Document ofThe World Bank

FOR OFFICIAL USE ONLY

Report No: 23840

IMPLEMENTATION COMPLETION REPORT(IDA-25490)

ONA

CREDIT

IN THE AMOUNT OF SDR 112.2 MILLION

(US$158.5 MILLION EQUIVALENT)

TO THE

SOCIALIST REPUBLIC OF VIET NAM

FOR A

HIGHWAY REHABILITATION PROJECT

June 26, 2002

Transport Sector UnitEast Asia and Pacific Region

This document has a restricted distribution and may be used by recipients only in the performance of theirofficial duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective: December 31, 2001)

Currency Unit = DongUS$ 1.00 = 15,078

FISCAL YEARJanuary 1st December 31st

ABBREVIATIONS AND ACRONYMS

DANIDA Danish International Development AgencyDCA Development Credit AgreementGoV Government of VietnamHSDC Hanoi South Development CorridorHRP Highway Rehabilitation ProjectICB International Competitive BiddingICR Implementation Completion ReportIDA International Development AssociationJBIC Japan Bank for International CooperationMOT Ministry of TransportPAP Project Affected PersonsPMU1 Projects Management Unit No. 1SOE State-owned EnterpriseQAG Qualilty Assurance GroupQEA Quality at Entry AssessmentSDR Special Drawing RightsTA Technical AssistanceVND Vietnamese DongVRA Vietnam Railway Authority

Vice President: Jemal-ud-din KassumCountry Director: Andrew D. Steer

Sector Director: Jitendra N. BajpaiTask Team Leader: Alain Labeau

VIETNAMHIGHWAY REHABILITATION PROJECT

CONTENTS

Page No.1. Project Data I2. Principal Performance Ratings 13. Assessment of Development Objective and Design, and of Quality at Entry 24. Achievement of Objective and Outputs 35. Major Factors Affecting Implementation and Outcome 96. Sustainability 127. Bank and Borrower Performance 12

8. Lessons Learned 159. Partner Comments 1610. Additional Information 26Annex 1. Key Performance Indicators/Log Frame Matrix 31Annex 2. Project Costs and Financing 32Annex 3. Economic Costs and Benefits 34Annex 4. Bank Inputs 36Annex 5. Ratings for Achievement of Objectives/Outputs of Components 39Annex 6. Ratings of Bank and Borrower Performance 40Annex 7. List of Supporting Documents 41

Project ID: P004832 Project Name: HIGHWAY REHAB

Team Leader: Alain L. Labeau TL Unit: EASTR

ICR Type: Core ICR Report Date- June 26, 2002

1. Project Data

Name: HIGHWAY REHAB L/C/TFNumber: IDA-25490Country/Department: VIETNAM Region: East Asia and Pacific

RegionSector/subsector: TH - Highways; TP - Ports & Waterways; TW -

Railways; TY - Other Transportation; WY - OtherWater Supply & Sanitation

KEY DATESOriginal Revised/Actual

PCD: 03/31/1990 Effective: 01/31/1994 06/13/1994Appraisal: 03/28/1991 MTR. 01/20/1998Approval: 10/26/1993 Closing: 12/31/1999 12/31/2001

Borrower/lmplementing Agency: Socialist Republic of Viet Nam/Ministry of TransportOther Partners:

STAFF Current At AppraisalVice President: Jemal-ud-din Kassum Gautam KajiCountry Manager: Andrew D. SteerSector Manager: Jitendra Bajpai Jeffrey GutmanTeam Leader at ICR: Alain Labeau Gerhard MenckhoffICR Primary Author: Jerry Lebo

2. Principal Performance Ratings

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unhkely, HUN=HighlyUnlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible)

Outcome: S

Sustainabilitv: L

Institutional Development Impact: M

Bank Performance: S

Borrower Performance: S

QAG (if available) ICRQuality at Entry: S

Project at Risk at Any Time: No

3. Assessment of Development Objective and Design, and of Quality at Entry

3.1 Original Objective

3.1.1 According to the Staff Appraisal Report dated October 4, 1993, the objectives of the Highway

Rehabilitation Project (HRP) were to: (a) raise overall economic efficiency and support economic recovery

by upgrading critical segments of the highway network; (b) transfer modem road technology to relevant

agencies through technical assistance and training; (c) strengthen highway maintenance capacity by

providing technical assistance (TA) and equipment; and (d) lay the groundwork for a longer terrn

collaboration between Vietnam and IDA in the transport sector.

3.1.2 The project was the first transport project financed by the Bank in Vietnam, and therefore

purposely focused on a program to build capacity at all levels of the road sector, as well as a concurrent set

of physical objectives of very high priority . The project objectives were, while modest, realistic and

mutually reinforcing. Since nearly all aspects of Bank requirements for project management and

implementation were new to the project team--the project objectives had a "learning-by-doing" approach

implicit to the execution. Key to this approach were the transfer of modem technology to relevant agencies

through the technical assistance and training.

3.2 Revised Objective:

3.2.1 The project objectives did not change during implementation.

3.3 Original Components.

3.3.1 The project consisted of the following components: (a) civil works involving the rehabilitation of

two sections of the country's main road (Highway IA) from Hanoi south to Vinh (279km) and from Ho Chi

Minh City south to Can Tho (151 km), and associated resettlement of households and businesses; (b) new

ferries and rehabilitation of existing ones, as well as improved ferry operations at the two river crossings of

My Thuan and Can Tho in the Mekong Delta; (c) maintenance equipment for the RRMUs and equipment

for the design and quality control of road construction and maintenance; (d) institutional

strengthening/reform and transfer of technology components that include technical assistance and training

for the RRMUs and training for highway personnel; and (e) studies to improve the sector and to select and

prepare future road investment programs.

3.4 Revised Components

3.4.1 No new project components were added. However, early during project implementation the Danish

International Development Agency (DANIDA) approached the GOV and offered to finance item (b) of the

original project components--namely, the improvement to ferry services at My Thuan and Can Tho. The

made available project funds (approximately US$ 8.5 million), which--along with expected cost savings

from the bidding of the three major rehabilitation contracts--the Bank agreed could be utilized for additional

civil works under category (a) of the project (road rehabilitation). These funds were subsequently used to

finance a greenfield road bypass (four-lane controlled access highway) along the section of Highway No. I

beginning in the southern outskirts of Hanoi (Hanoi-Caugie). Although this was not road rehabilitation, the

justification for including these additional works under the project were that: (a) the expected traffic levels

along the rehabilitated sections of Highway No. I already financed under the project would likely very soon

reach their capacity and severe traffic congestion would result, and; (ii) upgrading the existing road to four

lanes along the current alignment would have resulted in excessive levels of resettlement and high land

acquisition costs. After extensive feasibility study work, the Bank agreed to expand the civil works

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component of the project to include the Hanoi-Caugie bypass, also referred to as the Hanoi South

Development Corridor (HSDC). The project also financed the associated detailed design studies, over and

underpasses, required road furniture, and other implementation costs.

3.5 Quality at Entry:

3.5.1 At the time of project effectiveness, the Bank's Quality Assurance Group (QAG) did not exist, and

therefore no formal process for reviewing project Quality at Entry (QEA) was available to the project team.

The ICR assessment of the project's Quality at Entry is satisfactory.

3.5.2 The project was slow to become effective and implementation slow to start. In retrospect, many of

the underlying problems could have been avoided at entry with a more pragmatic assessment of the

capacity of local agencies for project implementation, especially with respect to managing land acquisition

and resettlement and modem international procurement practices--as well as a better assessment of the

impact for projects execution where the decision-making process was clearly still heavily bureaucratic.Thus, while the project appraisal successfully identified key sector and capacity constraints, and the project

was well-aligned with Bank and Government of Vietnam (GoV) priorities, the design of the project did not

sufficiently allow for project implementation where the supporting country legal framework (e.g., for landacquisition and resettlement) was not well-developed and experience with intemational procurementpractices did not exist. In addition, at the time of appraisal, there was a substantial lack of market data on

which to base project costs estimates and uncertainty about the availability of counterpart funds--but noinnovative design solutions were sought. As a result, early supervision costs were very high. Also,

disbursements over the first years of the project were slow and project implementation difficult, withcapacity built only very slowly. Overall, however, given that this was the first transport project financed

by the Bank in Vietnam--and there was no experience or lessons on which to build project design--quality

at entry is deemed satisfactory.

4. Achievement of Objective and Outputs

4.1 Outcome/achievement of objective.

4.1.1 Overall Assessment. The project outcomes and achievement of objectives are assessed as

satisfactory. There were some delays in project implementation, but these were not excessive, and largely

due to the implementing agencies unfamiliarity with Bank policies and procedures. There were also delays

with the implementation of project technical assistance activities. These were due to the overlybureaucratic decision-making and clearance processes, as well as some reservations by the GoV as to thecontent of such assistance. These delays, however, did not excessively impact the effectiveness of these

activities (although the scope of some activities had to be reduced to accommodate time constraints).Overall, therefore, the project substantially achieved its development objectives within budget, including the

extension of the period of implementation to accommodate additional project civil works related to the

construction of the HSDC by-pass.

4.1.2 Civil Works. The rehabilitated sections of Highway No. 1 and HSDC were opened to traffic in

September 1999 and December 2001, respectively. These investments were successful, in that they have

succeeded in reducing transport costs, congestion, and shortening travel times along critical segments of the

national highway network. Road traffic has risen less quickly on project roads than was expected at

appraisal, which has lowered the return to investment. The overall rate of return on the three sections of

Highway No. I rehabilitated under the project has been re-estimated at 38%--which is significantly lower

than the appraisal estimate of 89%, but still shows a high return to these investments (see section 4.3).

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Subsequent benefits of the project are deemed sustainable, but will require that adequate road maintenance

is undertaken on project sections. To ensure project benefits remain in place, effort should also be made to

ensure that the increasing rate of traffic accidents on national highways, including project roads, is curbed.

4.1.3 Institutional development. Project activities related to institutional development were

substantially completed and, for the most part, achieved the desired impact. Management training

(including overseas training and study tours) have provided new concepts which have been adapted to the

requirements of Vietnam. Specialized training on procurement and resettlement assisted the PMU to build

capacity and improved implementation performance. Equipment provided has allowed road agencies to

increase their capacity to plan and execute road maintenance activities, as well as modernize their

approaches to delivery. Training in the use of modern equipment has also helped ensure that the new roads

will be adequately monitored and, in principle, maintained. Although, there is still the need for additional

institutional development efforts. Training for Regional Road Management Units (RRMUs) included

planning and investment prioritization and developing quality control procedures for construction and

maintenance; and for MOT/VRA - transport planning, engineering standards for roads and bridges and

road safety. Details on each of the elements of these items are provided below.

4.2 Outputs by components:

4.2.1 Overall Assessment. All project components were successfully delivered as planned. In addition,

costs savings under the project allowed for additions to safety-related civil works ("blackspot") programimplemented under the project, as well as the aforementioned additional civil work related to HSDC. Abrief overview of the outputs from each item is given here.

Civil Works

4.2.2 Highway No. I was in poor condition when the project was identified in 1990, with varying cross

sectional geometries, uneven and broken pavement and potholed shoulders which became accident-prone

during rainy weather. By the time road work started in 1996 there had been substantial further

deterioration. The implementation schedule prepared by the appraisal team took into account possible

implementation delays due to MOT's inexperience with IDA's bidding, disbursement and audit procedures

and resettlement issues - which indeed turned out to be the case. Still, project work as originally defined in

the Staff Appraisal Report (SAR) were started on time and successfully completed in 1999 as planned. The

addition of HSDC required that the Credit Closing Date be extended by two years. The works on HSDC

were completed only at the very end of the project, in December 2001. It is clear, however, that these

works are already of great benefit to easing traffic congestion south of Hanoi in a rapidly growing area.

4.2.3 Because of the lack of data on market prices and international bidding rates in Vietnam, as well as

the fact that project works were only appraised up to the level of preliminary engineering, the Bank

proposed a lump-sum of US$96.95 million for civil works, including rehabilitation of roads, blackspot

improvements and (the later DANIDA financed) access roads to ferry crossings. During the bidding of

these works, competition among contractors produced bids well-below appraisal estimates. Road works

were divided into three contracts, which all commenced in March 1996. The final costs for the three road

contracts was US$78.62 million, slightly higher than initial bid prices. In retrospect, such cost increases

could have been expected given the "design and construct" approach adopted for bidding of these contracts.

That is, the initial contracts were signed on the basis of preliminary engineering (to speed up project

preparation), with the contractor to undertake detailed design during implementation under oversight of the

supervising engineer. Design review and subsequent detailed designs, as expected, generated substantial

changes over preliminary engineering in order to deal with local conditions. Typical redesign elements

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included the addition of drainage, improvements to the road structure, and strategic widening in densely

populated sections.

4.2.4 During implementation several work items associated with rehabilitation along Highway No. 1

were changed, including: (i) addition of the (1 09m -one way) Doc Xay Tunnel; (ii) six out of seven

proposed new bridges were strenghtened, rather than replaced; (iii) construction of drainage systems and

pavement widening in three cities and construction of a bridge at Khe Son, were added, and; (iv) widening

of drainage systems and pavement widening in two cities was added.

4.2.5 Two of the civil works contracts (Hanoi-Vinh) experienced only minor delays. The third contract

(HCMC-Can Tho) was delayed seven months, due to slow resettlement and handover to the contractors, as

well as late issuance of the necessary permits by local authorities. In late 1996, DANIDA offered to fund

the Ferries (civil works and equipment) component originally appraised under the project, thus releasing

US$8.5 million in project funds. This, together with the projected savings on the road contracts, provided a

substantial amount of project cost savings which the GoV proposed be used for construction of by-pass

roads on congested portions of Highway No. 1 in densely populated urban areas. After extensive feasibility

work, an agreement was reached between IDA and GoV to use these funds (along with additional resources

from GOV and JBIC) to finance a single greenfield by-pass of approximately 30 kms in the section south

of Hanoi. Cost constraints required civil works to be divided into two sections, with IDA and GoV

financing approximately 17 kms of the proposed bypass. The remaining approximately 13 kms were

financed by JBIC and GoV under a separate contract and irnplemented in parallel.

4.2.6 The project financed portion of HSDC civil works were divided into two contracts bid under ICB

arrangements. Late issuance of the construction authorization by the municipality, combined with a request

to shift the alignment into a soft soil area generated substantial start up delays. In addition, this was

aggravated by delays in resettlement, which plagued these works throughout their implementation. As a

result, commencement was delayed until September 1998. Due to a large number of variation orders, and

continuing resettlement issues, works were not completed until December 2001-and even then some minor

works were completed after the closing of the loan (paid by GoV). The final cost for the project contracts

was some 55% above initial estimate, with the final costs for the two contracts US$30.97 million. The

main reason for these additional costs were related to the geo-technical requirements of the final alignment,

which was in a soft soil area, and the addition of two fly-overs, underpasses, and a local access road to the

project.

4.2.7 A small portion of additional cost savings under the project were used for additional blackspot

improvements which were awarded to national contractors through National Shopping. The final costs for

blackspot improvements was US$2.8 Imillion.

4.2.8 The total final costs for all civil works was US$112.4 million, of which IDA financed 87%

(US$97.78 million).

4.2.9 As mentioned previously, the project component covering new ferries and rehabilitation of existing

services was dropped from the IDA finance package. The component was implemented by DANIDA and

was successful in improving operations at the Mekong crossings at My Thuan and Can Tho. The SAR

cost estimate for this component was US$8.5 million (excluding contigencies). While no completion report

was available to the project team for these investments, it is estimated by the implementing agency that the

final cost for this component was approximately US$16.01 million--with the GOV portion of $1.1 million.

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Goods and Equipment

4.2.10 To achieve project objectives, the Credit funded equipment which was provided to the followingimplementing agency and MOT. Because the requirements were not yet known at appraisal, IDA proposeda lump-sum allocation for this component in a total amount of US$ 12.11. The final cost estimate for thiscategory was US$10.32 million and can be summarized as follows:

Equipment for Project Management Unit (PMU1): comprising, vehicles, office equipment, computers,

communication equipment and video systems (S0.25 million);* Equipment for Vietnam Road Administration (VRA) and the Regional Road Maintenance Units

(RRMU): comprising, highway maintenance equipment, road and bridge inspection equipment andmotorized vehicles (US$9.45 million);

* TA and Technology Transfer to the RRMUs: comprising, computers, road survey and bridgeinspection equipment, road survey vehicles and training equipment and materials (US$0.16 million);

* Road Safety Study: comprising mainly: traffic safety equipment, computers, audio-video systems,

textbooks/guidelines and Pilot road safety materials production, highway patrol cars and patrolmotorcycles (US$0.65 million). The equipment was supplied to VRA, Traffic Police, and NationalTraffic Safety Committee.

4.2.11 At the time of project close, it appeared that all equipment was being used by the relevant agenciesar.d contributed to the success of the project. The sustainability of this use will depend on propermaintenance and continued use for its prescnbed function. The equipment related to highway maintenanceis being used to regularly monitor the condition of some national highways. PMU1 continues to useequipment procured under the project to execute its responsibilities. These equipment and goods aretherefore deemed to have successfully contributed to the achievement of project objectives.

Institutional strengthening/reform and transfer of technology

4.2.12 The project provided for two fonns of support under this component, implementation support andtechnical assistance related to institutional development. The former comprised construction supervisionand detail engineering services, as well as advisory and contract management services. The latter focusedon key areas of study and training to assist the GoV to address key sector issues. Because the optimalsub-allocation within these activities was not known at the time of appraisal, these were divided into twolump sum allocation of US$15.44 million and US$7.2 million, respectively. The final costs for theseactivities was US$17.8 million, significantly below the appraisal estimate. The main reason was areduction in the costs and scope of the technical assistance related to institutional development. A briefoverview of each activity is provided below.

Implementation Support. (Actual Cost: US$14.64 million)

4.2.13 Supervision of Civil Works. Hiehwav No. 1 (US$10.68 million): The main component ofimplementation support was the supervision of thrce civil works contract related to improvements onHighway No 1. and two contracts for construction of the HSCD by-pass. The costs for project supervision

amounted to approximately US$10.68 million. The civil works contracts for Highway No 1. were issued

on basis of "design and construct"--which increased the costs for supervision of works. In addition, thecontractor based his design on insufficient geotechnical investigations and did not follow through with soilimprovements where required, thus requiring the supervision consultants to redesign entire sections, whichfurther raised the costs of these services.

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4.2.15 Supervision of HSDC (US$2.57 million): The HSDC by-pass was designed and constructed toavoid the considerable resettlement which the widening of the existing alignment south of Hanoi would haverequired. Following IDA's request, MOT/ PMI1 selected consultants to prepare the economic feasibility,detailed design and tender documents for the HSDC. The same supervising consultants for the supervisionservice along Highway No. I were also selected for this assignment (US$690,258) and for the follow-upconstruction supervision (US$1.88 million). The selection process was approved by IDA. On the jobtraining by the expatriate engineers provided significant means of technology transfer and contributed tothe control of construction quality.

4.2.16 Advisory and Contract Management Services (US$1.8 million): An international consultant wasemployed between January 1995 and April 2000 to support and advise the implementing agency on projectdelivery and contract management. The services provided effective assistance to PMUI in all technical andfinancial management aspects, including computerized contract administration, accounting, progressmonitoring and reporting, as well as workshops on contract management and procurement.

Institutional Development (Actual Cost: US$3.16 million)

4.2.17 There were substantial costs savings under this component (approximately 50%), given the US$7.2million appraisal estimate. This was due to the relatively high estimate at appraisal (due to the lack ofmarket data) and competition among firms for technical assistance contracts. There were four areas ofsub-activities under this component, each is briefly described here.

4.2.18 Technical Assistance & Transfer of Technology to RRMUs (US$1.86 million); The contract wasawarded in 1997 and completed in 2001, and implemented in three phases: (i) Phase I provided for areview of existing conditions and provided technology transfer/training for MOT staff related to roadnetwork technical and financial management aspects, including: maintenance, pavement design, bridgemaintenance and traffic safety; (ii) Phases 2 and 3 focused on selection, installation and training in the useof computerized road and bridge management software at the RRMU level (RoSy and BridgeMan).

4.2.19 Development of Roads and Bridges Standards (US$0.70 million); The contract started in 1999and completed in June 2000. The main effort was two pronged. First, a review and an assessment ofcurrent road and bridge standards. Second, preparation of road and bridge standards by adaptingAASHTO standards and specifications to reflect local conditions; including specification for: a) design offlexible pavements; b) bridge design; c) road design; and d) construction. The outputs from this study weredeemed very successful, with the first three items having been accepted by MOT and issued for nationwideapplication. The last item "Construction Specifications" was deemed to be less than what was required andMOT decided that further work will be required to improve upon this work.

4.2.20 Vietnam Road Safety Improvement Study (US$0.60 million); The contract for this work began in1997 and was completed in March 2000: The objective was to review and assess the existing Vietnameseroad safety situation; and prepare manuals and training of staff through pilot projects on road safetyincluding: blackspot identification and their improvement; traffic law enforcement, preparation of accidentdatabase. This program was deemed highly successful, and the manuals developed are in use by MOT.However, the proposed modernization of the accident data base and sharing of information betweenenforcement authorities and MOT was not successful, primarily because of tight security arrangementssurrounding safety enforcement information in Vietnam--including traffic accident reports.

4.2.21 Retraining of Road Sector Professionals (US$1.84 million) This program started in 2001 and

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completed in December 2001 and was divided into two phases. The first phase involved preparation of

training materials by expatriate experts that were then translated into Vietnamese. The second phase

included delivery of pilot courses by expatriates, followed by courses delivered by trained local experts.

Trainees under the program came from GOV departments including VRA and its sub-agencies,

construction corporations, and engineering consultant companies. Due to protracted discussions on the

content of the training program to make sure in responds to to specific Vietnamese needs, the program

started late in the project implementation. This delay was further aggravated by slow internal MOT

procedures and government clearances, and only 15 courses could be held prior to project closing. The

reduced program, however, reached its objectives and is being followed under a subsequent IDA project

which will use the developed course material to expand the coverage of training.

4.3 Net Present Value/Economic rate of return:

4.3.1 At appraisal, an economic evaluation was conducted for each road segment to be constructed, with

the corresponding EIRRs varying from 20% to over 100%--and a weighted composite economic internal

rate of return (EIRR) for the overall highway component calculated to be 89%. The HSDC component

was added later to the project and was therefore not included in the appraisal economic evaluation. At

completion, an economic evaluation was undertaken for the highway component following as closely as

possible the original appraisal procedures and using the most recent data concerning vehicle operating costs

(VOCs). On that basis, the re-estimated EIRR for each road segment was calculated to vary between 25%

to 58%, with an overall weighted EIRR for the highway component re-estimated to be 38% (see annex 3).

The main reasons for reduced economic internal rate of return at completion, were higher than expected

per-kilometer costs, lower traffic growth, and higher road roughness (which increases vehicle operating

costs) than expected at appraisal. Of these, lower than expected traffic growth is the primary factor

leading to a lower than expected EIRR at completion (see 4.3.3).

4.3.2 Total investment costs for the rehabilitated sections of Highway No. I increased from an estimate

of US$109.9 million to US$113.6 million, including the costs of construction, design and supervision,

black spot improvements, resettlement and land acquisition for each of the three sections of road

rehabilitated (i.e. Hanoi to Doc Xai, Doc Xai to Vinh and Ho Chi Minh City to Can Tho). The main

reason for the increase in unit costs under the civil works program resulted from the need to substantially

improve the road structure, which had been under-designed by the contractor. This led to higher than

expected supervision (re-design) and construction costs (variation orders), which outweighed the project

costs savings at the time of bidding. Costs also rose slightly due to minor additions to the blackspot

improvement program. For the re-estimation of the EIRR, routine (annual) and periodic maintenance (after

five years) costs were estimated at US$2000/km and US$5000/km, respectively.

4.3.3 In addition to higher than expected per-kilometer construction costs, there has been lower than

expected traffic growth on project roads, with daily traffic increasing between 70% and 120% along the

rehabilitated sections of highway between 1996 and 2001 . While these rates of growth are large, they

have not quite matched the 15% average annual growth rates that were expected over the 12 year analysis

period assumed at appraisal--and instead reflect a more modest 10% per annum. In retrospect, appraisal

estimates of average traffic growth of 15% per annum were probably unnecessarily optimistic. It is

extremely rare (even in rapidly growing economies) to observe road traffic growing at 15% over more than

a several year period.

4.3.4 For purposes of economic evaluation, average road roughness on project roads was estimated using

Intemational Road Index (IRI) measures, which is an accepted intemational standard for comparison of

road quality. Lowered IRI measures translate directly into project benefits through a reduction in vehicle

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operating costs where roads have been improved. For project roads, mechanical condition surveys wereundertaken shortly after completion of civil works (1999-2000), which demonstrated actual road roughnessto be in the range of 2.5-4.0 IRI. This contrasts with the target of 2.5 IRR for all project roads. The actualroad roughness at the time of ICR was assumed to be 4.0 IRR--based on the above observations and visual

inspections of recent supervision mission. The main reason that the average target of 2.5 IRR target wasnot met is related to lower than expected quality of construction.

4.4 Financial rate of returnNot applicable.

4.5 Institutional development irnpact:

4.5.1 While the overall institutional development impact of the project is rated as modest, the project

positively impacted institutional development. As described above, the two primary components aimed atpromoting institutional development were (a) institutional strengthening/reform and transfer of technology,and; (b) studies to improve the sector and to select and prepare future road investment program. The mainbenefit of these investments has been an increase in the awareness among sector professionals as tointernational experience in road management and engineering, contracting, and environmental and socialmanagement. Capacity in PMUI was greatly increased due to hands-on-learning during projectimplementation, particularly in the areas of application of IDA procedures, language, and computer skills

and use of international business documentation. The training provided under the project, frequentsupervision missions, and use of local staff for project monitoring helped the PMUI to build skills in

project supervision, contract management, and training. Sector training efforts have had a positive impacton the capacity and qualifications of national contractors--although much still needs to be done in this area.The particular project objective to "lay the groundwork for a longer term collaboration between Viet Namand IDA in the transport sector" has wholly been achieved--with a substantial dialogue created under the

project on key areas of technical and institutional reform--and the fourth in a series of IDA-financedhighway projects is currently under preparation.

4.5.2 Technology transfer under the project is also deemed successful. A large numnber of localprofessional staff have been trained through domestic studies, training activities under the project, and

some overseas study tours for higher management of MOT. Local engineers, jointly with foreign expertshave been involved in the supervision of civil works and have thus gained skills in various aspects ofproject oversight, quality control, and supervision of larger civil works packages. The use of localsub-contractors has helped to raise the quality of the national contractors working as sub-contractors andenabled the transfer of know-how. Experience with international bidding procedures was substantiallyenhanced.

5. Major Factors Affecting Implementation and Outcome

5.1 Factors outside the control ofgovernment or implementing agency:

5.1.1 The regional financial crisis of late 1990s had a negative impact on the project, with GDP growthin 1999 falling to its lowest growth rate in a decade. The slowdown in economic growth reduced the

resources available for transport investments in general, and maintenance, in particular, and slowed trafficgrowth.

5.1.2 The performance of contractors under the project varied from acceptable to poor. Supplierperformance was also unpredictable, resulting in problems to obtain key project inputs, such as spare partsand bitumen.

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5.1.3 Inordinate delay of responsible authorities in the approval process for contract approval, permits,

and land acquisition and resettlement formalities.

5.2 Factors generally subject to government control:

5.2.1 Slow progress due to poor management of resettlement activities was an on-going issue throughout

the project and caused serious delays at many points during the project, including an initial delay in

effectiveness of the loan due to lack of attention to Bank requirements. Early in implementation, the Bank

initiated an independent audit of resettlement activities, which demonstrated senous problems of funding of

payments and internal control, especially by provincial authorities, and the project was again delayed as

these problems were resolved. A key resettlement problem was the use of cash for compensation for PAPs,

whuch the GoV saw as the most effective and timely way to resettle PAPs. This caused a serious issue at

project close, as these expenditures are ineligible under the credit. As a result, a substantial amount of

funds that were already disbursed by the implementing agency for these expenses are required to be

refunded to IDA. The Association estimated at project close the total amount of ineligible expenditures still

outstanding were approximately 109 billion VND (US$7.2 million). At the writing of this report, this

amount was still outstanding.

5.2.2 Other observed impacts of poor management of resettlement activities include:

* late handing-over of sites by the Employer, resulting in rescheduling of works and contracting

delays, especially on HSDC (which was delayed by almost two years);

* in some areas the residents were not satisfied with the resettlement compensation or alleged not to

have received the agreed compensation and at times physically stopped the work or even damaged

equipment, and;* failure of MOT to make timely payments to PAPs, and ensure cooperation with the contractors.

5.2.3 The TA and training components generally started late due to prolonged discussions within MOT

on the content, scope, and budget for these components, as well as delays due to government and MOT

internal approvals. However, all TA and training components were completed--althought some under

reduced scope due to time constraints.

5.2.4 Contractors had great difficulty receiving import licenses for their equipment. Further, provincial

authorities required contractors to obtain construction permits to commence work, and have to license their

equipment to use the roadway. All these difficulties could have been alleviated if the specific regulations

were mentioned in the tender documents that could allow contractors to make suitablc arrangements.

PMUl's efforts to expedite these delays were not successful.

5.3 Factors generally subject to implementing agency control:

5.3.1 To save time and cost, the three contracts for the rehabilitation of Highway No. 1 were issued as

"design and construct" which were based on general preliminary design and general specifications. Under

this scenario, the contractors were responsible for all soil investigations, evaluation of results, detailed

design and improving soil conditions. The incentive therefore was to reduce costs by reducing the amount

of geotechnical investigations and the soil improvements. This approach, while expedient, proved to

inefficient in terms of supervision and quality control. Early in the project, PMUI had difficulty assessing

the activities of the contractors and evaluating the judgment of the supervising consultant. This led to cases

where the supervising consultant approved procedures and work activities that should have been corrected

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by the employer.

5.3.2 Large contract variation orders were common under the project, which could be expected given the

level of engineering at which the contracts were tendered. However, the number and size of variation

orders put an extreme burden on those responsible for supervision of works. It was very difficult to control

costs and ensure quality with a shortage of staff, and, in hindsight, the bidding of civil works on the basis

of preliminary engineering should have been avoided.

5.3.3 Environmental performance under the project was weak, especially in the area of work site safety,

general site and traffic management and disposal of waste materials, and operational activities, such as

asphalt production. The ability of the implementing agency (and MOT) to manage environmental aspects

of road construction and enforce related clause of contracts remained low throughout the project. While

procedures for Environmental Assessments of road investments were introduced into Vietnamese law

during the period of project implementation. In practice, there is still a limited capacity within MOT to

manage the environmental aspects during project implementation--effort is mostly concentrated on initial

environmental reviews and clearances.

5.4 Costs and financing:

5.4.1 At appraisal the total project cost was estimated at US$176.0 million, of which US$158.5 million

were to be funded by the IDA Credit. The total actual cost of the project, including the ferries component

financed by DANIDA, is now estimated at US$186.67 million of which IDA's share is US$145.29 million

- a project savings of US$13.21 million. Some project funds were reallocated to additional investments,

however, a large portion of remaining funds will be cancelled. A final figure for the amount of cancellation

expected under the project was not available at the time of this report, pending final reconcilitation of

accounts based on the refund of ineligible expenditures (see 5.2.1).

5.4.2 The civil works for the Road Rehabilitation was a lump-sum estimated at appraisal at US$96.95

million; the final estimated cost is US$112.40 million, an increase of 16%, which includes: three civil

works contracts along sections of Highway No. 1 (US$78.62 million) and two contracts covering the

construction along HSDC (US$30.97 million). In addition, there were 80 Blackspot improvements

(US$2.81 million). Note: the cost of the HSDC and most of the Blackspot improvements were not part of

the appraised IDA project. The cancellation of the Ferry Crossings estimated at US$8.5 million at

appraisal - to be financed by DANIDA - made funds available for the HSDC and the Blackspotimprovements. A brief summary of costs by item would include:

* Equipment was a lump-sum estimated at appraisal at US$12.11 million; the estimated final cost is now

US$10.32 million (an underrun of 17 percent).* Implementation Support was allocated as lump-sum amount estimated at appraisal to require

US$15.44 million. Final costs is estimated to be US$14.64 million (an underrun of five percent);

* Institutional Development was lump-sum estimated at appraisal at US$7.20 million; the estimated final

cost is now US$3.16 million (an underrun of 56 percent).* The Training Program was lump-sum estimated at appraisal at US$2.36 million; the estimated final

cost is now US$1.84 million (an underrun of 28 percent);* The Resettlement and Land Acquisition program was lump-sum estimated at appraisal at US$32.80

million; the estimated final cost is now US$28.30 million, (an underrun of 16 percent).

5.4.3 All components and expenditure categories of the project were under run, except for civil

works/road rehabilitation.

6. Sustainability

6.1 Rationalefor sustainability rating:

6.1.1 The overall assessment of sustainability of project investments is likely. All levels of GoV arestrongly committed to the well functioning and maintenance of Highway No. 1, which is a key economiclifeline of the country. Ministry of Transport staff have been trained by intemational experts under theproject and have acquired adequate equipment to plan and manage the maintenance of the highway and itstraffic safety, and are well aware of the importance of road and bridge maintenance and traffic safety.Physical sustainability of the project depends on adequate annual budget allocations for maintenance ofroads, bridges, and equipment. Routine maintenance is being performed on project sections as part ofregular maintenance activities of the national highway system and is adequately funded. Periodicmaintenance, on the other hand, has been systematically under funded in Vietnam in the past--but the needfor periodic maintenance on the project roads is still several or more years away. There is a substantialdialogue under the ongoing project portfolio and pipeline to address such maintenance issues. The issue ofperiodic maintenance is the focus of the proposed IDA financed Road Network Improvement Project, which

is under preparation. It is expected therefore that, at least for national highways, adequate maintenance islikely.

6.1.2 The institutional development objectives of the project are also deemed of likely sustainability.This assessment is based on two factors: (i) the adoption of many of the outputs from technical assistanceunder the project into mainstream MOT activities, such as road and bridge standards, managementpractices, training materials, etc, and; (ii) continued follow-up of key institutional development activitiesunder ongoing IDA/ODA programs. On the latter point, both the follow-on IDA assistance to the sector(Second Highway Rehabilitation Project and Mekong Transport and Flood Protection Project), as well asthat of other donors, have built on activities began under this project.

6.1.3 Capacity building efforts aimed at PMU1 are also sustainable. This implementing agencycontinues to serve as a lead implementing agency for major highway projects in Vietnam, including two

IDA projects.

6.2 Transition arrangement to regular operations:

6.2.1 All civil works financed under the project have been opened to traffic. Works on Highway No. Iare now beyond the one-year Defect Liability Penod (DLP) and have been taken over by VRA.

6.2.2 The VRA is responsible for the day-to-day operation, maintenance and development of the country'sroads and bridges, including the setting up of the toll collection system. VRA staff were trained under theproject, and it is expected that the operation of the system will proceed successfully. The main performancemeasurements of the project benefits are increased traffic volumes, reduction of accident rates, and annualexpenditures on routine and specific maintenance. These have largely been met--except for reduced trafficaccidents, which continue to grow at high rates throughout the road network.

7. Bank and Borrower Performance

Bank7.1 Lending:

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7.1.1 Bank performance with respect to lending was satisfactory. The Bank was responsive to the GoV

requests to prepare and appraise the project which was first identified in 1990 and appraised in 1991. The

project was re-appraised in 1993, due to the need to undertake more substantial preparation work to ensure

project readiness. It is difficult to assess whether the Bank was overly optimistic in term of the amount of

work required to prepare and appraise the project where the relationship between IDA and the GoV was

new. Bank resources utilized during project preparation were above average, mainly because of the need to

appraise the project twice. About 200 person days were spent on field missions for identification and

appraisal.

7.1.2 The 1993 appraisal team identified a number of risks to the achievement of project objectives

including: lack of basic procurement laws and regulations, lack of experience in using IDA procedures;

lack of market data on which to base cost estimates; uncertainties about counterpart funding and the legal

framework for land acquisition and resettlement. The appraisal's team views on the capacity of local

agencies for project implementation were probably overly optimistic, especially with respect to resettlement

and project supervision, and underestimated the impact bureaucratic decision making process would have

on project implementation.

7.1.3 The creation of PMU I within the MOT was warranted at the time of project start up. However, it

has had the effect of creating a parallel system in MOT with different pay scales and benefits. Thus, while

it was probably a needed short-term requirement for project implementation, a long term solution to resolve

capacity problems in MOT needs to be developed.

7.2 Supervision

7.2.1 Overall, Bank supervision is rated as satisfactory. IDA conducted 21 supervision missions

between November 1993 and March 2001, an average of three missions per year, but often at 1-2 months

intervals during critical periods. This was supported with continuous assistance available from the Bank's

Hanoi office. It is doubtful whether more frequent supervision missions would have improved

performance. The civil engineering works were supervised by intemational consultants, who were not

always effective in improving the pace of project delivery. In cases where even the on-site supervising

engineers had difficulties, IDA's supervision missions also had difficulty improving poor performance.

The combined impact of poor contractor performance, and lack of contract enforcement by the employer,

limited the effectiveness and raised the costs of supervision.

7.2.2 In contradiction to Bank procurement guidelines, dependent state-owned enterprises participated in

the bidding and were awarded IDA financed ICB contracts for the HSDC works. The unit rates offered in

the bid by the state-owned companies were artificially low and unsustainable. This, and their lack of

experience, often resulted in low quality work. Supervision by MOT of HSDC civil works, and

implementation of resettlement is deemed satisfactory, but could have been better. The main impacts were

delays and lower than designed quality of works.

7.3 Overall Bank performance:

7.3.1 Overall Bank performance is rated as satisfactory. HRPI was IDA's first project in the transport

sector, and was identified and implemented when there was little knowledge of the sector available. IDA

has shown flexibility in dealing with the changes in the project scope, such as approving the construction of

the HSDC, extending the blackspot improvement program, and in response to the Borrower's request

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extended the credit closing date by two years.

Borrower7.4 Preparation:

7.4.1 MOT's preparation for the project is rated as satisfactory. Initially there were problems related toMOTs limited technical and managerial experience in meeting Bank appraisal requirements. The main areaof problems related to cost estimating, planning, and managment of land acquisition andresettlement--which were different from Bank requirements.

7.5 Government implementation perfornmance

7.5.1 GoV performance is rated as satisfactory. GoV was fully committed to the project, even to theextent of accelerating preparation beyond what was technically advisable. The decision to implement thefirst three road contracts through "design and construct", instead of contract works on the basis of fulldetailed design, was a risky decision and delayed works and reduced quality, even if it saved cost and timeduring preparation. Following IDA's advice, MOT/PMUl for the construction of HSDC, prepared afeasibility study, detailed design and tender documents. Counterpart funds were generally provided on timeand generally did not substantially interfere with implementation. However, the process for obtaining GoVclearances for bidding documents and evaluation reports was much slower than expected due tocumbersome internal administrative processes.

7.5.2 One of the main issues which interfered with project implementation was the ineffective handling ofland acquisition and resettlement. Data management was not computerized and the interface betweencompensation data and accounting entries was not reliable. Weak financial control and lack of effectivefield management often resulted in non-transparencies and difficult reconciliation process. In many casesresidents claimed not to have been compensated at all or not as announced, which led to physicalinterference with the contractors' work including obstruction and damage to equipment. It was MOT's dutyto see that such interference did not happen. Substantial time was spent by the supervision missions on theresettlement issues which is reflected in the Aide Memoires. A total of 26 Resettlement specialistsparticipated in 19 of the 21 supervision missions, not to mention that long term resettlement expertsfinanced by the Canadian Intemation Development Agency (CIDA) were posted with PMUl during thefirst three years of implementation.

7.5.3 At appraisal, it was expected that roads improvements under the project would result in a reductionof accidents, at least along project sections. This objective was however not achieved. While some keyfactors like drivers' behavior and enforcement of traffic regulations fall outside the control of MOT, thesupervision missions found that MOT had not done enough to improve road signs, pedestrian crossing,traffic-calming devices and enforcement of traffic management on the work-sites. IDA supervision missionsexpressed serious traffic safety concems with many sections of the rehabilitated roads but especially withthe entire length of the HSDC by-pass, and noted that the environmental clauses in the works contracts hadnot been substantially complied with by the contractors and properly enforced by the supervising engineers.

7.6 Inplementing Agency:

7.6.1 The performance of the implementing agency is rated satisfactory. Having overcome the initialdifficulties, PMU 1 showed a strong hand and demonstrated tenacity to master the project scope in both itsphysical objectives and institutional developments. PMUI has gained substantial experience andknowledge concerning implementation of larger road projects in Vietnam, and continues to improve it

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performance through on-going IDA/ODA and domestically-financed projects.

7.6.2 The project was initially burdened and delayed by design changes, resettlement problems, variationorders and cumbersome procurement procedures. As a result, substantial amounts of committed IDAlending have been held up for long periods of time. Not all can be blammed on PMUl, as the decisionmaking process in the VN administrative system is cumbersome.

7 7 Overall Borrower performance:

7.7.1 Overall Borrower performance is rated as satisfactory. MOT and PMU I have compliedsubstantially with the conditions of the credit and project agreements. IDA's procedures and requirementswere followed, with the exception that the Borrower used IDA fund for ineligible resettlement compensatonexpenses.

7.7.2 The cooperation between the GoV, MOT, PMUl, and IDA was cordial throughout preparation,appraisal and implementation of the project.

8. Lessons Learned

8.1.1 The lessons learned from implementation of the First Highway Rehabilitation project in Vietnamare:

(i) A learning-by-doing approach is an effective way to build capacity and understanding, howeverrequires clear objectives and institutional arrangements--Both the borrower and IDA benefited from a"learning-by-doing" approach implicit in the design of the project, which resulted in a high level of capacityand sector knowledge being exchanged over the relatively short period of project implementation. Thisapproach required the ability to focus investment in an limited number of high return investments, ratherthan to spread a large number over a wider area, which avoided the need for overly complicated projectelements or implementation arrangements. During implementation, ongoing frank exchange of views,selective technical assistance, and high-level of supervision contributed to support this approach.

(ui) Implementation capacity and supervision arrangements in transitional countries require carefulconsideration--Both the borrower and IDA should carefully consider the time and capacity required forstarting up project activities in a "new country" which is in political transition and/or has previously notbeen exposed to Bank lending activities. This is especially true where there is a lack of experience withinternational standards for financial management, contracting, and/or procurement. IDA procedures andrequirements can be slow to be adopted and difficult to implement where there are legal, cultural, orhistorical barriers to their effective application. In a transitional economy, where the public sector may stillbe dominant, clear guidelines and qualification procedures need to be established for state-ownedcompanies. As was observed in this project on conflict of interest issues, there is a tendency to rush intocomplex lending programs in new IDA member countries without undertaking sufficient preparationwork--which can result in very high supervision costs, serious project delays, and overall lowered qualityoutputs. In addition, where the domestic legal framework relating to land acquisition and resettlementdiffers significantly from Bank policies, additional effort for capacity building, monitoring, andmanagement become necessary before the start of major civil works and/or related resettlement activities.

(iii) Complex contracting approaches should be avoided where contractor's experience and capacityis limited--In the early 1 990s, many international contractors rushed to Vietnam to participate in the

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reconstruction "gold rush". The competition was enormous, and contractors were bidding at loosing rates

so as to gain a foothold in a promising market. Many of these contractors had little or no experience with

the local Vietnamese conditions. Under these circumstances IDA should have objected to the "Design and

Construct" contracts for rehabilitation of roads under the project, which required potential contractors (and

the implementing agency) to prepare and review bids on the basis of preliminary engineering and feasibility

studies alone. Under this scenario, contractors which may have limited experience and capacity become

responsible for soil investigations, evaluation of results, detailed design, as well as construction. This has

the potential to create conflicts of interest and greatly increases the burden of supervision for the employer

and supervising engineer. For example, the incentive is often to reduce costs by reducing the amount of

geo-technical investigations and the soil improvements--which can lead to under design and poor

performance of the road structure.

(iv) Road safety needs to be an integral part of project design, supervision, and operations--At the

time of appraisal, it was assumed that rehabilitation of pavements and the addition of shoulders would

improve road safety on project sections. Ex-post, however, it is clear that the number of traffic accidents

on project roads rose considerably both during and after construction. This was largely due to an increase

in both traffic and speeds, both of which were predictable at appraisal. While some key factors like

drivers' behavior and enforcement of traffic regulations fall outside of the implementing agencies

responsibility, more could have been done to improve road signage and markings, pedestrian crossings,

traffic-calming devices in densely populated areas, and enforcement of traffic management on construction

work-sites. To avoid undermining the benefits of road improvements, road safety must be given sufficient

visibility at all levels of project design, supervision, and operation.

9. Partner Comments

(a) Borrower/implementing agency:

9.1.1 The implementing agency submitted a final draft ICR for the project to the Bank in May 2002.

Because of its length, the full report has been made available in project files, with an unedited summary

presented here:

A. General

1. The Highway Rehabilitation Project (HRP 1) was identified in by IDA in September 1990, appraised

in April 1991 and re-appraised in February 1993. The Credit was negotiated in Washington DC on

October 4, 1993, approved by the Board on 10/26/93 and signed on November 1,1993. The Credit became

effective on June 13, 1994.

B. Project Description

2. Project Objectives: a) to is raise overall economic efficiency and support economic recovery by

upgrading critical segments of the highway network; b) to transfer modem road technology to the relevant

agencies through a relevant program of technical assistance and training; c) to strengthen highway

maintenance capacity by providing technical assistance and equipment; and d) to lay the groundwork for

longer term collaboration between VN and IDA in the transport sector.

3. The Project Components: a) rehabilitation of 430km of National Highway No. 1, construction of the

South Hanoi Development Corridor (SHDC), and elimination of Black Spots b) resettlement and

rehabilitation for PAPs; c) construction of new ferries, rehabilitation of existing ferries and improved ferry

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operations; d) provision of equipment for: design and quality control of road construction, roadmaintenance, environmental protection, road research, road data bank, and road traffic safety; e) stafftraining and technology transfer; and f) consultants services for design and supervision of construction ofroad woks

C. Attained the Obiectives

4. The project components have all been established to the anticipated standards. The impact inlowering transport costs is apparent from the travel times and road conditions. The TA components haveprovided up-to-date road and bridge design and construction standards, traffic safety procedures andguidelines, and road maintenance procedures and guidelines, which are being used by authorities,consultants and contractors. The experience with IDA projects in MOT has resulted in formulation andimplementation of further IDA projects (HRP2 and MTFP). Further risks and failing assumptionsrequiring major changes in project scope, budget and implementation schedule were recognized duringimplementation of the project: Conflicting interests in resettlement policies between GOV and IDA

* Time consuming GOV procedures for resettlement and land acquisition* An unrealistically tight RRAP implementation schedule was imposed by IDA for the start up and

implementation of RRAP* Insufficient time allowed in the implementation schedule for obtaining GOV comments and approvals

on project matters and documents* Major changes in pavement design* Resettlement and capacity problems in the 30 km Hanoi --Gau Gie section of Contract I* Major delays occurred in formulating various TA and training components

4.1 The attained major objectives of different components are as follows: a) rehabilitated 430km ofNational Highway No. I (Ha Noi - Vinh and HCM City - Can Tho) and associated resettlements ofhouseholds and businesses; b) constructed the South Hanoi Development Corridor (HSDC); c) eliminated alarge number of Black Spots; d) resettled and rehabilitated PAPs; e) constructed new ferries andrehabilitated existing ferries and improved feny operations at the Mekong River crossings at My Thuanand Can Tho; f) provided equipment for: design and quality control of road construction, road maintenance,environmental protection, road research, road data bank and road traffic safety; g) completed staff trainingand technology transfer and studies on: advisory and contract management services, technical assistance tothe RRMUs, development of roads and bridges standards, road safety, and retraining of road sectorprofessionals; improvement, institutional strengthening/reform and transfer of technology components thatinclude technical assistance and training for the RRMUs and training for highway personnel; and h)completed the studies to improve the sector and to select and prepare a future road investment program.

D. Project Formulation and Preparation

5. In1990, the WB investigated the possibility to assist VN in the rehabilitation of its road networkwhich had seriously deteriorated and threatened to hamper VN's economic recovery. In addition MOT, itsagencies, institutions and unions had highly qualified personnel, although suffering from a technologicalgap due to long isolation from intemational experience. Highway investment and maintenance wasunder-funded, and traffic-growth increasing.

6. IDA's project identification mission visited Hanoi in September 1990 and had discussions with theGoVN and MOT and identified the project. the project was appraised in April 1991 and re-appraised inFebruary 1993, negotiations were held in Washington on October 4, 1993, and the Credit was approved by

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the World Bank Board on October 26, 1993.

7. On November 1, 1993 the Govemment of the Socialist Republic of Viet Nam (GOV) entered into

a Development Credit Agreement with IDA on financing and implementation of the Highway Rehabilitation

Project. The project is the first WB supported project in VN, and thus new experience to VN as well as the

WB. The GOV established Highway No. ] Project Management Unit (PMU I) for the implementation of the

project.

8. The credit agreement amounts to SDR 112.200 million (USD 158.50 million equivalent). The

total project budget including GOV financing is USD 176.00 million.

E. Project Implementation

9. The 3 contracts for the rehabilitation of 2 sections of Highway No. I started in 1996 and ended In

1999. Contract I - Hanoi to Doc Xay (approximately 101 kin) was executed by China National Overseas

Engineering Corporation (COVEC), China. Contract 2 - Doc Xay to Vinh (about 180 km) was executed

by KUKDONG Engineering Corporation (KUKDONG), Korea. Contract 3 - Ho Chi Minh to Can Tho

(151 km) was executed by BES Engineering Corp. (BES), China-Taiwan. The volume of the completed

works consist of: (i) widening of the roadway embankments, carriageways and shoulders;

(ii) grade raising and embankment stabilization in flood prone areas; (iii) reinstatement of damaged

pavement; (iv) strengthening of the pavement with hot asphalt mix overlays; (v) rehabilitation orreplacement of small bridges (less than 1GOm in length); (vi) installation of new culverts and extension of

some existing culverts; (vii) construction of lined drainage ditches and other drainage structures; (viii)

widening of the roadway and provision of side drainage in several urban areas; (ix) construction of a 109 m

long, one-way tunnel at km 285+600 on Contract 1; (x) improved road safety and traffic operational

efficiency through the installation of road furniture that included traffic signs, road markings, guideposts

and guardrail.

10. The construction of the HSDC by-pass (new works) were executed under 2 contracts. Contract IA-1

- Phap Van to Tu Khoat intersections (approximately 5km) has been executed by the joint venture of

CIENCO 8 (VN) and Truong Son Corp (Vietnam). Contract IA-2 - Tu Khoat intersection to Thuong Tin

(11.6 kin) has been executed by CIENC 8 (VN) and CIENCO 1 (VN). The volume of completed works

includes: (i) earthworks for the roadway and shoulders; (ii) prefabricated vertical drains, sand blankets and

dewatering drainage systems to facilitate settlement in soft ground areas; (iii) crushed gravel base and

sub-base with asphalt concrete binder and wearing courses; (iv) construction of 3 single-span bridges 33 m

in length; (v) construction of pipe and box culverts, ditches and other drainage structures; (vi) construction

of farm road underpasses; (vii) installation of road furniture; (viii) extend the Van Dien Bridge to be a 2

span structure 66 m long; (ix) add 12 underpasses; (x) add 2 flyovers; (xi) overlay and widen 800 m of

Phap Van - Yen So Road to link the existing Highway No. I to the HSDC bypass; (xii) provide additional

reinforced concrete pipe cross and lateral culverts;(xiii) accelerate surcharge removal; (xiv) provide macadam paved access tracks on both sides of the

mainline; (xv) rehabilitate and pave several farm connector roads and lead into the underpasses; (xvi)

provide lighting systems at several location on the mainline; (xvii) rehabilitate and pave provincial

highways Nos. 70 and 71; (xviii) install guardrail in the medium strip, and (xix) install lighting system.

11. For the planned and actual outputs, the 2 projects have large deviations on the basis of a number of

additional works and some revisions approved by competent authorities in both projects. For example: in

Contract No. I additional works for design and construction of the (209m long - one lane ) Doc Xai tunnel;

in Contract No. 2 for design and construction of the drainage systems and the pavement widening in Than

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Hoa, Dien Chau, Vinh; design and construction of Khe Son Bridge; in Contract No. 3 for the design andthe construction of drainage systems and the pavement widening in An La and Binh Chanh, etc. These ledto changes between original values with adjusted values of contracts in HRP1.

12. Resettlement: The resettlement activities have taken place in 10 provinces/cities with compensation

cost of VND 307.5 billion. There are in all 22,521 PA-Ps, including 14,983 with loss of structures; 6,603

with loss of land and 10,473 with loss of crops and trees. The compensation costs VND 184 billion. 120public facilities were relocated and compensated by VND 47.9 billion. 23 resettlement sites for 1,492 PAPs

are developed with cost totals VND 42.1 billion. Training courses were participated by 517 seriouslyaffected persons, and cost VND 2.3 billion.

13. Specifically as follows:

Main road: 18,646 were compensated, including 14,722 with loss of structures; 3,131 with loss of land and

7,001 with loss of crops and trees. 100 public facilities were relocated. 19 resettlement sites are built for

1,348 PAPS. 347 PAPs participated in the training courses paid for by the Project.

HSDC: Contract IA of PMU. I covers 16.63km, running through 2 districts (Thanh Tri, Ha Noi City and

Thuong Tin, Ha Tay Province), including 4 and 6 communes respectively. There are about 3,875 PAPs,including (i) 261 affected by loss of residential land, (ii) by loss of 3,472 of agricultural land, and (iii) 142

by loss of business. Some 20 public facilities have been affected in HSCD. 4 resettlement sites were

developed for 144 relocated PAPs. Training courses were organized for 170 PAPs.

The above include some differences from the RAP as follows:

According to the RAP, there are 18,363 PAPs (including 7,263 to be relocated, 3,354 participate in the

training courses) but there are 22,521 in actual. The main reason is that the HSDC project was added into

the project. As estimated in RAP, 7,263 PAPs to be relocated. However, number of displaced PAPs is

2,176 because most PAPs re-organize on remaining land along the road to do business and do not want to

remove elsewhere. According to RAP, there are 18,363 displaced PAPs to participate in the training

courses. However, number of eligible PAPs reduced and number of PAPs opting for training courses

reduced too so the actual number participated in the training courses is 517 PAPs.

14. Improvement of Blackspots. As indicated above in 3. Above, total 80 blackspots are improvedunder HRPI. The improvement of these blackspots are carried out by the road management & repaircompanies that are in charge of management of the sections where blackspots are located. Design and

supervision of these blackspots improvement are carried out by local consultants under the review and

instruction by intemational consultants (Ross Silcock and Parkman). VRA initial report shows that trafficaccidents are most eliminated. On the other the local consultant are trained on blackspots identification andremoval measures including new techniques to tackle the blackspots (such as rumbling bar/band etc.) This

program for blackspots improvement has worked as an initiative and now is promoted that the GOV

annually allocates budget for blackspots improvement and VRA is planned to develop traffic safety audit

and apply compulsory application in highway sector.

15. Goods and Equipment

15.1 Because the requirements were not yet known, the appraisal team opted for a lump-sum of allocateda total amount of US$12.11 million for goods and equipment. The final cost estimate is US$10.32 million

subdivided as follows:

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15.2 Highway Maintenance Equipment: (not detailed in SAR, US$9.45 million, ICR) Theconsultants, Kampsax A/S (Denmark) carried out a survey of equipment requirements and capacity ofRRMU's and engineering firms. The final list has been accepted by the Bank and the Govemment ofVietnam. As specified in the Credit Agreement, the equipment was procured through ICB procedures intwo lots. Lot 1 (5 contracts totaling USD5.56 million) was procured immediately with Crediteffectiveness. Procurement of equipment under Lot 2 (4 contracts totaling US$3.89 million was delayed toawait feed-back on equipment procured under Lot 1. All the contracts for supplies of equipment aforesaidhave completed in time and delivery of the equipment to the end-users promptly completed. All the suppliedequipment are in full use and well contributes to the maintenance and management of the highway network.

The supplied equipment has improved much the capacity of the agencies where the equipment isdistributed. All procurement was completed prior to revised Credit closing date.

15.3 Equipment for PMUI Operations (not detail in SAR; US$0.25 million, ICR) The list ofequipment was prepared by consultants (Kampsax (Denmark)) and procured through Local Shoppingcomprising 5 contracts valued at US$75,900 and JPY13.26 million, and VND42.58 million

15.4 Equipment for "Technical Assistance & Transfer of Technology to VRA/RRMUs" (not detailedin SAR; US$0.16 million, ICR) The list of equipment procured was prepared by the consultant (Parkman(UK) and Nedeco (Netherlands) for the use of the VRA, RRMU2 and RRMC's. The equipment has beenprocured in Local Shopping procurement method as approved by the Bank, comprising 6 contracts valuedat US$143,600 and GBP12,800.

15.5 Equipment for the "Vietnam Road Safety Improvement Study" (not detailed in SAR; US$0.65million, ICR) The list was proposed by consultants (TRL and Ross Silcock (UK)) for use by the VRA,Traffic Police, National Traffic Safety Committee, RRMU2 and RRMC'. The equipment has beenprocured in Local Shopping procurement method as approved by the Bank, comprising 8 contracts valuedat US$548,700 and VND383.3 million.

15.6 All the contracts for supplies of equipment aforesaid have completed in time and delivery of theequipment to the end-users promptly completed. All the supplied equipment are in full use and wellcontributes to the maintenance and management of the highway network. The supplied equipment hasimproved much the capacity of the agencies where the equipment is distributed

16. Consultant Services for Construction Supervision:

16.1 For supervision of Highway No. I the original contract value is US$7,996,004 conducted by thejoint venture of Louis Berger International Inc. (LBGI) and Deleuw Cather intemational Ltd. (DCIL) withthe Vietnamese Research Institute of Transportation Science and Technology (RITST) as Sub-consultant.During implementation of the contract, 5 addenda were agreed and signed in the process of supervisingconstruction of HRPI with total adjusted value US$8,795,617. The supervision contract was completed inOctober 2000.

16.2 Based on economic analyses of alternative alignments and the fact that widening on the existingalignment would result in considerable resettlement, and alignrment east of the Hanoi South DevelopmentCorridor (HSDC) was selected as the location for limited access bypass. The LBGI and DCIL wasselected to carry out the detail engineering design of HSDC project. Total contract value was US$690,258.

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16.3 Using budget saving the international competitive bidding in HPRI and after consultant selecting

process, the joint Venture of Louis Berger Group, Inc. Deleuw Cater Intemational Ltd. and the Vietnam

Bridge and Road Centre (VIBROCE) has been carrying out the construction supervision of the HSDC

project. The contract had value of US$ 1,244,276 excluding taxes. Due to increasing the consultant's

nature of work as well as the request the develop both economic and financial feasibility analyses for most

of the added works, and the request to investigate the requirements for upgrading of local road. The two

addenda were approved and signed. Under these addenda, the value of the construction supervision

contract is increased to US$1,884,064.03.

17. Consultancy Services for Training and Studies. To reduce the technological gap which MOT, its

agencies, institutions and unions had due to long isolation from international experience the project

included a substantial amount advisory services, technical assistance, training and studies. All the above

contributed to the success of the projects and increased MOT's overall capabilities.

17.1 Advisory and Contract Management Services. Kampsax International A/S (Denmark) was

selected to perform the services and their team was mobilised on 23 January 1995. The services (50

man-months) were provided during the period January 1995 - December 1997 for Advisory Services and

followed by Contract Management Services. The services were 27.5 man-months and completed in 2000.

The services has implemented the following tasks to produce effective assistance to PMUI in all project

management aspects:

(a) general operational assistance to PMU1-technical and contract management aspects;

(b) general operational assistance to PMU1 -financial management aspects;(c) review operational structure of PMUI;(d) computerized system for contract administration;(e) computerized accounting system;(f) computerized system for monitoring and reporting progress; and

(g) workshops on contract management, procurement and financial subjects.

17.1.1 In addition, Kampsax A/S carried out a survey of equipment requirements and capacity of

RRMU's and engineering firms. The final list of equipment has been accepted by the Bank and the

Government of Vietnam.

17.2 Technical Assistance & Transfer of Technology to RRIMUs. The component has been procuredunder the Bank's rules on selection of consultant and the Contract for Technical Assistance in Road

Management to RRMU's is awarded to Parkman (UK) in association with Nedeco (Netherlands). The

contract was started in 1997 and completed in 2001. The consultant team consist of expatriate experts (68

MM) and local experts (212 MM). Due to the Bank's request to overview the preparation and

implementation of Additional Programme for Blackspots improvement the remaining budget (GBP 6,244

and USD 18,581) of the contract was paid for the said services. The services has been implemented in three

phases.

17.2.1 Phase I (1 5.25MM of expatriate experts and 16 MM of local experts) was focused on review of

the existing conditions and transfer of technology of road network management. The activities of this phase

are summarised in the following areas:

System Strategy; Mechanical and Facilities Assessment; Axle Loading;

Routine Maintenance; Periodic Maintenance; Pavement Design;

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Routine Bridge Maintenance; Bridge Management System; Road Safety;Pavement Failure Modes; Quality Assurance; Financial Management;Contracting Industry; Human Resource Development; Institutional Strengthening;

17.2.2 Phase 2 and 3 followed the Phase 1 and completed in Feb 2001 (53mm of expatriate expertsand 197 MM of local experts). The Phase 2/3 were focused on selection of computerised road and bridge

management softwares (RoSy and BridgeMan), installation of these software, as well as training staff ofthe VRA/RRMU's and RRMC's on operation of the systems. The required hardware was procured andsupplied to the agencies..

17.2.3 Both softwares RoSy and BridgeMan were installed in RRMU's 4 and 5 and 7 as expansion ofthe systems. Training on operation of these softwares was provided for staff of these agencies.

17.2.4 However, the project has not expanded to the Provincial Transport Authorities who are also incharge of some national highways.

17.3. Development of Roads and Bridges Standards

17.3.1 The contract for this service was awarded to Wilbur Smith Associates (USA) in association withDe Leuw Cather intemational ltd.(USA).The contract was started in 1999 and completed in June 2000.

The consultant team consist of expatriate (21 MM) and local experts (50 MM).

17.3.2 The services were carried out in 2 phases: Phase 1: Review and assessment of the currentVietnamese road and bridge standards; andPhase 2: Preparation of road and bridge standards by adapting AASHTO's standards and specifications toreflect conditions in Vietnam.

17.3.3 During the Phase 2, the following basic documents for the Development of Roads and Bridges

Standards were prepared:

1. Specification for Design of Flexible Pavements;2. Specification for Bridge Design;3. Specification for Road Design; and4. Construction Specifications;

17.3.4 These documents were reviewed through workshops attended by the international and local

experts and finally the three first documents were accepted by Ministry of Transport and issued fornationwide application. The last one "Construction Specifications" is not comprehensive and need to beimproved.

17.4 Vietnam Road Safety Improvement Study.

17.4.1 The contract for this service was awarded to Ross Silcock (UK) in association with TRL andCrown Agents (UK). The contract was started in 1997 and completed in March 2000. The consultant teamconsist of expatriate experts (24 MM).

17.4.2 The services were carried out in 2 phases: Phase 1: Review and assessment of the existingVietnamese road safety; and Phase 2. Preparation of manuals and training of relevant staff through

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implementation of pilot projects on road safety engineering including blackspot identification and measures

to improve the blackspots, traffic law enforcement, accident database including data fonnat and data

collection and data analyze, traffic audit. A Priority Action Plan was prepared. During Phase 2: a pilot

improvement project for 9 blackspots was prepared and implemented. The team was thus introduced to the

technology of identifying and improving the blackspots.

17.4.3 The study was highly appreciated by Vietnamese agencies.

17.5. Retraining of Road Sector Professionals

17.5.1 The contract for this service was awarded to Scott Wilson (UK) in association with TRL,

University of Notingham, Leeds Metropolitan University (UK) and Booz Allen & Hamilton (USA). The

contract was started in 2001 and completed in December 2001. The consultant team consist of expatriate

experts (3 9 @) and local experts (73 MM). The services comprise two parts of activities:

17.5.2 Preparation of training materials (including training notes, presentation slide etc.) was made by the

expatriate experts. The training materials were translated into Vietnamese and refined by local experts.

17.5.3 Delivery of courses was first taken in pilot by the expatriate experts. The local experts also

attended these courses to observe the expatriate experts and receive transfer of training technology.

Afterwards the local experts delivered the courses by themselves.

17.5.4 The trainees came from ministerial departments (including VRA and its sub-agencies, Department

for Inspection & Quality Control of Transport Works, Transport Strategy Institute, Research Institute for

Transport Science & Technology, etc.), construction corporations and companies, engineering consultant

companies Due to the internal procedures the services was delayed for nearly 8 months. However,

preparation of training was successfully completed and number of courses has been reduced to 15

courses.The total courses were delivered as follows:

Class Courses Trainees

Class A (for senior managers) 4 110

Class B (for highway engineers) 4 93

Class C (for bridge engineers) 4 67

Class D (for construction supervisors) 3 60

Total 15 330

F. Rehabilitation of Highway No. I and Construction of HSDC By-pass

18. Civil works

18.1 Highway No. 1: Notice to Commence works on the three civil works contracts 1, 2 and 3 were

given in January/February 1996. Works were completed and opened to traffic in September 1999;

18.2 HSDC By-pass: Notice to Commence works on the 2 civil works contracts IA-I and IA-2 were

given ln September 1998. Works were completed and opened to traffic in December 31. 2001.

18.3 After the Highway No. 1 and the HSDC by-pass were opened to traffic, the traffic congestion on

the roads has been relieved, and the driving times substantially shortened.

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18.4 Improvement of Blackspots - a total of 80 blackspots are improved under HRP1

19. Traffic Control and Tolling Systems: The operation and maintenance of the roads is managed bythe VRA through the RRMUs. The roads will be turned into toll roads, to be managed by the VRA.

G. Activities of Implementation Agency (PMU1)

20. The PMUI - In order to coordinate the preparation and later be responsible for the implementationhighway project along Highway No. 1 supported by ADB, IDA, the MOT established the Highway No. 1Project Management Unit (PMU1) in 1993. PMU1 was staffed by experienced management, engineers,accountants and support staff and was supported intermittently by international engineering, financial andcontract management advisors. PMUI 's function as executing agency included:

20.1 Project preparation: Liaison with GOV to secure comments and approval on technical, financialand organization aspects of project preparation including: Development Credit Agreements; projectformulation, organization and composition; procurement of consulting services, works and goods; closeliaison with IDA to expedite processing of credit agreement; coordination with other donors interested inthe development of VN's highway system; and preparation of the Resettlement Action Plan (RAP).

20.2 Project Implementation: Procure services and works for implementing rehabilitation schemes;perfonn function of "Employer" for highway rehabilitation contracts; implement RAP; resolve problemsbetween the contractors and the local authorities; manage to overcome delays and maintain budgets duringcontract implementation.

20.3 Other PMUl functions: Manage organizational and financial aspects of the training component;monitor resettlement activities; monitor, evaluate and report on physical progress of project; manageflow of project funds; assure adequate GOV budget allocations (counterpart funds); submitdisbursement request to IDA and obtain audit reports; facilitate and assist IDA supervision missions;prepare PCR within 4 months of closing of credit.

20.4 For the implementation of the project PMU1 has cooperated with the:

RRMUs for rehabilitation works and the Consultants for maintenance management and for theselection of maintenance equipment;

MOT's Department of Training for the training component;Provincial and District Peoples Committees for resettlement; andTraffic Police and VNRA and National Traffic Safety Committee for traffic safety.

20.5 Liaison with GOV and IDA:

GoV and IDA have been very helpful in solving problems when they were realised (frequent IDAmissions, and IDA provision of resettlement expertise during a critical period);GoV decrees to expedite intra-ministerial resettlement issues;PMUI liaised with success with IDA and GoV to clarify conflicting issues;

H. Environmental Impact Assessment

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I. Main Factors Affecting the Project

22. Further risks (in addition to those stated in the SAR) and failing assumptions requiring major

changes in project scope, budget and implementation schedule were recognized during implementation of

the project:

* Resettlement activities were unrealistically timed by IDA resettlement experts at the critical initiation

of the RRAP during 1995, resulting in frustration and further delays.* Time consuming GOV procedures for resettlement and land acquisition;* Compensation problems caused major delays in handover of sections to the contractor. However, the

cooperation between PM1 , the Engineer and the contractors essentially managed to overcome these

delays.* Progress reporting to IDA was irregular and late from the Engineer and PNMI making timely

identification by IDA/MOT difficult* Major delays in the start of the HSDC due late realization for the need of the project and delays in the

completion due to the necessary settlement time of the embankments on deep strata of soft soil, and

extra works* Further delay in resettlement completion caused further delay for HSDC contracts implementation.* Insufficient time allowed in the implementation schedule in general for obtaining GOV comments and

approvals on project matters and documents;* Major changes in pavement design due to the insufficient engineering design done ahead of the

construction.* Resettlement and capacity problems in the 30 km Hanoi -- Gau Gie section of Contract 1;

* Major delays occurred in formulating various TA and training components by GOV procedures;* The 7 months delay in completion of Contract 3, is due to extra works caused by weaker pavement that

envisaged during preparation;* Major changes to the project scope include:* the addition of services;* works and resettlement activities for the study;* preparation and implementation of the Hanoi South Development project (HSDC); and* additional program for Blackspot improvement.

23. Procurement

23.1 Once the final list of equipment, which was largely prepared with the assistance of consultants, hasbeen accepted by the Bank and GOV, all procurement whether ICB, NCB, Intemational and National

Shopping, has strictly followed the Bank's procedures.

23.2 The procurement of works and services has strictly followed the Bank's procedures.

J. Project Sustainability

24. Institutional Development and Training

a) the TA to RRMUs has strengthened highway maintenance capacity and capability;b) the traffic safety study has strengthened the ability to identify and implement

traffic safety measures and the enforcement by police of safe traffic operation.

25. Operation and Maintenance

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a) the maintenance equipment and the maintenance planning capabilities areexpected to ensure appropriate maintenance.

b) the traffic safety equipment and the traffic police training, establishment of safetyaudit and safety design procedures are expected to mitigate the adverse effect ofthe improved road condition on the accident rate.

26. Project Risks

Lack of funding for maintenance activities and for traffic safety improvement could endanger respectivelythe investment and operational safety.

K. Recommendations

27. Resettlement:

* MOT's resettlement staff increasingly to be given opportunity to use their experience gained inresettlement activities in future projects.

* Material compensation is unrealistic. For future projects, PAPs to be compensated in cash to meet theirdemands and to hasten resettlement progress.Consultation and communication with PAPs to be conducted to facilitate resettlement activities.Group resettlement sites in rural areas and small cities do not work. Individual resettlement proves veryhelpful, shorten the implementation progress and meet PAPs' demands.More time and works to be invested in restoration programs for better result.

28. Civil works:

VN consultants and contractors increasingly to be given opportunity to use the experience gained inroad technology (maintenance planning, construction, traffic safety, standards, etc.) in future projectsMonitoring targets for road condition, construction costs, traffic safety frequency and severity, roaddeterioration progression to be used to monitor the effect of this experienceIdentify road user charges to fund road and bridge maintenance activitiesImprove RRAP planning to include constraints relevant to land acquisition and resettlement in VN asexperienced during HRP IIdentify sections for hand-over to contractors of a suitable minimum length and with realistic accesspossibilitiesTight monitoring of RRAPPMUI to improve appropriate timely progress reporting through establishment of MIS

29. Institutional Strengthening:

More studies should be carried out to improve legal frame and sector management in highway sector,especially in road traffic safety and highway network operation.Institutional strengthening should be expanded to Provincial Transport Authorities. Under this firstproject only the VRA and RR1MU's are provided with the Computerised Road and Bridge ManagementSystem and relevant technology of highway network management while Provincial TransportAuthorities also involve management partly of national highway network and fully of provincialhighway network. The institutional strengthening may include supply of the software (Rosy andBridgeman) and the relevant equipment at first and training on operation of the system.

- 26 -

More highway maintenance equipment should be supplied for VRA and RRMU's. The nationalhighway network is fast developing in length and magnitude. VRA and RRMU's are thereforemanaging more and more national highways and required to be more capable of managing the highwaynetwork.

An earlier draft of the Bank's ICR was sent to the borrower for comment on June 4, 2002. Commentsreceived are attached here:

- 27 -

IEt GTAO THONG V#N TAI

coNG H6A xA HOT CTItT NGOA V[8T NAM

tVUNJSTlRY OF TRANSPORTs- 3t .fisrRMC OFVMMAM

go8 Trin &turngE)#n Tel :84A-4.- 3 7624A. Ni - Vtt Nx Fax' *84A-9.423291

Email idopt;-not4bn.vnn.vn

Date: 14 June200From: Nguyen Viet Tien

Vice MinisterMinitry of TrinsquvHlanoi, Vietnam

To: Mr. Jerry Lebo Fax: {202)-5Z2 3b73Sr. Tr.ispi t pciali;stTmansport UJnit, FAst Asia & Pacific Region

CC: Mr. Jitendra BajpaiSector DirectorTransport liai East Asia & Pacfic Rcgion

CC: Mr. Asldrew Steer -ax.934659S, 93.16597Counrny I-Inr.tor, Vii.niAMEast Mia & Pacifi< RoIoft

Subject: Vietnam: flighwav Rchabilitation Project (Credit 25493!%N)-[mplementatinn *'ompletnrn Repori

Dear Sir.

Ihhank you verv muchi for your letter dated. Jute (.4, 2002 regardiut the InplenmentntzonComnpeiton Repon for Highway Rebablliiauioa Projcwt-Crodit 2549-VN

We have studied the draft fmnl Inpletnentaion Complotion Report. We subeswntialIv agiee onthis draf fi mal rce J)rt for tbc abov mentioned pmojent. But, we bave some additional followingcomzents:

1. We woild l.ike to correct the p hrarapb -53.I: PMU I did not have tectuiecal cp3tcity

to as=ses te acai%itics of the conaertors nor to cvaluatc die judgcmcnt of tie cottsultant'. Wcthing that without tecbmca capacity of Ebt PMU lthe project can not be completed as it was.

2. We would Ulke to corTrea the pannAp 5.3.4 lxurnuse this dJoes Itot tAe into aczollmthe real efform tfie employor has made for the succeeri completion of tb. oontructs under they~L

3. We woruld like to adjwsst the paregapb 5.33 expocially for thce cntcuccs from "In

addfdon-..bavo been allr,wed" dtue to tfe fact that MnT/PMUi I never insmticrt tthe contretorsto use nominiated subscontractors.

- 28 -

3. We would like to adu tc p 53.3 cxpecially for thcscntcu s from Maddftton.-bave beeow aalowed"-due to the fact that MoT/PM1 ne6r insticted the contractonto use znominae d

-29 -

- 30 -

Annex 1. Key Performance Indicators/Log Frame Matrix

Outcome / Impact Indicators:

Indicator/Matrix Projected in last PSR Actual/Latest Estimate

(i) roughness index not greater than 2 5 Not Projected Estimated to be 4.0

m/km by 1999;(ii) reduced passenger tanffs (bus/ferry Not Projected Ferry Component was dropped from

D/km and %) between Ha Nor and Vinh, project-no data available

HCMC and Can Tho by at least 5% in realterms(iii) reduced freight tariffs (rice, petroleum Not Projected No data available-but likely achieved

and cement: D/ton-km and %) by at least 5%in real terms.(Iv) time savings through increased average Not Projected Achieved

travel speed between Ha Noi -Vinh, andHCMC-Can Tho to 65 km/h for cars and 50

km/h for buses and trucks,

(v) travel time by bus reduced by 10% in Not Projected Achieved1999

Output Indicators:

Indicator/Matrix Projected In last PSR Actual/Latest Estimate

End of project

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Annex 2. Project Costs and Financing

Project Cost by Component (in US$ million equivalent)Appraisal Actual/Latest Percentage ofEstimate Estimate Appraisal

Project Cost By Component US$ million US$ million

A. Road Rehabilitation 88.49 112.40 127

B.* Ferry Operations 8.50 16.01 188

C. Equipment 10.25 10.32 101

D. Technical Assistance 7.40 17.80 240

E. Training Program 2.00 1.84 92

F. Resettlement and Land Acquisition 32.80 28.30 86

Total Baseline Cost 149.44 186.67

Physical Contingencies 15.65 0.00

Price Contingencies 10.91

Total Project Costs 176.00 186.67

Total Financing Required 176.00 186.67

Project Costs by Procureme nt Arrangements (Appraisal Estimate) (US$ million equivalent)

Procurement MethodExpenditure Category ICB NCB Other2 N.B.F. Total Cost

1. Works 99.45 0.00 26.71 0.00 126.16

(87.24) (0.00) (26.71) (0.00) (113.95)

2. Goods 16.75 0.00 2.00 0.00 18.75

(15.96) (0.00) (1.90) (0.00) (17.86)

3. Services 0.00 0.00 26.69 0.00 26.69

(0.00) (0.00) (26.69) (0.00) (26.69)

4. Resettlement & Land 0.00 0.00 0.00 4.40 4.40

Acquisition (0.00) (0.00) (0.00) (0.00) (0.00)

5. Miscellaneous 0.00 0.00 0.00 0.00 0.00

(0.00) (0.00) (0.00) (0.00) (0.00)

Total 116.20 0.00 55.40 4.40 176.00

. (103.20) (0.00) (55.30) (0.00) (158.50)

Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent)

Procurement MethodExpenditure Category ICB 'NCB Other2 N.B.F. Total Cost

1. Works 109.59 0.00 2.81 0.00 112.40

(94.97) (0.00) (2.81) (0.00) (97.78)

2. Goods 10.32 0.00 0.00 0.00 10.32

(10.32) (0.00) (0.00) (0.00) (10.32)

3. Services 20.05 0.00 0.00 0.00 20.05

(20.05) (0.00) (0.00) (0.00) (20.05)

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4. Resettlement & Land 0.00 0.00 28.40 0.00 28.40

Acquisition (0.00) (0.00) (17.68) (0.00) (17.68)

5. Miscellaneous 0.00 0.00 0.00 0.00 0.00

(0.00) (0.00) (0.00) (0.00) (0.00)

Total 139.96 0.00 31.21 0.00 171.17

(125.34) (0.00) (20.49) (0.00) (145.83)

" Figures in parenthesis are the amounts to bc financed by the Bank Loan. All costs include contingencies

2' inCludes civil works and goods to be procured through national shopping, consulting services, services of contracted stafT

of the project management office, training, technical assistance services, and incremental operating costs related to (i)managing the project, and (n) re-lending project funds to local government units.

Project Financing by Component (in US$ million equivalent)

1 1 ~~~~~~~~~~~~~~~Percentage of AppraisalComponent Appraisal Estimate Actual/Latest Estimate P ai

Bank Govt. CoF. Bank Govt. CoF. Bank Govt. CoF.

A. Road Rehabilitation 84.99 11.96 0.00 97.78 14.62 0.00 115.0 122 2 0.0

B. Ferr-y Operations 8.59 0 55 0.00 0 00 1.10 14.91 0.0 200.0 0.0

C. Equipment 11.52 0.59 0.00 10.19 0.13 0 00 88.5 22.0 0.0

D. Techlincal Assistance 7.40 0 00 0.00 17 80 0.00 0 00 240.5 0.0 0.0

E. Training 2 36 () 00 0.00 1 84 0.00 0 00 78.0 0 0 0.0

F. Resettlement and Land 28 40 4 40 0.00 17.68 10.62 0.00 62.3 241 4 0.0

Acquisition

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Annex 3. Economic Costs and Benefits

1. The main source of data for ex-post project evaluation was the implementing agency and RRMUs.

Data came from condition surveys taken shortly after the end of project works and traffic counts from the

year 2001. No traffic data or condition surveys were available at the time of publication concerining

HSDC, so an economic evaluation was not possible for these investments.

2. At appraisal, an economic evaluation was conducted for each road segment to be constructed, with

the corresponding EIRRs varying from 20% to over 100%--and a weighted composite EIRR for the overall

highway component calculated to be 89%. The HSDC component was added later to the project and was

therefore not included in the appraisal economic evaluation. At completion, a economic evaluation was

undertaken for the highway component following as closely as possible the original appraisal procedures.

On that basis, the re-eatimated EIRR for each road segment was calculated to vary between 25% to 58%,

with an overall weighted EIRR for the highway component re-estimated to be 38%.

3. The main reasons for a lower were higher than expected unit costs, lower traffic growth, and higher

road roughness than expected at appraisal. Total investment costs for the rehabilitated sections of

Highway No. I increased from an estimate of US$109.9 million to US$113.6 million, including the costs of

construction, design and supervision, black spot improvements, resettlement and land acquisition for cach

of the three sections of road rehabilitated (i.e. Hanoi to Doc Xai, Doc Xai to Vinh and Ho Chi Minh City to

Can Tho). The main reason was higher than expected supervision and construction costs--and minor

additions to the blackspot program. Routine (annual) and periodic maintenance (after five years) costs

have been estimated at US$2000/km and US$5000/km respectively. There was also lower than expected

traffic growth on project roads. Between 1996 and 2001, daily traffic has increased between 70% and

120% along the rehabilitated sections of highway. While these rates of growth are large, they have not

quite matched the 15% annual growth rates that were at appraisal--but were a more modest 10% per

annum.

4. For the calculation of vehicle operating cost at completions, estimates were based on the

l-IDM-VOC calculations contained within a 1999 IT Transport report on the "Analysis of Vehicle

Operating Costs on Rural Roads". It was assumed that there would have been an annual roughness of IRI

8 in the without project case an average roughness of IRI 4 over the life of the with project scenario. This

is a conservative estimated, but realistic given the actual observations one year following rehabilitation in

the range of IRI 2.5 to 4. The principal benefits in this economic analysis come from savings in vehicle

operating costs from improved road conditions and from large increases in traffic volumes.

5. The analysis is also sensitive to type of vehicle mix at each of the count locations. At the time of

wnting there is no reliable data on the percentage of traffic for each vehicle type. The assumption has been

made that the vehicle mix is in line with actual vehicle numbers in 1996 as shown in Table 1:

Table 1: Project costs for Highway No. 1 (US$ millions l

Construction Supervision Land acquisition Total Average cost

costs costs and resettlement costs per km

Project 85.2 9.2 28.3 122.7 0.28

At Appraisal 77.1 3.9 32.8 113.8 0.26

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Table 2: Assumptions on vehicle mixVehicle type Assumed percentage of total traffic volume (%)Car 2.9Large Bus 0.75Small Bus 0.75Light truck/pickup 0.75Medium truck 1.14Large truck 0.41Cong Nong 2.1Motorcycle 91.2

6. In re-estimating the EIRR, a planning discount rate of 10% has been used. The EIRR is lower inall cases than at appraisal with the re-estimate along each segment ranging between 25% and 58% asshown in Table 2. A sensitivity analysis shows that a further reduction in VOC benefits of 25% would stillreturn acceptable EIRRs.

Table 3: Key economic dataRoad Length Investment Average Daily NPV EIRR (%)

(km) cost (US$/km) Traffic (US$m/km)

Hanoi - Doc 101 322,606 9,194 0.5 29XaiDoc Xai - Vinh 180 217,981 4,706 0.21 23

HCMC - Can 151 337,442 20,478 1.45 55T h o _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

All roads 432 284,000 11,276 0.71 38

7. Investment costs used for analysis included the costs of black spot improvements. However, duringthe implementation period of the project and beyond, there has been an appreciable increase in the rate oftraffic accidents along the rehabilitation sections of highway--resulting in both injury and death. At thistime there is no accurate information on the extent of the problem and therefore accident costs have notbeen included in this analysis. A recent Vietnam road safety study (March 2000) estimated that road trafficaccidents nationally were costing the economy US$200 million annually. Clearly, if the costs of road trafficaccidents were included in the above analysis, it would have a negative impact on the re-estimated EIRRs.

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Annex 4. Bank Inputs

(a) Missions:Stage of Project Cycle No. of Persons and Specialty Performance Rating

(e.g. 2 Economists, I FMS, etc.) Implementation Development

Month/Year Count Specialty Progress Objective

Identification/PreparationSeptember 5 - 26, 7 Principal Highway Engineer,1990 Transport Economist

Appraisal/NegotiationAugust 31 - 4 Principal Highway Engineer,September 25, Division Chief, consultant,1993 specialist

October 4, 1993

SupervisionNovember 3 - 20, 1 Principal Highway Engineer HS HS1993January 8 - 8 Task Manager, Highway HS SFebruary 5, 1994 Engineers (2), Resettlement

Specialists (2), Training Expert,Disbursement Officer, UrbanPlanner (consultant),Resettlement Specialist(consultant)

April 26 - May 31, 7 Task Manager, Highway HS S1994 Engineer, Resettlement

Specialist, Division Chief, SeniorCounsel, Resettlement Specialist(consultant), Urban Planner(consultant)

September 2 - 28, 4 Task Manager, Highway HS S1994 Engineer, Resettlement

Specialist, Urban Planner(consultant)

May 24 - June 17, 4 Task Manager, Resettlement S S1995 Specialist, Sr. Tranport

Engineer, Urban Planner(consultant)

September 11 - 5 Sr. Transport Engineer, Highway S SOctober 10, 1995 Engineer, Public Finance

Specialist, ResettlementSpecialist, Urban Planner(consultant)

December 6 - 18, 5 Highway Engineer, Infrastructure S S1995 Engineer, Sr. Transport

Engineer, Resettlement Specialist(consultant), Urban Planner(consultant)

January 18 - 9 Highway Engineer, Public S SFebruary 13, 1996 Finance Specialist, Tranposrt

- 36 -

Economist, Highway Engineer,Infrastructure Engineer, ResidentResettlement Advisors (2) , Sr.Transport Engineer, UrbanPlanner (consultant)

May 29 - June 13, 4 Highway Engineer, Infrastructure S S1996 Engineer, Resident Resettlement

Advisor, Sr. Transport Engineer

September 18 - 22 8 Highway Engineer, S Sand October 2 - I1, Environment Specialists (2),1996 Resettlement Specialists (2),

Infrastructure Engineer, ResidentResettlement Advisor, Sr.Transport Engineer

January 28 - 4 Sr. Transport Engineer, Highway S SFebruary 2, 1997 Engineer, Infrastructure

Engineer, Resident ResettlementAdvisor

July 7 - 21, 1997 2 Sr. Transport Engineer, S SOperations Officer

November 17 - 29, 4 Sr. Transport Engineer, Highway S S1997 Engineer, Resettlement

Specialist, Operations OfficerJune 25 - July 3, 4 Sr Transport Engineer, Sr. S s1998 Environmental Specialist,

Resettlement Specialist,Operations Officer

September 28 - 7 Sr. Transport Engineer, Sr. S SOctober 9, 1998 Environmental Specialist,

Resettlement Specialist,Transport Economists (2) , RoadSafety Specialist, OperationsOfficer

February 23 - 5 Sr. Transport Engineer, Sr. S SMarch 12, 1999 Environmental Specialist,

Resettlement Specialist, RoadSafety Specialist, OperationsOfficer

June 28 - July 3, 4 Sr. Transport Engineer, Sr. S S1999 Environmental Specialist,

Resettlement Specialist,Operations Officer

November I - 5, 4 Sr. Transport Engineer, S S1999 Procurement Specialist,

Resettlement Specialist,Operations Officer

April 17 - May 3, 5 Sr. Transport Engineer, Sr. S S2000 Environmental Specialist,

Resettlement Specialist,Operations Officers (2)

October 2 - 10, 16 - 5 Sr. Transport Engineer, S S21, 2000 Resettlement Specialist,

Operations Officers (3)March 15 - 24, 6 Sr. Transport Engineer, S S2001 Resettlement Specialists (2),

E4ineer, Economist, FinancialOperations Officer

ICRNovember 30 - 8 Sr. Transport Engineer, Sr. S S

December 14, Transport Specialist,2001 Resettlement Specialist, Sr.

Enviornmental Specialist,Operations Officer,Resettlement Officer, SocialDevelopment Specialist,Financial ManagementOfficer

(b) Staff:

Stage of Project Cycle Actual/Latest Estimate

No. Staff weeks US$ ('000)

Identification/Preparation 220.1 605.1

Appraisal/Negotiation 32.8 109.0

Supervision 371.4 1,480.8

ICR 10.1 32.2

Total 634.4 2,227.1

- 38 -

Annex 5. Ratings for Achievement of Objectives/Outputs of Components

(H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable)

Rating

O Macro policies O H O SU OM O N * NAN Sector Policies O H O SU *M O N O NAN Physical O H *SUOM O N O NAO Financial O H OSUOM O N * NA

N Institutional Development 0 H 0 SU 0 M 0 N 0 NAN Environmental O H OSUOM * N O NA

SocialN Poverty Reduction O H O SU O M O N * NA

N Gender O H OSUOM O N * NA0 Other (Please specify) O H OSUOM O N * NA

N Private sector development 0 H O SU O M 0 N 0 NAN Public sector management 0 H 0 SU 0 M 0 N 0 NAO Other (Please-specify) 0 H O SU O M 0 N 0 NA

- 39 -

Annex 6. Ratings of Bank and Borrower Performance

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory)

6 1 Bank performcnce Rating

FI Lending OHS OS OU OHU• Supervision OHS OS O U O HUM Overall OHS OS O u O HU

6.2 Borrower performance Rating

X Preparation O HS * S O u O HU2 Government implementation performance 0 HS 0 S 0 U 0 HU

z Irnplementation agency performance O HS * S 0 U O HU

Z Overall OHS Os O u O HU

- 40 -

Annex 7. List of Supporting Documents

* Analysis of Vehicle Operating Costs on Rural Roads, Revised Working Paper. DFID and MoT.October 1999.

* "Project Completion Report-HRPl", PMUI, February 2002.* World Bank Aide Memoires and Project Status Reports.

- 41 -

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Report No.: 23840Type: KCR