Document of

The World Bank

Report No. 14893-VN

STAFF APPRAISAL REPORT

VIET NAM

POWER DEVELOPMENT PROJECT

JANUARY 2, 1996

Infrastructure Operations DlvisionCountry Department 1East Asia and Pacific Region

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Currency Equivalents(As of June 1995)

Currency Unit = Dong (D)US$1 = I 1, 100

Dl = US$.0001

Government and Year EndJanuary 1 to December 31

Weizhts and MeasuresGwh - Gigawatt hour (109 watt hours)kgoe - kilograms of oil equivalentkWh - kilowatt - hour (1,000 watt-hours)MW - megawatt (1,000 kilowatts)mmb - million barrelsMMBTU - Million British Thermal UnitsMMCFD - million cubic feet per daytcf - trillion cubic feet

Abbreviations and AcronymsADB - Asian Development BankBTP - Bulk Transfer PriceBOT - Build, Operate, TransferCC - Combined CycleDENR - Department of Environment and Natural ResourcesDSM - Demand Side ManagementEIA - Environmental Impact AssessmentEl - Energy Institute of Viet NamEIRR - Economic Internal Rate of ReturnESMAP - Energy Sector Management Assistance Program (UNDP-World Bank)EVN - Electricity of Viet NamGSA - Gas Supply AgreementGT - Gas TurbineHV - High VoltageLRMC - Long-Run Marginal CostLOLP - Loss of Load ProbabilityMBPPCR - Management Board of the Power Projects for the Central RegionMBPPNR - Management Board of the Power Projects for the Northern RegionMBPPSR - Management Board of the Power Projects for the Southern RegionMHI - Ministry of Heavy IndustryMOE - Ministry of EnergyMOF - Ministry of FinanceMOI - Ministry of IndustryMSTE - Ministry of Science, Technology and EnvironmentNEAP - National Environmental Action PlanNPESD - National Plan for Environment and Sustainable DevelopmentNO, - Nitrogen OxideOECD - Overseas Economic Cooperation DevelopmentOECF - Overseas Economic Cooperation Fund of JapanPAP - Project Affected PersonPC - Power CompanyPVN - Petro Viet NamPHMYI - Phu My Development, Phase-IPHMY2 - Phu My Development, Phase-2PHMY2-1 - Phu My 2, Phase IPHMY2-2 - Phu My 2, Phase 2PIDC - Power Investigation & Design CompanyPMBRMB - Phu My Ba Ria Management BoardPSREP - Power Sector Rehabilitation & Expansion Project (Cr. No. 2724-VN)RAP - Resettlement Action PlanSCP - State Committee on Planning

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Viet Nam

Power Development Project

Credit and Project Summary

Borrower: The Socialist Republic of Viet Nam.

Implementing Agencies: Electricity of Viet Nam (EVN).

Beneficiaries: Electricity of Viet Nain (EVN).

Poverty: Not applicable.

Amount: SDR 121 million (US$180 million equivalent).

Terns: Standard IDA terms with a maturity of 40 years.

Commitment Fee: 0.50% on undisbursed credit balances, beginning 60 days after signing,less any waiver.

Onlending Terms: The Credit will be on-lent to EVN in US dollars at a fixed interest rateof 6.9% per annum, with repayment over 20 years, including a graceperiod of five years, and foreign exchange risk being borne by EVN.

Financing Plan: See para. 4.25.

Economic Rate of Return: Phu My Power Component 17%.Transformer Additions 40%-43%.

Map: IBRD No. 27314.

Project ID No.: 42236.

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Viet NamPower Development Project

Staff Appraisal ReportTable of Contents

Page No.

Credit and Project Summary . ................................... i

I. The Energy SectorA. Overview ......................................... 1

B. Domestic Energy Endowments ............... 1........ IC. Energy Consumption ....................... 3D. Istitutional Framework ....................... 4E. Energy Pricing .................... ;F. Energy Conservation .................... 6G. The Environmental Sector .................... 7H. Energy Sector Strategy and Issues .......................... 8

II. The Power SectorA. Introduction .............................. 10B. The Power Market .............................. 11C. Generation and Transmission Facilities ............................. 12D. Vietnam's Power Development Plan .............................. 13E. Electricity Tariffs .............................. 15F. Sector Strategy .............................. 17

HII. The BeneficaryA. The Beneficiary .............................. 22B. Organization and Mangement ............................... 22C. Staff Development and Training .............................. 23D. Operations and Management ............................... 24E. Financial Management ...... ................................ 25

IV. The ProjectA. Objectives and Description . ............................. 29B. Implementation .............................. 33C. Environment and Resettlement ............................... 35D. Cost Estimates .............................. 36E. Financing Plan .............................. 36F. Procurement .............................. 37G. Disbursements .............................. 38

This report is based on the findings of an appraisal mission to Vietnam in Ocber 1995, comprising Damyes Mebta (PrincipalPower Engineer), Rebecca Sekse (Financial Analyst). Rait LAmech (Resunactu Specis, Manesh Hoskote (PrivatePower Specialist), Anil Malhotra (Energy Advisor), Bent Svensson (Gas Specialist), Las Lund (Rese/ -ment Specialist),Walter Schwermer (Project Advisor), Anthony Toft (Principal Counsel and Apinya Suebsaeng (Principal Invesunent Officer,IFC). Peer reviewers were Anil Malbota (ASTDR), Peter Cordukes (IENPD). and Piere Vieiulscaze (CFSPF). Theproject was cleared by Mr. Callisto E. Madavo, Director, EAI and Mr. JayaanarSbivakumr, Chief, EAIIN. Ms. TberesaGamulo (EA1 IN) provided substantial support in the prepration of dtis report.

V. Finanial AspectsA. Past and Present Financial Performance ............................. 40B. Financial Outlook ............ ..................... 44C. Financing Plan ................................. 47

VI. Project JustificationA. Economic Analysis ............. .................... 49B. Risks .................................. 53

VII. Agreements Reached and RecommendationA. Agreements ................................. 54B. Recommendation ............ ..................... 55

Annexes1. Electricity Tariffs as of August 1, 1995 ............................... 562. Power Sector Policy Paper .................................. 583. Legislation Concerning the Creation of EVN .654. List of EVN Business Units .685. Addition of Transformer Capacity ................................... 696. Terms of Reference for Development of Phu My 2, Phase 2 .717. Terms of Reference for Master Plan for Rural Electrification .788. Terms of Reference for Legal and Regulatory Framework .849. Supervision Plan and Key Performance Indicators .9010. Environmental Assessment Summary .9311. Resettlement and Compensation Action Plan .10412. Environnental Analysis on Installation of Transformers .12113. Project Cost Estimates .12214. Procurement Packages ........................................ 12515. Disbursement Schedule .12616. Projected Financial Statements of EVN .12717. Assumptions in the Financial Statements .13018. Economic Rate of Retum ....................................... 13219. List of Documents in Project File .136

Charts1. Organization Chart of EVN ..................................... 1371. Implementation Schedule for Phu My Power Project .1382. Implementation Schedule for Augmentation of Transforning Capacity .... ....... 1393. Organization Chart for Phu My Ba Ria Management Board

Organization for Construction and Implementationof Phu My 2-1 .140

4. Organization Chart for Management Boards of Southem, Northem andCentral Power Project

Organization for Construction and Implementation ofAugmentation of high Voltage Transforming Capacity .141

Map IBRD No. 27314

Chapter I

The Energy Sector

A. Overview

1.1 Viet Nam began the transition from a centrally planned to a market economy in 1986, atthe Sixth Congress of the Vietnamese Communist Party. This process was accelerated in 1989 with thedevaluation of the Dong and the decontrolling of most prices. In 1993, Viet Nam obtained access toconcessional international finance, while the US embargo was lifted in early 1994. All these eventsprovided a stimulus to the economy, which responded with a rapid growth of about 8% per annum(p.a.) over 1992-1994. The gross domestic product (GDP) is forecast to continue growing at this ratefor the rest of the decade. In the economy's continued transition and growth, the energy sector, whichprovides approximately one third of the nation's foreign exchange earnings, will play a vital role. VietNam's economic development will be closely linked to growth in energy supplies in general, andelectricity in particular.

1.2 Per capita consumption of commercial energy in Viet Nam, at around 135 kilograms of oilequivalent (kgoe), is amongst the lowest in the world. In comparison, per capita consumption is 215kgoe in the Philippines and 325 kgoe in Thailand. Biomass and fuelwood still account for about 60%of total primary energy consumption. Petroleum products made up 47% of primary commercial energyconsumed in 1992, with coal (21%) and hydropower (32%) making up the balance. Commercialenergy consumption has grown relatively quickly in the last two years, 10% in 1993 and 12.5% in1994. However, over this period there has been a major shift in its composition, with a decline in theconsumption of coal and an increase in the consumption of electricity (10% p.a.) and petroleumproducts (9.5% p.a.).

1.3 There are substantial regional differences in the country's energy endowments and thepattern of energy consumption. The North has an excess of hydro and coal-fired power resources, andsurplus power is now being exported to the Center and the South over a 500 kV transmission linecommissioned in 1994. This has to some extent eased the electricity shortages that these two regionshad been suffering during recent dry seasons. The South, however, is geographically closer to thehydrocarbon resources that have so far been discovered, and has had a more reliable supply ofpetroleum products.

B. Domestic Energy Endowments

1.4 Viet Nam has considerable indigenous primary energy potential, in the form of oil, gas,coal and hydro. These could not only meet projected national demand, but also allow additional exportsof oil and coal. Viet Nam's energy potential is, however, largely unexplored and under-exploited.

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The Oil and Gas Sector

1.5 Viet Nain's hydrocarbon potential is estimated to be in the order of 4,000 - 6,000 millionbarrels (mmb). Proven and probable reserves are currently estimnated at around 1,000 rnnb of oil and3.6 trillion cubic feet (tcf) of gas, of which 2.3 tcf is associated gas. However, recent discoveries andfurther drilling in known fields indicate that these estimates would be upgraded.

1.6 By 1994, four offshore oil fields had been discovered: Bach Ho, Rong, Dai Hung and DuBlock 15-2 of Rang Dong fields (discovered by JVPC of Japan). Production at the Bach Ho field,operated by VietSovPetro, is currently 7 million tons per annum (tpa). The Dai Hung field, operatedby a consortium lead by BMP Petroleum of Australia, began production in October 1994 and itsproduction in 1995 is estirated at 1.1 million tons. The Rong field contains an estimated 30-40 mmb,and its production in 1995 is estimated at about 1 million tons. The oil reservoir discovered by JVPCin the Rang Dong field contains two layers of product; tests show that in the upper layer the productioncould be about 4,000 barrels/day (bpd) and in the lower layer about 10,000 bpd.

1.7 Until recently, offshore gas development was linked to oil production. In 1994, a largeunassociated natural gas field was discovered at Lan Tay-Lan Do on Block 6 by the Oil and NaturalGas Commission of India (ONGC), British Petroleum (BP) and Statoil of Norway, with an estimatedreserve of about 2 tcf. Based on production forecasts, Bach Ho alone is not expected to be able tosustain a stable gas supply for 15-20 years of the quantum required by downstream users and will haveto be supplemented with the production from Dai Hung and Rong. The production of the Lan Tay-LanDo fields could be rather large and about 70 billion cubic feet (bcf) per annum could be available from1998. A gas pipeline from Bach Ho to Ba Ria has already been completed; the pipeline would beextended to Phu My in 1997 and Thu Duc power station in 1998.

1.8 Viet Nam does not yet have an oil refinery, and the entire crude oil production isexported, the bulk of it to Japan. Refined petroleum products are currently imported to meet demandand are distributed by truck, rail and barge; there is currently only one pipeline for the transportation ofpetroleum products, from Quang Ninh port to the Hanoi area. There are plans to construct a refinerynear Nhatrang by 1999, with a capacity of 6.5 million tons (mmt) (below national demand for oilproducts at this date). The refinery is expected to be financed by a consortium composed of Total(France), the Chinese Petroleum Corporation (Taiwan) and the China Investment and DevelopmentCompany (China).

The Coal Sector

1.9 Viet Nam's coal reserves are estimated at 2,345 mrnt of anthracite, 78 mrnt of semi-anthracite, 38 mmnt of coking coal, 96 mnmt of thermal coal and 306 mint of lignite. The commissioningof the 1,920 MW Hoa Binh hydro plant in the north has led to a drop in coal demand from the powersector, and coal mines are currently operating at around 50% capacity. This has pushed up costs ofproduction by 20%.

1.10 While the production costs of Viet Nam coal are low, the ocean freight rates charged fromViet Nain ports are two to three times the freight costs of Australian coal to similar Asian and Europeandestinations. These high costs are due to slow loading rates and smaller ship handling capacity atVietnamese ports. Viet Namn exported just under a third of its total coal production of 3.9 mit in 1994.

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1.11 The export market is likely to be the key for future growth in the coal sector. The exportof anthracite and the possible export of electricity to China from coal-fired stations in the northrepresent the major export markets for coal. However, the successful export of anthracite will requireimproved port facilities. If this is done, Viet Nam could be exporting as much as 2.3 mint by 2000 and3.6 mmnt by 2010.

Hydroelectric Resources

1.12 Substantial hydropower resources exist in Viet Nam, estimated to be in the region of10,000 MW (3,000 MW in the south and 7,000 MW in the north). The Son La site in North Viet Namis the largest of the schemes that could be developed, with a potential of 2,400 MW - 3,600 MW. Inthe Southern and Central regions there are 10 as yet undeveloped sites with an aggregate capacity of2,400 MW, which could be developed before 2010. The largest of these is the Yali project in CentralViet Nam (700 MW), which is under construction and scheduled to begin operation in 1999. There isalso the possibility of importing hydro power from Laos and Cambodia.

Biomass and Fuelwood

1.13 Biomass and fuelwood currently make up over 60% of Viet Nam's primary energyconsumption. There are substantial regional variations in the type of biomass used. In the northernrural areas, rice straws and husks represent the bulk of the fuel used, with wood representing theremainder. In the Mekong delta in the south, wood, along with coconut shells and woody residuesmake up the bulk of traditional fuels, while rice husks and straw play a minor role. The upland areasof the north, center and south are in general still heavily wooded, although deforestation is proceedingunder pressure from clearing for agriculture, cutting for poles, logging and for fuelwood. As part of apolicy to conserve the forests, the Government has developed an Improved Cooking Stoves Program,which would need to focus on areas currently having the greatest pressure on fuelwood resources. TheBank, under Energy Sector Management and Assistance Program (ESMAP), is providing technicalassistance to the Energy Institute of Viet Nam (El) to help improve the efficiency of the productioD andconsumption of traditional fuels. Specifically, the technical assistance will assist El in: (a) the design ofa phased, costed conmnercialization plan for the program to distribute improved cookstoves; and (b)determining options for modernizing and improving the efficiency of the coal briquettes industry.

C. Energy Consumption

1.14 Table 1.1 presents the primary commercial energy balance for Viet Nam for 1994,excluding traditional fuels (biomass and wood). Diesel fuel accounted for just under half of thepetroleum products consumption in 1994, with gasoline and fuel oil accounting for 23 % and 24% of thetotal respectively.

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Table 1.1: SUMMARY OF PRIMARY COMMERCIAL ENERGY BALANCE (1992)(thousand toe)

Crude l | Petrol products [Natund Gas Coa Hydro Totd

Production 7,839 7,839 3,099 3,030 13,967

Export -7,839 -7,839 -1,029 -8,868

Enpon ~~~~~~~ ~ ~~~4,477 4,477

Gross Supply . 4,477 2,046 3,030 9,552

1.15 In 1994 electricity accounted for 14%, petroleum products 66% and coal 20% of the end-use energy consumption. Commercial energy end-use consumption has grown at only 3 % per year overthe last decade. However, this masks two distinct phases, from 1980-1985 when petroleum productsconsumption was held constant and electricity consumption increased by 8% per annum, and from 1985onwards when there were rapid increases in the consumption of both petroleum products and electricity,at 9% and 10% p.a. respectively. Coal consumption has declined since 1987, due to a shift in fuelconsumption patterns by households and industry.

1.16 Sector-wise, industry accounts for 42%, transport 37%, household/service 16% andagriculture 5% of end-use commnercial energy consumption. The bulk of energy used by the industrialsector is coal, although the usage of electricity is expected to rise rapidly with the modernization of theeconomy and the introduction of light industries. Around 50 % of household consumption is made up ofpetroleum products; this sector still consumed, in 1994, twice as much coal, in energy terms, aselectricity.

1.17 Commercial energy consumption is expected to increase rapidly if the forecast GDPgrowth target in the order of 8% is realized. Over the last decade, due to the substitution of electricityand petroleum products for coal, there has been a slow growth in commercial energy consumption,relative to GDP growth. This situation is likely to change as the demand for electricity and petroleumproducts is expected to increase sharply over the next decade. This could yield an overall commercialenergy consumption growth at as much as 10% - 12% p. a.. The composition of consumption, in termsof the relative importance of coal, gas, oil and electricity, will depend upon the availability and pricingof gas. The power sector is expected to be the main consumers of gas; it is unlikely that the householdsector will account for a significant share of consumption, at least in the near future.

D. Institutional Framework

1.18 The energy sector in Viet Nam is largely under government ownership and control. Allauthority within the sector is derived from the nation's senior Governmental and political body, theCouncil of Ministers, headed by the Prime Minister. Responsibility for planning, pricing and foreigninvestment across the whole economy, including the energy sector, falls under the jurisdiction of threeState Committees which report to the Council of Ministers. The Government has in recent yearsundertaken a major restructuring of the institutional arrangements to provide greater autonomy to themanagements of operating companies. There has also been an effort by the Government to rationalizefunctions of the Ministries in the energy sector, with a focus on sector policy and oversight rather than

an active role in enterprise management. A State Enterprise Law was promulgated in April 1995,which effectively allows the Management Boards of state corporations to perform the ownershipfunction on behalf of the State. This arrangement reduces the direct influence of the Ministries insector operations.

1.19 The Oil and Gas Sector. The oil and gas sector is consolidated under Petrovietnam (PVN).a holding company for all enterprises in the sector. PVN was established in 1989 under the Ministry ofHeavy Industry (MHI). In 1992, PVN was transferred directly under the Prime Minister. PVN has 14companies which include many joint ventures with foreign companies. As a holding company, PVNnegotiates and manages all production sharing contracts for the exploration of hydrocarbon resources.The companies under PVN include: Vietgas responsible for developing natural gas resources; andVietSovPetro, the Vietnamese-Russian joint venture responsible for the exploitation of the Bach Hofield.

1.20 The Power Sector. Until January 1995, the power sector was divided into three distinctregional systems each managed by an integrated power company. These companies were PowerCompany No.1 (PC 1) in the North, Power Company No.2 (PC2) in the South and Power CompanyNo.3 (PC3) in the Center. In addition to these three utilities, there were companies for engineering,design, construction, manufacturing and associated service entities. A premier Institute of Energyprovided much of the planning and analytical support to the sector. The entire sector was under theMinistry of Energy (MOE) which also controlled the coal sector.

1.21 In January 1995, the Government established a holding company, the Electricity of VietNam (EVN), for the entire power sector. The MOBE' was rationalized to provide only policy supportto the sector. EVN is comprised of 34 separate business units. Five separate distribution companieshave been created through this restructuring and have the status of "independent accounting" stateenterprises under EVN. The remaining business units are 'dependent accounting" entities (para. 2.22).

E. Energy Pricing

1.22 The Government's main objectives in setting energy prices are to ensure the financialviability of the energy entities, to generate surplus funds for the sector to finance a significant part ofthe investment program, to set prices at levels that discourage wasteful consumption and, via taxes, toraise revenues for the general budget. However, in the electricity sector in particular, fixed assets areundervalued and depreciation understated due to the lack of modem financial techniques. Therefore,the estimated financial costs, which tariffs are due to recover, do not reflect the current or future costsof production. ADB-funanced studies on tariffs and on accounting systems in the power sector wouldprovide the bases for imnproving the sector's financial performance (paras. 2.17 and 3.19).

1.23 Wholesale prices for petroleum products are set by the Council of Ministers based uponthe CIF cost, the exchange rate and anticipated inflation, and a 15% import tax for gasoline.Petrolimex, the national distribution agency, may then set retail prices within plus or minus 10% of theofficial wholesale price. However, the tax on gasoline may not be collected if Petrolimex's actual

I/ The MOE was subsunied under the Ministry of Industry in October 1995.

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purchase costs of gasoline are sufficiently above the levels anticipated. The level of taxes on petroleumproducts are low compared to neighboring countries like Thailand. Both, in the interest of revenue forthe Govermnent and for energy conservation, there is a strong case for higher taxes on petroleumproducts.

1.24 Viet Nam has still to lay down prices for natural gas. The economic cost of gas from theearlier discovered fields is estimated to be in the region of US$1.3 per million BTU (MMBTU);however, further studies are required to establish the gas base, the costs for development and transportand the correct prices for this resource in various sectors of the economy. The price of gas to thepower sector is currently being considered in the range of US$2.0 to 3.5 per MMBTU.

1.25 Export prices for coal are determined by market forces; the principal constraint facingVietnamese exports is the relatively high cost of freight from Vietnamese ports. Domestic prices arelargely set by market forces, subject to minimum sales prices which are set by the Coal ConsumersAssociation. The minimum prices are set so that the companies producing coal break even, whichmeans that coal is sold below full cost. Prices for coal to the power sector are determined throughnegotiation between the coal producers and the power companies; in doing this, they follow guidelineslaid down by the State Committee on Planning (SCP).

1.26 Electricity tariffs were increased almost two-fold in 1992, with the average tariff reachingabout 4.5 USc/kWh (para. 2.16). In August 1994, a tariff reform was implemented, with higher ratesfor consumption above minimum levels for residential consumers. In March 1995, tariffs were againraised by about 0.45 USc/kWh. Currently tariffs average just over 5 USc/kWh. Although the tariffschedule contains peak and off-peak tariffs for energy, the absence of time-of-day metering, even forthe largest consumers, means that these tariffs cannot be implemented. The Government has indicatedthat it wishes to raise tariffs in a series of steps to 7 USekWh by 1999. This represents the Long RunMarginal Cost (LRMC) (actually, average incremental cost) of electricity estimnated in the Bank'sEnergy Sector Review. Allowing for modest inflation of the dollar of around 2.5% p.a. over thisperiod, this means that by 1999 tariffs will be around 90% of LRMC, as compared to about 75% atpresent.

F. Energy Conservation

1.27 The operation of the centrally planned economy, with energy prices substantially belowcost, monopoly state enterprises with little incentive to increase efficiency and the absence ofcompetitive markets did not encourage energy efficiency. The transition of the economy to a marketsystem, with competition in product markets, and pricing energy products closer to their cost will gosome way towards encouraging energy efficiency. There is therefore considerable scope forimprovements in the efficiency of energy use in Viet Nam. The capital base of the manufacturingindustry is expected to more than double in the next decade; this will provide opportunities forintroducing energy efficiency technologies, provided the correct incentives are in place. Energyefficient household appliances will help to ease the burden that the rapid increase in householdelectricity demand is expected to place upon the system, especially in Hanoi and Ho Chi Minh City.Viet Nam's commercial energy-GDP relationship, given its current GDP of US$16 billion and energyconsumption shown in Table 1.1, is US$2 of GDP per kgoe. In comparison, in 1992 Thailand had a

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GDP of US$3.1 per kgoe and the Philippines US$2.7 per kgoe. The industrialization of the countryand the switch to commercial fuels would increase energy consumption per unit of GDP, and it isimportant that conservation measures, such as Demand Side management (DSM) are introduced now tomoderate the growth in the demand for energy.

1.28 The conservation of energy and end-use efficiency improvements will need to be animportant component of Viet Nam's energy strategy. Efficiency gains can be expected to be derivedfrom both the supply and demand sides. In the power sector, the older thermal plants consume at least20% more fuel per kWh of electricity produced than plants in other East Asian countries. Transmissionand distribution losses are in the range of 20% or more, around two to three times the level in theOECD. The distribution system rehabilitation components of the Power Sector Rehabilitation andExpansion Project (PSREP) (Credit No. 2724-VN), the strengthening of transformer substations underthis project, and other rehabilitation and reinforcement projects being undertaken by EVN willcontribute substantially towards reduction of the level of losses.

1.29 Although there is a growing awareness within Viet Nam of the utility of energy efficiencymeasures, there has not so far been any systematic evaluation of DSM opportunities. A Demand SideManagement study for Viet Nam has been commissioned under PSREP (Credit No. 2724-VN).

G. The Environmental Sector

1.30 In 1991, Viet Nam adopted the National Plan for Environment and SustainableDevelopment: A Framework for Action (NPESD). This provides a comprehensive framnework forestablishing, over the next 10 years, the necessary policies, institutions, laws, regulations and programsfor addressing environmental issues. In the energy sector, it acknowledges that programs will berequired for environmental impact assessments (EIAs), watershed management, oil spill contingencyplanning, air, water and soil pollution, and energy demand management through conservation programsor legislation such as fuel efficiency standards for vehicles. The Government is now preparing aNational Enviromnental Action Plan (NEAP), building on the Bank's report entitled EnvironmentalProgram and Policy Priorities (Report No. 13200-VN), addressing issues related to land use andmanagement, reforestation and forest/watershed protection, wetlands, coastal and forest protection,urban and industrial pollution and policy, institutional and regulatory issues.

1.31 Viet Nam has also begun to establish the legal and institutional framework required toimplement environmental management programs. The Department of Environment and NaturalResources (DENR) is the Government's main environmental arm. This department is part of theMinistry of Science, Technology and Environment (MSTE) which was established in October 1992.The Law on the Enviromnent identifies key environmental management functions, but does not definethe role and responsibilities of DENR at an operational level. DENR's capacity to perform thesefunctions remains limited. Within the line agencies, DepaJtments of Science and Technology have beeninstructed to add environmental protection to their mandates. Therefore, the MOE has anenvironmental management role; however, in common with the other line agencies, it lacks the staffwith specialized training and experience, and does not yet have the capacity to develop and implementsector-specific environmental guidelines.

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1.32 A Law on Protection of Environment was enacted in December 1993. Amongst otherprovisions it: (a) identifies in general terms the responsibilities of the state, organizations andindividuals to prevent and remedy enviromnental deterioration and pollution; (b) provides for thedevelopment of environmental standards and submission of environmental impact reports on new andexisting facilities and provides for responsible parties to pay compensation for environmental damage;and (c) calls for civil and criminal penalties for violations. Several other legal initiatives relevant to theenergy sector have been completed or are being developed. These include the Act of ForestryProtection and Development (enacted by the National Assembly on August 18, 1991), a key provisionof which requires compensation if environmental disruption occurs, ar.d designates certain areas asprotected forests for hydroelectric watersheds; and the Regulation on Environmental Protection inMarine Petroleum Operation (enacted September 5, 1990). Waste water guidelines and regulations, anda Mining Law are currently being enacted. However, the Law does not make clear, for example, whoshall be responsible for preparing the ElAs, or which institutions will have the mandate of reviewingthem.

1.33 It is likely that the next two years (1996-1997) would concentrate on the promulgation ofenvironmental umbrella legislation, institutional capacity building and drafting of specific regulations onpollution and environmental management. The implementation and enforcement of selected regulationsin high priority areas will follow on from this.

1.34 In the conunercial energy sector, high priority areas are watershed management (affectinghydroelectric resources) and particulate emissions from thermal plant, and surface disruption by coalmines. Water pollution from site-specific energy industry investments, and air pollutior. from sulphuremissions and NO/VOC emissions may have a relatively low priority, yet it is expected that they willbe addressed in the 1997-2001 time horizon primnarily because these problems can be handled usingrelatively straightforward control technologies.

H. Energy Sector Strategy and lssues

1.35 In its wider program to reform the economy, the Government is moving from priceliberalization measures, which have so far been very successful, to more difficult institutional reforms,such as restructuring and privatizing state-owned businesses. The Government has restructured thepower sector by creating a holding company, EVN, and organizationally separating the core powersector operations of generation, transmission, and distribution. This operational separation in itselfrepresents a fairly significant step in the right direction. While the structure will still have a singleauthority over the entire sector, the Government would gradually need to sequence further reformsespecially in the development of a legal and regulatory framework that would allow for strongregulatory oversight and greater autonomy and financial responsibility at the enterprise level. Thiscareful pacing and sequencing of reforms is particularly important for the power sector which hasstrong monopolistic characteristics. The studies initiated under PSREP and follow-up studies under theproposed project (para. 2.26) will not only assist the Government in making these decisions and inimplementing them but will also allow the achievement of broader objectives of introducing mnarket-oriented mechanisms in all sectors of the economy.

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1.36 The demands placed upon the power sector by the pace of economic growth, in particularin the cities of Ho Chi Minh and Hanoi, are likely to be severe. This makes the reform of the sector tointroduce efficient and flexible management essential. It will also require the mobilization of financialresources, internally through changes in tariffs and taxes and in the longer-term externally throughforeign direct equity investment and bilateral/multilateral aid and the implementation of an integrated,least-cost development program for the energy sector. This will require that the MOE maintain iispolicy making capacity to provide guidance to the sector as a whole.

1.37 As far as pricing of energy products is concerned, there are two issues which are ofimnportance. The level of duties and taxes on petroleum products is low compared with successfulneighboring economies such as Korea, Malaysia and Thailand. There is considerable scope for theGovernment to raise additional revenue for the budget by raising duties, in particular on gasoline anddiesel fuel. This would also have the benefit of dampening the increase in demand for these products.Secondly, the price of electricity is substantially below LRMC. The Government's indication thattariffs will be raised to 7 USc/kWh by 1999 is, therefore, welcome. It is important that electricity iscorrectly priced to send the right price signals to consumers. The introduction of metering to supporttime of day tariffs, at least for the largest consumers, and the possible application of seasonal tariffs,will help to achieve this objective.

1.38 In the coal sector, the Govemment agencies should move away from operations and focusmore on policy implementation, research and regulation for safety and pollution control. The successof exports will depend upon the development of modem handling facilities at ports.

1.39 There is already extensive private sector involvement in the petroleum sector, with theoperation by foreign consortia of oil fields within Viet Nam's territorial waters, and the likelihood ofprivate sector financing for the refinery. The Government's role within this sector should continue tobe at a regulatory and policy-making level. As far as the development of gas resources is concerned,the policy should be to ensure correct pricing of gas, and ensuring availability of gas to sectors whereit has the highest value; predominantly in the power sector.

Chapter II

The Power Sector

A. Introduction

2.1 Viet Nam's power sector is divided into three distinct regional systems. Till recently,these systems were managed by PC1 in the North, PC2 in the South and PC3 in the Center. With thecreation of EVN in January 1995, the operations in the power sector are managed by the followingentities:

North

Power Company No. 1 (PC1) Power generation below 30 MW, regional load dispatch and powertransmission and distribution at or below 35 kV in the North, exceptHanoi.

Power Company of Hanoi Power distribution in Hanoi.Transmission Company 1 Power transmission above 35 kV in the North.Transmission Company 4 National load dispatch center and 500 kV transmission.Five Generation Units Pha Lai, Uong Bi, Ninh Binh, Hoa Binh, Thac Ba.

South

Power Company No. 2 (PC2) Power generation below 30 MW, regional load dispatch and powertransmission and distribution at or below 35 kV in the South, exceptHCMC.

Power Company of HCMC Power distribution in HCMC.Transmission Company 2 Power transmission above 35 kV in the South.Six Generation Units Thu Duc, Tra Noc, Ba Ria, Tri An, Thac Mo, Da Nhim

Center

Power Company No. 3 (PC3) Power generation below 30 MW, regional load dispatch and powertransmission and distribution at or below 35 kV in the South.

Transmission Company 2 Power transmission above 35 kV in the Center.One Generation Company Vinh Son

2.2 The North has an installed capacity of about 2,673 MW and a peak demand of about 1,100MW. The South has an installed capacity of about 1,495 MW and a peak demand of about 1,055 MW.The Center has an installed capacity of about 250 MW and a peak demand of about 190 MW. Theavailable generating capacities are well below installed capacities due to poor condition of the thermalplants.

2.3 The North has abundant coal and hydropower resources; in contrast, the South and Centerregions face acute generation deficiencies and require substantial additions of capacity over the near

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future. Fuel options for power generation in the South include: (a) off-shore natural gas; (b) coal,imported either from the North or fr,n regional countries; and (c) hydropower, both from the Southand from the two other regions. In C; .tral Viet Nam, the demands are low and the region has a largehydropower potential which can be tapped for the benefit of both the Center and the South. A 500 kVline linking the three regions was completed by the Government in 1994; this facilitates interregionalpower transfers and an integrated development of the national grid.

B. The Power Market

The Growth of Electricity Demand in Viet Nam

2.4 Viet Nam has seen a very rapid growth in the demand for electricity over the last decade,averaging 9.9% p.a. over the period 1981-1993. This is conimensurate with GDP growth of around79% over the same period. Sales of electricity in 1994, at just over 9,200 Gwh, were treble the levelsof 1981. Growth was slowest in PC1, although it still averaged 8.2% p.a., with sales in PC2 and PC3growing at 10.0% p.a. and 12.6% p.a., respectively. There was a slowdown in the growth of sales inPC2 and PC3 in 1990-1992, due to chronic shortages in electricity supply; since these have eased,growth has accelerated again.

2.5 Table 2.1 compares sales, losses, and peak demand for the three systems for 1994. Forthe country as a whole, average total losses were about 21 % of generation of which non-technical losseswere about 3%.

Table 2.1: POWER COMPANY STATISTICS FOR 1994Region Sales Gwi Leases (technicad plus Peak Ded MW

North 5,445 21.67 1.100

li South 4,456 18.93 1.055

Center 785 29.20 190

2.6 Sectorally, industry represents the largest consumer (sales of 3,893 Gwh in 1994), withsales to residential consuners (3,236 Gwh) comparable in size. Both agriculture (1,420 Gwh) and non-industrial sales (696 Gwh), the latter representing transport and service industries, are still relativelysmall. Sales to residential consumers grew at 12.6% p.a. over the period 1985-1994, nearly double thegrowth rate of sales to industry (which grew at 6.8%).

Forecasts of Electricity Demand

2.7 Since the time of the Bank's Energy Sector Policy and Investrnent Review (Report No.10842-VN, 1993), the actual demand for electricity in Viet Nam has been growing at a much morerapid rate than forecast. The Energy Institute has been periodically updating its load forecasts based oneconomic data. Its sales forecast of August 1994 was based on Base Case average demand growth rateover 1995-2000 of: (a) 12.9% for the whole country; (b) 11.5% for the North; (c) 14.2% for the

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South; and (d) 12.8% for the Center. This has become outdated and the Energy Institute's salesforecast of January 1995 is based on Base Case average demand growth rates over 1995-2000 of: (a)13.7% for the whole country; (b) 12.3% for the North; (c) 14.9% for the South; and (d) 13.9% for theCenter. The Energy Institute's sales forecasts for each of the regions are presented in Table 2.2.These represent a Base Case and a High Case scenario; the Base Case assumes an average increase of13.7% p.a. for the country as a whole until the year 2000, the High Case assumes an average increascof around 14.6% p.a. over the same period. After this period, lower growths of around 11.3 to 11.7%are assumed. With the substantial increase in economic activity in the country and increasing per capitaconsumption in the urban areas due to increases in the income levels, Energy Institute's High Casedemand forecast is considered to be a reasonable assumption for power planning in the near to mediumterm.

Table 2.2: ENERGY INSTITUTE ELECTRICITY SALES FORECASTS (Gwh) /a

Base High

l Total | North | South Center Total North South Center

[ 1995 1 10,478 1 4,440 _ 5,195 _ 843 _ 10,676 _ 4,575_ 5,254 847

1996 11,798 5,233 5,612 953 12,075 5,354 5,747 974

1997 13,426 5,804 6,536 1,086 13,856 5,980 6,757 1,119

1998 15,301 6,440 7,621 1,240 15,925 6,684 7,953 1,288

1999 17,763 7,452 8,896 1,415 18,329 7,474 9,372 1,483

2000 19,961 7,948 10,395 1,618 21,128 8,362 11,056 1,710

2005 34,121 12,788 18,615 2,718 36,847 13,825 20,011 3,011

2010 60,154 21,281 34,249 4,624 66,168 23,763 39,118 5,287

Average Percentage Per Annum Increase

1995-2000 13 .71 12.3 14.9 13.91 14.6 12.8 16.0J 15.0

2000-2005 1131 10.1 12.3 10.9 11.7 10.6 12.61 12.0

2005-2010 1 12.0 1 10.7 13.0 11.2 12.4 11.4 14.31 11.9

La January, 1995.

C. Generation and Transmission Facilities

Generation

2.8 The total installed generating capacity in the country is approximately 4,480 MW (2,673MW in the North and 1,495 MW in the South). In the northern region, the completion of the Hoa Binhhydroelectric plant (1,920 MW and 8,400 Gwh p.a.) has created substantial excess capacity; the threelarge coal-fired steam generation plants in the region (Pha Lai, Nin Binh and Uong Bi) are operating atwell below 50% of their rated capacities. These plants are of Soviet and Chinese origin, and arelocated near anthracite mines. All these plants are in relatively poor condition, due to the quality of thedesign, dearth of spare parts, inadequate control systems and poor mnaintenance. Peak demand in theNorth, at 1,000 MW, is well below installed capacity, although allowance has to be made for exports tothe South and the Center of around 400 MW, and the low availability on some of the older thermal units.

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2.9 The commissioning of the 500 kV North-South-Center link has created a singleVietnamese power grid and has for the time being ended the chronic energy shortages that the Southand Center had been suffering. The South anticipates importing 33 % of its power requirements throughthe link in 1995. Unlike the North, the South and Center have suffered from a deficit in generation,shortages in power being especially critical during the dry season when hydropower energy is low. Themajor hydro sites in this region are Tri An (400 MW), Vinh Son (66 MW) and Thac Mo (150 MW).There are two principal fuel-oil fired thermal generating stations in the South (Thu Duc, 165 MW, andCan Tho, 33 MW). New combustion turbines have been added to both Thu Duc (2 x 37.5 MW) andBa Ria (5 x 37.5 MW). A gas pipeline, from the Bach Ho field has been commissioned to the Ba Riasite in niid-1995 (and will be extended to Phu My by 1997 and Thu Duc by 1998), allowing theseturbines to be operated on gas. Despite these additions, there would be insufficient generating capacityto provide a firm backup to the 500 kV link (which is single circuit) and therefore the South and Centercan expect to suffer from at least temporary power shortages when the link is inoperative.

Transmission and Distribution

2.10 Viet Nam's transmission and distribution systems are based on multifarious standards andare old and unreliable, with overall losses of about 20% (see Table 2.1). There is an urgent need torehabilitate and strengthen the networks to reduce technical losses, improve reliability and therebyreduce outages, and serve the forecast increases in demand. While PSREP (Credit No. 2724-VN)provides for extensive reinforcement of the medium voltage distribution networks, the proposed projectwould cover strengthening of the high voltage sub-station capacity.

2.11 As far as EHV and HV transmission are concemed, the commissioning of the 500 kV link(1,440 lkm long) represents the first step in the construction of a national grid. Prior to this, there weretwo separate interconnected grids in the country, operating at 220/230 kV, 110 kV and 66 kV, with atotal circuit length of about 5,500 km. The development of a national link underscores the need formodem national and regional dispatch centers and communications systems which are being coveredunder PSREP (Credit No. 2724-VN).

D. Viet Nam's Power Development Plan

2.12 The Govermnent's objectives for the development of the power sector are: (a) exploitationof the vast hydropower potential of the country; (b) improvement of supply side efficiency throughreduction of losses in energy conversion, transmission and distribution; (c) promotion of foreigninvestments; and (d) increasing the availability of electricity in rural areas. In line with theseobjectives, the Energy Institute has developed a generation expansion schedule, using the ENPEPmodel.

2.13 Under this plan there will be a substantial addition of hydro capacity (Vinh Song, SongHinh, Yali, Dai Ninh, Pley Krong and Son La) and of gas-fired combined cycle capacity (Ba Ria, PhuMy and others). There is also expected to be development of coal-fired capacity in the north, at PhaLai and, later, at Quang Ninh. A total of 2,987 MW is expected to be added by 2,000 and 5,995 MWby 2005. The plan was developed using the High Case demand forecast (see Table 2.2), and aplanning criteria of Loss of Load Probability (LOLP) of about 3 days per year.

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2.14 Associated with this, it is expected that about 2,832 km of 220 kV lines, 3,259 km of 110kV lines, 7,686 MVA of 220 kV transformer capacity and 6,815 MVA of 110 kV transformer capacitywill be added to the system in the period 1995-2000. Additional capacity on the 500 kV interconnectoris expected to coincide with the commissioning of the Yali project. The development of the large SonLa scheme (2,400 MW), which is planned for the period after 2005, would require a further upgradingof the link.

Table 2.3: GENERATION EXPANSION PLAN FOR VIET NAM /a

Yr Name of Projects Capacity MW Incresed by MW

1995 Thac Mo Hydro 150 150

1996 Ba Ria GT 35 35

1997 Ba Ria STs 2x56 312Phu My 2-1 GTs 2xlO0

1998 Song Hinh Hydro 70 170Phu My 2-1 ST 100

Pha Lai 2 #1 (Coal) 1x3001999 Phu My 2-2 CC 1x300 960

Yaly # 1,2 Hydro 2xl80

2000 Pha Lai 2 # I (Coal) 1x300 -

Phu My I Gas 3x200 1,260Yaly # 3,4 Hydro 2xl8O

2001 Ham Thuan Hydro 300 300

2002 Da Mi Hydro 172Se San 3 Hydro 220 777Buon Kuop Hydro 85Quang Ninh # I (coal) 300

2003 Dai Ninh Hydro 300 600CC 300

2004 Thuong Kon Tumn Hydro 260 560CC 300

2005 Ban Mai Hydro 350Plei Krong Hydro 120 770CC 300

2006 Quang Ninh # 2 (Coal) 300 600Nhiet Dien Mien Tay # I (thermal) 300

2007 Son A # 1,2 Hydro 2x300Mien Tay # 2 (thermal) 1x300 1,100GTs 2xl00

2008 Son La #3,4 hydro 2x300Mien Tay # 3 thermal 300 1,000GT 100

2009 Son La # 5,6 Hydro 2x300Mien Nam # I (thernal) 300 1,000GT 100__ _ __ _ __ _ _

2010 Son La # 7,8 hydro 2x300Mien Nam 1 2.5 thernal WOO0 1,400GTs 2x100

/a Source - Energy Institute.ST = Steam Turbine; GT = Gas Turbine; CC = Combine CycleRatings and sequencing of Phu My power plants are under review.

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2.15 Table 2.4 shows forecasts of the regional power balance, for selected years (the mostimportant dimension as far as medium term planning for the power sector is concemed). It shows that,countrywise, the reserve margin would dimninish from 57% in 1995 to about 29% in 2005, a level thatwould be considered reasonable. The table also shows the extremely precarious condition of the powersupply system for the South over the 1995-1997 period, underscoring the need for urgent capacityadditions. After 1997, the situation would progressively improve with the rapid commissioning of gasfired capacity in the early years and the coming on line of hydro capacity in the outer years.Agreement was reached at negotiations that the Govemment would, on an annual basis, continue tofumish to IDA for its review and comments: (a) a review of the implementation of its powerdevelopment program during the preceding 12 months; and (b) its proposed implementation program forthe next five years, and thereafter carry out the power development program taking into account IDA'scomments.

Table 2.4: POWER BALANCE

[ 1 1995 1997 2000 2005

Viet Nam Power System

(1) Available Capacity (MW) 4,119 4,666 6,731 9,658

(2) Peak Demand (MW) 2,613 3,349 4,899 7,448

(3) Margin ((1)-(2)) (MW) 1,506 1,317 1,832 2,210

Margin as % Peak Denmand ((3)/(2)) 57% 39% 37% 29%

North and Central Coastal Area

(4) Available Capacity (MW) 2,W804 2,804 3,454 4.344

(5) Peak Demand (MW) 1,333 1,676 2,370 3,476

(6) Margin ((4)-(5)) (MW) 1,417 1,128 1,084 868

Margin as % Peak Demand ((6)1(5)) 110% 67% 45% 25%

South and Central Higb Land Area

(7) Available Capacity (MW) 1,315 ?,862 3,277 5,314

(8) Peak Demand (MW) 1,280 1,673 2,541 4,122

(9) Margin ((7)-(8)) (MW) 35 189 736 1,192

Margin as % Peak Demand ((9)/(8)) 3% 11% 29% 29%

E. Electricity Tariffs

2.16 Existing tariff levels are provided in Annex 1. Tariffs were rationalized and raised almosttwo-fold in March 1992; higher charges during the dry season were introduced for consumption aboveset levels, and special tariffs were introduced for foreigners and partially or wholly owned foreign

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companies. Further upward revisions in the tariffs were implemented in August 1994 and May 1995;currently the average tariff is about D580/kWh, or about 5.3 USc/kWh. The LRMC of electricity wasestimated in 1993 to be in the range of 7 USc/kWh and the Government has expressed its commitmentto increasing tariffs to this level by 1999. Assuming relatively low levels of inflation (around 2.5%) inUS$ terms, by 1999 tariffs will be approximately 90% of LRMC, as compared to about 75% atpresent.

2.17 Tariffs are currently uniform across Viet Nam. Industrial consumers face a tariff schedulethat has average, peak and off-peak tariffs, with peak rates being well over double the off-peak rates.Unfortunately, few, if any, of these customers have time of day metering, and therefore this tariffschedule cannot be applied. The introduction of these meters, for appropriate consumers, will be animportant step in establishing a cost reflective tariff that will provide incentives for conservation ofenergy at peak times. The ADB is funding a tariff study to assist in the development of an appropriatetariff policy, based on appropriate financial and social objectives. This study would address themetering issues.

2.18 The present tariff structure broadly reflects the differences in costs associated with voltagelevel and type of consumer. Therefore, charges to industrial consumers are highest for those suppliedat 6 kV or below, and lowest for those supplied at voltages above 20 kV. There is a subsidy elementin the Residential category; consumers face a rising block tariff. The tariffs to commercial customersare substantially above anything paid by other consumers. It is likely that residential consumers will becontributing proportionately more to the peak than conmmercial consumers do, suggesting that thisdifference is not cost reflective. In addition, there is a tariff schedule for foreign customers (bothbusiness and residential), with tariffs above the estimated LRMC of 7 USc/kWh. The existence of"wholesale electricity vendors", particularly in rural areas, who buy electricity from the powercompanies and resell it, metered through submeters, to small customers, is quite prevalent. The pricesthe vendors charge are considerably higher than the official tariffs, ranging as high as Dl,000/kWh.The high prices charged suggest that the willingness-to-pay for electricity in certain areas is well abovecurrent tariff levels.

2.19 The main reform required at present is an increase in the average rate of the tariff, toreflect to consumers the true cost of electricity supply. To improve the accuracy of the price signalssent through the tariffs, the Government should consider: (a) introduction of metering to allow peak andoff-peak tariffs to be charged to large consumers; (b) introduction of demand charges for largerconsumers; and (c) increasing the level of tariffs charged to residential consumers, at least forconsumption over the minimum block, so that the higher rates are at least equivalent to that charged tocommercial consumers. Agreement was reached at negotiations that the Government would furnish, onan annual basis, to IDA a review of the policy and levels of its electricity tariffs, including proposedadjustments to meet the objectives of the power development program, and thereafter implementproposed adjustments taking into account IDA's comments.

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F. Sector Strategy

The Govenment's Power Sector Policy

2.20 The power sector in Viet Nam faces a number of challenges in the coming years, the mostsignificant being the ability to finance and implement an investment programn of almost US$6.5 billionfrom 1995-2001, to meet the unprecedented growth in electricity demand. Presently, the power systemis technically stretched to its limit and owing to years of under-investment in assets and in maintenance,the system is inefficient and unreliable.. Further, with only 78% of the population having access toelectricity and a per capita consumption of less than 300 kWh, there is a large amount of suppresseddemand in the country.

2.21 Recognizing the need for drastic rationalization of sector policies to meet these challenges,the Government has prepared, in consultation with IDA, a Power Sector Policy Paper that lays out itssectoral objectives, its reform strategy and a reform implementation plan (see Annex 2 for details). Theprincipal elements of the Government's power sector policy are to: (a) rationalize power sectorinstitutions and functions; (b) commercialize the operations of sector entities through financial andmanagement restructuring; (c) introduce an appropriate legal and regulatory framework for the sector;(d) adopt appropriate bulk and retail electricity tariffs, both in terms of tariff level and tariff structure;(e) encourage and introduce private sector capital and direct participation in the sector; (f) introduceelectricity conservation and load management practices; and (g) prepare and implement a plan to bringelectricity to rural areas.

Sector Reform and Restructuring

2.22 In January 1995, the Government issued Decree No. 14/CP to establish EVN, a holdingcompany for the different power sector entities engaged in generation, transmission, distribution andassociated service functions. EVN comprises 34 separate business units, each with its own charter andeach reporting to EVNs Director General. These business units are grouped under two accountingsystems: (a) independent accounting, which focuses on costs and revenues; and, (b) dependentaccounting, which focuses on costs. The business units fall into three categories:

(a) Those engaged in generation and transmission are subject to dependent accounting, andconsolidation of accounts takes place only at the level of EVN as a whole (General EVN).There are 17 business units involved in these activities - 12 for generation and 5 fortransmission. They all report to EVNs Director General, through the Deputy-DirectorGeneral for production.

(b) Those responsible for distribution and supply are independent accounting enterprises(profit- or cash-generating centers), which are accountable directly to EVNs DirectorGeneral. There are five distribution units: Hanoi-PC, HCMCPC, PCI, PC2 and PC3.

(c) Those involved in the provision of services (including finance, design and construction,and planning) have either independent or dependent accounting status.

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2.23 EVN has the legal status of a state corporation under the State Enterprise Law.Independent accounting entities have the status of state enterprises that are members of the statecorporation (i.e. EVN). EVN's newly created Board of Management (BOM) has been vested withresponsibility to exercise the States ownership function based on the principles established under thenew State Enterprise Law. It also oversees the operation and management of EVN.

2.24 From a sector structure perspective, the core functions of generation and transmission areseparated under several regionally-oriented business units, all of which are grouped under EVN asdependent accounting units. This restructuring has set the stage for consolidation of a transmissionbusiness unit as a separate profit center and progressive commercialization of the distribution units.The generation-transmission business units sell electricity in bulk to the five independent distributioncompanies. Retail prices to final consumers are established by the Government and are currentlyuniform across the country. The mechanism for setting the bulk transfer price (BTP) allows thedistribution companies to make a target profit; the profit level is determined by EVN. Given uniformretail pricing and differing distribution system costs for each distribution company, the BTP is differentfor each distribution company.

2.25 The Ministry of Energy (MOE), now MOI, has been significantly rationalized in parallelwith the establishment of EVN. Consistent with the Governments policy for all line ministries, MOEis increasingly responsible for policy and oversight functions, while all operational responsibility isbeing vested with operating companies.

EDA's Strategy and Assistance to The Power Sector

2.26 IDA's strategy for the power sector and the associated technical assistance are focused on:(a) assisting the Government in introducing reformns and restructuring the power sector; (b) improvingthe technical and operational efficiency of the sector through strengthening the sector institutions andmoving them towards commercialization and corporatization; (c) initiating legal and regulatory reforms;(d) creating an enabling environment for introduction of private power; (e) promoting conservation andencouraging environmentally and socially sustainable development; and (f) encouraging the spread ofelectricity to rural areas. In furthering this strategy, IDA (under the PSREP (Credit No. 2724-VN) andunder the proposed project) would focus on:

(a) Power Sector Reform and Restructuringe In association with PSREP, ESMAP began aninvestigation of the needs and priorities of sector reformn. The work was a collaborative effortbetween an MOEIEVN working group and the ESMAP team, and was coordinated by a high-level government steering committee. The findings of this work, as well as options to reformthe sector was discussed at a workshop in May 1995 in Hanoi. ESMAP also conducted atraining workshop on power sector financing options in July 1995. The work done by ESMAPis reprinted in Report No. 174/95. This report provides the framework for further reforms inthe power sector.

(b) Power Sector Institutional Strenutheninu Much work remains to be done by the Government toachieve an increasing commercial orientation of the sector, including: (i) separating moresharply the function of government oversight and regulation from that of sector ownership andmanagement; (ii) establishing a commercial arms-length ownership policy vis-a-vis EVN, interms of financial responsibilities and operational performance; (iii) strengthening theadministrative and management practices of EVN and its enterprises; and (iv) allowing adequate

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financial and management autonomy to the distribution companies. Technical assistance ininstitutional strengthening is being provided under PSREP (Credit No. 2724-VN). It includes:improving organizational structures; streamlining administrative and management practices;improving reporting and information flows between entities; and defining of budget andfinancial control systems. The proposed project would provide for additional strengthening ofEVN through management training.

(c) Legal and Regulatorv Framework An important element of the power sector policy is theestablishment of an effective and credible body of sector-specific legislation and regulations,which is a prerequisite for the orderly introduction of private power. This would comprise: (i)defining the scope of regulation and the agency to carry out this function; (ii) drafting of anelectricity law and its subsequent approval by the National Assembly; (iii) preparation andoperationalization of a Grid Code; and (iv) promulgation of the Electricity Law andRegulations. In support of the proposed project, the ESMAP group of the Bank would provideextensive technical assistance to the Government in developing an appropriate legal andregulatory framework for the power sector.

(d) Development of Private Power As a key objective to encourage private sector participation, theGovernment issued Decree No.87/CP on Build-Operate-Transfer (BOT) contracts to facilitateprivate investment in infrastructure, including power. Despite this policy initiative, significantimpediments to promoting and implementing private power remain including: (i) the lack of aproper legal and regulatory framework; (ii) the unfavorable credit-risk of EVN stemming fromlow tariffs and the lack of financial disclosure; and (iii) uncertainty regarding a domestic disputeresolution mechanism. Under the proposed project, assistance will be provided by the BankGroup to help structure the second phase of the Phu My power station as a BOT type project.This work would include: (i) improving the overall framnework to solicit private investment; (ii)training for structuring and negotiating project agreements with foreign investors and lenders;and (iii) providing project specific legal and financial consulting services.

(e) Energy Conservation and Demand Side Management A study to evaluate energy conservationpotential and methods to implement demand side management and energy conservationprograms is being conducted under the PSREP.

(f) Master Plan for Rural Electrification The proposed project provides for technical assistance indeveloping a strategy and a master plan for rural electrification in the country.

Lessons from Previous IDA Involvement

2.27 IDA's first operation in the Viet Nam power sector (PSREP) has just conmmenced and thelessons leamed from this project have been drawn upon in the preparation of the proposed project. Animportant lesson has been the need for a detailed preparation of the resettlement action plan (RAP) witha clear definition of project affected persons and the legal framework for resettlement, and assuring theactive participation of the affected people in the project and the RAP. Another significant lesson frompower projects, in general, is the need for thorough investigations in the preparation of technologicallyand managerially complex projects. The proposed project includes development of a large gas-firedthermal power complex; adequate field investigations have been made, alternatives studied, and foreignconsulting assistance has been availed of from the feasibility stage and will be continued duringimplementation. Being a fast track project, adequate safeguards have been provided to achieve itstimely completion, including construction on a turnkey basis.

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Rationale for IDA Involvement

2.28 The project would be fully consistent with the Bank's Country Assistance Strategy (ReportNo. 15053-VN of October 25, 1995), discussed by the Board on November 21, 1995, which seesIDA's role for the power sector as filling an important niche not covered by other players in the sector.This includes financing of environmentally sustainable hydropower, transmission and distribution, andthermal power to the extent that the Bank Group could be instrumental in introducing private powerwhile simultaneously working with the Government in improving the legal and regulatory framework.The policies and programs that the Government proposes to follow in the sector are consistent with theBank's policy guidelines for the power sector.

2.29 Viet Nams needs for financing its infrastructure are large (the power sector alonerequiring almost US$6.5 billion over 1995-2001) and the Government clearly recognizes the necessityfor private direct financing. However, to permit the private sector to participate in power developmenton the required scale and in a sustainable manner, Viet Nam needs a conducive policy, legal andregulatory framework. The present situation does not permnit such participation because of an almosttotal lack of such a frarnework. Accordingly, IDA's dialogue with the Government over the past twoyears has been to agree on a shift in its policy on private sector participation, help create a proper legaland regulatory framework and to move the power sector increasingly towards conmmercialization andcorporatization. Various units of the Bank Group - FIAS, IFC, ESMAP and the Region - haveparticipated in this dialogue. Notable among the Bank Groups efforts so far have been: (a) thecollaborative work of ESMAP and the Government through the Power Sector Reform and RestructuringStudy (ESMAP Report No. 174/95); (b) the seminar held by ESMAP in July 1995 to sensitize theGovemrnent to issues relating to private financing of power; and (c) the holding of a high level semninarby FIAS and IFC in Hanoi in September 1995 on Impediments to Direct Investment in Infrastructure.

2.30 Preparing and implementing a sound policy, legal and regulatory framework will,however, take time, in part because there is not yet a completely uniform view on private sector powerdevelopment within the Government. In the meantime, the demand for power is increasing rapidly.Therefore, in parallel with the efforts to develop the framnework, the Government is willing to considerprivate power development under BOT arrangements on a case-by-case basis, provided it is done in acompetitive and economic manner. This preparatory work will take time. The Government believesthat it needs to make some immediate investments in power generation through EVN to head off alooming power crisis in the southern part of the country, an assessment with which IDA concurs. TheBank Group is satisfied with the appropriateness of the overall strategy which will be implemented firstin the development of the Phu My complex.

2.31 Phu My, with an ultimate capacity of 2,400 MW, will be the largest thermal powergeneration complex in the country. EVN has invited bids for the first two 150 MW gas turbines whileit has also, in parallel, received some private power proposals. EVN did not find the latter acceptablefor technical and economic reasons. There were also concerns that negotiations and finalization ofproject arrangements, in the absence of a proper framework, would require considerably more time thanwas available (the initial capacity increase needs to be completed by December 1996). TheGovernment, therefore, requested IDA to finance these two gas turbines. The approach taken by IDAwas to predicate IDA financing on a clear up-front policy decision by the Government to introduceprivate power for the second CC block of Phu My. After considerable debate at the highest politicallevel, the Govermment adopted the policy decision recommended by IDA. IDA's strategy has, thus,succeeded in creating a breakthrough in the introduction of private power in Viet Nam. Whilereiterating its desire to work with IDA in establishing the proper legal and regulatory framework (whichshould significantly facilitate large scale and sustainable private sector involvernent in power

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development), the Government has sought Bank Group's assistance in realizing a BOT type ofinstallation for the second CC block of Phu My. IDA and IFC consider the Governmnents approach tobe reasonable, and are satisfied that their involvement will help introduce private power in an orderlymanner.

Chapter III

The Beneficiary

A. The Beneficiary

3.1 The beneficiary of the proposed credit is the Electricity of Viet Nam (EVN).

B. Organization and Management

3.2 EVN was created on January 1, 1995 by govermnent decree number 562/TTG datedOctober 10, 1994 (Annex 3). EVN, a "State Corporation" under the newly promulgated StateEnterprise Law, is an independent juridical entity acting as a holding company overseeing 14"independent accounting" and 22 "dependent accounting" business units. EVN's legal basis, scope ofresponsibilities, organizational boundaries and other institutional features are laid out in its charter.

3.3 The Ministry of Energy (MOE) which earlier exercised oversight of the power sectorenterprises, has been rationalized and most of its staff reassigned to EVN. A limited scope ofregulatory functions has been assigned to MOE. The interface between EVN and MOE remains to beclarified and the ESMAP-funded technical assistance project on "Developing a Legal and RegulatoryFramework for the Power Sector" (para. 2.26) would assist in clarifying the details of the separation ofthese responsibilities and functions.

Management Board

3.4 Under its charter, EVN's organization (Chart 1) consists of: (a) the Management Board;(b) the Board of Directors headed by the General Director assisted by deputies and department heads;and (c) business units. The Management Board which is the highest decision-making authority in EVN,consists of five members headed by the Chairman (Minister of Energy). The other mernbers of theManagement Board include a Vice Chairman, a General Director, and two experts on legal, technicaland economic aspects. The members of the Management Board have a tenure of five years. TheManagement Board (similar to a corporate Board of Directors) is authorized by the State to carry outownership and control functions on its behalf. Specifically, the Management Board is responsible forsetting up policy and giving advice to EVN's top executives.

Board of Directors

3.5 The second level of management is the Board of Directors which consists of the GeneralDirector and four deputies in charge of production, investment, development, construction managementand finance. The main function of the Board of Directors is to implement the Management Board'sdecisions and for day-to-day management. EVN has 15 functional and administrative departments foradministration, planning, organization and personnel, finance and accounting, business, powergeneration, power network, international cooperation, financial estimation, project evaluation, materialand import-export, rural and mountains region power development, inspection security and technical

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safety inspection. Each department is headed by a director who reports directly to the GeneralDirector.

Business Units

3.6 Under the new EVN charter, the three formerly fully integrated power companies (PCI inthe North, PC2 in the South, and PC3 in the Center), which were responsible for generation,transmission and distribution in their respective regions; the two Power Investigation and DesignCompanies (PIDC1 and PIDC2), which undertook detailed design and construction management af largepower sector projects; the three Power Construction Companies, which undertook construction of majorpower projects; and the National Load Dispatch Center, were fragmented and restructured into financial"independent" and "dependent" business units.

3.7 The "independent' business units comprise five distribution companies, four powerconstruction companies, two investigation and design companies, a company for fabrication of electricalequipment, and a communication company. The "dependent" business units comprise 12 generating andfour transmission companies, the National Load Dispatch Center, and three peripheral units forplanning, information and research. Currently, some Project Management Boards, which formallybelonged to the PCs have been separated from the PCs and now belong directly to EVN as dependentbusiness units. The list of EVN's business units is given in Annex 4.

3.8 Each business unit is headed by a director. While the business units are given autonomyby EVN to appoint their own deputy directors and heads of departments, the director and chiefaccountant of each unit are appointed by EVN. As presently structured, there is a tendency toconcentrate much of the decision making at the level of EVN senior management. This lack ofautonomy, particularly for the independent business units' directors, is inconsistent with the intent of thesector reorganization to provide the independent business units with legal and financial independence.The issue of developing a plan to implement the internal organizational changes within EVN whichwould allow greater autonomy along with adequate accountability is being addressed in the study"Power Sector Institutional Strengthening" under PSREP (Credit No. 2724-VN).

C. Staff Development and Training

3.9 EVN's management and staff, drawn largely from the staff of MOE, PCI and PIDC1, aretechnically competent and qualified, but are not equipped with modern tools and are inadept at modernmanagement practices. During the reorganization and restructuring of the sector, no employee in thepower sector was retrenched. As of January 1, 1995, EVN has a total staff of 63,788 representing thetotal work force of the sector prior to reorganization. More than half (57%) of EVN staff now belongto the five distribution companies, 16% to the power construction companies, 13% to the powergeneration companies, and the rest to the transmission and other companies. As of April 1, 1995, EVNreported 52,300 staff with fixed positions, but transfers are still taking place and the final numbers arenot yet officially known. Of this number, 3,500 belong to the managerial ranks. EVN has a staffingratio of 12 employees per installed MW, and 65 customers per staff. The latter figure is low, whencompared to a figure of about 120 for Thailand.

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3.10 Recruitment is the responsibility of EVN's Administration Department but the businessunits have been delegated the task of recruitment of their own staff within limits specified by EVN.Staff training has also been delegated to each business unit. The National Training Center of PCI andthe training centers of PC2 and PC3 still operate under the control of the respective PCs astechnical/vocational schools. The National Training Center, in line with EVN's policy of re-educatingstaff, provides technical and non-technical training on management, accounting, and computers. Amajor program of upgrading training facilities and staff skills in managing new and sophisticated plantsand systems is being provided under PSREP (Credit No. 2724-VN).

D. Operations and Management

Project Development and Procedures

3.11 The procedures for development of investment projects in the power sector arecumbersome and bureaucratic. As currently envisaged, the strategy for development of long-term plansfor the power sector would be drafted by the Energy Institute and submitted to EVN and MOE for theirreview and appraisal. On the basis of these plans, projects are prepared and approved by theGovernment in accordance with established procedures and stages. Once approved, feasibility studiesare appraised by the State Appraising Committee or by a committee chaired by the Vice Minister orVice Chairman of the People's Committee. Project proposals within EVN are subject to the followinglevels of approval: (a) Level A, projects in excess of D 100 billion by the Prime Minister; (b) Level B,projects ranging from D 6-100 billion by the Government and MOE; and (c) Level C, projects less thanD 6 billion by EVN's Board of Management. Procurement, which has caused bottlenecks and delays inproject implementation, needs to be streamlined. Currently, procurement is done by bidding inaccordance with government regulation. The National Procurement Evaluation Comnmittee evaluatesand selects bids costing above D 100 billion for the Primne Minister's approval while MOE approvesbids below D 100 billion.

Operational Performance

3.12 At present, EVN operates 15 units of various generating stations with a total capacity of4,480 MW; of which 68% is hydro and 32% is conventional oil/gas and thermal power plants. With atransmission line length of 6,900 circuit-kIn, it has 85 substations and 2,530 MVA transformer capacity.In April 1994, the 1,500 km 500 kV North-South power line was completed providing 500 MW ofelectricity to the central and southern provinces. The PCs, who managed the facilities prior to theestablishment of EVN, have operated these facilities and the transmission network at levels that havebeen severely constrained by shortages of funds and spare parts supplies.

3.13 Power losses, including both transmission and generation losses, arnount to about 20% ofelectricity produced, with estimated transmission and distribution losses being about 18 % and auxiliaryconsumption being 3% of generation. These levels are relatively high when compared to thoserecorded for the more developed power grids of countries such as Thailand and South Korea. EVNwould need to exercise stricter control on its operations to reduce non-technical losses. A program toprogressively reduce the non-technical losses of PC3 in the Central Region from about 18% to 3% asplanned by the Government has been agreed with IDA under the PSREP (Credit No. 2724-VN).

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E. Financial Management

Accounting System and Promdures

3.14 The establishment of the charter of EVN coincided with the introduction by the Ministryof Finance (MOF) of modifications to the Vietnamese accounting system. In accordance with CircularNo. 162 TB dated November 30, 1994, the Prime Minister approved the application on a trial basis ofthe reformed accounting system to several state-owned enterprises including EVN. MOF and MOEhave required EVN and its business units to adopt the new system with modifications to the chart ofaccounts to suit the power sector. EVN's system is designated as a "mixed" accounting systemwhereby: (a) centralized accounts are maintained in the generation and transmission of electricity; (b)all power plants and transmission companies are dependent accounting units; and (c) consolidation ofaccounts take place only at the EVN level as a whole.

3.15 The revision in the accounting policies has resulted in the following improvements in theaccounting principles adopted by EVN:

(a) EVN and its subsidiaries now use the accrual basis of accounting;

(b) Remittance to the Government of regular depreciation and depreciation of fully written-offassets has been discontinued. The EVN group now employs uniform capitalization anddepreciation policies and adopts appropriate depreciation rates on each asset consistently;

(c) Foreign currency denominated balances are now restated at the end of each reportingperiod with the resulting gains or losses recognized for that period;

(d) Cash flow statements will now be prepared at the end of each entity's financial year.Consequently, a consolidated cash flow statement of EVN will also be presented;

(e) The business units are now required to mnaintain their own books of accounts and submitregular financial and non-financial reports to the Management Board for review andconsolidation of accounts; and

(f) Consolidated accounts will be prepared for EVN and the dependent business units on amonthly basis and EVN and the independent business units quarterly. Duringconsolidation of accounts, all intercompany transactions are eliminated.

3.16 While the aforemnentioned changes are encouraging, certain practices, however, are still atvariance with internationally accepted accounting principles and practices. Thus:

(a) There is no external or internal audit of EVN accounts. The consolidated accounts ofEVN and its independent business units are only submitted to MOF for approval;

(b) EVN is not allowed to make provisions for doubtful accounts. The current practice is thatthe distribution companies submit a list of long overdue accounts to the Management

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Board for review. Write-offs will only be made upon approval of the Board and MOF.In the meantime, no allowance is provided for these doubtful accounts;

(c) Differences between the result of the physical count and the book balances of inventoriesat the end of the year are recognized as balance sheet items instead of being taken directlyto income. This practice results in a misstatement of the balance sheet and profit and lossaccounts; and

(d) The consolidated balance sheet of EVN does not properly account for construction work inprogress. Fixed assets are not classified into assets in operation and assets underconstruction in progress.

3.17 The deviations mentioned above are not of a serious nature and EVN's accountingpractices are now, for the most part, consistent with international accounting standards. The ADBconsulting study (para. 3.19), which is expected to be completed in early 1996, should assist EVN inimproving the systemic and qualitative presentation of the financial statements.

3.18 EVN is required to conform to the accounting manual of MOE and MOF and has adopted,for all its business units, uniform accounting policies and procedures, documentation of transactions,and charts of accounts. Its business units now prepare and submit standard accounting and otherfinancial reports. EVN's Business-Finance Department reviews the reports prior to submission to theManagement Board for consolidation. EVN's computerized accounting system was developed bycomputer specialists from the three power companies, PCs 1, 2 and 3. While currently in use, theprogram is still under evaluation and improvements are introduced as necessary. The business units allhave their own accounting departments and the accounting staff are generally competent.

3.19 PCI, PC2, PC3, HCMC and Hanoi Distribution Companies maintain a comprehensiveaccounting system. These business units also have their own Electronic Data Processing Departmentsacting as computer service centers for all their other departments. Other business units, which have notyet computerized their accounts, are currently evaluating the systems in place. EVN is aware of theneed to adopt modern management practices and improve financial reporting within the group.Eventually, a plan to computerize all significant accounting systems within EVN will be implemented.The ADB study on "Improvement of Financial and Accounting System of the Power Companies in VietNam" aimed at introducing a modem accounting and management information system, and the study on"Power Sector Institutional Strengthening" under PSREP (Credit No. 2724-VN) aimed at improving andmodernizing the commercial systems and institutional strengthening of the power sector, should assistEVN in carrying out some of the important reforms and restructuring necessary.

Reporting and Management Information System

3.20 The guidelines for EVN's project development and procedures, accounting systems andpractices, infornation reporting, approval process and decision-making are extensive and reflectprinarily a "top down" centralized approach to management control and decision-making. The reasonfor the top-heavy decisior2 making seems to be lingering doubts as to the extent to which delegation tothe business units can be justified. The management reporting system has evolved primarily in responseto existing external reporting requirements and is used by the Government and EVN for strictmonitoring of the business units. Information is exchanged within EVN through written reports and thecomputer network. Access to financial data is highly restricted and centralized. The ADB and IDA-

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supported studies referred in para. 3.19 will address this issue and should help EVN decentralize andimprove the management of and operational relationship between the business units.

Audit

3.21 Auditing capability in Viet Nam has developed significantly over the past two years. Sixinternational accounting firms now have self-sufficient in-country practices. Three have been licensedto operate independently in Viet Nam, while three operate as joint ventures with local firms. Inaddition, there are five strictly local firms, which are state-owned enterprises. Operating under thesupervision of MOF, they are expected to compete and be financially self-sufficient. While two ofthese local firms are joint venture entities with foreign accounting firms, they also operate separateentities under their own namnes. Recently, MOF has also established a certification program for localaccountants, with technical assistance from the European Economic Union.

3.22 Currently, there is no independent external audit of Government entities in Viet Nam.EVN has no Internal Auditing Department nor are there plans to create one. The Government does notrequire the annual financial statements of the consolidated EVN and the independent business units to bepublished or audited by independent auditors. The consolidated financial accounts of EVN will besubmnitted to MOE, MOF and the Tax Department for review and approval. MOF audits are used todetermine tax liabilities, scheduled payments of "state-rented" capital, and other financial matters. IDAis advising MOF in initiating work under an Institutional Development Fund grant for improving VietNamn's audit capacity that will represent the first important steps toward designing and implementingmodem govemmental accounting and financial importation systems. At negotiations, agreement wasreached with EVN that it would appoint independent auditors acceptable to IDA and that an audit reportin a form acceptable to IDA would be made available to IDA within nine months after the close of eachfinancial year.

Taxes and Insurance

3.23 EVN is subject to the following major taxes: (a) tax on revenues (turnover tax) levied at8% of power sales; (b) royalty tax at 2% on the use of water for hydro generation and calculated on thebasis of share of revenues from power sales generated from hydro against total generation; (c) capitaltax at 2.4% of government capital; and (d) income tax on net profit at 25%.

3.24 Unless otherwise provided by law or by MOE, EVN does not carry any insuranceprotection for its assets and their contents. EVN does not also have either property or liabilityinsurance arrangements. Only company vehicles, as mandated by law, are insured. EVN is aware ofthe IDA requirement for provision of insurance for assets financed by IDA and that insurance could beobtained from external insurers or be effected through specific internal insurance funds of individualbusiness units or a common EVN fund. Agreement was reached during negotiations that EVN wouldmake provisions, satisfactory to IDA, for insurance against such risks and in such amounts consistentwith appropriate practice.

Budgd Arrangements

3.25 The existing budget process is designed to support applications by state-owned enterprisesfor funds from the governnent budget and to provide the Government with a tool to exercise tightfinancial control. Each business unit of EVN is required to submit an annual revenue and expenditure

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budget and a five-year budget by September. These budgets are submnitted to the General Director, whopresents the annual budget to the Management Board for approval. The five-year plan for the period1996-2000 is currently being prepared and will be proposed to the Prime Minister for approval. EVNwill review the financial performance of the business units and will compare it with the annual budgetfor the purpose of granting bonuses to the units. The bonuses will be in the form of cash although nodefinite criteria has been set by EVN with regard to the level and funding for them. The budgetprocess of EVN would be reviewed by the Power Sector Institutional Strengthening Study under PSREP(Credit No. 2724-VN).

Chapter IV

The Project

A. Objectives and Description

4.1 The main objectives of the proposed project are to: (a) help meet the rapid growth inelectricity demand in the south of Viet Nam through the addition of new gas-fired generating capacity;(b) strengthen the high voltage (HV) transformation capacity in Viet Nam; (c) assist the Government inintroducing private power in the country; (d) strengthen the institutional capability of EVN throughtechnical assistance and training; and (e) assist in the formulation of a national strategy and master planfor rural electrification. The achievement of project objectives would be monitored during and afterproject implementation through specific project performance indicators (para. 4.20).

Project Description

4.2 The proposed project would cover: (a) the installation of 2x150 MW gas turbines for the450 MW Phu My 2, Phase-1 (PHMY2-1), Combined Cycle (CC) power block; (b) addition of about900 MVA of HV transformation capacity at existing sub-stations in the South of Viet Nam and about1,350 MVA of such capacity in other parts of the country; (c) resettlement and compensation of personsaffected by PHMY2-l; and (d) consulting services for: (i) project design and supervision for PHMY2-1CC power block; (ii) development of a BOT-JYV type of arrangement for the Phu My 2, Phase-2(PHMY2-2) CC power block on the basis of competitive bidding; (iii) technical assistance and trainingfor EVN managerial staff; (iv) master plan for rural electrification; and (v) technical studies for the DaiNinh hydropower project. In addition, technical assistance for development of the legal and regulatoryframework for the power sector would be provided by the ESMAP group of the World Bank.

Description of The Project Components

Phu Mv Power Station

4.3 The Phu My Power Station would be located in Phu My village, Ba Ria-Vung Tauprovince in South Viet Nam. The site is about 600 mneters from the Thai Vai River which would be thesource of cooling water for the power station. The first phase of the Phu My development (PHMY1)would comprise 3x200 MW conventional gas/oil fired power units financed by the OECF of Japan.This phase is expected to be conmmissioned in 1998. The second phase of the Phu My development(PHMY2) would comprise 2x450 MW gas-fired CC power blocks. The two 150 MW internalcombustion turbines (GTs) of the first block (PHMY2-1), which constitute the proposed project andwhich are being constructed on a fast-track basis, would be commnissioned by end-1996; the full CCblock would be functional by 1998. The second 450 MW CC block (PHMY2-2) is expected to becommissioned in 1998199. A detailed feasibility study for PHMY2 was prepared by the PowerInvestigation and Design Company No 2 (PI)C2) and was reviewed and updated by consultants, ESBIof Ireland. The study has been approved by EVN and the State Appraisal Committee and is acceptableto IDA.

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Gas Supplv for the Phu MY Power Station

4.4 In the near term (1997-1998), gas supply for Phu My would be available from the off-shore Bach Ho associated gas field. Petro Viet Nam (PVN) would arrange to install gas compressorswhich would increase the capacity of the existing pipe line from Bach Ho to the Ba Ria power station to109-128 million cubic feet per day (MMCFD) by the middle of 1997. This would be sufficient to meetthe gas requirement of about 56 MMCFD for the 2x150 MW GTs of PHMY2-1, about 38 MMCFD forthe gas turbines at the Ba Ria power station and about 30 MMCFD for the liquified petroleum gas(LPG) plant. For a period of about six months after commissioning (end-1996 to mid-1997), the 2x150MW GTs of PHMY2-1 would use distillate. The natural gas reserves of Bach Ho would suffice onlyfor a period of about five years. The price of natural gas from the Bach Ho field, followingcommissioning of the compressors, has been fixed by the Government at US$2 per MMBTU.

4.5 In the long-term, PHMY2-2 will have to use gas from the off-shore Nam Con Son Basin(Block 6), which is expected to be available on-shore at Vung Tau by the end of 1998. The participantsin Block 6 gas are, British Petroleum (BP) (30% stake), Statoil of Norway (15% stake), and Oil andNatural Gas Commission of India (ONGC) (55% stake). At the present time, PVN (which has anoption to take a 5% stake in field development) is the owner of the gas since the existing ProductionSharing Agreement (PSC), which is for oil, has yet to be renegotiated with the participants in regard tothe gas discovery. The feasibility study for the 375 km mid-stream gas pipeline is currently underprogress by British Petroleum (BP), Statoil, Mobil and PVN. The pipeline would be constructedthrough international competitive bidding. Evaluation of the Nam Con Son gas reserves (estimated ataround 2 trillion cubic feet (TCF)) has been completed by BP and Statoil and by PVN. The gasreserves have subsequently been certified by an independent body, the National Natural ResourcesCommittee of Viet Nam. The Nam Con Son gas reserves would be enough to fire as much as 2,400MW of CC capacity for 20 years. The price of Nam Con Son gas has yet to be determined, but isexpected to be in the range of US$2.5 to 3.5 per MMBTU.

4.6 The gas from Block 6 is earmarked for: (a) PHMYI - 3x200MW, to be financed byOECF of Japan; (b) PHMY2-1 - 450 MW, being constructed by EVN; (c) PHMY2-2 - 450/600MW,which would be constructed through a BOT type arrangement; and (d) PHMY3 - 600/900 MW, whichwould be constructed by BP through a BOT type arrangement. EVN needs to conclude a Gas SupplyAgreement (GSA) for PHMY1, PHMY2-1 and Ba Ria (total 180-190 MMCFD for 20 years) with theowner and developer of the gas. The GSAs for PHMY2-2 and PHMY3 would be concluded by theBOT developers.

4.7 The estimated cost of development of the Nam Con Son gas systen is about US$760mnillion, comprising: (a) US$150 million for Lan Tay field development; (b) US$180 million forcompression platform for Lan Tay, 7-9 years down the line; (c) US$100 million for Lan Do fielddevelopment; and (d) US$330 million for the trunkline to shore and terminal. Several ownershipstructures are currently being explored for the construction and operation of the pipeline. The minimumgas supply required to make the pipeline and field development economically viable, is estimated by BPto be about 150 MMCFD.

4.8 Agreement was reached at negotiations that EVN will enter into contractual arrangementsby no later than December 31, 1996, for gas supply to PHMY2-1 for a period of at least 20 years.Further, (a) receipt by IDA of certification of gas reserves for Namn Con Son, satisfactory to IDA; and

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(b) EVN entering into contractual arrangements for gas supply to PHMY2-1 for a period of at least fiveyears, are conditions for effectiveness of the IDA Credit.

Addition of HV Transformation CapacitY

4.9 EVN has done a detailed analysis of the transformer capacity and the forecast demand(1995-2000) at each of its existing HV (66, 110 and 220 kV) sub-stations. Most of these sub-stationsnot only do not have firm transformer capacity, but are operating near (and in some cases above) theirname plate ratings. This situation is a cause for alarm and augmentation of transformer capacity atthese sub-stations is imminent. Twenty-three sub-stations in the South of Viet Nam and 28 sub-stationsin the rest of Viet Nam, where the need for additional transforming capacity (based on current loadingand forecast demand) is most urgent, are listed in Annex 5. A total of about 2,250 MVA oftransforming capacity (900 MVA in the south and 1,350 MVA in the rest of Viet Nam) together withthe associated switching and control facilities are proposed to be installed under the project.

Consulting Services: (a) CC Block of PHMY2-1: Desien and Project Management: and (b) Dai NinhHydropower: Technical Studies

4.10 Provision has been made in the project for about 350 staff-months (SM) of consultingservices to assist in engineering, design, procurement and construction supervision for the CC Block ofPHMY2-1. As this project component has to be implemented on a fast track basis, EVN has appointedESBI of Ireland as consultants, on a sole source basis, for the two GTs of PHMY2-1 for about 160 SM.This is acceptable to IDA as ESBI (selected on a competitive basis for the Ba Ria CC power plant underPSREP) are already in Viet Nam and are fully familiar with the requirements of PHMY2-1. It wouldalso be impossible to meet the extremely tight project schedule if EVN were to embark on a newselection process. Consulting services for the steam cycle of PHMY2-1, amounting to about 190 SM,would be procured following the Bank's procedures for the selection of consultants. EVN has adequatein-house capability to undertake engineering, design, procurement and construction supervision for thetransformer reinforcement proposed to be undertaken under the project and hence, no provisiorn hasbeen made for external consulting services for this project component.

4.11 A provision of US$2.0 million has been made in the project for consulting assistance ofabout 130 SM for technical studies associated with the Dai Ninh Hydropower project which is currentlyunder preparation as a prospective IDA-assisted project for FY97. These consulting services would beengaged following the Bank's procedures for the selection of consultants.

Technical Assistance for Development of PHMY2-2 on Build. Operate. Transfer-Joint Venture (BOT-JV) Basis

4.12 The main objectives of this technical assistance (TA) would be to: (a) review theGovermnent's overall private sector policy and legal framework vis-a-vis development, ownership, andoperation of private power projects; (b) recommend the necessary legal and incentive framework for theimplementation of power generation projects by the private sector in Viet Nam; (c) develop thesolicitation package for PHMY2-2 (including selection criteria and security package) and evaluate theproposals; and (d) assist the Govermment in contract negotiations and executing the contract with theselected project sponsor. The terms of reference for this TA are at Annex 6. Agreement was reachedat negotiations that EVN would develop PHMY2-2 through a BOT-JV type of arrangement following a

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competitive bidding process and would engage TA for this exercise according to terms of referenceagreed with IDA.

Technical Assistance and Training for EVN

4.13 PSREP (Credit No. 2724-VN) provides for TA directed at institutional strengthening,focusing on the development of appropriate organizational structures, adoption of commercialmanagement practices, budget and control systems, reporting procedures and information flows, underthe reformed sector structure. This TA is currently under implementation. It is envisaged thatconsiderable resources (in terms of advisory services, computer hardware and software) would berequired in the strengthening of EVN management, including training of staff, following thereconrmendations of the aforementioned TA. The proposed project provides for about 18 SM of in-country consulting assistance, about 6 SMs of staff training and about US$100,000 worth of computerhardware and software. The terms of reference for the proposed TA would be drafted after completionof the first TA. Agreement was reached at negotiations that following completion of the TA under thePSREP (Credit No. 2724-VN), and taking into account its recommnendations, EVN would discuss andagree with IDA the requirements for further TA and training and implement such TA and trainingaccording to a plan and schedule to be agreed with IDA.

Technical Assistance for Master Plan for Rural Electrification

4.14 Extension of electrification to rural areas in the past has been dictated primarily by theneed for agricultural pumping. To achieve a more widespread improvement in the living standards ofthe rural population, the Government has set specific targets for per capita electricity consumption tothe year 2020 in various rural areas of the country. As costs of extensive rural electrification (RE)become increasingly higher, the Government would need to optimize its limited resources and undertakeRE in the most cost effective manner. This would require development of a master plan that lays downpolicies, strategies and criteria for meeting provincial rural area development priorities. There are anumber of technical, financial and institutional issues that would need to be addressed including: (a)inadequate transmission and distribution networks, poor power supply reliability and poor loadingcharacteristics in rural areas; (b) scarcity of investment capital, subsidized pricing practices, inadequateprivate investment mechanisms and underdeveloped domestic equipment enterprises; and (c) lack oflocally based institutions to manage and operate grid-connected and/or isolated rural electric networks.The main objectives of the rural electrification master plan study would be to define: (a) appropriateregulatory, institutional and financing frameworks; (b) methodologies for forecasting and economicevaluation of alternative supply locations and options; and (c) technical standards of design, constructionand operation. The terms of reference for the study are at Annex 7. Agreement was reached atnegotiations that EVN would undertake a master plan study of rural electrification according to terms ofreference agreed with IDA, review with IDA the reconunendations of the study and fornulate a ruralelectrification mnaster plan and implementation program consistent with the reconmmendations of thestudy.

Technical Assistance for Le2al and Regulatory Framework

4.15 This TA would be a follow up on the TA on "Power Sector Reform and Restructuring"that was provided by ESMAP in association with PSREP (Credit No. 2427-VN). The main objective ofthe proposed TA (which would also be funded by ESMAP) is to assist the Government in identifyingthe issues and options in creating a legal and regulatory framework for the power sector that would be

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conducive to private sector participation. The terms of reference for this TA, which would includedrafting of an Electricity Law and a Grid Code, are given in Annex 8. Agreement was reached atnegotiations that EVN would review with IDA the recommnendations )f this TA and thereafter takemeasures, mutually acceptable to IDA and the Borrower, for implementing the regulatory frameworkand the Grid Code and take further actions in passing the Electricity Law.

B. Implementation

4.16 EVN, through its appropriate business units, would have full responsibility forimplementing the physical components of the project, including the Resettlement Action Plan (RAP) forPhu My. MOE (now MOI) and EVN would be responsible for managing the TA associated with theproject's policy aspects. Steering committees would be formed and representatives from relevant lineministries would be involved in the development of the legal and regulatory framework and in thesolicitation of private power proposals. For managing the implementation of large thermal powerprojects in the south of Viet Nam EVN has established the Phu My Ba Ria Management Board(PMBRMB). PMBRMB will be responsible for implementing the PHMY2-1 component of the project.For managing the implementation of high voltage transmission lines and sub-stations in the south, northand center of Viet Nam, respectively, EVN has established Management Boards of the Power Projectsfor the Southern, Northern and Central Regions (MBPPSR, MBPPNR and MBPPCR). These Boardswill be responsible for irnplementing the transformer augmentation component of the project falling intheir respective regions. The organization charts of the PMBRMB and the MBPPSR, MBPPNR andMBPPCR and the project management units created by them for implementation of the projectcomnponents are shown in Charts 4 and 5. Most of the personnel of these Boards have been drawn fromthe erstwhile power companies and have adequate experience in technical and managerial aspects ofproject implernentation. PMBRMB will employ consultants for assistance in engineering, design, bidevaluation and construction supervision of the PHMY2-1 project component (para. 4.10). The 2x150MW GTs of PHMY2-1 will be installed under a single responsibility supply and erection contract.MBPPSR, MBPPNR and MBPPCR have substantial in-house expertise in engineering, design,procuremnent and construction supervision for installation of transformers and no external consultingassistance is required (para. 4.9). This project component will be installed by local contractors underthe supervision of staff of the respective Boards and with supervision services from foreign contractorsfor the installation of major equipment like transformers and circuit breakers. Bid documents followingthe Bank guidelines were prepared by consultants for PHMY2-1; the bids were received in September1995 and contract award has been made. Bid documents for some of the transformer installations havealso been issued. Bidding Evaluation Committees (having representation from the MOI) have been setup for evaluating bids and approving contract awards.

4.17 EVN has prepared a Project Implementation Plan in line with Bank guidelines (Annex 19,Ref. 1). The bar charts for implementing the various project components are given in Charts 2 and 3.Most of the project would be implemented over the 1996-1997 period. Vietnamese institutions aretechnically well experienced in implementing the project components and with the consulting assistanceprovided under the project for PMHY2-1, no substantive problems are foreseen in efficient and timelyimplementation of the project. The implementing arrangements are satisfactory to IDA.

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Monitoring and Reporting

4.18 Satisfactory procedures for monitoring the progress of the project in terms of physicalexecution and financial reports were agreed with EVN, at negotiations. It was also agreed that EVNwill furnish quarterly progress reports. An Implementation Completion Report (ICR) will be drafted byIDA not later than six months after completion of the Credit and agreement was reached with EVN toassist in its preparation. EVN will adopt the plan for the operational phase of the project. EVN willalso prepare and make available to IDA its own evaluation report, including a summary report whichwill be attached unedited to the ICR. The evaluation would assess the project execution and initialoperation, its costs and benefits, IDA's performance, its own performance of the obligations under theCredit Agreement, and the extent to which the purposes of the Credit were achieved.

Supervision Plan and Key Performance Indicators for Project Monitoring

4.19 Supervision of this project will extend over a period of three years, 1996-1998. The keyissues that would be focused upon are: (a) review of Viet Nan's power development plan in keepingwith changes in the economic scenario; (b) a continuing dialogue with the Government on tariffs for thepower sector; (c) monitoring of compliance with financial covenants to assure the financial health of thesector while undertaking large investment programs; (d) monitoring of the implementation of theenvironmental impact mitigation measures and resettlement plans for PHMY2-1; and (e) technicalsupervision of physical implementation of the project components. The IDA missions, accompaniedwith ESMAP as necessary, would also assist the Government in: (a) legal and regulatory frameworkissues for the power sector; (b) realizing a BOT-JV type of arrangement for PHMY2-2; (c) institutionalstrengthening of EVN; and (d) development of strategies and master plan for rural electrification.Supervision of the project would require expertise in power engineering, economics, financial analysis,power sector regulation and private power development, and resettlement. Three missions annually fora period of three years (normally coinciding with preparatory missions for ongoing and future IDA-assisted projects) are foreseen for adequate supervision of this project. The total estimated staff inputsare: (a) power engineer, economist and financial analyst - 24 staff-weeks; (b) environmental impactassessment and rehabilitation - 4 staff weeks; and (c) regulatory framework and private powerdevelopment - 15 staff-weeks (see Annex 9 for details).

4.20 Key project performance indicators that would be used for monitoring and supervision aregiven in Annex 9. These performance indicators are closely linked to the project objectives spelled outin para. 4.1. The targets for some of the performance indicators have been defined, while targets forothers would be developed, early during implementation. In addition to the perfomiance indicators,target dates have been defined to monitor: (a) commissioning of PHMY2-1 on schedule to ensure thatthere is no load shedding in the south; (b) availability of gas by mid-1997 so that PHMY2-2 turbines donot bum costly distillate fuel for more than six months; (c) taking of timely steps by EVN towardsdevelopment of PHMY2-2 on a BOT-JV basis; and (d) timely completion of the TA on legal andregulatory framework for the power sector and the process of subsequent decisions on its incorporation.

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C. Environment and Resettlement

Phu My Power Project

Environmental Impacts

4.21 A detailed environmental impact assessment (EIA) (Annex 19, Ref. 2), which takes intoaccount the 3x200 MW conventional power plants of PHMY1 and the 2x450 MW CC power blocks ofPHMY2, has concluded that with proper design and mitigation measures, atmospheric impacts (NO.,SO, and noise levels) and aquatic impacts (cooling water temperature, chlorine concentration and impacton shrimp farming and mangroves) would be within acceptable limits. A summary of mainenvironmental impacts and mitigation measures is presented in Annex 10. The EIA has been approvedby the Governrnent. It was agreed during negotiations that EVN would: (a) design the PHMY2-1 plantto meet specified environmental requirements and adopt appropriate mitigation measures; and (b) set upan environmental unit and an environmental coordinator as part of the management structure of thepower station.

Resettlement

4.22 About 18 ha of land are being acquired by PMBRMB for the overall PHMY2development, which would accommodate the 450 MW block of PHMY2-1, whose GTs are beingfinanced under the project, and the future 450 MW block of PHMY2-2. About 63% of the area iscovered with cashew trees, about 30% comprises other tree crops and the remaining 7% is fallow land.The total number of families that would be affected by the PHMY2 development is 55 of which 9(currently residing on the right-of-way of the transmission line) will need to be resettled and theremaining 46 compensated and rehabilitated. A Resettlement Action Plan (RAP) has been prepared forthe 55 families that would be affected by the project (see Annex 11 for details). The principles of thatRAP would also apply for resettlement/compensation of people affected by future phases ofdevelopment at the Phu My site. The project affected persons (PAPs) will be relocated, as far aspossible, close to their present location in order to ensure that their socio-economic lifestyles will not beaffected. The form of compensation for land will be "land for land", unless PAPs specifically insist oncash compensation. PAP's opting for cash compensation would be given a choice between land-basedand non-land based rehabilitation. Compensation will be paid at replacement cost for houses andstructures and at market rates for trees and crops. The RAP will be implemented by PMBRMB withthe involvement of PAPs and the peoples' committees at the district and commune levels. Adequatemechanisms have been provided for the redressal of grievances and for external and internal supervisionand monitoring. The RAP is in compliance with the Bank's operational directives and is acceptable toIDA. The RAP was agreed with the Government at negotiations. It was also agreed at negotiationsthat EVN would carry out the RAP as approved by the Government and accepted by IDA.

Installation of Transformers

4.23 All transformers and their associated switchgear will be installed in existing substationswhich have been in operation for several years. Hence, no acquisition of new land would be necessaryand thus there would be no persons affected by this project component. An environmental analysispertaining to the installation of transformers at sub-stations is given in Annex 12. No PCB is used in

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the transformers in Viet Narn and none would be used for the transformers that would be installedunder the project

D. Cost Estimates

4.24 The total cost of the project (including capitalized interest during construction) is estimatedat US$242 million, with a foreign exchange component of US$180 million. The cost estimates for thegas turbines for PHMY2-1 are based on bids already received. The cost estimates for the transformersand associated switchgear are based on contracts recently placed for such equipment in Viet Nam.Physical contingencies are assumed at 10% of the base cost for all project components. Pricecontingencies are estimated on the basis of escalation factors of 6% per annum for local costcomponents and 2.2% per annum for foreign cost components, following the Bank's latest forecasts.Table 4.1 summarizes the cost estimates for the project (details are at Annex 13).

E. Financing Plan

4.25 The financing plan for the project is shown in Table 4.2. The proposed IDA credit ofUS$180 million equivalent would meet 100% of the foreign cost of the project and about 74% ofproject financing requirements. The proposed IDA credit would be made to the Govermnent at IDA'sstandard rate for a 40 year term including 5 years of grace on repayment of principal. The Creditwould be onlent to EVN in US dollars at a fixed interest rate of 6.9% per annum, with repayment over20 years, including a grace period of 5 years, and foreign exchange risk being borne by EVN. Thefinalization of subsidiary loan agreement between the Govemrnment and EVN, acceptable to IDA, wouldbe a condition of effectiveness of the IDA credit.

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Table 4.1: COST ESTIMATE laLocal I Foreign I Total L |ca Foreignl Total Foreign R

Item .o bi.io US$. 'on - as % ofD billion USS million Total

PHMY2-1, 2xl50 MW GTs Installation 99.9 999.0 1098.9 9.0 90.0 99.0 90.9

HV Transformer Lnstallation 131.0 680.4 811.4 11.8 61.3 73.1 QC3. S

Base Cost 230.9 1679.4 1910.3 20.8 151.3 172.1 87.9

Physical Contingencies 22.2 167.6 189.8 2.0 15.1 17.1 88.3

Price Contingencics 30.0 51.1 81.1 2.7 4.6 7.3 63.0

Instabllatia Cost 283.1 1898.1 2181.2 25.5 171.0 196.5 87.0

Resettlement and Compensation 11.1 0.0 11.1 1.0 0.0 1.0 0.0

Eng. & Admin. Overheads 71.0 0.0 71.0 6.4 0.0 6.4 0.0

Duties & Taxes 189.8 o.b 189.8 17.1 0.0 17.1 0.0

Sub-Total Project Cost 555.0 1898.1 2453.1 50.0 171.0 221.0 77.4

Consult-ng Services

PHMY2-1 CC Block 0.0 50.0 50.0 0.0 4.5 4.5 100.0

Dai Ninh Hydropower Project: Studies 0.0 22.2 22.2 0.0 2.0 2.0 100.0

Technical AZssistance_

For Strengdlening EVN 0.0 5.5 5.5 0.0 0.5 0.5 100.0

Development of PHMY2-2 on BOT-JV Basis 0.0 16.7 16.7 0.0 1.5 1.5 100.0

Rural Electrification Master Plan 0.0 5.5 5.5 0.0 0.5 0.5 100.0

Total Project Cost 555.0 1998.0 2553.0 50.0 180.0 230.0 7B.2

IDC 133.2 0.0 133.2 12. 0 0.0 12.0 0.0

Told Fincing Required 688.2 1996.0 2686.2 62.0 180.0 24.0 74.3

/a September 1995 price levels.Exchange rate US$I = VN Dong 11,100

Table 4.2: FINANCING PLAN(US$ million)

_______ Local Foreign Toa

IDA 180.0 180.0

Internal Cash Generationand Local Borrowing 62.0 - 62.0

Total | 62.0 180.0 j 242.0

F. Procurement

4.26 About 94.5% (US$170 million equivalent) of the IDA credit would be used for financinggoods procured through International Competitive Bidding (ICB) using the Bank guidelines. In theevaluation of bids obtained following ICB procedures, a margin of preference equal to 15% of the CIF

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bid price of imported goods or the actual customs duties and import taxes, whichever is less, will beallowed for domestic manufactures. About 3.5% (US$6.5 million equivalent) of the credit amountwould be used for financing consulting services and TA procured following the Bank procedures for theemployment of consultants. Consulting services for the two GTs of PHMY2-1 amounting to aboutUS$2.0 million equivalent have been procured on sole source basis (para. 4.10). About 0.5% (US$1.0million equivalent) of the credit would be used for financing specialized equipment (including testingand measuring equipment, computer hardware and software) using the following procedures complyingwith the Bank guidelines: (a) Limited International Bidding (LIB), aggregating US$0.5 millionequivalent; and (b) International Shopping (IS) aggregating USS0.5 million equivalent. Contracts underthese procedures would not exceed the equivalent of US$200,000 each for LIB and US$50,000 each forIS.

4.27 The bid documents would follow the text of the Bank's Standard Bidding Documents. Allbid documents, contract award recommendations and contracts for goods and services would be subjectto prior review and approval by IDA. The total number of procurement packages is foreseen to be: (a)ICB - 8 packages (Annex 14); and (b) LIB and IS - about 5 packages. A total of about 660 staff-months of consulting services will be engaged under 6 contracts.

4.28 Civil and installation work for transformer additions would be contracted to local finnsthrough a competitive bidding process satisfactory to IDA. Such local contracts would not be financedfrom the IDA credit.

4.29 Table 4.3 summarizes the procurement arrangements for the components expected to befinanced out of the proposed IDA credit.

G. Disbursements

4.30 The IDA credit would be disbursed against: (a) 100% of foreign expenditures, or 100% oflocal expenditures (ex-factory cost) for items procured through ICB; (b) 50% of local expenditures forother items procured locally; and (c) 100% of expenditures for consulting services, excluding taxes.Statement of Expenditures (SOE) procedures would be followed for consultancy contracts belowUS$100,000 for firms and US$50,000 for individuals. To facilitate disbursements, a Special Accountwould be established in US currency for EVN on terms and conditions satisfactory to IDA with adeposit of US$3.0 million. Replenishment applications would be submitted monthly or when theaccount is drawn by 30% of the authorized allocation, whichever occurs first. For withdrawal outsideof the Special Account (applications for direct payment or for issuance of Special Commitments) aminimum application value of 30% of the authorized allocation of the Special Account would beobserved.

4.31 Retroactive financing would be permitted to the extent of US$15.0 million equivalent forpayments made, prior to the date of the Credit Agreement but after October 1, 1995 (the appraisalstarting date), for contracting urgently required goods and consulting services. This is necessary tomeet the project implementation schedule.

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4.32 Annex 15 gives the disbursement schedule for the proposed IDA credit and the standardprofile of disbursements for power projects in Asia. This is a fast track project and the Credit isassumed to be disbursed about two years faster than the profile, based on actual performance of VietNam on other power projects and the preparatory work already undertaken. The project is expected tobe completed by June 30, 1999 and the closing date for the credit would be December 31, 1999.

Table 4.3: SUMMARY OF PROCUREMENT ARRANGEMENTS /a(US$ million)

ICB Other /b NIF/c TotalCost

Goods2x150 MW GTs and Auxiliaries for PHMY2-1 /d 109.0 - - 109.0

(99.0) (99.0)Transformers 32.0 - - 32.0

(32.0) - - (32.0)Switching/Control Equipment 39.0 - - 39.0

(39.0) - - (39.0)Testing Equipment, Computer H/W and S/W - 1.0 - 1.0

(1.0) - (1.0)

CosultanciesDesign/Supervision: PHMY2-1 CC Block - 4.5 - 4.5

(4.5) (4.5)Technical Studies: Dai Ninh Hydropower Project - 2.0 - 2.0

(2.0) (2.0)

Technical Assistance and TrainingStrengthening of EVN - 0.5 - 0.5

(0.5) (0.5)Development of PHMY2-2 on BOT-JV Basis - 1.5 - 1.5

(1.5) (1.5)Rural Electrification Master Plan - 0.5 - 0.5

(0.5) (0.5)Miscelneous

Eng. and Admin. Overheads - - 7.0 7.0Duties and Taxes - - 16.5 16.5Resettlernent and Compensation - - 1.0 1.0Local Civil and Erection Work - - 15.5 15.5

Total 10.0 10.0 40.0 230.0(170.0) (10.0) (0.0) (180.0)

/a Figures in parenthesis refer to amounts to be financed from the IDA credit./b Others - Procurement through Limited International Bidding or Itemational Shopping for equipment and procument of

consulting services./c NIF - Not IDA Financed./d Single Responsibility Supply and Erection basis; comprising civil works of about USS10 million equivalent.

Chapter V

Financial Aspects

A. Past and Present Financial Performance

PAst P'rformce of the Pwer Sector

5.1 Since 1990 the power companies (PCs) were allowed by the Govermment to manage andutilize their resources "paying attention to high rates of return" and to continuously accumulate findsfor the Government and themselves." Key performance figures of PCI, PC2 and PC3 for 1994 aresunmarized in Table 5.1.

Table 5.1: Fbianclal Operating Ststics, FY94!.. iPc I PC 2 PC 3 Total

Operating Revenues 2.114 2,440 373 4.927

Operating Expenses 1,827 2,367 428 4,622Opeating Inconc 287 73 (55) 305Net Income After Income Tax 287 73 (55) 305Fixed Asmu 8,058 4,408 1.534 14,000Currnt Assets 2,558 814 272 3,644

Total Assets 10,616 5,222 1,806 17,644Total Liabilities 1,890 925 138 2,953Current Liabilities 1,878 589 138 2,605

Total Equity 8,726 4,297 1,668 14,691Governent Capital 8,586 4,224 1,7231 14,533Reained Profit Loss 140 73 (55) 158PImry Ra _ _ I DOperating Ratio (%) 86 97 115 94Debt as % of Total Capitalization(%) 1 7 0° 2Current Ratio (times) 1.4 1.41 2.01 1.4

Note: All figures are in Dong billion unless otherwise noted.

5.2 The past financial results showed that the three PCs' overall financial performance,representing the operations of the entire power sector, were satisfactory as PCI and PC2 generatedrevenues sufficient to cover all their operating and maintenance expenses, including depreciation.While PCI and PC2 indicate reasonably acceptable results, PC3's finances were seriously negative andas an independent company, it could be considered bankrupt.

5.3 Notwithstanding the acceptable financial results related to the overall operation of the PCs,they continue to have serious cash flow constraints. This problem, which constrains the PCs' ability tofinance their investment program, is clearly discerned from the serious weakness in the capital structure

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of the power sector. The PCs simply have not been provided with any paid-in capital nor allowed toaccumulate adequate earnings to sufficiently finance capital expenditures. The structure of the sector'sequity base consists of Government capital at D 14,533 billion (representing the non-cash residualinterest in the assets of the PCs after deducting liabilities), and accumulated profits of only D 158billion, representing a mere 1 % of total equity. Furthermore, until 1995, the PCs were required toremit anywhere from 30-100% of their depreciation charge to the Govermnent and to continuedepreciating and remitting fully depreciated assets. In other words, the PCs' financial constraints derivefrom their balance sheets, not their income statements. With these constraints, the PCs' financialperformance and liquidity have suffered, ruining their ability not only to maintain existing assets butalso to finance capital investments and future expansion. Without adequate retained earnings, thefinancial resiliency of the power sector to withstand unexpected business crises has been greatly eroded.

5.4 To address the vulnerable condition of the PCs, particularly, PC2 and PC3, and to achievefinancial recovery, the PSREP sought a recapitalization of the PCs' equity with the aim of rebuilding,fully funding, and strengthening the capital base. In 1994, the Government decided to discontinue therequirement of remitting depreciation charges starting 1995. Assurances were also obtained (under IDACredit No. 2724-VN) that actions, including but not limited to adjustment of tariffs, would be made toenable PC2 to generate enough internal funds to finance its investment program and to ensure viableoperations of PC3.

Financial Performance of EVN

5.5 The reorganization of the power sector in January 1995 into a corporate structure resultedin the establishment of EVN, as holding company, and numerous subsidiaries or business units involvedin specific types of activities under it. For accounting purposes, EVN as a consolidated entity nowcomprises the following dependent and independent entities: 14 power plants, four transmissioncompanies, five distribution companies, four construction companies, and nine peripheral unitsconsisting of two design companies, two conununications companies, the National Load DispatchCenter, the Energy Institute, the Research Center, an equipment production company, and a financecompany.

5.6 Given the very recent establishment of EVN, a financial analysis of its past performance isnot meaningful. The first year of operation is 1995, when the accounts of the three formerly fullyintegrated power companies, PCI, PC2 and PC3 (which were responsible for generation, transmissionand distribution in the North, South and Center, respectively), were consolidated into the accounts ofEVN.

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5.7 EVN's unaudited financial statements for 1995 are presented in Table 5.2.

Table 5.2: Actual Operating Results, March 31, 1995(in billion Dong)

Operating Revenues 1,49i5

Less: Operating Expenses

Cost of Sale 988

Operations and Maintenance 186

Other Operating Expenses 34

| Taxes Other Than Incornc Tax 105

Sub-total 1,313

Net Operatng Revenues 183

Lesst: Income Tax 46

| Net Revenues . : 137

5.8 As can be seen in the above table, EVN reported net revenues of about D 137 billion inthe first quarter of its first full year of operation. However, these figures are prelirninary and should betreated with caution. The figures reflect accounts submitted by the various business units to EVN forconsolidation. It has been the practice of the previous power companies to submit figures thatunderestimnate financial performance that would result in more fund transfers and less taxable obligationsfrom and to the Govermment, respectively. EVN is convinced that this is the case for the first quarterof 1995 and it is currently discussing this issue with the independent business units on the finalnumbers.

5.9 EVN's balance sheets as of December 31, 1994 and March 31, 1995 are shown in Table5.3.

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Table 5.3: EVN's Abbreviated Balance Sheetsas of December 31, 1994 and March 31, 1995

l 12/31194 1 03/31195

l ________________________________________________ 1 12131194 (D ong B illion)

Fixed Assets:

Gross Fixed Assets 22,373 21,375

Less: Accumulated Depreciation -7,052 -7,218

Net Fixed Assets in Operation 15,321 14,157

Construction in Progress 35 49

Total Fixed Assets 15,356 14,206

Working Capital (net) 1,013 1,434

Total Assets 16,369 15,640

Funded by: l

Long term Debt 271 274

Government Equity 16,086 15,176

Accumulated ProfitslLosses 12 190

Net Worth 16,098 15,366

5.10 l accordance with its charter, the State assigns capital and resources to EVN, which isalso allowed to mobilize all sources of domestic and foreign funds in line with the provisions of theState. EVN's financial objective, as defined by its charter, is to preserve and develop the assignedcapital and fulfill its financial obligations towards the State in conformity with laws. Furthermore, it isresponsible for regularly upgrading its equipment, technology and management so as to lower its cost ofproduction and reduce electricity losses. While the financial objectives presented are very broad, theInstitutional Strengthening Study financed under PSREP (Credit No. 2724-VN) would greatly assistEVN to define "market-oriented' financial objectives, develop financial planning systems and redefinethe process of setting performance targets for its business units.

5.11 Table 5.3 shows that EVN's assets to date have largely been financed by equity as thepower companies have not incurred any significant long term debt in the past. The long term debtconsists primarily of some term loans contracted by PC2 in 1993 from local commercial banks. GrossFixed Assets in Operation decreased from D 22,373 billion in 1994 to D 21,375 billion in 1995 onaccount of EVN's writing off of some assets during the consolidation of its accounts in 1995. EVN'sliquidity position is satisfactory with a current ratio of 1.24 during the first quarter of 1995.

Fixed Assets Valuation and Distribution

5.12 Major portions of the fixed assets of the PCs were initially recorded at cost. Upon theunification of Viet Nam, the PCs' assets were valued using standard unit prices, which was typical ofthe system used by many centrally-planned economies. These asset values remained on the PCs' booksat cost without regard for the general development of the economy and inflation. After minoradjustments were made in 1981, 1985 and 1989, a nationwide asset revaluation exercise was decreed bythe Government in 1990 for all industries, using the following parameters: (a) one Russian Ruble

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equivalent to D 2,400 for assets procured from the former Soviet Union; and (b) one US Dollarequivalent to D 2,400 for assets procured abroad elsewhere. A second nationwide revaluation wasundertaken in January 1992 using: (a) one Russian Ruble equivalent to D 10,000 for all assets procuredfrom the former Soviet union; and (b) one US Dollar equivalent to D 10,000 for assets procured abroadelsewhere. However, due to the high rates of inflation experienced in Viet Nam over the past fouryears, the varying methodologies used for revaluing fixed assets, and distortions in the value of fixedassets, it is not possible to state definitively whether the assets are properly valued. As a result,computations of annual rates of return, can be misleading.

5.13 Upon the organization of EVN and its subsidiaries, the necessary assets that will be usedby the appropriate business units were transferred at net book value. These historical book values werebased on the 1992 revaluation exercise. The carrying costs of assets which were acquired prior to therevaluation done in 1992 could not be determined as objective. It is therefore difficult-to determine ifthe carrying costs of the assets transferred within the EVN group reflect the fair value of the assets atthe time of transfer. A revaluation of EVN's fixed assets in operation will be undertaken as part of theADB Study on "Improvement of Financial and Accounting Systemns of the PCs in Viet Nam". Untilthis valuation exercise is concluded, the value of fixed assets presented in EVN's balance sheet as ofMarch 31, 1995 is used as basis for future projections. To enable continuous assessment of realearnings to be made which in turn will help in determining the appropriate level of cash generation,agreement was reached during negotiations that EVN will revalue its fixed assets periodically inaccordance with sound and consistently maitained methods of valuation satisfactory to IDA.

5.14 As of March 31, 1995, EVN's gross fixed assets representing generation, transmission,distribution and other assets (except land) of the power sector, amounted to D 21,373 billion of whichD 7,218 billion was accumulated depreciation. The Hoa Binh hydroelectric plant, formerly operated byPCI and now operated by the Hoa Binh Power Plant Company, represented the biggest asset holdingvalued at more than a quarter of total EVN assets. Other substantial assets were transferred toTransmission Company No. 1 at D 2,072 billion and to the Tri An Power Plant Company at D 1,848billion. The new PCI and PC2 recorded asset shares at 9% and 7% of total EVN assets, respectively.The 500 kV transmission system was transferred to Transmission Company No. 4 and the assets werevalued at D 1,094 billion.

B. Fiunicial Outlook

5.15 Projections of EVN's financial performance for the period 1995-2001 and the assumptionsunderlying these projections are presented in Annexes 16 and 17. The key financial indicators arepresented in Table 5.4 below. In interpreting the ratios shown, it should be borne in mind that EVNwill become fully operational only at the end of 1995 and that there are certain outtanding financialissues including appropriate bulk pricing arrngement, d ion of cost and profit centers,unrealistic asset valuation, and the accounting variances and misstatements described in para. 3.16, thatcould make conventional ratio analysis of limited value.

sJ

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Table 5.4: SUMMARY OF FINANCIAL PROJECTIONS

___________~199 s 1 961 1997i 19992 000 2001Sales of Power (Gwh) 10,676 12,075 13,856 15,925 18,329 21,128 24,297

Average Revenues per kwh Sold (Dong) 555 641 734 835 944 1,133 1,339Operating Revenues 6,059 7,880 10,323 13,460 17,481 24,124 32,714

Operating Expenses 5,569 5,959 6,674 8,199 9,466 10,932 12,351Operating Income 491 1,921 3,649 5,261 8,015 13,191 20,364Net Income 352 1,412 2,670 3,879 5,362 8,950 13,754Net Fixed Assets in Operation 29,682 41,499 50,928 60,233 68,191 75,820 83,804Total Assets 53,202 64.269 75,921 87,624 97,651 108,596 119,097Total Equity 36,642 37,772 39,908 43,011 47,301 54.461 65,464

Long Term Debts 6,677 14,639 22,912 30,385 36,502 42,504 47,786

Primary Ratios (%)

Operating Ratio 91.9 75.6 64.6 60.9 54.1 45.3 37.8Rate of Retum on Ave. Revalued Net n.a. 3.5 5.4 6.6 9.1 13.5 18.8Fixed Assets in Operationlll lll

Self Financing Ratio 36.2 34.1 34.8 34.0 34.2 33.6 33.6Debt Service Coverage (times) 82.1 70.9 | 7.51 5.3 | 3.3 | 3.4 | 3.5Debt to Total Capitalization (%) 20 30 40 40 40 | 40 40Current Ratio (times) 0.3 0.31 0.31 0.4 | 0.5 | 0.9 | 3.1

Note: Ail figures are in Dong billion unless oferwise noted.

5.16 The future financial situation of EVN will depend heavily on the economic development ofthe country and the resulting demand and sales increases, and the speed and efficiency with which EVNwill be able to develop and finance its potentially large investment program. Maintenance of a soundrevenue position for financing operations will be equally important. The assumptions used for EVN'sfuture finances were designed to ensure its financial viability and satisfactory financial performance. Inthis context, EVN's ability to generate income adequate to meet all financial obligations on a timelybasis and to sustain an adequate level of working capital needed for continuous operations will be ofgreat importance. The projections also aim at developing EVN's capability to contribute to the renewaland expansion of assets and maximizing EVN's finances by abandoning its total reliance on theGovermnent budget and instead, using, to the extent possible, internal as well as external sources offunds. Having these principles in mind, the financial projections are based on the parameters dealt withbelow.

5.17 The Government has developed three demand scenarios: low, base and high. Over thenext few years the scenarios are not too different because financing for the generation facilities is moreor less secured and the completion of the 500 kV interconnection system provides much of the energyrequired to satisfy the demand expected to materialize in the short-run. The financial projections arebased on the high case scenario with an average growth rate over 1995-2000 of around 12.8% in theNorth, 16% for the South, and 15% for the Center or an average increase of 14.6% for the country asa whole. Average technical and non-technical losses currently at about 21 % of generation (of whichnon-technical losses are about 3%) are projected to be maintained at 21% until 1997 and to be graduallyreduced until the losses reach 17% in 2001.

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5.18 On the basis of these assumptions, EVN's projected financial results are satisfactoryshowing that it would be able to generate revenues sufficient to cover all operating expenses (includingdepreciation), as well as interest expenses and income taxes. EVN's load forecast assumes that saleswould increase from 10,676 Gwh in 1995 to 24,297 Gwh in 2001-an increase of about 15% p.a. Withprojected reduction in system losses, review of the power development program, and upward adjustmentin tariffs agreed with under PSREP (Credit No. 2724-VN), electricity revenues will increase by anaverage of about 33% from D 6,059 billion in 1995 to D 32,714 billion in the year 2001. Theprojected income statements also assumes that EVN would be able to increase tariffs by half a cent (5USc/kWh) beginning FY96; from its current level of 5 USc/kWh, the average tariff is expected toincrease to 5.5 USc/kWh in FY96, and reach 7 USc/kWh by 1999.

5.19 EVN's operating costs are projected to increase on average by 14% annually betweenFY95-2001. EVN's fuel expenses (as it puts several hydropower projects to operation and switches tomore fuel-efficient thermal plants) are expected to reduce significantly over this period. Because tariffincreases would rise faster than increases in operating costs, EVN's operating ratio is expected toimprove substantially from 92% to 38%. Consequently, operating income is expected to grow steadilyfrom 8% of total revenues in FY95 to 62% in FY2001. While interest expenses are projected toescalate from D 22 billion to D 2,025 billion during the period, as EVN finances a larger portion offuture investments through loans, nevertheless, net income is calculated to rise from 6% of totalrevenues in FY95 to 42% in FY2001.

5.20 The financial projections show that with reasonable tariff adjustments averaging to about10% p.a. and allowing EVN to accumulate profits and build its cash reserves, EVN would be able tofinance about 34% of its future investment from internal sources. At negotiations, agreement wasreached with EVN and the Government that EVN would take all actions including but not limited torevision of tariffs, so that funds generated from internal sources would be equivalent to not less than30% of the annual average of EVN's capital expenditures incurred for the financial year, the previousfinancial year, and the next following financial year.

5.21 In the past, the power sector has not borrowed long term funds since all funds have beenprovided through the Government budget. EVN's existing long term debt is only 2% of its debt plusequity, however, long term debt and further borrowing would be needed to finance EVN's investmentprogram, which would involve large debt service payments in the coming years. The projectionsassume that about two-thirds of future investments would be financed through loans and the balancefrom internal cash generation. The assumptions on future financing show that no additional capitalinfusion nor any contribution to the investment program would be made by the Government during theperiod as it is the Government's intention that EVN becomne self-sufficient from the date of itsorganization. The decision by the Government to wean the power sector into financial independencethrough several steps would lay the foundation for a power sector that hopefully would be able to raiseits own funds for capital expansion. In order to achieve satisfactory financial performance andcontribute to the renewal and expansion of assets, PSREP (Credit No. 2724-VN) included contractualobligations in the legal agreements binding PC2 and PC3 to maintain financial viability. Through thesecovenants, (suitably modified following the restructuring of the power sector) IDA would monitor therelevant PCs' financial performance and, eventually, assist them to become sufficiently creditworthy toraise funds in the capital markets.

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C. Financing Plan

5.22 EVN's financing plan is presented in Table 5.5.

Table 5.5: EVN FINANCING PLAN(1995-1999)

CAPrrAL REQUiREMENTSInvestments 49,949IDC 8,781Total Capital Requirement 58,730SOURCES OF FUNDSIntern| Cash Generation 21,792

Less: Debt Service 4,026Working Capital Requirement (1,810)Net Initenal Cash Generation 19,576Borrowings 39,153Govermment Contributions 0

| Total Sources of Funds 5 S8,730

Note: All figures are in Dong billion.

5.23 EVN's development program for the period 1995-1999 is huge when compared to itsmodest capital expenditures of the past. It is projected at D 58,730 billion or an average annualinvestment of D 11,746 billion. This is mainly due to the large capital costs of thermal and hydroprojects which account for about 43% and 40%, respectively, of the total investment program. Thehydro generation program includes investments in the future projects in Ban Mai (D 2,105 billion), SonLa (D 4,745 billion), Yali (D 4,907 billion), Plei Kron (D 1,581 billion), and Ham Thuan Da Mi (D4,779 billion). Thermal generation includes investments in three major plants: Pha Lai (D 8,484billion), Quang Ninh (D 1,674 billion) and Phu My (D 8,880 billion). The value of EVN's net fixedassets in operations and its revalued rate base at the end of the period are projected to increase to about1.9 timnes their 1995 levels.

5.24 To finance this substantial investment program, EVN would secure long term financing,net of debt service, of about D 17,766 billion of projected 1995-1999 investments. These borrowingsrepresent an adequate capital structure with long term debt not exceeding 40% of total capitalization forthe projected period. EVN is expected to finance the balance from internally generated funds andachieve a significant level of self financing averaging about 35 % throughout the period.

5.25 The financial projections show that with the implementation of adequate tariff increases,the debt service coverage ratio of EVN would be between 3.3 to 82.1 during the period. The initialyears of operation would show very high debt servicing capabilities as debts repayments would notoccur until the later part of the period. With a view to maintaining debt service at acceptable levels,agreement was reached at negotiations with EVN and the Government that EVN would not incuradditional debt unless its estimated internally generated cash, after expenditure for each year, during the

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term of the debt to be incurred shall be at least 2.0 times its total estimated debt service requirements insuch years.

5.26 In the past, the financial constraints of the power sector (para. 5.3) stemmed from theinsufficiency of its equity capital. While the Government's policy is to no longer make any capitalcontributions to EVN in order to set it up as an independent company, it must recognize that thefinancial viability of EVN is well beyond EVN's control. There are problems which can negativelyinfluence the financial situation of EVN; if projected demand fails to materialize, if the Government isunable or- is delayed in making the necessary tariff adjustments, if the external financing for theinvestment program is not fully secured, or if other unforseen problems arises, the Government willneed to provide relief, either through new equity investments or advances or reimbursements in respectof some portions of the investment program. At negotiations, agreements were reached that byDecember of each year, EVN will review with IDA its proposed annual budgets and financial plan foreach succeeding five year period.

A

CHAPTER VI

Project Justification

A. Economic Analysis

6.1 Development of the power sector is crucial for the economic upliftment of Viet Nam.Implementation of the proposed project would help ensure the country's continued economic growth ingeneral and of the rapidly expanding southem region, in particular. The project would make asignificant contribution towards: (a) strengthening the managerial capabilities of the power sectorentities; (b) establishing a legal and regulatory framework for the power sector, a necessary prerequisitefor the introduction of private power; and (c) achieving a BOT type arrangement in the power sector.

6.2 The project supports two crucial investments in the power sector of Viet Nam - PHMY2-1and HV transformer additions. The acute power shortage predicted for the South from the end of 1996makes it imperative to add generation within a short period of about 15 months. This is feasible onlywith internal combustion turbines (GTs). Forunately, natural gas would be available to fuel these GTsfrom mid-1997 and the use of costly diistillate oil is expected to be limited to about 6 months only.Also, the discovery of large offshore gas reserves in the South and the expected availability of this gasonshore by end-1998 makes gas-fired combined cycle (CC) generation an economically attractive (andenvironmentally least-objectionable) option for power generation in the South. Gas-fired generation(along with environmentally acceptable hydropower), thus, figures largely in the least-ost powerdevelopment plan for Viet Nam.

6.3 The second investment supported by the project (HIV transformer additions) is aninvestment that is long overdue. Due to paucity of funds, many HV transformer substations have aeenoperating at or above their rated capacities. The consequences of overloading transformers are a loss oflife, high energy losses and unserved energy. PSREP (Credit No. 2724-VN) supports the reinforcementof medium voltage (MV) distribution in some of the heavily loaded MV systems supplying the fastgrowing areas in and around HCMC. Complementary investments in the HV system are vital to meetthe demand growth. The project supports transformer capacity augmentation at some of the criticallyloaded HV substations in fast growth areas in the South as well as the most urgent capacity additions inthe HV transformier substations elsewhere in Viet Nam, especially in the North.

PHMY2

6.4 The 2x15OMW GTs of PHMY2-1 are scheduled to be commissioned by end-1996. Adetailed feasibility study by PIDC2 has established that it would be economical to convert the GTs toCC operation for gas prices above USSI.75IMMBTU. Accordingly, the GTs would be converted toCC operation by the installation of the associated steam cycle equipment in end-1998. The followingBase Case assurmptions are made in the economic analysis:

(a) Costs and monetary benefits are converted to 1995 prices. Due to the liberalized nature ofthe market for foreign exchange in Viet Nam, the exchange rate reflects market prices andno adjustments are made for foreign costs. As the labor component of the project cost is

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s -. only about 1 % of the total cost, no adjustment is made for the shadow wage rate(estimated at about.0.75).

(b) Capital cost for the GTs is US$117.4 million; this includes physical contingency of 10%;price contingencies and duties and taxes are excluded. The capital cost for the steam cycleto be installed at a later date is assumed to be US$7501kW.

(c) In the Vietnamese power grid, generation accounts for about 65 % of the total investment,transmission and distribution accounting for the balance 35%. Accordingly, the cost oftransmission and distribution associated with the project is assumed to be about US$125million (US$35 million for transmission and US$90 million for distribution). The cost ofdistribution system expansion is assumed to be spread uniformly over 7 years.

(d) Annual O&M costs as percentage of capital costs are assumed at 5% for GT, 3.5% forCC, 1.5% for transmission and 2.5% for distribution.

(e) Based on the data provided by the Energy Institute, the plant is assumed to operate at anannual plant capacity factor of 68%. The plant life is assumed to be 20 years.

(f) The plant is assumed to use distillate for the first 6 months and natural gas thereafter.

(g) The economnic cost of distillate is 20 USc/liter (24 USclliter with 20% tax). The econonicprice of natural gas is assumed to be the same as the expected buying price. The latter isassumed to be in the range of US$2.5-3.5/1,000 cu. ft (Base price - US$2.5/1,000 cu.ft.). The true economic price would be lower, but is not possible to estimate, as the basisof gas pricing has not yet been finalized in Viet Nam.

Cn) The net heat rates for the GTs are assumed to be 11 cu. ft./kWh for gas and 0.33liter/kWh for distillate.

(i) The output from the plant (derated for site conditiorLs from 150 to 130 MW) is decreasedby the level of technical losses forecast for the system (reducing from 17% in 1996 to 13% in 2006 and remaining constant thereafter) in each year of operation; this represents theincremental sales from the project.

(j) The electricity tariffs are used as proxy for the evaluation of project benefits. The tariff isassumned to increase progressively to 7 USc/kWh by 1999, in nominal terms, based onGovernment's proposals.

6.5 The EIRR is estimated at about 17% (details are at Annex 18). The EIRR calculatedunderstates the benefits to the economy, as consumer surplus (benefit derived by consumers over andabove the price for electricity) is not included. Inclusion of consumer surplus would result in a higherEIRR, largely independent of the tariff; a lower tariff would simply transfer the benefit from the powercomspany to the consumners.

6.6 The project faces the following significant risks: (a) delay in the availability of natural gas,forcing the use of distillate for an extended period; and (b) higher than assumed price for natural gas.Other lesser risks faced by the project are: (a) the plant operates at lower than assumed plant capacity

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factor due to the nature of system demand; and (b) higher than estimated capital cost. Sensitivities arecomputed for the aforementioned risks (as also for a lower gas price of US$2.0/1,000 cu. ft. and theresults are as under:

Case %EIRR

Base 16.9

Delay in availability of gas: 6 months 15.318 months 13.1

Higher gas price: US$3.0/1,000 cu.ft. 13.9US$3.35/1,000 cu.ft. 12.0

Lower price of gas: US$2.0/1,000 cu. ft. 19.7

Capital cost of the GT/CC plant increased by 20% 14.6

Annual plant capacity factor reduced to 55% 12.4

6.7 Under all scenarios, the EIRR remains at or above the threshold level of 12% (theopportunity cost of capital in Viet Nam) except when the gas price exceeds $3.35/1,000 cu. ft. Acombination of adverse events is unlikely, but could render the project marginally un-viable. However,it is to be noted that the analysis-is conservative in that it does not take into account consumer surplus(para. 6.5) which would increase all EIRRs substantially.

Transfonner Additions

6.8 The HV transformer additions are essentially components of overall network expansionand rehabilitation programs and it is not feasible to evaluate their EIRRs in isolation. The existingdistribution networks in Viet Nam are old, unreliable and overloaded, and incur high losses. With theforecast rapid increase in demands, large investments are needed in rehabilitating the old networkcomponents, in expanding the networks to new areas and in connecting new consumers. Part of thereason that sales are expected to increase so rapidly is that there is substantial pent-up demand becauseof shortages in generating capacity. Detailed feasibility studies for upgrading distribution networks inimportant areas in the South and North have been conducted by consultants. These studies provideuseful data on: (a) demand growths; (b) investment requirements over the next several years for meetingthe demands while upgrading the networks to acceptable levels of safety and reliability; and (c)estimates of progressive reductions in losses and improvements in reliability (expressed in terms ofunserved energy due to outages).

6.9 The following methodology is used for evaluating the EIRR for the transformer additionsas part of distribution expansion and rehabilitation.

6.10 The analysis assumes two scenarios: (a) "with project"; and (b) "without project"'. The"with project" scenario is based on incurring the full investments (in the HV transformer substationreinforcements under the project and the downstream subtransmission and distribution systems) formeeting the forecast demands and a progressive reduction in losses and unserved energy. The "without

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project" scenario assumes that the system would be able to meet the full forecast demand growth withzero investments but with progressive increase in losses and unserved energy. The "without project"scenario makes the conservative assumption that the existing system would be able to meet the demandgrowth. Incremental operation and maintenance (O&M) costs are conservatively assumed to be thesame for both the scenarios, although in the "without project" scenario these would be higher. Thefollowing are the main assumptions:

(a) All costs are expressed in constant 1995 prices, mnaking no adjustments for shadowexchange rate or shadow labor costs.

(b) The downstream investments in subtransmission and distribution are assumed to be sixtimes the cost of HV transformer additions according to norms currently applicable forpower networks in Viet Nam and corresponding well with figures assumed in recentfeasibility studies by consultants.

(c) The capital investmnent is considered over the 1996-2000 time slice (part of which wouldbe funded by the proposed project).

(d) The analysis is made over a project economic life of 25 years, with no increases in salesor losses or improvements in reliability after 2000.

(e) The average retail sales tariff is assumed to increase from the current level of about 5USc/kWh to 7 USc/kWh in 1999 as proposed by the Government.

(f) The LRMC of supply at the HV level is assumed at 4.6 USc/kWh based on the Bank'sEnergy Sector Investment and Policy Review (Report No. 10842-VN).

(g) Unserved energy is very conservatively valued at 10 times the tariff level.

(h) With the project, the technical losses are assumed to reduce over the years (based onrecent feasibility studies). Without the project, the percentage losses are assumed toincrease in proportion to the demand. The technical losses are valued at the LRMC ofsupply at the HV level (non-technical losses are not considered in the economicevaluation).

6.11 The details of the economic analysis are presented in Annex 18. To test the robustness ofthe EIRR for the base case, a sensitivity is undertaken, with unserved energy not evaluated. Theresulting EIRRs are tabulated below:

EIRR %

Case South Viet Nam Rest of Viet Nam

Base 42.6% 40.1%

Unserved energy not evaluated 24.8% 20.4%

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6.12 The results indicate robust EIRRs for these project components and there is little need toundertake sensitivities for adverse conditions, such as lower demands and higher capital costs. TheEIRRs are likely to be underestimates because of the conservative assumptions made about the unservedenergy (both in terms of its magnitude and its evaluation) and about the other factors mentioned above.

B. Risks

6.13 The Phu My component of the project faces two significant potential risks: First, delays incommissioning of the power plant, which could result in curtailing demand in the south; Second, delaysin securing the gas supplies and the uncertainty about the gas price. The Government is consciousabout the need to take all measures possible to avoid implementation delays. The contract for the gasturbines is in place and construction is progressing satisfactorily. Gas supply arrangements for theearlier years are being finalized; the plant is not expected to burn distillate oil for more than six monthsfrom start, and the EIRR is robust enough to tolerate burning of distillate for a year longer. Withregard to the long term gas supply arrangements, the Prime Minister has directed that gas should beavailable at Phu My by the end of 1998 and negotiations between gas suppliers and EVN are well underway. The project requires short-term gas arrangements to be finalized before credit effectiveness andlong-term arrangements by end-1996. It is expected that the price of gas could be satisfactorilynegotiated in the range of $2.5-3.5/1,000 cu. ft., within which the project is economically viable.

6.14 The only tangible risk associated with the transforner additions component is that of delayin procurement which could result in overloading of transformers and/or shedding of load. TheVietnamese are well aware of this situation, bids have already been invited, and appropriatearrangements have been made for timely procurement decisions. The risk of demand not materializingis small; in this case, the downstream investments in distribution could be delayed, besides the EIRR isrobust enough to tolerate lower demand growth rates.

I

Chapter VII

Agreements Reached and Recommendation

A. Agreements

7.1 Agreement was reached with EVN that it would:

(a) appoint independent auditors, acceptable to IDA, and make the audit report available toIDA within nine months after the close of each financial year (para 3.22);

(b) make provisions, satisfactory to IDA, for insurance against such risks and in such amountsconsistent with appropriate practice (para. 3.24);

(c) enter into contractual arrangements by December 31, 1996, for the supply of gas toPHMY2-1 for a period of at least 20 years (para. 4.8);

(d) develop PHMY2-2 through a BOT-JV type of arrangement following a competitivebidding process and avail of technical assistance as agreed with IDA (para. 4.12);

(e) discuss and agree with IDA the requirements for further technical assistance and trainingand implement such technical assistance and training according to a plan and scheduleagreed with IDA (para. 4.13);

(f) undertake a master plan study of rural electrification according to terms of referenceagreed with IDA, review the recommendations of the study and formulate a ruralelectrification master plan and implementation program consistent with therecommendations of the study (para. 4.14);

(g) review with IDA the recommendations of the technical assistance on drafting of theElectricity Law and Grid Code and thereafter take measures, acceptable to IDA, forimplementing the regulatory framework and Grid Code and take further actions in passingthe Electricity Law (para. 4.15);

(h) carry out satisfactory procedures for monitoring the progress of the project in terms ofphysical execution and financial reports, and furnish quarterly progress reports to IDA(para. 4.18);

(i) adopt a plan for the operational phase of the project (para. 4.18);

(j) design the PHMY2-1 plant to meet specified environmental requirements and adoptappropriate mitigation measures, and set up an environmental unit and an environmentalcoordinator as part of the management structure of the power station (para. 4.21);

(k) carry out the RAP as approved by the Government and accepted by IDA (para. 4.22);

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(I) revalue fixed assets periodically in accordance with methods satisfactory to IDA (para.5.13);

(m) take all actions to ensure that funds generated from internal sources would be equivalent tonot less than 30% of the annual three-year average of EVN's capital expenditures (para.5.20);

(n) maintain internally generated cash at the level of at least 2.0 times its total estimated debtservice requirements (para. 5.25); and

(o) review with IDA its proposed annual budgets and financial plan for each succeeding fiveyear period (para. 5.26).

7.2 Agreement was reached with the Government that it would review with IDA, on an annualbasis: (i) its power development program and tariffs; and (ii) its proposals for adjustments, andthereafter, implement adjustments taking into account IDA's commnents (paras. 2.15 and 2.19).

7.3 Conditions for Effectiveness of the Credit:

(a) Submnission to IDA of certification of gas reserves of Nam Con Son, acceptable to IDA(para. 4.8);

(b) EVN entering into contractual arrangements for gas supply to PHMY2-1 for at least 5years (para. 4.8); and

(c) The finalization of a subsidiary loan agreement between the Borrower and EVN,acceptable to IDA (para. 4.25).

B. Recommendation

7.4 On the basis of the aforementioned agreements, the proposed project is suitable for an IDAcredit of SDR 121 million (US$180 million equivalent) to the Socialist Republic of Viet Nam on IDA'sstandard terms with a maturity of 40 years.

ANNEXES

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Annex 1Page 1 of 2

VIET NAMPower Development Project

Electricity Tariffs(In Effect in all of Viet Nam)

as of August 1, 1995

Effective ! Effective ? Effective3/1/92 to 7/31/94 8/l/94 to 7/31/95 8/1/95 to preseit

(in Dong per kWh)CUSTOMER CLASSES 3'

1. Industry and Offices

20 kV and higherRegular hours 450 450 520Peak hours 750 710 750Off-Peak hours 300 280 350

6 to 20kVRegular hours 450 500 580Peak hours 750 800 850Off-Peak hours 300 300 350

6 kV and lowerRegular hours 480 550 640Peak hours 800 800 950Off-Peak hours 320 320 350

H. Agriculture

6 kV and higherRegular hours 450 450 500Off-Peak hours 180 180 200

6 kV and lowerRegular hours 480 480 530Off-Peak hours 190 190 210

I/ Until July 31, 1994 surharges were applied for excess conumption above the regular, assignced quota. These quotas, whikhwere esablishod by the regional direcrx in cooption with the local People's Committee, amounted to the following:

Excess above Monthly Ouota Factor of Increase1% - 50% 150%>50% - 200% 200%>200% - 300% 250%> 300% 300%

2/ Surcharges were no longer applied since August 1, 1994.

3/ Regular hours are from 4.00 to 18.00 hours, peak hours from 18.00 to 22.00 hours and off-peak hours fron 22.00 to 4.00hours.

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Annex 1Page 2 of 2

Effective Effective Effective311/92 to 7/31/94 8/1/94 to 7/31/95 8/1/95 to present

(in Dong per kWh)

m. Water Supply6 kV and higher 5006 kV and lower 550

IV. Public Lighting 400 450 500

V. Domestic

RetilConsumption from 0 to 150 kWh 450 450Consumption from 0 to 100 kWh 450Consumption form 101 to 150 kWh 550ConsumPtion from 151 to 250 kWh 450 600 650Consumption from 251 kWh and above 450 800 850

WholesaleMain Meter owned by Village 360 360Main Meter owned by Wholesaer 400 400Main Meter owned by PC2/PC3 420 420

Rural AreasResidential 360Ohers 530

Non-Rural AmasResidential

Main Meter Owned by Wholesaer 440Main Meter Owned by PCs 460

Others 530

VI. Conunercial 750 950 1000

VII. Foreigners, also joint venures with the participation of a foreigner, are subject to payment of the following specialtariff, calculated and to be remitted in US currency.

Industry20 kV and higher US cents 8/kWh US cents 7/kWh US cents 7/kWh6 to 20 kV US cents 8/kWh US cents 7.5/kWh US cents 7.5/kWh6 kV and lower US cents 8/kWh US cents 8/kWh US cents 8/kWh

Commercial20 kV and above US cents 9/kWh US cents 9/kWh US cents 9/kWh6 to 20 kV US cents 9/kWh US cents 10/kWh US cents 10/kWh6 kV and lower US cents 9/kWh US cents 11/kWh US cents 11/kWh

Residential20 kV ad above US cents 9/kWh US cents 8f/Wh US cents 8/kWh6 to 20 kV US cents 9/kWh US cents 8.5/kWh US cents 8.5/kWh6 kV and lower US cents 9/kWh US cents 9/kWh US cents 9/kWh

-58- Annex 2

M1NISIR OF INDUSIR Page 1 of 7GENERAL PRINCIPLES OF POWER SECTIORPOLICY

Hknoi, December)', 1995

This paper sets out the main elements of Govemment of Vietnam's(GOV) power sector policy, It outlines the objectives and strategy of theGovemment. and the Ministry of Industry for the development of the PowerSector of Vietnam

A. Policy Objectives

1.1 The Govemment's power sector policy aims to achieve the followingobjectives:

(a) Provide electricity access to the national economy and the entfrepopulation of Vietnam

(b) Increase the operatingltechnical efficiency of the electicity sectorto optimize the use of scarce investment resources.

(c) Ensure the best quality of elctricity delivered

(d) Resolve the mismatch between market - based production costsand State administered prices

(e) Clearly delineate state managernent functions and businessmanagement functions

(f) Enable Vietnam to raise financing in the order of USS 1 billion(10.000 bil. VND) annually for power sector expansion to meeteconomic growth targets.

B. The power Sector In Vietnam - An Overview

1.2 In January 1995, GOV issued Decree No 141CP to establish Electricity ofVietnam (EVN) - a group corporation for the different power sector entitisengaged In generation, transmission, distribution and associated servicefunctions. The business units are grouped under two accounting systems:(i)independent accounting; and, (ii). dependent accounting. The business unitsfall into three categories:

* Those engaged in generation and transmission are subject to dependentaccounting, and consolidation of accounts takes place only at the level ofEVN as a whole (general EVN). There are 17 business units involved inthese activities - 12 for generation, 4 for transmission and I for NationalLoad dispatch center.

_59_ Annex 2Page 2 of 7

* Those responsible for distribution and supply are independent accountingenterprise. There are five distribution units: Hanoi, HCMC, PC1, PC2 andPC3.

* Those involved in the provision of services (including finance, design andconstruction, and planning) have either independent or dependentaccounting status.

Figure 1. Electricity of Vietnam (EVN)............................................................................................................................................

GenerationBusiness Unit

(12 Power Plants)

TransmissionBusiness Unit

(NLDC&4 TransmissionCos)

IBTPI 4 BTP2 BTP3 4 BTP4 _TPS

_ani PC1 HCM City PC2 PC3Distribution DistributionCompany Company

--1--... ...... ................. .................... .................. .

Consumers

BTP : Bulk Transfer PriceNLDC: National Load Dispatch Center

1.3 EVN has the legal status of a state corporation under the StateEnterprise Law. Independent accounting entities will have the status of stateenterprises that are members of the state corporation (i.e EVN). Within theEVN, the Board of Management (BoM) has the highest authority and exercisesthe functions established under the new State Enterprise Law.

1.4 From a sector structure perspective, the core functions of generationand transmission are integrated and under direct management of EVNheadquarters. The generation- transmission core sells electricity in bulk to the

Annex 2-60- Page 3 of 7

five independent distribution companies (Figure 1). Retails prices to finalconsumers are established by the Govemment and are currently uniformacross the country. The mechanism for setting the BTP allows the distributioncompanies to make a target profit - the profit level is determined by EVN. Givenuniform retail pricing and differing distribution system costs for each distributioncompany, the bulk transfer price is different for each distribution company.

1.5 According to State - Owned Enterprise Law the Ministry of Industry(MOI), as and line ministries,. is responsible for policy and oversightfunctions(as the owners of state enterprises), while all operationalresponsibility is vested with operating companies.

1.6 The current installed capacity is insufficient to meet the increasingenergy demand in Vietnam. Vietnam's power development plan calls for theaddition of 3000 MW by the tum of the century and about 6,000 MW by theyear 2005. To meet this ambitious expansion program, apart from govemmentbudget, ODA funds and funds from Multinational Financial Institutions, GOV willincreasingly utilize private finance. Decree No. 87/CP on BOT (i.e Build -Operate - Transfer) contracts facilitates private investment in infrastructureincluding power projects.

C. Reform Strategy

1.7 The Govemment reform strategy addresses the following key aspects ofpower sector reform. A proposed Reform Implementation Plan is attached.

(a) Rationalizing Power Sector Institutions and Functions.

1.8 The Govemment plans to rationalize the functions and responsibilities ofthe various bodies relevant to the power sector and clarify their exact roles. TheGovemment proposes:

, Ministry of Industry perform the "ownership function" and statemanagement functions over EVN.

* Management Board of EVN fulfill the ownership functions related to EVNactivities, and be responsible for development of the Power sector to meetthe targets set by GOV

* Vest all operating and management responsibilities (except regulatoryfunctions) with EVN's General Director and the management team of DeputyGeneral Directors.

(b) Structural Reform and Commercializafion of Sector Enterprise

1.9 GOV proposes to rationalize the power sector structure andcommercialize the operations of its power sector enterprises.Commercialization would include: (i) strengthening the finances and long-termcreditworthiness of sector enterprises; and, (ii) introducing improved operationaland management practices. The Govemment proposes to:

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* Reevaluate the operational efficiency of the four transmission companies.Consider the possibility of consolidation of the operations of the fourtransmission companies under a single transmission business unit.

* Strengthen the internal organizational structure, improve theaccountinglfinancial systems and streamline administrative procedures inthe distribution companies and the EVN generation-transmission core.

* Establish the independent distribution companies as entities withmanagement and financial autonomy; define appropriate incentives toundertake efficient investment and operating decisions; and, establishperformance contracts between the EVN Board of Management anddistribution companies.

* Consider the feasibility of establishing non - core members enteprises ofEVN (eg Power Investigation and Design Companies) as seperate businessunits.

(c) Electricity Law and Regulatory Framework

1.10 It is expected to develop a consistent body of laws and regulations thatwould facilitate efficient and commercial operation of the sector, providesecurity to domestic and foreign investors in the sector and allow theGovemment to supervise sector operations on an objective basis. It is proposedas follows:

- Define the scope and institutional arrangements for regulation

- Prepare a draft Electricity Law

Prepare a Grid code that would formalize operating arrangementsbetween: EVN generation entities and the integrated transmission operation;independent BOT/JV generators and the EVN purchasing entity; and, EVNgeneration-transmission core and distribution entities. The Grid Code will beprogressively operationalized.

(d) Electricity Pricing - Bulk Transfer Price and Retail Price

1.11 It is recognized that cost-based retail prices and intemal transfer pricesare essential to a commercial power sector that is expected to raise therequired capital for its needs. Retail prices based on these principles willensure that resources are allocated efficiently in the economy and thatconsumers face the appropriate price signals to utilize electricity efficiently.Efficient intemal prices will provide incentives -to the distribution companies tooperate efficiently and establish an objective basis to evaluate the cost ofpurchasing power from BOT/JV power generation schemes. It is proposed to:

Annex 2-62- Page 5 of 7

* Progressively raise average retail tariff to levels prevailing in the region by1999 - 2000. The tariff is proposed to be varied to about 7 USC/kWh by1999.

* Determine and adopt an appropriate bulk transfer prices (BTP) between thedistribution companies and the EVN generation-transmission core.

(e) Private Sector Participation In Vietnam's Power Sector.

1.12 The objectives for promoting private sector participation are to: (i).mobilize additional financial recourses in the form of debt and equity financingwith minimum Government guarantees; (ii). supplement public sectorinvestments; (iii). access the private sector's proven skills in project design,finance, implementation and operation; and (iv) create an enabling environmentthat fosters competition. It is expected to achieve: (i) balanced portfolio mix:private power projects will be consistent with Vietnam's least-cost power plan interms of size and technology, and with the system's operational needs; (ii)competitiveness: project sponsors will be selected through a competitivebidding process measured in terms of the lowest price of electricity delivered;and, (iii) limited recourse project financing: foreign investors will securefinancing under limited recourse basis where project sponsors and lenders willassume commercial and project risks.

(f) Rural Electrification

1.13 Only 65% of the Vietnamese population has access to electricity. Accessto electricity is much lower in rural than in urban areas. In order to increaserural access to electricity the Govemment will develop a Rural ElectrificationMaster Plan. This master plan will define: (i). criteria for expanding theelectricity network to rural areas; (ii) appropriate regulatory, institutional andfinancing frameworks; (iii) methodologies for forecasting and economicevaluation of alternative supply locations and options; (iv). technical standardsfor design, construction and operation.

(g) Electricity Conservation

1.14 To facilitate the efficient utilization of electricity and encourage electricityconservation practices and technobgies, the Govemment will examine thepotential and scope for electricity demand-side management (DSM), and loadmanagement in Vietnam.

Attachments: Reform Implementation Plan (2pages)

On behalf of Minister of IndustryCc. Vice - Minister

Prime MinisterMinistry of Planning and InvestmentMinistry of FinanceNguyen Duc Phan

NGUYEN DUC PHAN

REFORM IMPLEMENTATION PLAN

1 995 996 997(July to Dec.) I

Rationalization of Ibwer Sector Management Board - Structure reform in relalion to ownershipInstitutions and Functions and regulatory functions

Transmission entities and operalions consolidated under single Separation of transmissionStructural Reform and transmission business unit business unit as a prorit centerEnterprise Commercialization

Review of internal organization and Implcmentation of recommendationsmanagement svstem

i None-core enterprises under EsN separated as independent I None-core business units divested from EVN lloldin CompanElectricity Law and Regulatory Scope of regulation and institutional form of Implementation of regulatoryFrAmework'i regulatory agenc defined system and institutions.

Draft Electricity Law Promulgation of Electricity Law and regulationsprepared for submission toNational AssemblyPrepare Grid Code Operationalize the Grid CoDe

Tariff Reform Average retail tariffs lo be progressively raised to average power tariff of the region by end 1999 - 2000

Cost-based bulk transfer Cost-based Bulk transferprice determined price implemented

ts m

0%X

-o

REFORM IMPLEMENWATION PLAN

1995 1996 1997(July to Dec)

Private Power ProramReview wal rajionalization of private powerPolicyImpkmentation procedures for private powerprocurement developedPrepration of brochure on GOV powerdevelopment prormDevelopment of Phu My 2-Phase 11 on a OT/JV basis

Rural EkctrificationPreparation of RuralElectrification Materplan c

Implementation of institutional and financialrecommendations of RE Master plan

Electricity ConservationStudy on the potential for end -use electricityconservation nd schem for implementing DSMwd eectricity load mAement VI

Implementation of electricity conservation, DSM and loadmanatement pomms

i Study fnanced through I st. IDA Creditii Technical assistance will be provided by IDA (ESMAP)iii Technical assistance will be provided through 1 st. ADB Creditiv Technical assistance will be provided by IDA /IFCv Study financed through 2st. IDA Creditvi Study financed through lst. IDA Credit

-a01D

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Annex 3Page 1 of 3

VIET NAMPower Development Project

Legislation Concerning The Creation of EVN

The Government The Socialist Republic of VietnamNumber: 562/TTg Independence - Freedom - Happiness

Hanoi, 10th October 1994,

DECISION OF THE PRIME MMISTER

ON THE ESTABLISHMENT OF THE GENERAL COMPANY

OF ELECTRICIT OF VEETNAM

THE PRIME MINISTER

Pursuant to the Law on Organization of the Government dated 30th September 1992,

In order to implemnent the Decision number 911TTg dated 7th March 1994 of the Prime Ministeron the pilot establishment of groups of businesses,

Considering the proposal of the Minister of Energy,

HEREBY DECIDES:

Article 1: Establish the General company of Electricity of Vietnam on the basis ofrearrangemnent of the units of production, circulation and non-production of the electricity branch of theMinistry of Energy.

The General Company of Electricity of Vietnam has juridical personality, its seal, charter oforganization and operation and is permitted to open accounts at domestic and foreign banks inaccordance with provisions of the State, to carry out business independently, to conduct economicaccounting; its member units carry out independent or dependent accounting in conformiity with thedivision of responsibility levels of the General Company.

The General Company of Electricity of Vietnam the international transaction name of which isELECTRICITY OF VIETNAM (or EVN in abbreviation form) is based in Hanoi city.

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Annex 3Page 2 of 3

The General Company of Electricity of Vietnam is subjected to the State management of theMinistry of Energy and other State Agencies in accordance with the Laws and is permitted to contactMinistries, State Committees, Central and local State Agencies to implement its responsibilities.

Article 2: The General Company of Electricity of Vietnam has the following majorresponsibilities:

1. To carry out the responsibility of electricity trading in accordance with the State plans ondevelopment of the electricity branch; to take the initiative in doing business, including from workingout development plan, investment preparation, capital construction investment, survey and design,construction and installation, production, transmission, consumption of products, exports and imports,supply of materials and equipment; cooperation, joint-venture, alignment with domestic and foreigneconomic organizations in conformity with the Laws and policies of the State.

2. To organize, manage the research and application of scientific and technological progressand training and educating cadres and workers.

3. To receive, preserve and develop funds allocated by the State to carry out theresponsibilities of trading and development of the General Company.

Article 3: The structure of organization and operation of the General Company of Electricity ofVietnam includes:

1. The Board of Management,

2. The Director General and Deputy Directors General,

3. Professional divisions and sections to assist the Director General,

4. Member units of the General Company.

Article 4: The Board of Management is an organ authorized by the State to carry out a numberof functions of State ownership representation regarding the General Company.

The President and other members of the Board of Management shall be appointed by the PrimeMinister upon the proposal of the Minister of Energy after reaching unanimous view with the Minister,Head of the Government's Comnmission on Organization and Personnel.

Article 5:

1. The Director General shall run the business operation of the General Company inaccordance with the Chief system, and be the juridical representative of the General Company in thebusiness relations and be responsible before the Laws, and the Board of Management for the operationof the General Company.

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Annex 3Page 3 of 3

2. The Director General shall be appointed by the Prime Minister upon the proposal of theMinister of Energy on the basis of the suggestion of the Board of Management and after reachingunanimous view with the Minister, Head of the Govermment's Commission on Organization andPersonnel.

3. The Deputy Directors General shall be appointed by the Minister of Energy upon theproposal of the Director General after reaching unanimous view with the Minister, Head of theGovernment's Commission on Organization and Personnel.

Article 6: Assign the Minister of Energy to direct the implenentation of all relevant preparatorywork so as to ensure that the General Company of Electricity of Vietnam can soon stabilize its neworganization and start its operation on 1st January 1995, including the following tasks:

- Adoption of the modalities of rearrangement of business and non-production units which arecurrently operating in the electricity branch so as to establish the list of member units of the GeneralCompany;

- Drafting the Charter of organization and operation of the General Company to submit to thePrime Minister for approval in November 1994;

- Completion of the arrangement, positioning of personnel at the General Company level inOctober 1994;

- Completion of the allocation and receipt of funds for the General Company before December1994.

Article 7: This Decision shall take effect on the date of signature.

The Government The Socialist Republic of VietnamNumber: 562ITTg Independence - Freedom - Happiness

Hanoi, 10th October 1994,

DECISION OF THE PRIME MINISTER

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Annex 4

VIET NAMPower Development ProjectList of EVN Business Units

Independent Accounting Member Units Total Staff (December 1994)1. Power Company 1 15,2852. Power Company 2 5,6403. Power Company 3 7,3284. Power Company of Hanoi City 2,8285. Power Company of HCMC 2,9726. Power Construction Company No. 1 2,6957. Power Construction Company No. 2 2,6818. Power Construction Company No. 3 2,9829. Power Construction Company No. 4 2,16510. Power Investigation and Design Company No. 1 2,18011. Power Investigation and Design Company No. 2 1,48512. Electric Equipment Manufacture 1,97413. Power Communication Company 21814. Financial Company

Dependent Accounting Member UnitsPower Stations15. Pha Lai 2,32916. Uong Bi 1,58517. Ninh Binh 1,31318. Thu Duc 55819. Tra Noc 17120. Baria 12321. Hoa Binh 90922. Thac Ba 28023. Vinh Son 13824. Tri An 26725. Thac Mo 26926. Da Nhim 16127. Tramission Company 1 79928. Tramission Company 2 61229. Trarnission Company 3 34230. Trarnission Comnpany 4 1,29431. National Load Dispatching Center 5532. Power Conmnunication Center 1733. Center for Research, Science, Technology, Environment

and Computer 3934. Energy Institute 18635. Ham Thuan Dami Management Board36. Phu My Ba Ria Management Board

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Annex 5Page I of 2

VIET NAMPower Development Project

Addition of Transformer Capacity in South Viet Nam

I E_isti_g L4*d Demd (MVA) Augmentation

No. Substaton Voltage (v) Capaity (MVA) 1995 1996 1997 | 2000 Voltage (Kv) | Capacity (MVA)

1 Hoc Mon 220/110 2x125 205.0 321.0 418.0 502.0 220/110 Ix250

2 Long Binh 220/110 125 134.0 185.0 247.0 302.0 220/110 lx125

3 Da Nhim 220/110 63 58.0 94.0 103.0 118.0 220/110 Ix63

4 Thap Cham 66/15 15 10.2 14.0 18.0 22.0 110/22/15 lx25

5 Dong Nai 66/15 Ix20 19.0 25.5 37.5 62.5 110/22-15 lx40

6 Phan Thict 66/15 10 12.5 15.0 18.0 23.0 110/22./1S lx25

7 Tay Ninh 66/15 Ixl5 14.1 17.0 20.0 30.0 110/22-15 lx25

8 Trang Bang 66/15 10+5 10.6 14.0 18.0 41.0 110/22-15 lx25

9 Phan Ri 66/15 4 3.5 7.0 9.0 15.0 110/22-15 Ix16

10 Go Dau 66/15 20 20.2 21.0 22.0 40.0 110/22-15 lx25

11 Vung Tau 110/15 2x25 35.6 65.0 85.0 110.0 110/22-15 1 x63

12 Long Xuyen 110/15 2x11.5 24.1 27.8 32.5 38.1 110/22-15 2x25

13 Can Tno 66/15 20 24.1 28.0 35.0 38.0 110/22-15 1x20

14 Soc Trang 110/22-15 13.8 13.9 16.0 18.0 26.0 110/22-15 Ix25

15 Ben Tre 66/15 10+6 15.0 16.0 20.0 31.0 110122(15) Ix25

16 Xuan Loc 110/35 Ix16 15.2 25.0 30.0 35.0 110/35/22 lx25

17 Rach Gia 110/15 lx11.5 12.3 16.0 22.8 35.2 110/22-15 Ix25

18 Ca Mau 110/35 16 14.4 18.0 25.0 33.0 110/35/10 Ix25

19 Sa Dec 66/15 15 15.7 17.0 19.0 32.0 110/22(15) Ix25

20 Vinh Long 66/15 20 18.3 20.0 23.0 40.0 110/22-15 1x25

21 Tra Vinh 66/15 8 8.0 10.0 12.0 23.0 110/22-15 lx16

22 My Tho 66/15 20 22.8 27.0 31.0 51.0 110/22-15 1x40

23 Hung 66/15 Ix33+lx20 50.0 65.0 84.0 108.0 110/22-15 Ix63

Vuong

= - = - - - -~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.-

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VIET NAMPower Development Project

Addition of Transformer Capacity in Rest of Viet Nam

Eritng Load Demand (MVA) Aupmentation

No. Subsitaim |Volta | C9py 1995 19|1 19 197 1 2000 Volta Capacity

I I ;(Kv) I (MVA) I I (Kv) (MVA)

North

I Chem 220/110 2x125 240 275 312 450 220/110 2x2502 Hoa Lu 220/110 Ix12 120 170 178 186 220/110 Ix1253 Thanh Hoa 220/110 Ix125 130 142 150 160 220/110 lx1254 Ha Dong 220/110 2x125 230 265 295 406 220/110 2x2505 Viih 220/110 lx125 115 128 139 155 2201110 Ix1256 Nghia Do 110/6-10 2x25 48 56 62 72 110/22-6 Ix40

110/22-10 1x407 Dong Anh 110/35/6 2x25 53 57 62 72 110/35-22 1x40

110/35-6 1x408 Van Dinh 110/35/6 Ix25 28 32 37 42 110/22-6 Ix259 Tia 110/35/10 Ix25 26 29 34 40 110/22-10 lx25

10 Pho Cao 110/35/10 Ix25 27 31 35 40 110/22-10 Ix2511 Vo Cuong(Bac Ninh) 110/35/10 Ix25 29 33 38 42 110/22-10 Ix2512 Ha Tinh 110/35/10 Ix25 27 31 34 43 110/22-10 Ix2513 Viet Tri 110135/6 15+20 38 43 49 61 110/22-6 1x4014 Thai Binh 110/35110 Ix25 26 29 33 42 110/22-10 Ix2515 Mai Dong 110/35/6 2x25 48 53 57 71 110/35-22 IX4016 Gia Lamn 110/35/6 Ix25 24 28 34 50 110/22-10 IX4017 Son Tay 110/35/6 2x16 30 34 39 47 110/22-10 IX4018 Hai Duong 110/35/6 2x25 52 56 60 70 110/22-22 IX4019 An Lac 110/35/6 2x25 51 55 60 72 110/22-6 1X4020 Cao Ngan 110/35/6 15x20 37 42 48 53 110/22-6 IX4021 Phu Ly 110135/6 15x20 38 44 49 55 110/22-6 IX40

Center

I Qui Nhon 220/110 Ix63 65 78 94 160 220/110 1X1252 Quang Ngai 110/35/10 Ix25 27 31 36 52 110/22-10 1x253 Dong Ha 110/35/10 Ix16 19 23 27 40 110/22-10 Ix254 Hue 110/35/6 Ix25 27 32 38 55 110/22-6 Ix25S Xuan Ha (Da Nang) 110135/6 2x25 48 58 67 80 110/22-6 2x406 Tuy Hao 110/35/10 Ix16 18 22 25 36 110/22-10 1x257 Nha Trang 110/35/6 Ix25 28 34 40 63 110/22-6 1x40

.~ ~ = , . _ . _-

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Annex 6Page 1 of 7

VIET NAMPower Development Project (SRPDP)

Development of Phu My 2 Phase 2 with Private Sector ParticipationTerms of Reference for Consulting Services

Background

1. The Government of Vietnam (GOVN) has embarked on reforming its state-ownedenterprises and has selected its power sector as a pilot-cxperiment enterprise reform under theEnterprise Group initiative11. GOVN is conmmitted to the implementation of comprehensive reforms inits power sector and as a first step, under Decree 14/CP dated January 22, 1995, it has reorganized andregrouped the different power sector enterprises by establishing Electricity of Vietnam (EVN) as aholding company. The charter of EVN calls for the creation of three hierarchical organizations: Boardof Management, Control Section, and Finance Company. Currently, the roles and responsibilities ofEVN as owner, regulator, and financier are in apparent conflict with each other. Under a separatetechnical assistance provided by the joint World Bank/UNDP Energy Sector Management AssistanceProgranmme, GOVN is launching a study that will, inter alia, review options and makerecommendations for an appropriate legal and regulatory framework.

2. GOVN's power sector reform measures will include setting up of a legal and regulatoryframework, commercialization and corporatization of EVN and the four independent distributioncompanies, and fostering private investment in the power sector through Build-Own-Operate-Transfer(BOOT) or Joint Venture (JV) type of arrangements. GOVN issued Decree No. 87-CP datedNovember 23, 1993 on "Build-Operate-Transfer (BOT) Contracts" to encourage foreign investments inthe construction and development of Vietnam's infrastructure.3. Although the BOT decree has generated private sector interest in power generationprojects, there has been no progress beyond signing of memoranda of understanding (MOUs) to on-the-ground projects.

4. Under the Southern Region Power Developmernt Project (SRPDP), GOVN, in coordinationwith the World Bank, proposes to take concrete steps towards the developmrent of Phu My 2 Phase 2(PHMY2-2) under a BOT/JV type of arrangement. It expects that this would be the precursor to futuresuch developments in the power sector of Viet Nam.

Objectives of The Consulting Services

5. The objectives of the consulting services are to: (a) review GOVN's overall private sectorpolicy and legal framework vis-a-vis development, ownership, and operation of private power projects;(b) identify constraints and recommend the necessary legal and incentive framework that would helpachieve specific power generation projects in an optimum manner through BOOT/JV type ofarrangements; (c) develop the solicitation, selection criteria, security package, and evaluation of requestfor proposals (RFP) for the selection of project sponsors for PHMY2-2; and (d) assist GOVN in

1/ In March 1994, GOVN issued a decree No. 91/Ttg, Pilot-Work to Establish Enterprise Groups. This decree outlines theGOVN's initiative of refofning large sectorAl and regional state-owned enterprises.

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Annex 6Page 2 of 7

evaluating proposals, in contract negotiations and in executing contracts with the selected projectsponsor.

Scope of Work

6. The consulting services will involve three main tasks. The first two tasks will comprisePhase I and the third task, Phase II of this consultancy. Because private power project development indeveloping countries is driven by financial issues and concerns of the developers and investors, the firsttask will entail: (a) a thorough diagnostic analysis of (i) the requirements of the project sponsors,lenders, and equity investors; and (ii) the requirements for mobilizing financial resources for successfulprivate sector power project development; and (b) crystallization of project objectives andimplementation framework vis-a-vis legal, regulatory, financial, technical, and institutional roles andresponsibilities, and preparation of a Request for Qualifications for the PHMY2-2 BOT power project.After the successful completion of the first task, the second task will involve preparation of detaileddocuments (request for proposals, security package (power purchase agreements, fuel supplyagreements, etc.) incorporating findings of the first task, and proposal evaluation criteria andmethodology - for the PHMY2-2 development; design and preparation of a Brochure on Vietnam'sPrivate Power Program; and a framework for setting up a "one-stop-shop" within the Ministry ofEnergy (MOE) as a clearinghouse for information on Vietnam's private power policy and a road mapfor implementing private power projects. In the third task the consultants will assist the GOVN team inevaluating proposals and contract negotiations.

7. The three tasks would consist of the following main activities:

Task I Enabling Environment Diagnostics

Schedule: October 1995 - December 1995

Institutional

(a) Assist GOVN to crystallize project objectives and implementation environment frameworkvis-a-vis legal, regulatory, financial, technical, and institutional roles and responsibilities;review the regulatory and policy framework for private power sector participation;

(b) evaluate the adequacy of the legal and policy environment in attracting private investmentsto Vietnam's power sector;

(c) review and discuss the scope of EVN to participate as a minority equity partner in a BOT-JV arrangement for PHMY2-2 and at the same time a purchaser of electricity from thePHMY2-2 BOT-JV project company; if the existing legal and contractual framework posehurdles to EVN's participation as a minority equity partner, discuss contractual andlegislative options that will facilitate EVN's participation;

(d); review the expectations and conditions from the international investors' and bankingcommunity's perspective; discuss the spectrum of risks in project development (pre- andpost commissioning) and recommend alternative schemes and security arrangements forrisk allocation and resolution;

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Annex 6Page 3 of 7

(e) review institutional arrangements in the power sector at the govermment and utility levels,the requirements for concession or license of private generating companies, the roles a11dresponsibilities in the private power project proposal approval process, regulation andmonitoring of company system operations, contract signatory authority, contractenforcement responsibility, and arbitration venue and procedures; identify areas whichwould specifically require concurrent processing, authorization and approval, at thecentral, provincial and local government levels; review adequacy and reliability of fueland fuel transportation for PHMY2-2.

(f) review the adequacy and timing of availability of natural gas, gas supply andtransportation contracting arrangements with Petrovietnam and affiliated gas suppliers;

Financial

(g) meet with potential project sponsors and equity investors to identify their requirements,the paramount issues in the 1993 BOT Law vis-a-vis private power that prevent successfulprivate power development in Vietnam;

(h) identify sources and cost of debt and equity finance (international capital markets, exportcredit agencies, etc.) for such projects;

(i) review and evaluate GOVN's fiscal and tax regimes (income tax, withholding tax, importduty, loss carryovers, repatriation of dividends, foreign exchange restrictions, rate ofreturn on equity restrictions, depreciation schedules, etc.);

(j) review issues of sovereign guarantees or financial institutions that can provide guaranteefor contract performance by the power purchaser;

(k) evaluate and recommend different project ownership and financing structures for the PhuMy 2 - Phase 2 project and also identify the role of the World Bank Group in catalyzingprivate sector power development; the range of options for project ownership andfinancing structures considered should delineate the documentation requirements for eachoption and conformity or lack thereof with the legal and contractual framework; also seeTask 11 (e).

(I) evaluate (i) the applicability and implications of non-recourse and/or limited recoursefinancing techniques to the Phu My 2-phase 2 project, (ii) the nature of risks associatedwith projects of this type highlighting those areas of risk which will be of particularconcern to investors, lenders, and GOVN, (iii) requirements of lenders to such projects,the formulation of alternative credit structures attainable which would limit recourse toshareholders, (iv) sources of debt finance (international capital narkets, export creditagencies, etc.) for such projects, (v) the sharing of risks between the various partiesinvolved in the project, and the costs and implications of non-recourse and/or limitedrecourse financing to GOVN, (vi) the investors' requirements and the potential for andimplications of equity participation by GOVN or other government agencies as jointventure partner with private power developers; (vii) guidelines and measures to evaluatethe financial capability of project sponsors; also see Task 11 (e).

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Annex 6Page 4 of 7

(m) identify legal, comnmercial, and contractual issues to be evaluated by the local consultants;

(n) discuss the work plan, tasks and detailed assignments to be perforned by the consultantteam, GOVN team, and local consultants;

(in) prepare a Request for Qualifications to solicit expressions of interest from private powerproject developers. The RFQ will include minimum threshhold requirements for screeningthe developers who submit expressions of interest to develop PHMY2-2 power project ona BOT-JV basis with EVN.

(n) organize a focussed workshop to discuss the requirements of sponsors, lenders, investors,pre- and post commissioning risk issues and mitigation measures, and issues that need tobe resolved prior to starting Task 11. The workshop should focus on the requirements ofthe developers and lenders for developing PHMY2-2 power project; competitivecontracting process addressing the perspectives of the developers, investors, and lenders,with respect to risk allocation and mitigation; evaluation criteria for technical /operational, managerial, and financial capabilities of project sponsors, bid evaluationmethodologies, and negotiation strategies.

Task 1 Preparation Of Bidding Documents and Security Package, and a Brochure on PrivatePower Program(Technical Feasibility is outside the scope of these services)

Schedule: December 1995 - March 1996

(a) Confirm the composition of a GOVN private power team to manage and coordinate theprivate power development process leading to evaluation of proposals, contractnegotiations, and contract award;

(b) prepare bidding documents and procedures associated with soliciting, evaluating andselecting bid proposals to facilitate development of the PHMY2-2, [450-600] MW gasfired combined-cycle power plant. Specifically prepare request for proposals (RFP)delineating eligibility criteria, threshold requirements, selection criteria, and proposalevaluation methodology;

(c) prepare bidding documents, in English and Vietnamese, which include, inter alia, projectbackground, grid code (minimum functional specifications such as operational interfaceand standards to be followed for coordinated dispatch operation), security packagea' (at aminimum draft implementation agreement, power purchase agreement, fuel supplyagreement, consents and approvals required, and security and guarantees if any provided

V A security package is a set of agreements which together offer investors and lenders a measure of comfort to encourage themfinance power projects in developing countries. A security package is an umbrella document that nay include an implementationagreement. purchase agreemem, fuel supply agreement, construction contracts, operations and maintenance agreements, land leaseagreement, insurance policies, escrow agreernent, loan agreements, inter-creditor agreement, and a share-holder agreement.

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Annex 6Page 5 of 7

by the government), evaluation criteria and methodology, project feasibility study report(if available), sponsor's financing capability, project financing plan, GOVN's role duringconstruction and operation, obligation of GOVN to provide approvals and consents,responsibility for enviromnental clearance and environmental impact assessment, tariffsetting and indexation, fuel cost pass through, performance guarantee requirements andbonus provisions, fuel supply and transportation responsibility, provisions for liquidateddamages; fuel supply and transportation agreement should be coordinated withPetrovietnan and affiliated fuel suppliers;

(d) develop proposal evaluation criteria and methodology delineating information required forconsistent evaluation of technical specifications, financial terms, and methodology forevaluation of financing plan; and

(e) develop financial evaluation criteria and a financial analysis model with capabilities toperform sensitivity analysis for perturbations in interest rates, fuel price change,construction delays, decreased production, increase in operating costs, inflation rates, etc.on the pre- and post-tax return on equity, return on project investment, equity payback,operating coverage and debt service coverage ratios. The foregoing list of variables is forillustrative purposes only. The financial analysis model should also be capable ofmodeling the different project ownership and financing structures evaluated under Task I(i) and (j).

(f) design and prepare a Brochure, in English and Vietnamese, for promoting private powerprojects in Vietnam. The Brochure should include, inter alia, information on the enablingenvironment including GOVN's BOT Contracts regulations, foreign investment incentives,tax laws, a list of all permits and clearances required for power projects, the competentagency responsible for the permits, competitive bidding requirements, and a profile of"off-the-shelf" projects for which sites have been secured, fuel supply identified, and apre-feasibility study completed.

(g) develop and recommend a framework for instituting a "one-stop-shop" within the Ministryof Energy to streamline project approvals and to serve as a clearinghouse for informationrelated to Vietnam's private power policy. The purpose of the "one-stop-shop" and theprivate power brochure is to essentially provide a road map for potential projectdevelopers and investors.

Task HI Private Power Project Proposal Evaluation

Schedule This task is not amenable to scheduling at this time; however, it is linked to the issuanceof the competitive bidding documents by GOVN to prospective project developers.

(a) define in broad terms the scope, resource, and technical assistance requirements in (i)assisting and participating in a pre-bid conference, and (ii) the evaluation - technical,financial, and legal - of project proposals and contract negotiations to assist GOVN; and

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Annex 6Page 6 of 7

(b) the scope and extent of services needed during evaluation and negotiations will depend onGOVN's private power framework that will evolve from Tasks I and II, the number ofproposals received, and complexity of proposals.

8. Consultants with direct involvement in competitive bidding, project proposal preparation,evaluation, contract negotiation (power purchase agreement, impelementation agreement, gas supplycontract), and financial closing of successful BOT/BOO type private power projects would be identified.In mobilizing the team, the selection criteria for consultants would include the requirement that theconsultants' experience represent perspectives of the government, utility, lenders, local and internationalinvestors regarding private power projects in developing countries.

9. Two local consultants, a legal expert and a financial expert, well versed in Vietnam'spower sector, commercial and contract law, and local and Asia's capital investment market respectively,will be hired to provide needed inputs in the development of the private sector power developmentframework, and to assess the situation from the perspective of the domestic and non-residentVietnamese investors.

Coordination With GOVN and The World Bank

10. The GOVN will appoint a Counterpart Group (CG) which will be responsible for assistingthe activities of the Consultant. The membership of the CG team will include representatives fromEVN, Ministries of Energy, Finance, and Constiuction, State Bank of Vietnam, State Committee forCooperation and Investment, Office of the Government, and State Planning Conmmittee. The taskactivities will be supervised by the World Bank and CG, and performed by Consultants' team composedof a project manager/contracting expert, legal expert, and corporate/project finance expert. TheConsutiants' team will also work closely with the GOVN's CG team.

Local Facilities

11. The Consultant will be responsible for all resources required for the execution of its dutiesincluding office, secretarial, printing, transportation, and any other resource.

Reporting Requirements

12. The Consultant shall prepare draft reports, in English and Vietnamnese, for review by theCG in accordance with the schedule stipulated within the individual tasks:

Task I: Draft report on diagnostics of current situation will be submitted to CG no later than 3months after the signing of the Contract.

Task Il: Draft report presenting possible and recommended models for private sectorparticipation, solicitation and selection procedures will be submitted to the CG four (4) monthsafter signing of the Contract. Final Report will be due 15 days later, incorporating CGconmments.

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Annex 6Page 7 of 7

Task III: This task is not amenable to scheduling a report because the extent and nature of theConsultants' assistance is not known. Any work accomplished will result in a draft reportsubmitted to CG within one month after completion and final report will be prepared 45 dayslater, incorporating CG comments.

Final Report to be submitted to the GOVN no later than 18 months after signing of the Contract.

Execution Schedule

13. The first phase of this consultancy service which comprise Tasks I and II will becompleted in 8 months, after Contract signing, in accordance with the attached Schedule (Annex 1).The second phase (Task III) will be completed in 8 to 9 months so as to meet the target commissioningof PHMY2-2 simple cycle (gas turbine operation) by June 1998.

General Conditions

14. Due to the complexity and evolving nature of the assignment, the Consultant shall beprepared to act as a conduit for additional expertise that may be identified and required during theimplementation of this assignment. This additional expertise may be sourced from individual experts notassociated with the Consultant and would be made available through the Consultants contract.Contracting of a consortium of technical, legal, and financial advisory firms will be considered.

15. Experts assigned by the Consultant should have extensive international experience of directrelevance and some knowledge of the Vietnam's power sector. Close coordination with a paralleltechnical assistance for Vietnam's grid code, and power sector legal and regulatory framework by thejoint World Bank/UNDP Energy Sector Management Assistance Progranmne is deemed critical tooverall success.

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Annex 7Page 1 of 6

VIET NAMPower Development Project

Master Plan Study for Rural Electrification

Bacdground

Current Status of Rural Electrification in Vietnam

Present status of rural Rower network development

1. Electricity supply to rural areas in the North of Vietnam started from the late 1950's.Network development was, however, totally halted in the war period (1964-1972), was resumed in 1980and considerably accelerated from 1985 onwards. In the Southern Region, the electricity supply forrural areas started and developed at a substantial rate only after 1975.

2. As of 1993, electricity consumption in rural areas was 1,243 GWh (23.7% of commercialelectricity) of which agricultural use accounted for 485.3 GWh (39% of total rural electricity). Region-wise consumption was:

(a) Northern Region (to Ha Tinh province): 883 GWh (23.7% of Northern Regionconmnercial electricity) in which agricultural production: 321 GWh (36.4%).

(b) Central Region (from Quang Binh to Phy Khanh), Tay Nguyen (except Lam Dong): 112GWh (17.5% commercial electricity for Central Region) in which for agriculturalproduction: 99.3 GWh (40%).

(c) Southern Region: 248 GWh (7.3% of Southern Region commercial electricity) in whichagricultural production: 99.3 GWh (40%).

3. The rural power networks have been developed fairly. According to the statistics of 1992the whole country had 19,872 kan of medium-voltage 6-35 kV lines (76% of total), transformers withcapacity of 2,616 MUA (43% of total).

4. The districts and conmmunes being supplied with electricity by power companies are asfollows:

Disrict CommaTotal Havin delectri % TOl Having dectricity %

Nortem region 221 170 77 5720 3293 58in which Red Rivers Delta (*) 56 56 100 1550 1488 96Central Region 66.7Southem Region 99 66 89.1 1357 553 40

138 123 2120 1162 54

Whole country 458 359 78.4 9197 5008 54

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Rural Electridty Demand Forecast to 2010

5. Population forecast based on results of study carried out by the population and familyplanning conmmittee:

Population Coverage By Rural Electrification

Yeat Pobiadjos Populatin pw"l Of Rate compared witb(thousand of perso) the period % total population (%)

1991 54382.4 1.7 79.6

1995 58271.4 1.4 78.1

2000 62452.9 1.0 76.1

2O05 65696.6 0.8 74.2

2010 68527.6 72.6

6. Electricity Demand Forecast per capita year in 2010:

Mountainous areas 5OkWhFlat areas lOOkWhMid-land and low hill land 7OkWhSuburban areas 200kWh

Ma Issues

7. As of now, Viet Nam does not have a master plan for rural electrification that lays downpolicies, strategies and criteria for meeting provincial rural area development priorities. There are anumber of technical, financial and institutional constraints, including: (a) inadequate transmission anddistribution networks, poor power supply reliability and poor loading characteristics in rural areas; (b)scarcity of investment capital, subsidized pricing practices, inadequate private investment mechanismsand underdeveloped domestic equipment enterprises; and (c) lack of locally based institutions to manageand operate grid-connected and/or isolated rural electric networks.

Objectives of the Study

8. The main objectives of the rural electrification master plan study are to define: a)appropriate regulatory, institutional and financing frameworks; b) methodologies for forecasting andeconomic evaluation of alternative supply locations and options; and c) technical standards of design,construction and operation. The study should provide a basis for detailed project preparation.

(a) To establish criteria for supplying electricity to Vietnam Rural Areas.

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(b) To define the contents of integrated planning of rural electrification for periods of 10-15years.

(c) To define the roles of the State, collective, private sectors in implementing of ruralelectrification planning.

(d) To establish guidelines for tariff formulating and making rural electrification scheme.

(e) To form strategies for supplying electricity to rural areas with least cost.

(f) To train staffs in order to meet the requirement of rural electrification implementation.

Scope of The Study

9. The scope of work shall cover the following aspects:

(a) Review of Existing Rural Electrification

(i) Organization/financing frameworks(ii) Grid/off-grid electrification

Networks and coveragePower reliabilityPhysical and operational conditions

(iii) Pricing policy and tariffs(iv) Load characteristics(v) Other energy resources, usage(vi) Legal/political structure(vii) Impact of electrification

Commercial, agriculturalEducationHousingHealth

(b) National Objectives for RE

(i) Regional and sustainable developmentUrban/rural demographics

(ii) Agriculture support

(c) Load Forecast for RE

(i) Population(ii) Economic features(iii) Survey of rural electrified and non-electrified areas(iv) Suppressed load(v) Domestic characteristics

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(vi) Conmmercial(vii) Industrial(viii) Affordability, willingness to pay(ix) Promotion of electric uses

(d) Distribution

(i) Existing standards(ii) Recommended standards(iii) Cost estimates per unit/facility(iv) 0 & M practices(v) Equipment manufacturing

(e) Power Supply

(i) Existing supply/demand(ii) Transmission planning(iii) Future grid power supply for RE(iv) Non-grid power supply(v) Renewable energy role

(f) Site Selection

(i) Service area parameters(ii) Screening methodology(iii) Ranking of projects(iv) Map of projects(v) Financial analysis(vi) Economic analysis

(g) Institutional Structure

(i) Current capabilities(ii) Utility organization options(iii) Access to private capital(iv) Private/public interest(v) National roles/grid generation & transmission(vi) Local roles/distribution, metering, billing(vii) Recommendations

(h) 10-15 Program (Computerized design)

(i) Proposed projectsGrid connectedIsolated installationSystem upgrading

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(i) Capital requirements(j) Financial plan; subsides(k) Human resource requirements

(1) Five-year Program (Computerized design)

(i) Project selection(ii) Capital requirements(iii) Financing available(iv) Tariff structure recommendations

(m) Five-year Program Implementation Plan

(i) Legal adaptations(ii) Institutional changes

StaffingPosition descriptionsTechnical assistance

(n) Feasibility Studies (scopes-of-work developed)

(o) Training Requirements (scopes of work developed)

(p) Capital Budgets, Cash Flow

(q) Program Management/Training Budgets

(r) Equipment Supply and Construction Options

(s) Implementation Schedule

(t) Monitoring/Evaluation

(u) Site Selection Methodology; Field Survey Summary; Technical Analyses and Maps

Conduct of The Study

10. The study shall be conducted in two phases. Phase 1 will cover review of the existingsystem, identification of issues and constraints and recommendations of criteria, standards, andinstitutional arrangements. Phase 2 will cover refining of work in Phase 1 and: (a) formulation of a 10-15 Year master plan for RE, including evaluation of costs and benefits, estimation of financingrequirements and recommendation of implementation arrangements; and (b) a detailed 5-yearimplementation program.

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11. The consultant doing the study would be expected to use the services of the EnergyInstitute of Viet Nam, on a sub-contract basis for surveys, data compilation and analysis. Such servicescould amount to approximately 20% of the main consultancy contract.

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VIET NAMPower Development Project

Electricity Law and Regulatory Framework(Terms of Reference for Technical Assistance)

Background

The Goverrnent of Viet Nam (GOVN) has in conjunction with macro-economic reform efforts,initiated a broad program of power sector reforms. In January 1995, GOVN issued Decree No.14/CPto establish Electricity of Viet Nam (EVN) - a holding corporation for the different power sectorentities engaged in generation, transmission, distribution and associated service functions. From asector structure perspective, the core functions of generation and transmission are integrated, anddistribution is separate. There are five distribution companies and they are able to maintainindependent accounts, and have the status of state enterprises in accordance with the State EnterpriseLaw. EVN is classified as a state corporation according to the State Enterprise Law and comprises ofmember state enterprises. EVNs Board of Management (BoM) has been vested with responsibility toexercise the States ownership function based on the principles established under the new StateEnterprise Law. It also oversees the operation and management of EVN.

Retail prices to final consumers are established by the Government and are currently uniform across thecountry. Electricity is sold in bulk by the integrated generation-transmission core to the independentdistribution companies. The mechanism for setting the bulk transfer price allows the distribLtioncompanies to make a target profit - the profit level is determined by EVN. Given uniform retail pricingand differing distribution system costs for each distribution company, the bulk transfer price is differentfor each distribution company.

The Ministry of Energy (MOE) has been significantly rationalized in parallel with the establishment ofEVN. Consistent with the Governmend policy for all line ministries, MOE is increasingly responsiblefor policy and oversight functions, while all operational responsibility is being vested with operatingcompanies.

The current installed capacity of [4,200 MW] is insufficient to meet the annual energy demand inVietnam. VietnamA power development plan calls for the addition of 2,400 MW by the turn of thecentury and about 6,000 MW by the year 2005. To meet this ambitious expansion program, GOVNwill increasingly utilize private finance which is essential to meet the power sector expansion targets.Decree No.87/CP on BOT (i.e. Build-Operate-Transfer) contracts facilitates private investment ininfrastructure including power projects.

In a recently completed exercise the Ministry of Energy and EVN examined the implications of thesector structure and defined a series of actions to continue the refonn process and ensure that reformobjectives can be achieved. This exercise which was conducted with the assistance of IDA/ESMAPconcluded that some form of transparent economic regulation was necessary for the power sector.From a reform perspective the development of consistent body of laws and regulations was required to

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facilitate efficient and commercial operation of the sector, provide security to domestic and foreigninvestors in the sector and allow the Government to supervise sector operations on an objective basis.Further, as the entry of independent generators is envisaged an operational grid code would clarify thetechnical and operational standards and responsibilities of independent entities in the sector. Thistechnical assistance project is designed to address this priority area of power sector reform.

Objectives

The technical assistance project will assist GOVN in developing a legal and regulatory framework forthe power sector, to accelerate and support on-going power sector reform efforts. The creation of asuitable regulatory system and institutions is a pre-requisite for a commercially-oriented power system.The mnain elements of this work are:

1. definition of the appropriate regulatory functions to be undertaken by government supervisoryagencies;

2. delineating the regulatory responsibilties of different government agencies and ministeries;

3. devising a suitable institutional form for the conduct of these functions, as well as establishingregulatory procedures and mechanisms;

4. preparing the required draft electricity legislation and regulations; and

5. Preparing a grid code that would formalize operating arrangements between: EVN generationentities and the integrated transmission operation; independent BOT/JV generators and the EVNpurchasing entity; and, EVN generation-transmission core and distribution entities. The gridcode will be progressively operationalized.

Scope and Organization of Work

Given the complexity of regulatory reform and the need for a process that is open to review and inputsby all stakeholders, the technical assistance activity will be divided into 5 phases.

Ph.e 1: Counterpat Arrangements and Background Report

GOVN will designate a suitable high-level steering conmnittee to oversee and direct the activity. ThisSteering Conmnittee will include officials from the relevant government agencies and ministries thathave a stake in the process of power sector reform. These agencies will include, but not be limited to,Ministry of Energy, Ministry of Justice, State Planning Conmmission, Ministry of Finance, etc..

The Steering Conmmittee will be responsible for setting up a working group and constituent task forcesto interact on a day-today basis with the international advisory team, and carry out the required analytic

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and conceptual work. It is envisaged that the working group will include representatives from powercompanies, and the principal government agencies and entities involved in power sector decisions andoperations. It is advisable to involve key individuals who assisted with the earlier IDA/ESMAPfinanced work on 'Options for Power Sector Restructuring' in the working group to provide therequired continuity with this activity.

The working group will complete a review of the implementation of sector reforms and prevailinginstitutional arrangements. This review will form the basis of preliminary discussion of issues andregulatory objectives within Viet Nam.

The formation of the Steering Committee, Working Group, and preparation of the background reportwill be completed by Sept./Oct. 1995.

Phase 2: Definition of Fundamental Prnciples and Scope of Power Sector Regulation

This task will be completed during a two week period of intensive discussions between the workinggroup and international advisory team. The main elements of this second phase of work are thefollowing:

(a). Review and discussion of the background report by intemational consultants

(b). Presentation and discussion of international experiences in power sector regulation. The focuswill be on clarifying the concepts of economic regulation and discussing the advantages anddisadvantages of different regulatory techniques.

(c). Definition of guiding principles and objectives of power sector regulation in Viet Nam.

(d). Outline of the required or desired scope of power sector regulation in Viet Nam.

(e). Preliminary scope and requirements for an Electricity Law

(f). The requirements of a Grid Code for Viet Nam

In effect, the output of this phase will lay the foundations for more discussions on the details andstructure of power sector regulation. This task will be undertaken in Dec. 95/Jan. 96.

Phase 3: Preliminary Design of the Electricity Law & Regulatory Framework

The Working Group and the international consulting team will in this phase focus on four aspects ofregulatory framework design. Broadly defined, these are:

1. Price Regulation2. Separation of Regulatory Function from EVN3. Regulation of Franchise Operations and Licensing4. Requirements of a Grid Code

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The four topics, which are outlined in greater detail below, are inter-related. The Vietnamese workinggroup could be divided into four task forces corresponding to the four topics. The issues that arecommon to all four topics listed above, relate to: (i). the allocation of regulatory roles andresponsibilities; and (ii). the regulatory mechanism and organizational structure to perform theseregulatory functions. These issues will be discussed in by the individual task forces, as well as inplenary session when required.

A detailed, although not comprehensive, scope of issues to be tackled by the four task forces is asfollows:

Task Force 1: Price Regulation

(a). Retail and bulk prices that need to be regulated:

- Retail consumer price- Bulk transfer price regulation

(b). Evaluation of mechanisms to regulate prices; principles to establish pricing policies; informationneeds for price setting/review; administrative processes for price revisions in the regulatedmonopoly segment of the power sector.

(c). Identification of institutional mechanism to regulate prices

Task Force 2: Separation of Regulatorv Function from EVN

(a). Review and assessment of the role and responsibilities of EVNs Board of Management. Theimpediments to effective and efficient enterprise management should be clearly identified.

(b). Institutional arrangements to undertake all regulatory/government functions currently performedby EVNs Board of Management and completing its separation from enterprise management andownership.

Task Force 3: Regulation of Franchise Operations and Licensine

(a). Evaluation of current procedures and institutional responsibility for system planning, and theobligation to serve

(b). Identification and evaluation of options to draw a balance between the need for appropriateoversight of planning and investment decision and the obligation to serve by a local supplier.

(c). Reconciling the obligation to serve under a workable licensing and franchising framework

(d). Identification of methods and mechanisms to separate central and local responsibilities

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Task Force 4: Requirements and Preparation of a Grid Code

(a). Regulatory requirements to facilitate fair entry for new players in the generation sector

(b). Creating an objective and arms-length mechanism for:

- regulating bulk sales of power- access to transmission networks

(c). Implementing and operationalizing a Grid Code

Phase 4: Workshop - Power Sector Regulation in Viet Nam

A key phase in this technical assistance will be a workshop on power sector regulation. The workshopwill targeted at a audience of senior policy makers, power enterprise officials and power sector experts.At this workshop the working groups will present the task force interim reports (i.e. output of phase 3)on power sector regulation in Viet Nam. The workshop will be important in developing broadconsensus amongst policy makers in Viet Nam on the pace and scope of regulatory reform in the powersector.

The workshop will be held in Hanoi around July 1996. At present a three-day event is envisaged - 1-day for opening session, an overview of the work, and a presentation of international experience inpower sector regulation; 2-days for presentation and discussion of task force interim reports by theVietnamese working group.

Phase 5: Recommended Regulatory Framework and Institutional Structure, Draft Electridty Law

Based on the inputs and discussions at the workshop, the working group and the international consultantteam will begin to develop the elements of a workable regulatory framework. This task will include:

(a). Draft power sector regulation that clearly addresses all the major aspects of regulation discussedby the four task forces. It is of crucial importance that the draft regulation clearly delineate theroles and responsibilities of the different government agencies.

(b). Design of an institutional structure that will be able to enforce the draft regulations. Thestructure must clearly identify new/revised roles of existing institutions, clarify their functionsand propose an organizational structure and staffing for any new institution.

(c). Preparation of a draft Electricity Law

Time Schedule

This activity should be completed within 12-16 months of initiation. If work is initiated aroundAugust/September 1995, a preliminary draft/design of the legal and regulatory framework (Phase 3)

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may be prepared by June 1996. The Workshop will follow soon after, perhaps around July 1996. Itshould then be possible to prepare and submit the draft Electricity Law and regulations to the legalcommittee of the National Assembly for prelininary review by end-1996.

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VIET NAMPower Development Project

Supervision Plan and Key Performance Indicators

Supervision Plan

SURf-DaysCalindar Year

1996 1997 1996

TM FA PP EN RS TM FA PP TM FA PP

Physical Implementation 10 10 10

Power Development Plan 2 _ 2 2

Dialogue on Tariffs 2 2 2

Compliance with financial covenants - 12 - 12 - 12

Implementation of environmental plan - - 10 -

Implementation of resettlement action plan - - - 10

Institutional development of EVN 3 3 12 - - 3 3 8 3 3 5

PTogress of legal and regulatory studies 3 - 12 - 3 8 3 - 5

Progress on developmnt of PHMY2-2 on OT basis 3 - 12 3 - 8 3 - 5

Progress on rual electrification master plan study 2 - 2 - - 2 - -

TOTAL Staff-DayS 25 15 36 10 10 25 15 24 25 15 15

Number of fields visits /_ 3 3 2 1 1 3 3 2 3 3 2

Expertise: TM. Task Manager (Power Sector Issues)FA: Financial AnalystPP: Private PowerfLegl nd Regulatory FrameworkEN: EnvironmentRS: Resettlement

/a The costs of field visits would be shred with other power projects in Viet Nun.

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Project Performance Monitoring

Key Performnce Indicators

Project Objective Key Performance Indicator Monitoring Requirements

A. Meet demand growth. 1. Annual output of Phu My GTs. Record monthly Gwh generationTarget annual plant factor: 68%. for 5 years.

2. Annual availability of Phu My Record planned and forcedGTs: 85% outage hours monthly for 5 years.

3. MVA loading of project substations. Record substation peak annualMVA demand for 5 years.

B. Introduce private power. 1. Number and capacity of private Record annually for 10 years:power units. (a) number, size and type ofTarget: PHMY2-2 - 1999. units; and (b) total GWh purchased.

PHMY 3 - 2000.Others - later.

C. Strengthen EVN 1. Introduction of management systems. Record key institutional developmentsinstitutionally and Target: to be developed. annually for 5 years.financially.

2. Number of persons receiving trainingand type of training.Target: to be developed.

3. Self-financing ratio (SFR) and debt Monitor SFR and DSC bi-annually.service coverage (DSC).Target: SFR - 30%; DSC - 2.0

D. Improve sector finances. 1. Introduction of tariff reforms. Record tariff changes annually.Target: US$7/kWh by 1999.

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Ke Taret Dates

A. Construction and Project Management

Appoint consultants for steam cycle of Phumy 2 Phase 1 06/96

Commission GT 1 and meet guarantees 12/96

Commission GT 2 and meet guarantees 01/97

Complete gas line to Phu My from Vung Tau 06/97

Complete long term gas supply agreement 12/96

B. Institutional Development

Finalize imnplementation schedule for trainingprogram for EVN 09/96

Prepare recommendations for regulatory systemand institutional franework 09/96

Commence implementation of Grid Code 09/96

Prepare draft electricity law 09/96

C. Development of Phu My Phase 2 on BOT/JV Basis

Invite Bids for Consultants 01/96

Issue Request for Proposals 08/96

Execute PPA 08/97

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VIET NAMPower Development Project

Environmental Assessment SummaryPhu My 1 and 2 Power Plants

Project Description

1.1 The project is for the development of 800MW of combined cycle plant at Phu My in theSouth of Vietnam. The plant will burn natural gas which will be available in mid 1997. At this stagethe only stack emissions of significance would be NOx (oxides of nitrogen) which will be maintainedbelow a level of 50 ppm by use of low NOx burners. The first two gas turbines will, however, becommissioned in December 1996 and will burn distillate fuel oil for about 6 months until natural gas isavailable. During this phase emission of NOx will be rather high at about 300 ppm as it is notjustifiable to install NOx reduction measures for such a short period.

1.2 A conventional thermal plant called Phu My 1 as also planned for the site and will consistof 3 x 200MW units. Phu My I will also burn natural gas. Residual fuel oil will be used foremergency standby. For completeness of information this EIA considers total emissions from the site,i.e. Phu My 1 and 2.

1.3 Cooling water for the plants will be taken from the Sao stream at the rate of 60n3 /s andwill be discharged to the Thivai estuary. Chlorination of the system in order to reduce fouling will becarried out so that the residual chlorine level at the discharge is <0.02 ppm.

1.4 Waste water streams will include water treatment plant waste, sewage, surface drains,boiler washings and other minor sources typical of a power station. They will be treated as appropriateso that the effluents will satisfy IBRD and Vietnamese regulations.

1.5 The plant will require fresh water for boiler make-up and domestic use at a maximum rateof about 2000 m3/day. This will be supplied by wells on site. Gas will be delivered by pipeline anddistillate and heavy fuel oil by tanker. A 4km power line will be constructed to join the existingtransmission system.

Baseline Data

1.6 The Phu My site is located in a rural area about 70kn south east of Ho Chi Minh City.The population of the small townlet is about 8000 and the main economic activities are farming andfishing. The average income is low even compared to nearby districts and infrastructure and servicessuch as electrical supply, roads, health services and education are also poor.

1.7 Given the rural nature of the site air quality is expected to be good. Limitedmeasurements on the site show that this is so with levels of NO2 of 0 - 0.06 mg/mn3 and levels of SO2 of0.010 - 0.02 mg/m3 .

Ks

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1.8 Noise measurements carried out at 3 locations show levels of about 40 dBA at night andhigher levels at day time, probably due to nearby construction activities for a harbour development.For power station design night time levels are the most significant as the permitted noise levels arelowest during night.

1.9 The most significant ecological system is that of the mangrove forest and associated fish,shell fish and other animal species. This appears under threat in this region as it does in many parts ofSouth East Asia due to:-

* Excessive siltation and organic pollution* Harvesting for firewood and charcoal manufacture* Operation of shrimp and fish aquaculture enterprises which may involve clearing

mangrove areas as well as, depending on the stocking level, water pollution from biocidesand other wastes.

1.10 There is evidence of all the above activities near Phu My; however successful replantingof mangroves has also taken place in areas where they were cut down. Development of shrimpaquaculture probably represents the single greatest threat.

1.11 A survey of mangrove trees in the site and nearby study area indicated the presence of 32species. The distribution depends on submersion and salinity levels as well as impacts of artificialreplanting. The survey also found the following numbers of animal species which are largely associatedwith the mangrove areas;

* 30 species of birds* 17 species of mammals* 8 species of amphibians* 16 species of reptiles

1.12 The site itself, which is 150ha in extent contain, about 20 ha of mangrove area. The restis mostly cultivated for rice, cashew nut trees, eucalyptus and other crops. Apart from the mangrovesthere are no significant habitats or wild life areas on the site or in the surrounding area. A studycarried out showed the presence of 201 species of plant in the study area of which 101 occurred in theactual site area.

1.13 The Thivai river estuary, which runs by the site, will be utilised to disperse the heat in thecooling water discharged from the plant. It is wide (400m) and deep (15 - 30m) with a tidal variationof about 3m and a large tidal flow (1O,00Om3/s). Analyses of the water quality of the Thivai estuaryindicated the following main features:-

* High salinity levels, particularly in the dry season.* Some evidence of oil pollution.* Organic pollution from domestic sources.* Moderate levels of dissolved oxygen.

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1.14 Surveys of the aquatic ecosystem of the Thivai river indicate that it is typical of the nearbylarge area of delta. It is rich in numbers of species but with some evidence of an impact from organicpollution. The baseline surveys identified the following numbers of species:-

* 72 species of phytoplankton and 31 species of zooplancton.* 60 species of fish and 22 species of shellfish.* 42 species of zoobenthos (near site).

1.15 Fish eggs and larvae are considered particularly sensitive to enviromnental disturbance. Asurvey of eggs and larvae in the Thivai estuary showed numbers and species composition typical of thedelta area. The larvae were found to migrate from surface layer to the bottom depending on the time ofday.

Environmental Impacts

1.16 The proposed project, consisting of combined cycle plant burning natural gas, is the mostenvironmentally benign forn of thermal power plant. It has a very high efficiency, close to 50%, andlower air emissions and cooling water requirements per unit of electricity generated than forconventional plant. In particular, when burning natural gas with a low NOx burner as is planned forthis project, there are no significant emissions of NOx or SO2 and emissions of carbon dioxide are 50%lower than for conventional plant burning fuel oil or coal.

1.17 A major and positive impact will be the provision of 800MW generating capacity. Thiswill impact on a regional basis by strengthening the electricity supply network and allowing theconnection of extra consumers and the development of industry and services in the region. Theemployment of large number of people during the construction and operation phase will also benefit thelocal economy.

1.18 While some disturbance will be caused to the townlet of Phu My the overall impact shouldbe positive by the provision of jobs and improvement of infrastructure.

1.19 During the construction phase there will be a permanent loss of 2 ha of mangrove forestdue to the construction of a jetty and a loss of about 0.5 ha of mangrove at the cooling water intake.There will be a temporary loss of 1 ha due to construction of the cooling water outlet pipes. As thesewill be buried the areas can be replanted.

1.20 Dredging of the Thivai river in order to allow berthing of tankers of 10,000 dw tonnage aswell as all the cooling water system construction will cause a local and temporary loss of benthnicanimals as well as disturbance of fish and other organisms.

1.21 Impacts of other construction activities such as noise, dust, sewage, after taking intoaccount mitigation measures, will be minor.

1.22 The Phu My 1 and 2 Power Stations will bum natural gas and the only stack emission ofinterest will be NOx. A dispersion analysis was carried out for the case of plants on full load andshowed that the maximum hourly ground level concentration of NO2 when burning natural gas would be0.11 mg/m3 while the maximum annual average will be 0.002 mg/m3. These relatively low values will

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be well below IBRD and Vietnamese air quality regulations and will be of minor significance to airquality in the area.

1.23 For about six months the first two gas turbines to be commissioned will burn distillateuntil natural gas reaches the site. The rate of emission of NOx will be quite high at 300 ppm asmethods of reducing NOx levels such as water injection are not considered feasible for this shortperiod. However as they will be on open cycle for this period the high exit temperature will providegood dispersion characteristics. A dispersion analysis for this case showed that maximum hourlyground level concentrations of NO2 would be 0.100 mg/m3. This level will not break ambient airquality standards nor will it have a significant impact over the short period involved.

1.24 Specification for the proposed plant will be such that noise levels at the site perimeter willnot exceed permnitted levels for residential areas. This will ensure that no noise nuisance is caused atnearest residences.

1.25 Cooling water discharge will be at a maximum rate of 60m3/s and a temperature rise of70C. The discharge will be deep into the Thivai estuary which has a large tidal flow of 10,000 m3/sec.A thermal diffusion study indicates that the physical impact will be minor with, for the worst case, athermal plume of 1°C extending across the estuary. Beyond the immediate outfall the maximumtemperature rise will be 1.5°C.

1.26 Ecological impacts of the thermal plume are not predicted to be significant. However,because it is a deep discharge some scouring will take place at the outfall. No significant impacts willbe caused to aquaculture or commercial fishery on the Thivai River.

1.27 Chlorination of the cooling water will take place at a rate that will leave a residual level of<0.02 ppm at the outfall. At this concentration the chlorine should not have any significant impactsbeyond the discharge point.

1.28 A large number of organisms including fish eggs and larvae will be entrained by thecooling water system and significant mortality will occur due to pressure, temperature rise andchlorination. This is not predicted to have an overall impact on fish numbers in the area due to thelarge amount of similar habitat in the region and due to the small ratio of CW flow to overall tidalflow.

1.29 Other waste water streams from the plant include water treatment plant effluent, sewage,surface drains, boiler washes and acid cleans. These will all be treated as appropriate so that theeffluents will satisfy Vietnamese regulations and will have no environmental impacts on the receivingwater.

1.30 Oil spillage into the sensitive mangrove ecosystem represents a serious menace. In orderto minimise this risk strict procedures will be implemented for the delivery, unloading, storage andhandling of oil as well as an emergency response plan and clean up procedures.

1.31 Dredging will be required occasionally in order to maintain navigable depth at the jetty.This will create a local and temporary disturbance to biota in the area. The dredged material will betransported for land reclamation to an area not yet designated.

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Summary of Altematives

1.32 Alternatives to the proposed project should be seen in the context of a high predictedgrowth in electricity demand in the South Vietnam area over the next twenty years. This growth isrequired for economic development and improvement in standard of living. A mixture of thermal andhydroelectric power, which are complimentary to each other, is required to satisfy this demand.Alternative designs and sites were considered.

1.33 A natural gas fired combined cycle plant, such as the present design, has the followingmajor advantage over other types of thermal plant which might be considered

* Lower capital cost* Shorter lead times to power production* Small land area requirements* Higher efficiencies* Lower air emissions per unit of electricity generated* Lower cooling water requirements per unit of electricity generated.

1.34 A number of alternative sites were considered and evaluated on the following criteria:-

- Proximity to Bach-Ho - Thu Duc gas pipeline- Distance to transmission lines* Cooling water availability- Environmental and socioeconomic issues- Site area available- Construction and engineering issues.

The site at Phu My was judged as the optimum available.

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TABLE 1Summnary of Enviromnental Impacts

During Construction Phase

Source Environmental Impact Mitigation Measures Residual Impact

Site Acquisition Displacement of people living Adequate and timely Temporary disturbance -and owning land on site resettlement and/or no reduction in assets or

compensation income

Transmission line Displacement of 16 families Adequate and timely Temporary disturbanceconstruction resettlement only

Construction of Jetty Loss of 2ha of Mangrove None Local but permanent

Construction of C.W. outlet Loss of I ha Mangrove Pipes are buried and area will Temporarybe replanted

Dredging activities Loss of benthnic fauna None Local and Temporaryloss

Sanitation facilities Sewage discharge Effluent will be treated to MinorVietnamese standards

Noise Noise during piling and steam Restrict piling to day light Minor and temporarypurging operations hours. Notify residents of

steam blows

Dust Dust generated Spraying of access roads and Minortruck tyres

Construction Work Traffic Increase Road Improvement Minor

Work during construction Short term employment for over Beneficial short term1000 workers

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TABLE 2Summary of Impacts of Atmospheric Emissions for Phu My I and 2

When Burning Natural Gas

Impact Predicted Vietnamese IBRDl__________________________________________________ Regulations

Nitrogen Oxide (NO2)

Ambient1-hour maximum pg/mr 110 300 _24-hour maximum pg/m3 - -

Max. annual average pg/rn 2 80 100

Sulphur Dioxide (SO2) (a)

Ambient1-hour maximum pg/r3 0 300 -24-hour maximum Ag/M' 0 - S00Max. annual average pg/M3 0 80 100

Carbon Dioxide (CO2) (a)

EmissionTonnes/annum (total) 4.7 x 10' - -

Noise (dB (A))

Noise Levels at Boundary fence 55 55 (b)

Residential Area <55 55/60 (b) 55 (b)

Particulates24-hour maximum Ig/rO < 1 200 500

(a) 100% load factor

(b) Varies with day / night; indoors and outdoors and other factors

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TABLE 3Summary of Environmental Impacts

During Operation of Plant - Aqueous Emissions of Phu My 1 and 2

Source Environmental Impact Mitigation Measures Residual impact

Water Treatment Contains strong acids and Treated in neutralisation tank to pH 6- NegligiblePlant Waste alkalis 9.

Effluent will comply with waste waterstandards (Ref.8)

Oil Contaminated Adverse impact on marine All surface drains will be routed MinorSurface Water organisms if discharged through oil interceptors.

directly Effluent will comply with waste waterstandards (Ref.8)

Sewage High BOD and micro Sewage will be treated to < 20 mg/I Minorbiological pollutants BOD before discharge

Boiler Blowdown Contain very low No treatment necessary Negligibleconcentration ofcontaminants

Boiler Acid Clean Utilises toxic chemicals. These will be treated with the waste MinorThis process arises only removed off site for disposal. Effluentrarely. discharged will satisfy waste water

regulations (Ref.8)

Chemical Spillage Bulk chemicals stored on Stored bulk chemicals will be bunded Negligiblesite, in particular acid and so that any spillage will be containedalkali and controlled

Boiler Washing If buming residual fuel oil Metals will be precipitated by chemical Minorcan contain vanadium and treatment and removed offsite to landother metals fill

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Table 4

Summary of Impacts of Cooling Water System Operationfor Phu My 1 and 2

Source r Environmental Mititption ResidualImpact j Measures Impact

Intake of 60 m3/s Loss of fish eggs None Small in relationand plankton to overall

abundance in thearea

Intake screens Loss of fish Optimum measures Minorthrough not yet selectedimpingement

Discharge of Impact on sensitive Discharge designed Minorheated water organisms so that temperature

rise will not exceedI.C

Chlorination of Impact of Residual chorine NegligibleC.W. system residual chlorine levels will be kept

on ecosystem to < .02ppm

Discharge of CW Scouring of bottom None Perrmanent but localdisturbance of area

Summary of Mitigation Measures

1.35 In order to reduce enviromnental impacts from the proposed development mitigationmeasures, sunmmarised below, have already been put in hand or are planned. Apart from these, andtaking into account the minor residual impacts of the proposed development, no further mitigationmeasures are considered necessary.

1.36 Mitigation measures to apply during the construction phase include the following:-

* Provision of housing, clean water, sanitation facilities, health services to theconstruction workers.

* Sewage treatment.* Dust suppression control* Noise control

1.37 During the operation phase air emissions will be controlled by burning natural gas andinstalling low NOx burners.

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1.38 Noise control will be by housing and acoustic cladding of noisy plant to ensure noiselevels at the site perimeter are within regulations. Other noise reduction measures such as treeplantations may be used as appropriate.

1.39 Impacts of the cooling water system will be mitigated by:-

* Design of outfall to reduce extent of thermal plumes.* Maintaining residual chlorine levels at less than 0.02 ppm.* Measures to reduce impingement of fish at the intake.

1.40 All other waste water streams will be treated so that effluents will satisfy Vietnameseregulations and will not cause any significant impacts.

1.41 In order to avoid risks of ground water pollution or soil contanination all wastematerials that will arise at the site will be monitored as to type and quantity and removed offsite fordisposal or recycling.

Environmental Management and Training

1.42 It is recommended that an environmental unit be set up as part of the managementstructure in the new development at Phu My. The main function of this unit would be the monitoringand control of waste water streams and other emissions from the plant. This function could becombined with the already planned water quality analysis programme at little additional expense.

1.43 It is also recommended that as EVN expands its generation programme, anenvironmental co-ordinator be established with the function of developing environmental policy, issuingin-house guidelines and establishing compliance with standards and regulations and setting up anenvironmental management system.

1.44 It is further recommended that this co-ordinator would also liaise with other groups suchas a coastal zone management group in order to promote strategies for the protection and sustainabledevelopment of the delicate coastal zone.

Environmental Monitoring

1.45 In order to fully control the implementation of the proposed project, it is recommended that thefollowing monitoring programme be put in place:-

* Monitoring programme of the waste water streams from the new project.* Extension of the existing air monitoring programme.* Noise monitoring at the site perimeter.* Monitoring of waste materials arising on site.* A review of the baseline ecological study of the Thivai river estuary particularly in the

area near the power plant site.

1.46 During the construction phase monitoring for dust levels, noise levels, sewage effluentshould be carried out to ensure no nuisance is created.

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1.47 Recommendations are made for training programs for management and staff at theproposed plant. Particular attention should be given to staff involved in environmental work, to thosehandling oil and chemicals and those involved in emergency and safety procedures.

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VIET NAMPower Development ProjectResettlement Action Plan

TABLE OF CONTENTS

Section 1: Introduction

The ProjectThe Resettlement Action Plan (RAP)Project Affected People (PAP)Resettlement Principles and Objectives

Section 2: Institutional and Legal Framework

Institutional FrameworkLegal Framework

Section 3: Entitlement Policy

Section 4: People's Participation

Section 5: Baseline Information

Census and Inventory of PAP

Section 6: Implementation Arrangements

Resettlement and Construction ScheduleImplementation ArrangementsImplementation ScheduleComplaints and GrievancesSupervision and Monitoring

Section 7: Costs and Budget

Budget for RAP activities

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Annexes

Table 1 Inventory of PAP land losses and compensation - Phu My 2 SiteTable 2 Inventory of PAP crop, tree losses and compensation - Phu My 2 SiteTable 3 General inventory of PAP - Phu My 2 SiteTable 4 Entitlement in cash of PAP - Phu My 2 SiteTable S Socio - Economic profile of PAP - Phu My 2 SiteTable 6 PAP inventory and entitlement - Temporary transmission lineTable 7 Socio - Economic profile of PAP - Temporary transmission lineTable 8 Agencies responsible for RAP activitiesTable 9 Implementation ScheduleTable 10 Total budget estimates for compensation and resettlementApp. I Format for inventory of PAP land, crop, tree lossesMap 1 Phu My 2 - Cadastral and Land UseMap 2 Transmission Line ROWMap 3 General layout of Phu My site

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SECTION 1

INTRODUCTION

A - The Project

1. Under the Power Development Project, the Electricity of Viet Nain (EVN) will beconstructing the Phu My 2 (PM2) Power Station (the Project), comprising two 300-450 MW combinedcycle power blocks. This power station will require acquisition of 180,000 ml of land in 1995. ThisResettlement Action Plan (RAP) covers this power station and has been prepared by the ManagementBoard of Phu My - Ba Ria power plants of EVN (PMBRMB) with the consulting support of the PowerInvestigation & Design Company N°2 and was approved by EVN and the relevant local governmentbodies at the end of August 1995. The power station is located on land where further power generationdevelopment is planned. Resettlement, compensation, and rehabilitation of persons affected by furtherpower station development will follow the principles laid down in this RAP. This RAP applies forPM2.

2. At the Phu My Site it is proposed to construct power plants PM1, PM3 and PM4 in thefuture. The Land for PM1, PM2 and PM4 and cooling water intake and discharge canals for theseplants were acquired together and the compensation payment will be finished by the end of October,1995. The principles for the total land acquisition process followed the same guidelines, and aredescribed in this RAP. However, the numbers of affected persons and households, the approximate areaacquired, etc. are only those for PM2.

(See attached Map 3)

B - Resettlement Action Plan (RAP)

Project Impact Area

3. Phu My 2 power plant will be constructed in Phu My Townlet, Tan Thanh District, BaRia-Vung Tau province. Phu My Townlet was set up since August 15, 1994 from the former Phu Myvillage. Phu My Townlet is located in an area running from km 44 to km 47 along the National RoadNo 51 and on the left bank of the Thi Vai river. The distance from the Townlet to Ho Chi Minh City isabout 80 km., 20km to the provincial center of Ba Ria and 40hn to the coastal city of Vung Tau.

4. Phu My Towniet covers 3,000 ha. Its population is 8,126 people living in 1,481 famnilies.There are 3,707 people of working age. The percentage of women is 50%, children under 15 years oldis 30%. The percentage of economic dependants is 54.25%. Agriculture, animal husbandry, fishery,salt production and forestry are main professions of local people. The other subsidiary professions areservice and handicrafts.

5. More than 65% of the inhabitants live on agricultural activities concentrated mainly ontree crops (fruit and cashew nuts) and partially on rice cultivation. Since soil in the Phu My site issandy and salty, the agricultural production is very low. Average annual income per capita of localfarmers is low, at about VND 891,320 (1994 statistics).

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Project Land Acquisition and Resettlement Impact

6. The Phu My 2 Power Plant covers a total area of 180,000 m2. The total area for this RAPanalysis is taken all plots affected particularly/or fully by PM2 plant. On this area will be constructedthe power generating plant itself and ancillary buildings like administration, water treatment plant,workshop, warehouse and fuel supply system. The cooling water system and oil unloading jetty will becommnon with Phu My 1 power plant. The plant will be permanently connected to the network through220kV busbar of Phu My 1 220kV switchyard.

7. Since PM1 will be built after PM2, the PM2 project will temporarily connect to the BaRia - Long Binh transmission line by overhead 220kV line. Right - of - way for this temporarytransmission line is 4.4km long and 21.6m wide, and it is included in the PM2 project.

8. The transmission line, and its routing, has not been decided and approved by theGovernment, therefore the land requirement for this has not yet been determined. This RAP is based onthe assumption that the transmission line is chosen as indicated on the attached Map 2.

9. Similarly, the underground gas fuel pipeline from the Ba Ria gas supply station to thepower plant has not yet been finally located and designed, and land requirements for this has not yetbeen determined, this will be contracted out for gas fuel delivery at the fence. For both the transmissionline and the fuel intake, the principles of this RAP will be followed.

10. The project produces two major impacts. The first is land acquisition and the resettlementof the area of the power station site and the second is the clearance and relocation of houses under thetransmission line and the fuel intake line.

Il. Based on the survey, the power station area consists of 130 pieces of land belonging to 49households of the Quang Phu hamlet of Phu My Townlet and 3 households of Vung Tau city. All the49 households live in the same hamlet. There are no houses on the project area. In land - use structure,cashew plantation covers an area of 13.78 ha (66.7%). Paddy - crop covers an area of 2.5 ha (12%),other trees cover an area of 4.39 ha (21.3%). The number of PAPs affected by the power station areais 305 of which 84% gain their main income from agriculture, 10% from service and small trade, and6% from handicraft and other occupation. Most of the land under cultivation in the power station sitewas newly - reclaimed from vacant land after 1975. Land - use certificates has not been issued to anyland - users. However, all plots have been surveyed and registered in the cadastral and tax paymentbook of Town People's Committee. Therefore, there are no disputes over the land - use rights.

12. The second major affected area of the temporary transmission line is the place where thetransmission line crosses the National Highway N°51. There are 9 households whose houses and theirproperties are identified under the 21.6m right - of - way of transmission line. All these 9 households(100 %) gain their living from agriculture. There are 4 households with brick - made houses, the restare households with thatched and timber structures.

13. The power generating plant area has already been acquired and the first step ofcompensation payment has been done, the second (last) will be done by the end of October, 1995. Thetransmission line and fuel intake line ROW has not been acquired yet.

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14. The Socio-Economic study, undertaken as part of the Environmental Impact Assessmentshows that while the affected people welcome the project and the economic development andemployment opportunities that this will create, the affected people expressed their concerns regardingthe level of compensation. For the success of the project such concerns should be covered by adequaterates of compensation and suitable rehabilitation measures. This RAP was prepared after extensiveconsultations with the project affected people, and the rates of compensation were only determined aftercareful examination of the cost of replacement of similar land.

15. This RAP defines the PAP, the resettlement principles and objectives, legal andinstitutional framework, modes of compensation and rehabilitation, people's participation features andgrievances procedures that will guide the resettlement and rehabilitation of the PAPs. The RAP is basedon the results of the census and socio-economic survey of the PAPs and properties to be affected andincludes compensation and/or resettlement and rehabilitation entitlements of various categories of PAPs;a timetable for implementation of the RAP; allocation of the institutional responsibilities forimplementation; a budget for funding the various compensation and rehabilitation measures, internal andextemal monitoring arrangements. These components are detailed in the following parts and in theAnnex.

16. The principle objective of this RAP is to ensure that all PAPs will be compensated andrehabilitated to assist them to improve, or at least maintain, their living conditions and income earningcapacity at the pre-Project levels. The PAPs will be resettled as close as possible to the vicinity of theiroriginal residential areas.

C -Project Affected People (PAP)

17. The PAPs include the following persons:

(a) persons whose residence is in part or in total affected by the Project;

(b) persons whose premises and/or agricultural land is in part or in total affected (permanentlyor temporarily) by the Project; and

(c) persons whose businesses are affected in part or in total (temporarily or permanently) bythe Project.

D - Resettlement Principles and Objectives

18. The principles outlined in the World Bank's Operational Directives 4.30 have beenadopted in preparing the RAP. In this regard the following principles and objectives have been applied:

(a) Minimize adverse impact on the local population of acquisition by the project location andproject design.

(b) All PAPs residing or cultivating land in the Project area as of the date of the socio-economic survey are entitled to compensation and rehabilitation, and resettlement ifrequired.

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(c) PAPs will be compensated, resettled and rehabilitated so as to improve their standard ofliving or at least maintain their current standard at pre-project levels.

(d) The means of resettlement and rehabilitation are: Compensation at replacement cost forhouses and other structures, agricultural land for land of equal productive capacityacceptable to the PAP. PAPs losing productive land will be given a choice among thefollowing alternatives: (i) land for land of equal productive capacity; or (ii) cash for landand a choice to opt for land - based or non - land - based rehabilitation. For PAPs losinghouse and premise land only, replacement of premise land of equal size acceptable to thePAP, transfer allowance, and compensation for structures, trees, tombs, wells and otherfixed assets at replacement value.

(e) Replacement premises and agricultural land must be acceptable to the PAP and will be asclose as possible to the land that was lost.

(f) The resettlement transition period will be minimised and land for land and/or cashcompensation will be provided to the PAPs no later than one month prior to the evictionof the PAPs.

(g) Comnpensation, resettlement and rehabilitation will be carried out in close consultation withthe PAPs.

(h) Financial and physical resources for resettlement and rehabilitation will be made availableas and when required.

(i) Institutional arrangements will ensure effective and timely design, planning andimplementation of the RAP.

(k) Supervision and internal, as well as external monitoring will be an integral part of theproject design to ensure effective and timely implementation of the RAP.

SECTION 2

INSIMJTIONAL AND LEGAL FRAMEWORK

A -Institutional Framework

19. The responsibilities for implementing the RAP are as follows:

(a) EVN (or PMBRMB on its behalf) assumes the overall responsibility for planning andimnplementing the RAP. For this purpose, PIDC2 provides technical consultancy supportfor RAP planning. PMBRMB is responsible for co-ordinating with the Provincial People'sCommittee (PPC) of Ba Ria Vung Tau, District People's Committee of Tan Thanh (DPC)and Town People's Committee of Phu My (TPC). The Phu My TPC have held meetings

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to discuss the various aspects of the RAP with the PAPs in the presence of PMBRMBrepresentatives.

(b) Funds for the resettlement program will be provided by EVN based on decisions reachedthrough negotiations between local governments (provincial, district, and town people'scommittees) and the PAPs.

(c) EVN will implement the RAP in co-ordination with the Provincial, District, TownPeople's Comnnittees and the participation of PAPs.

B - Legal Framework

20. The overall objective of the RAP is guided by Article 27 of the Land Law of 1993 asfurther amplified by Government Decree No 90-CP of 17th August 1994. Article 27 provides that: "Incase of utmost necessity, then the State recovers land being used by a land user, for national defence,security, national benefit, or public benefit purposes, the land user shall be given compensation for thedamnages".

21. Compensation for land and fixed assets (e.g. houses) is defined by the GovernmentDecrees No. 87-CP and 89-CP of the 17th of August 1994, which provide for land compensation andcash for land, when land is not available, at rates established by Government. These rates have beenestablished for purposes of leasing government land, acquisition of land by government for nationalpurposes, and for tax computing on issuing land use rights certificates. Also, compensation for landand fixed assets is defined by Decision 423/QD-UBT of March 30th 1993, Decision 31/QD-TJBT andDecision 970/QD-UBT of the Ba Ria - Vung Tau People's Committee.

SECTION 3

ENTITLEMENT POLICY

22. In respect to resettlement principles and objectives and based on PAP's census survey(Table 1) PAP will be entitled to the following types of compensation and Resettlement andRehabilitation (R & R) program, according to their entitlement categories.

(a) PAPs losing agricultural land will have the choice between the following forms ofcompensation:

(i) either to be provided with land of equal productive capacity by the Peoples'Committee of the District, satisfactory to the PAP. (the land-for-land option)

(ii) or to be compensated in cash for the lost land at a rate that can provide for similartype of land in the commune as mutually agreed between PAP and PC of Ba RiaVung Tau. (the cash-for-land option)

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23. The PAP census showed that all PAPs expressed a clear preference in favour of cash-for-land compensation. This supports their preference to select alternative land themselves rather than beallocated alternative land by the Peoples' Committee. The location of the alternative land will be in thevicinity of the commune. When the PAP have identified land, and agreed with the present land user thatthe land should be registered in his/her name, the Townlet will arrange for this land to change landuser, without fees. The Townlet will monitor that the PAPs wanting land have been able to get land.The cash rate of compensation has been calculated to meet the replacement value by taking the state -authorized land - use value of 70 VND/m2 and adding the a production assistance of 5,930VND/m2 fornew land development in the transitional period. This comes to a total of 6,OOOVND ( 0.55 $US) perm2 of land. According to a survey of current rates for land - use transfer, and the PAPs, this isadequate to secure new land in the vicinity.

(iii) Compensation in cash at market price is to be provided for the loss of standingcrops and other trees, plus the assistance in cash equivalent to the lost production inthe transitional period to restore the original income depending on the maturity andquality of the existing plants and trees. The average compensation cost per tree, aswell as the production assistance for the trees to restore the present production areshown in Table A. The production assistance is calculated as a product of thenumber of years to bear fruit and the average annual income from the trees.

Table A: Actual Average Compensation Rates

Compensation Items Cash Compensation Price Production assistance Total(1000 D) (IOOOD/year) (IOOOD) Remark

Cultivated Land 0.070 /m2 5.930/m2 6.0

Cashew trec 40 90 130 3-5 years

Eucalyptus 16 0 16 Nursary

Coconut tree 20 0 20 Nursary

Mango 12.4 0 12.4 Nursary

Custard - apple 16 8 24 1 year

Cajuput 11 0 l Nursary

Blue dragon 10 1 6 16 1 year

The above rates have been negotiated with the PAPs and are acceptable to them.

(b) PAP losing agricultural land will be provided economic rehabilitation of their ownchoosing through various activities in support of their requests.

(i) For those PAP opting for land based rehabilitation, whenever required, the localcommittee will assist them in securing the alternative land with necessaryprocedures like official witnessing and registration. The local committee willmonitor progress to ensure that PAPs have acquired land of their choice. If PAPsopt for land in the conunune or nearby area then adequate land will be available.The land in these areas are of better quality than the land currently used by thePAP. Hence, it is expected that the compensation areas will permit more intensive

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use of the alternative land and therefore yield higher incomes to the PAPsconcerned The requisite nursary trees are available in the market at very lowprices.

(ii) Those PAPs opting for non - land based rehabilitation will be providedopportunities of employment, training and starting new occupations, as well as theassistance needed in order to maintain their living standard. PMBRMB will presentPAPs seeking employment to the contractors engaged in construction of PM2, andco-operate with local authorities in fmding employment opportunities for PAPs.EVN has recently started a two year residential course for operation of power plantstaff, where suitable PAPs have been accepted. PAPs opting to start their ownbusiness (food etc.) will be assisted by EVN and local PCs with registration, taxexemptions in the beginning years. EVN will also be responsible for providing feesfor training to the PAP in relevant occupations at local vocational training centers,planned to start early 1996. The training would cover technical training (liketailoring, electrical repair, carpentry) and business training (like running of smallenterprises, marketing and finance).

(c) PAPs whose house is affected by the project transmission or fuel lines and forced torelocate will be entitled as follows:

(i) A equivalent residential site, acceptable to the PAP and cash compensation at fullreplacement cost for the affected structures and fixed assets without depreciation.The PAP will be allowed to take material from the site before it has to be vacated.

(ii) A transfer allowance of about 1 million VND or more for the relocation of theaffected house to new resettlement site.

(iii) Land not directly acquired for construction (of transmission poles, etc) but is in theright of way can be used by the current user for cultivation, grazing and otheractivities, and will normally not be compensated. However, as height restrictions of4 meters will have to be observed by the user in all future, trees above that heightwill be removed and compensated as above. Because of the restrictions in land use,the PAP will receive a one-time lumpsum 'restriction-fee' of at least 70 VND/m'.

(iii) Any damage caused to PAP's properties and crops during project constructionperiod will be compensated at market price by Contractor.

SECTION 4

PEOPLE'S PARTICIPATION IN THE PROJECT

24. There are various stages in the RAP planning and implementation activities that require thePAP participation. This was encouraged by favourable conditions created by PMBRMB and therespective conmnittees.

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25. The PAPs were adequately informed by the relevant local peoples committees of thedetails of the RAP and meetings were held as follows:

Dec. 14, 1994 PAPs informed by local Peoples Committee (PC) on project impacts

June 25, 1995 PAPs representatives (7 households) met with Tan Thanh PC.

August, 1995 On site verification of losses. The procedure of verifying the number oftrees, their age, etc, and determining the value was done with theparticipation of the concerned PAP, representatives of the local Peoples'Committees (District and Towniet), and an independent consultant.

Sep. 9, 1995 PAPs met with PC of Phu My Townlet, Rehabilitation Committee of Baria-Vung Tau Province, Tan Thanh District and PMBRMB representatives.

26. PAPs were specifically informed about the choice available to them and their subsequentchoice was recorded.

27. The PAP's participation included their attendance in the meetings jointly held byPMBRMB and the respective people's committee in order to learn of the project impacts, obtain theirco-operation in providing adequate information on affected matters, and to give their suggestions forRAP planning.

28. The crucial PAP's participation is their agreement upon the finalisation of RAP. Thisincludes their consensus in joining the consultancy process to mutually arrange compensation choicesand rates, and the commitment to the implemnentation arrangenent with the respective people'scommittee and PMBRMB in the spirit of current law and the R & R policies.

29. The final participation that is also important, is the PAP's co-operation with respectivepeople's committee and PMBRMB in implementing RAP and resolving any issue that may arise in theprocess.

SECTION 5

BASELINE INFORMATION

A - Co= and Inventory of Project Affected People

30. The census and inventory of PAP were covered in the survey by PMBRMB and thetechnical support by PIDC2. Detailed information on PAP is attached in the Annex. The locations ofthe acquired plots and the affected area under the possible transmission line are specified on Map 1 andMap 2. In the Annex, Table I exhibits the Inventory of land losses and compensation - PM2. Table 2preents the Inventory of PAP crop, tree losses and compensation - Phu My 2 Site. Table 3 shows theGeneral inventory of PAP - Phu My 2 Site. Table 4 is reference of the Entitlement in cash of PAP -Phu My 2 Site. Table S is the records of Socio - Economic profile of PAP - Phu My 2 Site. Table 6:

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PAP inventory and entitlement - Temporary transmission line. Table 7: Records of Socio - Econoomicprofile of PAP - Temporary transmission line.

Summnary of project impacts and different PAP categories is listed below:

Table B: Pro*ect ImDact Summary

PM2 Site Transmission line

Total area of land (ha): 20.667 0.058 area of houses- Number of affected households: 52 9

(3 from Vung Tau)- Number of houses on plot: 0 9- Total number of Cashew trees: 5,058 702- Total number of other trees: 25,293 569

Table C: Data of PAP of PM2

Land-based rehabilitation Non-land based

- Number opting for land purchase: 18 34

- Number losing #100% of land: 2 h. holds 2 h. hold

Total land loss (ha): 0.6792 0.4021Total income loss (IOOOD/year): 4,619 10,791

- Number losing more 20% and less 100%: 15 h. holds 23 h. holds

Total land loss (ha): 7.2712 3.9135Total income loss (lOOOD/year): 94,109 78,539

- Number losing 20% or less land: 1 h. holds 9 h. holdsTotal land loss (ha): 0.0071 0.4607Total income loss (IOOOD/year): 425 18,191

Remark: The above percentage of land loss is only taken in comparison to the total agriculturalland area in Phu My commune fields belonging to h. holds.

31. Incomes of PAPs are expected to improve due to new ability to intensify agriculturalproduction ( in the case of those opting for land-based rehabilitation) or due to the potential offered bysmall scale enterprise. Typical incomes from small scale trading is 7.2 million VNDJyear and for foodservices, 12 million VND/year. Construction firm labour income is about 9.8 million VND/year.

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SECTION 6

IMPLEMENTATION ARRANGEMENT

A - Resettlement and Construction Schedule

32. The PAPs have been informed by project authorities and/or LPCs about the detaileddescription of project impacts and the properties to be acquired . Payment of compensation for crops,trees and other properties, allotment of land for construction of relocated houses, and replacement landof equal productive capacity, will be completed before the affected people will be evicted from the landand construction can start on the affected area.

B - Implementation Arrangements

33. Implementation of the Resettlement and Compensation (RIC) program will be a joint effortof EVN and it's subsidiary (PMBRMB), the Provincial Peoples Committees (PPC), District peoples'Committees (DPC) and the commune authorities. The overall responsibility for implementing the RAPwill be that of EVN. EVN will exercise its functions through MB of PMBRMB. Though most of theactivities will be carried out in close co-ordination with the Peoples' Committees at various levels, theofficials of EVN and of PMBRMB will ensure that implementation complies with the RAP (Par 45).EVN will be responsible for co-ordinating the disbursement of funds. The funds would be disbursed tothe people directly by PPCs, with the Local Peoples Committee Representatives acting as a witness.

34. The PPCs will inform the concerned district about the resettlement program and direct itto take the steps necessary for compensation and resettlement of the PAP. The DPCs will inform thePAP and the respective communes about the project and the R/C program and co-ordinate its activities.

35. PMBRMB and PIDC2 have carried out a socio-economic survey on PAP covering thefollowing information:

(a) The losses of PAP's land, properties, crops.(b) PAP's claims on compensation choices and compensation rates.(c) PAP's aspiration for R/C.

36. The PPCs are responsible for checking and fixing compensation amounts for various typesof affected properties in agreement with PAP and in accordance with the principles of this RAP.Payment of compensation will be supervised by PPC & PMBRMB and its agencies. Allotment ofalternative lands for PAP's house relocation will be the responsibility of the DPCs.

37. The town authorities will be in charge of informing the PAPs about the RAPimplementation schedule, and to redress their grievances and to act as a communication link betweenthe PAPs and the DPCs, PPCs, EVN & PMBRMB. Most routine activities will be co-ordinateddirectly by the town and district authorities. EVN will finance the total cost of the RAP and ensure thetimnely availability of funds. Table 8 in the Annex shows the activities which need to be carried out asa part of the R/C program and the organisation(s) responsible for it.

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Annex I Page 13 of 16

Table 8: Agencies Responsible for RAP Activities

No RAP Activities Agency Respodble

C Inform the PAPs about the project and the resetlement program MB PM-BR

2 Conduct Survey to detennine affected houses and properties MB PM-BR; PIDC2

3 Conduct detailed survey for fixing compensation MB PM-BR; PI=C2

4 Fixing compensation rates and amount Provincial Compesation Committee; MB PM-BR

5 Paying compensation Provincial Compensation Conmittee; MB PM-BR

6 R&R Town People's Committee; MB PM-BR

38. With regard to economic rehabilitation of PAPs, it is important to note that the area is anrapid growth area, with several new employment opportunities emerging. Not only from the powerplant development, but from several industries already established in the area (e.g. Vinakyoei SteelMill). As noted earlier, the Townlet of Phu My was established in August last year, in order tofacilitate the economic growth of the area, and the local PC have made several plans for improving thegeneral as well as the technical educational facilities. Many PAPs, and especially their teen-agechildren, have expressed their desire for changing their sources of income from agriculture to off-farmemployment, either in the opportunities established by incoming industries or by self-employment torender services to these enterprises and their workers. Therefore the challenge of the economicrehabilitation program of this RAP is to ensure that PAPs avail of the opportunities that are beingcreated in the area. This require general education, vocational training, access to credit, and initialextension support. The major responsibility for implementing these measures lies with the PC of theTownlet and the district, and funding will be provided by EVN.

39. The first step in this process will be to carry out a detailed survey of the capacity, wishesand plans of PAP households. Every person, belonging to an affected household, between 16 and 50years of age will be offered assistance for economic rehabilitation to be availed of within a two yearperiod from the time of the survey. Based on this survey, a rehabilitation plan will be worked out forthe PAPs. This survey will be carried out by the agency that EVN will contract for external monitoringand evaluation during November-December 1995.

C - Implementation Schedule

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Annex 11Page 13 of 16

Table 8: Agencies Responsible for RAP Activities

No RAP Activities Agency Respousble|

I nform the PAPs about the project and the resettlement program MB PM-BR

2 Conduct Survey to determine affected houses and properties MB PM-BR; PIDC2

3 Conduct detailed survey for fixing compensation MB PM-BR; PIDC2

4 Fixing compensation rates and amount Provincial Compensation Committee; MB PM-BR

S Paying compensation Provincial Compensation Committee; MB PM-BR

6 R&R Town People's Comnmittee; MB PM-BR

38. With regard to economic rehabilitation of PAPs, it is important to note that the area is anrapid growth area, with several new employment opportunities emerging. Not only from the powerplant development, but from several industries already established in the area (e.g. Vinakyoei SteelMill). As noted earlier, the Townlet of Phu My was established in August last year, in order tofacilitate the economic growth of the area, and the local PC have made several plans for improving thegeneral as well as the technical educational facilities. Many PAPs, and especially their teen-agechildren, have expressed their desire for changing their sources of income from agriculture to off-farmemployment, either in the opportunities established by incoming industries or by self-employment torender services to these enterprises and their workers. Therefore the challenge of the economicrehabilitation program of this RAP is to ensure that PAPs avail of the opportunities that are beingcreated in the area. This require general education, vocational training, access to credit, and initialextension support. The major responsibility for implementing these measures lies with the PC of theTownlet and the district, and funding will be provided by EVN.

39. The first step in this process will be to carry out a detailed survey of the capacity, wishesand plans of PAP households. Every person, belonging to an affected household, between 16 and 50years of age will be offered assistance for economic rehabilitation to be availed of within a two yearperiod from the time of the survey. Based on this survey, a rehabilitation plan will be worked out forthe PAPs. This survey will be carried out by the agency that EVN will contract for external monitoringand evaluation during November-December 1995.

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Annsex I11Page 14 of 16

C - Implementation Schedule

40. Table 9 shows the Implementation Schedule of the RAP activities.

Table 9: Implementation Schedule

No Activities 1995 1996 Rark

_ bo~e d d 'e 6 7 8 9 1I1t112 1 2 3 4 l_S

-Inf-torm PAPs about projea and the _ _ _ __ Frm Dvc 14. 1994comperudion nd resctew ct _ _ program =_=_=______ _

2 Conduct surveys to demninepeople and properties affected ____________

3 Fix rats of comp_iado ofvarious ypes of affected 1ands and

4 Conduct detailed surveys to MInalie=the amnount of tuoal coapesadicpayable

5 Redress the coumptai of dte PAPsregarding mmue and ra mtesof compensation

6 Pay compension

7 Rehabilitation ________________

Securing altemaive land

Survey of raining needs =_=_= =_=__=_= =_=_

Training

Altenative profession…_ _ j ______

8 Monitoring ____ = ___ _ . For 5 yeam

D - Complaints and Grievancs

41. Complaints and grievances related to any aspect of the RAP will be handled throughnegotiations aimed at achieving consensus.

42. Settlement between the PAP and local government will be first attempted at the level ofthe Commune. If this first conciliation attempt fails, the case will be discussed a second time at theDistrict level. If at the District level the case is not resolved, an ad-hoc committee established by thePPC will decide the matter

43. In case where, despite the above efforts, no agreement is reached between the parties, thecase will be submitted to the District court.

44. PAPs who present their cases to the Commnune, District and Provincial authorities, will beexempted from any legal fees. PAPs, who bring their case to the District Court, will have to follow theprevailing laws.

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Annex 11Page 15 of 16

E - Supervision and Monitoring

45. Implementation of the RAP will be regularly supervised and monitored by EVN in co-ordination with the respective local peoples committees. An agency nominated by EVN, namelyPMBRMB will periodically carry out internal monitoring and evaluation. External monitoring will bedone by an organisation such as an academic or a research institution, an NGO or an independentconsulting firm. They will be identified and hired in November 1995, prior to commencement ofproject implementation.

46. Internal monitoring and supervision will:

(a) verify that the census and socio-economic survey of all PAPs has been carried out and thatproperty assessment and compensation, resettlement and rehabilitation has been carried outin accordance with the provisions of the RAP;

(b) oversee that RAP is implemented as approved;

(c) verify that funds for implementing the RAP are provided in a timely manner, aresufficient for their purposes, and are spent in accordance with the provisions of the RAP.

(d) ensure that all PAPs opting for land-based rehabilitation have been able to secure land andall those opting for non-land-based rehabilitation have been set up in their newoccupations; and

(e) monitor the implementation of training to the PAPs.

47. In addition to verifying the reports generated by the internal monitoring, the extemalnonitoring agency will carry out the following tasks:

(a) evaluate the initial social and economic impact of land acquisition and assess the trainingneeds of PAPs, based on which a training programme, availing of existing institutions willbe proposed;

(b) verify if the objective of enhancement or at least restoration of income levels andstandards of living of the PAPs has been met; and

(c) suggest modification in RAP implementation to achieve the principles and objectives setforth in of this RAP.

48. Monitoring activities will start from the time the PAPs have been compensated and willcontinue for a period of about five years. The extemal monitoring agency will undertake surveys on anannual basis and produce reports.

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Annex 11Page 16 of 16

SECTION 7

COSTS AND BUDGET

A - Budget for RAP activities

49. Timely availability of funds for carrying out surveys, payment of compensation, allotmentof alternative sites and transfer of houses to new sites is crucial for effective implementation of theRAP. It is the responsibility of EVN to ensure that adequate funds for implementing the RAP areavailable on schedule. Table 10 provides an estimnate of the RAP costs.

Table 10: Total Budget Estlmates for Compensation and Resettlement

No RAP Activities Quantity Unit Average Price Total(IOWD) (IOOOD)

I Physical and socio-economic surveys _ X______ 352,000

2 Compensation for 9 houses under tr. lines 580 m2 299 173,338

3 Compensation for land 206,674 m2 6.00 1,240,044

4 Compensation for Crops 5,760 Nunber of Cashew 133 763,624

5 Compensation for Trees 30,920 Number of trees 38 1,164,191

6 Assistance of transfer to new sites 9 Household 1,000 9,000

7 Administrative expenses 1% of all of above . 37,022

8 Training in new profession 150,000

9 Contingencies 15% 555,329

Total Budged Cost 4,444,S4

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Annex 12

VIET NAMPower Development Project

Environmental Analysis for Installation of Transformers

1. All transformer sub-stations in Viet Nam follow the Vietnamese Environmental and SafetyRegulations for these installations. All installations are subject to approval of the Electrical Inspector.The design and layouts of substations at rated voltage of 110 kV and above are subject to approval bythe Fire Protection Authority. The following are some of the environmental and safety measuresfollowed:

(a) Provision of fire partition walls if distance between two transformers is less than 25meters (mainly applicable for 220 kV substations).

(b) Provision of retention basins with gravel below transformers for quenching burning oil inthe event of fire (for transformers 25MVA and above).

(c) Provision of automatic fire protection system including a sump tank for transformers rated220 kV and above.

(d) Provision of adequate safety clearances for all high voltage equipment.

(e) Use of only oil-less or minimum oil circuit breakers indoors.

(f) Specification of Noise Level (70db) for transformers.

PCB is not used in transformers or switchgear in Viet Nam.

2. The installation of transformers and associated switchgear at existing sub-stations pose nosignificant environmental risks nor create any significant environmental impacts.

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Annex 13Page 1 of 3

VIETNAMPower Development Project

Project Cost EstimatePhu My 2 x 150 MW Gas Turbine Generator Sets

.Local Foreign Total(USS '000)

Site Preparation 2.0 0.0 2.0Buildings and Setting 5.0 11.0 16.02x150 MW GT Sets 0.0 37.0 37.0Mechanical Systems 0.0 9.0 9.0Electrical Systems 0.0 9.0 9.0Auxiliaries 0.0 8.0 8.0220 kV System 0.0 6.0 6.0Erection, Testing and Commissioning 2.0 10.0 12.0

Base Cost 9.0 90.0 99.0

Physical Contingencies 0.9 9.0 9.9Price Contingencies 1.1 1.0 2.1

Installation Cost 11.0 100.0 111.0

Resettlement and Compensation 1.0 0.0 1.0Eng. and Admin. Overheads 5.0 0.0 5.0Duties and Taxes 10.0 0.0 10.0Consulting Services 0.0 2.5 2.5

Total Project Cost 27.0 102.5 129.5

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Annex 13Page 2 of 3

VIETNAMPower Development Project

Project Cost EstimateTransformer Additions in South Viet Nam

Loal Forin Total(US$ '000)

Civil Works 4.2 0.0 4.2Power Transformers 0.0 9.3 9.3Switching Control and Protection Equipment 0.0 15.5 15.5Erection, Testing and Commnissioning 1.0 0.0 1.0

Base Cost 5.2 24.8 30.0

Physical Contingencies 0.5 2.5 2.0Price Contingencies 0.7 1.3 2.0

Instalation Cost 6.4 28.6 35.0

Eng. and Admin. Overhead 0.7 0.0 0.7Duties and Taxes 2.8 0.0 2.8

Total Project Cost 9.9 28.6 38.5

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Annex 13Page 3 of 3

VIEINAMPower Development Project

Project Cost EstimateTransformer Additions in Rest of Viet Nam

Local Foreip Toed(US$ '000)

Civil Works 5.4 0.0 5.4Power Transformers 0.0 14.8 14.8Switching Control and Protection Equipment 0.0 21.7 21.7Erection, Testing and Commissioning 1.2 0.0 1.2

Base Cost 6.6 36.5 43.1

Physical Contingencies 0.6 3.6 4.2Price Contingencies 0.9 2.3 3.2

Installation Cost 8.1 42.4 50.5

Eng. and Admin. Overhead 0.7 0.0 0.7Duties and Taxes 4.3 0.0 4.3

Total Project Cost 13.1 42.4 55.5

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Annex 14

VIET NAMPower Development Project

Procurement Packages

Contract Packages Nos.

1. 2x150 MW GTS for Phy My 1

2. Power Transformers for Southern Region 1

3. Switching and Control Equipment for Southern Region 1

4. Power Transformers for Other Regions 1

5. Switching and Control Equipment for Other Regions 2

6. Miscellaneous Equipment 2

7. Special Testing Equipment, Computer Hardware and Software 5

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ANNEX 15

VIET NAMPower Development Project

Disbursement Schedule

IDA Estmated Disbursement Disbursement Profile

Fiscal Year Annual Cumulative Project Country Standard /a

(US$ million) (%)

1996 30.0 30.0 17.0 1.01997 90.0 120.0 67.0 6.01998 30.0 150.0 83.0 22.01999 20.0 170.0 94.0 52.02000 10.0 180.0 100.0 74.02001 90.02002 100.0

/a Standard Profile for Power Projects in Asia.

_ N ___

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VIET NAMPOWER DEVELOPMENT PROJECTEVN CONSOLIDATED STATEMENTS

PROJECTED INCOME STATEMENTS 1995-2001(in Dong billion)

Fiscal Years Ending December 31 1995 1996 1997 1998 1999 2000 2001-------- -------- -- projected ----- -

A. SALES OF POWER (GWh) 10676.0 12074.6 13856.1 15925.3 18328.7 21127.6 24296.5

Sales Increase-% 13.1 14.8 14.9 15.1 15.3 15.0

Average Revenues VND per kWh Sold 555.0 641.0 734.3 835.2 944.4 1133.3 1338.8

B. REVENUESl. Revenues from Sales ofPower 5925.2 7740.1 10174.0 13301.2 17310.5 23944.7 32527.02. Customer Installations 108.6 113.0 120.1 127.5 136.8 143.2 148.93. Meter Rentals 21.2 21.9 23.0 24.3 25.8 27.5 29.14. Other Operating Revenues 4.2 4.9 6.1 6.7 7.5 8.3 9.1

TOTAL REVENUES 6059.2 7879.9 10323.2 13459.7 17490.6 24123.7 32714.1

C. EXPENSES1. Purchase of Power 0.0 0.0 0.0 0.0 0.0 0.0 0.02. Cost of Fuel 1697.7 1668.2 1933.5 2202.1 2400.1 2657.0 2921.33. Salaries, Wages and Benefits 244.2 278.6 307.5 367.4 420.7 487.3 527.34. Operation, Maintenance and

Administration 610.5 697.1 768.1 918.0 1052.3 1217.7 1318.75. Other Operating Expenses 355.2 405.2 447.3 533.9 612.7 708.2 767.06. Taxes other than Income Taxes

-- Tax on Revenues 484.7 630.4 825.9 1076.8 1398.4 1929.9 2617.1- Charge on Natural Resources 89.2 109.8 134.6 175.4 222.2 300.0 390.5- Tax on Capital 609.8 609.8 609.8 609.8 609.8 609.8 609.8

7. Depreciation 1477.4 1559.6 1647.2 2315.5 2749.5 3022.5 3199.0

TOTAL EXPENSES 5568.7 5958.6 6673.9 8198.7 9465.7 10932.3 12350.7

D. OPERATTNG INCOME 490.5 1921.3 3649.3 5261.0 8014.9 13191.4 20363.5

E. INTEREST 21.7 38.5 88.9 88.9 865.4 1257.9 2024.7

F. INCOME TAX 117.2 470.7 890.1 1293.0 1787.4 2983.4 4584.7

G. NET INCOME 351.6 1412.1 2670.3 3879.1 5362.2 8950.1 13754.0

Average Net Fixed Assets in Operation 41499.0 50927.9 60232.5 68191.2 75819.7 83803.9

RATE OF RETURN ON NET FIXED ASSETSIN OPERAT1ON (%/.) 3.5 5.4 6.6 9.1 13.5 18.8

OPERATING RATIO 91.9 75.6 64.6 60.9 54.1 45.3 37.8

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Annex 16Page 2 of 3

VIET NAMPOWER DEVELOPMENT PROJECTEVN CONSOLIDATED STATEMENTS

PROJECTED SOURCES AND APPLICATION OF FUNDS STATEMENT, 1995-2001(in Dong billion)

TOTALFiscal Years Ending December 31 1995 1996 1997 1998 1999 2000 2001 1994-2001

A. SOURCES

1. INTERNAL SOURCES

a. Operating Income (less income tax) 373.3 1450.6 2759.2 3968.0 6227.5 10208.0 15778.8 40765.4b. Depreciation 1477.4 1559.6 1647.2 2315.5 2749.5 3022.5 3199.0 15970.7c. Profit Distribution to Employees -70.3 -282.4 -534.1 -775.8 -1072.4 -1790.0 -2750.8 -7275.9

Total Internal Sources 1780.4 2727.7 3872.4 5507.6 7904.6 11440.5 16227.0 49460.1

Debt Service

a. Interest Expense 21.7 38.5 88.9 88.9 865.4 1257.9 2024.7 4385.9b. Debt Repayment 0.0 0.0 427.1 957.9 1537.9 2100.0 2610.2 7633.0

Total Debt Service 21.7 38.5 515.9 1046.7 2403.2 3357.9 4634.9 12018.9

NET INTERNAL CASH GENERATION 1758.7 2689.2 3356.4 4460.9 5501.3 8082.7 11592.0 37441.3

11. EXTERNAL SOURCES

a. Govemment Contributions 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

b. Long-Term Borrowing 6406.0 7962.0 8700.0 8431.3 7654.0 8102.0 7892.7 55148.0

TOTAL EXTERNAL SOURCES 6406.0 7962.0 8700.0 8431.3 7654.0 8102.0 7892.7 55148.0

TOTAL SOURCES 8164.7 10651.2 12056.4 12892.2 13155.3 16184.7 19484.7 92589.3

B. APPLICATIONS

1. INVESTMENTS

a. Investmcnts 9096.5 10800.2 11233.2 10237.8 8580.6 8774.4 8037.8 66760.5b. Interest During Construction 512.5 1149.4 1811.3 2409.2 2898.4 3378.6 3801.2 15960.6

Total Investments 9609.0 11949.66 13044.45 12647 11479 12153 11839 82721.1

II. CHANGES IN WORKING CAPITAL -1444.3 -1298.4 -988.0 245.2 1676.3 4031.7 7645.7 9868.1

TOTAL APPLICATIONS 8164.7 10651.2 12056.4 12892.2 13155.3 16184.7 19484.7 92589.3

SELF FINANCING RATIO 36.2 34.1 34.8 34.0 34.2 33.6 33.6 34.3

DEBT SERVICE COVERAGE 82.1 70.9 7.5 5.3 3.3 3.4 3.5 4.1

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Annex 16Page 3 of 3

VIET NAMPOWER DEVELOPMENT PROJECTEVN CONSOLIDATED STATEMENTS

PROJECTED BALANCE SHEETS, 1995-2001(in Dong billion)

Fiscal Years Ending December 31 1995 1996 1997 1998 1999 2000 2001projected - -

A. ASSETS

1. Fixed Assetsa. Gross Fixed Assets in Operation 39746.9 50318.5 61810.4 72895.9 82792.7 93924.9 104982.7b. Accumulated Depreciation 2757.2 4310.1 5962.9 8278.4 11027.9 14050.4 17249.4

c. Net Fixed Assets in Operation 36989.6 46008.4 55847.4 64617.5 71764.8 79874.5 87733.3

d. Work in Progress 13438.0 14809.4 16367.6 17929.0 19511.2 20532.0 21313.2

Total Fixed Assets 50427.7 60817.8 72215.0 82546.5 91276.1 100406.5 109046.5

2. Current Assetsa. Cash and Banks 271.0 356.0 556.0 645.8 745.8 775.8 806.8b. Receivables 497.2 667.0 852.2 1157.7 1514.3 2101.2 2686.7c. Stock 745.7 1000.5 852.2 1736.5 2271.4 3151.8 4030.1d. Other 1260.5 1427.5 1445.5 1537.3 1843.8 2160.8 2527.2

Total Current Assets 2774.4 3450.9 3705.8 5077.8 6375.3 3189.6 10050.8

TOTAL ASSETS 53202.1 64268.7 75920.8 87624.3 97651.4 108596.1 119097.3

B. LIABILMES

1. Equitya. Capital 36292.9 36292.9 36292.9 36292.9 36292.9 36292.9 36292.9b.AccurnulatedProfit/Loss 349.0 1478.7 3614.9 6713.2 11007.9 1163.0 29171.3

-Total Equity 36641.8 37771.5 39907.8 43011.0 47300.8 54460.9 65464.1

2. Long-Term Debt 6677.0 14639.0 22911.9 30385.4 36501.5 42503.6 47786.0

3. Current Liabilitiesa. Current Payables 9883.2 1135t.2 12674.0 13270.0 12311.2 9531.7 3236.9b. Current Maturities 0.0 0.0 427.1 957.9 1537.9 2100.0 2610.2

Total Current Liabilities 9883.2 11858.2 13101.1 14227.3 13349.1 11631.7 5847.1

TOTAL LIABILITIES 53202.1 64268.7 75920.3 37624.3 97651.4 108596.1 119097.3

DEBT AS % OF TOTAL CAPITALIZATION 15% 23% 36% 41% 44% 44% 42%

CURRENT RATIO (tines) 0.3 0.3 0.3 0.4 0.5 0.9 3.1

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VIET NAMPower Development Project

Assumptions in the Financial Statements

The following assumptions were used for the projected consolidated financial statements of EVNand its affiliates as discussed in paras. 3.2 - 3.8 of the Beneficiary Chapter.

Revenues

1. Power will be generated in accordance with the load forecasts based on economicdata, prepared by the Energy Institute. The revenue forecast assumes that the average growth rateover 1995-2000 would be around 12.8% for the North; 16% for the South; and 15% for theCenter or an average increase of 14.6% p.a. for the country as a whole.

Losses

2. Average technical and non-technical losses currently at about 21 % of generation (ofwhich non-technical losses are about 3%) are projected to be maintained at 21% until 1997 and tobe reduced to 20% in 1998; to 18% in 1999-2000; and to 17% in 2001.

Tariff

3. The average price of electricity is about D 580/kWh, or about 5.3 USc/kWh. Thefinancial projections assume that tariffs would be progressively raised to an average level of 7USc/kWh by 1999 as proposed by the Government. Assuming a 5% annual depreciation of theDong vis-a-vis the dollar, this tariff in 1999 would be about D 944/kWh.

Cost of Fuel

4. Cost of fuel includes the cost of coal, heavy fuel, diesel and gas consumed by EVN'sthernal generating facilities. The fuel mix is based on EVN's generation plan. The base fuelcosts as of July 1995 are as follows: (a) Coal - US$42 per MT; (b) Heavy fuel oil - US$140 perMT; (c) Diesel oil - US$280 per MT; and (d) Gas - US$2.5 per MMBTU.

Salaries, Wages and Benefits

5. EVN records base salaries, wages and benefits in the Income Statement; staff,however, also draws bonuses which are not recorded in the costs of the Income Statement.Consistent with the practice of other state-owned enterprises in Viet Nam, EVN will distribute20% of its profits to employees as bonuses. In the financial projections, this allocation of profit isnot carried forward to retained earnings but instead is recorded as current payables to employeesand treated as a reduction from funds generated from operations in the Funds Flow Statement.

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Other Operating Expenses

6. Other Operating Expenses are based on current EVN experience, with projections forfuture plants based on historical costs for similar plants and escalated with inflation rates of 10%per annum.

Taxes

7. Taxes are based on current levels as follows: (a) Tax on Revenues (Turnover Tax) at8% of total revenues; (b) Tax on Natural Resources (Royalty Tax) at 2% of that part of revenuefrom sales of power which corresponds to the percentage of hydro generation versus totalgeneration; (c) Tax on Capital at 2.4% of total Government capital; and (d) Income Tax at 25%.

Depredation

8. Depreciation rates are prescribed by the Government and calculated on the followingbasis: turbines (8%), rockfill dams (2%), concrete dams (3%), and distributionsystems (8.5%).

Capital Investment

9. Projected capital expenditures are those estimated to provide the additional plant andequipment required to meet the demand forecast, escalated in accordance with the latest projectionof inflation rates. These expenditures are projected by EVN in accordance with the powerdevelopment plan.

Capital Structure

10. The following capital structure is assumed: (a) existing Government capital andEnterprise capital remain as equity; (b) capital balance remains unchanged for the duration of theprojected period; (c) starting FY95 new investments are assumed to be financed at two-thirds debt;(d) interests on outstanding loans are assumed to be totally capitalized; (e) long termn debts areassumed to have an annual interest rate of 8% per annum and repaynent tems of up to 15 yearsincluding two years of grace; and (f) no dividend payments on equity are assumed.

Fixed Assets

11. Due to doubtful past valuation procedures, fixed assets as recorded may not representthe fair value of the assets at the time of transfer from the PCs to EVN. Consequently, thefinancial projections are based on fixed assets values provided by EVN as available at the end ofMarch 31, 1995.

Current Assets

12. Accounts receivable are projected to be approximately one month of total revenueswhile stocks are assumed to be one-eighth of total revenues.

VIItI fNAM

Phu My Combined Cycle Power ProjectEconomic Rate of Return

(All figures in US$ million unless otherwise stated)

Investment Operation and Maintenance Energy Loss Tariff Revenue NetYear Gener. Trans. Disir. Gener. Trans. Distr. Fuel Generated % USc/kWh Benefit

,_ _ __ _ _ __ _ _ _ GW h ____

1995 10.0 (10.00

1996 90.0 5.0 13.0 - (108.00

1997 17.4 10.0 13.0 6.5 0.23 0.65 72.4 1,549.0 17.0 5.6 72.0 (48.18

1998 100.0 10.0 13.0 6.5 0.38 0.98 42.6 1,549.0 17.0 5.9 75.9 (97.56

1999 12.5 10.0 13.0 9.8 0.53 1.30 42.6 2,323.0 16.0 6.1 119.0 29.27

2000 13.0 9.8 0.53 1.63 42.6 2,323.0 16.0 6.1 119.0 51.44

2001 13.0 9.8 0.53 1.95 42.6 2,323.0 15.0 6.1 120.4 52.52

2002 13.0 9.8 0.53 2.28 42.6 2,323.0 15.0 6.1 120.4 52.19

2003 9.8 0.53 2.28 42.6 2,323.0 14.0 6.1 121.9 66.69

2004 9.8 0.53 2.28 42.6 2,323.0 14.0 6.1 121.9 66.69

2005 9.8 0.53 2.28 42.6 2,323.0 13.0 6.1 123.3 68.09

2006 9.8 0.53 2.28 42.6 2,323.0 13.0 6.1 123.3 68.09

2007 9.8 0.53 2.28 42.6 2,323.0 13.0 6.1 123.3 68.09

2008 9.8 0.53 2.28 42.6 2,323.0 13.0 6.1 123.3 68.09

2009 9.8 0.53 2.28 42.6 2,323.0 13.0 6.1 123.3 68.09

2010 9.8 0.53 2.28 42.6 2,323.0 13.0 6.1 123.3 68.09

2011 9.8 0.53 2.28 42.6 2,323.0 13.0 6.1 123.3 68.09

2012 9.8 0.53 2.28 42.6 2,323.0 13.0 6.1 123.3 68.09

2013 9.8 0.53 2.28 42.6 2,323.0 13.0 6.1 123.3 68.09

2014 9.8 0.53 2.28 42.6 2,323.0 13.0 6.1 123.3 68.09 GQ Qx

2015 9.8 0.53 2.28 42.6 2,323.0 13.0 6.1 123.3 68.09 t H

2016 9.8 0.53 2.28 42.6 2,323.0 13.0 6.1 123.3 68.09

2017 9.8 0.53 2.28 42.6 2,323.0 13.0 6.1 123.3 6809

Economic Rate of Return = 16.9%

L

-133-Annex 18Page 2 of 4

POWER DEVELOPMENT PROJECT

Economic Rate of Return

Transformer Additions in South Viet Nam (Key Data)

1996 1997 1998 1999 2000

With the Project

meand MVA 1064 1347 1471 1607 1755

emand Gwh 5703 7220 7885 8614 9407

nserved Energy % 1.5 1.4 1.3 1.2 1.1

nserved Energy Gwh 85.5 101.1 102.5 103.4 103.5

echnical Loss % 14 12.5 11 10 9

echnical Loss Gwh 798.4 902.5 867.4 861.4 846.6

Without the Project

Unserved Energy % 1.5 1.6 1.7 1.8 1.9

UnservedEnergyGwh 85.5 115.5 134 155.1 178.7

echnical Loss % 14 17.7 19.3 21.1 23

echnical Loss Gwh 798.4 1277.9 1521.8 1817.6 2163.6

Transformer Additions in Rest of Viet Nam (Key Data)

1996 1997 99 199 20

With the Project F)emand MVA 1911 2132 2310 2505 2715

Demand Gwh 10245 11428 12382 13427 14552

Vnserved Energy % 1.5 1.4 1.3 1.2 1.1

Unserved Energy Gwh 153.7 160 161 161.1 160.1

echnical Loss % 14 l 12.5 1 1 10 9

echnical Loss Gwh 1434.3 1428.5 1362 1342.7 1309.7

Without the Project

Uiserved Energy % 1.5 |1.6 .1.7 8 19

nserved EnergyGwh 153.7 182.8 210.5 241.7 276.5

echnical Loss % 14 iS.6 16.9 18.3 19.8

echnical Loss Gwh 1434.3 1782.8 2092.6 2457.1 2881.3

POWER DEVELOPMENT PROJECTTransformer Additions (South Viet Nam)

(Economic Rate of Return)

With the Project _ Without the ProjectInvestment (USS..) Tech Unserved Loss Unserved Total Cost Tech Unserved Losses Unserved Total Cost Net Benefit

Transformer Sub-trans. Losses Eng. GWh Value Energy USS-n Loaw Eng. GWh Value Energy USS.. USS-nsod Distr. GWb USS-n USSon GWb USS-. USSo_

1996 35.0 42.0 798.4 35.5 35.9 46.2 159.1 798.4 85.5 35.9 46.2 82.1 (77.001997 0.0 42.0 902.5 101.1 40.6 56.6 1392 1,277.9 115.5 57.3 64.7 122.2 (17.041998 0.0 42.0 167.4 102.5 39.0 60.5 141.5 1,521.8 134.0 68.5 79.1 147.5 6.031999 0.0 42.0 861.4 103.4 38.3 63.1 143.8 1,817.6 155.1 31.8 94.6 176.4 32.572000 0.0 42.0 S46.6 103.5 38.1 63.1 1432 2,163.6 173.7 97.4 109.0 206.4 63.142001 0.0 0.0 846.6 103.5 31.1 63.1 101.2 2,163.6 178.7 97.4 109.0 206.4 105.142002 0.0 0.0 846.6 103.5 33.1 63.1 101.2 2,163.6 178.7 97.4 109.0 206.4 105.142003 0.0 0.0 846.6 103.5 38.1 63.1 101.2 2,163.6 178.7 97.4 109.0 206.4 105.142004 0.0 0.0 346.6 103.5 33.1 63.1 101.2 2,163.6 178.7 97.4 109.0 206.4 105.142005 0.0 0.0 346.6 103.5 38.1 63.1 101.2 2,163.6 173.7 97.4 109.0 206.4 105.142006 0.0 0.0 346.6 103.5 38.1 63.1 101.2 2,163.6 178.7 97.4 109.0 206.4 105.142007 0.0 0.0 346.6 103.5 33.1 63.1 101.2 2,163.6 173.7 97.4 109.0 206A 105.142008 0.0 0.0 346.6 103.5 38.1 63.1 101.2 2,163.6 178.7 97.4 109.0 206.4 105.142009 0.0 0.0 346.6 103.5 38.1 63.1 1012 2,163.6 173.7 97.4 109.0 206.4 105.142010 0.0 0.0 346.6 103.5 38.1 63.1 101.2 2,163.6 173.7 97.4 109.0 206.4 105.142011 0.0 0.0 346.6 103.5 38.1 63.1 101.2 2,163.6 178.7 97.4 109.0 2064 105.142012 0.0 0.0 346.6 103.5 38.1 63.1 101.2 2,163.6 173.7 97.4 109.0 206.4 105.142013 0.0 0.0 846.6 103.5 38.1 63.1 101.2 2,163.6 173.7 97.4 109.0 2064 105.142014 0.0 0.0 346.6 103.5 38.1 63.1 101.2 2,163.6 17t.7 97.4 109.0 206.4 105.142015 0.0 0.0 346.6 103.5 38.1 63.1 101.2 2,163.6 178.7 97.4 109.0 206.4 105.142016 0.0 0.0 346.6 103.5 38.1 63.1 101.2 2,163.6 173.7 97.4 109.0 206.4 105.142017 0.0 0.0 S46.6 103.5 38.1 63.1 101.2 2,163.6 178.7 97.4 109.0 206.4 105.142013 0.0 0.0 346.6 103.5 38.1 63.1 101.2 2,163.6 178.7 97.4 109.0 206.4 105.142019 0.0 0.0 346.6 103.5 33.1 63.1 101.2 2,163.6 173.7 97.4 1090 2064 105.142020 0.0 0.0 346.6 103.5 38.1 63.1 101.2 2,163.6 178.7 97.4 109.0 206.4 105.142021 0.0 0.0 346 6 103 5 31.! 63.1 101.2 2,163.6 17S.7 97.4 109.0 206.4 105.14

EIRIt - 42.4%

00OIo4o Co

POWER DEVE:LOPMENT PROJECITransformer Additions (Rest of Viet Non)

(Economic Rate of Return)

With the Project Wi_hout the Project

Irvesttent (iSS-r) Tech Ile mved Losses tUmerved Tetal Cost Tech tiDwrved Losses IUserved Total Cost Net BeIelTrausormer Sub-trsm. Losse En.. GWI Value Emergy t1S$m. Lose E.g. GWh Value Energy tISS-e USS-.

sod Distr. GWb _tSS.. tUSS-o GWb tlSSr. tSSt-s1996 49.0 59.0 I.434.3 153.7 64.5 33.0 255.5 I.434.3 153.7 64.5 83.0 147.5 (108.00

1997 0.0 59.0 1.428.5 160.0 64.3 89.6 212.9 1.782.1 182.1 80.2 102.4 182.6 (30.29

1993 0.0 59.0 1.362.0 161.0 61.3 95.0 215.3 2.092.6 210.5 94.2 124.2 218.4 3.03

1999 0.0 59.0 1.342.7 161.1 60.4 91.3 217.7 2.457.1 241.7 110.6 147.4 253.0 40.312000 0.0 59.0 1.309.7 160.1 53.9 97.7 215.6 2.381.3 276.5 129.7 168.7 298.3 32.73

2001 0.0 0.0 1.309.7 160.1 53.9 97.7 156.6 2.U13 276.5 129.7 168.7 2983 141.73

2002 0.0 0.0 1.309.7 160.1 58.9 97.7 156.6 2.831.3 276.5 129.7 168.7 293.3 141.73

2003 0.0 0.0 1.309.7 160.1 53.9 97.7 156.6 2.S1t3 276.5 129.7 168.7 293.3 141.73

2004 0.0 0.0 1.309.7 160.1 58.9 97.7 156.6 2.8t13 276.5 129.7 161.7 2983 141.73

2005 0.0 0.0 1.309.7 160.1 53.9 97.7 156.6 2.8U1.3 276.5 129.7 168.7 293.3 141.73

2006 0.0 0.0 1.309.7 160.1 53.9 97.7 156.6 2.8313 276.5 129.7 163.7 291.3 141.73

2007 0.0 0.0 1.309.7 160.1 53.9 97.7 156.6 2.8813 276.5 129.7 163.7 293.3 141.73

200S 0.0 0.0 1.309.7 160.1 5S.9 97.7 156.6 2.881.3 276.S 129.7 168.7 298.3 141.73 Ln

2009 0.0 0.0 1.309.7 160.1 53.9 97.7 156.6 2.8813 276.5 129.7 163.7 2983 141.73

2010 0.0 0.0 1309.7 160.1 53.9 97.7 156.6 2.3813 276.5 129.7 168.7 298.3 141.73

2011 0.0 0.0 1309.7 160.1 58.9 97.7 156.6 2.8813 276.S 129.7 168.7 298.3 141.73

2012 0.0 0.0 1309.7 160.1 53.9 97.7 156.6 2.8813 276.5 129.7 168.7 2983 141.73

2013 0.0 0.0 1309.7 160.1 53.9 97.7 156.6 2.3313 276.S 129.7 163.7 2933 141.73

2014 0.0 0.0 1309.7 160.1 53.9 97.7 156.6 2.8813 276.5 129.7 163.7 2933 141.73

2015 0.0 0.0 1.309.7 160.1 58.9 97.7 156.6 2.8813 276.5 129.7 168.7 2983 141.73

2016 0.0 0.0 1.309.7 160.1 53.9 97.7 156.6 2.S813 276.5 129.7 168.7 2933 141.73

2017 0.0 0.0 1.309.7 160.1 53.9 97.7 156.6 2.tS13 276.5 129.7 168.7 2983 141.73

2018 0.0 0.0 1,309.7 160.1 5t.9 97.7 156.6 2.t113 276.5 129.7 168.7 2933 141.73

2019 0.0 0.0 1.309.7 160.1 53.9 97.7 156.6 2.8813 276.5 129.7 168.7 2983 141.73

2020 0.0 0.0 1.309.7 160.1 53.9 97.7 156.6 2,881.3 276.5 129.7 163.7 2983 141.73

2021 0.0 0.0 1.309.7 160.1 58.9 97.7 156.6 . 2.381.3 276.5 129.7 168.7 2983 141.73

ERR 460.6%

I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I * Du OD

-136-

Annex 19

VIET NAMPower Development Project

List of Documents in Project File

1. Project Implementation Plan for Power Development Project, November 1995.

2. Environmental Assessment Report for the Combined Cycle Development at Phu My 11, VietNam, August 1995 (Vols. 1 and 2).

3. Power Plant Phu My 2, Feasibility Study, The Last Report, March 1995.

4. Decision on Electricity Tariff. Chairman of Government Pricing Board. Hanoi, May 29, 1995.

5. Charter of the General Company of the Electricity of Viet Nam. Hanoi, January, 1995.

6. Power Plant Phu My 2, Resettlement Action Plan, October 1995.

I

i

I

I

I

I

I

CHARTS

I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

I

I

I

I

urganization tnart - ieectricity ot Vietnam (EVN)

Board of Management

Director Generalj

Deputy Director Deputy Director Deputy Director Deputy DirectorProduction Investment Development Construction Management Business- Finance

.~ ~ ~ ~ Dpt Director | .NLDC nvesttent Development PCI)i

12 Power Plants ] PIDC I Power Construction PC2

Transmission Co. No. I Power Construction Co. 2 PC3

Transmission Co. No. 2 Power Information and Power Construction Co. 3 Power Company of Hanoi

Transmission Co. No. 3 Institule of Energy Power Construction Co. 4 Power Company of HCMC

Transmission Co. No. 4 P|tower Information Center Power Financial Company

Repr sentative Officesof EVN abroad

Power Information and Center for Scientific Research

Telecom Co. Ic.lhnology, Environment

and Compuling

1995 1996 1997

May Junc July Aug Sept Out Nov l)ec Jan Feb Mar May June July Aug Sept Oct Nov Dec Jan Feb Mar Apr May

IPrepare Conceptual Design

I reparc Bid Document

Prepare 1IA

World Bank Approval EIA

Invitc Bids

llid Evaluation _

Contract Negotiation - _ - _ =…

Worid Bank Approval _ - - - = _B

Sign Contract __

Design Review

P reparc Site (EVN) =

Precparc Roads i

tirbinc Foundalion_

i,. Bluildi__g

Control Duilding _ _ _ _ _…

OtOer Buildings _ _ _ _ _ _ = = - _ = _ = _ _

Marine Oil Loading Facility

Mantifacture Delivery GTG I

Manufacture Delivery arG2 _ _ = m = _ =…

Erect JI*G I

Erect GICG2

Erect & Conm. Ancilltry Services

LV Erct. Com. _ _ _ _ _ = _ _=…

Commissioning GTGI

Commissioning G2TG

Manmfacturc/DElivery 'I'ransformer__

Manufacture/Delivery 220kV Switcligear

Erect and Comnn. I IV Elet_.

Syisliroimization = = - - = = =I

Sys/tcn est and Rehabilily Run

Acceplance'lecst - _ _ -_

Completion Works

Ilake Over Unit I Unit 2

!~~ …-

1996 1997

Sep OctI Nov Dec Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec Jan Fcb Mm

Prpare Bid Documents

Invite Bids -

Evaluate Bids

Place Contracts

Desipi by Supplier

Approval by Purchaser _ _ _ _ - - …-

Manufacture, Inspection

Shipment

Civil Works _

Installsioning I 7Commissioning _ _ _ _ _ _ _- _- _ _ _ _

/

-140-

CHART 4

Organization Chart of Phu My Baria Management Board (PMBRMB)

Project Manager

Necvject ESBI ConaulItantfor forfo

Phu My 1 Baria

Consultants ChiefAccountant

Deputy Project Manager [euyri DeputyProjectManagerfor for (to be no ainated)

Phu My I + BPhu My ar -

Economic | Technical Financial Organization | To be TobeI Planning |I Section Accounting Personnel eatablished establishedSection I Section Section I

Organization for Construction and Implementation of Phu My 2-1

Project Manager

DSpyp Projet Managerof Phu My 2-1

Consultants |Co-ordinator |

| upporting

eVtnames

n Enciers

Residcnt enginecrs|for Phu My 2-1

(Technical Section)

J-14;-

CHART 5

Organization Chart of Management Boards of theSouthern, Northern and Central Region Power Project

Project Manager

Deputy Proj Deputy Prcect

Manager fo gr

Techcl matedional IPlanning- Fnancilh|Ozto lgitc Sein Coopemlo Ssion Accountin | Peoine einl Soe

SecAion ection

Organization for Construction and Implementationfor Augmentation of High Voltage Transforming Capacity

,Project Manager:

D)ept. ProjectManager for

Augmnenltation

of transformers

Resident i. Resident ...Resident ...Resident. .. Engineer Enginecr Engineer Engineer .Hoc Mon Danhim .Vinh Long'

K ~~~~CHINA

MYANMAR 4

JAo

CHINA -' 'P) D \

IET NAM

Son n o -: 220g Ninh

I MALAfIIA

VIET NAM

f -''POWER GRID.nhH.o POWER DEVELOPMENT PROJECT

DEMOCRATIC EXISTING FUTURE PROJECT

REPUBLIC ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ * A, A* I1 0 kV SUB STATiONS

I 0 ~~~ * 0* 220 kV SUB STATIONS

_______ ~~~220 kV LINES

lb rink ~0 0 500 Ky SUB STATIONS

- - 500 kV LINES

- - HYDRO POWER STATIONS

* * * THERMAL POWER STATIONS

* All e-Ist,,, sub stot,o- s II G

All p--sub st-tos m - he nor-h of Vial Norn no sIhown for clo-y

THAILAND T.l

AO~ Ng., 15'-

Nhuso

Lj ~ ~ ~ ~ ~ ~ en )d TOy NnonOH

n~~~~~~~~~~~~~~~~A1 t (7110,,

KILOMETNERS .it TiAz i 7 hs,

-~~~~~~~ ~~~~~~~~~~~ II ,; VDa SOl/ Clik

y t sX 57- 15~~~~~~~~~~~~~~~,o.lgb

f " ;, CAMBODIA n H1h

t Sambor hydro . P i J> ~~~~~~scheme developmen I/ (

_ [ [ \ _tl </ * - \ *~~~~~~~~~~~~~~~~~~~~l Nhr. T.r ng

En ~~~~~~~~ P H N O M P E N H PhuJ2 T u ( h l

C,4 --

fr o.

iJW8v°uRgIn

n I Puch Gla Tro or,+\vin> ~ ~ ~ ~ ~~~~~Joul)chi)(

E ~~~RIVERS L o1? So1°lPROVINCE BOUNDARIES rIhebunnd,,rsi.,n,o .od, ,O. ,,otSy .__ INTERNATIONAL. .......... o *CuMno shes sit, urdnop iedllrSt,vL sea

_ ~~~~BOUNDARIES oss,Oio uotrplseoiahl ,.sI.......eu.s

.21~~~~~~~~~~~~~~~~~~~~~~~~~ 'to. T..

IMAGING

Report No: 14893 VNType: SAR