Viet Nam: Thanh Hoa City Comprehensive Socioeconomic Development Project

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Lessons

Local governments in Viet Nam’s secondary towns and cities have high implementation capacity.

Medium-sized, secondary towns and cities in Viet Nam, the project has shown, are highly capable of implementing urban infrastructure projects. Performance quality was high, and the provincial project management unit was able to successfully carry out the construction subprojects in a shorter period than envisaged at appraisal─22 instead of 35 months.

Recruitment of consulting firms by a government agency in Viet Nam is time-consuming.

The executing agency contracted the project implementation assistance (PIA) consultant 18 months later than envisaged. Significantly holding up project startup, such a delay was not specific to this project, but common in ADB-financed projects in Viet Nam. To address the problem, detailed terms of reference and request for proposals for a PIA consultant may be readied upon feasibility study approval. Preparation of these documents should be incorporated in the deliverables of the project preparatory technical assistance consultant.

Reliable cost estimates are essential to success.

This project has demonstrated how inaccurate project cost estimates could lead to implementation problems. Specifically, because the number of people that needed to be resettled and the amount of land required for construction works were underestimated at appraisal, the project scope had to be reduced, consequently pushing back implementation. Besides basing cost estimates on well-developed designs, future projects requiring land acquisition and resettlement (LAR) should factor into the estimates the rapid increase in the price of land in Viet Nam. With the actual LAR cost 4 times higher than estimated, this project’s internal rate of return was recalculated at below the appraisal estimate and required minimum.

Cofinancing could reduce flexibility.

Cooperation between ADB and the Korean Export–Import Bank (KEXIM), which cofinanced the project on behalf of the Korean government, was generally good. Besides being administratively complex, however, the cofinancing arrangement tended to reduce the project’s flexibility to respond to changes in situation. For instance, commencement of the operation of the wastewater pumping station, located on the KEXIM-financed ring road, was held back by lengthy discussions over currency issues related to the contract variations in ring road works. Delays in the completion of related activities followed along with delays in the payment liquidation of these activities. As cofinanciers typically have different disbursement and procurement guidelines, ADB can consider pursuing as a preferred mode a component−based cofinancing arrangement. While reducing administrative complexities, such an arrangement could also favor compliance to individual cofinancier requirements.

Consideration of the relationships and coordination practice among key agencies strengthens the feasibility of implementation arrangements.

During project appraisal, capacity assessment of the key project agencies should not be limited to the assessment of the individual capacity of each agency. It should also consider the relationships and coordination practice between these agencies, which could be a facilitating or hindering factor in project implementation. For example, this project’s use of multiple project implementation units failed because of lack of coordination. The revised arrangement, with one agency handling all on-grant components and another handling the on-lending component, worked well.

Background

Thanh Hoa City is the capital and only major urban center of Viet Nam’s third largest but second poorest and second most populous province of Thanh Hoa. With a population of 200,000 in 2008, rising by 1.9% per year, it was one of the 11 class II secondary cities targeted by government for development to limit migration to Hanoi and Ho Chi Minh City. The Asian Development Bank (ADB) supported this target and approved a loan of $72 million-equivalent and a capacity building grant of $2 million for the Thanh Hoa City Comprehensive Socioeconomic Development Project in March 2009. Cofinanced by the Korean government, through the Export–Import Bank of Korea (KEXIM), the project was designed to provide a model for future comprehensive socioeconomic urban development that involves simultaneous investments in various sectors. Thanh Hoa was selected for this demonstration project because of its high population growth and poverty level as well as its development potential and infrastructure needs.

Overall, the project sought to contribute to the sustainable development of Thanh Hoa City. Its intended outcome was to make the city better managed, more livable and more competitive. It had 5 components: (i) urban roads development, (ii) water supply expansion and upgrading, (iii) drainage and wastewater treatment, (iv) human resource development, and (v) tourism development.

Most project outputs identified at appraisal were achieved satisfactorily. A ring road, complete with bridges, were constructed connecting the city’s east, south, and west portions. Damaged water pipes were replaced, and new ones were installed. Drains were upgraded; and new interceptors, wastewater stabilization ponds, and pumping stations were built. Vocational training centers were upgraded mainly through equipment provision. Tourism sites were physically improved.

Satisfactory delivery of most project outputs led to the attainment of 4 of the 6 outcome targets.

Specifically, by 2015, travel time from peri-urban areas in the south to the city center was reduced by half, industrial productivity increased by 25% and exports from the province by 25%, tourist arrivals rose by 50%, and employment rate in the tourism and industrial sectors went up by 50%. Cancellation of the $2 million capacity building grant from 2 ADB-administered financing facilities hindered the project from purposively improving the management and technical capacity of the provincial project management unit (PPMU). Because most drainage and wastewater subprojects became operational only in 2015 or after, it was not realistic to expect a 50% decrease in the incidence of waterborne diseases by 2015, the other outcome target that was not achieved.

The actual project total cost was $110.5 million, $7.4 million less than the appraisal estimate. The difference was due to a substantial reduction in scope, the reu significant startup delays, and (ii) the unanticipated increases in land acquisition and resettlement costs. Project implementation lasted 83 months, compared with the 71-month appraisal estimate.

ADB’s Southeast Asia Department rated the project successful. The Thanh Hoa Provincial People’s Committee (THPPC) was the executing agency. The THPPC and PPMU served as implementing agencies.

Project Information

Project Name:

Thanh Hoa City Comprehensive Socioeconomic Development Project

Report Date:

May, 2017

Main Sector:

Multisector

Country:

Viet Nam

Project/Modality:

Loan

Grant