Report and Recommendation of the President to the Board of Directors

Project Number: 41444 November 2010

Proposed Loan, Grant, and Administration of Loan Lao People’s Democratic Republic and Socialist Republic of Viet Nam: Second Northern Greater Mekong Subregion Transport Network Improvement Project

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

CURRENCY EQUIVALENTS (as of 15 October 2010)

Currency Unit – dong (D) D1.00 = $0.00005 $1.00 = D19,490

Currency Unit – kip (KN) KN1.00 = $0.00012

$1.00 = KN8,122

ABBREVIATIONS ADB – Asian Development Bank CBTA – Cross-Border Transport Agreement DOR – Department of Roads DSC – design and supervision consultant EMP – environmental management plan GMS – Greater Mekong Subregion IEE – initial environmental examination km – kilometer Lao PDR – Lao People’s Democratic Republic MOT – Ministry of Transport MPWT – Ministry of Public Works and Transport OFID – OPEC Fund for International Development OPEC – Organization of the Petroleum Exporting Countries PAM – project administration manual PMU

SEMP – –

project management unit site-specific EMPs

TA – technical assistance VOC – vehicle operating cost

NOTE In this report, "$" refers to US dollars.

Vice-President C. Lawrence Greenwood, Jr., Operations 2 Director General K. Senga, Southeast Asia Department (SERD) Director J. Lynch, Transport and Urban Development Division, SERD Team leader J. Miller, Principal Transport Specialist, SERD Team members M. Buendia, Social Development Specialist (Resettlement), SERD P. Chanthirath, Project Implementation Officer (Infrastructure), Lao Resident

Mission, SERD N. Farrofo, Senior Project Officer, SERD U. Hoque, Social Development Specialist (Gender and Development), SERD R. Ishenaliev, Transport Specialist, SERD T. D. Le, Senior Project Implementation Officer, Viet Nam Resident Mission,

SERD R. O’Sullivan, Principal Counsel, Office of the General Counsel A. Velasquez, Safeguards Specialist (Environment), SERD Peer reviewer W. Zhang, Senior Project Officer, PRC Resident Mission, East Asia Department

CONTENTS

Page

PROJECT AT A GLANCE

MAP

I. THE PROPOSAL 1

II. THE PROJECT 1 A. Rationale 1 B. Impact and Outcome 3 C. Outputs 3 D. Investment and Financing Plans 3 E. Implementation Arrangements 5

III. DUE DILIGENCE 6 A. Economic and Financial 6 B. Governance 6 C. Poverty and Social 7 D. Safeguards 8 E. Risks and Mitigating Measures 9

IV. ASSURANCES 9

V. RECOMMENDATION 10

APPENDIXES

1. Design and Monitoring Framework 11

2. List of Linked Documents 13

PROJECT AT A GLANCE 1. Project Name: LAO/VIE: Second Northern Greater Mekong Subregion Transport Network Improvement Project 2. Project Number: 41444-01-3 41444-02-2 3. Country: Regional 4. Department/Division: Southeast Asia Department Transport and Urban Development Division 5. Sector Classification

Sectors Primary Subsectors Transport, and Information and Communication Technology

Road Transport

6. Thematic Classification: Themes Primary Subthemes Regional Cooperation and Integration Cross-border infrastructure Economic growth Widening access to markets and economic

opportunities

6a. Climate Change Impact:

6b. Gender Mainstreaming:

Adaptation Mitigation

Gender equity theme Effective gender mainstreaming

7. Targeting Classification: 8. Local Impact: Targeted Intervention Rural

Urban National Regional High

General Intervention Geographic

dimensions of inclusive growth

Millennium Development

Goals

Income Poverty at Household

Level

9. Project Risk Categorization: Low 10. Safeguard Categorization:

Environment B Involuntary resettlement B Indigenous peoples B

11. ADB Financing:

Sovereign/Nonsovereign Modality Source Amount

($ million) Sovereign Project loan Asian Development Fund 75.0 Sovereign Project grant Asian Development Fund 20.0 Total 95.0

12. Cofinancing: $12.0 million (OPEC Fund for International Development for Lao PDR) 13. Counterpart Financing:

Source Amount ($ million) Government (including contributions of beneficiaries) and sponsors

32.70

14. Aid Effectiveness: Parallel project implementation unit No Program-based approach No

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gms1960

Friday, 29 October, 2010 9:41:39 AM

I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on (i) a proposed loan to the Socialist Republic of Viet Nam, (ii) a proposed grant to the Lao People’s Democratic Republic (Lao PDR), and (iii) a proposed administration of a loan to be provided by the Organization of the Petroleum Exporting Countries (OPEC) Fund for International Development (OFID) to the Lao PDR, for the Second Northern Greater Mekong Subregion (GMS) Transport Network Improvement Project. The design and monitoring framework is in Appendix 1. The project was prepared through an Asian Development Bank (ADB) regional technical assistance (TA).1

II. THE PROJECT

A. Rationale

2. The poor state of such basic infrastructure as roads is a major obstacle to building subregional economic cooperation among the six countries that border the Mekong River. Under the GMS program, which it helped establish in 1992, ADB has supported the creation of strategic transport and economic corridors linking Cambodia, the People's Republic of China, the Lao PDR, Myanmar, Thailand, and Viet Nam. After a summit of GMS leaders in July 2005 highlighted the key role of comprehensive, efficient cross-border transport in promoting trade, investment, resource development and sharing, and the free movement of goods and people between their countries, ADB provided technical assistance to prepare the GMS transport sector strategy study.2 The study recommended the establishment of a seamless, well-built, multimodal subregional transport network to fully connect the GMS. 3 The sector strategy’s objectives were to complete the transport corridors; coordinate GMS country efforts to develop these transport routes into economic corridors of agricultural diversification, industrialization, and employment creation; reduce nonphysical barriers to the movement of people, goods, and services within the subregion; and accelerate the implementation of such arrangements as the GMS cross-border transport agreement. 3. The GMS cross-border transport agreement was incorporated in the GMS program in 1999 to support trade facilitation. The agreement covers various aspects of cross-border transport facilitation in the GMS. All the GMS countries have finalized and signed all annexes and protocols in the agreement, and most countries have ratified all of the annexes and protocols. 4 The agreement is already under initial implementation at three border crossing points along the Lao PDR–Viet Nam, Thailand–Lao PDR, and PRC–Viet Nam borders. Agreements have been signed on additional border crossings for implementation along the PRC–Lao PDR and Cambodia–Viet Nam borders.

4. The GMS Northeastern Corridor (stretching from Thanh Hoa in northern Viet Nam through northern Lao PDR to Bangkok) is one of the corridors identified in the transport sector strategy study and links northeastern Lao PDR with northern Viet Nam and its seaports. Many of the corridor roads between Thanh Hoa and Bangkok are in good condition. Others are now

1 ADB. 2008. Technical Assistance for Preparing the Second Northern Greater Mekong Subregion Transport

Network Improvement Project. Manila (TA 6478-REG). 2 ADB. 2004. Technical Assistance for the Greater Mekong Subregion Transport Sector Strategy Study. Manila (TA

6195-REG). 3 ADB. 2007. GMS Transport Strategy 2006–2015. Coast to Coast and Mountain to Sea: Toward Integrated Mekong

Transport Systems. Manila. 4 Thailand and Myanmar have not yet ratified all of the annexes and protocols.

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being improved, including a 367-kilometer (km) stretch of Route 4 in the Lao PDR from the Louangphrabang area to the Lao PDR–Thailand border that is being upgraded under ADB’s Northern GMS Transport Network Improvement Project, approved in 2007. 5 The section of the corridor between the coast through the provinces of Thanh Hoa in northern Viet Nam and Houaphanh in northeastern Lao PDR, however, needs to be improved to a higher, all-weather, international standard if the Northeastern Corridor is to deliver its full potential increase in traffic, trade, and economic development and give the northern region of the Lao PDR valuable year-round access to rapidly developing ports on the South China Sea. The proposed project will fill this key gap. It was accorded priority in the GMS transport sector study and is strongly supported by the governments of the Lao PDR and Viet Nam, which believe it will strengthen the economies of both countries and help reduce current high poverty rates in the project provinces on both sides of their border. The project is included in the GMS regional cooperation business plan for 2010–2012.6 5. The midterm review of the GMS strategic framework (2002–2012) 7 found that improvements in physical connectivity infrastructure in the subregion should be complemented by investments that enhance competitiveness. The Lao PDR and Viet Nam governments have begun addressing this need on the Northeastern Corridor by building new border posts at Na Meo and Nam Soi where Viet Nam’s Highway 217 and Route 6 in the Lao PDR join. ADB’s efforts along the Northeastern Corridor include its socioeconomic development project for Thanh Hoa City, approved in 2009, 8 and the Small Towns Development Sector Project, 9 completed in 2009, which financed upgrading of urban infrastructure in Xam–Nua in the Lao PDR. 6. The project will address a central need identified by a 2008 evaluation of transport and trade facilitation in the GMS by providing one of the missing infrastructure links that have reduced the effectiveness of the GMS network’s completed sections.10 ADB is also responding to the assessment of GMS road project evaluations that development of the transport corridors into economic corridors has been slow. The project road’s border crossing is not part of the cross-border transport agreement implementation activities. However, the need to boost trade through the project road’s border crossing will be addressed as part of a proposed ADB cluster regional policy and advisory TA for implementing the action plan for transport and trade facilitation in the GMS, which is to be considered for approval in the fourth quarter of 2010. The outputs of this TA are to include better coordinated border management, enhancements in the sanitary and phytosanitary regime, strengthening of national and subregional institutions for trade facilitation, and the development of a regional trade logistics strategy. The TA includes the Na Meo–Nam Soi border crossing as one of its pilot sites for implementing the action plan.

5 ADB. 2007. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the Lao

People’s Democratic Republic for the Northern Greater Mekong Subregion Transport Network Improvement Project. Manila.

6 ADB. 2009. Greater Mekong Subregion: Regional Cooperation Operations Business Plan 2010–2012. Manila. 7 The review was carried out from November 2006 to June 2007 and endorsed by the GMS ministers at their

meeting in Manila on 21 June 2007. 8 ADB. 2009. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the

Socialist Republic of Viet Nam for the Thanh Hoa City Comprehensive Socioeconomic Development Project. Manila (Loan 2511-VIE).

9 ADB. 2003. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the Lao People’s Democratic Republic for Small Towns Development Project. Manila (Loan 1994-LAO).

10 ADB. 2008. Sector Assistance Program Evaluation for the Transport and Trade Facilitation Sector in the Greater Mekong Subregion—Time to Shift Gears. Manila.

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7. The project will also benefit from new activities that ADB has instituted to strengthen the development of economic corridors. The Economic Corridors’ Forum is tasked with raising the profile of economic corridor development in the GMS as well as enhancing collaboration among GMS fora and working groups along the GMS economic corridors. As part of the Economic Corridors’ Forum, the Governors’ Forum is providing the framework and mechanism for stronger cooperation among provincial and local officials as well as the closer engagement of the private sector in addressing economic corridor development issues. 8. An evaluation of the Lao PDR transport sector noted the need to assess the local impact of regional road projects.11 The local impact of the project will be assessed through the project performance monitoring and evaluation system. The system will develop and monitor a set of indicators reflecting transport costs, tariffs, and mobility that will be used to assess the effects of improved transport access, as well as improvements in agricultural productivity, economic activity, and the health and education sectors, on communities in the project area. 9. Road maintenance and vehicle overloading are key issues affecting the sustainability of road projects in Viet Nam and the Lao PDR. Both governments have agreed to maintain the project roads to the national standard. In Lao PDR, this will be done through the use of performance-based maintenance contracts. In Viet Nam, performance-based maintenance contracts will also be used for the project road, subject to the successful outcome of ongoing pilot tests of these contracts. MOT will develop a program to control vehicle overloading of vehicles on the project road in Viet Nam. To address vehicle overloading in the Lao PDR, scales for weighing vehicles will be procured under the project, and checkpoints to control the overloading of vehicles will be established along the project roads. B. Impact and Outcome

10. The expected impact of the project will be increased international trade on the GMS Northeastern Corridor. The expected outcome is more efficient transport across the Lao PDR–Viet Nam border and on the project sections of the GMS Northeastern Corridor. C. Outputs

11. The expected outputs of the project are the improvement of the Viet Nam and the Lao PDR project components of the GMS Northeastern Corridor and of road safety on these stretches. The improved sections will comprise 196 km of Highway 217 in Viet Nam and 143 km of routes 6, 6A, and 6B in the Lao PDR, as well as selected sections of routes 6 and 1C where road safety and alignment will be improved. The project also includes clearance of unexploded ordnance along the project alignment in Viet Nam and the Lao PDR and procurement of scales for weighing vehicles on the project roads in the Lao PDR to control vehicle overloading. D. Investment and Financing Plans 12. The project is estimated to cost $139.7 million, including contingencies, taxes, and interest during construction (Table 1). The costs are expected to be $97.4 million for the Vietnamese component and $42.3 million for the Lao PDR component. Taxes and duties will be financed by the governments.

11 ADB. 2010. Sector Assistance Program Evaluation for the Transport Sector in the Lao People’s Democratic

Republic. Manila.

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Table 1: Project Investment Plan ($ million)

Item VIE LAO Totala A. Base Costb 1. Civil works 64.50 26.50 91.00 2. Land acquisition and resettlement 3.30 0.20 3.50 3. Consultants for implementation and

monitoring

7.50

6.00

13.50 4. UXO clearance 0.60 0.30 0.90 5. Equipment 0.00 0.20 0.20 6. Project administration 0.80 0.10 0.90 Subtotal (A) 76.70 33.30 110.00 B. Contingenciesc 18.80 8.00 26.80 C. Financing Charges During Implementationd 1.90 1.00 2.90 Total (A+B+C) 97.40 42.30 139.70 LAO = Lao People’s Democratic Republic, UXO = unexploded ordnance, VIE = Viet Nam. a Includes taxes and duties of $10.2 million, based on a tax rate of 10% on civil works and 1% on consulting

services, to be financed from government resources. b In mid-2010 prices. c Physical contingencies computed at 10% of base costs. Price contingencies computed based on the Asian

Development Bank forecast international and domestic inflation rates applied to foreign exchange; includes provision for potential exchange rate fluctuation under the assumption of a purchasing power parity exchange rate.

d Includes interest and commitment charges. Source: Asian Development Bank estimates.

13. ADB will provide a loan of $75 million from the Asian Development Fund for the Vietnamese component and the government will provide $22.4 million. ADB will provide a grant of $20 million from the Asian Development Fund for the Lao PDR component and the government will provide $10.3 million. Delays in the government providing counterpart financing have caused implementation difficulties on previous road projects in the Lao PDR. However, no delays are expected for the government contribution for the project. About 29% of the government share is for taxes and duties generated by the project, and about 17% is for contingences, which may not be necessary. Furthermore, no substantial government expenditures are expected until 2013, when ADB expects government revenues to be about 35% higher than in 2010. The Government of Lao PDR is also seeking a loan from OFID in the amount of $12.0 million equivalent. Cofinancing in this amount is included in OFID’s program, and formal approval is expected in March 2011. ADB typically seeks approval from its Board of Directors for the administration of grant and/or loan funds from cofinanciers only when cofinancing commitments are in place. To facilitate project implementation, the Board is requested to approve the administration of the proposed loan in an amount not exceeding the equivalent of $12 million from OFID, which is expected to be confirmed subsequent to the date of Board approval. Approval from OFID will be reported to the Board in accordance with the standard reporting procedures. The OFID financing will be provided as joint cofinancing and will be administered by ADB. The Government of the Lao PDR has agreed that if the loan does not materialize it will secure an equivalent amount of financing from other sources or agree to reduce the scope of the project accordingly.

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Table 2: Financing Plan

Source VIE LAO Amount ($ million)

Share of Total (%)

Asian Development Bank 75.00 20.00 95.00 68.00 OFID 0.00 12.00 12.00 8.60 Governmenta 22.40 10.30 32.70 23.40

Total 97.40 42.30 139.70 100.00 LAO = Lao People’s Democratic Republic, OFID = OPEC Fund for International Development, VIE = Viet Nam. a Taxes and duties to be financed from government resources. Source: Asian Development Bank estimates.

E. Implementation Arrangements

14. The executing agency for the Vietnamese component will be the MOT. Project management unit (PMU) 1 of the MOT will serve as the PMU. The executing agency for the Lao PDR component will be the Ministry of Public Works and Transport (MPWT). The Department of Roads (DOR), under the MPWT, will be responsible for the direct supervision and execution of the project. The project management division of the DOR, which is responsible for managing all DOR projects, will carry out the functions of a PMU. The two executing agencies have extensive experience implementing ADB-financed projects and are capable of implementing the proposed project. 15. All procurement will be undertaken in conformity with ADB’s Procurement Guidelines (2010, as amended from time to time). Consultants will be selected in accordance with ADB’s Guidelines on the Use of Consultants (2010, as amended from time to time). The implementation arrangements are summarized in Tables 3 and 4 and described in detail in the project administration manual (PAM), which is accessible from the list of linked documents in Appendix 2.

Table 3: Implementation Arrangements: Viet Nam Aspects Arrangements Implementation period April 2011–June 2016 Estimated completion date 30 June 2016 Management

(i) Oversight body State Bank of Vietnam (ii) Executing agency Ministry of Transport (iii) Key implementing agencies Project Management Unit 1; Thanh Hoa Provincial People’s Committee

(resettlement only) (iv) Implementation unit Ha Noi

International competitive bidding

3 contracts $69.5 million Procurement

National competitive bidding

1 contract $0.6 million

QCBS 1,220 person-months International: 120 person-months

National: 1,100 person-months

$6.4 million

CQS 20 person-months $0.2 million

Consulting services

Individual 10 person-months $0.2 million Advance contracting Advance contracting for civil works and goods. No retroactive financing has

been requested. Disbursement The loan proceeds will be disbursed in accordance with ADB's Loan

Disbursement Handbook (2007, as amended from time to time) and detailed arrangements agreed upon between the government and ADB.

ADB = Asian Development Bank, CQS = consultant qualification selection, QCBS = quality- and cost-based selection. Source: Asian Development Bank estimates.

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Table 4: Implementation Arrangements: Lao People’s Democratic Republic Aspects Arrangements Implementation period April 2011–June 2016 Estimated completion date 30 June 2016 Management

(i) Oversight body Ministry of Finance (ii) Executing agency Ministry of Public Works and Transport (iii) Key implementing agencies Department of Roads (iv) Implementation unit Vientiane, 12 staff

International competitive bidding

4 contracts $28.9 million Procurement

Direct Selection 1 contract $0.2 million QCBS 1,360 person-months

International: 87 person-months National: 1,273 person-months

$5.2 million

CQS 20 person-months $0.1 million

Consulting services

Individual 10 person-months $0.1 million Advance contracting Advance contracting for civil works. No retroactive financing has been

requested. Disbursement The grant proceeds will be disbursed in accordance with ADB's Loan

Disbursement Handbook (2007, as amended from time to time) and detailed arrangements agreed upon between the government and ADB.

ADB = Asian Development Bank, CQS = consultant qualification selection, QCBS = quality- and cost-based selection. Source: Asian Development Bank estimates.

III. DUE DILIGENCE

A. Economic and Financial

16. Traffic forecasts by vehicle type were prepared for the project road sections for 2011–2035. The forecasts are based on expected growth in gross domestic product, income elasticities of demand, and analysis of regional patterns. The economic analysis was carried out for the project by comparing the with-project and without-project scenarios. In the without-project scenario, the road is assumed to remain in its present condition. The with-project scenario includes routine and periodic maintenance of the post-project road, according to international standards. Project economic costs include the resource costs of road improvement and maintenance. The primary economic benefits of the project are vehicle operating cost (VOC) savings, generated traffic, and time savings. Economic benefits were calculated using the methodology used for costs. VOC savings will accrue primarily from improvements in the road’s surface and horizontal and vertical alignment and from increased average speed. Generated traffic is defined as new traffic induced by lower transport costs due to the project. Benefits for generated traffic are estimated at half the value of VOC savings for normal traffic. The economic internal rate of return for the project is 14%, using a 12% discount rate. Sensitivity analysis was carried out to test the effects of negative changes in the key parameters that determine the benefits and costs of the project. The economic internal rates of return for the alternatives tested under the sensitivity analysis are more than 12%. B. Governance

17. A governance assessment was carried out for both the Lao PDR and the Viet Nam project components as part of the due diligence. The assessment covered the capacities of the MPWT and the DOR in the Lao PDR and the MOT and the PMU1 in Viet Nam, focusing on financial management, institutional issues, policies and procedures, and risks. While significant

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governance issues exist in both countries and both executing agencies, substantial progress has been made over the last several years. ADB’s Anticorruption Policy (1998, as amended to date) was explained to and discussed with the governments and the executing agencies. In addition, the governments have agreed to implement other measures to strengthen governance. These include establishment of a grievance-redress mechanism for project-related issues, including corruption, and creation of project websites to disclose information on procurement and other project-related matters to the public. The specific policy requirements and supplementary measures are described in the PAM (accessible from the list of linked documents in Appendix 2).

C. Poverty and Social

18. The project area encompasses poor areas in both Viet Nam and the Lao PDR. An estimated 37% of the households in Thanh Hoa, the northernmost province of Viet Nam’s central coastal region, have incomes under the national poverty line and three of the five districts that the project road passes through in the province are designated as poor, with poverty rates ranging from 24% to 59%. The project road crosses Houaphanh on the Lao PDR side of the border, which is the country’s fifth poorest province and where 758 villages, subsiding mostly on upland agriculture, are classified as poor. Five of its eight districts are among the country’s 47 poorest. 19. In addition to increasing international trade on the GMS Northeastern Corridor, the project will reduce poverty in the project area by providing economic opportunities. The road improvements will give the poor better access to health, education, and other social services. Travel times and transportation costs will decrease while household incomes rise due to easier transport of goods and local produce. Some negative social effects are also possible, however. To address the risk of higher rates of HIV transmission and human trafficking of women and children that will result from an influx of construction workers, the project will include an HIV/AIDS awareness and human trafficking prevention program. Program activities during the preconstruction and initial operations period will be implemented as part of ADB’s TA on HIV prevention and infrastructure in the GMS.12 The project will finance these activities during the rest of the implementation period. The project’s supervision consultants will also address the need to mitigate the road safety risks that factors such as higher traffic levels and faster speeds on the project road will raise. 20. Gender and development. The project is categorized as effective gender mainstreaming. The project gender action plan ensures that (i) civil works will employ labor-based technology as much as possible and that all construction and road maintenance activities will set employment targets for women, (ii) women will have basic amenities at construction sites and be paid fair wages commensurate with those of men, and (iii) road shoulders will have sealed surfaces for women’s safety and to reduce their burdens as they carry goods. The project’s road safety interventions, which will include road safety signs and speed bumps or other safety measures to slow traffic in villages, will use community women as facilitators in community-based information activities. The HIV/AIDS prevention and anti-trafficking activities will be based on consultation with women and men, will stress gender-sensitive awareness and information materials, and will include targets for the participation of women as community facilitators and beneficiaries. The project will train executing and implementing agency staff on gender issues and include gender indicators in project processes and outputs.

12 ADB. 2008. Technical Assistance for HIV Prevention and Infrastructure: Mitigating Risk in the Greater Mekong

Subregion. Manila (TA 6467-REG).

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D. Safeguards

21. The project’s environmental impact has been classified as category B under ADB’s Safeguard Policy Statement (2009). Based on the initial environmental examination (IEE) reports prepared for the Lao PDR and Viet Nam components the project is not expected to have significant environmental impacts. None of the project roads traverses buffer or core zones of ecologically or culturally protected areas. Two proposed bypasses in Viet Nam are relatively short, ranging from 2 km to 3 km. The adverse environmental impacts will come largely during construction from dust and noise, surface run-off, erosion, traffic and utility disruptions, potential occupational and community health and safety risks, and disposal of excavated materials. Of approximately 4 million cubic meters of soil and rock-based material that will come from the cutting necessary for road widening in hilly areas in the Lao PDR and about the same volume in Viet Nam, only about 10%–15% can be used for fill on the project. Environmental management plans (EMPs) detailing mitigation measures and monitoring activities have been prepared as part of the IEEs to avoid or reduce anticipated negative project impacts. These plans also require the design and supervision consultant (DSC) to draft site-specific EMPs (SEMP) or method statements during the detailed design phase. The SEMP will include the following sub-plans: (i) waste management and spoil disposal plan, (ii) materials management plan, (iii) drainage management plan, (iv) erosion control plan, (v) temporary transport management plan, (vi) utilities and irrigation reprovisioning plan, (vii) noise and dust control plan, and (viii) workers and public safety plan. The contractor will be required to update these EMPs before work begins at the sites. 22. In compliance with ADB requirements, public consultations were conducted during IEE preparation with stakeholders such as local residents, road users, roadside business owners, locally elected representatives, and local government officials. The IEEs have addressed the issues and concerns these stakeholders raised. To ensure that the project execution complies with the EMPs, the two executing agencies—the MOT in Viet Nam and the MPWT in the Lao PDR—will include the EMPs in the tender documents and civil works contracts. The executing agencies and PMUs will be assisted by the DSC in monitoring the environmental performance of contractors and will submit semiannual environmental monitoring reports to ADB. The DSC will also conduct capacity-building activities with the PMUs on environmental management and monitoring. Such activities will include training workshops, orientations, and on-the-job training. Environmental assessment and review frameworks have been developed for the Lao PDR and Viet Nam components to make certain that, if rural roads are added to the scope of the project after approval, implementation will comply with the provisions of ADB's Safeguard Policy Statement. The environmental assessment and review frameworks and IEEs have been endorsed by the governments. 23. The project’s resettlement impacts has been classified as category B for Viet Nam and Lao PDR under ADB’s Safeguard Policy Statement. There are about 8,913 households (35,652 people) in Viet Nam and about 147 households in the Lao PDR which will lose a small portion of land. Only 6 households will require relocation in the Lao PDR and no relocation will be necessary in Viet Nam. The Resettlement Plans have been endorsed and disclosed by MOT in Viet Nam and MPWT in the Lao PDR. 24. The project’s impact on indigenous peoples has been classified as category B under ADB’s Safeguard Policy Statement. The ethnic minority populations of the districts closest to Thanh Hoa City are very small, but ethnic minorities comprise almost the entire population of the two project area districts In Viet Nam closest to the Lao PDR border. The same is true of the

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two project area districts on the Lao PDR side of the border. The ethnic communities in the Lao PDR have been living along the project road since the 1970s. The project will not (i) affect any customary rights to resources or land; (ii) negatively affect the socioeconomic status of the ethnic groups; (iii) reduce their cultural and community integrity; (iv) affect their health, education, livelihood, and/or social security status; or (v) alter or undermine the recognition of indigenous knowledge. Impacts on ethnic minorities will be addressed through the Resettlement Plans. The Resettlement and Ethnic Minorities Framework and Resettlement and Ethnic Communities Framework have been endorsed by the MOT in Viet Nam and the MPWT in the Lao PDR, respectively.

E. Risks and Mitigating Measures

25. Major risks and mitigating measures are summarized in Table 5 and described in detail in the risk assessment and risk management plan, which is accessible from the list of linked documents in Appendix 2. Key project risks include inadequate maintenance of the project roads, damage to the project roads from overloaded vehicles, ineffective implementation of safeguards policies, and corruption. The governments have agreed to implement mitigating measures to address these risks, including assurances that the project roads will be maintained to the national standard through the use of performance-based maintenance contracts, establishment of checkpoints to control the overloading of vehicles, establishment of a grievance-redress mechanism for several issues that include safeguards and corruption, and creation of project websites to disclose project-related information to the public.

Table 5: Summary of Risks and Mitigating Measures

Risks Mitigating Measures The project roads are not maintained adequately.

The loan and grant agreements include an assurance that the project roads will be maintained to the national standard and will be maintained through the use of performance-based maintenance contracts.

Overloaded vehicles damage project roads.

Viet Nam will develop a program to control the overloading of vehicles along the project road, and Lao PDR will set up checkpoints along the project roads to control the overloading of vehicles.

Safeguards policies are not implemented effectively.

The executing agencies will establish a grievance-redress mechanism to receive and resolve complaints on environment, resettlement, and other project issues.

An independent monitor will be engaged to monitor resettlement activities and land acquisition.

Corruption The executing agencies will (i) create project websites to disclose information on procurement and other project matters, and (ii) establish a grievance-redress mechanism on procurement and other project matters.

Source: Asian Development Bank.

IV. ASSURANCES

26. The governments and the executing agencies have assured ADB that implementation of the project shall conform to all applicable ADB policies including those concerning anticorruption measures, safeguards, gender, procurement, consulting services, and disbursement as described in detail in the PAM, and loan and grant documents. 27. The governments and the executing agencies have agreed with ADB on certain covenants for the project, which are set forth in the loan agreement and grant agreement.

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V. RECOMMENDATION

28. I am satisfied that the proposed loan and grant would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve

(i) the loan in various currencies equivalent to SDR47,450,000 to the Socialist Republic of Viet Nam for the Second Northern Greater Mekong Subregion Transport Network Improvement Project from ADB’s Special Funds resources with an interest charge at the rate of 1.0% per annum during the grace period and 1.5% per annum thereafter; for a term of 32 years, including a grace period of 8 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft loan agreement presented to the Board;

(ii) the grant not exceeding $20,000,000 to the Lao People’s Democratic Republic, from ADB’s Special Funds resources, for the Second Northern Greater Mekong Subregion Transport Network Improvement Project, on terms and conditions that are substantially in accordance with those set forth in the draft grant agreement presented to the Board; and

(iii) in the event the OPEC Fund for International Development approves loan financing not exceeding the equivalent of $12,000,000 to the Lao People’s Democratic Republic for the Second Northern Greater Mekong Subregion Transport Network Improvement Project, the administration by ADB of such loan in accordance with the proposal set out in paragraph 13 of this report.

Haruhiko Kuroda President

2 November 2010

Appendix 1 11

DESIGN AND MONITORING FRAMEWORK

Design Summary Performance Targets and Indicators with Baselines

Data Sources and Reporting Mechanisms

Assumptions and Risks

Impact Assumptions International trade on the GMS Northeastern Corridor increases.

Trade along the Northeastern Corridor between the Lao PDR and Viet Nam increased from $4 million in 2013 to $10 million in 2018

General Department of Viet Nam Customs and Lao PDR customs

Viet Nam and Lao PDR governments remain committed to facilitating cross-border transport and trade facilitation

Other ADB-financed regional cooperation TAs and projects are implemented as planned.

Risk The project roads are not maintained adequately.

Outcome Truck traffic across the border

increased from under 100 trucks per day in 2009 to 220 trucks per day in June 2016

Transport across the Lao PDR–Viet Nam border and on the project sections of the GMS Northeastern Corridor becomes more efficient.

Travel time on project roads decreased (in hours: minutes): by June 2016

R6 (Vieng Xai–Nam Soi), from 1:50 to 1:30;

R6A, from 2:15 to 1:30; R6B, from 1:00 to 0:40; QL217 km 107 to Na Meo,

from 3:40 to 2:35; and QL 217 (QL 1 to km107),

from 2:40 to 2:00.

MOT and MPWT traffic statistics Survey reports by project supervision consultants

Risk Overloaded vehicles damage the project roads.

Outputs Risk 1. The project

components of the GMS Northeastern Corridor in Viet Nam and the Lao PDR are improved.

Physical completion of 143 km of routes 6, 6A, and 6B in the Lao PDR and 196 km of Highway 217 in Viet Nam to all-weather status by June 2016 25% of unskilled laborers are women by June 2015

MOT and MPWT road condition reports Project supervision consultants reports

Corruption negatively impacts quality of civil works.

Road accidents per vehicle-km on R6, R6A, R6B, and R1C in the Lao PDR and Highway 217 in Viet Nam reduced by 15% by June 2016

Viet Nam Ministry of Public Security Traffic Police Department and Lao PDR Houaphanh Department of Public Works and transport

2. Road safety on the project sections of Northeastern Corridor is improved.

At least 50% of community facilitators in the community-based road safety campaign are women by June 2015

Project supervision consultants reports

Appendix 1 12

Activities with Milestones Inputs

Viet Nam ADB: $75 million loan Item Amount ($ million) Civil works 52.2 Consulting services 6.6 Contingencies 14.3 Other 1.9 Government: $22.4 million Item Amount ($ million) Civil works 5.8 Taxes and duties 7.2 Land acquisition and resettlement

3.2

Contingencies 4.5 Other 1.7 Lao People’s Democratic Republic ADB: $20 million (grant) Item Amount ($ million) Civil works 10.6 Consulting services 5.4 Contingencies 3.8 Other 0.2 OFID: $12.0 million Item Amount ($ million) Civil works 9.7 Contingencies 2.3 Government: $10.3 million

Item Amount ($ million) Civil works 4.0 Taxes and duties 3.0 Contingencies 1.8

1. Improvement of corridor components 1.1 Civil works contracts are awarded by January

2011. 1.2 Civil works contracts are completed by June 2016. 1.3 Project supervision consultants are recruited by

March 2011 and services are completed by June 2016.

1.4 Unexploded ordnance clearance is completed by December 2011.

1.5 All affected households are compensated, without loss of livelihoods by 31 May 2013.

1.6 Gender-specific activities included in the resettlement plan are implemented by January 2013.

1.7 Ethnic minority specific activities are addressed in the implementation of resettlement plan by January 2013.

1.8 HIV/AIDS awareness and prevention of human trafficking program begins by June 2011 and is completed by December 2015 at the community level as well as through communication media.

1.9 Campaign materials on HIV/AIDS awareness and prevention of human trafficking program are prepared and implemented by December 2012; capacity building training of implementing agencies for HIV/AIDS awareness and prevention of human trafficking program are completed by December 2013

2. Improvement of road safety

2. 1 Civil works contracts are awarded by January 2011.

2. 2 Civil works contracts are completed by June 2016. 2. 3 Road safety awareness campaign carried out by

June 2015.

Other 1.5

ADB = Asian Development Bank, GMS = Greater Mekong Subregion, km = kilometer, Lao PDR = Lao People’s Democratic Republic, MOT = Ministry of Transport, MPWT = Ministry of Public Works and Transport, OFID = OPEC Fund for International Development, QL = highway, R = route, TA = technical assistance. Source: Asian Development Bank.

Appendix 2 13

LIST OF LINKED DOCUMENTS http://www.adb.org/Documents/RRPs/?id=41444-01-3

1. Loan Agreement (Viet Nam)

2. Grant Agreement (Lao People’s Democratic Republic)

3. Sector Assessment (Summary): Transport, and Information and Communication Technology

4. Project Administration Manual: Viet Nam

5. Project Administration Manual: Lao People’s Democratic Republic

6. Contribution to the ADB Results Framework

7. Development Coordination: Viet Nam

8. Development Coordination: Lao People’s Democratic Republic

9. Economic Analysis

10. Country Economic Indicators: Viet Nam

11. Country Economic Indicators: Lao People’s Democratic Republic

12. Summary Poverty Reduction and Social Strategy

13. Gender Action Plan

14. Initial Environmental Examination: Viet Nam

15. Initial Environmental Examination: Lao People’s Democratic Republic

16. Environmental Assessment and Review Framework: Viet Nam

17. Environmental Assessment and Review Framework: Lao People’s Democratic Republic

18. Resettlement Plan: Viet Nam

19. Resettlement Plan: Lao People’s Democratic Republic

20. Resettlement Framework: Viet Nam

21. Resettlement Framework: Lao People’s Democratic Republic

22. Risk Assessment and Risk Management Plan