 963 1,519.5

/1 Includes Barinh Ta Liem and Tiep Nhat,

17. Land and Other Asset Acquisition, Compensation and Resettlement (the cost isincluded in each subproject cost). The project works will require acquisition of land of 3,963 ha,of which 70% (2,747 ha) will be occupied temporarily during construction and 1,216 ha will bepermanent losses to water bodies, canals and structures (Annex 10). Subproject land losses aresummarized in the Table below. A resettlement action plan has been prepared and itsimplementation is estimated at about US$22.5 million, including 10% contingencies, and willcover compensation, rehabilitation allowances, skill and income generation training for PAF,staff training, equipment, detailed measurement surveys, external monitoring and administration.

Subproject Land acquisition (ha) Permanent (ha) Temporary (ha)SMT 1,399 402 997

OMXN 324 285 39QLPH 1,091 218 873BRTL 684 165 519

TN 465 146 319Total 3,963 1,216 2,747

Component 2: Improvement of Rural Water Supply/Sanitation (US$ 5.7 million)

18. Despite its rapid development, the Mekong Delta remains among the most under-servedareas in the country as regards clean rural water supply with coverage estimated at between 30-60%, including the project area. Coverage with safe sanitation facilities is expected to be evenlower. The incidence of water and sanitation-related diseases is high, particularly among women


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and children. A principal constraint to improving health status is poor knowledge, attitudes, andpractices regarding hygiene.

19. The project will provide clean water for remote small villages and hamlets and dispersedrural population, and will thus complement other RWSS programs in the project area. It willfinance construction of small-scale piped water supply systems serving about 50 - 150households, and point source supplies (rainwater catchment systems, hand pumps, and smallwater filtration systems) for dispersed settlements. It will also support sanitation and safe waterawareness campaigns and hamlet-level participatory hygiene education to improve hygienebehaviors and increase effective demand for safe human waste disposal. The project will provideseed money to set up revolving funds for construction of basic household-level sanitationfacilities. The exact mechanism will be worked out by CPO and PCERWAS with the approval ofthe Government.

20. For implementation of the water supply activity, the project will pilot and test some of theideas of the evolving National RWSS Strategy, including: (i) demand-driven planning; (ii)community based participatory planning and management; and (iii) better cost recovery.Communes will first prepare Clean Water Improvement Plans (CWIP) (or commune-subproject)that stipulate the type of water supply they want and are willing to pay for. Technical assistancewill then be provided to the communes to allow them to make informed choices among feasibletechnical, cost and financial options. Technical options currently cover small piped schemes forhamlets supplied from boreholes with electric or diesel pumps and 2-3 m3 elevated tanks withhouse connections; boreholes with hand pumps; rainwater storage jars; and surface waterfiltration units.

Component 3: Institutional Support for Water Management and Project Implementation(US$10.3 million)

21. Improving Water Management Framework (US$1.3 million). The aim is to developproposals for strengthening of Delta-wide water resources management institution (US$0.43million). This study would consist of two phases. Phase-I would carry out a quick inventory ofwater resources infrastructure and plans in the Delta provinces; identify major coordination issuesrelating to inter-provincial water management; prepare a policy framework statement onintegrated water management for the Mekong Delta, in line with the new Water Law, and draft anoptions paper for strengthening the institutional framework. The policy framework and theoptions paper would be developed through close discussions with the provinces, to buildownership. The options paper would be submitted to the Project Steering Committee forapproval, before drafting of decrees on implementation arrangements for a Delta-wide body forimproved water management. Preparation of an institutional support program for capacitybuilding under the new arrangements and outlining of an action plan for the implementation ofthe option selected would conclude Phase-I. Phase-II would start after a Delta-wide body isestablished. The "body" would decide on studies/technical advice to be funded in this phase,based on the priorities it determines for delta-wide water management. Phase-II could possiblyinclude a Mekong Delta Water Sector Profile; a Water Resources Data Directory based on GIS,improvement of water management models, special studies, and pilot water resource managementimprovements. Indicative TOR are included in the PIP. The project would also financeimprovement of hydraulic modeling for operations of sluices (US$0.44 million). This studywould update the models developed during MDMP, and provide an analytical tool for the futureDelta-wide water management body. The water quality and flow monitoring (US$0.43 million)


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network would be improved as part of implementation of the environmental management plan(Annex 11).

22. Strengthening Institutional Capacity at Central, Provincial, IMC and Farmer Levels(US$2.0 million). The project will (i) support the establishment of IMCs and introduction ofwater fees in Bac Lieu province; and (ii) support adequate O&M expenditures on project-financed water infrastructure and gradually increasing self-financing of the IMCs through anincrease in water fee collection in all six provinces.

23. CPO will hire consultants to assist it in supervision of construction quality,implementation of RAP and EAP, and institutional strengthening. The consultants would bestationed in Hanoi and the subproject sites in Can Tho and Tra Vinh. The consultants will: (i)Assist CPO in preparation of an IMC improvement plan, including review of the structure ofexisting IMCs (company, district and sub-station levels), and recommendation of streamlining orreorganization, if needed; and analysis of the desirability of establishing Boards for the IMCs,and having farmer representation on the Boards or at the district or sub-station levels; and anassessment of the efficiency of the IMCs in O&M of canals and operating sluices, andrecommendation on appropriate improvement measures. (ii) If requested by the provinces of BacLieu and Kien Giang, assist them in setting up IMCs. (iii) Provide local and overseas training toIMC staff and management to improve the IMC performance in the technical and financialaspects of water management. (iv) Carry out the two studies mentioned in para.21. (v) AssistIMCs and DARDs in the preparation of the tertiary development plan (TDP), and propose to theprovinces pilot programs for increasing farmer groups' involvement in O&M of secondary canalsand structures and water fee collection, where relatively strong farmer groups exist. The projectwould also support training for central and provincial officials for the water resourcesdevelopment and institutional strengthening components, and provincial officials andbeneficiaries for the rural water supply and sanitation component.

24. Specifically, the TDP should include: (a) location and ha of tertiaries to be developed inthe following year, construction schedule and estimated costs (labor, material and machinery); (b)financing for development and O&M as agreed with farmers or farmer groups; (c) projectedwater fee collection; (d) number, structure, functions and status of existing farmer groups, andcoverage; (e) the need, if any, for formalizing (registering and legalizing) the existing farmergroups for tertiary or secondary level O&M; the need, if any, for setting up new groups; (f) theneed, if any, for formal contracts between the farmer groups and the IMC for tertiary canalmaintenance; (g) timetable of activities for strengthening and/or formalizing existing farmergroups, and establishing and operationalising new groups, including signing of formal contracts(if needed) with the IMC or commune for tertiary canal maintenance; (h) role of DARD, IMC,commune and village in tertiary development (including formation or strengthening of farmergroups) and subsequent O&M; and (i) type of training to be provided to the farmers and farmergroups.

25. Project Design and Supervision (US$6.6 million). Consultants, procured by CPO(US$3.3 million) would carry out engineering design. This is based on Government standard rateof 4% of the costs for works, and would also include supervision during construction to ensurethat works follow the design requirements. MARD's Construction Department would check thequality of the design works. SIO would hire local consultants to assist in procurement,construction supervision, auditing, resettlement and environmental aspects of projectimplementation (US$1.1 million). The project would finance vehicles and office equipment


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(US$0.8 million) needed for project administration and implementation, and incrementaloperating costs (US$1.5 million) for CPO, SIO and PCERWAS.

26. The project would support hiring of an independent monitoring agency (US$0.2 million)specialized in social sciences to assess implementation of RAP (including Ethnic MinorityDevelopment Plan) under Component 1. The agency would submit to CPO periodic assessmentreport and recommendations concerning critical issues.

- 32 -PAD Annex 3: Project Cost Summary

Page I of I

Annex 3Mekong Delta Water Resources Project

Estimated Project Cost Summary (US$ million)

Project Component Local Foreign Total Base Cost

I. Improvement of Water Resources Infrastructure 64.0 49.5 113.5South Mang Thit Subproject 31.0 26.9 57.9Omon Xano Subproject 10.2 7.5 17.7Quanlo-Phuonghiep Subproject 5.8 5.9 11.7Barinh Taliem Subproject 2.7 2.5 5.2Tiep Nhat Subproject 14.3 6.7 21.0

II. Rural Water Supply and Sanitation 2.3 2.6 4.9Clean water provision 1.7 2.6 4.3Improvement of sanitaion 0.6 0.0 0.6

mI. Institutional support & development 6.3 3.1 9.4Water management framework study 0.0 0.8 0.8Environmental monitoring 0.4 0.0 0.4Project management, design, supervision 5.6 0.5 6.1Training, TA, RAP monitoring 0.3 1.7 2.1

Total Base Cost 72.5 55.2 127.7

Physical Contingencies 6.0 5.2 11.2Price Contingencies 4.1 4.6 8.7

Total Project Cost 82.6 65.0 147.6

- 33 -PAD Annex 4: Economic Analysis

Page I of 14


Economic and Financial Analysis, Cost Recovery, and Fiscal Impact

Project Benefits

1. The project would help increase agricultural production, reduce rural poverty, improveliving conditions in the project area, and facilitate sustainable and integrated water resourcesdevelopment and management in the Mekong Delta. The direct benefits would accrue to both ruraland urban population in the project area through increase in agricultural production, floodprotection and drainage, improved rural transport, provision of clean water supply and sanitation,and increased rural employment through agricultural intensification. The indirect benefits wouldaccrue from processing, marketing and distribution of increased agricultural production;sustainable management of the Delta's water resources through establishment of an appropriateDelta-wide institutional framework; delivery of more efficient irrigation services throughstrengthening of IMCs; and improved sustainability of irrigation services through enhancedparticipation of beneficiaries in the planning, implementation and O&M of irrigation infrastructure,and through increased water fee collection. The quantified benefits include: (i) the increase inagricultural production and income (paras. 2-4); (ii) increased on-farm employment generation(para. 5); (iii) expanded coverage of clean water supply; and (iv) indirect, off-farm employmentgeneration. Based on these quantified benefits about one million people (45-50% of the 332,000farming households in the project area) would be beneficiaries. This figure is estimated as follows,taking into account the fact that some families would derive more than one project benefit: (i) about107,000 families on 129,000 ha of agricultural area, which would have an increased croppingintensity (average farm size about 1.2 ha); (ii) about 80,000 families (some of them landless)benefiting from increased on-farm employment; and (iii) about 50,000 families benefiting fromclean water supply. In addition, a substantial number of rural and urban households would havenon-quantified benefits, including: (i) families benefiting from processing, marketing anddistribution of the increased agricultural production, (ii) protection of property and agriculturalcrops, and improved living conditions, and access to education and health facilities in the floodseason through flood protection and drainage; (iii) increased employment in project civil worksconstruction; and (iv) improved water resources planning and management at the Delta-wide,provincial and farm levels.

2. Impact on Agricultural Production, Exports and Prices. Both rice and diversified(upland) crops production will increase under the project. Incremental paddy production due to theproject would reach 0.5 million tons (equivalent to about 0.33 million tons of rice) at fulldevelopment in year 2008, as a result of a considerable increase in the area cropped during the dryseason. The yield increase in the wet season due to better drainage and increased use of higher-yielding rice varieties and fertilizers, which are conservatively assumed to take place even withoutthe project, and, therefore, not included in the economic analysis, and some increases in croppingintensity without the project, also not included in the economic analysis, would account for aproduction increase of 0.65 million tons of paddy. The combined increase in paddy production inthe project area would, therefore, be about 1.15 million tons (equivalent to about 0.75 million tonsof rice) at full development (total 3.45 million tons of paddy, compared to 2.30 million tons in1997). The incremental 0.50 million tons of paddy under the project would be produced due to theincrease in cropping intensity to 211% with the project, compared to a projected 179% without theproject (167% in 1997). The area on which cropping intensity would increase is estimated to be129,000 ha.


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3. Since Vietnam is now among the top three exporters of rice, and increases in domesticconsumption over the next decade are not projected to absorb the increased production from theMekong Delta and other parts of Vietnam, most of the projected incremental production of 0.33million tons under the project and 0.75 million tons in the project area is likely to be exported.Even assuming that all of the 0.33 million tons would be exported, this would be only 1.6% of thecurrent world rice export of 20.2 million tons, and 1.5% of the projected world rice export of 22.2million tons in year 2005. It is difficult to say with definiteness whether this incremental export(mainly low quality rice) from Vietnam would have any impact on world prices. However, in theworst case scenario, the world prices of lower quality rice (with some concurrent impact on highquality rice) could decline by 1-2%, since the world import demand elasticity is estimated at -1.0.In the economic sensitivity analysis done for the project (see para. 11 and Tables 4 and 5 fordetails), the change in world prices was considered: a decline of 1-2% in world prices would have anegligible impact on project economic viability. The net foreign exchange earnings from riceexports of about 0.33 million tons would be about US$ 63 million per annum in year 2008 (inaddition, net foreign exchange savings from non-rice crops would be US$ 9 million per annum) in1998 constant dollars.

4. The main benefit of the project would be an increase in income from agriculture. In someareas, farmers will shift from single wet season rice to double rice. In other areas, they wouldmove from double cropping of rice to triple cropping of rice or two rice crops plus one upland crop,such as corn and vegetables. In addition, the area under semi-perennial and perennial crops such assugarcane and fruit trees would also be expected to increase with the project. This increase incropping intensity and in perennial crops will mainly be achieved by making freshwater availableduring the dry season in the project areas, where saltwater now intrudes into the canals from the seaor where no secondary and tertiary canals exist up to now. In some areas, the increase is madepossible by improved drainage and protecting land from the floods from the Bassac and fromflooding by seawater during high tides. The production of diversified crops would form asubstantial part of project benefits. This is consistent with the Government policy not to encouragea third rice crop to avoid soil nutrient losses and possible pest build up. While current prices ofnon-rice crops (mainly corn, sugarcane and vegetables) likely to be produced in the project area arequite attractive, and projected to remain so (the sensitivity analysis in Tables 4 and 5 shows thateven with a fairly steep fall in prices, the project remains economically viable), and markets,particularly for corn and sugarcane, are not a problem, the technological packages for double riceplus upland crops are still being demonstrated to farmers in some pilot areas, and the success ofthese pilots in inducing farmer adoption needs to be closely monitored during projectimplementation.

5. Impact on Rural Poverty. Although the Mekong Delta as a whole is not the poorestregion in Vietnam, large parts of the project area are relatively poor compared to other areas in theDelta. Among the 20 project districts, 12 have higher poverty rates than the average of the Delta,and in 3 districts poverty is higher than for the average of the country. These estimates are based ondata from the IFPRI study "Mapping Poverty and Agro-Ecological Potential in Vietnam" (1998),which assesses poverty based on a comprehensive set of indicators, including householdexpenditures, household size and composition, education and ownership of assets. Another povertyreport by the Government (1998) shows that the project covers 6 of the 8 poorest districts in theDelta that are also among the poorest in Vietnam. The project would contribute to the alleviationof rural poverty by directly increasing the productivity and incomes of about 107,000 farmingfamilies or about 610,000 people on about 129,000 ha on which cropping intensity is expected toincrease. The project would also alleviate rural poverty by generating employment opportunitiesthrough on-farm and related off-farm activities. The incremental on-farm direct employment as aresult of increased cropping intensity is estimated at about 79,750 person-years (@250 person-days


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per annum) at full development. This will benefit owner-operators, tenants as well as landlesslaborers. In addition, benefits would be derived from processing, marketing, and distribution of theincreased agricultural production, and substantial employment would be created due to civil worksunder the project. A gender analysis shows that there are no significant constraints on projectbenefits accruing to women. Indeed, women, as the primary collectors and managers of water inmost households, would benefit in particular from more convenient access to safe water andsanitation facilities, which would mean savings in time and effort for them, and better family healthstatus resulting from adoption of improved hygienic practices. Experience with the provision ofrural drinking water supply and sanitation services in the Mekong Delta supported by UNICEF hasshown that these services bring substantial and sustained benefits on a cost-effective basis. Theproject will also benefit ethnic minorities: about 20% of project area households are Khmer andHoa people.

Farm Income Analysis

6. Typical crop and farm budgets were constructed to estimate the impact of the project onnet economic benefits, net financial benefits and cash income (Appendices 1 and 2 show twoexamples of project farm budgets). Farm budgets show different improvements, such as a changefrom seasonal (rainfed) rice to double rice with irrigation, from seasonal rice to sugarcane, fromdouble rice to triple rice, and from double rice to double rice with one upland crop, such as corn.Table 1 compares net financial benefits for farm budgets without and with the project, based ondata shown in Appendix 3.

Table 1: Net Financial Benefits From Increased Cropping Intensity for an Average Farm of 1.25 haWithout (in 1998 prices) With (in 1998 prices) Incremental Increase

Cropping US$/year Cropping US$/year US$/year %Seasonal Rice 229 Double Rice 626 397 173Seasonal Rice 229 Triple Rice 1137 908 396Seasonal Rice 229 Double Rice/Corn 1030 801 349Seasonal Rice 229 Sugarcane 609 380 166Double Rice 625 Triple Rice 1137 512 82Double Rice 625 Double Rice/Corn 1030 405 65

Note: Net financial benefits are net of labor costs (including family labor). The detailed calculation of netfnancial benefits is shown in Appendices I and 2 for double rice as well as for double rice and corn. Thevalues in those Appendices refer to I ha, while the values in Table 1 above refer to an average farm of 1.25ha.

Land Use With and Without the Project

7. The present land use and the estimated future land use with and without the project isshown in Table 2. The economic analysis is based on the projected land use with and without theproject. The project would facilitate a significant intensification of agricultural production.


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Table 2: Present and Future Land Use in the Project AreaLand Use Present Without With W-WO

1997 Project ProjectGross area (ha) 532,973 532,973 532,973

1. Agricultural area" 413,361 413,359 411,830 -1,529

(a) Annual/semi-perennial crops 361,507 357,630 349,290 -8,340- Triple cropping 3/ 53,105 80,777 161,135 80,358

Triple rice 53,105 62,277 100,135 37,858Double rice + upland - 18,500 61,000 42,500

-Double cropping 171,775 166,694 133,255 -33,439Double rice 171,775 166,694 133,255 -33,439

-Single cropping 136,627 110,159 54,900 -55,259Rice 116,648 91,551 25,600 -65,951Sugarcane 21 19,979 18,608 29,300 10,692

(b) Perennial crops (fruit) 51,854 55,729 62,540 6,811

2. Forest 5,095 5,095 5,095 03. Fishery 18,321 18,321 18,321 0

4. Special use land 96,198 96,198 97,727 1,5295. Other 1,886 1,886 1,886

Cropped Area 691,346 741,607 872,355 130,748Cropping intensity 167% 179% 211%

1/ The agricultural area declines by 1,529 ha, which is replaced by special use land increases due toconstruction and improvement of canal and structure works.2/ The slight decline in the area under sugarcane without the project is due to acid-sulfate soils, whosecondition is expected to improve with the project.3/ Upland crops include corn, various beans and vegetables.

Economic Analysis

8. The overall economic rate of return (ERR) of the project is estimated at 30 %, with a netpresent value (NPV) of US$168 million at a discount rate of 12 %. The rate of return is influencedby substantial sunk costs in the form of existing unfinished or deteriorated water infrastructurewhich the project would complete or rehabilitate. The ERR is calculated on 89% of project basecosts plus physical contingencies (the excluded costs are taxes and duties: US$8.9 million; ruralwater supply and sanitation component: US$5.8 million; and TA for environmental monitoring andwater management studies: US$1.3 million). As shown in Table 3, rates of return vary among sub-projects:

Table 3: Economic Rate of Return (ERR) and Net Present Value (NPV) for Sub-Project AreasSubproject ERR NPV (US$ mil.)

SMT 31% 90.9OX 28% 23.2QP 45% 38.3

BRTL 31% 12.6TN 15% 3.4

Total 30% 168.4

9. The calculation of the ERR is based on the following main assumptions:


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(i) Even without the project, an increase in yields will occur due to increased use of improvedrice varieties, fertilizers, etc. (Appendix 3), as well as a limited increase in croppingintensity due to works completed prior to the project. These benefits are included in thewithout project scenario. The benefits with the project included in the ERR calculationare, therefore, conservative in that no yield increases over and above the without scenariohave been included.

(ii) As there are no significant distortions in the rural labor market, the average market wagerate for hired labor (VND 25,000 or US$1.9/day) has been used in the analysis. The samerate has been used for the imputed value of family labor. Since the project is not so largeas to significantly alter the demand for labor relative to its supply, the wage rate in ruralareas is not expected to change as a result of the project.

(iii)As the exchange rate of the Vietnamese Dong is not considered significantly distorted, aStandard Conversion Factor (SCF) of 1.0 has been used for the analysis. If a SCF of lessthan 1.0 was used, the rate of return would increase, as most project outputs (rice, corn,soybeans, sugar, etc.) are tradeable, while a substantial share of project inputs (mainlylabor) are non-tradable.

(iv) The economic prices for the main agricultural products and inputs used are export parityprice for rice and import parity prices for sugarcane, corn, soybean, fertilizers, etc. basedon the World Bank's commodity price forecasts of August 1998 for the year 2010 in 1998constant dollars. For rice, Thai 5% broken was used as the reference. The price of Thai5% broken rice is projected to decline from US$ 281/ton in 1997 to US$ 263/ton in year2010 in 1998 constant dollars. Since Vietnamese rice exports are a mixture of high,medium and low grades, a quality discount was applied to the projected price of Thai 5%broken. Based on an average actual export price for Vietnamese rice of about US$240/tonin 1997, the discount was calculated to be about 14% (Appendix 7).

(v) The costs of resettlement are included in the analysis in two ways: first, the agriculturalarea in the with project scenario - compared to the without project scenario - is lowered bythe area to be acquired by the state for project infrastructure works. Second, the costs ofthe resettlement action plan - excluding the costs for the acquisition of agricultural land -are included in the investment costs (compensation of structures and crops, compensationfor loss of homestead land and for temporary loss of agricultural land, and subsistence andtransport allowances). A sensitivity analysis was also undertaken including the costs forthe acquisition of agricultural land rather than excluding the benefits from acquired land:the ERR is about the same in both cases.

(vi) The costs of TA for environmental monitoring and water management studies (US$1.3million) were excluded as their benefits would accrue to the Delta as a whole and can notbe quantified. All other institutional development costs (project supervision, design,technical assistance, training, and incremental costs) were included in the analysis.

(vii)The rural water supply and sanitation component accounts for less than 4% of projectcosts, and its benefits could not be easily quantified. Thus neither the costs nor benefits ofthis component were included in the ERR calculation.

(viii)The time needed to reach full crop development in areas provided with waterinfrastructure is estimated to be five years after the completion of the infrastructure bothfor the with and without project case. The increase up to full development is assumed tobe linear (20% per annum).

(ix) In the base case, although the full cost of improved transportation (bridges, roads, boat


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lifts and canal waterways) to be provided under the project (10% of the project base costplus physical contingency) has been included, no benefit has been included since it couldnot be quantified. This underestimates the rate of return of the project.

10. Sensitivity Analysis. The project economic viability is most sensitive to a delay in therealization of benefits, which may be caused principally by delays in completing the tertiaryirrigation infrastructure or in farmers' slow response to the freshwater available for intensifiedcropping. The latter factor is not expected to be the case, given the response from farmers in theproject area where freshwater has been made available. The preparation and implementation oftertiary development would, therefore, need to be closely monitored during project supervision.The ERR is also relatively sensitive to a decrease in the price of rice, although the decrease has tobe much more drastic than currently anticipated. The project is less sensitive to an increase ininvestment costs or a decrease in the prices of non-rice crops.

11. A one year delay in the realization of benefits will reduce the ERR to 17 %, and a delay oftwo years will push the ERR just below the threshold of economic viability (12 %). A decrease inthe farm-gate price of paddy of 10 % will reduce the ERR only to 27 %; the same decrease in thefarm-gate prices of non-rice outputs would change it to 28 %; and a 10 % decrease in the prices ofall outputs would lead to an ERR of 24 %. The switching value for a decrease in the price of rice is49 %, corresponding to a real world market rice price of US$ 122/ton. A 10 % increase ininvestment costs and costs of operating and maintaining canals and sluices would reduce the ERRonly to 28 %.

12. Since the ERR of Tiep Nhat sub-project (15%) is the lowest among the five sub-projects,and since there is some uncertainty about the build up of benefits (10,000 ha under double rice plusone upland crop by full development, compared to zero ha at present), additional sensitivityanalysis was carried out for this sub-project. If only 5,000 ha instead of 10,000 ha are cultivatedwith double rice plus one upland crop by year 2008, the ERR would still be 13%. Although thesub-project remains economically viable under unfavorable scenarios, it would require closesupervision during implementation.

13. Table 4 summarizes the sensitivity of ERR for different scenarios:

Table 4: Sensitivity AnalysisVariable changed ERR

Base Case 30.4 %20 % decline in the farm-gate price of paddy 23.4 %10 % decline in the farm-gate price of paddy 27.0 %10 % increase in the farmn-gate price of paddy 33.9 %20 % increase in the farm-gate price of paddy 37.3 %20 % decline in the fann-gate prices of non-paddy crops 25.2 %10 % decline in the farn-gate prices of non-paddy crops 27.9 %10 % increase in the farm-gate prices of non-paddy crops 33.0 %20 % increase in the farm-gate prices of non-paddy crops 35.6 %20 % decline in all farm-gate prices 17.8 %10 % decline in all farm-gate prices 24.3 %10 % increase in all farm-gate prices 36.4 %20 % increase in all farm-gate prices 42.4 %1o % increase in investment and O&M costs 27.7 %20 % increase in investment and O&M costs 25.5 %20 % lower imputed value of family labor 34.2 %20 % higher imputed value of family labor 26.6 %


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1-year delay in realization of benefits 17.1 %2-year delay in realization of benefits 11.8 %

14. The switching values (percentage change of variable needed to reduce the Net PresentValue below zero) are as follows:

Table 5: Switching ValuesVariable changed Switching Value

Decline in price of paddy - 49 %Decline in all fann-gate prices - 28 %

Increase in investment and O&M costs + 139 %Delay in realization of benefits 24 months

Cost Recovery

15. Background. O&M tasks undertaken by the Mekong Delta provinces are limitedcompared to other regions in Vietnam because of the presence of few flow control or diversionstructures and absence of large pumping stations. Consequently, farmer's payment of water fees arelower than in other regions in Vietnam: 30-50 kg of paddy/ha/year (US$4-6) in the Mekong Delta,compared to the average 119 kg/ha/year for the whole country (the national water pricingguidelines, which aim at full recovery of O&M cost, differentiate among pumping, gravity, andgravity supplemented by pumping systems, with the range for gravity systems being 180-260kg/ha/year (US$22-3 1) for different seasons; however, in the Mekong Delta, the assessed chargefor water supplied from diversion canals is only 50% of the above rates, and actual collection is 20to 50% of the assessed rates). Because of the largely open hydraulic system and low payment ofwater fees by the farmers, reorganization and restructuring of provincial water resourcesmanagement is considered less urgent by Mekong Delta provinces. Irrigation and DrainageManagement Companies (IMCs) exist in Soc Trang, Vinh Long and Can Tho provinces since1995; in Tra Vinh, the IMC was established in February 1998; and Bac Lieu and Kien Giangprovinces are preparing to establish IMCs soon. Unlike other areas in Vietnam, where in someprovinces many IMCs have been set up, provinces in the Mekong Delta have created or intend tocreate only one IMC per province. While it may be appropriate at this early stage of IMCoperation in the Mekong Delta, it does deviate from the Government policy to establish IMCsalong hydraulic boundaries. Table 6 presents some data on IMCs in the four project provinces.

Table 6: Selected Data on IMCs in Project ProvincesCompany Area served Staff (number) Water fee Water fee Water fee Water fee

(ha) collection collection collection equivalent to kg(m VND) (USD) (USD/ha) paddy/ha/yr

Vinh Long 81,000 135 6,000 462,000 5.7 48Tra Vinh 57,000 64 1,200 92,300 1.6 13Can Tho 170,000 112 4,600 354,000 2.1 18

Soc Trang 227,000 79 5,600 431,000 1.9 16Source: MARD and data supplied by provincial IMCs and DARDs to Bank pre-appraisal mission in June1998. No IMCs have as yet been established in Kien Giang and Bac Lieu.

16. Water Fees. Water fees are being collected in Vinh Long, Tra Vinh, Soc Trang, Can Thoand Kien Giang provinces (Table 6). Kien Giang province, not shown in Table 6 since no IMC hasbeen established there, has collected about 7 billion Dong in water fees annually in recent years.Bac Lieu province has not yet introduced water fees. Table 7 below provides details of water feeand agricultural tax collection in 1997 in the four provinces.


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17. Agricultural Taxes. Farmers are subject to a variety of taxes. Annual tax on cultivatedland (called agricultural tax or land use tax) is determined by the provinces in accordance with thetax rate system stipulated by the central government. Agricultural land is categorized into 6classes, depending on soil fertility, location, topographic conditions, climatologic conditions, andirrigation and drainage conditions. For annual crops and aquaculture land, the tax rate ranges from50 kg/ha/year for the lowest class (6) to 550 kg/ha/year for the highest class (1). The tax rates forperennial crops are higher for each class. However, in order to facilitate tax collection and avoidcomplaints, provincial governments generally establish a common agricultural tax rate for thewhole province. For the project area, this rate currently stands at 200/kg/ha/year (US$25).Additional levies on farmers may include a contribution for social security of 10-20 kg/ha/year(US$1.2-2.4), a typhoon-and-flood protection fee of 1.5 kg/ha/year (US$0.2), a contribution toinfrastructure development amounting to 30% of the agricultural tax (US$8.3), and land andhousing tax of 10-20 kglha/year (US$1.2-2.4). Official total tax burden per ha per year is US$36-38 (although exemptions are easily and frequently granted on the basis of poor harvests, typhoonsor other calamities). For a typical farmer benefiting from irrigation and drainage, the total taxburden is about seven times the water fee payment. As shown in Table 7 below, the amount ofagricultural taxes collected by the provinces is 10 to 30 times the water fee collection. Although,as stated earlier, a common agricultural tax rate of US$25/ha/year is being collected, and increasedvalue of land as a result of irrigation and drainage is, therefore, not being recovered, a significantpotential exists for the provinces to recover part of this increased value by collecting a higher ratefrom farmers benefiting from irrigation and drainage.

Table 7: Agricultural Tax and Water Fee Collection in 1997 (billion Dong)Province Agricultural Tax Water Fee

Tra Vinh 31.85 1.2Vinh Long 56.81 6.0Soc Trang 69.94 5.6Can Tho 70.33 4.6Bac Lieu 25.20 --

Kien Giang n.a 7.0Source: Infonnation supplied by IMCs and provincial DARDs to the Bank pre-appraisal mission inJune 1998 and appraisal mission in October 1998.

18. O&M Expenditures. Since O&M of the irrigation and drainage infrastructure is currentlybeing done by a variety of agencies, including IMCs, DARDs, and district and communeauthorities, and farners or farmer groups (for tertiaries), accurate figures for O&M expendituresare not available. Some rough estimates are, however, presented in Table 8 below. As Table 8shows, the O&M expenditures vary a great deal among provinces, with a very low level in TraVinh, and a relatively high level in Can Tho. In general, O&M expenditures are low compared torequirements, since they have to depend primarily on budgetary subsidies, given low water feecollections (the total O&M expenditures in Tra Vinh, Vinh Long, Soc Trang, Can Tho and KienGiang provinces in 1997 are estimated at about 45 billion Dong, compared to the water feecollection of about 24-25 billion Dong). The incremental O&M cost as a result of the project isestimated at about 24 billion Dong or US$1.86 million (Table 9). It is clear that meeting this levelof O&M expenditure requirement will place a heavy burden on the provinces involved, unlesswater fee collection is substantially increased. It will, therefore, be necessary to obtain anassurance from the Government that water fee will be introduced in Bac Lieu province, and waterfee collection in all project provinces will increase to a level adequate to cover at least the cost ofincremental O&M of project-financed water infrastructure.


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Table 8: Rough Estimates of O&M Expenditures in 1997 (billion VND)Province By IMC By Others '

For Operation '/ For Maintenance TotalTra Vinh 0.5 1.2 1.7 2.0

Vinh Long 0.7 6.0 6.7 n.a.Soc Trang 1.4 3.0 4.4 4.0 3/

Can Tho 1.2 --- 1.2 15.8Bac Lieu --- --- --- n.a.

Kien Giang --- --- --- 8.0Source: Information supplied by IMCs and DARDs in June 1998 to Bank pre-appraisal mission.n.a. = not available1/ Includes sluice operation and all other staff and operating costs.2/ Maintenance (dredging) of big secondaries handled by DARDs (implemented through

construction companies), and district and commune authorities.3/ Total expenditure on secondary development was 9 billion Dong (including routine

maintenance, new excavation, and completion of on-going works). Routine maintenancewas estimated at about 4 billion Dong.

Table 9: Incremental O&M Expenditure Expected as a Result of the ProjectProject area Agricultural land Incremental O&M Incremental Equivalent water

(ha) (USD million) '/ O&M/ha (USD) fee (kg paddy/ha)1. South Mang Thit 171,441 0.91 5.31 442. 0 Mon - Xa No 38,804 0.37 9.54 793.QuanLo PhungHiep 130,530 0.17 1.30 114. Ba Rinh Ta Liem 26,585 0.14 5.27 445. TiepNhat 44,471 0.27 6.07 51

THotal 411,831 1.86Source: Feasibility Study estimates.1/ The incremental O&M cost per annum is calculated as a percentage of investment costs as follows:

1% for earthwork on primary canals; 2% for bridges, roads and embankments; 2.5% for sluices;2.3% for earthwork on secondary canals; 3% for culverts at tertiary offtakes; and 5% for boatlifts and culverts in embankments.

19. Farmers' Capacity to Pay. Farm incomes in the Mekong Delta have risen steadily inrecent years. Implemicitation of the project will create a more enabling environment for furtherincreases in farm incomes. As shown in Table 10 below, incremental incomes from projectimplementation would be more than sufficient to enable farmers to pay higher water fees. Full costrecovery for O&M of infrastructure created under the project is possible in the medium term evenwith water fee alone, and certainly with a combination of water fee and agricultural taxes (if theycapture part of the incremental value of land provided with irrigation and drainage). However, forthis to happen, it will be necessary to deliver an effective and efficient O&M program, and expandinvolvement of farmers and farmer groups in management of water resources.

Table 10: Incremental Value of ProductionSubproject Present Present value Future Value of Incremental

agricultural of production agricultural production incomearea (ha) (US$) area w/project w/ project (USD/ha)

(ha) (USD)SMT 171,837 45,044,720 171,441 77,911,773 192OX 39,130 5,024,936 38,804 12,840,260 200QP 130,979 32,825,665 130,530 44,108,170 85

BRTL 26,751 3,751,281 26,585 8,431,429 176TN 44,664 4,272,230 44,471 9,087,362 108

Source: Calculations based on feasibility study estimates


Page I of 14

Fiscal Impact

20. The counterpart funding for the project is not expected to impose a heavy fiscal burden onthe central government. The counterpart funding is estimated at about US$32.3 million, of whichabout US$9 million are taxes and duties. The net funding is thus about US$23 million, or aboutUS$4 million per annum. The total irrigation budget of the central government for 1998 is aboutUS$180 million, of which US$22 million is the counterpart funding for ODA projects. The projectwill thus result in a 20% increase in the counterpart funding for ODA irrigation projects, but onlyabout 2% increase in the overall central budget for irrigation. As for provincial governments, theincremental fiscal burden will result only from the O&M requirements after construction (about 24billion Dong or US$1.86 million per annum for the six provinces combined), since the primary andsecondary canals and structures, flood protection, bridges, etc. will all be financed by the centralgovernment, and the tertiaries are expected to be entirely financed by the farmers. However, ifwater fees are introduced in Bac Lieu province and water fee collection increased in all projectprovinces, as envisaged under the project (para. 18 above), there will be only a negligibleincremental fiscal burden on the provincial governments.


Page 11 of 14

Appendix 1: Farm Budget for Double Cropping--Winter-Spring Rice and Summer-Autumn Rice (per 1 ha)Items Unit Present Future Present Future w/p

Quantity Quantity Benefit/Cost (US$) Benefit/Cost (US$)(1) Gross Benefits: Rice kg 7,475 9,500 1,003 1,276

Economic Farm CostPlanting Seed kg 503 380 93 71N kg 194 240 86 107P205 kg 59 80 21 28K20 kg 13 60 4 17Pesticides US$ 17 17 17 17Herbicides US$ 3 5 3 5Pumping US$ 120 90 120 90Threshing kg 7,475 9,500 40 51Sundry Items US$ 9 11 9 11Land Preparation US$ 39 39 39 39Cleaning & Bundling US$ 6 6 6 6Levelling/raising bed US$ 6 6 6 6Family Labor MD 170 180 245 259Other Expenditures US$ 10 16 10 16

(2) Total Economic Farm Cost 699 723(3) Net Economic Benefits US$ 304 553= (1) -(2)

Transfer PaymentsWater Charge US$ 4 8Agricultural Tax/Levies/Fees US$ 44 44

(4) Total Transfer Payments US$ 48 52(5) Net Financial Benefits US$ 256 501= (3) -(4)Family Labor 245 259(6) Net Farm Cash Income 501 760

1. Farm Budgets may vary slightly according to land mapping units, mainly concerning fertilizer use.2. The future net financial benefit of US$ 501/ha equals US$ 626 for an average farm of 1.25 ha shown in Table 1.


Page 12 of 14

Appendix 2: Farm Budget for Triple Cropping--Rice and Corn: Autumn-winter rice, winter-spring rice andspring-summer corn (per I ha)Items Unit Present Future Present Future

Quantity Quantity Benefit/Cost Benefit/Cost (US$)(US$)

Gross BenefitsRice kg 8,912 10,750 1196 1349Corn kg 6,000 6,700 665 720

(1) Total Gross Benefits US$ 1861 2069Economic Farm Cost

Planting Seed kg 513 390 115 92N kg 393 420 175 187P205 kg 157 180 55 63K20 kg 33 90 9 23Pesticides US$ 22 22 22 22Herbicides US$ 3 5 3 5Pumping US$ 147 117 147 117Threshing kg 8,912 10,050 48 54Sundry Items US$ 12 16 12 16Land Preparation US$ 60 60 60 60Cleaning & Bundling US$ 6 6 6 6

Levelling/raising bed US$ 6 6 6 6Other Expenditures US$ 14 24 14 24F.amily Labor MD 340 360 489 518

(2) Total Economic Farm Cost US$ 1161 1193(3) Net Economic Benefits 700 876= (1) - (2)Transfer PaymentsWater Charge US$ 4 8Agricultural Tax/Levies/Fees US$ 44 44

(4) Total Transfer Payments US$ 48 52(5) Net Financial Benefits US$ 652 824= (3) - (4)Family Labor MD 340 360 489 518

(6) Net Farm Cash Income US$ 1141 13401. Farm Budgets may vary slightly according to land mapping units, mainly concerning fertilizer use, land preparationand pumping.2. The future net financial benefit of US$ 824/ha equals US$ 1030 for an average farm of 1.25 ha shown in Table 1.


Page 13 of 14

Appendix 3: Net Economic Benefits and Yields for Various CropsNet Benefits (US$/ha) Yields (t/ha)

Present Without With Present wo/p & w/p

Triple Cropping

Winter-Spring Rice 371 481 481 5.4 6.3

Summer-Autumn Rice 165 361 361 3.9 5.5

Autumn-Winter Rice 127 160 160 3.5 3.8

Corn 202 235 235 6.0 6.7

Mungbean 140 202 202 1.1 1.3

Soybean (2) 208 208 1.5 2.6

Double Cropping 11Winter-Spring Rice 226 320 320 4.3 5.0

Summer-Autumn Rice 78 232 232 3.2 4.5

Single Cropping

Seasonal rice 185 205 205 3.0 3.3

Perennial crops /Semi-perennial cropsSugarcane 305 535 535 50.0 67.5

Oranges 1,330 1,896 1,896 12.5 16.0

Other fruits 415 797 797 6.0 9.0

1/ Double cropping is an average of several combinations of rice crops.2/ Future with and without the project have the same yields for all subprojects except OX where yields wo/p areexpected to be lower than w/p due to flooding.


Page 14 of 14

Appendix 4: Projected Cropping Calendar for South Mang Thit Sub-Project AreaWinter Spring Summer-Autumn / Autumn Winter

Spring-SummerTriple Rice Dec.-March March-June June-Oct.Double-Rice Upland Jan.-April (Upland) May-August Sept.-Dec.Double Rice Dec.-March May-AugustSeasonal Rainfed Rice June-January

Appendix 5: Projected Cropping Calendar for QLPH, BRTL and TN Sub-Project AreasWinter Spring Summer-Autumn / Autumn Winter

Spring-SummerTriple Rice Dec.-March May-August Sept.-Dec.Double-Rice Upland Nov.-Feb. March-June (Upland) June-Oct.Double Rice Nov.-Feb. May-AugustSeasonal Rainfed Rice June-January

Appendix 6: Projected Cropping Calendar for OMXN Sub-Project AreaWinter Spring Summer-Autumn / Autumn Winter

l___ ___ ____ ___ ___ _________Spring-Summer

Triple Rice Dec.-March May-August Sept.-Dec.Double-Rice Upland Jan.-April (Upland) May-August August-Nov.Double Rice Nov.-Feb. May-August

rSeasonal Rainfed Rice June-January

Appendix 7: Calculation of long-term farn-gate price for rice (US$/ton)1. 2010 Rice Price Forecast by World Bank in 1990 prices 263.3

US$ Inflation from from 1990 to 1998 (MUV) 14.8%2. 2010 Rice Price Forecast in 1998 prices 302.3

Discount for Vietnamese rice (see below) -14.4%a. - Free-On-Board HCMC/Can Tho Port price 258.6

- Port Charges 7.5b. - Wholesale price in Mekong Delta 251.1

- In-province transport 2.0

- Wholesaler's margin 16.5c. - Ex-mill/Factory price 232.6

- Miller's/Processing margin 30.8+By-product value (local) 25.7-Losses from drying & processing 10.5-Dealer's margin 10.5

d. - Economic price of rice 206.5e. Conversion factor from paddy to rice 0.65f. -Economic farm-gate price of paddy 134.2

Calculation of discount for Vietnamese rice:Actual 1997 world market price for Thai 5 % broken 280.5Average 1997 export price for lower-quality Vietnamese rice 240.0Discount for Vietnamese rice -14.4%

- 47 -PAD Annex 5 Procurement/Disbursement

Page I of 6


Procurement and Disbursement Arrangements

Procurement

The Bank guidelines: Procurement under IBRD Loans and IDA Credits (published inJanuary 1995 and revised in January and August 1996; and September 1997) would be applied toIDA-financed procurement of works and goods. For ICB and NCB, the Bank SBD would beused. CPO would be responsible for procurement through ICB and contracting of TA, and woulddelegate to SIOs procurement of works through NCB. Contracts for consulting services would beprocured in accordance with the provisions of the "Guidelines for the Selection and Employmentof Consultants by World Bank Borrowers", published by the Bank in January 1997 and revised inSeptember 1997 (Consultant Guidelines). The procurement profile is shown in Table A.

Works of US$114.7 million would be required to support improvement of irrigation,drainage, saline water intrusion, flood control, navigation and rural water supply. They wouldmainly include canal dredging and excavation, construction or repair of sluices, bridges and canalconnected roads, and tertiary development. The works would be scattered over 5,350 km2 in 6provinces of the Mekong Delta and would be carried out over 6 years. The density of populationliving along the canals is high, thus land acquisition and compensation is expected to besubstantial. Construction under any contract can only begin after land acquisition has beenagreed with affected people and compensation completed. The time needed to settlecompensation issues and the wide geographic spread of the works would limit the size ofcontracts to a range of US$0.5-2 million. Given the current ICB threshold of US$2 million forVietnam, a total of US$25.8 million would likely be procured under ICB. Qualified domesticbidders participating in ICB would be eligible for a margin of preference of 7.5%. Works with atotal value of US$68.6 million would be procured under NCB. Agreement was reached duringnegotiations that local procurement procedures (Decree 43/CP dated July 16, 1996, as amendedby Decree February 25, 1997) would be used for NCB, with required revisions and clarificationsfor purposes of consistency with the Bank's Guidelines for NCB set forth in a SupplementalLetter to the Credit Agreement. These arrangements will encourage the participation of eligiblequalified local contractors. Tertiary canal and on-farm earthworks (about US$12.7 million, notfinanced by IDA) would be constructed by beneficiaries through their own labor contributionwherever secondary canals are in place, following the normal practice in the Mekong Delta.Beneficiary participatory works would be organized by commune and village authorities andfarmer water groups. Works with contract value less than US$50,000 each and with a total valueof US$7.6 million would be procured under local shopping with at least three quotations. Of thisamount, US$2.3 million would be for the irrigation component, and US$5.3 million would be forthe rural water supply component (including small schemes of piped systems, filter units, rainstorage jars and small sanitation facilities of around US$5,000 per contract), and would bemanaged by PCERWAS through community-participated programs.

Goods to be procured (vehicles and office equipment) are estimated to cost US$0.7million. CPO through 1CB would procure contracts above US$150,000 (US$0.5 million) and theremaining through international and local shopping.


Page 2 of6

Technical Assistance of US$7.8 million (Table Al) would be carried out by teams ofconsultants to assist in engineering design, implementation supervision, water managementstudies, activities under EAP (monitoring of water flow, quality and fishery, and rice-fish study)and under RAP (independent monitoring, and measurement surveys). Consultancy contracts withfirms would be based on QCBS procedures following the Consultant Guidelines, with anaggregated amount of US$5.7 million. In line with the justification ofpara. 3.8 of the ConsultantGuidelines, and in the overall interest of the project, sole source procurement of US$490,000 maybe used for: (i) strengthening of current water quality and river flow monitoring network; and(ii) RAP independent external monitoring. The justifications are: (i) the current waterquality/flow monitoring network has been operated and managed by SIWP (a local institute forwater resources planning) for years in the Delta area. SIWP has the staff, expertise, equipmentand has accumulated historical data, and has implemented several monitoring improvementprograms funded by other donors, such as Sweden. It would be a natural continuation ofprevious work to use SWIP under this project. (ii) CPO procured an external agency to do theRAP monitoring under the on-going IDA-Irrigation Rehabilitation Credit. The selection followedcompetitive process of the Bank consultant guidelines. Both CPO and the Bank have found sofar the work by this agency satisfactory. Since the TORs under this project will be similar to theones used under the on-going IDA project, it would therefore be considered efficient to use thesame agency, whose experience would be of a considerable value to monitoring of RAP underthis proposed project. The procedures for appointment of individual consultants to carry outdesign and supervision of the project works would follow Section V of the ConsultantGuidelines. Training and study tours (US$1.7 million) and incremental operating costs (US$1.5million) are unsuitable for competitive bidding and would be procured following Governmentprocedures, which are acceptable to IDA.

IDA Prior Review (Table B) would apply to IDA-financed civil works in excess ofUS$500,000. This review process would cover about 79% of the contract value for civil works.The prior review for goods is US$150,000, covering about 70% of the total value of IDA-financed goods. It should be noted that CPO has gained much experience in procurement inIDA-IRP-2711, and a large number of contracts under this project would be similar to thoseunder IRP. All consultant contracts over US$100,000 for firms and US$50,000 for individuals,all sole-source selection and all IDA-financed training proposals would be subject to priorreview. The total value of all categories subject to IDA prior review is estimated at US$88.7million, which would account for 79% of IDA financed contract value. Ex-post review of 1-in-5awarded contracts would be carried out on a sample basis during supervision. For retroactivefinancing, all contracts (expected to be over 20) would be reviewed.

Disbursement

To avoid delays in project implementation, retroactive financing of US$5 million isincluded to cover payment under civil works made between appraisal and the signing of theCredit Agreement. It would cover works of primary and secondary systems carried out in theSMT and QP subprojects. CPO would follow agreed procurement methods, and would send forIDA ex-post review all contracts to be covered under retroactive financing. To be eligible forretroactive financing, other IDA conditions (such as monitoring of RAP implementation) asstated in the Credit Agreement would also need to be met before disbursement.

A Special Account in US dollars to be operated by CPO would be set up in a commercialbank acceptable to IDA, with an authorized allocation of $5 million (equal to IDA financed


Page 3 of 6

average expenditure for 4 months). CPO would submit to IDA applications for replenishmentmonthly or whenever the amount is drawn down by 30% of the authorized allocation, whichevercomes first. CPO would transfer the funds to SIOs' accounts based on SOEs or pay directly tocontractors. The RWSS component would mainly consist of community based activities withPCERWAS as the implementing agency to assist communes in preparation and implementationof Commune Clean Water Improvement Plans (CWIP). Disbursement for the RWSS componentwould be through the SOE method for expenditures incurred. It will be through the same civilworks category but under a separate sub-category to better track expenditures and supervision.The project is to be completed in June 2004, and the credit is to be closed on June 30, 2005. Theallocation of loan proceeds is shown in Table C.

Reimbursement of expenditures for work contracts under US$500,000, goods contractsvalued at less than US$150,000, incremental operating costs, consultant contracts for firms at lessthan US$100,000, less than US$50,000 for individuals, and training would be made on the basisof statement of expenditure (SOE), which would be subject to sample post-review. CPO wouldretain all supporting documents.


Page 4 of 6

Annex 5, Table A: Project Costs by Procurement Arrangements(in US$ million equivalent)

Expenditure Category Procurement Method/a Total CostICB NCB Other N.I.F (incl. contingencies)

1. Works(a) Water control improv. 25.8 68.6 2.3 12.7 109.3

(23.5) (61.1) (2.1) - (86.7)

(b) Rural water supply/ - - 5.3 - 5.3Sanitation (3.9) (3.9)

2. Goods(a) Office equipment - - 0.2 - 0.2

(0.19) (0.19)

(b) Vehicles 0.54 - - - 0.54(0.5) (0.5)

3. Services(a) TA - - 7.9 - 7.9

(7.9) (7.9)

(b) Training - - 1.6 - 1.6(1.2) (1.2)

4. Miscellaneous(a) Land acquisition/cmp. - - - 21.0 21.0

(b) Increm. operatg. cost - - 1.6 - 1.6- - (1.4) - (1.4)

Total 26.3 68.6 19.0 33.7 147.6(23.9) (61.1) (16.8) (0.0) (101.8)

a/ ICB= International Competitive Bidding, NCB= National Competitive Bidding. Other procurement methodsinclude quotations (shopping), beneficiary participation works, force account, consultant services procured inaccordance with the Bank's Consultant Guidelines, and training. NIF= Non-IDA Financing (including tertiary systemdevelopment, land acquisition and compensation, and incremental operating costs).

Figures in parentheses are the amounts to be financed by the IDA credit.

- 51 -PAD Annex S Procurement/Disbursement

Page 5 of 6

Annex 5, Table Al: Consultant Selection Arrangements(in US$ million equivalent)

Consultant Services Selection Method Total CostExpenditure Category QCBS QBS SFB SS CQ Other NIF (including

contingencies)

A. FirmsDelta water management study 0.43 0.43Hydraulic modeling study 0.44 0.44Water quality/flow monitoring 0.27 0.27Fishery monitoring 0.10 0.10Rice-fish cultivation study 0.06 0.06Detailed measurement survey 0.37 0.37RAP independent monitoring 0.22 0.22Engineering design 3.25 3.25Technical assistance to CPO/SIOs 1.58 0.86 2.44

B. IndividualsCPO/SIO local consultants 0.22 0.22PRA Assessment in EMDP 0.11 0.11

C. Trining 1.62 1.62

Total 5.70 0.49 1.40 1.95 9.53

QCBS = Quality- and Cost-Based SelectionQBS = Quality-based SelectionSFB = Selection under a Fixed BudgetSS = Sole SourceCQ = Selection Based on Consultants' QualificationsOther = Selection of individual consultants (per Section V of Consultants Guidelines); and trainingNIF = Not IDA-financed.

All contracts greater than US$200,000 would be advertised in the Development Business.

- 52 -PAD Annex S Procurement/Disbursement

Page 6 of 6

Annex 5, Table B: Thresholds for Procurement Methods and Prior Review (US$ million)

Expenditure Contract Value Procurement Contracts Subject Total Value SubjectCategory US$'000 Threshold Method/a to Prior Review/b to Prior Review

1. Works >2,000 ICB All 25.8>50 to <2,000 NCB > 500 54.5

<50 Others None -

Subtotal 80.3

2. Goods >150 ICB All 0.5>50 to <150 NCB None -

<50 SP None -

Subtotal 0.5

3. Services Firms>100 QCBS All 5.7Firns SS All 0.5

Individuals CQ > 50 -

Training CQ All 1.6Subtotal 7.8

a! ICB= International Competitive Bidding, NCB= National Competitive Bidding. Others include beneficiaryparticipation works, force account. SP = Shopping. QCBS = Quality and Cost Based Selection. SS = Sole source.CQ = Selection based on Consultant's Qualifications.

b/ To be financed by IDA.

Annex 5, Table C: Allocation of Credit ProceedsExpenditure Category Amount Financing Percentage

(SDR million) (%)1. Civil Works:

a) Water resources works 62.0 91%b) Clean water supply 2.6 91%c) Sanitation improvement 0.2 91%

100% foreignII. Goods 0.5 100% ex-factory

75% locally procured

III. Consulting Services 4.6 100%IV. Training 0.9 100%V. Incremental operating costs 1.0 90%VI. Unallocated 1.0

Total 72.8

- 53 -PAD Annex 6: Budget and Schedule

Page 1 of I


Project Processing Budget and Schedule

A. Project Budget (US$000) Planned Actual(At final PCD stage)

PCD 50 36Final 350 379

B. Project Schedule Planned Actual(At final PCD stage)

Time taken to prepare the project (months) 88 122First Bank mission (reconnaissance) n.a. 5/19/96Identification mission n.a. 2/8/98Preappraisal mission n.a. 6/8/98Appraisal mission departure 2/98 12/15/98Negotiations 6/98 2/22/99Planned Date of Effectiveness 12/98 5/31/99

Prepared by: Ministry of Agriculture and Rural Development (MARD)

Preparation assistance: PHRD, Dutch TF

Bank task team staff who worked on the project included:

Name SpecialtyM. Xie Water Resources Engineering

S. Husain Economics/InstitutionsM. Schiffler EconomicsC. H. Zhang Social/Resettlement

R. Zweig, R. Crooks EnvironmentW. Cuddihy AgricultureC. H. Pham Operations OfficerR. Pollard Water Supply/Sanitation

T.V. Somanathan Financial ManagementC. Escudero, K. Hudes Legal

0. Ladipo Financial ManagementYani Wiguna Task Assistant

- 54 -PAD Annex 7: Project File

Page I of I


Documents in the Project File

A. Revised Project Implementation Plan (PIP, February 25, 1999)Including: Draft TOR for:1. Consulting services for strengthening of Delta-wide water management institutionalframework2. Consulting services for project supervision and improvement of O&M of irrigationsystems3. Consulting services for improvement of Delta hydraulic modeling for sluice operations

B. Project Documents: Feasibility Study Main Report (8/1998)Annex 1 Environmental Impact Assessment and Environmental Action Plan (8/98)Annex 2 Resettlement Action Plan (including ethnic development plan) (12/98)Annex 3 Water Resources Planning (5/98)Annex 4 Groundwater Resources and Rural Water Supply and Sanitation (5/98)Annex 5 Soils and Agronomy (5/98)Annex 6 Fisheries and Aquaculture (5/98)Annex 7 Institutions (5/98)Annex 8 Project Costs (8/98)Participatory Rural Appraisal (3/98)

C. Bank Staff AssessmentsIDA Reconnaissance Mission Aide-memoire: May 31, 1996

Project Concept Document: October 17, 1996

IDA Preparation Mission Aide-memoire: October 6, 1997

IDA Preparation Mission Aide-memoire: February 27, 1998

"Assessment and Recommendations on Acid-Sulphate Soils"by Dr. A. v. d. Eelaart, Soil Expert, EuroConsult, Feb. 26, 1998.

"Fishery and Aquaculture Aspects"by Prof. Nguyen Thanh Phuong, Can Tho University, March 29, 1998

IDA Preappraisal Mission Aide Memoire: June 28, 1998

"Assessment of Financial Management Capacity of Implementing Agencies" by IDATask Team, June 27, 1998

"Economic Analysis: Farm/Crop Budget Tables" by IDA Task Team, October 1998.

IDA Follow-up Preappraisal /Appraisal Mission Aide Memoire: October 22, 1998.

Maps: Mekong Delta Water Resources Project: Project Location - IBRD 29653-29656

- 55 -

PAD Annex 8: Statement of CreditsPage I of 2

Annex 8Status of Bank Group Operations in Vietnam

IBRD Loans and IDA Credits in the Operations PortfolioAs of 31-Dec-98

(In US Dollar Millions)

Original Amount in US$ MillionsFiscal

Project ID Year Borrower PurposeIBRD IDA Cancellations Undisbursed

Number of Closed Loans/credits: 3

Active LoansVN-PE-4837 1994 GOVT OF VIETNAM AGRIC REHABILITATION 0.00 96.00 0.00 2.31VN-PE-4835 1994 SOC REP OF VIET NAM PRIMARY EDUCATION 0.00 70.00 0.00 35.50VN-PE-4832 1994 GOVT OF VIET NAM HIGHWAY REHAB 0.00 158.50 0.00 68.37VN-PE-4836 1995 EVN PC2 PC3 POWER SECTOR REHAB & 0.00 165.00 0.00 42.56VN-PE,4834 1995 GOV IRRIGATION REHABILIT 0.00 100.00 0.00 72.10VN-PE-42236 1996 GOVT. OF VIETNAM POWERDEV 0.00 180.00 0.00 8.48VN-PE-36042 1996 SOC. REP. OF VETNAM BANKING SYSTEM MODER 0.00 49.00 0.00 45.49VN-PE-4S47 1996 GOV RURAL FINANCE 0.00 122.00 0.00 66.52VN-PE-4841 1996 SOCREPOFVIETNAM POPULATION&FAMILY 0.00 50.00 0.00 35.16VN-PE-4838 1996 SOCIALIST REPUBLIC OF VIE NATIONAL HEALTH SUPP 0.00 101.20 0.00 82.47VN-PE-39021 1997 GOVT OF VIET NAM RURAL TRANSPORT 0.00 55.00 0.00 39.51VN-PE-4S42 1997 GOVTOF VIETNAM HIGHWAYREHABII 0.00 195.60 0.00 181.78VN-PE-4830 1997 GOV WATER SUPPLY 0.00 98.61 0.00 99.67VN-PE-45628 1998 GOV TRANSMISSION & DISTR 0.00 199.00 0.00 202.85VN-PE-4844 1998 GOV AGRI DIVERSIFICATION 0.00 66.85 0.00 69.68VN-PE-4843 1998 GOVT OF VIET NAM INLAND WATERWAYS 0.00 73.00 0.00 74.38VN-PE-4839 1998 GOVTOFVIETNAM FORESTPROT.&RULDE 0.00 21.50 0.00 21.60VN-PE-4833 1999 MOF, GOVERNMENT OF VIETNA URiB TRAN DMPROVEMENT 0.00 42.74 0.00 44.67VN-PE-4828 1999 SOC REP OF VIETNAM HIGHER EDUC. 0.00 83.30 0.00 87.24

Total 0.00 1,927.30 0.00 1,280.34

Active Projects Closed Projects TotalTotal Disbursed (IBRD and IDA): 612.43 243.82 856.25

of which has been repaid: 0.00 5.97 5.97Total now held by IBRD and IDA: 1,927.30 238.73 2,166.03Amount sold :0.00 0.00 0.00

Of which repaid 0.00 0.00 0.00Total Undisbursed 1,280.34 0.00 1,280.34

a. Intended disbursements to date minus actual disbursements to date as projected at appraisal.b. Following the FY94 Annual Review of Portfolio performance (ARPP), a letter based system was introduced (HS = highly Satisfactory, S satisfactory, U = unsatisfactory, HU = highly

unsatisfactory): see proposed Improvements in Project and Portfolio Performance Rating Methodology (SecM94-90 1), August 23, 1994.

Note:Disbursement data is updated at the end of the first week of the month.

Generated by the Operations Information System (OlS)

- 56 -PAD Annex 8: Statement of Credits

Page 2 of 2

VietnamSTATEMENT OF IFC's

Committed and Disbursed PortfolioAs of 3 1-Dec-98

(In US Dollar Millions)

Committed DisbursedIFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic1994 Hanoi Metropole 3.67 0.00 3.50 12.12 3.67 0.00 3.50 12.121995 Baria Serece Prt 3.00 0.00 0.00 1.80 3.00 0.00 0.00 1.801995 Foremost Dairy 6.40 0.00 0.00 5.20 6.40 0.00 0.00 5.201996 Kyoei Steel 15.00 0.00 0.00 0.00 15.00 0.00 0.00 0.001996 Morn.Star Cement 30.00 0.00 0.00 66.60 30.00 0.00 0.00 66.601996 Sucre de Bourbon 22.00 0.00 0.00 20.00 22.00 0.00 0.00 20.001996 SMH Glass Co. 10.00 0.00 0.00 4.50 10.00 0.00 0.00 4.501996 Vimaflour 8.00 0.00 0.00 3.00 8.00 0.00 0.00 3.001996 VILC 0.00 .75 0.00 0.00 0.00 .75 0.00 0.001997 Saigon Hilton 13.05 0.00 0.00 21.00 0.00 0.00 0.00 0.001997/0 Nghi Son Cement 30.00 0.00 0.00 26.50 0.00 0.00 0.00 0.00

Total Portfolio: 141.12 .75 3.50 160.72 98.07 .75 3.50 113.22

Approvals Pending Commitment

Loan Equity Quasi Partic1998 BA RIA 24.20 4.00 0.00 49.001998 BAWC 12.50 0.00 0.00 12.501997 NGHE AN SUGAR 20.00 0.00 0.00 30.001997 SEM HOTEL 0.00 0.00 4.50 0.001996 VIETNAM INTL LSE 5.00 0.00 0.00 10.001997 VINAFOOD 10.50 0.00 0.00 13.50

Total Pending Commitment: 72.20 4.00 4.50 115.00

Generated by the Operations Information System (OIS)

- 57 -

Vietnam at a glance Annex 9 10/1198Page 1 of 2

EastPOVERTY and SOCIAL Asia & Low-

Vietnam Paclflt fcome Development dlamond'1997Popuation, mid-year (millions) 76.7 1,763 2,048 Life expectancy

GNP per capita (Atdes method, US$) 320 970 350GNP (Atlas method US$ bilions) 24,5 1x707 722

Average anrwal growth, 1991-97

Population (%) 2.1 1.3 2.1Labor orce (%) 1.9 1.4 2.3 GNP Gross

per primaryMostsentestlmate (latest year avallablo, 1991-97) capita \, ,/ enrollment

Poverty IIoI population belownational poverty line) 51 . .Urban popuaion (% of tolpopuftn) 20 32 28Life expecW at birth (years) 68 69 59infant mortAy (per 1,000 lie births) 41 38 78Child alnutrition (% of chilhen under 5) 45 16 61 Access to safe waterAccess to safe water (% of population) 38 84 71Illiteracy (% at populaton age 156) 6 17 47 Gross primary enrollment (%oschool-age population) 114 115 91 Vetnam

Mate .. 118 100 Low-income groupFemale .. 116 81

KEY ECONOMIC RAtIOS and LONG-TERM TRENDS

1976 1986 1996 1997EconomIc ratlos*

GOP (US1$ bIions) 23.3 24.8Gross domei investmenUGDP .. 15.6 27.9 27.A TradeExports of goods and services/GOP .. 7.2 43.1 4 ,2Gross domestic savings/GOP 4.8 - .Gross national savings/GDP 7. .. 16.7 20.1

Currentacwunt balanex/GOP . . -11,1 -7.5 Domestic Interestpayments/GDP . . 1.5 2.0 S g InvestmentTotal debVtIDP .. .. 1147 71.9 SavingsTotal debt servi:e/exports .. .. 3.4 3.4Pesent value of debt/GDP .. .. 103.8Present value ot debtexports .. .. 237.3

Indebtedness197S6-8 1987-97 1596 1T97 1998402

(average annual growth)GVP - 7.7 9.3 8.8 4.5 VietnamGNP per capita .. 5.4 7.1 6.8 2.1 Low-income groupExports of goods and servies .. 26.5 37.4 13,3 5.9

STRUCTURE of the ECONOMY1976 1986 1996 1997 Growth rates of output mnd Invesmrent (%

(% of GDP)Agriculture .. 36.1 27.2 26.2Industy .. 35.3 30.7 31.2 40

Manufacturing .. 32.5 .. ..

Services .. 28.6 42.1 42.6

Private consumption -.. .. .. 92 93 94 99 98 9l

General government consumption .. .. .. .. _ D OGDPImports of goods and services .. 18.0 56.9 54.1 |

197686 1987-97 1996 1997 Growth rates of exports and Imports 1%)(average annua/ growth)Agriculture .. 5.3 4.4 4.5 soIndustry .. 12.5 14.4 13.1 60

Manufacturing .. .. 4

Services .. 8.8 9.9 9.2 2:

Private consumpVion .. 7.2 17.8 2.7 _

General govemment consumpton .. 10.9 4.0 2.5 o 2 93

Gross domestic investment .. 25.4 20.6 10.6 -20

Smports of goods and services .. 28.5 44.1 7.2 - Exports lmportsGross national product .. 7.7 9.3 8.8

Note: 1997 data are preliminary estimates.

The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond willbe incomplete.

- 58 -

Page 2 of 2

PRICES and GOVERNMENT FINANCE1976 1986 1996 1997 Inflation%

Domestic prices 1D(% change) 1

Consumer prices .. .. 5.6 3.6 75Implidt GOP deflator .. 280.3 6.2 5.1 so

Govemment finance 25(% of GDP, includes current grants) oYCurrent revenue .. 15.0 23.6 22.4 92 93 94 95 9S 97

Current budget balance .. 0.0 5.8 5.3 GDP deflator CPIOverall surplus/deficit .. ,. -0.2 -0.6

TRADE

(UIS$ millions) 1976 1986 1996 1997 Export and import levels (US$ millions)

Total exports (fob) , 595 7,331 8,955 1s5,0o0Rice .. .. 855 927Fuel .. .. 1,346 1,443 10oo.0Manufactures -- --

Total imports (cif) ,, 1,162 13,255 13,466

Food£00005Fuel and energy o l 1Capital goods.. .

Export price index (1995=100) ..Import price index (1995=100) .. .. .. .. * Exports e IrrportsTerms of trade (1995=100) .. . ..

BALANCE of PAYMENTS

(US$ millions) 1976 1986 1996 1997 Current account balance to GOP ratlo (%)

Exportsof goods and services .. .. 10,042 11,485 °Imports of goods and services .. .. 13,255 13,466 E92iResource balance .. .. -3,213 -1,981

Net income .. -94 -425 -603II -Net current transfers . 9457 1,046 713

Current account balance .. -655 -2,592 -1,870 |'t

Finandng items (net) 340 3,063 2,238Changes in net reserves .. 315 -471 -368 |s -.

Memo:.Reserves induding gold (USS millions) ..Conversion rate (DEC, localUSS) .. .. 11,080.0 11,900.0

EXTERNAL DEBT and RESOURCE FLOWS1976 1986 1996 1997

(USS millions) Composition of total debt, 1997 (US$ millions)Total debt outstanding and disbursed 0 175 26,764 17,864

IBRD 0 0 0 0 B: 589IDA 0 59 412 569 G: 1,078 C 452

Total debt service 0 2 346 395 F: 1,924 D: 243IBRD 0 0 0 0IDA 0 0 3 4

Composition of net resource flowsOffrcial grants 151 65 230 350Official creditors 0 5 295 623Private creditors 0 0 171 230Foreign direct investment 0 0 1,500 1,800Portfolio equity 0 0 390 0 8E13,598

World Bank programCommitments 0 0 502 444 A - IBRD E - BilateralDisbursements 0 5 189 181 B - IDA D - Other multilateral F - PrivatePrincipal repayments 0 0 1 1 C - IMF G - Short-termNetflows 0 5 188 180 _ _Interest payments 0 0 2 3Net transfers 0 5 186 177

EASPR 1011/98

1 0.2b Russian Rouble debt has been converted into US Dollars assuming an exchange rate of US$1.00 = 1 Rouble. The exchange rateused by the World Bank is for reference purposes only.

- 59 -PAD Annex O Social Impact

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Social Impact Summary

Project Social Impacts

1. The project population is 2.3 million. Farmners constitute 76% of the households. Theproject consists of five subproject areas (14% of the Mekong Delta), spreading over 535,000 ha insix provinces in the Delta. Socio-economic surveys indicate that incomes of farming householdsare, in general, from farming, livestock rearing, business and, to a smaller extent, forestry andfishery. Land holdings average 1.2 ha per household. Linear settlement along canals andwaterways is common in the Delta, creating a typical ribbon development pattern stretching tens ofkilometers.

2. Though economic growth in the Delta is progressing rapidly, there are pocket areas in theDelta where farmers are among the country's poorest. Literacy rate, poor drinking water supplyconditions, hard living conditions caused by constant floods, and inadequate rural electrificationand transport all compare unfavorably in the country. Among the 20 districts in the project area,12 have higher poverty rates than the Delta average, and in 3 districts (two in SMT and one in OX)poverty is higher than for the average of the countryl. Another poverty by the Government (1998)shows that the project covers 6 of the 8 poorest districts in the Delta that are also among thepoorest in Vietnam.

3. Overall, the social impact of the project on most of the project population appears highlypositive in terms of increasing farm incomes from improved agricultural production, employmentgeneration, safe water supply and better sanitation conditions, flood protection, and better road andtransport conditions (details in Annex 4). The project would facilitate multiple cropping in areasthat are now limited to a single wet season crop or to unstable two crops. Flood protectionimprovement in OX area would also bring significant social benefits, including protection ofproperties and crops, access to schools and health facilities during the flood seasons. Landlesslaborers, estimated to about 15 % of the total population, would benefit from the increase in hiredlabor requirements of more intensive cropping. With the project, an average farm (1.25 ha in theproject area) would have increase in incomes ranging from 65% to nearly 400% over the without-project situation.

4. The main adverse impact of the project relates to land and other asset acquisition due torehabilitation and improvement works over 3,000 km of canals and embankments, and building orrepair of 188 control sluices (Annex 2). Land acquisition would total 3,960 ha, of which 70%(2,745 ha) will be occupied temporarily for accommodation of construction materials and depositof spoils during the period of construction, and 1,217 ha will be permanent losses to water bodies,canals and infrastructure.

5. Due to the pattern of settlement in the project area, land and other asset acquisition underthe project will affect 34,004 families, representing 8% of the project population. Over 95% of

I These estimates are based on data from the IFPRI study "Mapping Poverty and Agro-Ecological Potential inVietnamn" (1998), which assesses poverty based on a comprehensive set of indicators, including householdexpenditures, household size and composition, education and ownership of assets.

- 60 -PAD Annex 10 Social Impact

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these PAF will lose a small strip of their land or assets partially, and will not be displaced. Anestimated 1,655 PAF (0.4% of project population, 5 % of PAF) would be expected to opt forrelocation. The number was based on minimum livable size (100 m2) by the GOVN. These PAF,most of them are traders, officers and landless labors, will mostly move within their current villageor commune.

6. Detailed RAP inventory and impact analysis reveal that: (i) On average, PAF would lossabout 5% of their current agricultural land holding, and 10% of their current homestead holding.The impact on the vast majority of PAF would be a loss of small strips of land that represent lessthan 20% of their total land holding. (ii) Over 93% of PAF are farmers and are thus direct projectbeneficiaries. Most of the losses are expected to be offset in economic terms by productivity gainsresulting from the project and higher land values due to access to supply of water. In addition, allPAF will receive compensation and rehabilitation at replacement costs. (iii)4% of PAF will losemore than 20% of their agricultural landholding, some will be among the relocatees. (iv) Almostcomplete existing registration of agricultural lands will strengthen the rights of the PAF andeffectively limit the possibility of encroachment. (v) A majority of PAF welcome the project, asthey see the benefits that would result from improved water systems for their farms and families.

Mitigation Measures

7. Throughout preparation, special efforts were was made to avoid, wherever possible,displacement of people, to minimize the number of PAF, and to protect the interests of PAF.Social surveys/detailed inventories were carried out to assess and analyze the exact impact onPAFs. Since early 1998, the census and inventories have registered, for each PAF, names,settlement, ethnicity, occupation, and detailed categories of losses (land holding, house structures,trees, wells, graves, etc.). The census also provided feedback on PAF's attitude towards theproject. For all PAF, the door-to-door inventories (including on relocation alternatives) wereconducted jointly by the central, provinces and communes.

8. Preliminary engineering design was adjusted and optimized in canal and embankmentalignment, structure layout, alternative locations, by-passes and technical parameters to minimizethe need for acquiring land and to reduce negative impacts on PAF. Suggestions from the affectedpeople and village and commune committees were taken into consideration to reduce the adverseimpact. The above measures have resulted in a significant reduction of the number of PAF,especially the potential relocatees (due to alternative location of embankments, ditches andsluices). The original layout of new canal systems was adjusted, wherever possible, which reducedthe number of PAF by nearly 1,500. The same effort and adjustments to designs will be madeduring project implementation to minimize the adverse impact on PAF.

Resettlement Action Plan

9. A Resettlement2 Action Plan (RAP) was prepared by the Government. Significantimprovements in the country's resettlement policies and practices have occurred recently. TheRAP was prepared on the basis of relevant Vietnamese laws and regulations (especially Decree

2 The word "Resettlement" used in this document refers to compensation and rehabilitation for land and other assetacquisition as well as relocation of project affected people.

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22/CP, effective in May 1998) and Bank OD 4.30, and incorporated the results of manyconsultations with PAF. The RAP is found to be generally in line with the Bank OD 4.30.

10. Since 1993 with the introduction of a new land law, over 83% of farmers have obtainedLand Use Right Certificates (LURC). The remaining are in the process of applying for LURC. Theabsence of a LURC does not bar any PAF from compensation entitlement. Virtually all PAFfarmers thus have permanent or temporary land use rights.

11. The total cost of RAP implementation is estimated at US$22.5 million, including 10%contingency. The cost is based on the census, inventories, entitlement package and thecompensation rates reflecting current replacement cost without depreciation, and rehabilitation andsupport measures. The total budget includes compensation, rehabilitation allowances, cost ofrelocation, skill training for PAF, staff training, equipment, DMS, external monitoring andadministration. Provision of adequate funds is among the priorities of the GOVN for projectimplementation. Options would be provided to PAF for both land-for-land and cash-for-land. Forthe 1,655 PAF who are expected to be relocated, the RAP has designed two alternatives: groupresettlement at government identified sites, and self-selected relocation at PAF's own choice.Provincial authorities have identified eleven resettlement sites within their provinces andconducted a household-by-house consultation over PAFs' preference. All PAFs have chosen theself-relocation package, and are expected to move to nearby locations within their own village orcommune. Temporary land occupation during the period of construction and the deposit of spoilswould cause a temporary loss of production (6-12 months). So far, practices show that farmerswelcome the deposit of canal excavated materials, as they use them to raise houses and orchardbeds (all permanently improve their land value). Compensation package would nevertheless beprovided for the loss of production.

Ethnic Minorities

12. Two main ethnic minority groups among project population are Khmer and Hoa, a total ofwhich represents 21% of project population. The Hoa constitute less than 2%, primarily involvedin trading, and they are over-represented in commercial activities, and will indirectly benefit fromeconomic development of the area. Few will be affected by land acquisition. The Khmer peoplelive mainly in Tra Vinh and Soc Trang provinces, many close to the coast, outside or adjacent theproject area. They are usually among the poorest. Relatively speaking, the Khmer living within theproject area enjoy a higher standard of living compared to those living near the coast. This isattributed to better agricultural and market opportunities, and similarity between the Khmer and theKinh in agricultural practices. But on average the Khmer are poorer than the Kinh. UNDP ispreparing a Poverty Alleviation Project specifically designed to help the Khmer minorities.

13. Socio-economic studies and surveys reveal that the ethnic issue in the Mekong Delta isdifferent from that in the central highlands of Vietnam, as the official Vietnamese perception ofethnic minorities is linked to mountainous areas, not to the paddy growing plains, such as in theproject area. Almost all the Khmer people in the project area are paddy farmers, practicing thesame farming activities as the Kinh. Thus, they would be targeted project beneficiaries, and theirlives and income would be enhanced by the project. The project social assessment reveals that: (i)The Khmer people tend to be one-crop wet season paddy farmers, whose income will besignificantly increase with the project by increased freshwater availability to grow double or triplecrops. (ii) Although the project would benefit the Khmer similarly to Kinh farmers, since Khmerfarmers often rely exclusively on agriculture for their income, whereas Kinh farmers tend to have a


Page 4 of 7

more diversified income, the project could prove especially significant for Khmer farmers. (iii) Ofthe total PAF, 25% are Khmer, including 267 Khmer families who would need relocation (16% oftotal relocatees). No cultural sites or structures (such as temples) will be affected by landacquisition. (vi) All arable land in the project area is titled with land use right certificates and theproject will therefore not attract immigration causing 'forced' displacement of vulnerable groups.(v) Consultation with the Khmer, as well as the Kinh, took place during project preparation. Someof the provincial leaders and officials who participated in the project preparation are Khmerthemselves. There is full endorsement of the project from farmers of both groups.

14. In compliance with OD 4.20 on Indigenous Peoples, an Ethnic Minority DevelopmentPlan (EMDP) has been developed under the project, as a part of RAP, based on extensive PRAconsultations (para. 15) with the Khmer and participation of Khmer officers in project planning anddesign. The EMDP aims to ensure that the ethnic minorities benefit from the project investmentand that adverse project impact is mitigated with proper and culturally compatible measures. Itwould supplement the project benefits through: (i) training of and extension support to Khmerfarmers to enable them to utilize and enjoy the land and water resources improvement created bythe project; (ii) a set of programs to ensure that the Khmer fully participate in the decision-makingprocess during implementation; and (iii) rehabilitation measures consistent with the culturalsensitivity and identity of the Khmer families affected by land acquisition.

Participation During Project Preparation

15. In Vietnam, there is a tradition for farmer participation in tertiary irrigation developmentand management at the grass-root level. However, for design of most large scale water resourcesprojects, a top-down approach is typical. To ensure local ownership and agreement with the designof the proposed project, participatory approaches were used in the feasibility study throughParticipatory Rural Appraisal (PRA) and consultations with stakeholders at provincial, districts andcommune levels in the form of planning meetings, workshops, field and household visits, farmerinterviews, village meetings and surveys. The purpose was to inform the communities and assessthe perception of the project among farmers. The consultation feedback provided basis foradjustments to the engineering design and the formulation of the RAP and EMDP to mitigate theadverse impact caused by the requirements for land under the project.

16. The PRA was carried out during September 1997 - February 1998, with focus oncommune and village level participation and consultations. The PRA process provideddissemination of project information; collection of feedback on farmers' needs, constraints and theopportunities they perceive; identification of the degree of project impact (positive and adverse);and obtaining input from stakeholders to make necessary adjustments in engineering design tomitigate land acquisition impact. It was carried out by local and international social experts whoall speak Vietnamese. The basis for selection of communes for the PRA fieldwork included:cropping patterns (single, double, non-paddy); non-paddy activities such as fish/shrimp farming;presence of potential adverse impact; and ethnic composition (significant Khmer presence). Theattached Table provides an overview of the problems and feedback identified during PRA, andhow the project has addressed the feedback. The majority of farmers interviewed expressedappreciation for the project, and their strong desire for the project to help increase agriculturalproduction and income. One of the observations from PRA is the general lack of informationamong farmers and district or even provincial officials about government plans. The lack ofinformation often leads to a wait-and-see attitude and belief that the planners and engineers at thecentral level know best. The PRA under this project provided an initial effort in consultative


Page 5 of 7

planning of a large irrigation project and was welcomed by locals, as it provided an opportunity forlocal people to get information and voice their concerns and views to improve project design.

Participation During Project Implementation

17. Prior to the start of project works, information regarding project scope and impact wouldbe disseminated through provincial television, newspapers, and district/village announcementsystems. This would be followed up by commune and village meetings organized by communepeoples committee and farmers' union. The RAP, which has incorporated lessons from previousland acquisition activities in the Delta area, contains an elaborate information campaign andconsultation strategy with clear objectives, specific activities, methodologies and procedures.Consultations with each PAF would take place in connection to the detailed measurement survey,and a grievance system is in place for complaints. The above process has largely been practiced bythe provinces in the irrigation schemes already developed. Under the proposed project, this processwould be formalized and strengthened.

18. Participation of beneficiaries during project implementation would take the form of farmercontribution to development of tertiary canal earthworks. The concern that tertiaries do not getbuilt by farmers does not seem to apply to the Mekong Delta. Experience in the fresh water areasof the upper-middle Delta suggests that farmer response to irrigation development is rapid andwidespread. The Delta's water delivery system differs from conventional irrigation systems inupland areas, where accurate surveys, careful design, check drop structures and outlets at frequentintervals are required and need to be maintained. It is sometimes difficult to leave them to farmersalone to solve. But all that is needed in the Mekong Delta is a ditch branching off fromsecondaries. It is evident that in parts of the project area--wherever the freshwater regime has beenimproved, farmers have taken initiative to build tertiary and on-farm systems, and have increasedproduction significantly.

19. During preparation, the need for support to water user groups and farmer organization wasassessed. Farmers in the project areas are organized under the commune structure and in farmers'union and women's union. After the abandoning of the formal agricultural cooperatives, new formsof cooperation are emerging based on voluntary association. It appears that when needed, thefarmers organize themselves for specific tasks. For example, the PRA works revealed that somepilot Joint-Liability Agricultural Production Groups (JAPG, also called Lien Dan) in the SMTareas have been voluntarily formed recently by farmers themselves to, inter alia, manage water atthe tertiary/on-farm level. The JAPG's original objective was to gain access to rural credit/savingservices. Its activity was later expanded to manage tertiary canals, supply irrigation water, andprovide agricultural service to its members. As these JAPGs are new, it is still too early to assess ifthis model should be disseminated to all project provinces. A national policy on organization andfinancing of these JAPGs is yet to be developed by MARD and MOF to ensure the sustainability ofJAPG in the long run. The new Water Law's upcoming implementation guidelines would alsoprovide guidance in developing such national policy. During implementation, farmer participationin irrigation management would be supported through formulation and implementation of tertiarydevelopment plans (see PAD on Institutional issues, Annex 2 on project description, and Annex 4on cost recovery). The project would also provide funds for training, through IMCs, to farmersand farmer groups to improve their capacity in tertiary canal development and O&M, where such aneed is expressed.


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Implementation Arrangements for RAP

20. The organizational framework for RAP implementation is already in place in the sixproject provinces, as irrigation development has been ongoing for years. Resettlement Committeeshave been established at provincial, district and commune/village levels to guide, coordinate andimplement the resettlement activities in their respective jurisdictions. They are chaired by theChairman or Vice-Chairman of the respective People's Committees (PC) at every administrativelevel (see RAP for details).

21. CPO under MARD has the overall responsibility for project implementation (includingRAP) and will be guided by the Project Steering Committee, chaired by the Minister of MARD. Itwill approve and allocate RAP budget, supervise RAP progress, coordinate at the central level, andreport to MARD/GOVN and IDA. CPO, the implementation agency for the on-going IDAIrrigation Rehabilitation Project, has gained considerable experience on IDA resettlement policies.SIO would monitor and supervise the day-to-day activities of RAP implementation, coordinatewith planning of civil works schedule, manage the subproject budget, coordinate with localauthorities and DARD, and internal inspection and monitoring. It has supervised resettlementactivities in numerous Government irrigation projects in the area, working with resettlementauthorities at various administrative levels. CPO is planning a series of training for provincial andlocal staff on RAP implementation.

22. Regular monitoring of RAP implementation will be conducted through internal andexternal monitoring. CPO will carry out internal monitoring, and submit to IDA progress reportsevery six months. External monitoring will be by an independent agency, specialized in socialsciences. The agency would submit periodic reports on RAP implementation and makerecommendations concerning major issues.

23. Detailed implementation schedules for resettlement have been developed in accordancewith the construction schedules of the civil works. IDA review and approval of an annual RAPimplementation plan, and of RAP implementation progress and monitoring reports is also required(see PAD section G.).


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PRA Feedback Project ResponseNeed for capital investment in Design/feasibility study aims to improve water delivery, floodagriculture (incl. irrigation and protection, prevent saline water intrusion, and improve of rural waterdrainage, flood protection) supplyStrong request by farmers for The structures were included as part of the project financingtertiary level control structures(sluices/culverts).Early implementation/completion Preparation was accelerated, in parallel to the process of feasibilityof the irrigation systems. study.Farmers should take part in the Farmers would participate in formulation of tertiary developmentmanagement of tertiary irrigation plans; be responsible for tertiary earthworks and participate in O&M of

irrigation systems. IMC would provide training to farmers.Issues related to rural water A rural water supply and sanitation component was included,supply, women's health were addressing the need for clean water and sanitation with participation ofstrongly expressed during women's unions.consultations with women'sgroups.In QP subproject area, not all This area, where shrimp farming is practiced, was taken out of theshrimp farmers welcomed project, after the issue was raised by a substantial number of localfreshwater farming, especially in farmners.the severe acid areas. Somefarmers would loose large incomeas the result of the project.Fair compensation related to land Locations of embankments and sluices were modified to minimizeacquisition negative impact to people's life. A draft RAP in line with IDA policy,

including the provision of compensation at replacement cost withoutdepreciation, was prepared as part of feasibility study.

Lack of knowledge and Included in RAP, vocational training of PAF's choice would bevocational skills for PAF provided for one person from each PAFLack of off-farm jobs Not directly addressed. Increased agricultural production in the project

area is expected to increase off-farm employment opportunities.Unclear division of responsibility Included an institutional strengthening component to assist inof irrigation waters improving participatory management of water resources.Emerging of "new" style farmer The project would support farmer groups, training in waterwater groups and cooperatives in management and techniques to operate and maintain the tertiaries.some subproject area Support for strengthening, training and legal registration of farmer

groups would be provided under the annual tertiary development plan.Lack of information regarding A continued PRA during implementation is envisaged for formulationplanning of TDP. Information campaign would be carried out (see RAP).Khmer minority group Project information in Khmer language will be provided to Khmer

communities.Landlessness is said to increase Not addressed. Almost all land is allocated with LURC. A Ruraldue to the emerging land market Development Strategy is being prepared by GOVN and IDA, including

policy measures to secure access to land.Lack of access to credit Not addressed. An IDA rural finance project and a rural development

strategy (being prepared by GOVN and IDA) will include policymeasures to reduce distortions in rural credit market.

Weak extension services in some Not addressed. An IDA Agricultural Rehabilitation Project is dealingplaces with this issue.

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Environmental Review Summary

1. The proposed project aims to increase agricultural production and improve the livingstandard of people in the project area. The project covers five sub-project areas and spreads over halfmillion ha (about 12% of the Mekong Delta). All sub-projects are located in the lower Delta, exceptthe OX sub-project which is located in the middle Delta (see Annex 2). These sub-projects wereidentified as having environmentally sustainable development potential in the Mekong Delta MasterPlan (MDMP) which was completed by the Government in 1993 (with assistance from the MekongCommission Secretariat, UNDP and the Bank). The climate in the project area can be characterizedas tropical monsoon with a distinct wet season from May to November with 80-90% of annualrainfall averaging about 1,400 mm and a dry season from December to April. The area is affected tovarying degrees by salinity intrusion. During project preparation, areas with mostly severe acidsulfate soils that are occupied by shrimp farming in the QP sub-project were excluded from theproject. Virtually all the land in the project area is already used for agriculture, infrastructure, andsettlements.

2. The potential environmental impacts of the sub-projects were reviewed in the pre-feasibilitystudy reports prepared by the Government and its consultants: NEDECO/SMEC (as part of theMekong Delta Master Plan) and ESSA Environmental Engineering (as part of the project pre-feasibility studies). On the basis of these reports, IDA concluded that the project is anEnvironmental Category B project since the project was found to have relatively limitedenvironmental impact potential; and for those adverse impacts which could potentially occur, thereexists reasonably straightforward and well known mitigation measures which could be applied.Accordingly, the Bank requires preparation of an "Environmental Review and EnvironmentalManagement and Monitoring Plan". During feasibility study, a detailed environmental review wascarried out'. The review provides, for each sub-project, a description of the project activities, maincharacteristics of the existing environment with emphasis on aspects which are likely to be impactedby the proposed developments, identification of the main adverse impact potentials, andrecommendations of environmental management and monitoring plans which should be adopted toavoid or reduce the specified impacts. The environmental work was carried out by CPO of MARDwith assistance from a team of local experts and of international consultants from Haskoning, inassociation with Euroconsult and Delft Hydraulics of the Netherlands. Supporting documents areavailable in the project file.

3. The review concluded that there would be no major adverse environmental impact whichcannot be mitigated under the project, and the project activities would not impact upon criticalnatural habitats in the project area.

IThe GOVN carried out an environment impact assessment as part of the project feasibility study. Among thefeasibility study reports and preparation documents in the Project File, relevant reports are: (a) Feasibility Study AnnexI "Environmental Impact Assessment and Environmental Action Plan", August 1998. (b) Feasibility Study Annex VI"Fisheries and Aquaculture", August 1998. (c) "Fishery and Aquaculture Aspects", by Prof. Nguyen Thanh Phoung ofCan Tho University, March 1998.

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Potential Impacts

4. The following section summarizes the main potential environmental concerns that werereviewed: increased leaching of acids from exposed pyritic soils into agricultural fields, fish pondsand water channels due to canal construction and improvement; changes in water quality due toincreased application of agro-chemicals as a result of more intensive cultivation; impacts on fisheriesdue to changes in surface hydrology and inundation; conversion of seasonal saline areas into yeararound freshwater habitat; possible increases in tidal levels in the vicinity of sluice gates; andimpact of sluices on canal transport.

5. Leaching of Acids. The project area contains predominately alluvial and sandy soils.Although it is located largely outside severe acid-sulphate areas identified in the MDMP soil maps, itcontains patches of acid sulfate soils. At an aggregated level, patches of shallow/severe acid sulfatesoils cover about 10% of the project area and are mostly confined to the QP sub-project area2. Theenvironmental concern was that some of these soils would be exposed in places where canalexcavation or dredging would take place and could result in an increase in acid release from acidrunoff and leaching from spoils or canal embankments. The releases of acidity could have adverseenvironmental impact on the project area and its downstream areas.

6. The existing situation is that acid is already being released in these area due to naturaloxidation and the common practice of farmers plowing their fields toward the end of the dry season(March-April) to expose underlying pyritic soils to oxidation as part of the land improvementprocess. At the onset of the rainy season, the first rains flush the fields and carry the acid and metalsdissolved from the soil into nearby canals and rivers. At this time (end May-early June), surfacewaters already contain high concentrations of acid and pH can drop to as low as 3, causingdownstream impacts, especially to aquaculture. During this period, local people don't use the watersfrom the canals or rivers for agriculture, aquaculture or domestic use, as rain water supply is alreadyplenty. Over ten years' monitoring data show that pH goes back to normal from end June-early July,due to the tremendous flushing capacity of the Mekong river. The project works will proceedincrementally throughout the sub-project areas over six years and the additional acid releases due toproject works in these areas are not expected to cause any significant change to the existingsituation. The potential impact was assessed as being marginal and insignificant.

7. Patches of slight-to-moderate acid sulfate soils cover about 30% of the project area. Again,most of these are in the QP sub-project. These areas have a deep layer of non-pyritic/jarositic soil onthe surface. Canal rehabilitation and improvement could expose some of the deep layer pyritic soilsplaced on canal banks by grab dredging or in confinements by cutter dredging. This would cause therelease of acid and metals from the oxidation of the exposed soils. The environmental concern wasthat at the beginning of the rainy season, the acid release from the spoil into runoff could affectadjacent agriculture and aquaculture. This type of acid release may last for as long as 3 -5 years,peaking in the first year and tapering off rapidly thereafter.

8. Agro-chemical Use. Most surface waters in the sub-project areas are already marginallyeutrophic, mainly due to poor water exchange. With the project, the cropping pattern wouldintensify, involving a shift from single to double rice cropping and double to triple rice cropping.

2 The percentages of shallow acid sulfate soils in the SMT, OX, QP, BRTL and TN subproject areas are: 5%, 6%,22%, 3% and 2% respectively.

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PAD Annex II: EnvironmentPage 3 of 7

Increased agricultural intensification can result in increased pesticide and chemical fertilizer use, theformer of which can have the more adverse impact on groundwater and surface water quality. Forfish and other aquatic organisms, their exposure would be longer due to the resultant longeragricultural production period each year. This could result in greater bioaccumulation among micro-organisms, aquatic organisms including insects, and predators upon these organisms.

9. Analyses done in 1991/92 showed that organochloride pesticide concentrations in theMekong Delta are generally detectable but far below permissible levels -- at most 3% of thatacceptable for surface water and 1-5% for fish. For pesticides that have been banned in recent years,there has been an observed decline in their concentration in the Mekong Delta. Concentrations ofpermitted pesticides could be increasing with crop intensification, and pesticide contaminationremains a major concern in the Delta, but many of these have not been systematically measured dueto lack of appropriate monitoring and testing equipment.

10. Floodplain Inundation Reduction. The OX subproject is the only area of concern withregard to reduction of inundated area and the resultant impact upon fisheries. It is located in thedownstream end of the shallow-flooded area. To achieve flood control, an embankment will beexpanded to surround the area, which is about 1% of the Delta. This would eliminate the shallowinundation of 1-3 months each year in the subproject area. The protection work would make thesecond crop production more stable and the third crop possible. However, the possible adverseimpact, though the area is very small, could result a reduction of flood plain fishery production anddeposit of nutrients in the embanked area. Two studies were conducted on the subproject's adverseimpact. One study, undertaken by the feasibility study consultants, estimated a fish loss of 600 t/yrand a second study, undertaken by the Fisheries Faculty of Can Tho University in the Mekong Delta,estimated a reduction of 400 t/yr. Thus, the reduction in fishery production would amount to anestimated loss of 1-2% of floodplain fish catch in the Delta. The impact of fishery reduction isconsidered insignificant, as fishery income occupies less than 1% of household income, according tothe socio-economic survey carried out for the area, and the fact that very few households in theproject area currently depend primarily on fishing for a majority of their livelihood. Few migratoryspecies from rivers are found to spawn or feed in the subproject area which is located in the shallow-flooded area. Due to the change of water temperature, major fish migratory periods and spawninggenerally occur at the outset of the rainy season before major flooding occurs. During this periodthe drainage sluices on the canals under the project would not need to be closed, thus fish movementin and out of the area would not be hampered.

11. Salinity Changes. With the project, salinity intrusion during the dry season would be reducedto varying degrees in most project areas. The increase in year around availability of freshwaterwould be a benefit to farmers and most households, in addition to irrigation, as it would precludemuch of the need to transport freshwater into the project areas for domestic uses. But the conversionof aquatic ecosystems from brackish to freshwater would result an impact on fishery in the canalsand nipa trees along canal banks, as fish production in brackish water is generally higher than that infreshwater, and nipa grows best in brackish water as well.

12. Possible Tidal Impact. In some areas in QP, sluices have been built by the Government overthe last years to prevent tidal water from flowing inland during the dry season. Water levelsimmediately outside the sluices have been reported by locals to raise by some 0.2-0.5 m duringoccasional high spring tides. This increase does not normally exceed the height of the cropprotection dikes along the canals (except possibly during rare and severe coastal storm such as acyclone). However, at some locations where exist low lands between the canal and the protection


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dikes inundation were reported since sluice gate installation and closure during high tides. Thesehave affected some houses, gardens, and shrimp ponds in these locations. For the additional sluicesproposed under this project, there is the possibility that this may also occur (i.e. in areas immediatelyoutside the sluices). This possible impact was considered in the assessment and project design.

13. Canal Transport. With the project, impact on water transport would be considered neutral.Improved and newly constructed canals would facilitate more extensive local transport. Theconstruction of sluices would, to some degree, temporarily impede the transport of boats in and outthe subproject areas during the dry season when the sluices are closed most of the day except forperiodic flushing. Consultations and interviews with local people in areas where sluices exist showthat the sluices are seen by the local people as more of a nuisance than an obstacle.

Mitigation

14. Leaching of Acids. The impact of the generation of acid due to oxidation of pyritic soilsfrom canal dredging under the project would be insignificant in areas where shallow acid sulfatesoils exist. This is due to a small increase over several years in relation to the already highbackground acid levels (paras.5-6). No mitigation is needed. In areas with slight to moderate acidsulfate soils, the impact of dredging and spoil disposal to adjacent agriculture or aquaculture couldbe more significant and would need mitigation. The mitigation measures would follow theindigenous practice by farmers and contractors in the area, where the run-off from the spoil iscontrolled from flowing into the adjacent agricultural fields. The practices are that: (1) for spoil thatis excavated using a grab dredger, it would be the neighboring farmers' responsibility to dig a smallditch between the spoil and their fields to direct seepage and run-off back into the canal; (2) where acutter dredger is used, a containment with surrounding embankments would be built to control thespread of the spoil and to direct run-off back into the canal. In addition, where feasible andadvantageous, contractors would be required to dredge one side of an existing canal to minimizeexposure of and leaching from acidic soils; resettlement needs; and impacts on aquatic ecology,through disturbing only one (rather than both) side of the canal. The contractors would beresponsible for mitigation and compensation for any damages to farmers' land or other assets due toexcavation, based on conditions which would be specified in the contractual agreements.Compliance with contract specifications will be monitored during project implementation. It wasobserved that in places where farmers have low-lying land which they want to fill to bring it underagricultural production, the farmers sometimes request the contractors to dispose the spoil in theirland which is then topped with a layer of good soils.

15. Overall, the acidity problem in the project area is expected to improve, as sluices wouldimprove drainage conditions, and the incremental, short-term increase in acidity generation would beoverridden by the significant improvement of the flushing capacity under the project. Due to thelong existence of acids in the upstream or within the project area, at the beginning of the rainyseason when large quantities of acid water are released from exposed spoil and agricultural areas,there presently exists, in the project area, a workable local warning/notification system vianewspapers, radio and leaflets. Downstream farmers, particularly shrimp farmers, are notified of theopening schedule of sluice gates and advised of the poor water quality entering their areas. During aperiod of time, the farmers are advised to avoid taking water from the canals and rivers or in caseswhere water exchange is necessary, to minimize exchange rates and/or to take measures such asliming the intake water to neutralize pH.


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16. It should be noted that Vietnam has some of the best experience with developing acid sulfatesoils for agricultural use and is widely regarded as one of the world's leading experts in this field.Over the last 10-15 years, rapid agricultural development took place in some of the severe acidsulfate soil areas of the Delta, especially in the Plain of Reeds, which is far upstream of the projectarea. A water quality monitoring program, funded by Sweden and carried out by the Sub-institutefor Water Resources Planning (SIWP), has been collecting data on changes of acidity in the riversand canals for more than ten years. Although short termn localized increases in acidity weredetectable in areas where drainage and water exchange were poor, the overall trend showed thatwater quality in terms of acidity has remained stable and for some places improved. This isexplained by the improved drainage and flushing capacity of canal development and improvement.To put a safeguard, the project would fund improvement of existing water quality monitoringnetwork (see para. 24).

17. Agro-chemical Use. Integrated Pest Management (IPM) is an effective way of encouragingfarmers to reduce usage of agro-chemicals. The GOVN has been promoting IPM practices throughthe Plant Protection Department of MARD, with technical assistance from a FAO Regional IPMProgram. IPM in rice has been used since 1990, and it now widely practiced in the project area.Under the IDA Agricultural Rehabilitation Project (Cr. 2561-VN), finance is provided to support anIPM study and IPM training in 30 provinces, including all those in the proposed project area3. Since1997, about 700 staff and 37,800 farmers have been trained in IPM. So far, the program has beenlow-cost and successful both in plant protection and in reduced and prudent use of pesticides.Farmners are enthusiastic about the approach for cost saving, though small, and increasing healthconcerns. While some IPM work is done in other crops, the program is substantial only in rice.MARD is intensifying its IPM efforts in other crops with international assistance. Given the aboveprograms of FAO and IDA, no additional measures on IPM are recommended under the proposedproject.

18. Promotion of expansion of integrated rice-fish system rice-fish cultivation under the project(para.19) would also bring another benefit in reduction in the use of pesticides; for pesticides canharm the fish, and the fish help control insect pests as well as mosquito larvae by consuming them.Moreover, the project would include a component which will provide rural water supply andsanitation improvement to reduce people's reliance on canal water for domestic use. With theproject, it is expected that the impact of increased flows of nutrients and pesticides into local surfacewaters would be offset by the improved drainage which will be provided by project investments andthe improved water control which will be achieved through operation of the sluice gates.Concentrations of permitted pesticides, which have not been measured systematically due to lack ofappropriate monitoring and testing equipment, would be monitored and their monitoring networksfinancially supported under the project.

19. Inundation Reduction. With the project, there would be a significant increase in incomeamong most farmers due to increased yield and rice production. Project studies revealed that about3,600 households (6.5% of the total) in the OX subproject area are currently practicing rice-fishcultivation and pond fish culture. With better flood control, this practice is expected to expand asrisks of flood losses and fish escape would be reduced. In rice-fish production, the rice yield is

3The program involves intensive farner training using farmer field schools. Farmers are organized into small groupsbased on locality and are taught the principles of IPM and how to identify pests and pest predators. The groups meetregularly and participants report on insect counts on their farm. The instructors advise growers on whether plantdamage is cosmetic or consequential, on thresholds for intervention with pesticides, and monitor crop conditions.


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about the same as rice-only-cultivation, plus an additional fish production of around 250 kg/ha/yr,based on Can Tho provincial statistics from an estimated 2,000 ha in the area. At this productionlevel, between 1,600 to 2,400 ha of rice cultivation would need to be converted to rice-fishcultivation to replace the estimated fishery losses (para. 10). This conversion is likely to occur due toflood control under the project with less risk to fish losses from inundation of rice paddies, accordingto local researchers familiar with the area. The project would also provide funds to promote thetransition from rice mono-cropping to integrated rice-fish culture for technical assistance in localresearch and extension services.

20. Salinity Changes. Generally, fish production in brackish water is higher than that infreshwater. The assessment revealed that the reduction would only pertain to the canal areas wherefishing is mostly undertaken as a sideline to rice production inside the project area, and farmersprevent saline water entering their paddy fields. Economic analysis shows that the incomes from riceproduction will increase significantly with the project due to increased agricultural gains, offsettinglosses associated with minor fishing. Additional canal area of about 3,000 ha as a result of theproject would add increased aquatic habitat. The conversion of seasonal, brackish water areas intoyear around freshwater areas would be insignificant concerning loss of brackish water habitat, whichwould be replaced by freshwater habitat, and thus would not require mitigation. In some projectareas, where this conversion has already taken place over the last years, farmers reported anincreased fish production outside the salinity sluices, where seasonal shifts in salinity still take placethough where less dilution takes place during the dry season when freshwater would be retainedimmediately outside the sluice gates.

21. Nipa in the project area is mostly scattered along the canals. Nipa grows best in brackishwater, but can also grow in the freshwater, as observed in the inner part of the Delta wherefreshwater is all-year-round. Nipa fronds are used by locals for house construction for walls androofs, which are increasingly being replaced by longer lived materials (such as metal sheets) asincomes rise. Most nipa in the project area is cultivated by rice farmers, thus an offsetting factor isthat the farmers would get economic benefits from the project which would allow them to use bettermaterials for house roofs instead of nipa fronds.

22. Possible Tidal Impact. Hydraulic modeling during feasibility study shows that at the sites ofthe proposed sluice gates, the increase in tidal levels could range from zero to 20 cm which is notconsidered to be significant and which could extend to about less than several hundred meters ofdistance outside the sluices. Nonetheless, a detailed survey was carried out for each of the proposedsluices and for households possibly to be affected by the potential increases in tidal levels. Thisimpact has been included in the compensation program under project affected families and themitigation program in the Resettlement Action Plan (RAP).

23. Canal Transport. The project design was adjusted to avoid building of sluices on mainwaterways. Within each subproject area, water transport remains largely free. In places wheresluices would be built to prevent seawater intrusion and canal transport in and out the subprojectareas would be hampered, sluice gates are designed large enough to allow boats used for localtransport to pass. During the dry season, the sluices remain largely closed for 2-4 months, but wouldbe opened up to four times per day when the water levels within and outside the gates are at the sameheight, to allow boats to move in and out of the sub-project areas. The project would build boat liftsat the sluice gates to allow boats to cross the levees. Such lifts are low-cost and easy to operate, andare currently practiced in some Delta areas where sluices are in place. In addition, the sluices wouldbe opened 3-4 hours per week during low tides in the dry season to flush stagnant water inside the

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sluices. The opening hours of the sluices would be announced in advance so that boat operators canadjust their routes and schedules accordingly. During the rainy season, the sluice gates would beopen most of the time to allow drainage and boat passage, except during high tide. In all subprojectareas, denser canals and better levees and roads that are a part of the canal improvement wouldfacilitate local transport. It should be noted that most of the farmers are beneficiaries of the sluices aswell.

Environmental Monitoring

24. The project would fund two environmental monitoring programs. (1) A water quality andquantity monitoring program would establish stations within and adjacent to the project area todetermine the project impact on changes of water quality and quantity, and to help prescribeimproved environmental management of water resources. This will build upon the existing SIWPmonitoring network in the Mekong Delta, which is currently supported by the Swedish InternationalDevelopment Agency through the Mekong River Commission's water quality monitoring program(para. 16). Additional sites would be added to the monitoring network for the five years of theproject to assess impacts in detail. (2) A fishery monitoring program would assess changes to thestructure and productivity of the fish population in the OX subproject. This program should buildupon the current fish-rice research by Can Tho University in the Delta. Implementationresponsibilities are described in other project documents.

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Annex 12Vietnam: Mekong Delta Water Resources ProjectRural Water Supply and Sanitation Component

Sector Policy

1. The Prime Minister's Decree No. 200/TTg (April 1994) established the National Program forRural Clean Water and Environmental Sanitation (NPRCWES). Lead responsibility for executing theNPRCWES lies with MARD, within which the CERWAS under the Vice Minister for Agriculture hasbeen the main implementing agency, with Ministry of Health (MOH) and the Vietnam Women's Union(VWJU) continuing to provide support for sanitation improvement in rural areas. Provincial SteeringCommittees for Water and Environment (PSCWE) are being set up. Ambitious targets for the NationalProgram have been established - a 100% rural water supply coverage by 2005. But the Program remainsunder-financed, and needs substantial capital investment from consumers and the Government if thenational target is to be achieved.

2. With support from DANIDA, the GOVN is developing sector policies and a National Strategy forrural water supply and sanitation (RWSS) to implement the NPRCWES and provide a framework forinvestment. Although still evolving, the policy framework emerging is expected to be compatible withthat espoused by the Dublin/Rio Principles for drinking water management. Although there are stillsubstantial subsidies in the sector projects, the intention of GOVN is to gradually move to full costrecovery and demand-responsive approaches that provide consumers with the levels of service that theywant and are willing to pay for.

Coverage and Issues

3. Due to lack of statistics, the coverage of rural water supply is highly speculative. UNICEFestimates show that the current coverage is around 15-30% of population in the project provinces, basedon assumed average numbers of people using water points installed by govermment programs andassuming that all installed facilities are continuing to function. If privately financed services areincluded, the coverage may reach between 30-60%.

4. Investigations show that most of the project area is underlain by one or more confined aquifers atdepths ranging from 40 -120 meters. There are also areas where groundwater is undrinkable orunavailable. Groundwater in the upper Pleistocene aquifer is the main source of potable water in theproject area. Deeper aquifers of good quality exist, but have not yet been extensively exploited. For thesmall-scale rural water supply systems to be supported by this project, the upper Pleistocene is the mostpromising resource-.

5. In areas where groundwater is either of poor quality or unavailable (e.g. Cang Long district inTra Vinh, parts of Vinh Long and Kien Giang Provinces), filtered surface water or rainwater is used fordrinking and cooking. In acid sulfate soil areas, canal water in some places become so acidic (pH <3.5)during the early wet season that it cannot be used for any purpose. Rainwater or water purchased fromvendors at high cost is presently the sole sources of drinking water supply, which could cost about

1 Groundwater and Rural Water Supply, Feasibility Study Report, May 1998.

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US$0.62/m3 . Families with limited access to safe water often depend on canal water for washing,bathing, and excreta disposal during the rainy season.

6. Various types of on-site sanitation facilities are used in the Delta. The most common ones are"helicopter" latrines, hanging over canals and home fishponds. Helicopter latrines on canals are anunsatisfactory sanitation option and have been, in principle, banned by the GOVN. But large numbers ofrural population still use canals for excreta disposal when working in the fields. Fishpond latrines,though less of a health hazard, are also discouraged. They form a component of rural aquacultureproduction, and are typically enclosed as oxidation ponds, and do not release flows into canals. Aquaticvegetation, like duckweed, grows to provide food for fish. The health risk of consuming fish from theseponds, if cooked2, is extremely low. In times of flooding, the ponds overflow into surrounding canals.But the pollution concentration is relatively low since the waste is diluted by floods.

7. A variety of other technologies including simple pit latrines, pour-flush latrines, and septic tanks,is being promoted through several Government programs. They provide safer and more convenientsanitation conditions, but carry similar environmental risks as fishpond latrines when flooding occurs.These systems vary in cost from about VND 75,000 (US$5-6) upwards for a basic pit latrine. A pour-flush latrine with ceramic pan is reported to cost about VND 375,000 (about US$30), and a toilet withseptic tank about VND 1.5 million (US$115). There is a need for further applied research to develop arange of appropriate sanitation technologies for the Mekong Delta, including assessing the risksassociated with fishpond latrines and developing safer design standards. Some of such investigations andresearch are being carried out by MOH.

8. Coverage in safe sanitation facilities is generally significantly lower than that in water supply.The incidence of sanitation-related diseases is high in the project area, particularly among women andchildren. In the Soc Trang Province, for example, the rate of water and sanitation-related diseaseinfection, reported by local health centers and VWJU, averages more than 70% of total reported ailmentsamong rural women, and 60% among children. The incidence is probably similar in other areas of theDelta. These are reducing rural labor productivity through lost time and eroding rural incomes throughmedical expenses. Fundamental to the sanitation issue is human behavior. Knowledge, attitudes andpractices regarding human waste disposal and the health risks associated with it are poor, especiallyamong low-income rural households. Investment in sanitation facilities and adoption of safe hygienebehaviors is a low priority to farmers in the absence of knowledge of the risks involved.

9. The issues to be addressed by the project would be: (i) Large proportion of rural households inthe project area remain without reasonable access to safe drinking water, and a disproportionate share ofthese households are in small and dispersed settlements. (ii) The incidence of water and sanitation-relateddiseases is high, and a principle constraint to improving health status is poor knowledge, attitudes, andpractices regarding hygiene and sanitation. And (iii) Lack of appropriate sanitation technologies.

Proposed RWSS Improvement under the Project

10. The objective of the component is to improve living conditions of people in the project areaandto reduce poverty incidents through improved coverage for safe and adequate drinking water supplies,improved sanitation facilities, and improved personal and community hygiene behavior. In line with thenational policies and to be consistent with the evolving RWSS strategy (para. 2), the component was

2 In Vietnam all fish are normally cooked.

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designed with emphasis on a move towards demand-responsive, community participation in planning,implementation and financing of the services provided to them, and greater cost recovery.

11. The component will provide clean water for remote small villages and hamlets and dispersedrural population, and will thus complement other RWSS programs in the project area. The project wouldfinance US$5.1 million for construction of small-scale piped water supply systems serving about 50 -150 households in small villages or hamlets, and point source supplies (rainwater catchment systems,hand pumps, and small water filtration systems) for dispersed settlements. It would support US$400,000for sanitation and safe water awareness campaigns and hamlet-level participatory hygiene education toimprove hygiene behaviors and increase effective demand for safe human waste disposal. It wouldprovide seed money of US$230,000 to set up revolving funds for construction of basic household-levelsanitation facilities. The implementing agencies--PCERWAS--would be provided with a budget foradministration, technical assistance and training to communes in preparation of the Commune CleanWater Improvement Plans (CWIPs) and engineering design. The total budget for this support isestimated at 9% of works' costs (a rate currently used in ongoing Government and UNICEF programs).

12. The benefit of the component would expect to reach over 280,000 un-served or under-servedrural population among some of the 186 communes in the project area. This represents about 20% of theportion of the population in need of improved services. The target population is rural, poor andpredominantly dispersed families. Within the target group, women, as the primary collectors andmanagers of water in most households, would benefit from more convenient access to water supplies andsanitation facilities, and better family health status resulting from adoption of improved hygiene practices.

13. Technical options for water supply that are likely to be applied in the project include thefollowing, all of which have been tested by PCERWAS in programs supported by GOVN and UNICEF:

- Small piped systems -suitable for small clustered settlements with accessible potablegroundwater. Each system typically serves 50 - 150 households, and often consists of a well,equipped with an electrical pump with automatic control; an elevated reservoir with acapacity of 2-3 m 3 ; distribution pipelines of 1-1.5 kin; house connections and meters.

* Shallow well hand pumps -an option where potable groundwater is accessible but dispersedrural households are too far apart for a piped network to be financially feasible.

* Surface water filtration units -where no groundwater is available and surface water istreatable, the simple household or neighborhood sand filtration units are an alternative.

* Rainwater storage jars (ferro-cement, with a capacity of 2,000 1) -a preferred option only inareas without potable ground or surface water.

Implementation and Flow of Funds

14. Clean Water Provision. To be simple and transparent, initial allocation of project funds amongthe provinces was based on the number of communes in the project area (see Table below). CPO hasnow confirmed the fund allocation in consultation with the provinces. Eventually, the number ofqualified CWIPs received and approved in each province would drive actual allocations anddisbursements.

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Activity/Province Bac L Can T Kien G Soc T Tra V Vinh L Total CostUs$,000

Number of Communes (#) 9 24 5 38 56 7Allocation Percentage (%) ° O ..... 1_% 4 40 5% .

Clean Water Provision 330 880 183 1,393 2,053 257 5,097

Sanitation Improvement 15 39 8 62 91 11 226Hygiene Education/Training 26 69 14 109 161 20 400Total Allocation 370 988 206 1,564 2,305 288 5,722

/1 Including 20% contribution from beneficiaries.

15. Implementation arrangements. CPO will be responsible for implementation and coordination ofthe entire project. It will assign specialized staff to monitor implementation of the RWSS component(accounts, procurement and disbursement). Similar to SIO for the irrigation component, MARD willassign each PCERWAS to be the local implementing agency for the RWSS, with commune-basedparticipation in planning, implementation and management (with private sector participation inconstruction). PCERWAS will report to CPO on project related matters. The existing National SteeringCommittee for Water and Environment, of which CERWAS is a member from MARD, would provide

policy guidance through its regular meetings. PCERWAS directors are members of PSCWE (in thoseprovinces that have not yet established these committees, PPCs are playing the role of the committees).Through PSC WE, PCERWAS would ensure that this project is coordinated with other government andUNICEF programs.

16. Based on information disseminated by PCERWAS, participating communes would prepareCWIPs that stipulate the type of water supply they want and are willing to pay for. PCERWAS wouldprovide technical support (para. 11) for communes in preparing the CWIPs to allow the communes tomake informed choices among levels of service, costs and financial options for capital investment andO&M arrangements, and in developing local skills and organizations for operating and maintainingsimple systems. The CWIP would be submitted to district People's Committee for endorsement beforeforwarding to the provincial PSCWE for approval. PCERWAS would consolidate all CWIPs in itsprovince and submit quarterly to CPO for approval and budget allocation. Once approved, PCERWASwill use counterpart funds to prefinance the works based on certified works and CWIP that are approvedby the provincial authorities and CPO, and submit SOE and supporting documents to CPO forreimbursement for cost incurred. CPO will make payment to PCERWAS one month after receiving theSOE and related documents. Reimbursement from the project's special account will use the normal IDASOE method against expenditures incurred.

17. PCERWAS would contract provincial engineering consultants to prepare technical design, tocarry out water quality test to ensure potable quality of each well, and procure contractors for physicalworks3 . It would carry out contract supervision, quality control with participation from the communes inco-signing for acceptance of detailed engineering designs and completed civil works before payment ismade to the contractors. It would also administrate repayments from the communes and use them forother needy communes.

3 Commune managed contracting was originally proposed but rejected, due to the concern of MOF over (i) weak financialmanagement capability of the communes; (ii) government budgetary regulations do not allow transfer of funds from CPOdirectly to the communes, and it must be through PCERWAS and district offices.

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18. Financial requirements. To be consistent with the upcoming national RWSS strategy, thefinancial requirements under the project would include:

(i) Community (consumers) share of 20% of capital costs at the time of construction (in cashor in kind), with exceptions permitted for low-income groups; but the averagecontribution from a commune should be at least 20%.

(ii) Repayment in regular installments over a negotiated period of five-six years with annualinterest of 2% for the remaining 80% capital costs for hand pumps, and for 30% ofremaining 80% capital costs for small piped systems and rainwater catchment units.These are to keep with the policies of the upcoming national strategy. Given that povertylevel is a criterion for selection of participating communes in this project, some flexibilityis necessary in financing requirements, as stipulated also in the National RWSS Strategy.Each province would modify its own financing policy during implementation, dependingon the poverty levels of communes. It may decide a partly on-lending arrangement,different repayment terms or a grant arrangement to poor communes.

(iii) Formation by communities of water management groups for full responsibility of O&M(communes could choose to cross subsidize poor households). The above financialrequirements would need to be confirmed by the national strategy.

19. Preparation and implementation of CWIPs. The CWIP should be in simple form and include:

(i) Technology and service level selected by the commune; proposed treatment anddistribution system; location; layout; water sources; water quality analysis; costs; andfamilies to be served.

(ii) Agreed financing arrangements for capital and O&M contributions, repaymentarrangements, and commune's policy of subsidies to the poor.

(iii) Responsibilities of communes, consumers, contractors, local authorities and PCERWAS;and a management plan for O&M.

20. Detailed steps follow the current practice by PCERWAS with modifications on the CWIP:

(i) PSCWE develops a "list" of communes that are eligible for obtaining funds under theproject. Eligibility criteria include the need for drinking water supply improvement andno other committed funding sources.

(ii) PCERWAS, with support from Provincial Women's Unions (PWU), PPC, DPC andCPC, distributes information through official channels, brochures, mass media, andcommune and village meetings, to all eligible communes about the RWSS funds, andinvites 'expression of interest" from communes in a letter stating that the communesintend to prepare CWIPs.

(iii) With assistance from PCERWAS, each commune should prepare a CWIP. Identificationof poor families may be carried out by participatory poverty assessments facilitated byPWU field staff4.

4In 1996,the VWU with support from UNICEF and IDA, provided training to their staff in the use of participatory techniquesfor community development planning and education. Participatory training tool kits were adapted to the Vietnamesecultural context and a limited number were distributed to districts and communes in all provinces.

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(iv) Commune People's Committee (CPC) submits CWIP to PCERWAS, who will reviewand submit the CWIP to PSCWE/PPC for approval before posting it in the commune.

(v) PCERWAS consolidates the approved CWIPs for submission quarterly to CPO forbudget allocation and disbursement of government funds for pre-financing.

(vi) Once PCERWAS receives the funds, they would implement each CWIP as agreed withthe commune, who would contribute its share of the cost. Payments for servicesdelivered by PCERWAS or through PCERWAS by private firms would require co-signature by the financially responsible officer of CPC.

(vii) Upon satisfactory completion of all contracted works, the commune begins repayment ofthe balance of the investment financed by the project. Funds are deposited intoPCERWAS' account. PCERWAS provides communes with an annual account statement.Funds repaid would be used for expanding or improving RWSS in new communes (maybe outside the project area).

21. PCERWAS would provide training, through its technical assistance to the communes in simplesystem O&M and on financial management.

22. Sanitation Improvement. Both the PWU and provincial department of health (DOH) havedecentralized community mobilization capacity. They would prepare proposals, for submission toPCERWAS, for expanding the activity of participatory hygiene promotion, health training andcampaigns at the commune and household level. Based on approval of the proposals, PCERWAS wouldsign Memoranda of Understanding (MOUs) with PWU and DOH for execution of specific activities to beconducted by each of these agencies (estimated at US$2,000 per commune based on the cost details forongoing activities provided by VWU).

23. PCERWAS would assign PWU to set up revolving.funds for the construction of sanitationfacilities (estimated at US$4,000 per commune), as PWU has already piloted revolving fundssuccessfully in some communes of the project area. A commune may choose to use a portion of this fundfor construction of public sanitation facilities in the same manner that individual households access andrepay funds. A range of technical options to suit various environmental situations and affordability levelswould be explained to commune members. Financial management of the sanitation revolving fundswould follow the Tra Vinh and Soc Trang models that have already been established and operating since1995. Full cost recovery has been achieved with 15-17 months of repayment, at around 70,000 VND permonth.

Technical Assistance

24. CPO would coordinate with central CERWAS in providing technical assistance to PCERWAS,and facilitate training to PCERWAS based on an overall project training program. Staff experienced withRWSS would be recruited (or seconded from CERWAS) to CPO to help coordinate implementation ofthe component in the six provinces. The staff would ensure that implementation is in line with nationalpolicies and sector strategies, review communal CWIPs and MOUs submitted by PCERWAS, and auditPCERWAS' project related activities and accounts. The VWU at the national level would providetraining, through its ongoing in-service training programs, to provincial and lower level staff on skills ofplanning, participatory poverty assessments, hygiene/sanitation education, and social marketingcampaigns. It is anticipated that UNICEF also would provide technical assistance through its ongoingprograms.

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FEBRUARY 1999