Report and Recommendation of the President to the Board of Directors

Project Number: 39500 November 2010

Proposed Multitranche Financing Facility Socialist Republic of Viet Nam: Ho Chi Minh City Urban Mass Rapid Transit Line 2 Investment Program

CURRENCY EQUIVALENTS (as of 8 November 2010)

Currency Unit – dong (D)

D1.00 = $0.0000527009 $1.00 = D19,495.00

ABBREVIATIONS

ADB – Asian Development Bank CTF – Clean Technology Fund DMF – design and monitoring framework EA – executing agency E&M – electrical and mechanical EIB – European Investment Bank EIRR – economic internal rate of return FAM – facility administration manual FFA – framework financing agreement GHG – greenhouse gas HIV/AIDS – Human Immunodeficiency Virus/Acquired Immune Deficiency

Syndrome HCMC – Ho Chi Minh City ICB – international competitive bidding IEE – initial environmental examination km – kilometer MAUR – Management Authority for Urban Railways MFF – multitranche financing facility MOF – Ministry of Finance MRT – mass rapid transit MRT2 – mass rapid transit line 2 LIBOR – London interbank offered rate OCR – ordinary capital resources O&M – operations and management PMU – project management unit RF – resettlement framework RP – resettlement plan RSDD – Regional and Sustainable Development Department SBV – State Bank of Vietnam SERD – Southeast Asia Regional Department WACC – weighted average cost of capital

NOTE

In this report, "$" refers to US dollars unless otherwise stated.

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 R. Valkovic, Principal Transport Specialist, SERD Team members P. Broch, Senior Transport Economist, SERD M. Buendia, Social Development Specialist (Resettlement), SERD S. Hung, Social Development Specialist (Gender and Development),

Regional and Sustainable Development Department (RSDD) S. Kawazu, Counsel, Office of the General Counsel T. Mella, Operations Officer, SERD S. Saxena, Climate Change Specialist, RSDD L. D. Thang, Senior Project Implementation Officer, Viet Nam Resident

Mission A. Velasquez, Safeguards Specialist (Environment), SERD Peer reviewer A. Dauphin, Urban Development Specialist (Urban), Central and West Asia

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

CONTENTS

Page 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 6

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

IV. ASSURANCES 10 V. RECOMMENDATION 10 APPENDIXES

1. Design and Monitoring Framework 11 2. List of Linked Documents 14

PROJECT AT A GLANCE 1. Project Name: Ho Chi Minh City Urban Mass Rapid Transit Line 2 Investment Program 2. Project Number: 39500 3. Country: Viet Nam, Soc Rep of 4. Department/Division: Southeast Asia Department Transport and Urban Development Division 5. Sector Classification

Sectors Primary Subsectors Transport, and Information and Communication Technology

Urban Transport

6. Thematic Classification: Themes Primary Subthemes Economic growth Promoting economic efficiency and enabling business

environment Capacity development Organizational development Environmental sustainability Urban environmental improvement

6a. Climate Change Impact: 6b. Gender Mainstreaming:

Adaptation Low Mitigation High

Gender equity theme Effective gender mainstreaming Some gender benefits No gender elements

7. Targeting Classification: 8. Local Impact:

General Intervention

Targeted Intervention Rural Geographic

dimensions of inclusive growth

Millennium Development

Goals

Income Poverty at Household

Level

Urban High National Regional

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

Environment Project 1 – B, Project 2 – A (expected) Involuntary resettlement Project 1 – B, Project 2 – A (expected) Indigenous peoples C

11. ADB Financing:

Sovereign/Nonsovereign Modality Source Amount ($ million)

Sovereign Multitranche financing facility Ordinary capital resources 540.0 Total 540.0

12. Cofinancing:

Financier Category Amount

($ million) KfW Bankengruppe Official, bilateral 313.0 European Investment Bank

Official, multilateral

195.0

Total 508.0 13. Counterpart Financing:

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

326.50

14. Aid Effectiveness:

Parallel project implementation unit No Program-based approach No

I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on a proposed multitranche financing facility to the Socialist Republic of Viet Nam for the Ho Chi Minh City Urban Mass Rapid Transit Line 2 Investment Program.1

II. THE PROJECT

A. Rationale

2. Strategic context of urban transport. The Government of Viet Nam is well aware of the impact of inadequate transport infrastructure on economic growth. Without investment in public transport infrastructure in cities, economic growth will be constrained and the urban environment will degrade further. The Viet Nam Socio Economic Development Plan for 2011–2015 supports investments in public transport to promote economic growth and protect the environment. ADB’s 2007–2010 Viet Nam country strategy and program 2

supports the government's investment program to improve urban transport infrastructure and reduce transportation costs.

3. Ho Chi Minh City (HCMC) is the largest city in Viet Nam, with a population of over 9 million that is expected to grow to 13.8 million by 2025. Private vehicles dominate transportation, but road infrastructure is reaching the saturation point, which will worsen as more motorbike users convert to cars with improving household incomes. Road network development faces space limitations and will not be able to meet the expected increase in demand, so private transport is not sustainable as the principal transportation mode. A well-integrated high-capacity public transport system is essential, and a rail mass rapid transit (MRT) system is most appropriate for densely populated cities. Without improvements in major public transport infrastructure, combined with policies that support a modal shift to public transport, HCMC’s economic growth will be constrained by high logistics costs and severe congestion. 4. The proposed investment program will develop one of three priority urban rail MRT lines in HCMC to support the establishment of a sustainable urban transportation system. 3

The construction of MRT Line 2 (MRT2) will facilitate public transport access and connectivity in six central districts of HCMC, promote a modal shift from private to public transport, and support low-carbon transport that reduces greenhouse gas emissions.

5. Ho Chi Minh City public transport sector. The existing public transport system consists of an inefficient and poorly integrated bus network that is not competitive with private transport and has a modal share below 5%. Traffic planning is weak, and inadequate traffic management systems do not promote the use of public transport. Rapid growth in the private ownership of cars and motorbikes has caused heavy congestion along major routes and inner-city areas, contributing to a dangerous urban environment. With increasing traffic in central HCMC, high volume public transport modes are required to both alleviate existing congestion and meet growing transportation demand. Policy and regulatory measures are needed to

1 The design and monitoring framework is in Appendix 1. 2 ADB.2006.Country Strategy and Program: Viet Nam, 2007-2010 Manila. 3 ADB.2006. Technical Assistance to the Socialist Republic of Viet Nam for Preparing the Ho Chi Minh City Metro Rail

System Project. Manila (TA 4862-VIE ) and ADB. 2009. Technical Assistance to the Socialist Republic of Viet Nam for the Ho Chi Minh City Urban Mass Rapid Transit Line 2 Project. Manila (TA 7343-VIE). The first publication of the investment program in www.adb.org was on 15 March 2006.

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promote public transport and discourage private transport, but these measures cannot be implemented until a viable public transport system exists for city residents and commuters. 6. The prime minister approved in January 2007 the HCMC Urban Transport Master Plan,4

which proposes developing nine MRT lines, strengthening traffic management, and improving the bus system to support a shift from private to public transport. The key objective of the plan is to increase the share of public transport to 45%–50%. Slowing the proliferation of private vehicles on city roads will contribute to an improved urban environment by reducing accidents and air and noise pollution and making urban areas more pedestrian friendly.

7. Public transport financing and sustainability. The public transport improvements proposed in the master plan up to 2020 are estimated to cost $5.3 billion, including $4.5 billion for three priority rail MRT lines. The central government provides investment financing for the infrastructure components but not for operational equipment and systems. As annual budgetary allocations can meet less than 20% of the plan’s financing requirements, the shortfall requires financing from other sources such as international financial institutions and the private sector. Public transport services are financed primarily from allocations under the HCMC budget, but sources of revenue are not maximized. Bus fares are kept low to compete with private transport,5

and there is no reconciliation between fare revenues and expenditures, resulting in subsidized bus services. Cost recovery is further hampered by inefficient institutional arrangements for establishing, allocating, and operating bus routes. Improving public transport sustainability requires a multipronged approach that includes establishing high-capacity MRT lines to offer an efficient, affordable alternative to private vehicles, as well as restricting private vehicles through economic and other measures.

8. Support for sustainable transport in HCMC will be achieved by integrating MRT2 with other public transport systems, including improving connectivity to the bus network and new feeder routes, enhancing integration and accessibility at stations, pedestrian-friendly access, and instituting policy changes to restrict private vehicle use in the city center. The implementation of these measures will be supported through a proposed loan using the Clean Technology Fund (CTF)6

and ADB financing in 2012.

9. Financing modality. The multitranche financing facility is the modality best suited for the proposed investment program. It allows ADB to enter into a sustained partnership with the government for the long-term investments needed to implement the urban MRT network, which needs staged financing. All conditions for its use are in place: a coherent strategy and sector road map, a policy framework, an investment program, and a financing plan. 10. Lessons learned. For large transport infrastructure projects in Viet Nam, experience indicates7

strong support is required to avoid implementation delays, ensure quality of works are achieved and build sustainable institutions. Poor local capacity affects timely implementation of land acquisition and resettlement, so adequate time and strengthening are important. These have been incorporated into the project design and the multitranche financing facility structure.

4 Japan International Cooperation Agency. 2004. Urban Transport Master Plan and Feasibility Study in HCMC Metropolitan Area. Viet Nam: JICA.

5 Private transport costs are artificially low due to pricing structures for private vehicle parking and operating costs. 6 The CTF is part of the multidonor global Climate Investment Fund, which supports low-carbon transport to promote

greenhouse gas reduction. The CTF country investment program for Viet Nam has allocated $50 million to support sustainable urban transport measures linked to the HCMC MRT2 investment program.

7 ADB 2009, Sector Assistance Program Evaluation for Viet Nam. Manila.

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B. Impact and Outcome

11. The impact of the investment program will be the establishment of an integrated, sustainable public transport system in six districts of HCMC. The primary outcome will be competitive MRT services along the project corridor. C. Outputs

12. Investment program. The outputs of the investment program will be (i) the construction of 11.3 kilometers (km) of a dual track rail MRT line from Ben Thanh to Tham Luong in HCMC, including a depot at Tham Luong; (ii) strengthened planning and preparation of a policy framework for public transport; and (iii) implementation support for urban transport agencies in HCMC. The investment program will consist of two separate projects. 13. Project 1. This project consists of:

(i) MRT Line 2 system development. Initial works to facilitate MTR 2 development, including site preparation works and the construction of initial buildings at Tham Luong depot, remaining depot infrastructure works, initial systems for stations,8 and support for preparing functional designs9

(ii) MRT implementation support. Support to the implementing agency and other HCMC People’s Committee agencies to assist with;

and procurement.

(a) project management and implementation for compliance with financier requirements, MRT management, operation and maintenance (O&M), and public transport management;

(b) program of social development and gender mainstreaming to address key social development, gender, and public awareness issues; and

(c) a study of integrated sustainable urban transport for (1) demand forecasting and integrated fares and ticketing, (2) bus service restructuring and intermodal facilities, and (3) sustainable transport policy, whose outputs will identify measures to improve public transport that will be implemented under a separate CTF-funded project in 2012.

14. Project 2. The outputs will be 11.3 km of urban dual rail line—9.3 km underground, 0.2 km transition, and 1.8 km elevated, including depot connection—and the completion of a depot at Tham Luong, including construction supervision. Project 2 will be subject to further due diligence review.

D. Investment and Financing Plans

1. Investment Plan

15. The investment program is estimated to cost $1.37 billion equivalent of which $540 million will be provided by ADB, $313.0 million will be provided by German development corporation through KfW parallel cofinancing, direct cofinancing of $195.0 million will be provided by the European Investment Bank, and $326.5 million will be provided by the government. The total cost of project 1 is estimated at $104.3 million, to be financed by ADB, KfW, and the government.

8 To be financed by German development cooperation through KfW, and procured with similar items under project 2. 9 The contracts for civil works and electrical and mechanical systems will be completed on a design–build basis.

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Table 1: Investment Program ($ milliona)

Item Project 1 Project 2 Total A. Base Costb 1. MRT Line 2 System Development

a. Land acquisition and resettlement 0.0 127.6 127.6 b. Civil works 25.0 488.7 513.7 c. Electrical and mechanical

systems 25.7 209.2 234.9

d. Rolling stock 0.0 66.1 66.1 e. Functional design and

supervision 14.3 43.6 64.9

2. MRT Implementation Support a. Project management support 8.9 0.0 8.9 b. Social development and gender

mainstreaming program 0.4 0.0 0.4

c. Integrated sustainable urban transport 3.9 0.0 3.9

d. Incremental administration 1.0 17.0 18.0 Total Base Cost 79.2 952.2 1,031.4 B. Physical and Price Contingenciesc 16.9 215.1 232.0 C. Financing Charges During Implementationd 8.2 103.0 111.1

Total (A+B+C) 104.3 1,270.2 1,374.5 MRT = mass rapid transit. a In 2009 prices. b Includes taxes and duties of $81.9 million for the investment program to be financed by the government. c Physical contingencies: 10% of civil works and systems, 5% of pre-investment stage cost, 0% of resettlement.

Price contingencies: 0.5%–1.2% on foreign exchange costs and 5.0%–7.0% on local currency costs. d Includes interest during construction, commitment charges, and export credit insurance for KfW financing. Source: Asian Development Bank.

2. Financing Plan

16. The government has requested a multitranche financing facility (MFF) in an amount up to $540 million through an MFF from ADB’s ordinary capital resources (OCR) to help finance a part of the investment program. The MFF is anticipated to comprise two loans, subject to the government submitting periodic financing requests, the execution of applicable loan agreements, and compliance with the undertakings in a framework financing agreement entered into between the government and ADB. The OCR financing will follow the provisions of the ordinary operations loan regulations applicable to London interbank offered rate (LIBOR)–based loans,10

10 ADB. 2001. Ordinary Operations Loan Regulations Applicable to LIBOR-Based Loans Made from ADB’s Ordinary

Capital Resources. Manila.

which will apply to each such loan subject to any modifications that may be included under individual loan agreements. The interest rates for each OCR loan will be determined in accordance with ADB’s LIBOR-based lending facility. The loan repayment period and other terms and conditions for each OCR loan will be set forth in the draft loan and project agreements. The government has provided ADB with (i) the reasons for its decision to borrow under ADB’s LIBOR-based lending facility based on these terms and conditions, and (ii) an undertaking that these choices were its own independent decision and not made in reliance on any communication or advice from ADB. The financing plan is in Table 2.

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Table 2: Summary Financing Plan for the Investment Program ($ million)

Source Project 1 Share of Total (%) Project 2 Share of

Total (%) Total Share of Total (%)

Asian Development Bank 40.0 38.4 500.0 39.4 540.0 39.3

KfW 36.4 34.9 276.6 21.8 313.0 22.8

European Investment Bank 0.0 0.0 195.0 15.4 195.0 14.2

Government 27.9 26.7 298.6 23.5 326.5 23.7

Total 104.3 1,270.2 1,374.5 Source: Asian Development Bank.

17. For project 1, the government has requested OCR financing of $40 million of the MFF and will submit a periodic financing request to ADB. The loan will have a term of 20 years, including a grace period of 6 years, an annual interest rate determined in accordance with ADB’s LIBOR-based lending facility, and a commitment charge of 0.15% per year (interest and other charges during construction to be capitalized in the loan). German development cooperation through KfW will provide parallel cofinancing of $36.4 million equivalent under loan terms to be negotiated with the government. The KfW loan will not be administered by ADB. The government will provide counterpart financing of $27.9 million.

Table 3: Financing Plan for Project 1

($ milliona) Item ADB KfW Government Total A. Base Costb 1. MRT Line 2 System Development

a. Depot works 22.7 0.0 2.3 25.0 b. Electrical and mechanical systems 0.0 23.4 2.3 25.7 c. Functional design 0.0 13.0 1.3 14.3

2. MRT Implementation Support a. Project management support 8.1 0.0 0.8 8.9 b. Social development and gender

mainstreaming program 0.4 0.0 0.0 0.4

c. Integrated sustainable urban transportc 3.6 0.0 0.3 3.9

d. Incremental administration 0.0 0.0 1.0 1.0 Total Base Cost 34.8 36.4 8.0 79.2 Physical and Price Contingenciesd 0.0 0.0 16.9 16.9 Financing Charges During Implementatione 5.2 0.0 3.0 8.2

Total 40.0 36.4 27.9 104.3 ADB = Asian Development Bank, MRT = mass rapid transit. a In 2009 prices. b Includes taxes and duties of $7.1 million to be financed by the government. c Study will determine investments for a proposed $60 million loan in 2012, with $10 million in ADB financing and $50

million in Clean Technology Fund financing, that will be linked to Project 2. d Physical contingencies: 10% of civil works and systems and 5% of pre-investment stage cost. Price contingencies:

0.5%–1.2% on foreign exchange costs and 5.0%–7.0% on local currency costs. e Includes interest during construction and commitment charges. Source: Asian Development Bank.

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E. Implementation Arrangements

18. The HCMC People’s Committee has established a project steering committee led by the permanent vice chairman, which is supported by the Urban Railway Council. The executing agency will be the HCMC People’s Committee, and the main implementing agency will be the Management Authority for Urban Railways (MAUR). The Department of Transport will be the implementing agency for the integrated sustainable urban transport component. MAUR was established in 2007 to implement all nine mass transit systems proposed under the Urban Transport Master Plan, with three MRT lines under preparation. MAUR has established a project management unit (PMU) for MRT2. The PMU head will ensure compliance with ADB procurement and consulting guidelines and ADB safeguard policies. The capacity development program11

will provide extensive technical, financial, and management training to strengthen MAUR and compliment other capacity-building programs.

19. MAUR will ensure that the investment program follows the detailed arrangements as described in the facility administration manual (FAM). Any update of the FAM will become effective only after approval by Viet Nam and ADB. In the event of any discrepancy between the FAM and the loan agreements, the loan agreements will prevail. The implementation arrangements for project 1 are summarized in Table 4.

Table 4: Implementation Arrangements for Project 1 Aspects Arrangements

Implementation period 1 January 2011–31 December 2016

Investment Program 6 years January 2011–December 2016

Project 1 6 years January 2011–December 2016

Estimated project completion date

31 December 2016

Management

(i) Oversight body Ministry of Finance

(ii) Executing agency Ho Chi Minh City People’s Committee

(iii) Key implementing agencies

Management Authority for Urban Railways Department of Transport

(iv) Project management unit

Ho Chi Minh City, 32 staff

Procurement of civil works for Project 1

International competitive bidding

1 contract $7.7 million

Consulting services Quality- and cost-based selection

3 contracts 1,407 person-months

$13.2 million

Disbursement The loan proceeds will be disbursed in accordance with ADB's Loan Disbursement Handbook (2010, as amended from time to time) and detailed arrangements agreed upon between the government and ADB.

Source: Asian Development Bank.

11 Includes support from secondment of specialists from external agencies under separate ADB cooperation

agreements.

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III. DUE DILIGENCE

A. Technical

20. The Urban Transport Master Plan identified MRT2 as a priority line, and implementation is being coordinated closely with two other lines being concurrently developed.12 Technology choices are based on efficient modern MRT systems, with stations designed for future integration, depots developed with sufficient land to service future MRT lines13 and common technical standards adopted for inter-linked facilities between different MRT lines. Bidding documents will use a functional design, with the final design of the civil works and systems contracted on a design–build basis to enhance system and equipment optimization, allow contract interfaces to be efficiently managed, and achieve the timely completion of works. The equipment and systems contractor will offer an option to operate MRT2 as a concession under the main O&M company for the initial 5 years to more effectively train and transfer knowledge to the long-term operator.14

The main O&M company will be a public entity whose organizational structure will be developed under technical assistance provided to MRT1 by other financiers.

B. Economic and Financial

21. The investment program will directly benefit public transport users and communities in six districts and indirectly benefit all transport users in HCMC. The main benefits are derived from improved accessibility to better, safer, cheaper, more reliable, and faster transportation, with additional benefits from deferred bus capital costs and reduced road maintenance costs. Greenhouse gas emissions and traffic congestion will be alleviated, providing social benefits that include improved air quality, access to government services, and community quality of life. 22. Transport demand forecast for MRT2 is 213,000 loadings per day at opening in 2017, increasing to 703,000 loadings per day in 2035. The investment program has an estimated economic internal rate of return (EIRR) of 12.4% and an economic net present value of $36.8 million. While the EIRR is low, it is typical of large investments in projects with long returns, and some secondary benefits not included in the analysis are improved logistics, increases in property values and tax revenues, and high congestion costs that would be incurred without the project. The sensitivity and switching value analysis indicates that the EIRR is sensitive to changes in user benefits or project costs of 5%, so there is moderate risk that the entire investment program will not reach the EIRR threshold of 12%. While civil works costs are at high risk of increasing, particularly for the underground section, there are also large upside potential benefits as improvements to the road network are unlikely to occur as planned, with constrained capacity increasing private vehicle operating costs. 23. For the financial analysis, operating cost but not capital cost 15

12 MRT Line 1 is currently at the bidding stage, and MRT Line 5 is at the feasibility study stage.

is covered by fare revenue. The base case assumes that, by the start of operation, reorganized bus routes and other integration measures to optimize public transport will have been implemented. At the assumed fare of D4,000 per boarding, the patronage forecasts and annual fare revenue yields a

13 The MRT2 depot will also be used for MRT Line 6 in the future. 14 The long-term operator will be either a state-owned enterprise or under an operating concession agreement. 15 Under Railway Law 2005, the HCMC People’s Committee will be responsible for financing rolling stock, electrical

and mechanical systems, land and resettlement, and incremental administration. Based on the financing plan, the central government is expected to onlend $381 million as a sub-loan in local currency and on-grant $696 million.

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fare box ratio16

of 0.8 in the starting year of 2017 but thereafter equals or exceeds 1.0. The investment program is anticipated to require a total subsidy over the project life of $790 million. The financial internal rate of return of the investment program after tax is 3.36%, which exceeds the calculated weighted average cost of capital of 2.10%. If urban public transport system optimization does not materialize, the daily fare revenue drops by 40%, and the total subsidy required is $1.2 billion, a substantial increase in the subsidy burden on the government.

C. Governance

24. National and local governance performance in Viet Nam has improved recently. Public finance management reform has brought increased disclosure of public accounts, higher accounting standards, and budgetary rules progress. The November 2005 Law on Procurement and regulations in 2006 and 2008 have established national bidding documents, but substantial gaps remain between the new national provisions and international-standard procedures, which can delay implementation. Dialogue continues with the government on these issues, with a view to harmonizing national and international procedures. Measures to address corruption have improved, with revisions to the Anti-Corruption Law in August 2007 that established a national anticorruption steering committee. The government is committed to reforming national institutions to reduce malfeasance waste and improve development effectiveness. ADB’s Anticorruption Policy (1998, as amended to date) was explained to and discussed with the Ministry of Finance and MAUR. Specific policy requirements are described in the FAM. 25. The investment program will use international competitive bidding to improve oversight and mitigate corruption, which improves governance if implementation delays are avoided through information sharing. The bidding process will be further enhanced by improved transparency, information disclosure, oversight and monitoring, mitigation of fraud and collusion risks, handling of complaints, and sanctions and remedies.

D. Poverty and Social

26. The investment program is a general intervention with indirect poverty reduction impacts. Major beneficiaries will be public and private transport users, with women, students, children, and older people expected to benefit the most from improved transportation, as well as communities in districts along the project corridor. Local economies are expected to improve as improved and cheaper transport will create business opportunities, reduce congestion, and improve the quality of life. Project districts will benefit from temporary construction jobs and local employment in O&M.

27. The potential adverse social impacts from the project are increased risk of spreading HIV/AIDS with the influx of construction workers and increased commuter traffic. Safety risks for the communities along the road are also expected to increase with higher concentrations of pedestrians near stations. The HIV/AIDS risk will be addressed through HIV/AIDS and human trafficking awareness and prevention and community awareness programs, with civil works contracts incorporating provisions and budgets for these programs.

28. Effective gender mainstreaming will ensure that the effectiveness and sustainability of the MRT system is maximized. The gender action plan includes (i) employment targets for women and gender-specific labor standards for contracts and employment generation; (ii) consideration of gender-inclusive design features in infrastructure; (iii) targets for women's

16 Fare revenue divided by O&M cost.

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participation and the inclusion of gender-related content in capacity building; and (iv) mitigating gender-related impacts from resettlement and under the HIV/AIDS program.

E. Safeguards

29. No major environmental impacts are anticipated from the implementation of project 1, which is environment category B. An initial environmental examination (IEE) was prepared based on ADB’s Safeguard Policy Statement (2009). Public consultations involving affected people were conducted during IEE preparation in compliance with ADB information disclosure and consultation requirements. To ensure that the project accords with the environmental management plan, MAUR will include the plan in bidding documents for civil works contracts. Consultants will assist MAUR in monitoring the environmental performance of contractors. An environmental assessment and review framework that specifies the requirements for screening, categorization, environmental assessment, and the preparation and implementation of safeguard plans for project 2 has been agreed by the HCMC People’s Committee. 30. A resettlement framework sets out the screening, policy, and planning procedures that the HCMC People’s Committee will follow when preparing a resettlement plan for the project 2 main line and due diligence for remaining depot area. project 1 is category B for involuntary resettlement and category C for indigenous peoples. For project 1, a corrective action plan was prepared for the nine households affected by land acquisition at the depot priority area. F. Risks and Mitigating Measures

31. The investment program will have several implementation risks, as it involves complex design standards with multiple interfaces and difficult construction techniques, especially in underground sections. The risks and mitigating measures are summarized in Table 5.

Table 5: Summary Risks and Mitigating Measures

Risks Mitigating Measures Inadequate public transport policies because of (i) a lack of public support for effective policies to support a modal shift and (ii) poor enforcement of regulations

The HCMC People’s Committee to (i) expedite analysis and approve implementing rules and (ii) support the implementation of policy measures with CTF financing

Public transport systems not integrated because (i) measures are implemented ineffectively and (ii) the fare pricing structure is not affordable

The CTF project to design and implement key measures Demand forecasting and pricing policy determined through study under project 1.

Failure to maintain the MRT2 system once operational

Consultants to support O&M planning and implementation HCMC People’s Committee to assure adequate O&M funds

Cost increase and complexity delays International experts to support project management Design auditing and value analysis of detailed design

Land acquisition delays for project 2

Full consultation and participation of potentially affected people to ensure agreed and acceptable solutions

CTF = Clean Technology Fund, MRT = mass rapid transit, O&M = operation and maintenance. Source: Asian Development Bank.

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32. Financial sustainability issues and policy reform present further risks that require mitigation. Public financial management and procurement is the greatest risk during project implementation. Safeguard issues pose some risk for project 2, as land acquisition and resettlement is required for all underground station construction.17

The key risk that the MRT system is not integrated with the public transport system is mitigated through CTF financing of measures to address it. The viability of the investment program relies heavily on achieving the estimated patronage. The HCMC People’s Committee is responsible for ensuring that bus transport is significantly developed before the operation of the MRT lines and for implementing policy changes to encourage the use of public transport over private vehicles. Benefits and positive impacts are expected to outweigh any mitigation costs.

IV. ASSURANCES

33. The government has assured ADB that implementation of the investment program shall conform to ADB's mandatory policies on anticorruption, safeguards, procurement, consulting services, disclosure, and disbursement, which includes the Anticorruption Policy (1998, as amended to date), Safeguard Policy Statement (2009), Public Communications Policy (2005), Procurement Guidelines (2010, as amended from time to time), Guidelines on the Use of Consultants (2010, as amended from time to time), and Loan Disbursement Handbook (2007, as amended from time to time). The detailed implementation arrangements are set forth in the FAM. The government has given ADB certain undertakings for the MFF, which are set forth in the framework financing facility. Specific covenants agreed by the government with respect to individual tranches under the MFF are set forth in the loan agreements. 34. KfW and the European Investment Bank have agreed to comply with ADB Safeguard Policy Statement requirements for all components financed under the investment program.

V. RECOMMENDATION

35. I am satisfied that the proposed multitranche financing facility would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve the provision of loans under the multitranche financing facility in an aggregate principal amount not exceeding $540,000,000 to the Socialist Republic of Viet Nam for the Ho Chi Minh City Urban Mass Rapid Transit Line 2 Investment Program from ADB's ordinary capital resources, with interest to be determined in accordance with ADB's London interbank offered rate (LIBOR)-based lending facility, and such other terms and conditions as are substantially in accordance with those set forth in the framework financing agreement presented to the Board.

Haruhiko Kuroda President

19 November 2010

17 Stations are constructed using cut and cover, so land has to be cleared of buildings, utilities, and other features.

Appendix 1 11

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DESIGN AND MONITORING FRAMEWORK

Design Summary

Performance Targets and Indicators with

Baselines Data Sources and

Reporting Mechanisms Assumptions

and Risks Impact An integrated, sustainable public transport system in six districts of Ho Chi Minh City

Public transport percentage share increased from 5% in 2008 to 30% by 2025

Government statistical publications by district

Post-evaluation reports

Assumption

Continued strong growth in Viet Nam and regional economies

Risks

Implementation of other planned MRT lines delayed

Lower priority for climate change mitigation and adaptation

Outcome Competitive MRT services along the project corridor

173,800 daily loadings and 8,500 per direction peak loading on MRT2 by 2018

Reduced weighted average travel time along MRT2 corridor by 20% from 2010 level by 2018

Non-MRT public transport capacity increased by 100% in project districts by 2018 from 2010 level

Number of traffic accidents down from trend by 30% by 2018 from 2010 level

Government and public transport operator statistics

Government traffic surveys and accident and hospital records

Independent public opinion survey

Benefit monitoring reports

Monitoring reports from CTF-funded project

Assumptions

Government resources are allocated for MRT2 O&M

Sustainable transport initiatives implemented and acceptance of public transport modes

Risks

Policy and regulatory reforms to support modal shift not enacted in a timely way

Integrated services not planned, implemented, or operated efficiently

Public transport services not financially sustainable

Outputs Project 1 1. MRT Line 2 System

Development -Initial site works and office facilities at depot

2.1 Implementation

support program

Construction of initial site works and office buildings in Tham Luong depot area by end 2013

Completion of phase 1 and phase 2 support program, for at least 100 MAUR or EA agency staff in implementation issues by December 2012 and December 2014 respectively, including all women staff

Progress reports

Project review mission reports

Project completion reports

Support assessment reports

Assumption

Government demonstrates leadership to coordinate various stakeholders

Risks

Government underestimates infrastructure development and implementation needs for Ho Chi Minh City

Problems arising from limited experience in implementing large, complex projects; operating the MRT system; and integrating urban transport modes

Appendix 1

12

Design Summary

Performance Targets and Indicators with

Baselines Data Sources and

Reporting Mechanisms Assumptions

and Risks 2.2 Social development

and gender mainstreaming program

2.3 Integrated

sustainable urban transport

Approval of social and gender program by May 2012 and implementation of measures by December 2014

Agreed milestones for policy measures, including gender initiatives, by July 2012

Integrated sustainable urban transport final report accepted by October 2013

Project 2 1. Construction of

MRT2 main line and depot

2. MRT2 E&M

systems and rolling stock installed and operation of metro services

By 2017 Completion of 9.3 km underground, 0.2 km transition, and 1.7 km elevated MRT2 and depot at Tham Luong by December 2016, including gender and socially inclusive designs, spatial planning, and facilities Provision and operational commissioning of all systems, equipment, and rolling stock by December 2016 Electrical and mechanical systems and rolling stock designed with gender and socially inclusive features

Progress reports

Project review mission reports

Project completion reports

Assumption

Government demonstration of leadership to coordinate various stakeholders, including integration with other MRT systems

Risks

Problems arising from unforeseen difficult construction conditions or project interfaces

Delays in land acquisition and resettlement for main line station works

.

Activities with Milestones Inputs Project 1 1.1 Implementation of civil works - contracts awarded by December 2011 and

completed by June 2013 2.1 Functional design - consultants mobilized by May 2011, design approved by

December 2011 2.2 Project management and implementation support - consultants mobilized

by October 2011, support programs designed by June 2012 and completed by December 2014.

ADB: $40 million OCR Item Amount ($ million)

Civil works: 22.7 Support services: 8.1 Social development and gender mainstreaming program: 0.4 Integrated sustainable urban transport: 3.6 Other: 5.2

Appendix 1 13

13

Activities with Milestones Inputs 2.3 Social development and gender mainstreaming program - consultants

mobilized by January 2012 and measures designed and completed by June 2014

2.4 Integrated sustainable urban transport study - consultants mobilized by

October 2011, CTF component completed by March 2012, and development and completion of MRT2 and CTF interface integration measures at all stations by December 2015

Government: $27.9 million Item Amount ($ million) Civil works: 2.3 E&M systems: 2.3 Consulting services: 2.1 Integrated sustainable urban transport: 0.3 Incremental administration: 1.0 Other: 19.9 KfW: $36.4 million Item Amount ($ million) E&M systems: 23.4 Consulting services: 13.0

Project 2 1.1 Implementation of civil works - all contracts awarded by June 2013 and

completed by December 2016 1.2 Construction supervision - consultants mobilized by April 2012 1.3 Land acquisition and resettlement completed for main line by December

2013 2.1 Provision and installation of MRT2 systems - all contracts awarded by

December 2012 and completed by December 2016 and system commissioned by December 2017

ADB: $500 million OCR Item Amount ($ million)

Civil works: 340.0 Other: 160.0 Government: $27.9 million Item Amount ($ million) Land acquisition: 127.6 Incremental administration: 16.2 Other: 154.8 KfW: $276.6 million Item Amount ($ million) E&M systems: 140.1 Rolling Stock: 60.1 Consulting services: 39.0 Other: 37.4 EIB: $195.0 million Item Amount ($ million) Civil works: 104.3 E&M systems: 49.9 Other: 40.8

ADB = Asian Development Bank, CTF = Clean Technology Fund, E&M = electrical and mechanical, EIB = European Investment Bank, km = kilometer, MAUR = Management Authority for Urban Railways, MRT = mass rapid transit, O&M = operation and maintenance, OCR = ordinary capital resources. Source: ADB, project preparatory technical assistance consultant.

Appendix 2

14

LIST OF LINKED DOCUMENTS http://www.adb.org/Documents/RRPs/?id=39500-02-3

1. Loan Agreement

2. Project Agreement

3. Framework Financing Agreement and Periodic Financing Request for Project 1

4. Sector Assessment (Summary): Urban Transport

5. Facility Administration Manual

6. Contribution to the ADB Results Framework

7. Development Coordination

8. Financial Analysis

9. Economic Analysis

10. Country Economic Indicators

11. Summary Poverty Reduction and Social Strategy

12. Gender Action Plan

13. Initial Environmental Examination

14. Environmental Assessment Review Framework

15. Resettlement Framework

16. Risk Assessment and Risk Management Plan

Supplementary Documents 17. Technical Assessment

18. Due Diligence Report