Document of The World Bank

Report No: ICR0000616

IMPLEMENTATION COMPLETION AND RESULTS REPORT

(IDA-30340 SIDA-22228 SIDA-50554)

ON A CREDIT

IN THE AMOUNT OF SDR 144.4 MILLION

(US $1 99 MILLION EQUIVALENT)

TO THE

SOCIALIST REPUBLIC OF VlETNAM

FOR A

TRANSMISSION, DISTRZBUTION AND DISASTER RECONSTRUCTION PROJECT

~ - I

December 28,2007

Transport, Energy and Mining Unit (Vietnam) Sustainable Development Department

I East Asia and Pacific Region

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CURRENCY EQUIVALENTS (Exchange Rate Effective June 30,2007)

CurrencyUnit = Dong 1,000 Dong = US$0.06202

US$1.00 = 16,125 Dong US$ 1 .OO = 0.6607 Special Drawing Rights

FISCAL YEAR January 1 - December 3 1

ABBREVIATIONS AND ACRONYMS ........... ................. . . . . . . . . . . .....................

I Kilowatt hour . ...............................

LRMC Long-Run Marginal Cost

.. .. Industry and Trade ..................... ....... i -- . , -. -

ty Development Plan i MOST ; Ministry of Science an - .................. . .................. . ... . - .. ... -- +

i ERAV egulatory Authority of Vietnam / MV ! Medium Voltage --- . ............ .. "-"+ ......... -

I MW . Megawatt .- & ...... ,-*, . . . . . . . . . . . . . . . . . . . . . . . . . . *

MVA Megavolt Ampere (1,000 KVA) . ; - -. . . . . . . . . . . . . . - i -. .;

/ PAH ! Project Affected Household ........ ... ... . . . . . . . . . . . . . . . . .................... i -- + .- - i

PC ; Power Company . .................................. . .-__. .. . .:

i PC1 , Power Comp .. _ .- . ... _ d

I PC2 I Power Co

Gas Insulated Switchgear : PDO Project Development Objective

Government of Vietnam

-. . -- . -- .................... -. ........ ....... .- . ............................................................ ........... .<

Vice Resident: James W. Adarns 1 Country Director: Ajay Chhibber 1

Sector Manager: Hoonae Kim i Project Team Leader: Richard Spencer 1

ICR Team Leader: Richard Spenc ... ...- .

VIETNAM

TRANSMISSION, DISTRIBUTION AND DISASTER RECONSTRUCTION PROJECT

Data Sheet CONTENTS

A. Basic Information .................................................................................. .i B. Key Dates ........................................................................................... .i C. Ratings Summary .................................................................................. .i

. . D. Sector and Theme Codes ........................................................................ ..ii

. . E. Bank Staff .......................................................................................... .ii . . F. Results Framework Analysis ...................................................................... ii

. . G. Ratings of Project Performance in ISRs ...................................................... .vli

. . H. Restructuring .................................................................................... .vii . . I. Disbursement Graph .................................................................. .......... .vii

1. Project Context, Development Objectives and Design ............................................................. 1 2. Key Factors Affecting Implementation and Outcomes .................................... ..................... 7 3. Assessment of Outcomes ....................................................................................................... 1 4 4. Assessment of Risk to Development Outcome ...................................................................... 17 5. Assessment of Bank and Borrower Performance ................................................................. -17 6. Lessons Learned. .................... .;. ............................................................................................ -20 7. Comments on Issues Raised by BorrowerIImplementing AgenciesPartners ........................ 2 1

Annex 1. Project Costs and Financing ...................................................................................... 23 Annex 2. Outputs by Component ............................................................................................... 24 Annex 3. Economic and Financial Analysis .............................................................................. 29 Annex 4. Bank Lending and Implementation Support/Supervision Processes .......................... 34 Annex 5. Beneficiary Survey Results ....................................................................................... -36 Annex 6. Stakeholder Workshop Report and Results ................................................................ 37

.................................. Annex 7. Summary of Borrower's ICR andlor Comments on Draft ICR 38 Annex 8. Comments of Cofinanciers and Other PartnersIStakeholders .................................... 42 Annex 9. List of Supporting Documents ................................................................................... 43 MAP Numbers: VNM35 850 and VNM29 1 72

(Country: i . l~ietnarn ihoject Name : 4 transmission, ... Distribution and Disaster 1 1~045628 /L/C/'I"T Number(s): ~1~~-30340,~1~~-22228,~~~-50554 1 IProj , ect ID:

.. . . -~ . .--.......... i ... .......................

IICR :,. Date: - /12/28/2007 i - -"--- ~ICR Type: .- /Core ICR ......... .... . ... ......

i i [lending Instrument: .--- $ 3 1 ~ !Borrower:

A_ --- . _ - /Socialist Republic of Vietnarn --"--.-----. 1

[original ~ o t a l 1 i lXDR 144.4M Pisbursed Amount: !

b R 106.0M J_ J_ iii i-- . ._ 2

i Category: - B - - . - ...

. . . .- .- .. i ............... . . . . . . - . .

ilmplementing Agencies: / Electricity of Vietnam (EVN) I Ho Chi Minh City Power Company Power Company No. 1

I 1 . Power Company No .: 2 .. - 1 ....... .

ICofinanciers and Other External Partners: [ JAPAN 1 Swedish International Development Agency (SIDA)

I ! Revised I Actual ] Process 1 Date I Process I Original Date i

i z Date(s> - I 2

. _i d- _ ............ _i .... ..I L L L -. \ Concept Review: / . 0812211 996 I~ffectiveness: -- 1 02/12/1999 1 0211211999 4

1010611997 i~estructurin~(s): Appraisal : -,- "...--

'--term Review: ",

8

1213 112000 Approval: -- -3 0613012002 i 06/30/2007 i /Closing: i .

..____I_----.-...-. i , .. Performance Rating by ICR ..............

... .. .... .-

me: .- . -.

. . . . . . . . . .....-........- ............. ............ ..................

Borrower Performance: - . - - - .. - - - -. -

:Moderately Satisfactory a. --- - - . - - ---- -.

Quality of Supervision: Unsatisfactory Implementing Satisfactory AgencyIAgencies: -- - . . - - -

verall Borrower oderately Satis:factory .................. ....

jC.3 Quality at Entry and Implementation Performance Indicators i

: Implementation t

1 lndicators j QAG Assessments (if any) j $

Rating Performance 8 I

i 1 Potential Problem projecti i !NO /Quality at Entry (QEA): /satisfactory I

\at any time (Yesmo): 1 .---L-- . ".&" i.i.i..... .... ,.."+--- . "

/ Problem Project at any ! i /Yes 'time 1 (YedNo): .-

........ 4 ................... 1 DO rating before /~atisfactoq !ClosindInactive status:

I ! I~uality of Supervision (QSA): isatisfactory

I Original Actual i L .- - ... - . .............. "i . ..... i ! Sector Code (as % of total Bank financing) 1- - - ....... . . -- ......... .........

I I

/ Power a ....... . - .- 1 0 0 - .......-.......-........-. --.A" J 100 ........ .. I r ---

i i

i l~heme Code (Primary/Secondnry) d --- A I I I Infrastructure services for private sector development 1 primary I ! + PA--....-.-....,- , Pnmary

1

j i--------- Natural disaster management .- 1 Secondary I Primary -. - -...+P,-" - -. .- i .. . ... ............ i

1 +. Other financial and private sector development .............. I Primary Primary i j

.---. -. .......... i" .......................-. --;

I 1 Other urban development .... -. ... ... -t---- Primary j Not Applicable .. . .."A .. i 1 Regulation and competition policy ........ ." ............ 1 Primary 1 Primary 1

.................... .,L ..............

Positions . . . . . . ... ..

At ICR i i--. - .-

1 Vice President: .. - j~arnes W. Adams .... .

! Country Director. 'Ajay Chhibber L . . . :- i. ... . . -. ..-

i - 1 Sector Manager: iHoonae Kim

I i I Project Team . . . . Leader: - !Richard Jeremy Spencer -) jDarayes Bahadur ... Mehta .. - ..........

i ICR Team Leader: Richard Jeremy Svencer

R Primary Author: /Richard Jeremy Spencer ................................

!Kurt F. Schenk ...... ............

F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document)

(a) Strengthen the high voltage transmission network to facilitate evacuation of power from generating stations to the load centers;

(b) Rehabilitate and expand distribution systems to meet demand, reduce losses and improve reliability;

(c) Support sector reform and restructuring through: (i) unbundling "transmission" and I "generation" functions; (ii) the implementation of regulatory reforms; (iii) the introduction of

tariff reforms; and (iv) exploring financing of distribution from diversified sources. (d) Support institutional strengthening and commercialization through: (i) securing greater

autonomy for the distribution companies; and (ii) introducing planning capabilities for Demand Side Management.

I - 1 Revised Project Development Objectives (as approved by original approving authority) I Project Development Objectives unchanged on restructuring.

~ (a) PDO Indicator(s)

1 i Original Target 1

Indicator I Baseline Value Values (from approval j ! documents) +- - - .- " ........ -- .....-

'Strengthen HV transmission network to facilitate evac

Indicator 1 :

Date achieved -- . ... iC~rmnent~ I(inc1. % lachievement) - ..............

...

ults/lOOkm/year at 500kV ansmission losses (%)

flows between Center and South (MW)

iO6/30/2002

.. ..

ce losses and in

Interruptions: Indicator 2 : Number

Duration (hours)

. . " . . . . . . . . - . . . . . . . . . . . . . . .-

No. interruptions Added: :Interruptions, no.: Halong 17 'Halong 8 Interruptions PC 1 / ~ a l o n ~ 0.33 Vinh 32 Vinh 10 and PC2 area: 3.32 . ~ i n h 0.24 Vung Tau 100 :Vung Tau 5 'Average duration 'Vung Tau 2.1 6 'Ho Chi Minh City 20 :Ho Chi Mirrh City 8 ,supply 'HCMC 5.39

'intemptions: 27.94 'PC 1 and PC2: 2.34 ;~uration interruptions (hrs/yr):i~uration interruptions :hours ;Intem~ptions, rnins: Halong 3 . . . . . . . . .......... ................................................

l(hrs/yr): . . . . . . . . . . . . . . . . . . . . . . . . . . .

:Losses PC1 : 6.78, . ~ a l o I q ~ 5

Vinh 3.5 Vung Tau 29 Ho Chi Minh City 14.5

Dist. losses, %: Halong 18 ;Vinh 15 'Vung Tau 12.5 Ho Chi Minh City 14.5

o Chi Minh City 10

Dist. losses, %: .Halong 10 jVlnh 10 -Vung Tau 8 'Ho Chi Minh City 10 '

.--..... .........

iVinh 264 Vung Tau 58 HCMC 41 !PC1 and PC2 43.2 ;Losses 'Halong 6.3 ivinh 5.1 jVung Tau 7.4 HCMC 6.7 'PC1 8.15 PC2 7.93 . ........-.- .- ...... -. ............

~06/30/2002 ~0512612005 ~0613012007 Date achieved : 1210511 997 'Comments '90%. Significant improvements in overall distribution system reliability, well over targeted ,(incl. % palues. Improvement in losses in original areas exceeded, but minor shortcomings in PC1 and iachievement) PC2 areas. . - - ............. .. .. -~ ....... .. . . .. ....... . .

/Support sector reform through (a) unbundling of transmission and generation functi Indicator 3 : implementation of regulatory reforms; (c) introduction of tariff reforms; and (d) exploring

'financing of distribution from diversified sources. .. - .............. ........... . ....

,Transmission bundled with iTransmission separate Not revised ,generation. icost center 1998, profit ;

/center 1999. No electricity law or iElectricity law ' i :secondary legislation. presented to National .

No separate regulator or Value assembly 1998

procedures. promulgated in 12 quantitative or Qualitative) months.

Separate regulator and functions mid 1999 i ;Regulatory procedures :

.end 1999. Tariff 6.1 cents/kWh /Tariff 7 cents/kWh by

i1999.

-. .-............... -- .........................

Four transmission :companies operate as ;cost centers. Electricity Law passed December i2004 Regulator created iOctober 2005.

-Tariffs remain 5.2 ; cents/kWh

'Date ... achieved '1213 111997 112/3111999 ............ 05/26/2007 -0613012 -. ...-.7~--.-..-..-...-..-..........--..-......-.............-..........

:Comments '75%. Moderate shortcomkgs: progress son reform slow but 100% achieved by end !(incl. % :Tariff increased in VND te- by about 25%. It may have been unrealistic I undesirable to expect ,achievement) .- . . bore rapid progress on reform ... or such significant ............. tariff increase.

!Support institutional strengthening and commercialization through: (i) securing greater autonom Indicator : . for the distribution companies; and (ii) improving its Financial Management Syst

......... .......................... .- :No charters for each !Charters for each Not revised distribution company. distribution company given by delegation No distribution function at Increasing operational rather than Deputy Director General level. and management amendment of Unimproved accounting and autonomy.

Value budgeting systems by January Distribution function quantitative or Qualitative)

1999 Deputy Director General created by April 1998.

;charters. 'Distribution DDG i :appointed April 1998. ; :Financial management system !

&proved accounting : improved and budgeting systems

Comments (incl. % 90%. Qualitative improvements in PCs' autonomy and commercial management.

.- ...... ........ .- -. ........

p - normalize . economic ac -- -. .... ..

o baseline provided. rred baseline is absence

Value electricity service in nine MV lines and install transformer quantitative or provinces 320 distribution substations installed

transformer substations :with 25MVA aggregate' capacity . _-.....-__ __ .. ... i

,0512912005 Date achieved . :I 210511 997 '06/30/1999 . . . i12/31/2000 _ _. ..? _. - -_._.._i.____.- .- - i_

:Comments !These objectives are inferred from the PAD text as no PDO indicator was established. 100% ! !( id. % achieved but delayed in completion. ;achievement) i

1 @) Intermediate Outcome Indicator(s)

Baseline Value

-- - eiku to Phu Lam

Transmission line: 1,480lan Capacity: 2,700 MVA

Value (quantitative or Qualitative)

- - -

Date achieved '1213 111997

'Actual length of ;transmission line

apacity: 4,400 MVA !added under isubproject 550km and 450h4YA transformer capacity added. 'End of project .values for whole [syste~n 1,530 lan . .

!and 1,800 MVA . .....-.. ....-................ .................... -- ..

~0613012007 :Comments i 1100% of original components added. Original baseline and target values seem too high (incl. %

ifor Vietnam 500kV system but too low for Vietnam 500+220kV system. achievement) .- . .

Be - to .................. Tao Dan system.installed (fr ... ............

n line: Okm i~ransmission line:

Value Capacity: 0 MVA

(quantitative or Qualitative)

1 Okrn Capacity: 626 MVA

transrnission line added and 376 mVA of transformer

Comments Transmission line and substation operational. 60% of transformer capacity added,

(incl. % because only one 22011 lOkV transformer added rather than two originally planned. achievement)

gndicator P- .................I..... 3 : 'Distribution systems . . . . . . . . . . . . of Halong, Vinh and Vun ....

MV line length: 370km :MV line length: 65 !Value Transformer capacity: .Transformer capacity: ;(quantitative '220MVA j3700MVA !or Qualitative) . LV . line length: 307km LV line length:

;1,40Oh & ...................... ............ c -- Date achieved .I213 111997 106/30/2002 iComments : ~(incl. % :[awaiting final data but expected to be loo%] iachievement) C . i i ........... ...

:Capacity of transmission system expanded to meet current needs and power demand Indicator

: patterns (from resmcturing memo) .- . . .

No 500kV substation at '500kV substation at ;blot revised. Doc Soi substation ;Doc Soi Doc Soi ;Project extended !dropped and No incremental 220kV :About 2 3 0 h of single by six months to hansferred to iline and substations ;and double-circuit 'June 30,2007 /another Credit. .No electrical .220kV line and two ; -324km of 220kV linterconnection between ;substations single and double-

;Value l~ietnam and Cambodia i~lectrical -circuit line and i(quantitative I interconnection 1125MVA (one 'or Qualitative) i ;completed . . Isubstation) added.

. .

;Connection to : /Cambodia ready

but not connected(awaiting !line on Cambodia

i ... - .... . . .. . . . .

side) .-

Date ........... achieved )05/26/2 .... ............ ...............

11213 112006 .1212112006 -061 ................................................................

icomrnents ! i(inc1. % ; 14 1 % of transmission line, but 50% of substations (by number). iachievement)

!Demand in Hai Duong and Ha Tinh and other demand centers met with high-quality [Indicator 5 :

........... reliable supply . ............ . - . - . No incremental 1 lOkV bout 3 0 0 h o 0 2 h line or substations line and 590MVA Project extended of 1 lOkV line and MV and LV systems in substations in service by six months to 3 15MVA Ha Tinh and Hai Duong 22kV MV and LV June 30,2007 substations in

e unrehabiIitated systems in Ha Tinh and service. 341 km ve) - Hai Duong rehabilitated MV lines in Ha

Tinh and Hai Duong and [65]

'Date achieved -0%26/2005 MVA installed

-- - --- 1 2/21 12006 0613012067

-- - - - . - -- ". Comments (incl. % [loo% achieved in all indicators] achievement) - - - - -

G. Ratings ....... of Project Performance in ISRs - .- ... ......... .-

2 1 06/17/1998 Unsatisfacto - Satisfactory .......... 1 --- 0.00 ................

i : 3 / 01/13/1999 _ i Satisfactory -. . ! . Satisfactory ............. _.___ _ _ _ _. __ _ :._

4 i 05/20/1999 i Satisfactory ' Satisfactory ! r q - . ......... .... . - 1 ._ L-._-.. -- .- ...,

5 1 12/27/1999 1 Satisfactory - i ... . _: i .......... -:

10..79 / 06/22/2000 . Satisfactory Satisfactory --.----v--.-...-------..-... :

- ?

12..26 12/28/2000 ! Unsatisfactory ! Satisfactory .... . ... ..... -t _; .-~. :

1 06/26/2001 Satisfactory Satisfactow 17..3 1 ........ ......-. &--" i . ...-... ---- ..... i

22.,06 9 / 12/27/2001 1 Unsatisfactory .. .... ! Satisfactory ............. .. ........... .................. -..-- -- -- - .- - ..i - -. -.---

'. &- .- 10 06/27/2002 . 1 .IIII..___-_I--.. Satisfactory .. i Satisfactory . 25.19 .......... .. --._-..--...._._..l--.-..-

. i 11 i 12/25/2002 1 Satisfactory Satisfactory .. 32.99 . .................. i- ' -- -

: 12 i 06/30/2003 ! Satisfactory ........ . Satisfactory ...... 72.91 2 -..---.--ip.-----.--.-..... --- - 13 / 12/29/2003 Satisfactory Satisfactory 86.69

. ... . - - - . . . - ............. .. i -. -i- ..i :

! 14 i 06/29/2004 1 Satisfactory ........ j Satisfactory 95.84 . :.-.+. ---- .-.- L

15 1 12/28/2004 1 . Satisfactory .... ...... Satisfactory 103.54 . . .-.--.I ". i

; 16 i 06/06/2005 1 Satisfactory ....... ......... ; Satisfactory ....... ........ 108.37 ..... ; . _ _ _ - _ _ _ . _ ~ - _ .l.l---.l-l;

117.01 ! j ....... 17 1 03/29/2006 . Satisfactory . Moderately ...... ............. Satisfactory ........... . _-__ _ -- -- __...-___ J

18 1 03/23/2007 , Satisfactory i Satisfactory 129.94 ---.. .L --. ....-..... ... ..--. ..... ....... --.----....-,.A .............. -- .. .... .... ..

I I H. Restructuring (if any)

Reason for Restructuring & Key Changes Made ,

. I

I. Disbursement Profile - Original ---- Formally Revised -- Actual

vii

1. Project Context, Development Objectives and Design (this section is descriptive, taken from other documents, e.g., PAD/ISR, not evaluative)

1.1 Context at Appraisal (brief summary of country and sector background, rationale for Bank assistance)

Ten years after the watershed doi moi restructuring of the economy, Vietnam's progress was tangible: in 1997 GDP stood at $24 billion and had grown at 8.2 percent per year for the past five years; annual per capita GNI was around $300. Poverty had been reduced fronn 58 percent to 37 percent. In 1995 - 1997, investment had run at about 24 percent of GDP, of which foreign direct investment made up ten percent. Though the Asian financial crisis was to break later in 1998, the project was prepared against a backdrop of solid macroeconomic growth.

The energy sector mirrored the macroeconomic picture. On average each person used quite small amounts of energy but rising demand for energy was forecast on the back of strong industrial sector growth, which had consistently outpaced GDP, and reached 13 percent in 1997. Demand for electricity was forecast to grow about 70 percent faster than GDP fiom 1997 to 2010.

The main issues facing the electricity sector were:

(a) Need for investment. Large sector investments, estimated to cost around $6 billion, were predicted for the period 1997 - 2002. The Government of Vietnam (GoV) planned a twin-track approach of increasing electricity tariffs and attracting foreign investment including the private sector;

(b) Inadequate and inefficient electricitv infrastructure. Seasonal and locational differences in generation and demand indicated the need to strengthen the north-south extra high voltage transmission system while distribution losses in the range of 15 -- 30 percent pointed to the need for extensive rehabilitation, to reduce the need for additional investment in generation;

(c) Impediments to commercial operation. Although the power sector was consolidated under Electricity of Vietnam (EVN) in 1995, commercialized operation was hindered by the need to unbundle the generation, transmission and distribution hc t ions and encourages diversified participation;

. (d) Inadequate regulatory regme. Government finctioned as policy maker and regulator

while also being involved in operational decisions that would have been better devolved to EVN; and '

(e) Need to improve demand side efficiency. Although there was some awart:ness of the potential there was limited capacity, information and incentive for initiatives in demand side management (DSM).

On November 3, 1997, after appraisal, Typhoon Linda struck southern Vietnam. Nine provinces were affected, 432 people were killed and 3,800 missing, 76,537 houses 2,250 school rooms and 358,000 hectares of paddy land were ruined. Damage to the electrical distribution network was estimated at $13 million and included 180km of low voltage (LV), 160km of medium voltage

(MV) lines and 320 distribution substations destroyed. Supply to about 100,000 consumers was disrupted.

The investment and reform objectives of the project were covered in the Country Assistance Strategy (CAS) dated October 25, 1995 (report 15053). Support for the transition to a market economy including investments in the power sector was identified as a priority for IDA; in recognition that neither other donors nor the private sector would be able meet all the financing needs of the sector. The CAS was consistent with the GoV's plans to invest in basic infrastructure and the Bank's strategy in the power sector to focus on needs in transmission and distribution, including high-return rehabilitation, while addressing reform to attract the private sector.

The Bank supported the project for three reasons. First, by providing $189 million of IDA funding, it would help meet Vietnam's needs for investment, focusing on reinforcing the transmission and distribution grids to improve their efficiency; it would also introduce DSM to the sector. Second it would broaden and deepen the Bank's policy dialogue on badly needed sector-wide reform and commercialization of EVN. Third, it would provide urgently-needed assistance to reconstruct distribution systems following Typhoon Linda.

1.2 Original Project Development Objectives (PDOs) and Key Indicators (as approved)

The PDOs were to:

(a) Strengthen the high voltage transmission network in Vietnam to facilitate evacuation of power from generating stations to the load centers;

(b) Rehabilitate distribution systems to meet demand, reduce losses and improve reliability;

(c) Support power sector reform and restructuring through: (i) the separation of "transmission" and "generation" functions; (ii) the implementation of regulatory reforms; (iii) the introduction of tariff reforms; and (iv) exploring financing of distribution from diversified sources;

(d) Support institutional strengthening and commercialization through: (i) securing greater autonomy for the distribution companies; and (ii) introducing planning capabilities for demand side management; and

(e) Help normalize economic activity in the Typhoon Linda affected areas through the reconstruction of the electricity distribution network.

The key performance indicators were improvements in transmission system reliability, losses and usage; improvements in distribution system reliability and losses; qualitative measures of the progress of reform including the operation of transmission as a cost center, presentation of an electricity law to the national assembly, and creation of a regulatory ofice and regulatory procedures; and qualitative measures of the autonomy of the distribution companies, improvements to EVN's financial management systems and the measurements in the reduction in peak demand and electricity consumption.

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justiiication

The PDOs were unchanged on restructuring in May 2005.

1.4 Main Beneficiaries

The main beneficiaries were the Ministry of Industry, on behalf of the Government, IEVN and its subsidiary Power Companies (PCs), No. 1 (PCl), responsible for electricity distribution in the northern part of the country, No. 2 (PC2) responsible for electricity distribution in the southern part of the country and Ho Chi Minh City PC (HCMC PC) responsible for the metropolitan area of Ho Chi Minh City.

EVN directly benefited fiom the investments in the transmission system, by improving stable and reliable operation of the power system, by increasing the capacity to transport power between north to south in line with seasonal demand and generation availability, by enabling connection of additional generation capacity and by reduction in transmission losses. PCs 1 and 2 and HCMC PC benefited through investments designed to improve the capacity and efficiency of their systems, thus enabling them better to meet demand and to improve service to consumers.

The Ministry of Industry (MoI), EVN and the PCs benefited from support, during preparation, of the development of a medium term power sector policy. During the project, technical assistance (TA) supported the first steps in implementing the policy to separate generation fiom transmission, to improve transparency and autonomy in the commercial managemeint of power transmission and distribution operations and to establish a legal and regulatory framework. The introduction of a DSM action plan and program further improved the efficiency of EVN and the PCs in meeting consumer demand.

Secondary beneficiaries were electricity consumers, primarily in the north and south of the country served by PCs 1 and 2 and in particular in the cities of Ha Long, Ha Tinh, Hai Duong and Vinh in the north and Ho Chi Minh City and Vung Tau in the south. Indirectly, electricity consumers throughout the country were beneficiaries. The gains to consumers in improved quality of power service as a result of the investments can be inferred fiom fewer interruptions in supply and greater quantities of power flowing in the system.

The main and secondary beneficiaries were not changed by the project restructuring, however the larger number of investments possible through cost savings increased the number o:l secondary beneficiaries and the benefits they gained.

1.5 Original Components

The Transmission and Distribution Component was divided into six subcompo~nents: (i) construction of the second circuit of the Pleiku-Phu Lam 500 kV transmission line (TL) and associated substations (SS); (ii) construction of the Ha Tinh 5001220/1 l0kV SS; (iii) construction of the 220 kV Nha Be to Tao Dan circuit and 22011 10kV gas insulated switchgear (GIs) Tao

Dan substation in Ho Chi Minh City; (iv) rehabilitation of distribution networks in the cities of Halong, Vinh, and Vung Tau; (v) consultant services for the Pleiku - Phu Lam 5OOkV line and the 220kV Nha Be to Tao Dan circuit and substation; and (vi) technical assistance for improving the regulatory framework and for the demand side management (DSM) program. This component supported the first four of the project development objectives, by strengthening the high voltage transmission network, rehabilitating distribution systems, supporting sector reform, and restructuring and supporting commercialization and institutional development.

An associated TA component, financed by Japan, initiated the work on sector reform and restructuring. The component financed studies to improve the transmission2and distribution functions.

The Disaster Reconstruction Component consisted of the reconstruction of 180km of LV and 160km of MV distribution lines and 320 distribution substations with an aggregate capacity of 25MVA. The component supported the fifth project development objective of normalizing activity in the Typhoon Linda affected area.

1.6 Revised Components

Formal Restructuring without Changes to PDO

In May 2005, a restructuring of the project was approved by the Board. The PDOs were not changed. The reasons for the restructuring was to permit additional important and badly-needed investments to be included for financing under the project, which would contribute fixher to the PDOs whle also using substantial project cost savings that had built up. The restructuring introduced a more flexible approach which allowed EVN and the PCs to include (and drop) subprojects in response to their investment priorities. A more generic project description was adopted, and appraisal criteria agreed for the subprojects, including their contribution to the PDO, technical, economic and financial efficiency, and compliance with the World Bank's safeguards policies.

Three subcomponents under the Transmission and Distribution Component were modified and a further 28 subprojects were proposed for financing with a total cost of $160.6 million, of which $88.3 million was proposed to be financed by IDA. In the event 20 subprojects were financed, with a total cost of $96.30 million, of which $48.70 million was from IDA. The subcomponents modified are detailed in Table 1.

Table 1: Original and Revised Scope of Subcomponents

Original Scope1 Subcomponent (a) Pleiku - Phu Lam 500kV transmission line and associated

In northern region: Lang Son - Cao Bang 1 lOkV TL $7.2 million of which $2.9 million IDA Troi 110135122 kV SS and associated TL $3.2 million of which $1.9 million IDA Thanh Chuong 110135122 kVSS $1.6 million of which IDA $1.0 million Rehabilitation of Hai Duong and Ha Tinh cities' distribution networks $1 1.9 million of which IDA $5.1 million

Revised Scope Permitted additional 500kV TL and SS, none implemented.

substations (b) 220kV Nha Be - Tao Dan circuit and Tao Dan substation

(d) Rehabilitation of distribution networks in Halong, Vinh and Vung Tau

In southern region: Vinh Long - Cho Lach 1 lOkV TL $1.6 million of which IDA $0.6 million Soc Trang - My Tu TL $1.2 million of which IDA $0.7 million Di Linh - Phu Hoi - Duc Trong 1 lOkV TL $2.6 million of which IDA $1.0 million Can Tho - Chau Thanh 1 lOkV TL $1.2 million of which IDA $0.5 million Phan Thiet - Mui Ne 1 10kV TL $1.3 million of which IDA $0.5 million Mo Cay - Cho Lach 1 lOkV TL $2.0 million of which IDA $0.8 million Chau Thanh 1 10135122 kV SS $2.0 million of which IDA $1.2 million Da Lat 2 1 10135122 kV SS and associated TL $1.2 million of which $0.7 million IDA My Tu 110135122 kV SS $1.2 million of which IDA $0.7 million Mui Ne 110135122 kV SS $2.0 million of which IDA $1.2 million Cai Be 110135122 kV SS $2.0 million of which IDA $1.2 million dho Lach 1 10135122 kV SS $1.2 million of which IDA $0.7 million

Permitted additional 220kV TL and SS. Implemented: Thot Not - Chau Doc 220kV TL and Chau Doc 22011 10kV !$S $20.1 million of which $1 1.0 million IDA Quy Nhon - Tuy Hoa 220kV TL $1 1.0 million of which $4.4 million IDA Tuy Hoa - Nha Trang 220kV TL $21.7 million of which $8.'7 million IDA Permitted rehabilitation and upgrading of additional distribution networks in the northern region and southern region of the country. Implemented:

To reflect the changes in the project, the results framework was also modified in May 2005, and aligned with monitoring indicators collected by EVN.

1.7 Other Significant Changes

Changes in Timing

The project was originally scheduled to become effective in March 1998 and close in June 2002. The project was extended a total of five times asfollows:

June 2002 To December 3 1,2003 May 2003 To December 3 1,2004 December 2004 To June 30,2005 June 2005 To December 3 1,2006 December 2006 Partial, to June 30,2007

Extensions to the closing date of the Credit agreed in June 2002 and in May 2003 were primarily targeted at allowing the completion of the Pleiku to Phu Lam TL and Nha Be to Tao Dan TL and Tao Dan SS subcomponents following a slow start and slow implementation. The third was to allow completion of project restructuring. The fourth extension was given at the time of restructuring in May 2005 to give time to implement the subprojects that were introduced into the project. The fifth was to permit completion of those contracts which had been delayed or rebid k a result of materials price increases that occurred during the second half of 2006.

Covenants

At negotiations, the project covenanted a schedule of increases to bring the average retail tariff to 7 US cents1kWh by March 1, 2001. This had become contentious even before the start of implementation and was to be the subject of discussion on several occasions during the lifetime of the project, without reaching substantive agreement between IDA and GoV. In consequence, the tariff covenant was replaced by a covenants for EVN to maintain three key ratios: self financing ratio (SFR), of 25 percent or better; debt service coverage ratio (DSCR), of 1.5 times

- or more; and debt: equity ratio of no more than 70:30. The same covenants were applied to all projects in the IDA portfolio providing finance to EVN.

Cancellation

After the restructuring, EVN and the PCs were unable to bring forward sufficient subprojects to allow the full balance of the credit amount to be committed and disbursed before the revised closing date of December 31, 2006. Thus on June 30, 2006, IDA cancelled Special Drawing Rights (SDR) 27 million, (equivalent to about $40 million) from the credit.

As of December 13, 2007, the actual amount disbursed from the credit was SDR106 million. SDR 11.4 million or about $1 7 million was thus left unused, mainly accounted for by savings on the estimated costs of subprojects implemented following the May 2005 restructuring but also by the significant depreciation in the dollar against the SDR in the latter stages of the project.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry

Project design was straightforward, with one subcomponent per investment subproject. Swedish International Development Agency (SIDA) was the co-financier for two subcomponents, the 500kV Ha Tinh substation extension and the DSM component but this did not present a substantial complication in the project.

The project was underpinned by a major piece of analytical work which was being undertaken simultaneously1. The analysis identified the potential for transmission and distribution system investments to contribute to electricity system growth and efficiency, and the importance of effective policy and regulation. Other studies supported project design. A significant piece of sector work to support the preparation of an electricity law was also started during preparation. Comprehensive feasibility studies were carried out by international consultants fc~r the major investments at 500 and 220kV.

There were multiple dimensions to the PDOs. Taken together these dimensions supported the CAS objective of providing investment support to the power sector and hence the GoV's objective of investment in basic infrastructure as well as helping to increase private sector participation. The parts relating to reform were broad and ambitious and had some: linkages to activities outside the project, such as the preparation of the electricity law. Nonetheless the PDOs are considered appropriate and were achievable.

Appraisal appears to have relied on cost estimates based on previous procurement of 500kV and 220kV equipment in Vietnam. These had taken place some years before, and had been based on negotiated prices and thus were higher than could be expected from competitive bidding. In addition, high levels of contingencies were included, because of strong institutional and personal incentives to avoid project costs over-running estimates.

At appraisal risks to the development objective namely: timely availability of counterparts funds, implementing agencies' management commitment, Government commitment to sector reform were identified and assessed as moderate. Risks to implementation progress: lack of resources for land acquisition; slow procurement; and delays in appointing consultants, were well identified but their impact - in terms of the length of delays possible - was, with hindsight, somewhat optimistic. Appraisal was based on load forecasts known at the time, but with local demand growth rates sometimes exceeding the national average by a substantial margin, the risk of underestimating or overestimating demand growth was not assessed. The re-evaluation of risks at project restructuring downgraded several, but identified new ones, including subprojects not being identified or appraised in a timely fashion and insufficient attention to safeguards and again may have been over optimistic.

1 Later published as 'Fueling Vietnam's Development - New Challenges for the Energy Sector, Report No. 19037 VN' in December 1998.

A weakness in the project design was how it dealt with raising retail tariffs. Staged rises in the average retail were covenanted on EVN, yet it was unable to influence tariff rises directly, since any increase was subject to government approval. Its value as a means of ensuring adequate financial performance by EVN was also questionable. The Government's commitment to raising tariffs was not explicitly identified as a risk to the PDO or to implementation progress, unless inferred as part of 'waning of Government commitment to push with reforms and of EVN commitment to institutional strengthening programs' which was rated moderate.

There was a Quality Assessment Group (QAG) review at entry but there are no records of its findings on the project files.

2.2 Implementation

Design for initial implementation was straightforward, wifh each subcomponent to be carried out by identified implementing agencies. The technically more complex subcomponents were planned to be supported by international consultants to prepare feasibility studies, support procurement and supervise implementation. Ministry of Industry and EVN were the main agencies involved in the technical assistance activities. They and HCMC PC had some experience of Bank procedures, including procurement and disbursement, gained through previous projects. Mo1 had been engaged with the Bank on policy dialogue for a number of years. No fiduciary or safeguards issues were new to the project.

Tariffs

The level and the timing of tariff increases were discussed extensively during project preparation and were supported by a study carried out by international consultants. Shortly after the project was approved by the World Bank's Board of Directors in January 1998, GoV seems to have had misgivings about committing itself to the level of 7 centskWh by December 31, 1999 and thus the signing of the project documents was delayed.

A fhther round of negotiations resulting in agreement of staged increases such that the tariff would reach 7 cents/kWh by March 1, 2001. This schedule was reflected in the Development Credit Agreement signed in November 1998. During project implementation there were at least two slippages in the schedule: in May 1999, the tariff of 7 centskWh was expected to be reached by 2002; and in June 2001 only by July 1, 2005. Reflecting tariff concerns, the DO progress indicator was downgraded to unsatisfactory on three occasions.

In VND terms, average tariffs did rise over the project period from VND 680kWh in 1998 to VND 842/kWh from January 1, 2007. In dollar terms it stood still: at the exchange rate prevailing in mid 1998 the tariff was 5.24 cents and at the exchange rate in mid 2007, it was 5.22 centskWh. Although EVN is in some respects financially more exposed today than it was in 1997, in 2005, the last year for which a full analysis has been completed, it maintained its three key performance indicators of SFR, DSCR and debt:equity ratio at covenanted levels.

Slow Implementation Progress

Implementation of the original subcomponents started slowly, delayed by late signing and effectiveness, since final approvals to subproject technical designs were not giver1 until then. There was also a delay because of uncertainties within government about the timing of the second circuit for the Pleiku - Phu Lam 500kV line. When under way, progress was slow but without major difficulties. There were delays in hiring the consultants to suppoirt EVN and HCMC PC on the Pleiku to Phu Lam TL and the Nha Be to Tao Dan TL and Tao Dan SS. There were significant delays in procurement.

Cost Savings

The original subcomponents were acheved at substantially lower cost than identified at appraisal, not wholly as a result of the East Asian financial crisis. As early as August 2001, GoV requested IDA to use the cost savings, implicitly about $20 million. Estimates of saving rose by stages from then until, by December 2004, they were estimated at $87.5 million, or about 44 percent of the original credit amount. A workshop in early 2004 was held to review progress and to identify subprojects that could be included in a restructured project. This workshop identified a substantial number of subprojects, including those requested by SBV in 2001 that wire at a sufficiently advanced state of preparation to be included in the project. The amendment took a further year to finalize.

Other Issues in Implementation

The May 2005 restructuring made the EVN/IDA process easier to manage with the rninimum of formalities, but EVN and the PCs remained exposed to the complex and extended GoV approvals process for each subproject. To prepare the restructuring on the Vietrlarnese side required approval of the Prime Minister, and subprojects still required a process of feasibility study, detailed design and preparation of procurement documents which required separate, sequential approvals. The approval of the restructuring by GoV delegated approvals for EVN subprojects to MoI and for PCs' subprojects to EVN while all procurement could be approved by EVN. This was a significant improvement compared with project preparation when ,approval by the Prime Minister was required at several stages.

Towards the end of project implementation, a sharp increase in the prices of several clommodities including aluminum, copper, nickel, steel and zinc further slowed procurement. .A11 are key constituents of electrical systems equipment and as a result a number of procureme~nt packages had to be rebid. It was the result of this rebidding that the final extension from December 31, 2006 to June 30, 2006 was granted. Price adjustment formulae were not adopted in the project, because it was considered incompatible with the procurement law in Vietnam which only permits deviations from it if a donor's procurement guidelines require it; price adjustment formulae are not mandated in the Bank's procurement guidelines.

There appears to have been a QAG assessment of supervision but there are no records of its findings on the project files.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization

M& E Design

The indicators for measuring the PDOs were of reasonable quality. Those related to the investment components were specific, measurable and relied on EVN's and the PCs' own performance monitoring system. Those linked to the sector reform and institutional development of EVN could have been more rigorous. The emergency recovery component was not included in the project logical framework and no indicators for its objective appear to have been developed.

The restructuring of the project in May 2005 introduced some additional indicators and revisited the original ones. M&E for the physical investment was aligned with the data collected by EVN for its own internal monitoring purposes and is considered reliable and sustainable. Indicators introduced during the restructuring are less easily attributed to the project. There was also some lack of clarity on which of the original indicators was retained at the restructuring.

The financial performance of EVN and the PCs was designed to be monitored on a consistent basis for each project in the portfolio. An International Creditors' Model (ICM) was developed under a separate project initially to verify appropriate tariff levels and subsequently used to ensure the key financial indicators were consistently calculated.

Implementing agencies were also required to hire independent monitoring consultants, on terms of reference satisfactory to the Bank for monitoring of implementation of environment assessments and environment management plans (EAEMPs) and resettlement plans W s ) . The independent consultants' reports were sent to the Bank for review.

M&E Implementation

Implementation progress data were captured quarterly. Data on outcomes were collected as the subprojects were completed. Data for all indicators were collected as part of the implementation completion reporting process. Financial indicators were monitored as an annual exercise for all projects in the portfolio.

Data quality for the investment subcomponents has generally been acceptable. Methods for data collection have generally been appropriate, using a 'bottom up' reporting process which is linked to the management hierarchy in EVN and the PCs. Independent monitoring of EMPs has provided data of mixed quality with the main difficulty being insufficient field-based monitoring using appropriate techniques.

M& E Utilization

Implementation data were used to review progress of the project against agreed timetables and to revise the timetables as necessary. Use of the outcome-level indicators has proved problematic, because the indicators chosen are at system level and it is hard to distinguish impact of the project fiom other non-project related factors. It has become increasingly difficult as the system

I has grown, and consequently the impact of any single subproject is less significant. Financial

I

I monitoring data have been the basis for dialogue with EVN and the Government on a variety of issues including tariff levels, forecast future investment needs, and the impacts of equitization2.

2.4 Safeguard and Fiduciary Compliance

Environment

An EA/EMP was carried out for the second circuit of the Pleiku to Phu Lam 500kV itransmission line. It is not clear what level of environment assessment was carried out for the remaining subprojects. Subprojects that were appraised following the restructuring in May 2005 followed agreed guidelines for the preparation of environment assessments.

In general the impacts of transmission and distribution lines and substations on the environment were of a mainly temporary nature associated with construction and included noise, dust, disruption to traffic, excavation operations and the need to accommodate workers. Permanent effects were mainly confined to the right of way of the line, which must be kept cllear of high- growing plants and trees. Alignments of lines and siting of substations were chosen to minimize the combined environment and social impacts.

Supervision of the implementation of environment management plans (EMPs) by independent monitoring consultants and Bank staff revealed no major issues.

Indigenous Peoples

The project appraisal document noted that a few ethnic minority households wouldl be affected by the Pleiku to Phu Lam TL but "because of the relatively minor nature of the impact, no separate Indigenous People's Development Plan is considered necessary." The EIA also included .

sections that constituted a full ethnic minorities development plan (EMDP). EMLDPs do not appear to have been prepared for the other original subprojects.

Following the restructuring in May 2005, EMDPs were required based on a framework that was agreed with the GoV and adopted by EVN. EMDPs were prepared for 3 subprojects, affecting a total of 1445 ethnic minorities households, mainly on a single 1 1 OkV TL from Lang Son to Cao Bang in the north of the country. All EMDPs have been satisfactorily implemented.

Resettlement

Just over 2,000 households were identified at appraisal as being affected by the various subprojects, of which about 530 needed to be relocated, based on a resettlement Plan (RP) that was an integral part of the EIA. Most of the affected households and nearly all the relocations were linked to the Pleiku to Phu Lam TL. In the event, nearly 9,000 households were affected by the line, the large discrepancy being the result of under-estimation at appraisal.

2 Equitization is the process of creation of a joint stock company and sale of a proportion of shares to the public and employees.

Following the restructuring in May 2005, a framework for resettlement planning was agreed with the Government of Vietnam and adopted by EVN and applied to all additional subprojects. Subsequent subprojects affected around 8,700 households, the majority in a minor way. In most cases appraisal estimates of numbers of households affected, land acquisition and compensation were close to the actual values on implementation.

Resettlement was on the whole well implemented by the responsible agencies. Most households that were relocated were allowed to remain in their old houses until the new ones were ready, and all were moved as short a distance as possible, resulting in minimal disruption to livelihoods. No grievances or complaints were brought to the attention of Bank staff during implementation which included independent site visits. Independent monitoring of the RPs revealed no major issues.

Procurement

Procurement was effectively organized; at the start of the project a procurement management group involving the Ministry of Industry and EVN was used to support EVN's executing agencies and the PCs in the early stages when they were not familiar with some of the in the more complex procurement processes. Procurement progressed slowly, especially with the large packages at the start of the project, which required multiple levels of approval up to the Prime Minister. There were four complaints during procurement of which two were dropped by the complainant, one was invalidated and one resulted in rebidding. There were no instances of procurement irregularities.

Financial Management

Financial management was generally satisfactory though there were two recurrent issues during the project. One was late submission of financial management reports (FMRs) and audit reports. Towards the end of the project reporting improved but there were still instances of late

- submission by the PCs and by EVN itself. Audits were satisfactory throughout the project and continuing entity financial statements were generally unqualified.

The second recurrent issue was slow processing of disbursement requests within the Vietnamese system and delays in payments. Under Ministry of Finance rules, all ODA projects must have a controller which, amongst other things, checks disbursement requests made by implementing agencies. For this project, the controller was the Vietnam Development Bank (VDB, formerly the Development Assistance Fund). Some VDB branches' checking was excessive, requiring for example all contracts (including standard parts) to be translated into Vietnamese and notarized. The effect was for the implementing agencies, which for the most part had to pay their suppliers before the checking was complete, to have to wait long periods for reimbursement by IDA; in late 2006 it was estimated that implementing agencies were waiting for VDB to release $25 million in payments for goods financed under the project. In some cases this had a noticeable effect on financial performance of the PCs since they had built up significant levels of receivables.

2.5 Post-completion OperationINext Phase

Each investment subcomponent or subproject was implemented by a Project Management Board (PMB), which is a special purpose, permanent entity within the overall management: structure of EVN or the participating Power Companies. On completion of commissioning the subproject was handed over to the operations department of the implementing agency. Each of the subprojects formed part of the investment plan of the implementing agency, which is also the project's ultimate owner.

Each transmission project has been handed over fiom the PMB to one of four .transmission companies which together operate all the transmission assets in the EVN. They are now cost centers of EVN and thus staffing, operations and maintenance are the responsibility of EVN, the asset owners. EVN recovers its costs from electricity consumers and thus has adequate resources to ensure proper operation and maintenance of the entities. By the end of 2007 transmission will be merged into a single, national transmission company as part of the reforms to the power market. It will be under separate ownership and will have a regulated tariff structure that will ensure cost recovery and permit future investment.

Power Companies are currently wholly-owned subsidiaries of the EVN group and as such profit centers in their own right. The tariff regime now in place ensures that they recover costs and have sufficient retained income for future investment. Policies and standards are !m place that ensures adequate maintenance.

Both EVN and the PCs maintain a reporting system to monitor system performance; (the project M&E indicators are drawn fiom these) though these are not systematic or widespread enough to develop benchmarks or comparative performance by area, supply level or consumer type. As part of the market reforms, the Electricity Regulatory Authority of Vietnam (ERA'V) will have oversight of the performance of all entities in the power sector and will require reports to enable it to monitor system performance. The most relevant indicators remain transmission and distribution system reliability and efficiency, in aggregate covering faults, losses; and power flows. More detailed indicators, which can help prioritize investments, would look at these at specified poinfs (for reliability and efficiency) and parts of the system (for efficiency). These indicators will be accessible to the Bank for future monitoring.

Further operations supporting the efficient development of the transmission and distribution system are under way (System Efficiency Improvement, Equitization and Renewables Project, Cr. 3680 VN and Second Transmission and Distribution Project, Cr. 4107 VN). The system is forecast to continue to grow at 15 percent per year, and neither transmission nor diistribution is likely to enter private ownership in Vietnam for some years to come. Sustainedl ZDNIBRD involvement and investment financing to ensure efficient development of the transmission and distribution systems is expected to remain a priority for GoV and EVN. The Bank, through a stand-alone Global Environment Facility (GEF) project has continued to support DSM (Demand Side Management and Energy Efficiency, GEF TF 051256), and the GoV is now preparing an energy efficiency law now that reforms are more advanced.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation (to current country and global priorities, and Bank assistance strategy)

The need for physical infiastructure is still as strong; demand has continued to grow much as predicted at appraisal, at an average of about 15 percent per year. Investment in basic power infiastructure is a priority of the government's Socio-Economic Development Plan for 2006-2010.' The current Country Partnership Strategy (CPS, reviewed by the World Bank's Board of Executive Directors on January 3, 2007) reflects this priority; one of its objectives is to ensure efficient and reliable provision of infiastructure services. The investment-related PDOs remain highly relevant.

The reform objective remains relevant. Reform is a process, not a single action and the project set out the broad direction of power sector reform, which is still being pursued today and initiated many of the essential tasks. The objectives the project espoused were over-ambitious and so the project aimed too far into the future, hence many of the tasks it had hoped to accomplish by 1999 or 2000 were not completed until 2004 or later.

The institutional development objectives were relevant at the time of the project but are less so now, because pushed by the project, much has been decentralized, giving greater autonomy and broadening ownership by implementing agencies. The objective for the disaster reconstruction component was highly relevant at the time of preparation and implementation but following normalization is no longer so.

3.2 Achievement of Project Development Objectives

The project substantially met its PDOs and is rated satisfactory in this dimension:

StrenHhen the hi& voltage transmission network. Achievement of this objective is satisfactory. There have been gains in transmission reliability and efficiency, and larger power flows are taking place between the central and southern areas of Vietnam. Additional subprojects have further contributed to this objective beyond that which was originally envisaged. Rehabilitate and expand distribution systems. Achievement of this objective is satisfactory. Distribution systems have reduced losses and improved reliability. Anecdotal evidence points to substantial improvement in the quality of supply during the project. Additional subprojects have further contributed to this objective beyond that which was originally envisaged. Support power sector reforms. Achievement of this objective is moderately satisfactory. With the exception of the tariff revision to 7 centsIkWh, all the indicators were achieved, though they were significantly delayed from the original timetable. A more rapid implementation may not have been realistic or desirable. Tariffs have increased by 25% in VND terms, about the same amount as originally envisaged in dollar terms

Support institutional strengthening and commercialization. Achievement of this objective is satisfactory. The PCs, at which this component was largely (aimed, have become increasingly commercially and managerially independent throughout the lifetime of the project. Accounting systems have been continuously improved. The ongoing follow-on DSM project bears out the achievement of the DSM objective. Normalization of economic activity following - . Typhoon Linda. Achievement of this objective is satisfactory. The component was completed under difficult circumstances and in reasonable time. No indicators are available to assess 'before' and 'after' the Typhoon, however the outputs indicate oee-for-one replacement of MV and LV systems and equipment and thus it may be inferred that at least a similar standard of service was being provided following completion of the component.

3.3 Efficiency

The economic analysis for the project components at appraisal and at completion has been carried out using two scenarios: (i) with the project; and (ii) without the project. The ex ante 'with' project scenario assumed that the project as described was carried out based on forecast costs. For investments at 500kV, the 'without' project alternative was to strengthen the 220kV system. For investments at 220kV and below, the 'without' project analysis assumed that no investment would be made. The ex post 'with' project scenario used actual investrrlent costs of the project. The 'without' project scenario assumed that no investment had been made. The same methodology was used for both the original and the new subprojects. A.ll costs are presented in constant 1995 US dollars, to allow comparison. The analysis covers about 88 percent of final project baseline costs, the main items being excluded being the consultant services for physical investments, technical assistance and the rehabilitation of distribution networks in Ha Long and Vinh.

The key economic and financial indicators of the first and second phases of the project are summarized in Table 2 and provided for each subproject in Annex 3.

p At 1995 price levels Not inclided in PAD analysis

Note: Appraisal of additional subprojects was done on a subproject-by-subproject basis. No overall analysis of the economic and financial benefits of the set of additional subprojects was undertaken ex ante.

At appraisal the costs of the original subprojects were over-estimated. The completion analysis takes into account the cost savings - of the order of 30 percent of the original estimates - and shows a much higher rate of return than at appraisal. The net present value of the original subprojects, however, is not as high, principally because of the delays in completion which in some cases were four years longer than the original implementation schedule. During those four years the benefits were reduced by more than could be made up fkom the reduced costs. There may also have been a wider economic impact of overestimating costs since the size of the credit tied up some IDA allocation that may, perhaps, have been used for some other investment.

The impact at the financial level is less marked, because the financial revenues are lower than the economic benefits. Notwithstanding the reduced benefits because of delays, the subprojects were still financially efficient, except possibly the renovation of Halong and Vinh distribution systems for which information is not available.

3.4 Justification of Overall Outcome Rating

Rating: Satisfactory.

The overall satisfactory rating for the project is justified on three grounds. The first is that the project maintained its relevance throughout its (long) lifetime, particularly the investment aspects, which are responsible for the bulk of the project costs, but also the reform objectives. The second is that four of the five project development objectives were satisfactorily and one moderately satisfactorily achieved. In some respects the project achieved more than its objectives in terms of physical investment, by the inclusion of an additional 20 subprojects. The third reason is that the project was more economically efficient than expected at appraisal, notwithstanding the delays to implementation and the reduction in benefits, which was offset by use of cost savings for the additional subprojects which were also economically efficient.

There were modest shortcomings in the achievement of the objective: slow implementation reduced the potential benefits of the project. Arguably some of the institutional development objectives such as separation of transmission from generation could have been more fully achieved - there are degrees of separation - but as these are difficult to quantifl.

3.5 Overarching Themes, Other Outcomes and Impacts

No other effects or impacts of the project have been identified.

3.6 Summary of Findings of Beneficiary Suwey and/or Stakeholder Workshops

No beneficiary survey has been carried out.

4. Assessment of Risk to Development Outcome

Rating: Moderate.

The physical investment aspects of the project are not inherently risky in technical, economic, financial or institutional terms. For the foreseeable future, Vietnam will continue to (depend on a power transmission and distribution network, and, the investments will continue to fulfill an important role. The transmission company, when it is formed and the Power Companies will be regulated by ERAV, with appropriate transmission and distribution tariff methodologies to ensure long term sustained operation of the assets. Experience has shown that the environment and social impacts of transmission and distribution construction are broadly accepted as a price worth paying for the benefits, even by those who are most immediately affected. The physical investments are exposed to some risk of natural disasters, even though design standards incorporate the extreme weather conditions frequently experienced in EVN.

The reforms that the project championed do not appear to be at risk. Much of the more recent developments in power sector reform are set on the foundations laid by the project, including the development of the Electricity Law in 2004 and the roadrnap for reform in 2006. So far, the steady implementation of the law over the past three years, and the political and institutional stability in Vietnam gives confidence that the institutional development and market reform will continue in a positive direction.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance

(a) Bank Performance in Ensuring Quality at Entry

Rating: Moderately satisfactory.

The project responded to identified CAS objectives and the Government's plans for investment in basic infrastructure. The project was in line with the Bank's strategy for the poweir sector and was coordinated with other donors, in particular Sweden, which cofinanced the project. From a technical point of view, the investment projects were well prepared. The range of policy and institutional development activities were appropriate for the time; indeed this project set the tone for a broad ranging policy dialogue with government and EVN that continues today. The Bank was highly responsive to the needs for reconstruction of the southern area and the reconstruction subcomponent was prepared in a short time.

It seems unlikely that a more flexible project design - which could have included a mechanism to use project cost savings through the addition of firther subprojects or by financing more of the ones under implementation - would have been acceptable to the Government. Concepts for flexible designs were new and untested, and neither the Government nor the Bank side had much incentive to introduce such a complication for what appeared to be quite a straightfonvard operation. For similar reasons, it would probably not have been possible for the project to have

been further advanced during preparation, with the result that upon approval, a time-consuming two step process was needed to implement the major investment components of the project. First, consultants to support the project had to be hired and only then could work start on implementing the projects.

The shortcoming in Bank performance during preparation was the handling of the tariff issue. It is questionable that a tariff level as high as 7 cents/kWh was appropriate and the risks to the rest of the project of trying to introduce it were poorly assessed. In addition any breach of the covenant permitted only two basic options: either to waive it or to suspend the project. The task team was thus left without leverage to persuade the Government to take action, leaving EVN stuck in the middle.

(b) Quality of Supervision

Rating: Unsatisfactory.

Several of the subcomponents were well supported during implementation, particularly those dealing with reform and restructuring, demand side management, the relatively simple investments in rehabilitation of the cities' distribution network and the rehabilitation of typhoon- affected areas. Financial supervision of the project was satisfactory, but the tariff issue was not fully resolved. Although slow in implementation, the two major investment subprojects were well-supported and most of the delay appears to have been on the side of the Government, because of the extensive approvals system.

The shortcomings in the Bank's supervision were its lack of candor in reporting implementation progress, and slowness in addressing the issue of cost savings and how the project could be adapted to cope with them. By the time the first extension was processed, in June 2002, the project was six months from its original closing date and only 13 percent disbursed. It is understandable that the Government and the Bank were reluctant to contemplate the possibility of 'losing' the savings through cancellation. In addition the extent of the savings only emerged slowly and in the early stages a full-scale restructuring may not have seemed worthwhile given the comparatively small amount of savings and the possibility of cost overruns in the larger subprojects. Nonetheless greater proactivity could have been possible.

The opportunity was thus missed for an early, systematic and substantial review of project performance beyond normal supervision reporting. Amore proactive stance by the Bank, with the possibility of a major restructuring and substantial extension - of as much as four years, effectively treating i t as a new project - could have created an environment more conducive to smooth project implementation and offered better chances of full use of the credit amount and a shorter project implementation period. As it was, the restructuring in May 2005 was worthwhile, but arguably too late to have the full impact it might have had.

(c) Justification of Rating for Overall Bank Performance

Rating: Moderately unsatisfactory.

The moderately satisfactory Bank performance during preparation balanced against the unsatisfactory performance during supervision but satisfactory overall outcome suggests an overall rating of moderately unsatisfactory.

5.2 Borrower Performance

(a) Government Performance

Rating: Moderately satisfactory.

The Government cooperated closely with the Bank during preparation, and there was significant policy dialogue as a result, which was carried on subsequently throughout the project. That dialogue has formed a solid foundation for subsequent engagement in the sector. In elddition, the Government has, during the course of the project, tackled issues of excessive centralization and control, and showed it willing to adopt more flexible approaches to project implementation, including delegation of investment decisions and day to day investment management to EVN and the PCs, acceptance of the phased approach to project implementation

The main weakness concerns the reforms to the retail tariff. While it seems quite lkely that the increases were too steep and aimed at a higher level than necessary, a more open dialogue than took place with the Bank was warranted. If the Government did have reservations about the ultimate intention of reaching 7 centsIkWh, it does not seem to have been expressed to the Bank clearly. The Government relied communicating the results of wide consultation within the Government, based on proposals by EVN rather than a more transparent process to agree the basis on which tariffs should be set.

(b) Implementing Agency or Agencies Performance

Rating: Satisfactory.

Strong commitment and action within the implementing agencies enabled the subprojects and components to be completed. From a technical standpoint, the projects have been well

= implemented, with thorough consultation, proper preparation and implementation of engineering, environment and resettlement plans, good fiduciary control and smooth transition to operating mode. There was a high degree of ownership of the project. Over the lifetime of the project there has been a noticeable improvement in the professionalism and quality of the work undertaken by the implementing agencies.

(c) Justification of Rating for Overall Borrower Performance

Rating: Satisfactory.

The weighting applied to the implementing agencies - and recognizing the substantial improvements in both Government and implementing agencies' performance over the lifetime of the project suggests an overall rating of satisfactory.

6. Lessons Learned

The lessons from project design are:

The tariff issue. While it is important to ensure that pricing is set at proper levels, the approach of agreeing a targeted level of tariffs and a schedule by which they are achieved does not appear to have been successhl. Apart from the possibilities that the level and timing may be set incorrectly or that circumstances might change, ensuring that they are implemented as agreed is difficult. It may be better to avoid tariff covenants altogether and only look at financial performance, since this then opens up the range of options including to cut costs. Better still might be the introduction of an agreed tariff methodology which removes the political dimension to tariff setting; in practice this is the basis on which utility regulators often agree tariffs. If financial performance targets are used, however, they must still be backed by covenants, and again they should not be of the 'all or nothing' kind implied by suspension.

Smarter covenants. The adoption of covenants - at least as they were formulated in the project legal agreements - presents difficulties because of the extreme nature of the remedy that is applied. More nuanced covenants, for example by applying interest rate or grace period penalties for the time that the covenant is breached, may be more effective at sustaining the dialogue while providing a clear incentive for action.

The lessons from implementation are:

Better cost estimates and demand forecasts. The cost estimates used at appraisal were evidently flawed, and, notwithstanding the price decreases resulting from the East Asian financial crisis, could have been developed using more up to date information and a more realistic basis. Demand forecasts, which affect the sizing of equipment (and thus the cost estimates), are risky in a system that is growing as rapidly as Vietnam's.

Delay in taking action had high costs. The second lesson is that early and decisive action to deal with slow project implementation and costs savings are essential. Failing to do so sends mixed signals to the Borrower (and to some extent within the Bank itself) and threatens the project's value. Putting off action, however hard the choices that it may present are, benefits no-one. Incentives to review and, where necessary, restructure have improved since the early days of this project.

Pilots can be usehl low-risk market tests. A positive lesson is the way in which the piloting of DSM was used to assess interest and capacity. This enabled it to be scaled up to a standalone project later, thus reducing risks while learning important lessons about how best to design the project. Several other aspects of the dialogue have also been developed into subcomponents in other projects, and this technique appears to work well in Vietnam.

7. Comments on Issues Raised by Borrower/Implementing AgenciesIPartners

(a) Borrowerlimplementing agencies

EVN and the PCs provided substantial input on each subproject, by preparing a Borrower Completion Report for each of them. It has also provided an overall completion report which is summarized in Annex 7. EVN has agreed with the content of this ICR.

(b) Cofinanciers

SlDA has been informed of the implementation completion reporting process but has not provided any comments.

(c) Other partners and stakeholders

No comments have been raised by other stakeholders.

Annex 1. Project Costs and Financing

(a) Project - - . - . - - Cost -- - - by - Componenc(in - - . -- USD Million - -- - - equivalent) --

I Appraisal Estimate I Actu Components

.... .............. ...... (USD millions) ' (

.- 4 -- Pleiku - Phu Lam 500kV TL and SS 137.00 ' - - - -- - -- - - ---- . - -. - . - . - -- h a Tinh 500kV 450MVA SS 14.20 Nha Be - Tao Dan 220kV TL and Tao Dan 22011 10kV SS ,. - .- .. ... - .. . -- -. . Rehabilitation of Distribution networks in Ha Long, Vinh and Vung Tau - --- .................... -... ...... .Consulting services for Pleiku -Phu Lam 500kV TL and Nha Be - Tao Dan 220kV TL ,and SS Technical assistance for regulatory framework - - . --- - .- - - - - - -. -- -- - - - - -

Technical assistance for DSM Disaster reconstruction 10.94 ' 8.73 80 ... .... ............ ....... ............. . . .- ... .- ..... .. L

Additional , . 220kV ..... subprojects .&... 42.56 . 40.57 !?5 ........ ....-... .- .- . - ' 31.29 '74 Additional .... 1 1 OkV subprojects ... ., - -- 23.00

............. . .....................

Additional distribution networks - - - - - -.- - - - - - 133 - -- --

Total Baseline Cost Physical Contingencies ........ . -- ..................... {Price Contingencies ..... .......................... Taxes and Duties 20.84 i 13.13 IDC 4.61 1 9.87 214 . . .. <

Total Project Cos 267.77 (53 ....... - - .... ... .- -...... .. - .. ... -- .......... . . . . . - ..... .......

Proi ect Preuaration Fund J a ~ a n : JGF Grant (TA for T/D functions) 0.70 0.69 99

cing Required -- . . - . - ......

ctuaULatest ; Percentage Source of Funds

.

Asian ......

Borrower International ~ e v x o ~

- - - -- ~weden: Swedish Intl. Dev. Cooperation Agency (SIDA)

-. - . - . - -

Japan: JGF grant . .- - . - - - - - -- . - - -. .-

*Financing not used -. Preparation

Annex 2. Outputs by Component

Physical Outputs

Physical outputs from each subcomponent are presented in the following Tables, Al.l to A1.8 and an aggregate is presented at Table A1.9. Table A1.10 identified the incremental outputs from subprojects implemented as a result of the May 2005 restructuring and their proportion as part of the whole project outputs. Zero values at both appraisal and completion are not included.

Table Al.l: Pleiku - Phu Lam 500kV Transmission Line

Table A1.2: Ha Tinh 500kV Substation

- Table A13: Nha Be - Tao Dan 220kV TL and Tao Dan 2201110kV Substation

Substation: 500122011 lOkV, number of transformers 5001220/1 lOkV, aggregate transformer capacity, MVA 1 10135122 kV, number of transformers 1 10135122 kV, aggregate transformer capacity, MVA

Social impacts Compensation costs, $ million

At appraisal

1 450

1 63

0.1

At completion

1 450

1 63

0

% Appraised

100 900 100 100

0

Table A1.4: Rehabilitation of Ha Long, Vinh and Vung Tau Cities' Distribution Systems

Substation: 11 013 5/22 kV, number of transformers x capacity, MVA 1 1013 5/22 kV, aggregate transformer capacity, MVA 35/22/0.4kV, number of transformers 3512210.4kV aggregate transformer capacity, MVA

Meters installed, number

Table A1.5: Disaster Reconstruction

100

At completion

8 281 86 1

Distribution line 110 kV, km 35/22kV, km 0.4kV, krn

Social impacts Project affected households, number compensation costs, $ million Land acquired, m2

At appraisal

8 312

1,059

1 90

558 203

54,000

376 3.1

52,776

Table A1.6: Additional 220kV Subprojects

I Social imacts I I I I

1 90

518 172

54,265

n/a 39,064

Transmission line: 220kV. km

Substation: 22011 IOkV, number of transformers x capacity, MVA 22011 lOkV, aggregate transformer capacity, MVA

100 100

93 85

100

Non to Tuy Hoa 220kV TL and Tuy Hoa to Nha Trang 220kV TL.

At appraisal

324

1 125

Project affected households, number Compensation costs, $ million Land acquired, m2

Table A1.7: Additional llOkV Subprojects I At appraisal I At completion

Distribution line

At completion 7 324

1 125

Note: There were 3 additional 220kV subprojects: Thot Not to Chau Doc 220kV TL and Chau Doc 2201.11 10kV SS, the Quy

2,533 0.78

167,050

-..

100 100

I

3,784 1.192

130050

I 1 okv. krn ~ > - -

Substation: 1 10135122 kV, number of transformers 1 10135122 kV, aggregate transformer capacity, MVA

149 153 78

Social impacts Project affected households, number Compensation costs, $ million Land acquired, m2

3 02 - -

8 275

- --

7 250

Note: There were 15 additional 1 I OkV subprojects: Thang Chuong, Cai Be, Chau Thanh, Cho Lach, Mui Ne, and My Tu 1 10/35/22kV SS; Da Lat 2, and Troi 1 10135122kV SS and associated TL; and Lang Son - Cao Bang, Vinh Long - Cho Lach, Soc Trang - My Tu, Di Linh - Phu Hoi and Phu Hoi - Duc Trong, Phan Thiet - Mui Ne, Can Tho - Chau Thanh, and Mo Cay - Cho Lach 1 IOkV TLs.

2,844 0.13

132,522

3 02

3,486 El 0.48

108,910

I no

Table A1.8: Rehabilitation of Hai Duong and Ha Tinh Cities' Distribution Systems

Table A1.9: Consolidated Physical Outputs I At appraisal 1 At completion I % Appraised

Transmission line:

Distribution line 35/22kV, km

Substation: 35122/0.4kV, number of transformers 3512210.4kV, aggregate transformer capacity, MVA

Social impacts Project affected households, number Land acquired, m2

At appraisal

34 1

378 146

388 47,800

500kV, km 220kV, km

Distribution line 1lOkV. km

-

0.4kV, km Substation:

500122011 IOkV, number of transformers 500122011 lOkV, aggregate transformer capacity, MVA 22011 10kV. number of transformers

At completion

34 1

378 137

1,325 30,726

544 336

3 10

.,

*Some data missing: this represents a minimum amount.

% Appraised

100

100 92

34 1 64

1,245

1 450

2

Compensation costs, $ rmllion

Environment impacts (qualitative)

Table A1.lO: Incremental Outputs Following May 2005 Restructuring I Increment from I Total Project (at I % Project 1

544 336

310

256.6 ha forest land affected

100 100

100

1,069

1 450

2

13.31

84

100 100 100

Land acquired, m2 1 818,858

May 2005 I restructuring

13.59*

completion)

Transmission line: 500kV, km 220kV, km

102 620,950

Distribution line 1 lOkV, km 35/22kV, km 0.4kV, km

76

0 324 1

302 34 1

0

544 336

0 96

310 804

1,069

42 96 0

Outputs from Technical Assistance

% Project Increment from May 2005

restructuring

Social impacts Project affected households, number Compensation costs, $ million Land acquired, m2

Environment impacts (qualitative)

The technical assistance component was implemented by EVN and the outputs fiom this are as follows:

Total Project (at completion)

Consultant Support for Pleiku - Phu Lam and Nha Be - Tao Dan. International conslultants were hired to support the technical design, preparation of bidding documents, procurement and construction. ~&xultant outputs included a system study, basic designs, procurement documents and progress reports.

7,854 1.67

269,686

Transmission Operations Study. International consultants were hired by EVN to undertake a study on how to improve the efficiency of transmission operations. There were fom- main tasks undertaken: a review of the organization structure for management of the transmission business; a more technical evaluation of the National Load Dispatch Center (NLDC) and their regional counterparts to evaluate options to improve transmission operations; establish a timetable for the establishment of separate transmission operations; and to set out the commercial arrangements between the proposed business units. The main outputs from the study were:

19,023 13.59* vl

620,950 256.6 ha forest

land affected

A recommendation for a phased transition to a consolidated transmission business unit, consisting of the four transmission companies that then existed, and the NLDC. The formation of an independent regulator was also recommended. The formation of a primary control center to undertake the NLDC and regional load dispatch center (RLDC) functions. It also recommended the introduction of a Supervisory Control and Data Acquisition (SCADA) and Energy Management System (EMS) and updating of short term planning software. An action plan, integrating the recommendations of the consultant. Legal instruments to: consolidate the assets of the transmission units'and NLDC into a single business unit; establish corporatized distribution companies; and devolve power

plants into separate generation companies transacting wholesale power business with distribution companies.

In many ways this report foreshadowed the subsequent dialogue which is still ongoing. EVN plans to establish a separate, single transmission company by the end of 2007. The detailed market design is under preparation now, and that will determine what other parts of the electricity system are grouped with the transmission company (for example the NLDC and the market system operator). The regulator is now active, having been created in October 2005. The quality of these outputs is rated as satisfactory.

Technical Assistance for Demand Side Management. The activities consisted of three main components: (i) a DSM program within EVN; (ii) development of energy-efficient lighting and motor standards for Ministry of Science and Technology; and (iii) development of an energy- efficient building code under Ministry of Construction. Outputs and ratings for each are summarized below:

EVN's DSM Promam. Under t h s component, a DSM cell was established within EVN with five full-time staff, DSM working groups were created within each PC, a DSM policy framework was fully developed, five pilot lighting programs were developed and evaluated, about 30 energy audits were conducted, a pilot load research program was implemented in 150 customer premises and corresponding load profiles developed, a pilot time-of-use (TOU) metering program was launched and evaluated and a second phase investment program was prepared. One planned component, a pilot street lighting program, was cancelled due to the currency devaluation. This did not represent a major reduction in the overall project deliverables. MoST Standards. Minimum energy performance standards (MEPS) were developed for 3-phase industrial motors, fluorescent tube lamps, ballasts, and incandescent light bulbs. These standards were reviewed by a Technical Committee and MoST is now preparing to issue these standards. An Implementation Plan and Future Development Plan for further standards development and implementation of the MEPS was also prepared and submitted. MoC Buildinn Code. The rating of the achievement of deliverables for this component is satisfactory. Following an extensive building survey exercise covering Hanoi, HCMC and Danang, an energy-efficient building code was developed for high-rise office buildings and hotels. The draft code was reviewed by a Technical Stakeholder Committee and MoC is now preparing to issue the code. An Implementation Plan was also developed and submitted under the project.

The quality of the project outputs were all rated as satisfactoiy. Each report was carefully reviewed by the implementing agency (e.g., EVN, MoST, MoC), MoI and the Bank team and, in most cases, detailed comments were provided. Those reports that included more technical information or required consensus building, such as the various policy-related documents, extensive consultations were required along with appropriate stakeholder workshops to ensure that all views were considered and concerns addressed as much as possible. Those reports that required broader consultation or public awareness were appropriately disseminated.

Annex 3. Economic and Financial Analysis

" Economic Analysis

. The economic analysis for the project components at appraisal and at completion has been carried out using two scenarios: (i) with the project; and (ii) without the project. The ex ante 'with' project scenario assumed that the project as described was carried out based on forecast costs. For investments at 500kV, the 'without' project alternative was to strengthen the 220kV system. For investments at 220kV and below, the 'without' project analysis assunned that no investment would be made. The ex post 'with' project scenario used actual investment costs of the project. The 'without' project scenario assumed that no investment had been made. The same methodology was used for both the original and the new subprojects.

The costs and benefits were valued as shown in Table A3.1

Table A3.1: Factor Costs and Benefits for Economic Analysis -

LRMC of system development at 1 1 OkV 1 0.66 centsfkwh LRMC of system development at 22135kV 1 1.09 centsfkwh 3 Costmenefit LRMC of energy at 500/220kV LRMC of svstem develo~ment at 500/220kV

LRMC of system development at LV 1 2.27 centsfkwh Cost of unserved energy 1 50 centsfkwh

Value 3.09 centsfkwh 2.34 centsfkwh

I berations and maintenance cost 1 2% of investmentlvear I

For the purposes of comparing the ex ante with the ex post costs, all costs were ci~lculated in .

constant 1995 US dollars, the base year chosen in the original appraisal. No shadow wage rates or exchange rates were applied, and taxes and duties were excluded from the calculation. The discount rate used was 10 percent.

The values of the economic rate of return and NPV at 10 percent for each original subproject are as shown in Table A3.2. At appraisal, the NPV of the whole project was $286.lmillion % and the EIRR 27.2%. Including the disaster reconstruction component, the NPV was $3510.6 million, and the ERR 26.3%.

$ At 1995 price levels * No estimates available

The economic indicators for the additional subprojects are shown in Table A3.3.

$ At 1995 price levels Not completed at project close, EIRR and NPV estimates unchanged from appraisal 7 Results merged with Can Tho - Chau Thanh 1 1 OkV TL

Table A33: Economic Indicators for Additional Subprojects

Subproject

Owned by E VN Thot Not to Chau Doc 220kV TL and Chau Doc 22011 10kV SS Quy Non to Tuy Hoa 220kV TL Tuy Hoa to Nha Trang 220kV TL Owned bv PC1

At appraisal At completion EIRR (%I

38.0

13.0 14.0

ElRR (%)

23.0

13.2 12.7

NPV@lO% ($ million)$

64.7

3.5 7.5

NPV@lO% ($ million)$

26.8

1.9 3.6

Financial Analysis

Financial analysis for the original subprojects with costs based on investment cost estimates, operations and maintenance costs of two percent of investment cost, cost of incremental energy

- purchased at bulk purchase prices for each power company. Revenues were based on energy sales, after allowing for losses, at the average sales prices for each power company.

The values of the financial rate of return and NPV at 7 percent for each original subproject are as shown in Table A3.4 and for the additional subprojects in Table A3.5. The IRR aid NPV for each of the participating companies at completion and for the whole project at appraisal and completion are presented in Table A3.6.

Table A3.4: Financial Indicators for Original Subprojects

$ At 1995 price levels * No estimates available t Not included in PAD analysis.

The financial analysis for the additional subprojects is shown in Table A3.5.

Table A3.5: Financial Indicators for Additional Subprojects

Subproject

$ At 1995 price levels * Not completed at project close, EIRR and NPV estimates unchanged from appraisal

Results merged with Can Tho - Chau Thanh 1 1 OkV TL

Owned by E VN Thot Not to Chau Doc 220kV TL and Chau Doc

At appraisal the costs of the original subprojects were over-estimated. The completion analysis takes into account the cost savings - of the order of 30 percent of the original estimates - and shows a much higher rate of return than at appraisal. The net present value of the original subprojects, however, is not as high, principally because of the delays in completion which in some cases were four years longer than the original implementation schedule. The impact at the financial level is less marked, because the financial revenues are lower than the economic benefits. Notwithstanding the reduced benefits because of delays, the subprojects were still financially efficient, except possibly the renovation of Halong and Vinh distribution systems for which information is not available.

At appraisal

The estimates at appraisal and completion for the disaster reconstruction component are quite close. This may reflect both the short time between appraisal and implementation and the

At completion

("A)

36

F R R I NPV@7.0% I FIRR I NPVB7.0 ($ million)$

74.29

(%)

14.9

($ million)$

19.0

relatively short period of implementation. The actual costs were somewhat lower thm appraised but closer: this may be a consequence of the equipment purchased largely being MV and LV distribution, of which PC2 had greater experience and more recent price information.

The additional subprojects were overall less economically and financially attractive than the original ones. This may be the consequence of the basis for their selection - an advanced state of preparation was an important criterion - but may also be an indicator that marginal investment in transmission and distribution is less attractive in 2004 than in 1997. Notwithstanding that the projects were economically and financially efficient

The project was financially worth while doing from the standpoint of each of the implementing agencies, as shown in Table A3.6. Each of the agencies has achieved financial returns well above their cost of capital (for this kind of project, estimated to be 5.75%).

Table A3.6: Financial Indicators for EVN and PCs

Implementing agency

EVN HCMC PC PC 1

* Estimate based on weighted average.

PC2 Whole project

At completion

FIRR NPV@7% ("h) ($ million

16.6 29.9 17.4

At appraisal (original projects only)

$ At 1995 price levels

17.0 13.0*

FIRR (%I

40.0* 15.8

23.0*

NPV@7% ($ million)$

101.3 59.9 12.4 13.6

187.2 20.4 20.1

Annex 4. Bank Lending and Implementation Support/Supewision Processes

(a) Task Team Members

Names --

Lending

Title Unit ; Responsibility1 i Specialty 2-- ........ ..

Darayes Mehta -- -- -- - -- - -- -- EASEG Team Leader - - - - - -- - - - - - - -- Rebecca Sekse - - - -- - - - - - - EASEG - - ----- Enrique Crousillat - - - - - - EASEG - - - - -- - -- Jack Fritz EASES

-- - - -- - -- - -- --- - Maninder Gill Resettlement Svecialist EASES - ........-.-.. ... .-.- - ....... .--r c-;-- e.i- -- *

!Clifford .. Garstang .. ... .... i---- .................. .... LEGEA --

;Ranjit : Lamech A-L kestructuring . Specialist ... IENPD ,... ......

'Carolyn Taaer IDSM Suecialist i ASTAE ....... - .. . ... ......... ,-.. -. , - , . . A ..-a ................... j . . Jas .. Singh SM Specialist .... ASTAE - <

Anil Malhotra Energy Advisor EACVF ........ +.-- -.. .... --- . - . - .. -- .-

,Hung Tien Van I

erations Offi I% -- -.: EACVF j ..

Theresa Garnulo Task Assistant I EASEG ; - ...- - .- -- .. .. -- . . -- --- -. - .. - . . -- .... -- - ......... .- . - ..... - -. . . .

iSupervisionnCR -. . -. . .- . - -- . - . . - ...... r -- --- -

Anil , ..... Malhotra ........... Regional Energy - .. - .-.. - -. -.... .. ...... ......... . . EASEG !Team Leader ( -,

Hung Tien Van Senior Ouerations Officer EASEG 1~eam Leader (to end 2004) - - - . - - - - -- - . - - - - -- - -- - - - - -- --- - - - Richard Spencer ,- - - - - - -

Senior Energy specialist - -- -- - - - - - EASEGIEASVS [Team Leader (to closing) - - -- -" - - ---- -

Rebecca Sekse -. - - - - - -- Financial -- Analyst - - EASEG 1 iRanjit Lamech Qes - .- --

IENPD / . .-........ .. .... .... -_- .-. -. --L ......

Carolvn Tager DSM Suecialist ASTAE 'Jas ... Singh .. :DSM Specia ....... - - ..... - ..... ... - ..... Kurt Schenk iSenior Powe

--. -- ,- .. ................... .- .

Resettlement Suecialist EACVF 1

Mariko Oaawa 'Financial Analvst EASEG 1 Quang . . - . Ngoc Bui

.-a --- .--<. . . . . I EASVS Hung Viet Le - t EAPCO i

-. -. --- . .. .... . ..-.. - -. ............ . . . . -..-...... . Lien Thi . . Bich Nguyen -- - -- Program Assistant - --- . -

Anh Nguyet - - Pham - Sr -- Operations Off. EAS - - Cung Van Pham - - - ------ - . - - - - - - ~inanciai~anagement - -- Specialist - - - - EAP - - - Phuong Thi Thanh Tran

- - - - -- - Sr Environmental Spec. * - . .- EASVS I . -- -

-Kien , Trung Tran .............. ..

.. ...... .......

.- . . . . . .

(b) Staff Time and Cost

i Staff Time and Cost (Bank Budget Only) ___- - . _ _ _ _ _ . _ -- -- _ ___ 'stage of Project Cycle 1 USD Thousands (including

' Staff travel and consultant costs) -- - -.- . -. -- - - . -- - - - - --- - - - - -- - - -- -- - Lending .-....... '

FY96 -- - - -- ..................

- .---. .- - ..... .. .-....... ............-........-.-.-.. 4

Total:' 283.35 -.-- ....................... . .............. - .......-....

. .

170 Total:; 652.87

Annex 5. Beneficiary Survey Results

No beneficiary survey was carried out.

Annex 6. Stakeholder Workshop Report and Results

No stakeholder workshop was held.

Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR

Assessment of Outcome

1. Physical Investment

The transmission and medium-voltage distribution system, which is owned and operated by EVN, has undergone substantial improvement in the past decade. Highlights include the construction in 1997 of a 500 kV North-South link, which has been strengthened by a second circuit and additional substations. The overall outcome of the transmission and distribution component is rated as satisfactory. Although having suffered much delay during preparation and bidding stages, the contract implementation stage has gone at acceptable speed. The 1 lOkV and 220 kV system has been expanded and upgraded, particularly in major load centers, including cities and provinces in regional areas. These improvements of the system under the project, combined with rehabilitation of urban distribution networks, have reduced losses from 21.4 percent in 1995 to 11.78 percent in 2005. The improvements have also increased stability and permitted better control of the system. The 110 kV system, the highest voltage level at which power distribution takes place, has been expanded to meet growth in local power demand, particularly in urban areas.

Commissioned transmission and distribution subcomponents have injected a remarkably dependable output to EVN7s power network, has been signilicantly contributing to strengthening the high voltage transmission. The line also contributed to reduction of losses and improvement of the system operation and control, thus improving the efficiency and sustainability of EVN's power network.

The subcomponents are in line with EVN's Master Plan of 6th for the period 2006-2015 with prospective to 2025 which emphasized the development of hydropower sources in parallel with thermal power sources. After energizing the lines the intervals between blackouts became much longer, and the load centers, especially big cities and provinces, have no longer suffered sudden power shortages. Upgrading the system with new equipment installed replacing old ones contributed improvement of quality and credibility of the power supply. Thanks to the 500kV transmission line subcomponent, North-South exchange of power was facilitated. This possibility was clearly seen in Summer of 2005, when the line transmitted a large output to the North and helped to relieve the situation of power shortage there which was caused by severe droughts that rendered the predominantly hydro based generation system overloaded.

The projects were economically efficient and met environment and social safeguards requirements of the World Bank and of the GoV.

2. Technical Assistance for the Project

With assistance of consultants, the System Study was recognized as helpful as those carried out for the North-South 500kV Transmission Project. Moreover, it helped to consolidate the results already obtained and, in the meantime, to find out the ways for designing of the new line in a cost-effective manner. The consultant also carried out evaluation of bids and performed other tasks. Through cooperation with the foreign consultants, the knowledge and skills of implementing agency's staff in engineering and management were improved considerably, especially for projects at 500kV level. Through working with the consultants, the technical design capacity of EVN staff for 500kV projects has improved and has subsequently allowed local consultants to undertake other projects at 500kV level.

In addition, with latest technology on gas-insulated switchgear for 220kV substations the subproject is very helpful in terms of training skilled human resource for EVN. Some engineers had the opportunity to participate overseas training courses at leading GIs technology companies. This has helped many of the staff improve their knowledge of GIs technology in particular and the latest technology general during implementation and operation stage.

3. Project Sustainability

With 500kV transmission as the back-bone in the national network, evacuation of power from power plants in the central region via Pleiku substation and the North-South 500kV line and transmitting it to the South, the line can meet the additional demand for power, with higher quality of service. Since the high voltage sptem was expanded and upgraded, the quality of power supply is much improved, contributed to reduction of losses and improvement of the system operation and control, thus improving the eficiency and sustainability of ETJlV's power network.

Most steel towers and all conductors for the line came from local manufacturers. This has meant more jobs for people involving in manufacturing of such goods and improved the skills and competence of local manufacturers. The substation extensions were equipped with up-to-date equipment and technologies and expected to have a long service-life.

The project was prepared and implemented in accordance with Vietnamese Envin~nment and World Bank safeguard policies would help Vietnam in general and EVN in particular step by step approach to the international practice and standard in terns of environmental sustainable development. The compensation provided was acceptable to PAPS, ensuring that their living after project completion would be better or at least equal to that before project comnencement. Together with the distribution network rehabilitation, people in provinces obtaining access to improved quality and availability of power in rural areas, which is a long-standing Government commitment, and is seen as a source of national unity. The benefits of improvements in the quality of the life of the local people are well understood, including increasing their income through access to improvements in productivity. In addition, the quality of life improvements have positive, but indirect, social benefits.

The government is committed to sector reform as evidenced by the passing of the Electricity Law by the National Assembly at the end of 2004 and the start it has made in implementing its provisions. It has given further evidence of its understanding of the need for meeting the financing challenge by launching its equitization program and announcement of its plans to equitize a number of other subsidiaries.

At the project level, the government has demonstrated commitment through its approvals process. With the project restructure in June 2005, each subproject has been identified by EVN as a priority and EVN itself has demonstrated commitment to improved service quality and meeting increasing demand. Besides continued EVN commitment, the sustainability of the project relies on continued growth in demand for power in Vietnam and matching the transmission system growth with expansion of generation capacity. Demand growth appears robust, while the issue of increasing generation capacity is well understood at all levels of government and EVN.

Performance Assessment

1. Bank Performance

The Bank performance of the project initial stages was recognized as satisfactory: fiom preparation of environmental impacts assessment, preparation of RFP for selection of international consultant, bidding documents for goods, to the evaluation of bids. All work was implemented with the Bank's comments being taken into account and the Bank's Guidelines being followed.

The Bank's supervision performance was satisfactory. It is clear evidence that through supervision missions and working visits, the work progress and matters arisen were monitored J

and measures were recommended. Also, through the Bank's supervision, the implementing agency could make necessary adjustment to develop a realistic work schedule. In order to complete and fulfill the development objectives of the project, the Bank team has contributed and played a very important role. With their strong support and close cooperation, project implementation has been improved in terns of progress speeding up and avoids longer delays.

2. Borrower performance

The transmission and distribution subsector portfolio has generally performed well during the past 10 years. Closed projects have met their objectives and TD1 has been rated satisfactory with respect to their development objectives throughout its lifetime. Implementation progress for the project is satisfactory and has mostly been so during their lifetimes.

The good project implementation record reflects the increasing capacity of the EVN subsidiaries. Implementing agencies now manage subprojects throughout the investment cycle, from identification through appraisal, procurement, implementation, and commissioning. International consultant support and "turnkey" approaches are confined to deployment of newer technologies, and they have become the exception rather than the rule.

Transmission and distribution system must keep up with rapid growth and change in patterns of electricity demand. EVN has respo,nded to this by periodically reviewing and reassigning the priorities for individual sub-projects. The implementing agencies' improved capacity and greater

1 - responsiveness make this possible.

1 - Key Lessons Learned

With very long period of the project implementation, covering sites along the counlry from the North to the South, and being one of the first IDA financed transmission and distribu1:ion projects of EVN, implementing agencies have faced many difficulties during project preplaration and implementation. Experience from the project suggests that close cooperation with local authorities and services, departments, and sections would be advantages for agencies during implementing stage and it was a critical reason determining the success of the project.

With many subprojects with a large volume of works and goods procurement, it is i,mportant to ensure acceptable packaging and well prepared procurement plans. This would minimize delay in procurement processing. The supply of materials and equipment for overhead lines should be done by National Competitive Bidding and should be included in packages for founclations, pole erection and installation of overhead lines.

It is very important to anticipate delay in approval stage of the project documents such as FIS, Technical Design and Cost Estimates in order to have a project implementation plan prepared precisely and realistically. Project implementation was often slower than the schedu.le set out in the feasibility study; the major reason being that changes to the project and direction of underground cables and overhead lines was very common.

Specific responsibilities of consultant have to be agreed clearly during negotiation arid preparing the contract. For example, the consultants have to take full responsibility for the entire process including design, agreement of intersection between transmission lines and underground works construction, waterway and road construction; preparing bidding documents, evaluation, negotiation and contract signing; review and approval for technical documents, supervision and checking before acceptance stage. The performance of contracts for consulting services must be controlled closely to avoid expenses rising above the signed and approved total contriict value.

All of the high and medium voltage equipment, control, and measurement and protection systems of GIs substation should be designed simultaneously.

Annex 8. Comments of Cofinanciers and Other Partnerslstakeholders

No comments have been received from cofinanciers.

Annex 9. List of Supporting Documents

, Borrower-prepared Documents

Project Implementation Plan (refers to the original subcomponents)

Feasibility studies: Plekiu - Phu Lam 500kV Transmission Line; Ha Tinh 500/220/1 IOkV Substation; Nha Be - Tao Dan TL and Tao Dan 22011 10kV SS; Halong, Vinh and Vulng Tau cities' distribution systems; additional 220kV subprojects; additional 1 lOkV subprojects and Hai Duong and Ha Tinh cities' distribution systems.

EAIEMP, Resettlement Plan and Ethnic Minorities Development Plan, Plekiu - Phu Idam 500kV TL EAIEMP, Thot Not - Chau Doc 220kV TL and Chau Doc 22011 10kV SS EAIEMP, Quy Nhon - Tuy Hoa 220kV TL EAIEMP, Tuy Hoa - Nha Trang 220kV TL EAIEMP, Lang Son - Cao Bang 1 1 OkV TL EAIEMP, Thanh Chuong 110135122kV SS EAIEMP Troi 1 10135122kV SS and TL EAIEMP, additional 1 1 OkV subprojects in southern Vietnam EAJEMPs, Hai Duong and Ha Tinh City distribution systems rehabilitation.

RP, Quy Nhon - Tuy Hoa 220kV TL RP, Tuy Hoa - Nha Trang 220kV TL RP, Lang Son - Cao Bang 1 lOkV TL RP, additional 1 1 OkV subprojects in southern Vietnam

EMDP, Lang Son - Cao Bang 1 lOkV TL EMDP, additional 1 lOkV subprojects in southern Vietnam

Consultant-prepared Documents

National Tariff Study, Hagler Bailly, 1996 Transmission and Distribution Study, Hagler Bailly, 1998 Generation-Transmission Transfer Pricing System, Economic Consulting Associates, April 2001 Demand Side Management Component

Ban k-prepared Documents

- Project Appraisal Document Aide Memoires, preparation and supervision missions 1996 - 2007 ICRs, supervision missions no 1- 19 Memorandum of the President: Proposed Amendments to the Development Credit Agreements for the Vietnam: Transmission, Distribution and Disaster Reconstruction Project (Cr. 3034 VN) and the Vietnam: System Efficiency Improvement, Equitization and Renewables Project (Cr 3680 VN), May 17,2005

Gul f 0 f

Tha i land

IBRD 35850

CAMBODIA

DISASTER RECONSTRUCTION

EXISTING SYSTEM.

1 1 0 kV SUBSTATIONS

DISTRIBUTION AREA - 500 kV POWER LlNES

220 kV POWER LlNES

THERMAL POWER STATIONS

NATIONAL ROADS ~ ~~~ - 500 kV POWER LINES OTHER ROADS

- - - - - - - - -- 4 ~ - RIVERS AND CANALS 220 KV POWER LlNES

.............. *. PROVINCE CAPITALS 1 10 KV POWER LlNES

NATIONAL CAPITAL (INSET) 220 KV SUBSTATIONS -- * -- 6 PROVINCE BOUNDARIES 1 10 KV SUBSTATIONS -.-.- INTERNATIONAL BOUNDARIES