wb-ho chi minh city environmental sanitation-addition

Document
of
The World
Bank
FOR
OFFICIAL
USE
ONLY
Report No.
52664-VN
PROJECT PAPER
ON A
PROPOSED ADDITIONAL CREDIT
IN
THE AMOUNT OF SDR
58
MILLION
(US$90.00 MILLION EQUIVALENT)
TO THE
SOCIALIST REPUBLIC OF VIETNAM
FOR THE
HO CHI
MINH
CITY ENVIRONMENTAL SANITATION
(NHIEU LOC-THI NGHE BASIN) PROJECT
March
11,2010
Vietnam Sustainable Development
Unit
East
Asia

and
the
Pacific Region
This document has
a
restricted distribution and may
be
used by recipients only in the performance of their official
duties. Its contents may not otherwise be disclosed without the World Bank authorization.
Public Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure Authorized
AF
cso
CUP
EA
EMF
FM
FCC
HCMC
ISR
IDA
MOC
MOF
PC
PMU
RP
VDIC
Vice President:
Country Director:
Sector Director:
Sector Manager:

Task Team Leader:
CURRENCY EQUIVALENTS
(Exchange Rate Effective January
3
1,201
0)
Currency
Unit
=
Vietnam Dong
(VND)
VND
18,474
=
US$1
US$1.55419
=
SDR
1
FISCAL YEAR
January 1
-
December
3
1
ABBREVIATIONS AND ACRONYMS
Additional Financing
Combined
Storm
Water Overflow

Community Upgrading Plans
Environmental
Assessment
Environmental Management Framework
Financial Management
Flood
Control Center
Ho Chi
Minh
City
Implementation Status Report
International Development Association
Ministry
of
Construction
.
Ministry of
Finance
Peoples Committee
Project Management
Unit
Resettlement
Plan
Vietnam
Development Information Center
James W. Adams
Victoria Kwakwa
John
Roome
Hoonae

Kim
Dean Cira
FOR
OFFICIAL
USE
ONLY
VIETNAM
HO CHI
MINH
CITY ENVIRONMENTAL SANITATION
ADDITIONAL FINANCING
(NHIEU
LOC
.
THI
NGHE BASIN) PROJECT
CONTENTS
Project Paper Data
Sheet

1
I
.
Introduction

2
I1
.
Background
and

Rationale for Additional Financing

2
I11
.
Proposed Changes

6
IV
.
Appraisal
Summary

9
Annexes:
Annex 1
:
Results
Matrix

13
Annex
2:
Financial Management and
Disbursement

15
Annex
3:
Procurement

16
Annex
4:
Summary of
ISR
Ratings

22
Annex
5:
Project Description

23
This
document has a restricted distribution and may be
used
by
recipients only
in
the performance of
their official duties
.
Its
contents may not
be
otherwise disclosed without World Bank authorization
.
Project Paper Data Sheet

Date:
March
11, 2010
Country:
Vietnam
Project
Name:
Ho
Chi
Minh
City
Environmental Sanitation
(Nhieu
LOC
-
Thi
Nghe Basin) Project
Original Project
ID:
PO52037
Team
Leader:
Dean
A.
Cira
Sector Directorhlanager:
John
Roome/
Hoonae
Kim

Country Director: Victoria Kwakwa
Environmental Category:
A
Borrower: Socialist
Republic
of
Vietnam
Responsible agency: Project Management
Unit,
Department
of
Transport,
Ho
Chi
Minh
Citv Peode’s Committee.
-
Revised
estimated
disbursements
(Bank
FY/US$m) (Original project
T
AF)
Current closing
date:
June 30, 2010
Revised project development objectives/outcomes: Not Applicable
Does
the

project
-
trigger any
new
sd
[
3
Loan
[
XI
Credit
[
]
Grant
For Loans/Credits/Grants:
For Additional Financing
Total
Bank
financing (US$m.): $90.0 (equivalent)
Proposed
terms:
Standard
IDA
Credit
terms
with total
maturity
of
thirty-five years
including a grace period

of
10 years.
Financing Plan (US$m.) (AF)
Source
Borrower/Recipient
IBRD
IDA
-New
-Recommitted
Others
Total
P
Financing Plan (US$m.
Source
Total
90.00
90.00
(Original
project
+
AF)
Total
Borrower/Recipient 28.00
IBRD
IDA
289.00
-New
-Recommitted
1

I.
Introduction
1. This Project Paper
seeks
the
approval of
the
Executive Directors to provide an additional
credit
in
an
amount
of
SDR
58
million (US$90.00 million equivalent) to
the
Socialist Republic
of
Vietnam
for
the
Ho
Chi
Minh
City Environmental Sanitation Project (P052037;
CR3475-VN).
2. The Project Paper also
seeks
the

approval of
the
Executive Directors to grant a waiver to
the
eligibility requirements
under
paragraph 1.8(c) of
the
Procurement
Guidelines
to allow for
the
credit
to finance a contract to
be
awarded to
the
Sai Gon Water Corporation (SAWACO) to
complete
the sensitive and critical temporary bypass
and
relocation of a two
meter
diameter
water
main.
The estimated cost of
the
proposed contract, which
is

to
be
awarded by
Direct
Contracting,
is
US$2.5 million. SAWACO
is
a
state-owned
enterprise
that
is
legally and
financially autonomous
and
operates under commercial law. However,
it
is
a
dependent
enterprise
of
the
Ho
Chi
Minh
City People’s Committee, and as
such,
does

not
meet
the
third
eligibility
criterion
under
Paragraph 1.8
(c)
of
the
Procurement
Guidelines.
The
waiver request
was endorsed by
the
Managing Director on February 10,201
0.
The
use
of
Direct
Contracting for
the
award
of
this
contract has already been cleared by
the

Bank’s Operations Procurement
Review Committee.
3.
The additional
IDA
Credit would bridge a financing gap resulting from a combination of
slow implementation during
the
project’s early years
and
the
high inflationary period of 2007-08.
In
addition,
an
extension of
the
closing date to
December
3
1, 201 1
is
required
so
that all
outstanding works
can
be
completed
and

allow for
the
Project Objectives
to
be
met.
4.
During
the
period of 2007 and 2008, particularly, world
prices
for construction materials
increased markedly
and
Vietnam
suffered
a
period
of
particularly high inflation of
such
key
Construction
inputs
as
steel,
cement
and labor. The revised cost to complete
the
project

is
consequently estimated at U$317 million compared to
the
original cost
estimate
of
approximately US$200 million at
the
time
of
the
original Project appraisal
in
2001.
5.
To achieve
the
Project Objectives, therefore, an additional US$90.0 million equivalent of
IDA
credit
is
required.
Of
this,
US$5.5
million of
the
additional financing
is
required for

the
continued construction management and institutional strengthening consultancies, another
US$29.0 million
is
required
for
the
Wastewater Collection Component,
and
US$55.5 million
is
required to
complete
the
Drainage Component.
11. Background and Rationale for Additional Financing
Original Project Objectives and Subsequent Changes
6. The original Credit,
in
the
amount
of
SDR
127.5 million (equivalent to US$166
million
in
2001) was approved by
the
Board
on

March
20, 2001
and
became
effective on February
3,
2002.
The
original closing date was
December
31, 2007. The Project closing date was
subsequently extended to
December
31, 2009
and
then
again to June 30, 2010
to
allow
time
for
full
processing, signing
and
effectiveness
of
the
additional financing.
2
7.

The
Project’s original development objectives were to
(i)
achieve sustainable
improvements to
the
public health, particularly of Ho Chi
Minh
City’s
urban
poor
population,
and
(ii)
increase economic development
in
the
commercial center of the City.
These
objectives
were
revised
through
a
project
restructuring approved
by
the Board
in
April

2009.
This
change
was made to
better
align
the
objectives
with
the
expected and measurable impacts of
the
Project.
8.
The
revised
PDO
is
to reduce
the
incidence of flooding
and
increase
the
collection of
wastewater
in
the
Nhieu
Loc-Thi

Nghe
(NLTN)
Basin
in
HCMC,
in
an environmentally and
financially sustainable
manner.
9.
The project
is
designed to
reduce wastewater pollution
and
the
occurrence of flooding
in
the
area surrounding the
Nhieu
Loc-Thi Nghe
(NLTN)
basin
and
to develop a more efficient
institution
to
manage drainage
and

wastewater services
in
Ho Chi
Minh
City. Located
in
the
central business districts of the city,
the
Project comprises a
hydraulically
integrated
system
with
65
km
of combined
primary
and
secondary
sewers
and
about
270
km
of tertiary
sewers
mainly
connecting poor households, which
feeds

into an approximately 8.4
km
long, large diameter,
interceptor which
runs
under
the
NLTN
canal. This interceptor
delivers
effluents to a pumping
.
station, which
transfers
flows to a temporary discharge point into
the
middle of
the
Saigon
River.
The
effluents
will
be
transferred to a wastewater treatment plant
in
the
future.
10.
In

parallel, the Project finances
dredging,
transportation and safe disposal of more
than
1
million cubic meters of
sludge
from
the
canal along
with
improvements
to
18
km
of
canal
embankments. The Project also provides technical assistance
in
project design and construction
supervision as
well
as capacity
building
for the
implementing
agency
and
HCMC Flood Control
Center.

When
completed, the project
will
bring
direct benefits
in
the way of reduced flooding
and
wastewater collection
and
its
safe disposition to over
240,000
households.
It
will
also
serve
as a transformational urban project
in
the
city center
by
turning
an open sewer into
an
important
development asset.
Status
of

Implementation
11. Implementation of
the
project had
been
slow
and
at
the
time
of the original closing date
of December
3
1
,
2007
was only about
37
percent
,disbursed.
However, implementation has
picked
up
as
evidenced
by
the
significant progress made
in
the

past year. Overall
the
project
is
now
over
70
percent completed. Initial delays can
be
attributed to several factors.
First,
the
project took approximately one year to reach effectiveness.
This
slow
start
was compounded
by
delays
in
the
approval of
bidding
documents
by
the
city authorities who
were
unfamiliar
with

the
engineering technology
and
with
Bank
ICB procurement procedures.
In
addition,
the
project
is
located
in
the
most densely
populated
central
business
district of
the
city
with
critical traffic
management
issues,
which has
led
to
a
limitation

on
the
hours
(night
primarily) of construction
and of
the
number
of
work
sites
that can
be
opened
at
any
given
time.
The
works progress
is
also
often affected
by
difficult removal of
existing
underground utilities
(i.e.,
water
pipes,

power
and
telecommunication cables).
3
12.
As
a
result
of
these
delays,
the
Project’s original closing date of December 31,2007, was
extended to
December
3
1, 2009, by
Bank
management
in
a
two stage process (a
first
extension
of 6 months,
and
subsequently a second extension of 18 months).
The
second extension was
conditioned on

the
implementing entity demonstrating solid progress against
a
set
of agreed
implementation
indicators, which was largely achieved. The closing date was
further
extended to
June 30,20 10,
in
order to process
the
additional financing
request
as a temporary measure before
the
final closing extension to
December
3
1
,
20
1 1 which
is
required
to complete
the
works.
Contract (Package

No.)
Interceptor, CSOs
and
Outfall
(Package No. 7)
Manholes (Package No.
7A)
CSOs, Open Cut
pipes
and
Pumping Station (Package No.
Rehabilitation of TLTN Canal
Extension and Replacement of
8)
(Package No. 10)
Level 2&3
Sewers
13. Currently
there
are
three
major factors which are impacting project implementation.
First,
the
Saigon River crossing section of
the
interceptor was abandoned by
the
original contractor
after encountering technical

difficulties
with
the
soil conditions.
It
was agreed that
this
work
would
be
undertaken
by
a
third party
and
that
process
is
now on-going and expected to
be
completed
in
September
2010. Second,
in
order to complete
the
final
section
of

the
interceptor
under
the
canal
there
is
the
need
for
the
relocation of a two-meter diameter water main that
crosses
the
canal.
As
this
is
the
only water supply
pipe
for about 4.0 million people,
it
has taken
longer than anticipated for
the
water company to agree on
a
methods
statement

for
this
diversion.
However,
this
work
is
now advancing with
the
fabrication of
the
diversion
pipe
and
is
expected
to
be
completed by November 20 10.
Contractor Percent
Complete
JV of TMEC-CHEC
3
96%
JV of Construction Technology 45%
Development Joint Stock Company-Hung
Vuong CC
Ltd.
JV
of

Rotem
-
Hyundai Corporation, 98%
China State Construction Engineering 64%
Various Contractors 78%
Smbo Tosfoc-Cofico
Corporation
14.
Third,
there
have
been
capacity
issues
with
the
contractor responsible for
the
largest
contract (Package No. 10) which has performed below expectations, although improvements
in
the
dredging
and
piling have increased and
the
work
is
now considered
to

be
about 70
percent
complete.
This
is
the
largest contract
under the
Project. The contract was terminated at
the
end
of
February
201
0,
under
the
agreed contract extension
entitlements.
The main
canal
improvement
works
are
completed
but
there
still
remain

some unfinished work on
the
contract. This
includes
remaining work
of
soils improvement, dredging, canal interface with walls
and
bridges
and
final
canal landscaping, totaling about US$21 million.
It
is
the
expectation
that
the
unfinished
work
in
this
contract will
be
completed by other contractors.
In
order to allow for
this,
an
extension of

the
closing date to December
3
1
,
20 1 1
,
is
required.
4
Progress in Meeting Project Objectives
15.
As
indicated,
the
PDO
and
monitoring indicators
were
revised
(in
FY
2009) through a
Board approved restructuring to better align
the
project activities
and
better measure the overall
impact
and

outcomes of
the
project, which are now easier to monitor and evaluate.
Thus,
the
objective remains
highly
relevant
and
despite delays
in
implementation the project
is
expected to
achieve
its
objectives.
By
project completion, a total of approximately 8.4 kilometers of
wastewater interceptor
and
canal improvements (banks and
dredging
and landscaping)
and
combined primary and secondary sewers
will
be constructed.
This
will

result
in
direct
benefits
to
96,000 households
in
reduced flooding over a two year storm
return
period;
240,000
households
benefitting
from collection
and
safe disposition of wastewater; improved water quality of
the
NLTN
canal as a
result
of
higher
level
of dissolved oxygen; and improved financial
sustainability of wastewater investments through gradual tariff increases.
In
addition,
the
project
is

located
in
the
central
business district of HCMC,
and
thus
there
will
be
spillover economic
benefits from
reduced
flooding and improved environmental conditions.
Compliance with Covenants
16.
The
project
is
in
compliance
with
all covenants.
In
addition, financial management
is
satisfactory and
there
are no overdue or qualified audit reports. Procurement
is

also moderately
satisfactory.
In
addition, safeguards compliance has
been
rated satisfactory for all relevant
policies and there have
been
no reports of non-compliance
with
independent monitoring of
safeguards compliance confirming
this.
Per
the
legal covenants,
the
Borrower has established
wastewater tariffs aimed at covering operations and maintenance costs.
However,
inflation has
resulted
in
full
cost recovery not yet
being
achieved.
A
tariff strategy
is

in
place to reach the goal
of
full
O&M cost recovery
by
201
5
and
full
economic recovery
by
2020.
Rationale for Additional Financing
17.
The
additional financing would
be
used,to complete
the
project as designed to cover
an
unanticipated financing gap,
the
result
of
cost
over
runs.
No

new
or
scale-up
activities
will
be
financed.
18.
At
the
time
of Project appraisal
in
2001, the Project cost was estimated
to
be
about
US$200 million to complete. Of this amount,
an
IDA
Credit
of
SDR
127,500,000
(US$166 million equivalent
in
200
1)
was made available to
the

Government of
Vietnam
for the
Project.
This
financing was expected to
be
sufficient to complete the project by
the
original
closing date of December
3
1
,
2007. However, delays accumulated
in
the
Project implementation
as has
been
indicated.
An
unanticipated
result
of
the
delays
in
the Project implementation has
been

the
sharp increase
in
the
overall cost of
the
Project due to
the
high
inflationary period
of
2007-08.
The
revised
cost
to
complete
the
project
is
estimated at U$317 million.
The
canal
improvements, drainage
and
wastewater collection
component
of
the
project

are
an integrated set
of
works.
It
is
imperative to complete
the
entire
scope
of
works
to
achieve
the
project objectives.
The
city
authorities
do not have
sufficient
resources to
complete
the
works
without the additional
financing.
There
are
no

technical alternatives available
than
to complete
the
project as designed,
and which
is
now
over
70 percent completed.
5
Consistency with
CAS
or
CPS
19. The Project remains consistent with
the
Country Partnership Strategy.
Under
the
pillar of
promoting equitable, socially inclusive and environmentally sustainable
patterns
of
economic
growth
the
Project contributes directly to
the
strategic and long

term
objectives of reducing water
pollution and also contributes to flood reduction.
The
Project
is
specifically identified as
a
Bank
supported intervention
that
will positively affect
the
CPS outcomes.
111. Proposed Changes
Proposed Changes
in
Project Development Objectives ancVor Scope
20. There
are
no proposed changes
in
the
Project Development Objective,
project design, implementation approach or implementing agencies from
approved with
the
restructuring
in
April

2009. Additional financing
is
required
the
original project design and to
meet
the
Project objectives.
Revised Financing Plan
21. The total revised Project Costs
are
presented
in
the
following table.
global objective,
those that were
only to complete
Table
2:
Total Additional IDA and Additional Counterpart Financing
(US$)'
Activities
Revised Closing Date
22.
extended to June
30,
2010.
The
revised Closing Date will

be
December
3
1, 201 1.
The
original Closing
Date
for
the
Project was
December
3
1,2007, and was subsequently
Institutional Arrangements
23.
The implementation arrangements will remain unchanged
from
the
Parent Project.
The
Project
is
implemented
by
a Project Management
Unit
of
the
HCMC
Department

of
Transport.
Estimates are rounded.
Additional costs are also financed with exchange rate savings.
'
Based on costs
in
original PAD.
6
The PMU was established
in
1994 to
implement
large
urban
development projects
in
the
NLTN
basin and has
been
involved
in
the
preparation of
this
Project and
its
implementation to date.
The

credit
proceeds
are
passed
on
to
HCMC from
the
Borrower
under
an
internal
on-lending
and
on-
granting arrangement. Under
the
original Project design
the
final
built
assets were to be
transferred
to
the
Urban Drainage Company (UDC),
a
legal corporate entity
dependent
on

HCMC.
The
UDC would
then
become responsible for
their
operation and management.
In
March
2008, HCMC established
the
Management Center of Flood Control Program for HCMC
(FCC) which bears, among other
responsibilities,
the
responsibility
of
managing
the
wastewater
and drainage infrastructure of all drainage
basins
within
the
city’s area, including
the
NLTN
basin.
Consequently as of March 2008 FCC has
been

the
entity
responsible
for managing all
assets
under
the
Project, although
it
may
enter
into
service
arrangements with suitably qualified
entities
for
the
assets’
future
operations. This institutional change was part of
the
Project
restructuring approved by
the
World
Bank’s
Board of Directors
in
April
2009.

Component
Wastewater
Drainage
Technical Assistance and Consultancies
Total
Disbursements
FY
2011
FY
2012 Total
25.9
3.1
29.0
39.6 15.9
55.5
4.3
1.2
5.5
69.8
20.2
90
24.
The
estimated IDA
disbursements
for
the
Additional Financing are shown
in
the

following table. Expenditures for works
and
goods will
be
increased
from
90
percent
to
100
percent.
The
Unallocated amounts of
the
original Credit will
be
reallocated to works categories.
Retroactive financing
in
the
amount
of
SDR
6,440,000 (US$lO million) will
be
made available
from the additional financing to finance eligible expenditures made on or
after
January 1,201
0.

Fin an cia1 Management
25. The same institutional arrangements and financial management system as
in
the
Parent
Project
will
be
applied
under
the
additional financing. Based on FM supervision missions
and
reports,
the
Project continues to have satisfactory project financial management systems that can
provide, with reasonable assurance, accurate and timely information that
the
loan
is
being
used
for
the
intended
purposes.
The
FM rating
is
Satisfactory.

26.
The
assessment for
the
additional financing has concluded
that
the
project will continue
to
meet
the
minimum
Bank
financial management requirements,
as
stipulated
in
OP/BP10.02.
The
FM
risk
rating proposed
for
this
project remains
moderate.
7
Procurement
27. Procurement
under

the
proposed Additional Financing will
be
carried out
in
accordance
with
the
World
Bank’s
“Guidelines:
Procurement
under
IBRD
Loans and IDA Credits,”
published
in
May 2004, revised October 2006 and
“Guidelines:
Selection
and
Employment of
Consultants by World
Bank
Borrowers,”
published
in
May 2004, revised
in
October 2006

and
the
provisions
stipulated
in
the
Financing Agreement.
Details
on
the
updated
assessment of
the
PMU’s procurement implementation capacity,
risk
rating and mitigation measures, proposed
changes on procurement arrangement, Bank review and Procurement Plan for
the
Additional
Financing are provided
in
Annex
3.
Safeguards
28.
Social safeguards.
Involuntary
resettlement
policy (OD4.3
0;

currently changed to
OP4.12) has
been
applied to
the
project. The
Resettlement
Policy Frameworks (RPF) was
prepared and approved
in
the
year 2000. The
Resettlement
Action
Plan
1
(RAP1) for
the
wastewater component was prepared
and
approved
in
2003.
It
was implemented successfully
during
the
project implementation.
Under
the

RAP1
the
84 Project Affected Households were
resettled
or
received compensation
in
accordance with
the
RAP and Policy Framework. The RAP
2 covering temporary impacts on
the
income
of
the
businesses located along
the
road where
the
drainage component
is
taking place was prepared
in
2003
and
is
being
implemented.
This
implementation has been monitored

and
reported on regularly by
the
resettlement
independent
monitoring consultant. Among
the
primary
issues
which
are
being addressed
under
the
RAP 2
include
the
impact of temporary road closures
and
construction
related
activities impacting
businesses
located along
the
canal. Independent monitoring
of
the
RAP
2 implementation

indicate that
the
RAP 2
is
being effectively
implemented
and
there
are
no
issues
of non-
compliance.
29.
Environmental Safeguards.
An
Environmental Impact
Assessment
(EIA)
was prepared
during project preparation
and
was approved prior to appraisal.
A
supplemental
EIA
for
the
canal
dredging and sludge disposal management activities was also prepared.

In
addition,
an
Environmental Management Plan (EMP) was approved and
is
being
implemented
with oversight
provided by
the
Construction Management Consultant (CMC).
The
CMC undertakes supervision
of
the
environmental impact mitigation measures that
are
carried-out by
the
contractors
and
also
is
responsible for carrying-out
the
approved environmental monitoring program.
In
turn,
the
work of

the
CMC
is
monitored
by
an
independent
environmental
auditor.
These
same
arrangements will continue
to
remain
in
place to project completion.
As
no
new
activities
will
be
implemented as
part
of
the
additional financing,
the
EIA and EMP do not
require

updating.
Compliance with
these
arrangements
is
satisfactory, with follow-up action taken when
required.
Overall environmental safeguard implementation
is
satisfactory. Environmental monitoring
is
now being carried-out
in
a
satisfactory
manner
by
the
CMC. This
includes
monitoring water
quality
and
dredged materials. Of
the
main construction phase
impacts,
site
safety
has

been
the
primary concern. Since January 2009, however,
site
safety
has
improved with strong action
taken
by
the
Project Owner
and
CMC
to
address safety
issues
in
a
more
systematic
manner.
8
IV. Appraisal Summary
Economic Analysis
of
Cost Overrun
or
Financing Gap
30. The economic analysis was updated to

take
into account the financing gap.
The
same cost
benefit
analysis methodology
used
at
the
time
of appraisal was applied for
easy
comparison.
Costs are based on actual costs for already completed works
and
prevailing
market
estimates for
any contracts which
are
planned
or under implementation. Project
benefits
were updated
but
are
the
same as those
in
the original analysis:

(i)
reduced flood damage;
(ii)
avoided costs of private
flood protection;
(iii)
savings
in
septic
tank
installation and management;
(iv)
improved public
health
and
(v)
increased
land
values. Only
the
first
three
of
these
benefits
were
quantifiable at
the
time
of appraisal

and
for
the
update.
A
discount rate of 12 percent p.a. was used
with
a
resulting
economic internal rate of
return
(ERR)
of 9.2 percent and a net present value of US$(119.8)
million.
Table
4:
Economic Analysis
I
Value
I
Original
I
Revised
I
I I I
(1
19.8)
NPV
(25 1.4)
I

I
I I
ERR
9.9% 9.2%
I
31.
As
with
the
original cost benefit analysis
the
wastewater component
brings
down
the
overall NPV and economic rate of
return
given the
inherent
difficulties
in
quantifying the
benefits
relating to health improvements and savings, environmental improvements and potential
economic development impacts.
These
benefits
were
not
quantified at

the
time
of
appraisal and
were not
quantified
as part of
the
update
and
thus
clearly understate
the
benefits
of
the
Project.
Similarly,
the
willingness to pay surveys which were applied at the time
of
appraisal tend
to
capture only
the
private benefits of flood prevention, wastewater improvements and improved
water quality
thus
indicate
the

lower bound
of
the
benefits.
Similar
projects
in
Ho
Chi
Minh
City
report at least a 10 percent reduction
in
the
incidence of water borne diseases
pre
and post project
and
property value increases as much as
three
times.
The
least cost analysis conducted
during
feasibility stage
of
the project indicated that
the
technical approach followed
is

the
most
economically efficient
and
the
least socially disruptive. Eliminating an open sewer
and
reducing
flooding
in
the
city center
is
a central component
of
the
city’s economic development strategy
for
the
area of influence
of
the
project and provides a strong economic justification for
the
project overall.
Expected Outcomes
32.
The
Project outcomes and the indicators to measure the outcomes
were

updated and
approved
with
the
April
2009 Project restructuring.
By
Project completion
it
is
expected that the
benefits
will
include:
(i)
a reduction
by
96,000
in
the
number of households affected
by
a two
year
return
period storm;
(ii)
an
increase of 240,000 households whose wastewater
is

collected
and
disposed
of
safely;
(iii)
improvement
in
the
water quality of
the
NLTN
canal as measured
by
9
the average
level
of dissolved oxygen;
and
(iv)
the implementation of agreed
tariff
schedule
increases. Physical outcomes
will
include
8.4 kilometers of sewage interceptor constructed,
about 65 kilometers
of
combined primary

and
secondary
sewers
replaced
or
constructed, 18
kilometers of canal improvements
and
embankment stabilization;
and
1.024 million cubic
meters
of sludge excavated and disposed of properly.
'
33.
Financial sustainability
is
another objective of
the
Project.
In
2001 Ho Chi
Minh
City
introduced
a
wastewater
fee.
In
2007, increases

in
these
fees
were
approved by
the
HCMC
People's Council
with
a price path for 2008 to 2010,
with
the
intent
to achieve 100 percent
operations and maintenance cost recovery
by
2010. Inflation
resulted
in
cost recovery not yet
being achieved.
In
order for
the
wastewater tariff
strategy
to
meet
full
cost recovery objectives,

changes
will
need to
be
made to local Decree 67/2003.
The
current strategy of HCMC
is
to
achieve
full
cost recovery of O&M
by
2015
and
full
economic cost recovery
in
the
sector
during
201 6-2020.
In
the immediate term,
the
current wastewater
fees
should be increased
by
75 percent

(plus
inflation for 20 10)
by
201 1.
Benefits
34. The additional financing
is
necessary for
the
Project to realize
its
full
benefits.
The
benefits of reduced flooding, improved access to basic infrastructure and improved
environmental conditions
are
well
documented.
They
include improved health conditions,
increase
in
property values, reduced flood damages
and
reduction
in
travel
times,
among others.

Without the additional financing
these
benefits would
either
be
delayed or not realized at all,
if
funding
could not
be
found to complete
the
works. Over 1.2 million people
will
benefit from
this
Project.
Risks
35.
The
overall
risk
rating of the Parent Project was rated as
High
(Substantial).
At
that time
it
was indicated that
the

most serious
risk
would be delays
in
implementation
due
to ICB
procurement processes.
This
risk
was
borne out. Additional risks included potential problems
with
the
tunnel
boring process, which have also
been
encountered
during
implementation.
The
current
risks
are well
identified
and
being
managed. These include: relocation of
the
2 meter

diameter water main
that
crosses
the
canal
and
is
being
relocated
to
allow finalization of
the
pipe
jacking
and
canal improvements; completion of the Saigon
River
crossing
and
temporary outfall,
which
is
now moving forward;
and
the slow implementation of
the
canal improvement and
dredging works,
the
implementation of which

has
improved
in
the
past six months.
These
risks
are
considered manageable.
36.
Site
safety remains a highlighted
risk
due
in
particular to the very congested conditions
in
the
project
site
area, and
the
expanse
of
the
canal which
makes
securing all
work
sites

a
challenge.
Traffic management and safety
is
another challenge given the location
of
the
project
in
the
city center. Notwithstanding
the
increased safety
risk
due to
the
project
location, these
risks
are considered manageable
and
city authorities have recently
put
in
place
an
enhanced risk
mitigation program including additional measures
by
the

contractors
and
the
city authorities to
ensure greater
site
safety to
the
general public. Part
of
this
program
includes greater
site
security
10
with
24 hour patrols, routine inspections of all
sites
(active and inactive), securing all active
construction
sites,
and increased public relations regarding
the
responsibilities of
the
general
public to respect construction barriers, public property
and
to

report any potential
dangers
to
the
project authorities through a hotline.
37.
The
largest
single
contract
is
the
Rehabilitation of
the
NLTN
Canal. The contractor
implementing
this
contract was debarred
by
the
Bank’s Sanctions Board
in
January 2009
in
conjunction
with
an
unrelated
project

in
another
country.
The
original amount for
this
contract
was US$60.88 million. The final cost estimate for
the
works included
in
this
contract
is
about
US$SO million.
IDA
disbursements for
this
contract
will
be
capped at US$60.88 million.
Therefore,
no
additional financing
will
be
used
to the

benefit
of
the
debarred
firm.
The
remaining
works
under
this
contract
will
be
re-bid
competitively or re-allocated through a direct contract
process to
existing
sub-contracts, as appropriate,
so
that additional financing can
be
used
to cover
this
gap.
Under
such conditions, those
remaining
works completed
by

other qualified contractors
would be
eligible
for the additional financing. Therefore,
the
additional financing
request
includes
the
completion of uncompleted works currently
part
of
the
debarred
firm’s
contract
(Package no. 10)
by
other contractors
and
the additional
time
that
would
be
required to
re-bid
those works.
This
work

will
include soils improvement, completion
of
dredging,
canal wall
and
bridge
interfaces and landscaping.
38.
In
addition,
the
relocation of
the
2-meter diameter water main, also originally
part
of
this
contract,
is
proposed
to
be
completed
by
the
Sai Gon Water Corporation (SAWACO) which is
best
positioned to manage
the

risks
associated
with
this work.
In
order to complete
the
last
section of
the
interceptor and
the
dredging
work, a temporary bypass and permanent relocation
of a 2
meter
diameter water main which intersects the canal
is
required.
The existing water main
is
a
45
year old, pre-stressed concrete
pipe
supplying
water to approximately 4 million people.
There
is
no back-up

supply.
Given
the
criticality of
the
works
-
any failure
in
carrying out
the
bypass and relocation of the main would result
in
the
interruption
of
water
supply
to 4 million
HCMC residents
-
the
Borrower has proposed to have
this
work done directly
by
SAWACO
under
a direct contract,
so

that
SAWACO can
fully
manage and assume sole responsibility for
the considerable technical
risks
(engineering, reputational
and
institutional) involved
with
this
work.
The
estimated cost of
this
contract
is
US$2.5 Million.
As
indicated,
the
contracting of
SAWACO, which
is
a legally
and
financially autonomous State Owned Enterprise operating as a
commercial
entity,
will

require
a
waiver
to
the
dependency criteria of Paragraph l.S(c) of the
Procurement
Guidelines.
The
waiver
sought
from
the
Board of Executive Directors, was cleared
by
the
Legal Department, OPCR
and
the EAP Vice President and was
submitted
to
the
Managing
Director who provided
his
endorsement on February 10,20 10.
39.
While
these
risks

are
considered manageable,
the
overall
risk
rating
will
remain
Substantial
due
to
the
complex nature of the project,
its
technically challenging location and
its
earlier
poor track record of implementation.
Financial
Terms
and Conditions
for
Additional Financing
40.
period of ten years shall apply.
Standard
IDA
Credit
terms
with

total maturity
of
thirty-five
years
including a grace
11
Annex
1:
Results Matrix4
VIETNAM:
Ho
Chi
Minh
City Environmental Sanitation
(Nhieu Loc-Thi Nghe
Basin)
Project
Project Development
Objectives
To
reduce
the
incidence
of
flooding and increase the
collection of wastewater in
the
NLTN
Basin in an

environmentally and
financially sustainable
manner.
Intermediate Outcomes
Construction of
wastewater interceptor
Replacement and
extension of combined
primary and secondary
sewers comprising pipes
and
culverts
Installation of
sheet
piles
Completion of dredging
works
Project Outcome Indicators
a)
Reduction in
the
number of
households
affected
by
two-
year- return-period storm.
b)
Increase in the number of
households whose wastewater

is
collected and disposed of safely
quality of the
NLTN
Canal
measured
by
the
average level of
dissolved oxygen
in
the water
by the People’s Committee
in
c)
Improvement in the water
d)
Implementation
of
agreed tariff
interceptor constructed
Km of combined primary and
secondary sewers replaced and
constructed
Km of sheet piles installed for
canal
embankments
Cubic meter (m3)of dredged material
disposed of
in

landfill
Use
of
Project Outcome
Information
Measure progress towards
meeting
the
PDO.
To
monitor progress made
in
the wastewater
component.
To
monitor progress made
in
physical works related to
the
drainage component.
To
monitor progress made
in
physical works related to
the
canal improvement
sub-
component
To
monitor progress of

physical works related the
canal dredging sub-
component
This results matrix
is
not being updated.
It
was
approved
as
part
of
the project restructuring approved by
4
the Board in April
2
1,
2009.
13
I
Targt Values
tLi-
Outcome Indicators
Measurement
Base Line
(CY 2007)
CY2009
CY2011
The target values are based on calibrated hydraulic models
prepared as part of the Feasibility Study which estimate that

about 40%
of
total areas (and approximately 40%
of
total
households)
in
the
NLTN
basin will benefit from reduced
flooding by two-year
return
storm after the project
completion.
In
addition, field measurements of depth and frequency of
flooding
in
key points
in
the
NLTN
basin to be conducted
to illustrate
trends
during implementation stage.
The indicator includes
1)
the number
of

households whose
wastewater
is
already connected to sewers but disposed of
unsafely and 2)
the
number of households whose
wastewater will be newly connected to sewers and disposed
of safely.
The baseline number of households which achieve both
indicators (collected
and
disposed of safely)
is
zero.
Projected beneficiaries are about 1.2 million inhabitants
in
the
area surrounding the
NLTN
canal and 240,000
households with average
5
persons per household.
The actual number
of
households with new connection and
improved disposal to be provided
in
the

Project Progress
Report by the PMU.
Baseline
is
the dissolved oxygen
(DO)
level in
dry
season,
measured at 4-5 monitoring stations along the canal,
expressed as a weighted average based on distance between
stations
Projection based upon the assessment of estimated
saturation
DO
achieved along the canal.
Ex-post measurement of water quality to be conducted at
the
selected monitoring stations along
the
canal and to be
provided
in
the
Project Progress Report by the
PMU.
Tariff projections based on financial models prepared by
financial consultants.
Ex-post figures to be provided by external audit reports on
the financial statement

of
the
wastewater utility and to be
included
in
the
Project Progress Report
0
96,000
return
p'
Increase
in
the
number
of
households
Nr
0
240,000
At least 4
350 450
250
Base
Line
(CY2007)
5
CY2009
8.4
CY2011

8.4
Measurement
2
50
65
Baseline and target value for each indicator are determined
in
line
with up-to-date and planned construction activities.
1
18
12
650,000
1,029,OO
0
000
14
Annex
2:
Financial Management and Disbursement
VIETNAM:
Ho
Chi Minh City Environmental Sanitation
(Nhieu Loc-Thi Nghe Basin) Project
Introduction
1.
The
Bank has conducted
an
assessment of

the
adequacy of
the
financial management
system of
the
proposed additional
US$90
million equivalent credit for
the
Ho
Chi
Minh
City
Environmental Sanitation Project.
The
financial management arrangement of the existing project
was previously assessed and
deemed
acceptable
in
200
1.
The
assessment for the additional
financing, based on
guidelines
issued
by
the

Financial Management Sector Board on November
3
,
2005, has concluded that
the
project meets
the
minimum
Bank financial management
requirements, as stipulated
in
BP/OP
10.02.
In
the
Bank’s
opinion, the project
will
continue to
have acceptable financial management arrangements
in
place for implementing
the
operation and
providing reasonable assurance that
the
proceeds of
the
credit
will

be
used
for the
purposes
for
which
the
credit was given. Financial management
risk
is
the
risk
that World Bank loadgrant
proceeds
will
not be used for
the
purposes
intended
and
is
a combination
of
country, sector
and
project specific
risk
factors.
The
FM

risk
rating proposed
for
this
project
is
moderate
2. No outstanding audits
or
significant audit
issues
exist
with
the existing PMU, who
will
continue to
be
responsible
for
the
proposed additional financing.
The
audit opinion on the Project
financial statements
for
the
year
ended
3
1

December 2008 was unqualified. Project-related
management has strongly committed to address
the
auditors recommendations to
strengthen
internal control.
Audit Arrangements
3.
The
Bank’s audit requirement
will
not change
due
to
the
additional financing.
The
additional financing
will
be included
in
the
project financial statements.
The
existing PMU
will
appoint
independent
auditors acceptable to
IDA.

Project accounts
will
be
audited on an annual
basis
in
accordance
with
international
auditing
standards
and
in
compliance
with
the
independent
auditing regulations of Vietnam. The annual audit report of
the
project financial statements
will
remain
the
same and continue to
be
due
to
the
Bank
within

6
months after
the
end
of each calendar
year as
stipulated
in
the
Development Credit Agreement.
Disbursement Ratings
4.
Disbursement
methods: advance,
reimbursement,
direct payments
and
special
commitments
will
continue to
be
available for
the
additional financing credit.
The
additional
financing proceeds
will
continue to use

the
existing
DA
opened
under
existing
PMU.
Replenishment applications
will
be
submitted
in
accordance
with
Disbursement
Letter
issued by
the
Bank.
5.
A
full
FM
assessment
is
in
the Project
File.
15

Annex
3:
Procurement
VIETNAM:
Ho
Chi Minh City Environmental Sanitation
(Nhieu Loc-Thi Nghe Basin) Project
Procurement Capacity Assessment and Risk Rating
1.
The
procurement arrangements for
the
Parent Project
were
appraised
in
2001
and
the
overall
risk
was rated as
high
because of
the
PMU’s
limited
experience
with
Bank procurement

procedures
and
a history of prolonged procurement delays
on
similar
projects. Mitigation
measures were
put
in
place which included
training
of
personnel on
Bank
procurement
guidelines,
hiring
of
an international consultant to assist
with
procurement activities and
the
hiring
of technical staff
within
the
Project Management
Unit
with
experience

in
international
procurement.
Nevertheless,
the
processing of procurement
in
the
initial period
has
been
slow
with
significant delays
primarily
due
to the government’s time-consuming clearance and
approval and some unexpected unfortunate situations (the attempt to procure several
major
civil
works packages (Packages 1 1A; 11B; 12B and 13B) failed twice
with
the
prequalification
cancelled
due
to poor responses
and
the
subsequent

bidding
failed
due
to
high
bid
prices).
Since
then,
the
PMU’s procurement performance has considerably accelerated enabling most
procurement to have
been
completed to date. Procurement ratings have consistently
been
rated
as Moderately Satisfactory for
the
past
three
ISRs.
The
PMU’s procurement implementation
capacity has improved over the years of project implementation and they
will
continue to have
assistance
from
international consultants. However, considering
the

exceptional nature of
procurement
under
the
proposed
AF
which
requires
use of Direct Contracting for some major
works contracts
(see
the
paragraphs below) as well
the
PMU’s past performance,
the
procurement
risk
for
the
AF
is
rated as substantial. To mitigate
the
identified
risk,
the
following
measures
will

be
taken:
(i)
procurement prior
review
to be conducted for all contracts
with
intensified
technical
review
and
extra vigilance on fraud and corruption; major civil works
contracts shall be cleared
with
the
Regional Procurement Manager;
and
(ii)
enhanced supervision
with
3
to 4 missions a year
be
undertaken
-
a measure already
in
practice.
Procurement Arrangements and Changes on Procurement Methods
2. Procurement

under
the
proposed Additional Financing
will
be carried out
in
accordance
with
the
World
Bank’s “Guidelines: Procurement
under
IBRD
Loans and
IDA
Credits”,
published
in
May 2004,
revised
October
2006
and
“Guidelines:
Selection
and
Employment of
Consultants
by
World

Bank
Borrowers”,
published
in
May 2004, revised
in
October
2006
and
the
provisions stipulated
in
the
Financing Agreement.
’
3.
As
discussed
in
the
Project Paper, the contractor of one of
the
civil
works
contracts was
debarred by
the
Bank
due
to

its
engagement
in
fraud
and
corruption
in
a
WB-funded
project
in
another
country.
.
The
contract was terminated
on
February
28, 2010,
with
about
70
percent of
the
works
completed.
As
a
result,
there

are uncompleted
works
estimated to
cost
about US$20
million left over
and
new
contractors
will
be
hired
to
complete
these
works. Of
these
works,
the
relocation of
the
two-meter
diameter
water main
is
proposed to
be
carried out by Sai Gon Water
Corporation (SAWACO) through Direct Contracting method
under

a single point responsibility
contract. The justifications for use of Direct Contracting
method
are that
the
relocation of
the
2
16
meter
diameter
water main has
been
delayed
for years because of
the
City’s extreme concern as
the
main
is
currently supplying water for
at
least
4
million residents and any failure will have
serious
social consequences. With
its
seasoned experience, qualifications and unique know-how,
SAWACO

is
the only
unit
capable of executing, managing and assuming
full
risks
associated
with executing
the
relocation. However, as SAWACO
is
a
dependent state-owned
enterprise
(SOE)
under
HCMC People’s Committee,
it
does not
meet
the
eligibility criteria
in
paragraph 1.8
(c) of
the
Procurement Guidelines. Therefore, a waiver from
the
Bank’s
Managing Director

to
the
requirements
of paragraph 1.8
(c)
of
the
Procurement
Guidelines
for
the
award of
this
contract to SAWACO was sought
and
endorsed on
February
10, 2010.
Final
approval of
the
Executive Directors
is
sought to grant
the
waiver
to
the
eligibility
requirements

under
paragraph
1.8
(c)
of
the
Procurement
Guidelines
to allow for
the
credit
to
finance
the
contract to be
awarded to SAWACO.
4.
Other remaining works (which include
soil
improvement, dredging,
interface
canal
wallhridges
and
handrails
and lighting) would‘
be
divided into
4
packages with cost estimates

varying from US$3.5-6.9 million. Of
these
packages, one contract will
be
awarded to Thai
Hien
Co.
-
an
existing subcontractor,
on
Direct
Contracting basis
in
order to complete
the
remaining
35.5
percent
of
the
dredging works.
This
Direct
Contracting was cleared by OPRC on January
15, 2010.
Since
Direct Contracting was not included
in
the

original DCA,
this
method would be
added
in
the
Financing Agreement for
the
Additional Financing. Other
three
Packages (soil
improvement); (interface canal wall and bridges); and (handrails
and
lightings) will
be
procured
through ICB method.
5.
sewers).
These
works will
be
procured though ICB method.
There
are some other outstanding works under
the
project (rehabilitation
of
Level
2

and
3
6. Goods
and
equipment
to be procured
under
the
Additional Financing include
equipment
for environmental monitoring and
inspection,
computer hardware and software for Flood Control
Center (FCC).
These
goods
and
equipment
will be procured through ICB method.
7.
The
Additional Financing would also
finance
some consulting services. A contract for
financial audit of
the
Additional Financing accounts will
be
procured
through Least Cost

Selection method.
In
addition,
a
portion of
the
Additional Financing
funds
would be
used
for
an
extension of
the
existing consultant’s contract (with CDM) for contract management
and
construction supervision on Single Source Selection basis, provided that
the
extension
is
justified
according to paragraph 3.10 of
the
Consultant
Guidelines.
Procurement Plan
8.
The
Borrower has prepared
a

detailed Procurement Plan
(see
Attachment) for
the
contracts proposed to
be
financed by
the
Additional Financing.
The
Bank team has reviewed and
found
these
Procurement Plans acceptable. This Procurement Plan will
be
updated annually or
as
required
to
reflect
the
project’s actual
implementation
needs.
17
Annex
3,
Attachment
1:
Proposed Procurement Plan

for
the Additional Financing
I.
General
Project information:
Country: Vietnam
Borrower: Socialist Republic of Vietnam
Project Name: Ho Chi
Minh
City Environmental
and
Sanitation Project (HCMCESP)
Loadcredit
No.:
3475-VN
Project Implementing Agency: HCMCES Project Management
Unit
under
HCMC Department
of
Transport
Period covered
by
this
procurement
plan:
for
the
entire
period of

the
proposed Additional
Financing
11,
Goods and Works and non-consulting services.
1.
remains
the
same as
that
stated
in
the
parent
project's Development Credit Agreement.
Prior Review
Threshold:
Procurement Decisions
subject
to Prior Review
by
the
Bank
2.
Proposed Procurement Packages
with
Methods and Time
Schedule
2
3

4
151
6
7 8
9
Domestic Reviewby ExpectedBid-
Comments
Opening
Est'Cost
(US$)
Preference
Bank
Proc.Method
PQ
ContractDescriptions
Sai Cion River Crossing 4,890,OO Direct
No.
No.
Prior Jan. 2010 Already
(uncompleted works under
0
Contracting cleared by
Package
7)
WB in
712009
Water main relocation 2,500,OO Direct
No.
No.
Prior March 2010

(uncompleted works under
0
Contracting
Package
IO)
Soil improvement (uncompleted 6,900,OO ICB
No.
No.
Prior July 2010
works under Package
IO)
0
Dredging (uncompleted works
3,300,OO
Direct
No.
No.
Prior Mar. 2010
under Package
IO)
0
Contracting
No.
No.
Prior June
20
IO
Interface Canal Wall and 6,015,OO ICB
works under Package
IO)

Handrails and Lightings 4,600,OO ICB
No.
No.
Prior May
20
10
Bridges by Pilling (uncompleted
0
(uncompleted works under
0
Maintenance Management
I I II I I I I
System
Rehabilitation of Levels 2 and
3
I
2,660,OO
I
ICB
1
No.
I
Yes
I
Prior
I
Apr.2010
I
18