Sri Lanka
Project Number: 40239
November 2011
Proposed Loan
Socialist Republic of Viet Nam: Development of the Northern Chu and Southern Ma Rivers Irrigation System
CURRENCY EQUIVALENTS
(as of 26 October 2011)
Currency Unit / – / dong (VND)VND1.00 / = / $0.00004773
$1.00 / VND 20,953
ABBREVIATIONS
ADB / – / Asian Development BankAH / – / affected households
CPMU / – / central project monitoring unit
CPO / – / central project office (of MARD)
DARD / – / provincial department of agriculture and rural development
EMDP / – / ethnic minorities development plan
GAP / – / gender action plan
ha / – / hectare
ICMB3 / – / irrigation construction and management board no. 3
IMC / – / irrigation management company
IEE / – / initial environment examination
ISF / – / irrigation service fee
MARD / – / Ministry of Agriculture and Rural Development
NCSMRIS / – / Northern Chu and Southern Ma Rivers Irrigation System
O&M / – / operation and maintenance
PAM / – / project administration manual
PPC / – / Provincial Peoples’ Committee
PPMU / – / provincial project management unit
PPTA / – / project preparation technical assistance
RDS / – / rural development support
RF / – / resettlement framework
RP / – / resettlement plan
RRP / – / report and recommendation of the president
SDR / – / standard drawing rights
T / – / metric ton
TA / – / technical assistance
WUA / – / water user association
WUG / – / water user group
NOTES
(i)The fiscal year (FY) of the government of the Socialist Republic of Viet Nam ends on 31 December.
(ii)In this report, "$" refers to US dollars.
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Vice-President / S. Groff, Vice President, Operations 2Director General / K. Senga, Southeast Asia Department (SERD)
Director / J. Mir, Agriculture, Environment, and Natural Resources, SERD
Team leader / C. Wensley, Lead Water Resources Specialist, SERD
Team members / S. Aman-Wooster, Senior Social Development Specialist, SERD
G. Bui, Natural Resources and Agriculture Economist, SERD
D. Ellingson, Principal Natural Resources Management Specialist,SERD
L. Enjaynes, Project Analyst, SERD
P, Ramachandran, Environment Specialist, SERD
C. Salter, Senior Natural Resources and Agriculture Specialist, SERD
Tran Quy Suu, Social Specialist, Viet Nam Resident Mission
K. Watanabe, Water Resources Specialist, SERD
Paul-Edouard Clos, Counsel, Office of the General Counsel
In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.
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CONTENTS
Page
PROJECT AT A GLANCE
MAP
I.THE PROPOSAL
II.The Project
A.Rationale
B.Impact and Outcome
C.Outputs
D.Investment and Financing Plans
E.Implementation Arrangements
III.Due diligence
A.Technical
B.Economic and Financial
C.Governance
D.Social and Poverty
E.Safeguards
F.Risks and Mitigating Measures
IV.ASSURANCES
V.RECOMMENDATION
DESIGN AND MONITORING FRAMEWORK
LIST OF LINKED DOCUMENTS
PROJECT AT A GLANCE
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MAP
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Appendix 21
I.THE PROPOSAL
1.I submit for your approval the following report and recommendation on a proposed loan to Socialist Republic of Viet Nam for the Development of the Northern Chu and Southern Ma Rivers Irrigation System Project[1].
2.The Project is part of the government’s overall investment program for the Northern Chu and Southern Ma Rivers Irrigation System (NCSMRIS),[2]which will increase water productivity, reduce rural energy use and improve food security.TheNCSMRIS command area islocated in Thanh Hoa Province in North Central Viet Nam (see Map).Currently, irrigators within the command areadraw water from the Chu and Ma rivers through one large and many small irrigation pumping stations. The completion of the Cua Dat multipurpose reservoir provides the opportunity to convert the NCSMRIS from an energy dependent pumped scheme to a surface gravity scheme, reducing energy requirements and improving the reliability of irrigation deliveries from the Cua Dat reservoir. The overall investment program will develop new main and distribution canals and rehabilitate existing irrigation and drainage facilities, improve institutional capacity for water management, and enhance operation and maintenance (O&M). It will contribute to efforts to adapt to climate change by increasing food production in an area less exposed to the potential impact of sea levels rise (in the main river deltas) and the projected yield reductions due to increased frequency of flood and drought events. The investment aligns with ADB’s Strategy 2020[3].
3.Viet Nam made the transformation from a net importer of rice to one of the world’s largest exporters starting in 1991. However, with a current population growth of about 1.4% per year and improving living standards, national rice consumption is increasing by about 2% per year. At current rice production levels, it will take only 10 – 12 years before the present surplus of 4 – 5 million metric tonnes (T) per year (which is now exported) is absorbed by domestic consumption and, unless there is a corresponding increase in production, this will have considerable regional food security consequences. Although the proportion of national gross domestic product (GDP) from the agricultural sector is declining, continued increases in the production of food, fiber and raw materials for other sectors.
4.Paddy is the dominant food crop, accounting for 82% of the irrigated area in Vietnam in 2009. However, the area of land under paddy cultivation has decreased in recent years due to urban expansion, diversification into aquaculture and other crops, and economic growth in nonagriculture sectors, with increasing demands on available water resources. While the net available land for agriculture (especially paddy) is limited and currently declining, the government wishes to enhance the productivity of existing land and food security through improvements to irrigation and drainage. The government consequently places a high priority on irrigation modernization, dam safety, and improved water resources management. The project will address these issues at the local level, and will contribute to ADB’s broader policy dialogue initiatives in the water and food sectors (paras 6 and 8).
II.The Project
A.Rationale
5.One of the government’s major objectives of the government’s draft 5-years Socioeconomic Development Plan (SERDP, 2011-2015) is to accelerate agricultural and rural industrialization and modernization to (i) facilitate large-scale agricultural commodity production relevant to market demand, the ecological conditions of individual regions, and (ii) increase food security. The modernization of irrigation and drainage systems will result in more reliable, efficient, and equitable water services, which are indispensable foundations for agricultural modernization.In its National Water Resources Strategy,the government has defined the main objectives for the water sector in the 15 years to 2020 as the protection, efficient exploitation, and sustainable development of water resources on the basis of integrated and unified water resources management. The continuous development and improvement of institutions, operations, and human resources capacity as priorities[4].
6.As described in the Viet Nam Water Sector Review (2009),[5] major issues facing the irrigation sector (and particularly NCSMRIS) include how to: (i) balance the tradeoffs between the economic efficiency of improving existing infrastructure versus expansion of new irrigated area; (ii) rehabilitate existing infrastructure, much of which is 30-40 years old and suffers from inadequate O&M; (iii) achieve sustainable financing for O&M and rehabilitation of irrigation facilities, given that central and provincial government budgets are insufficient for major refurbishment and the current government subsidy for irrigation service fees (ISF) limits the abilityof irrigation management companies (IMCs) to fully cover O&M[6]; (iv) improve irrigation service coverage, with an average of only about 68% of irrigation design areascurrently serviced; (v) manage water quality and reduce non-point source pollution effects of fertilizers and pesticides which pose a public health risk in many areas; and (vi) effectively manage multi-purpose reservoirs for irrigation, hydropower and water supply.[7]
7.Lessons learned from recent ADB and other development partner’s projects in the irrigation subsectors indicate that a comprehensive approach is needed to achieve full investment potential, including interventions to (i) build the capacity of key agencies and introducing participatory irrigation management; (ii) eliminate physical impediments to efficient system operation; and (iii) provide support for project management. Although the irrigation service fee subsidy aims to provide for IMC operations, additional resources must be raised by water user associations to operate and maintain lower order canals and on-farm facilities. ADB is monitoring the effectiveness of the O&M policy under ongoing sector activities.
8.The SEDP sets out Viet Nam’s goal of becoming an industrialized nation by 2020, with poverty alleviation and food security.Good progress has made in reducing poverty, falling from 28.9% in 2002 to 12.1% in 2008, the northern midland and mountainous region, including Thanh Hoa province, remains the poorest region in Viet Nam, with poverty levels of 25.1% (2009). In Thanh Hoa province, 17.6% of the population live below the poverty line. The SEDP envisages agriculture, forestry and fishery's share of GDP to be around 19%, with sector employment being 41% of the national total. MARD’s 5-Year Plan for Agriculture Development 2011-2015 envisages a modernized and sustainable agriculture sector with a market orientation.
9.ADB’s country program and the proposed Project are aligned with these poverty and food security initiatives. The proposed Project is included in ADB’s Viet Nam Country Strategy and Program[8]. ADB’s assessment, strategy and roadmap (ASR) for the agriculture and natural resources sector promotes (i) improved rural productivity and (ii) sustainable natural resources management and climate change resilience, especially for land and water. ADB plays a lead role among development partners in supporting sustainable water resources, through financing physical infrastructure, strengthening capacity for sustainable water resources management and coordinating institutional development initiatives for legislative and policy development.[9]
10.The existing irrigated area within the NCSMRIS command area is approximately 15,700 ha which is currently served by about 160 pumped irrigation and redistribution schemes, drawing water from the Chu and Ma Rivers and smaller tributaries. The NCSMRIS investment program will expand the irrigation area to a total command area of about 31,084 hathrough the provision of gravity irrigation water from the Cua Dat reservoir and the rehabilitation of existing facilities anddevelopment of new facilities. The base cost of the government’s total NCSMRIS investment program is estimated at VND 4,651 billion ($223.3 million equivalent) and is divided into three phases:[10]
(i)Phase 1 (financed by the government): Construction of the Main Canal and control structures (financed through the issuance of government bonds) with a base cost estimated at VND 1,070 billion ($51.7 million equivalent). The Main Canal is required to conduct irrigation water from the Cua Dat reservoir, from Doc Cay Dam to the junction of the North and South Main Canals (see Map). This phase is currently under construction with an expected completion by mid-2015;
(ii)Phase 2(the proposed Project, to be financed by ADB and the government): Construction of the new North Main Canal (34.5 km)and South Main Canal 23.5 km, and development of lower order canals and on-farm facilitiesand planned for completion by end-2016.[11];
(iii)Phase 3 (financing to be identified): Construction of the extension of the North and South Main Canals (from km 34.3 to km 47.3 of the North Main Canal, and km 23.5 to km 46.5 of the South Main Canal), and rehabilitation of the existing South Ma pumped irrigation scheme command area.The government intends to finance Phase 3 from internal or external resources commencing in about 2014. ADB’s investment is not contingent on the implementation of Phase 3.
B.Impact and Outcome
11.The impact of the proposed Project will be improved water and land productivity of irrigated cropping systems within the NCSMRIS command area, situated in Thanh Hoa Province. The outcome will be the delivery of effective and timely irrigation services within NCSMRIS.The design and monitoring framework (DMF) is in Appendix1.
C.Outputs
12.The proposed Project has four key outputs:
(i)Improved water resources management, delivery of irrigation services and irrigation system O&M: the Project will providetechnical assistance:(a) to establish financially viable service providers by assisting DARD in preparing business plans and restructuring the irrigation management companies (IMCs) for their future operations as autonomous and financially viable entities to operate and maintain irrigation systems; (b)to train and enhance the capacity of DARD and the IMCs to improve water resources management and sustainable irrigation system management, modernize the NCSMRIS management system, improve market opportunities for irrigated crop production, address climate change adaptation within the system, and support institutional reforms for improved irrigation management; (c) to strengthen the capacity and participation of water user groups (WUGs) and water user associations (WUAs) in irrigation management, developing on-farm infrastructure and building O&M capacity following the rural development support (RDS) model;[12] and (d) to support affected persons, ethnic minorities and gender equality.
(ii)Improved irrigation infrastructure: the activities supported under this output comprise (a) construction of the new North and South Main Canals (NMC and SMC)(b) provision of canal control and electrical equipment, and (c) construction supervision. Construction of the new North and South Main Canals (34.3 km and 23.5 km, respectively) willinclude the rehabilitation of about 15,758 ha of existing irrigated areas, and the development of about 8,141 ha of rainfed lands for a total future irrigated area of 23,899 ha.
(iii)Improved access to and use of rural support services,agricultural inputs and information: the activities supported under this output comprise: (a) assessment, training and capacity building to support agricultural extension; (b) support for demonstration plots; and (c) purchasing equipment and improvement of minor infrastructure for seed farms.
(iv)Effective project management: this will include technical assistance for project management, implementation and monitoring, and include training for staff involved in project management and implementation.
D.Investment and Financing Plans
13.The Project cost is estimated at $143.11 million equivalent (Table 1).
Table 1: Project Investment Plan
Item / Amounta($ million)
A. / Base Costb
1. / Output 1 – Improved water resources management, delivery of irrigation services and irrigation system O&M / 4.61
2. / Output 2 – Improved irrigation infrastructure / 102.33
3. / Output 3 – Improved access to and use of rural support services / 1.14
4. / Output 4 – Effective project management / 5.23
Subtotal (A) / 113.31
B. / Contingenciesc / 27.59
C. / Financing Charges During Implementationd / 2.21
Total (A+B+C) / 143.11
aIncludes taxes and duties of $10.789 million equivalent) to be financed from the government resources.
bIn October 2011 prices.
cPhysical contingencies computed at 5%. Price contingencies computed at -3.2% on foreign exchange costs in 2012, 0.3% in 2013 and 0.5% thereafter, and 11.0% on local currency costs in 2012, 9.0% in 2013 and 8.0% thereafter; includes no provision for potential exchange rate fluctuation under the assumption of a purchasing power parity exchange rate.
dInterest during construction for ADB loan(s) has been computed on the basis of ADF interest rates at 1% per annum during the implementation period.
Source: ADB Staff and PPTA consultant estimates
14.The government has requested a loan in various currencies equivalent to SDR {69,587,000 million} ($110 million in equivalent)from ADB’s Special Funds resources to help finance the Project,including (i) civil works, (ii) consulting services (iii) equipment[13], resettlement compensation, [14] (v) contingencies and (vi) interest during construction. Interest during construction which will be capitalized. The loan will have a 32-year term, including a grace period of 8years, an interest rate of 1.0% per annum during the grace period and 1.5% per annum thereafter, and such other terms and conditions set forth in the draft loan agreement. The government will contribute $33.05million equivalent to finance taxes and duties, land acquisition and resettlement costs, recurrent and investment costs.
15.The financing plan is in Table 2.
Table 2: Financing Plan
Source / Amount($ million) / Share of Total (%)
Asian Development Bank / 110.00 / 76.9
Government / 33.11 / 23.1
Total / 143.11 / 100.0
Source: ADB Staff and PPTA consultant estimates
E.Implementation Arrangements
16.MARD will be the executing agency (EA) for the Project, and will delegate responsibility for project management to a central project management unit (CPMU) within its Central Project Office (CPO). The CPMU will:(a) manage the overall project; (b) award all international competitive bidding (ICB) procurement packages; and (c) award and manage all consulting services contracts (except engineering design and RDS consulting packages, which will be engaged and managed by the Irrigation Construction and Management Board no. 3 [ICMB3] and the provincial project management unit [PPMU], respectively).
17.There will be two implementing agencies (IAs):
(i)MARD’s ICMB3 located within Thanh Hoa Province which will (a) manage ICB contracts, (b) award and manage national competitive bidding (NCB) contracts for construction of the North Main Canal and lower order canals; and
(ii)The PPMU will be established within the Provincial Department of Agriculture and Rural Development (DARD) which will (a) manage ICB contracts, (b) award and manage NCB contracts for the South Main Canal and lower order canals and implement the RDS program for WUGs/WUAs and agricultural extension.
18.Recognizing that the scale and timing of civil works for irrigation system development must take into account the seasonal nature of farming operations, national competitive bidding (NCB) will be used for smaller contract packages for new and rehabilitation works. Contract packages will be optimally sized to attract suitably qualified bidders and to facilitate contract management and project supervision. The ceiling for NCB for ADB-financed civil works is $5 million, with the first package requiring prior review by ADB. In all cases, NCB packages larger than $2 million will also require prior review by ADB. All NCB contract packages above $100,000 will require prior review by CPO. The limit for NCB procurement for goods and services is $500,000.