Document of The World Bank Report No. 14893-VN STAFF APPRAISAL REPORT VIET NAM POWER DEVELOPMENT PROJECT JANUARY 2, 1996 Infrastructure Operations Dlvision Country Department 1 East Asia and Pacific Region Currency Equivalents (As of June 1995) Currency Unit = Dong (D) US$1 = I 1, 100 Dl = US$.0001 Government and Year End January 1 to December 31 Weizhts and Measures Gwh - Gigawatt hour (109 watt hours) kgoe - kilograms of oil equivalent kWh - kilowatt - hour (1,000 watt-hours) MW - megawatt (1,000 kilowatts) mmb - million barrels MMBTU - Million British Thermal Units MMCFD - million cubic feet per day tcf - trillion cubic feet Abbreviations and Acronyms ADB - Asian Development Bank BTP - Bulk Transfer Price BOT - Build, Operate, Transfer CC - Combined Cycle DENR - Department of Environment and Natural Resources DSM - Demand Side Management EIA - Environmental Impact Assessment El - Energy Institute of Viet Nam EIRR - Economic Internal Rate of Return ESMAP - Energy Sector Management Assistance Program (UNDP-World Bank) EVN - Electricity of Viet Nam GSA - Gas Supply Agreement GT - Gas Turbine HV - High Voltage LRMC - Long-Run Marginal Cost LOLP - Loss of Load Probability MBPPCR - Management Board of the Power Projects for the Central Region MBPPNR - Management Board of the Power Projects for the Northern Region MBPPSR - Management Board of the Power Projects for the Southern Region MHI - Ministry of Heavy Industry MOE - Ministry of Energy MOF - Ministry of Finance MOI - Ministry of Industry MSTE - Ministry of Science, Technology and Environment NEAP - National Environmental Action Plan NPESD - National Plan for Environment and Sustainable Development NO, - Nitrogen Oxide OECD - Overseas Economic Cooperation Development OECF - Overseas Economic Cooperation Fund of Japan PAP - Project Affected Person PC - Power Company PVN - Petro Viet Nam PHMYI - Phu My Development, Phase-I PHMY2 - Phu My Development, Phase-2 PHMY2-1 - Phu My 2, Phase I PHMY2-2 - Phu My 2, Phase 2 PIDC - Power Investigation & Design Company PMBRMB - Phu My Ba Ria Management Board PSREP - Power Sector Rehabilitation & Expansion Project (Cr. No. 2724-VN) RAP - Resettlement Action Plan SCP - State Committee on Planning -l- Viet Nam Power Development Project Credit and Project Summary Borrower: The Socialist Republic of Viet Nam. Implementing Agencies: Electricity of Viet Nam (EVN). Beneficiaries: Electricity of Viet Nain (EVN). Poverty: Not applicable. Amount: SDR 121 million (US$180 million equivalent). Terns: Standard IDA terms with a maturity of 40 years. Commitment Fee: 0.50% on undisbursed credit balances, beginning 60 days after signing, less any waiver. Onlending Terms: The Credit will be on-lent to EVN in US dollars at a fixed interest rate of 6.9% per annum, with repayment over 20 years, including a grace period of five years, and foreign exchange risk being borne by EVN. Financing Plan: See para. 4.25. Economic Rate of Return: Phu My Power Component 17%. Transformer Additions 40%-43%. Map: IBRD No. 27314. Project ID No.: 42236. I -ii- Viet Nam Power Development Project Staff Appraisal Report Table of Contents Page No. Credit and Project Summary . ................................... i I. The Energy Sector A. Overview ......................................... 1 B. Domestic Energy Endowments ...............1........ I C. Energy Consumption ....................... 3 D. Istitutional Framework ....................... 4 E. Energy Pricing .................... ; F. Energy Conservation .................... 6 G. The Environmental Sector .................... 7 H. Energy Sector Strategy and Issues .......................... 8 II. The Power Sector A. Introduction .............................. 10 B. The Power Market .............................. 11 C. Generation and Transmission Facilities ............................. 12 D. Vietnam's Power Development Plan .............................. 13 E. Electricity Tariffs .............................. 15 F. Sector Strategy .............................. 17 HII. The Beneficary A. The Beneficiary .............................. 22 B. Organization and Mangement ............................... 22 C. Staff Development and Training .............................. 23 D. Operations and Management ............................... 24 E. Financial Management ...... ................................ 25 IV. The Project A. Objectives and Description . ............................. 29 B. Implementation .............................. 33 C. Environment and Resettlement ............................... 35 D. Cost Estimates .............................. 36 E. Financing Plan .............................. 36 F. Procurement .............................. 37 G. Disbursements .............................. 38 This report is based on the findings of an appraisal mission to Vietnam in Ocber 1995, comprising Damyes Mebta (Principal Power Engineer), Rebecca Sekse (Financial Analyst). Rait LAmech (Resunactu Specis, Manesh Hoskote (Private Power Specialist), Anil Malhotra (Energy Advisor), Bent Svensson (Gas Specialist), Las Lund (Rese/ -ment Specialist), Walter Schwermer (Project Advisor), Anthony Toft (Principal Counsel and Apinya Suebsaeng (Principal Invesunent Officer, IFC). Peer reviewers were Anil Malbota (ASTDR), Peter Cordukes (IENPD). and Piere Vieiulscaze (CFSPF). The project was cleared by Mr. Callisto E. Madavo, Director, EAI and Mr. JayaanarSbivakumr, Chief, EAIIN. Ms. Tberesa Gamulo (EA1 IN) provided substantial support in the prepration of dtis report. V. Finanial Aspects A. Past and Present Financial Performance ............................. 40 B. Financial Outlook ............ ..................... 44 C. Financing Plan ................................. 47 VI. Project Justification A. Economic Analysis ............. .................... 49 B. Risks .................................. 53 VII. Agreements Reached and Recommendation A. Agreements ................................. 54 B. Recommendation ............ ..................... 55 Annexes 1. Electricity Tariffs as of August 1, 1995 ............................... 56 2. Power Sector Policy Paper .................................. 58 3. Legislation Concerning the Creation of EVN .65 4. List of EVN Business Units .68 5. Addition of Transformer Capacity ................................... 69 6. Terms of Reference for Development of Phu My 2, Phase 2 .71 7. Terms of Reference for Master Plan for Rural Electrification .78 8. Terms of Reference for Legal and Regulatory Framework .84 9. Supervision Plan and Key Performance Indicators .90 10. Environmental Assessment Summary .93 11. Resettlement and Compensation Action Plan .104 12. Environnental Analysis on Installation of Transformers .121 13. Project Cost Estimates .122 14. Procurement Packages ........................................ 125 15. Disbursement Schedule .126 16. Projected Financial Statements of EVN .127 17. Assumptions in the Financial Statements .130 18. Economic Rate of Retum ....................................... 132 19. List of Documents in Project File .136 Charts 1. Organization Chart of EVN ..................................... 137 1. Implementation Schedule for Phu My Power Project .138 2. Implementation Schedule for Augmentation of Transforning Capacity .... ....... 139 3. Organization Chart for Phu My Ba Ria Management Board Organization for Construction and Implementation of Phu My 2-1 .140 4. Organization Chart for Management Boards of Southem, Northem and Central Power Project Organization for Construction and Implementation of Augmentation of high Voltage Transforming Capacity .141 Map IBRD No. 27314 Chapter I The Energy Sector A. Overview 1.1 Viet Nam began the transition from a centrally planned to a market economy in 1986, at the Sixth Congress of the Vietnamese Communist Party. This process was accelerated in 1989 with the devaluation of the Dong and the decontrolling of most prices. In 1993, Viet Nam obtained access to concessional international finance, while the US embargo was lifted in early 1994. All these events provided a stimulus to the economy, which responded with a rapid growth of about 8% per annum (p.a.) over 1992-1994. The gross domestic product (GDP) is forecast to continue growing at this rate for the rest of the decade. In the economy's continued transition and growth, the energy sector, which provides approximately one third of the nation's foreign exchange earnings, will play a vital role. Viet Nam's economic development will be closely linked to growth in energy supplies in general, and electricity in particular. 1.2 Per capita consumption of commercial energy in Viet Nam, at around 135 kilograms of oil equivalent (kgoe), is amongst the lowest in the world. In comparison, per capita consumption is 215 kgoe in the Philippines and 325 kgoe in Thailand. Biomass and fuelwood still account for about 60% of total primary energy consumption. Petroleum products made up 47% of primary commercial energy consumed in 1992, with coal (21%) and hydropower (32%) making up the balance. Commercial energy consumption has grown relatively quickly in the last two years, 10% in 1993 and 12.5% in 1994. However, over this period there has been a major shift in its composition, with a decline in the consumption of coal and an increase in the consumption of electricity (10% p.a.) and petroleum products (9.5% p.a.). 1.3 There are substantial regional differences in the country's energy endowments and the pattern of energy consumption. The North has an excess of hydro and coal-fired power resources, and surplus power is now being exported to the Center and the South over a 500 kV transmission line commissioned in 1994. This has to some extent eased the electricity shortages that these two regions had been suffering during recent dry seasons. The South, however, is geographically closer to the hydrocarbon resources that have so far been discovered, and has had a more reliable supply of petroleum products. B. Domestic Energy Endowments 1.4 Viet Nam has considerable indigenous primary energy potential, in the form of oil, gas, coal and hydro. These could not only meet projected national demand, but also allow additional exports of oil and coal. Viet Nam's energy potential is, however, largely unexplored and under-exploited. -2- The Oil and Gas Sector 1.5 Viet Nain's hydrocarbon potential is estimated to be in the order of 4,000 - 6,000 million barrels (mmb). Proven and probable reserves are currently estimnated at around 1,000 rnnb of oil and 3.6 trillion cubic feet (tcf) of gas, of which 2.3 tcf is associated gas. However, recent discoveries and further drilling in known fields indicate that these estimates would be upgraded. 1.6 By 1994, four offshore oil fields had been discovered: Bach Ho, Rong, Dai Hung and Du Block 15-2 of Rang Dong fields (discovered by JVPC of Japan). Production at the Bach Ho field, operated by VietSovPetro, is currently 7 million tons per annum (tpa). The Dai Hung field, operated by a consortium lead by BMP Petroleum of Australia, began production in October 1994 and its production in 1995 is estirated at 1.1 million tons. The Rong field contains an estimated 30-40 mmb, and its production in 1995 is estimated at about 1 million tons. The oil reservoir discovered by JVPC in the Rang Dong field contains two layers of product; tests show that in the upper layer the production could be about 4,000 barrels/day (bpd) and in the lower layer about 10,000 bpd. 1.7 Until recently, offshore gas development was linked to oil production. In 1994, a large unassociated natural gas field was discovered at Lan Tay-Lan Do on Block 6 by the Oil and Natural Gas Commission of India (ONGC), British Petroleum (BP) and Statoil of Norway, with an estimated reserve of about 2 tcf. Based on production forecasts, Bach Ho alone is not expected to be able to sustain a stable gas supply for 15-20 years of the quantum required by downstream users and will have to be supplemented with the production from Dai Hung and Rong. The production of the Lan Tay-Lan Do fields could be rather large and about 70 billion cubic feet (bcf) per annum could be available from 1998. A gas pipeline from Bach Ho to Ba Ria has already been completed; the pipeline would be extended to Phu My in 1997 and Thu Duc power station in 1998. 1.8 Viet Nam does not yet have an oil refinery, and the entire crude oil production is exported, the bulk of it to Japan. Refined petroleum products are currently imported to meet demand and are distributed by truck, rail and barge; there is currently only one pipeline for the transportation of petroleum products, from Quang Ninh port to the Hanoi area. There are plans to construct a refinery near Nhatrang by 1999, with a capacity of 6.5 million tons (mmt) (below national demand for oil products at this date). The refinery is expected to be financed by a consortium composed of Total (France), the Chinese Petroleum Corporation (Taiwan) and the China Investment and Development Company (China). The Coal Sector 1.9 Viet Nam's coal reserves are estimated at 2,345 mrnt of anthracite, 78 mrnt of semi- anthracite, 38 mmnt of coking coal, 96 mnmt of thermal coal and 306 mint of lignite. The commissioning of the 1,920 MW Hoa Binh hydro plant in the north has led to a drop in coal demand from the power sector, and coal mines are currently operating at around 50% capacity. This has pushed up costs of production by 20%. 1.10 While the production costs of Viet Nam coal are low, the ocean freight rates charged from Viet Nain ports are two to three times the freight costs of Australian coal to similar Asian and European destinations. These high costs are due to slow loading rates and smaller ship handling capacity at Vietnamese ports. Viet Namn exported just under a third of its total coal production of 3.9 mit in 1994. -3- 1.11 The export market is likely to be the key for future growth in the coal sector. The export of anthracite and the possible export of electricity to China from coal-fired stations in the north represent the major export markets for coal. However, the successful export of anthracite will require improved port facilities. If this is done, Viet Nam could be exporting as much as 2.3 mint by 2000 and 3.6 mmnt by 2010. Hydroelectric Resources 1.12 Substantial hydropower resources exist in Viet Nam, estimated to be in the region of 10,000 MW (3,000 MW in the south and 7,000 MW in the north). The Son La site in North Viet Nam is the largest of the schemes that could be developed, with a potential of 2,400 MW - 3,600 MW. In the Southern and Central regions there are 10 as yet undeveloped sites with an aggregate capacity of 2,400 MW, which could be developed before 2010. The largest of these is the Yali project in Central Viet Nam (700 MW), which is under construction and scheduled to begin operation in 1999. There is also the possibility of importing hydro power from Laos and Cambodia. Biomass and Fuelwood 1.13 Biomass and fuelwood currently make up over 60% of Viet Nam's primary energy consumption. There are substantial regional variations in the type of biomass used. In the northern rural areas, rice straws and husks represent the bulk of the fuel used, with wood representing the remainder. In the Mekong delta in the south, wood, along with coconut shells and woody residues make up the bulk of traditional fuels, while rice husks and straw play a minor role. The upland areas of the north, center and south are in general still heavily wooded, although deforestation is proceeding under pressure from clearing for agriculture, cutting for poles, logging and for fuelwood. As part of a policy to conserve the forests, the Government has developed an Improved Cooking Stoves Program, which would need to focus on areas currently having the greatest pressure on fuelwood resources. The Bank, under Energy Sector Management and Assistance Program (ESMAP), is providing technical assistance to the Energy Institute of Viet Nam (El) to help improve the efficiency of the productioD and consumption of traditional fuels. Specifically, the technical assistance will assist El in: (a) the design of a phased, costed conmnercialization plan for the program to distribute improved cookstoves; and (b) determining options for modernizing and improving the efficiency of the coal briquettes industry. C. Energy Consumption 1.14 Table 1.1 presents the primary commercial energy balance for Viet Nam for 1994, excluding traditional fuels (biomass and wood). Diesel fuel accounted for just under half of the petroleum products consumption in 1994, with gasoline and fuel oil accounting for 23 % and 24% of the total respectively. 4- Table 1.1: SUMMARY OF PRIMARY COMMERCIAL ENERGY BALANCE (1992) (thousand toe) Crude l | Petrol products [Natund Gas Coa Hydro Totd Production 7,839 7,839 3,099 3,030 13,967 Export -7,839 -7,839 -1,029 -8,868 Enpon ~~~~~~~ ~ ~~~4,477 4,477 Gross Supply . 4,477 2,046 3,030 9,552 1.15 In 1994 electricity accounted for 14%, petroleum products 66% and coal 20% of the end- use energy consumption. Commercial energy end-use consumption has grown at only 3 % per year over the last decade. However, this masks two distinct phases, from 1980-1985 when petroleum products consumption was held constant and electricity consumption increased by 8% per annum, and from 1985 onwards when there were rapid increases in the consumption of both petroleum products and electricity, at 9% and 10% p.a. respectively. Coal consumption has declined since 1987, due to a shift in fuel consumption patterns by households and industry. 1.16 Sector-wise, industry accounts for 42%, transport 37%, household/service 16% and agriculture 5% of end-use commnercial energy consumption. The bulk of energy used by the industrial sector is coal, although the usage of electricity is expected to rise rapidly with the modernization of the economy and the introduction of light industries. Around 50 % of household consumption is made up of petroleum products; this sector still consumed, in 1994, twice as much coal, in energy terms, as electricity. 1.17 Commercial energy consumption is expected to increase rapidly if the forecast GDP growth target in the order of 8% is realized. Over the last decade, due to the substitution of electricity and petroleum products for coal, there has been a slow growth in commercial energy consumption, relative to GDP growth. This situation is likely to change as the demand for electricity and petroleum products is expected to increase sharply over the next decade. This could yield an overall commercial energy consumption growth at as much as 10% - 12% p. a.. The composition of consumption, in terms of the relative importance of coal, gas, oil and electricity, will depend upon the availability and pricing of gas. The power sector is expected to be the main consumers of gas; it is unlikely that the household sector will account for a significant share of consumption, at least in the near future. D. Institutional Framework 1.18 The energy sector in Viet Nam is largely under government ownership and control. All authority within the sector is derived from the nation's senior Governmental and political body, the Council of Ministers, headed by the Prime Minister. Responsibility for planning, pricing and foreign investment across the whole economy, including the energy sector, falls under the jurisdiction of three State Committees which report to the Council of Ministers. The Government has in recent years undertaken a major restructuring of the institutional arrangements to provide greater autonomy to the managements of operating companies. There has also been an effort by the Government to rationalize functions of the Ministries in the energy sector, with a focus on sector policy and oversight rather than an active role in enterprise management. A State Enterprise Law was promulgated in April 1995, which effectively allows the Management Boards of state corporations to perform the ownership function on behalf of the State. This arrangement reduces the direct influence of the Ministries in sector operations. 1.19 The Oil and Gas Sector. The oil and gas sector is consolidated under Petrovietnam (PVN). a holding company for all enterprises in the sector. PVN was established in 1989 under the Ministry of Heavy Industry (MHI). In 1992, PVN was transferred directly under the Prime Minister. PVN has 14 companies which include many joint ventures with foreign companies. As a holding company, PVN negotiates and manages all production sharing contracts for the exploration of hydrocarbon resources. The companies under PVN include: Vietgas responsible for developing natural gas resources; and VietSovPetro, the Vietnamese-Russian joint venture responsible for the exploitation of the Bach Ho field. 1.20 The Power Sector. Until January 1995, the power sector was divided into three distinct regional systems each managed by an integrated power company. These companies were Power Company No.1 (PC 1) in the North, Power Company No.2 (PC2) in the South and Power Company No.3 (PC3) in the Center. In addition to these three utilities, there were companies for engineering, design, construction, manufacturing and associated service entities. A premier Institute of Energy provided much of the planning and analytical support to the sector. The entire sector was under the Ministry of Energy (MOE) which also controlled the coal sector. 1.21 In January 1995, the Government established a holding company, the Electricity of Viet Nam (EVN), for the entire power sector. The MOBE' was rationalized to provide only policy support to the sector. EVN is comprised of 34 separate business units. Five separate distribution companies have been created through this restructuring and have the status of "independent accounting" state enterprises under EVN. The remaining business units are 'dependent accounting" entities (para. 2.22). E. Energy Pricing 1.22 The Government's main objectives in setting energy prices are to ensure the financial viability of the energy entities, to generate surplus funds for the sector to finance a significant part of the investment program, to set prices at levels that discourage wasteful consumption and, via taxes, to raise revenues for the general budget. However, in the electricity sector in particular, fixed assets are undervalued and depreciation understated due to the lack of modem financial techniques. Therefore, the estimated financial costs, which tariffs are due to recover, do not reflect the current or future costs of production. ADB-funanced studies on tariffs and on accounting systems in the power sector would provide the bases for imnproving the sector's financial performance (paras. 2.17 and 3.19). 1.23 Wholesale prices for petroleum products are set by the Council of Ministers based upon the CIF cost, the exchange rate and anticipated inflation, and a 15% import tax for gasoline. Petrolimex, the national distribution agency, may then set retail prices within plus or minus 10% of the official wholesale price. However, the tax on gasoline may not be collected if Petrolimex's actual I/ The MOE was subsunied under the Ministry of Industry in October 1995. -6- purchase costs of gasoline are sufficiently above the levels anticipated. The level of taxes on petroleum products are low compared to neighboring countries like Thailand. Both, in the interest of revenue for the Govermnent and for energy conservation, there is a strong case for higher taxes on petroleum products. 1.24 Viet Nam has still to lay down prices for natural gas. The economic cost of gas from the earlier discovered fields is estimated to be in the region of US$1.3 per million BTU (MMBTU); however, further studies are required to establish the gas base, the costs for development and transport and the correct prices for this resource in various sectors of the economy. The price of gas to the power sector is currently being considered in the range of US$2.0 to 3.5 per MMBTU. 1.25 Export prices for coal are determined by market forces; the principal constraint facing Vietnamese exports is the relatively high cost of freight from Vietnamese ports. Domestic prices are largely set by market forces, subject to minimum sales prices which are set by the Coal Consumers Association. The minimum prices are set so that the companies producing coal break even, which means that coal is sold below full cost. Prices for coal to the power sector are determined through negotiation between the coal producers and the power companies; in doing this, they follow guidelines laid down by the State Committee on Planning (SCP). 1.26 Electricity tariffs were increased almost two-fold in 1992, with the average tariff reaching about 4.5 USc/kWh (para. 2.16). In August 1994, a tariff reform was implemented, with higher rates for consumption above minimum levels for residential consumers. In March 1995, tariffs were again raised by about 0.45 USc/kWh. Currently tariffs average just over 5 USc/kWh. Although the tariff schedule contains peak and off-peak tariffs for energy, the absence of time-of-day metering, even for the largest consumers, means that these tariffs cannot be implemented. The Government has indicated that it wishes to raise tariffs in a series of steps to 7 USekWh by 1999. This represents the Long Run Marginal Cost (LRMC) (actually, average incremental cost) of electricity estimnated in the Bank's Energy Sector Review. Allowing for modest inflation of the dollar of around 2.5% p.a. over this period, this means that by 1999 tariffs will be around 90% of LRMC, as compared to about 75% at present. F. Energy Conservation 1.27 The operation of the centrally planned economy, with energy prices substantially below cost, monopoly state enterprises with little incentive to increase efficiency and the absence of competitive markets did not encourage energy efficiency. The transition of the economy to a market system, with competition in product markets, and pricing energy products closer to their cost will go some way towards encouraging energy efficiency. There is therefore considerable scope for improvements in the efficiency of energy use in Viet Nam. The capital base of the manufacturing industry is expected to more than double in the next decade; this will provide opportunities for introducing energy efficiency technologies, provided the correct incentives are in place. Energy efficient household appliances will help to ease the burden that the rapid increase in household electricity demand is expected to place upon the system, especially in Hanoi and Ho Chi Minh City. Viet Nam's commercial energy-GDP relationship, given its current GDP of US$16 billion and energy consumption shown in Table 1.1, is US$2 of GDP per kgoe. In comparison, in 1992 Thailand had a -7- GDP of US$3.1 per kgoe and the Philippines US$2.7 per kgoe. The industrialization of the country and the switch to commercial fuels would increase energy consumption per unit of GDP, and it is important that conservation measures, such as Demand Side management (DSM) are introduced now to moderate the growth in the demand for energy. 1.28 The conservation of energy and end-use efficiency improvements will need to be an important component of Viet Nam's energy strategy. Efficiency gains can be expected to be derived from both the supply and demand sides. In the power sector, the older thermal plants consume at least 20% more fuel per kWh of electricity produced than plants in other East Asian countries. Transmission and distribution losses are in the range of 20% or more, around two to three times the level in the OECD. The distribution system rehabilitation components of the Power Sector Rehabilitation and Expansion Project (PSREP) (Credit No. 2724-VN), the strengthening of transformer substations under this project, and other rehabilitation and reinforcement projects being undertaken by EVN will contribute substantially towards reduction of the level of losses. 1.29 Although there is a growing awareness within Viet Nam of the utility of energy efficiency measures, there has not so far been any systematic evaluation of DSM opportunities. A Demand Side Management study for Viet Nam has been commissioned under PSREP (Credit No. 2724-VN). G. The Environmental Sector 1.30 In 1991, Viet Nam adopted the National Plan for Environment and Sustainable Development: A Framework for Action (NPESD). This provides a comprehensive framnework for establishing, over the next 10 years, the necessary policies, institutions, laws, regulations and programs for addressing environmental issues. In the energy sector, it acknowledges that programs will be required for environmental impact assessments (EIAs), watershed management, oil spill contingency planning, air, water and soil pollution, and energy demand management through conservation programs or legislation such as fuel efficiency standards for vehicles. The Government is now preparing a National Enviromnental Action Plan (NEAP), building on the Bank's report entitled Environmental Program and Policy Priorities (Report No. 13200-VN), addressing issues related to land use and management, reforestation and forest/watershed protection, wetlands, coastal and forest protection, urban and industrial pollution and policy, institutional and regulatory issues. 1.31 Viet Nam has also begun to establish the legal and institutional framework required to implement environmental management programs. The Department of Environment and Natural Resources (DENR) is the Government's main environmental arm. This department is part of the Ministry of Science, Technology and Environment (MSTE) which was established in October 1992. The Law on the Enviromnent identifies key environmental management functions, but does not define the role and responsibilities of DENR at an operational level. DENR's capacity to perform these functions remains limited. Within the line agencies, DepaJtments of Science and Technology have been instructed to add environmental protection to their mandates. Therefore, the MOE has an environmental management role; however, in common with the other line agencies, it lacks the staff with specialized training and experience, and does not yet have the capacity to develop and implement sector-specific environmental guidelines. -8- 1.32 A Law on Protection of Environment was enacted in December 1993. Amongst other provisions it: (a) identifies in general terms the responsibilities of the state, organizations and individuals to prevent and remedy enviromnental deterioration and pollution; (b) provides for the development of environmental standards and submission of environmental impact reports on new and existing facilities and provides for responsible parties to pay compensation for environmental damage; and (c) calls for civil and criminal penalties for violations. Several other legal initiatives relevant to the energy sector have been completed or are being developed. These include the Act of Forestry Protection and Development (enacted by the National Assembly on August 18, 1991), a key provision of which requires compensation if environmental disruption occurs, ar.d designates certain areas as protected forests for hydroelectric watersheds; and the Regulation on Environmental Protection in Marine Petroleum Operation (enacted September 5, 1990). Waste water guidelines and regulations, and a Mining Law are currently being enacted. However, the Law does not make clear, for example, who shall be responsible for preparing the ElAs, or which institutions will have the mandate of reviewing them. 1.33 It is likely that the next two years (1996-1997) would concentrate on the promulgation of environmental umbrella legislation, institutional capacity building and drafting of specific regulations on pollution and environmental management. The implementation and enforcement of selected regulations in high priority areas will follow on from this. 1.34 In the conunercial energy sector, high priority areas are watershed management (affecting hydroelectric resources) and particulate emissions from thermal plant, and surface disruption by coal mines. Water pollution from site-specific energy industry investments, and air pollutior. from sulphur emissions and NO/VOC emissions may have a relatively low priority, yet it is expected that they will be addressed in the 1997-2001 time horizon primnarily because these problems can be handled using relatively straightforward control technologies. H. Energy Sector Strategy and lssues 1.35 In its wider program to reform the economy, the Government is moving from price liberalization measures, which have so far been very successful, to more difficult institutional reforms, such as restructuring and privatizing state-owned businesses. The Government has restructured the power sector by creating a holding company, EVN, and organizationally separating the core power sector operations of generation, transmission, and distribution. This operational separation in itself represents a fairly significant step in the right direction. While the structure will still have a single authority over the entire sector, the Government would gradually need to sequence further reforms especially in the development of a legal and regulatory framework that would allow for strong regulatory oversight and greater autonomy and financial responsibility at the enterprise level. This careful pacing and sequencing of reforms is particularly important for the power sector which has strong monopolistic characteristics. The studies initiated under PSREP and follow-up studies under the proposed project (para. 2.26) will not only assist the Government in making these decisions and in implementing them but will also allow the achievement of broader objectives of introducing mnarket- oriented mechanisms in all sectors of the economy. -9- 1.36 The demands placed upon the power sector by the pace of economic growth, in particular in the cities of Ho Chi Minh and Hanoi, are likely to be severe. This makes the reform of the sector to introduce efficient and flexible management essential. It will also require the mobilization of financial resources, internally through changes in tariffs and taxes and in the longer-term externally through foreign direct equity investment and bilateral/multilateral aid and the implementation of an integrated, least-cost development program for the energy sector. This will require that the MOE maintain iis policy making capacity to provide guidance to the sector as a whole. 1.37 As far as pricing of energy products is concerned, there are two issues which are of imnportance. The level of duties and taxes on petroleum products is low compared with successful neighboring economies such as Korea, Malaysia and Thailand. There is considerable scope for the Government to raise additional revenue for the budget by raising duties, in particular on gasoline and diesel fuel. This would also have the benefit of dampening the increase in demand for these products. Secondly, the price of electricity is substantially below LRMC. The Government's indication that tariffs will be raised to 7 USc/kWh by 1999 is, therefore, welcome. It is important that electricity is correctly priced to send the right price signals to consumers. The introduction of metering to support time of day tariffs, at least for the largest consumers, and the possible application of seasonal tariffs, will help to achieve this objective. 1.38 In the coal sector, the Govemment agencies should move away from operations and focus more on policy implementation, research and regulation for safety and pollution control. The success of exports will depend upon the development of modem handling facilities at ports. 1.39 There is already extensive private sector involvement in the petroleum sector, with the operation by foreign consortia of oil fields within Viet Nam's territorial waters, and the likelihood of private sector financing for the refinery. The Government's role within this sector should continue to be at a regulatory and policy-making level. As far as the development of gas resources is concerned, the policy should be to ensure correct pricing of gas, and ensuring availability of gas to sectors where it has the highest value; predominantly in the power sector. Chapter II The Power Sector A. Introduction 2.1 Viet Nam's power sector is divided into three distinct regional systems. Till recently, these systems were managed by PC1 in the North, PC2 in the South and PC3 in the Center. With the creation of EVN in January 1995, the operations in the power sector are managed by the following entities: North Power Company No. 1 (PC1) Power generation below 30 MW, regional load dispatch and power transmission and distribution at or below 35 kV in the North, except Hanoi. Power Company of Hanoi Power distribution in Hanoi. Transmission Company 1 Power transmission above 35 kV in the North. Transmission Company 4 National load dispatch center and 500 kV transmission. Five Generation Units Pha Lai, Uong Bi, Ninh Binh, Hoa Binh, Thac Ba. South Power Company No. 2 (PC2) Power generation below 30 MW, regional load dispatch and power transmission and distribution at or below 35 kV in the South, except HCMC. Power Company of HCMC Power distribution in HCMC. Transmission Company 2 Power transmission above 35 kV in the South. Six Generation Units Thu Duc, Tra Noc, Ba Ria, Tri An, Thac Mo, Da Nhim Center Power Company No. 3 (PC3) Power generation below 30 MW, regional load dispatch and power transmission and distribution at or below 35 kV in the South. Transmission Company 2 Power transmission above 35 kV in the Center. One Generation Company Vinh Son 2.2 The North has an installed capacity of about 2,673 MW and a peak demand of about 1,100 MW. The South has an installed capacity of about 1,495 MW and a peak demand of about 1,055 MW. The Center has an installed capacity of about 250 MW and a peak demand of about 190 MW. The available generating capacities are well below installed capacities due to poor condition of the thermal plants. 2.3 The North has abundant coal and hydropower resources; in contrast, the South and Center regions face acute generation deficiencies and require substantial additions of capacity over the near -11- future. Fuel options for power generation in the South include: (a) off-shore natural gas; (b) coal, imported either from the North or fr,n regional countries; and (c) hydropower, both from the South and from the two other regions. In C; .tral Viet Nam, the demands are low and the region has a large hydropower potential which can be tapped for the benefit of both the Center and the South. A 500 kV line linking the three regions was completed by the Government in 1994; this facilitates interregional power transfers and an integrated development of the national grid. B. The Power Market The Growth of Electricity Demand in Viet Nam 2.4 Viet Nam has seen a very rapid growth in the demand for electricity over the last decade, averaging 9.9% p.a. over the period 1981-1993. This is conimensurate with GDP growth of around 79% over the same period. Sales of electricity in 1994, at just over 9,200 Gwh, were treble the levels of 1981. Growth was slowest in PC1, although it still averaged 8.2% p.a., with sales in PC2 and PC3 growing at 10.0% p.a. and 12.6% p.a., respectively. There was a slowdown in the growth of sales in PC2 and PC3 in 1990-1992, due to chronic shortages in electricity supply; since these have eased, growth has accelerated again. 2.5 Table 2.1 compares sales, losses, and peak demand for the three systems for 1994. For the country as a whole, average total losses were about 21 % of generation of which non-technical losses were about 3%. Table 2.1: POWER COMPANY STATISTICS FOR 1994 Region Sales Gwi Leases (technicad plus Peak Ded MW North 5,445 21.67 1.100 li South 4,456 18.93 1.055 Center 785 29.20 190 2.6 Sectorally, industry represents the largest consumer (sales of 3,893 Gwh in 1994), with sales to residential consuners (3,236 Gwh) comparable in size. Both agriculture (1,420 Gwh) and non- industrial sales (696 Gwh), the latter representing transport and service industries, are still relatively small. Sales to residential consumers grew at 12.6% p.a. over the period 1985-1994, nearly double the growth rate of sales to industry (which grew at 6.8%). Forecasts of Electricity Demand 2.7 Since the time of the Bank's Energy Sector Policy and Investrnent Review (Report No. 10842-VN, 1993), the actual demand for electricity in Viet Nam has been growing at a much more rapid rate than forecast. The Energy Institute has been periodically updating its load forecasts based on economic data. Its sales forecast of August 1994 was based on Base Case average demand growth rate over 1995-2000 of: (a) 12.9% for the whole country; (b) 11.5% for the North; (c) 14.2% for the -12- South; and (d) 12.8% for the Center. This has become outdated and the Energy Institute's sales forecast of January 1995 is based on Base Case average demand growth rates over 1995-2000 of: (a) 13.7% for the whole country; (b) 12.3% for the North; (c) 14.9% for the South; and (d) 13.9% for the Center. The Energy Institute's sales forecasts for each of the regions are presented in Table 2.2. These represent a Base Case and a High Case scenario; the Base Case assumes an average increase of 13.7% p.a. for the country as a whole until the year 2000, the High Case assumes an average increasc of around 14.6% p.a. over the same period. After this period, lower growths of around 11.3 to 11.7% are assumed. With the substantial increase in economic activity in the country and increasing per capita consumption in the urban areas due to increases in the income levels, Energy Institute's High Case demand forecast is considered to be a reasonable assumption for power planning in the near to medium term. Table 2.2: ENERGY INSTITUTE ELECTRICITY SALES FORECASTS (Gwh) /a Base High l Total | North | South Center Total North South Center [ 1995 1 10,478 1 4,440 _ 5,195 _ 843 _ 10,676 _ 4,575_ 5,254 847 1996 11,798 5,233 5,612 953 12,075 5,354 5,747 974 1997 13,426 5,804 6,536 1,086 13,856 5,980 6,757 1,119 1998 15,301 6,440 7,621 1,240 15,925 6,684 7,953 1,288 1999 17,763 7,452 8,896 1,415 18,329 7,474 9,372 1,483 2000 19,961 7,948 10,395 1,618 21,128 8,362 11,056 1,710 2005 34,121 12,788 18,615 2,718 36,847 13,825 20,011 3,011 2010 60,154 21,281 34,249 4,624 66,168 23,763 39,118 5,287 Average Percentage Per Annum Increase 1995-2000 13 .71 12.3 14.9 13.91 14.6 12.8 16.0J 15.0 2000-2005 1131 10.1 12.3 10.9 11.7 10.6 12.61 12.0 2005-2010 1 12.0 1 10.7 13.0 11.2 12.4 11.4 14.31 11.9 La January, 1995. C. Generation and Transmission Facilities Generation 2.8 The total installed generating capacity in the country is approximately 4,480 MW (2,673 MW in the North and 1,495 MW in the South). In the northern region, the completion of the Hoa Binh hydroelectric plant (1,920 MW and 8,400 Gwh p.a.) has created substantial excess capacity; the three large coal-fired steam generation plants in the region (Pha Lai, Nin Binh and Uong Bi) are operating at well below 50% of their rated capacities. These plants are of Soviet and Chinese origin, and are located near anthracite mines. All these plants are in relatively poor condition, due to the quality of the design, dearth of spare parts, inadequate control systems and poor mnaintenance. Peak demand in the North, at 1,000 MW, is well below installed capacity, although allowance has to be made for exports to the South and the Center of around 400 MW, and the low availability on some of the older thermal units. -13- 2.9 The commissioning of the 500 kV North-South-Center link has created a single Vietnamese power grid and has for the time being ended the chronic energy shortages that the South and Center had been suffering. The South anticipates importing 33 % of its power requirements through the link in 1995. Unlike the North, the South and Center have suffered from a deficit in generation, shortages in power being especially critical during the dry season when hydropower energy is low. The major hydro sites in this region are Tri An (400 MW), Vinh Son (66 MW) and Thac Mo (150 MW). There are two principal fuel-oil fired thermal generating stations in the South (Thu Duc, 165 MW, and Can Tho, 33 MW). New combustion turbines have been added to both Thu Duc (2 x 37.5 MW) and Ba Ria (5 x 37.5 MW). A gas pipeline, from the Bach Ho field has been commissioned to the Ba Ria site in niid-1995 (and will be extended to Phu My by 1997 and Thu Duc by 1998), allowing these turbines to be operated on gas. Despite these additions, there would be insufficient generating capacity to provide a firm backup to the 500 kV link (which is single circuit) and therefore the South and Center can expect to suffer from at least temporary power shortages when the link is inoperative. Transmission and Distribution 2.10 Viet Nam's transmission and distribution systems are based on multifarious standards and are old and unreliable, with overall losses of about 20% (see Table 2.1). There is an urgent need to rehabilitate and strengthen the networks to reduce technical losses, improve reliability and thereby reduce outages, and serve the forecast increases in demand. While PSREP (Credit No. 2724-VN) provides for extensive reinforcement of the medium voltage distribution networks, the proposed project would cover strengthening of the high voltage sub-station capacity. 2.11 As far as EHV and HV transmission are concemed, the commissioning of the 500 kV link (1,440 lkm long) represents the first step in the construction of a national grid. Prior to this, there were two separate interconnected grids in the country, operating at 220/230 kV, 110 kV and 66 kV, with a total circuit length of about 5,500 km. The development of a national link underscores the need for modem national and regional dispatch centers and communications systems which are being covered under PSREP (Credit No. 2724-VN). D. Viet Nam's Power Development Plan 2.12 The Govermnent's objectives for the development of the power sector are: (a) exploitation of the vast hydropower potential of the country; (b) improvement of supply side efficiency through reduction of losses in energy conversion, transmission and distribution; (c) promotion of foreign investments; and (d) increasing the availability of electricity in rural areas. In line with these objectives, the Energy Institute has developed a generation expansion schedule, using the ENPEP model. 2.13 Under this plan there will be a substantial addition of hydro capacity (Vinh Song, Song Hinh, Yali, Dai Ninh, Pley Krong and Son La) and of gas-fired combined cycle capacity (Ba Ria, Phu My and others). There is also expected to be development of coal-fired capacity in the north, at Pha Lai and, later, at Quang Ninh. A total of 2,987 MW is expected to be added by 2,000 and 5,995 MW by 2005. The plan was developed using the High Case demand forecast (see Table 2.2), and a planning criteria of Loss of Load Probability (LOLP) of about 3 days per year. -14- 2.14 Associated with this, it is expected that about 2,832 km of 220 kV lines, 3,259 km of 110 kV lines, 7,686 MVA of 220 kV transformer capacity and 6,815 MVA of 110 kV transformer capacity will be added to the system in the period 1995-2000. Additional capacity on the 500 kV interconnector is expected to coincide with the commissioning of the Yali project. The development of the large Son La scheme (2,400 MW), which is planned for the period after 2005, would require a further upgrading of the link. Table 2.3: GENERATION EXPANSION PLAN FOR VIET NAM /a Yr Name of Projects Capacity MW Incresed by MW 1995 Thac Mo Hydro 150 150 1996 Ba Ria GT 35 35 1997 Ba Ria STs 2x56 312 Phu My 2-1 GTs 2xlO0 1998 Song Hinh Hydro 70 170 Phu My 2-1 ST 100 Pha Lai 2 #1 (Coal) 1x300 1999 Phu My 2-2 CC 1x300 960 Yaly # 1,2 Hydro 2xl80 2000 Pha Lai 2 # I (Coal) 1x300 - Phu My I Gas 3x200 1,260 Yaly # 3,4 Hydro 2xl8O 2001 Ham Thuan Hydro 300 300 2002 Da Mi Hydro 172 Se San 3 Hydro 220 777 Buon Kuop Hydro 85 Quang Ninh # I (coal) 300 2003 Dai Ninh Hydro 300 600 CC 300 2004 Thuong Kon Tumn Hydro 260 560 CC 300 2005 Ban Mai Hydro 350 Plei Krong Hydro 120 770 CC 300 2006 Quang Ninh # 2 (Coal) 300 600 Nhiet Dien Mien Tay # I (thermal) 300 2007 Son A # 1,2 Hydro 2x300 Mien Tay # 2 (thermal) 1x300 1,100 GTs 2xl00 2008 Son La #3,4 hydro 2x300 Mien Tay # 3 thermal 300 1,000 GT 100 2009 Son La # 5,6 Hydro 2x300 Mien Nam # I (thernal) 300 1,000 GT 100__ _ __ _ __ _ _ 2010 Son La # 7,8 hydro 2x300 Mien Nam 1 2.5 thernal WOO0 1,400 GTs 2x100 /a Source - Energy Institute. ST = Steam Turbine; GT = Gas Turbine; CC = Combine Cycle Ratings and sequencing of Phu My power plants are under review. -15- 2.15 Table 2.4 shows forecasts of the regional power balance, for selected years (the most important dimension as far as medium term planning for the power sector is concemed). It shows that, countrywise, the reserve margin would dimninish from 57% in 1995 to about 29% in 2005, a level that would be considered reasonable. The table also shows the extremely precarious condition of the power supply system for the South over the 1995-1997 period, underscoring the need for urgent capacity additions. After 1997, the situation would progressively improve with the rapid commissioning of gas fired capacity in the early years and the coming on line of hydro capacity in the outer years. Agreement was reached at negotiations that the Govemment would, on an annual basis, continue to fumish to IDA for its review and comments: (a) a review of the implementation of its power development program during the preceding 12 months; and (b) its proposed implementation program for the next five years, and thereafter carry out the power development program taking into account IDA's comments. Table 2.4: POWER BALANCE [ 1 1995 1997 2000 2005 Viet Nam Power System (1) Available Capacity (MW) 4,119 4,666 6,731 9,658 (2) Peak Demand (MW) 2,613 3,349 4,899 7,448 (3) Margin ((1)-(2)) (MW) 1,506 1,317 1,832 2,210 Margin as % Peak Denmand ((3)/(2)) 57% 39% 37% 29% North and Central Coastal Area (4) Available Capacity (MW) 2,W804 2,804 3,454 4.344 (5) Peak Demand (MW) 1,333 1,676 2,370 3,476 (6) Margin ((4)-(5)) (MW) 1,417 1,128 1,084 868 Margin as % Peak Demand ((6)1(5)) 110% 67% 45% 25% South and Central Higb Land Area (7) Available Capacity (MW) 1,315 ?,862 3,277 5,314 (8) Peak Demand (MW) 1,280 1,673 2,541 4,122 (9) Margin ((7)-(8)) (MW) 35 189 736 1,192 Margin as % Peak Demand ((9)/(8)) 3% 11% 29% 29% E. Electricity Tariffs 2.16 Existing tariff levels are provided in Annex 1. Tariffs were rationalized and raised almost two-fold in March 1992; higher charges during the dry season were introduced for consumption above set levels, and special tariffs were introduced for foreigners and partially or wholly owned foreign -16- companies. Further upward revisions in the tariffs were implemented in August 1994 and May 1995; currently the average tariff is about D580/kWh, or about 5.3 USc/kWh. The LRMC of electricity was estimated in 1993 to be in the range of 7 USc/kWh and the Government has expressed its commitment to increasing tariffs to this level by 1999. Assuming relatively low levels of inflation (around 2.5%) in US$ terms, by 1999 tariffs will be approximately 90% of LRMC, as compared to about 75% at present. 2.17 Tariffs are currently uniform across Viet Nam. Industrial consumers face a tariff schedule that has average, peak and off-peak tariffs, with peak rates being well over double the off-peak rates. Unfortunately, few, if any, of these customers have time of day metering, and therefore this tariff schedule cannot be applied. The introduction of these meters, for appropriate consumers, will be an important step in establishing a cost reflective tariff that will provide incentives for conservation of energy at peak times. The ADB is funding a tariff study to assist in the development of an appropriate tariff policy, based on appropriate financial and social objectives. This study would address the metering issues. 2.18 The present tariff structure broadly reflects the differences in costs associated with voltage level and type of consumer. Therefore, charges to industrial consumers are highest for those supplied at 6 kV or below, and lowest for those supplied at voltages above 20 kV. There is a subsidy element in the Residential category; consumers face a rising block tariff. The tariffs to commercial customers are substantially above anything paid by other consumers. It is likely that residential consumers will be contributing proportionately more to the peak than conmmercial consumers do, suggesting that this difference is not cost reflective. In addition, there is a tariff schedule for foreign customers (both business and residential), with tariffs above the estimated LRMC of 7 USc/kWh. The existence of "wholesale electricity vendors", particularly in rural areas, who buy electricity from the power companies and resell it, metered through submeters, to small customers, is quite prevalent. The prices the vendors charge are considerably higher than the official tariffs, ranging as high as Dl,000/kWh. The high prices charged suggest that the willingness-to-pay for electricity in certain areas is well above current tariff levels. 2.19 The main reform required at present is an increase in the average rate of the tariff, to reflect to consumers the true cost of electricity supply. To improve the accuracy of the price signals sent through the tariffs, the Government should consider: (a) introduction of metering to allow peak and off-peak tariffs to be charged to large consumers; (b) introduction of demand charges for larger consumers; and (c) increasing the level of tariffs charged to residential consumers, at least for consumption over the minimum block, so that the higher rates are at least equivalent to that charged to commercial consumers. Agreement was reached at negotiations that the Government would furnish, on an annual basis, to IDA a review of the policy and levels of its electricity tariffs, including proposed adjustments to meet the objectives of the power development program, and thereafter implement proposed adjustments taking into account IDA's comments. -17- F. Sector Strategy The Govenment's Power Sector Policy 2.20 The power sector in Viet Nam faces a number of challenges in the coming years, the most significant being the ability to finance and implement an investment programn of almost US$6.5 billion from 1995-2001, to meet the unprecedented growth in electricity demand. Presently, the power system is technically stretched to its limit and owing to years of under-investment in assets and in maintenance, the system is inefficient and unreliable.. Further, with only 78% of the population having access to electricity and a per capita consumption of less than 300 kWh, there is a large amount of suppressed demand in the country. 2.21 Recognizing the need for drastic rationalization of sector policies to meet these challenges, the Government has prepared, in consultation with IDA, a Power Sector Policy Paper that lays out its sectoral objectives, its reform strategy and a reform implementation plan (see Annex 2 for details). The principal elements of the Government's power sector policy are to: (a) rationalize power sector institutions and functions; (b) commercialize the operations of sector entities through financial and management restructuring; (c) introduce an appropriate legal and regulatory framework for the sector; (d) adopt appropriate bulk and retail electricity tariffs, both in terms of tariff level and tariff structure; (e) encourage and introduce private sector capital and direct participation in the sector; (f) introduce electricity conservation and load management practices; and (g) prepare and implement a plan to bring electricity to rural areas. Sector Reform and Restructuring 2.22 In January 1995, the Government issued Decree No. 14/CP to establish EVN, a holding company for the different power sector entities engaged in generation, transmission, distribution and associated service functions. EVN comprises 34 separate business units, each with its own charter and each reporting to EVNs Director General. These business units are grouped under two accounting systems: (a) independent accounting, which focuses on costs and revenues; and, (b) dependent accounting, which focuses on costs. The business units fall into three categories: (a) Those engaged in generation and transmission are subject to dependent accounting, and consolidation of accounts takes place only at the level of EVN as a whole (General EVN). There are 17 business units involved in these activities - 12 for generation and 5 for transmission. They all report to EVNs Director General, through the Deputy-Director General for production. (b) Those responsible for distribution and supply are independent accounting enterprises (profit- or cash-generating centers), which are accountable directly to EVNs Director General. There are five distribution units: Hanoi-PC, HCMCPC, PCI, PC2 and PC3. (c) Those involved in the provision of services (including finance, design and construction, and planning) have either independent or dependent accounting status. -18- 2.23 EVN has the legal status of a state corporation under the State Enterprise Law. Independent accounting entities have the status of state enterprises that are members of the state corporation (i.e. EVN). EVN's newly created Board of Management (BOM) has been vested with responsibility to exercise the States ownership function based on the principles established under the new State Enterprise Law. It also oversees the operation and management of EVN. 2.24 From a sector structure perspective, the core functions of generation and transmission are separated under several regionally-oriented business units, all of which are grouped under EVN as dependent accounting units. This restructuring has set the stage for consolidation of a transmission business unit as a separate profit center and progressive commercialization of the distribution units. The generation-transmission business units sell electricity in bulk to the five independent distribution companies. Retail prices to final consumers are established by the Government and are currently uniform across the country. The mechanism for setting the bulk transfer price (BTP) allows the distribution companies to make a target profit; the profit level is determined by EVN. Given uniform retail pricing and differing distribution system costs for each distribution company, the BTP is different for each distribution company. 2.25 The Ministry of Energy (MOE), now MOI, has been significantly rationalized in parallel with the establishment of EVN. Consistent with the Governments policy for all line ministries, MOE is increasingly responsible for policy and oversight functions, while all operational responsibility is being vested with operating companies. EDA's Strategy and Assistance to The Power Sector 2.26 IDA's strategy for the power sector and the associated technical assistance are focused on: (a) assisting the Government in introducing reformns and restructuring the power sector; (b) improving the technical and operational efficiency of the sector through strengthening the sector institutions and moving them towards commercialization and corporatization; (c) initiating legal and regulatory reforms; (d) creating an enabling environment for introduction of private power; (e) promoting conservation and encouraging environmentally and socially sustainable development; and (f) encouraging the spread of electricity to rural areas. In furthering this strategy, IDA (under the PSREP (Credit No. 2724-VN) and under the proposed project) would focus on: (a) Power Sector Reform and Restructuringe In association with PSREP, ESMAP began an investigation of the needs and priorities of sector reformn. The work was a collaborative effort between an MOEIEVN working group and the ESMAP team, and was coordinated by a high- level government steering committee. The findings of this work, as well as options to reform the sector was discussed at a workshop in May 1995 in Hanoi. ESMAP also conducted a training workshop on power sector financing options in July 1995. The work done by ESMAP is reprinted in Report No. 174/95. This report provides the framework for further reforms in the power sector. (b) Power Sector Institutional Strenutheninu Much work remains to be done by the Government to achieve an increasing commercial orientation of the sector, including: (i) separating more sharply the function of government oversight and regulation from that of sector ownership and management; (ii) establishing a commercial arms-length ownership policy vis-a-vis EVN, in terms of financial responsibilities and operational performance; (iii) strengthening the administrative and management practices of EVN and its enterprises; and (iv) allowing adequate -19- financial and management autonomy to the distribution companies. Technical assistance in institutional strengthening is being provided under PSREP (Credit No. 2724-VN). It includes: improving organizational structures; streamlining administrative and management practices; improving reporting and information flows between entities; and defining of budget and financial control systems. The proposed project would provide for additional strengthening of EVN through management training. (c) Legal and Regulatorv Framework An important element of the power sector policy is the establishment of an effective and credible body of sector-specific legislation and regulations, which is a prerequisite for the orderly introduction of private power. This would comprise: (i) defining the scope of regulation and the agency to carry out this function; (ii) drafting of an electricity law and its subsequent approval by the National Assembly; (iii) preparation and operationalization of a Grid Code; and (iv) promulgation of the Electricity Law and Regulations. In support of the proposed project, the ESMAP group of the Bank would provide extensive technical assistance to the Government in developing an appropriate legal and regulatory framework for the power sector. (d) Development of Private Power As a key objective to encourage private sector participation, the Government issued Decree No.87/CP on Build-Operate-Transfer (BOT) contracts to facilitate private investment in infrastructure, including power. Despite this policy initiative, significant impediments to promoting and implementing private power remain including: (i) the lack of a proper legal and regulatory framework; (ii) the unfavorable credit-risk of EVN stemming from low tariffs and the lack of financial disclosure; and (iii) uncertainty regarding a domestic dispute resolution mechanism. Under the proposed project, assistance will be provided by the Bank Group to help structure the second phase of the Phu My power station as a BOT type project. This work would include: (i) improving the overall framnework to solicit private investment; (ii) training for structuring and negotiating project agreements with foreign investors and lenders; and (iii) providing project specific legal and financial consulting services. (e) Energy Conservation and Demand Side Management A study to evaluate energy conservation potential and methods to implement demand side management and energy conservation programs is being conducted under the PSREP. (f) Master Plan for Rural Electrification The proposed project provides for technical assistance in developing a strategy and a master plan for rural electrification in the country. Lessons from Previous IDA Involvement 2.27 IDA's first operation in the Viet Nam power sector (PSREP) has just conmmenced and the lessons leamed from this project have been drawn upon in the preparation of the proposed project. An important lesson has been the need for a detailed preparation of the resettlement action plan (RAP) with a clear definition of project affected persons and the legal framework for resettlement, and assuring the active participation of the affected people in the project and the RAP. Another significant lesson from power projects, in general, is the need for thorough investigations in the preparation of technologically and managerially complex projects. The proposed project includes development of a large gas-fired thermal power complex; adequate field investigations have been made, alternatives studied, and foreign consulting assistance has been availed of from the feasibility stage and will be continued during implementation. Being a fast track project, adequate safeguards have been provided to achieve its timely completion, including construction on a turnkey basis. -20- Rationale for IDA Involvement 2.28 The project would be fully consistent with the Bank's Country Assistance Strategy (Report No. 15053-VN of October 25, 1995), discussed by the Board on November 21, 1995, which sees IDA's role for the power sector as filling an important niche not covered by other players in the sector. This includes financing of environmentally sustainable hydropower, transmission and distribution, and thermal power to the extent that the Bank Group could be instrumental in introducing private power while simultaneously working with the Government in improving the legal and regulatory framework. The policies and programs that the Government proposes to follow in the sector are consistent with the Bank's policy guidelines for the power sector. 2.29 Viet Nams needs for financing its infrastructure are large (the power sector alone requiring almost US$6.5 billion over 1995-2001) and the Government clearly recognizes the necessity for private direct financing. However, to permit the private sector to participate in power development on the required scale and in a sustainable manner, Viet Nam needs a conducive policy, legal and regulatory framework. The present situation does not permnit such participation because of an almost total lack of such a frarnework. Accordingly, IDA's dialogue with the Government over the past two years has been to agree on a shift in its policy on private sector participation, help create a proper legal and regulatory framework and to move the power sector increasingly towards conmmercialization and corporatization. Various units of the Bank Group - FIAS, IFC, ESMAP and the Region - have participated in this dialogue. Notable among the Bank Groups efforts so far have been: (a) the collaborative work of ESMAP and the Government through the Power Sector Reform and Restructuring Study (ESMAP Report No. 174/95); (b) the seminar held by ESMAP in July 1995 to sensitize the Govemrnent to issues relating to private financing of power; and (c) the holding of a high level semninar by FIAS and IFC in Hanoi in September 1995 on Impediments to Direct Investment in Infrastructure. 2.30 Preparing and implementing a sound policy, legal and regulatory framework will, however, take time, in part because there is not yet a completely uniform view on private sector power development within the Government. In the meantime, the demand for power is increasing rapidly. Therefore, in parallel with the efforts to develop the framnework, the Government is willing to consider private power development under BOT arrangements on a case-by-case basis, provided it is done in a competitive and economic manner. This preparatory work will take time. The Government believes that it needs to make some immediate investments in power generation through EVN to head off a looming power crisis in the southern part of the country, an assessment with which IDA concurs. The Bank Group is satisfied with the appropriateness of the overall strategy which will be implemented first in the development of the Phu My complex. 2.31 Phu My, with an ultimate capacity of 2,400 MW, will be the largest thermal power generation complex in the country. EVN has invited bids for the first two 150 MW gas turbines while it has also, in parallel, received some private power proposals. EVN did not find the latter acceptable for technical and economic reasons. There were also concerns that negotiations and finalization of project arrangements, in the absence of a proper framework, would require considerably more time than was available (the initial capacity increase needs to be completed by December 1996). The Government, therefore, requested IDA to finance these two gas turbines. The approach taken by IDA was to predicate IDA financing on a clear up-front policy decision by the Government to introduce private power for the second CC block of Phu My. After considerable debate at the highest political level, the Govermment adopted the policy decision recommended by IDA. IDA's strategy has, thus, succeeded in creating a breakthrough in the introduction of private power in Viet Nam. While reiterating its desire to work with IDA in establishing the proper legal and regulatory framework (which should significantly facilitate large scale and sustainable private sector involvernent in power -21- development), the Government has sought Bank Group's assistance in realizing a BOT type of installation for the second CC block of Phu My. IDA and IFC consider the Governmnents approach to be reasonable, and are satisfied that their involvement will help introduce private power in an orderly manner. Chapter III The Beneficiary A. The Beneficiary 3.1 The beneficiary of the proposed credit is the Electricity of Viet Nam (EVN). B. Organization and Management 3.2 EVN was created on January 1, 1995 by govermnent decree number 562/TTG dated October 10, 1994 (Annex 3). EVN, a "State Corporation" under the newly promulgated State Enterprise Law, is an independent juridical entity acting as a holding company overseeing 14 "independent accounting" and 22 "dependent accounting" business units. EVN's legal basis, scope of responsibilities, organizational boundaries and other institutional features are laid out in its charter. 3.3 The Ministry of Energy (MOE) which earlier exercised oversight of the power sector enterprises, has been rationalized and most of its staff reassigned to EVN. A limited scope of regulatory functions has been assigned to MOE. The interface between EVN and MOE remains to be clarified and the ESMAP-funded technical assistance project on "Developing a Legal and Regulatory Framework for the Power Sector" (para. 2.26) would assist in clarifying the details of the separation of these responsibilities and functions. Management Board 3.4 Under its charter, EVN's organization (Chart 1) consists of: (a) the Management Board; (b) the Board of Directors headed by the General Director assisted by deputies and department heads; and (c) business units. The Management Board which is the highest decision-making authority in EVN, consists of five members headed by the Chairman (Minister of Energy). The other mernbers of the Management Board include a Vice Chairman, a General Director, and two experts on legal, technical and economic aspects. The members of the Management Board have a tenure of five years. The Management Board (similar to a corporate Board of Directors) is authorized by the State to carry out ownership and control functions on its behalf. Specifically, the Management Board is responsible for setting up policy and giving advice to EVN's top executives. Board of Directors 3.5 The second level of management is the Board of Directors which consists of the General Director and four deputies in charge of production, investment, development, construction management and finance. The main function of the Board of Directors is to implement the Management Board's decisions and for day-to-day management. EVN has 15 functional and administrative departments for administration, planning, organization and personnel, finance and accounting, business, power generation, power network, international cooperation, financial estimation, project evaluation, material and import-export, rural and mountains region power development, inspection security and technical -23- safety inspection. Each department is headed by a director who reports directly to the General Director. Business Units 3.6 Under the new EVN charter, the three formerly fully integrated power companies (PCI in the North, PC2 in the South, and PC3 in the Center), which were responsible for generation, transmission and distribution in their respective regions; the two Power Investigation and Design Companies (PIDC1 and PIDC2), which undertook detailed design and construction management af large power sector projects; the three Power Construction Companies, which undertook construction of major power projects; and the National Load Dispatch Center, were fragmented and restructured into financial "independent" and "dependent" business units. 3.7 The "independent' business units comprise five distribution companies, four power construction companies, two investigation and design companies, a company for fabrication of electrical equipment, and a communication company. The "dependent" business units comprise 12 generating and four transmission companies, the National Load Dispatch Center, and three peripheral units for planning, information and research. Currently, some Project Management Boards, which formally belonged to the PCs have been separated from the PCs and now belong directly to EVN as dependent business units. The list of EVN's business units is given in Annex 4. 3.8 Each business unit is headed by a director. While the business units are given autonomy by EVN to appoint their own deputy directors and heads of departments, the director and chief accountant of each unit are appointed by EVN. As presently structured, there is a tendency to concentrate much of the decision making at the level of EVN senior management. This lack of autonomy, particularly for the independent business units' directors, is inconsistent with the intent of the sector reorganization to provide the independent business units with legal and financial independence. The issue of developing a plan to implement the internal organizational changes within EVN which would allow greater autonomy along with adequate accountability is being addressed in the study "Power Sector Institutional Strengthening" under PSREP (Credit No. 2724-VN). C. Staff Development and Training 3.9 EVN's management and staff, drawn largely from the staff of MOE, PCI and PIDC1, are technically competent and qualified, but are not equipped with modern tools and are inadept at modern management practices. During the reorganization and restructuring of the sector, no employee in the power sector was retrenched. As of January 1, 1995, EVN has a total staff of 63,788 representing the total work force of the sector prior to reorganization. More than half (57%) of EVN staff now belong to the five distribution companies, 16% to the power construction companies, 13% to the power generation companies, and the rest to the transmission and other companies. As of April 1, 1995, EVN reported 52,300 staff with fixed positions, but transfers are still taking place and the final numbers are not yet officially known. Of this number, 3,500 belong to the managerial ranks. EVN has a staffing ratio of 12 employees per installed MW, and 65 customers per staff. The latter figure is low, when compared to a figure of about 120 for Thailand. -24- 3.10 Recruitment is the responsibility of EVN's Administration Department but the business units have been delegated the task of recruitment of their own staff within limits specified by EVN. Staff training has also been delegated to each business unit. The National Training Center of PCI and the training centers of PC2 and PC3 still operate under the control of the respective PCs as technical/vocational schools. The National Training Center, in line with EVN's policy of re-educating staff, provides technical and non-technical training on management, accounting, and computers. A major program of upgrading training facilities and staff skills in managing new and sophisticated plants and systems is being provided under PSREP (Credit No. 2724-VN). D. Operations and Management Project Development and Procedures 3.11 The procedures for development of investment projects in the power sector are cumbersome and bureaucratic. As currently envisaged, the strategy for development of long-term plans for the power sector would be drafted by the Energy Institute and submitted to EVN and MOE for their review and appraisal. On the basis of these plans, projects are prepared and approved by the Government in accordance with established procedures and stages. Once approved, feasibility studies are appraised by the State Appraising Committee or by a committee chaired by the Vice Minister or Vice Chairman of the People's Committee. Project proposals within EVN are subject to the following levels of approval: (a) Level A, projects in excess of D 100 billion by the Prime Minister; (b) Level B, projects ranging from D 6-100 billion by the Government and MOE; and (c) Level C, projects less than D 6 billion by EVN's Board of Management. Procurement, which has caused bottlenecks and delays in project implementation, needs to be streamlined. Currently, procurement is done by bidding in accordance with government regulation. The National Procurement Evaluation Comnmittee evaluates and selects bids costing above D 100 billion for the Primne Minister's approval while MOE approves bids below D 100 billion. Operational Performance 3.12 At present, EVN operates 15 units of various generating stations with a total capacity of 4,480 MW; of which 68% is hydro and 32% is conventional oil/gas and thermal power plants. With a transmission line length of 6,900 circuit-kIn, it has 85 substations and 2,530 MVA transformer capacity. In April 1994, the 1,500 km 500 kV North-South power line was completed providing 500 MW of electricity to the central and southern provinces. The PCs, who managed the facilities prior to the establishment of EVN, have operated these facilities and the transmission network at levels that have been severely constrained by shortages of funds and spare parts supplies. 3.13 Power losses, including both transmission and generation losses, arnount to about 20% of electricity produced, with estimated transmission and distribution losses being about 18 % and auxiliary consumption being 3% of generation. These levels are relatively high when compared to those recorded for the more developed power grids of countries such as Thailand and South Korea. EVN would need to exercise stricter control on its operations to reduce non-technical losses. A program to progressively reduce the non-technical losses of PC3 in the Central Region from about 18% to 3% as planned by the Government has been agreed with IDA under the PSREP (Credit No. 2724-VN). -25- E. Financial Management Accounting System and Promdures 3.14 The establishment of the charter of EVN coincided with the introduction by the Ministry of Finance (MOF) of modifications to the Vietnamese accounting system. In accordance with Circular No. 162 TB dated November 30, 1994, the Prime Minister approved the application on a trial basis of the reformed accounting system to several state-owned enterprises including EVN. MOF and MOE have required EVN and its business units to adopt the new system with modifications to the chart of accounts to suit the power sector. EVN's system is designated as a "mixed" accounting system whereby: (a) centralized accounts are maintained in the generation and transmission of electricity; (b) all power plants and transmission companies are dependent accounting units; and (c) consolidation of accounts take place only at the EVN level as a whole. 3.15 The revision in the accounting policies has resulted in the following improvements in the accounting principles adopted by EVN: (a) EVN and its subsidiaries now use the accrual basis of accounting; (b) Remittance to the Government of regular depreciation and depreciation of fully written-off assets has been discontinued. The EVN group now employs uniform capitalization and depreciation policies and adopts appropriate depreciation rates on each asset consistently; (c) Foreign currency denominated balances are now restated at the end of each reporting period with the resulting gains or losses recognized for that period; (d) Cash flow statements will now be prepared at the end of each entity's financial year. Consequently, a consolidated cash flow statement of EVN will also be presented; (e) The business units are now required to mnaintain their own books of accounts and submit regular financial and non-financial reports to the Management Board for review and consolidation of accounts; and (f) Consolidated accounts will be prepared for EVN and the dependent business units on a monthly basis and EVN and the independent business units quarterly. During consolidation of accounts, all intercompany transactions are eliminated. 3.16 While the aforemnentioned changes are encouraging, certain practices, however, are still at variance with internationally accepted accounting principles and practices. Thus: (a) There is no external or internal audit of EVN accounts. The consolidated accounts of EVN and its independent business units are only submitted to MOF for approval; (b) EVN is not allowed to make provisions for doubtful accounts. The current practice is that the distribution companies submit a list of long overdue accounts to the Management -26- Board for review. Write-offs will only be made upon approval of the Board and MOF. In the meantime, no allowance is provided for these doubtful accounts; (c) Differences between the result of the physical count and the book balances of inventories at the end of the year are recognized as balance sheet items instead of being taken directly to income. This practice results in a misstatement of the balance sheet and profit and loss accounts; and (d) The consolidated balance sheet of EVN does not properly account for construction work in progress. Fixed assets are not classified into assets in operation and assets under construction in progress. 3.17 The deviations mentioned above are not of a serious nature and EVN's accounting practices are now, for the most part, consistent with international accounting standards. The ADB consulting study (para. 3.19), which is expected to be completed in early 1996, should assist EVN in improving the systemic and qualitative presentation of the financial statements. 3.18 EVN is required to conform to the accounting manual of MOE and MOF and has adopted, for all its business units, uniform accounting policies and procedures, documentation of transactions, and charts of accounts. Its business units now prepare and submit standard accounting and other financial reports. EVN's Business-Finance Department reviews the reports prior to submission to the Management Board for consolidation. EVN's computerized accounting system was developed by computer specialists from the three power companies, PCs 1, 2 and 3. While currently in use, the program is still under evaluation and improvements are introduced as necessary. The business units all have their own accounting departments and the accounting staff are generally competent. 3.19 PCI, PC2, PC3, HCMC and Hanoi Distribution Companies maintain a comprehensive accounting system. These business units also have their own Electronic Data Processing Departments acting as computer service centers for all their other departments. Other business units, which have not yet computerized their accounts, are currently evaluating the systems in place. EVN is aware of the need to adopt modern management practices and improve financial reporting within the group. Eventually, a plan to computerize all significant accounting systems within EVN will be implemented. The ADB study on "Improvement of Financial and Accounting System of the Power Companies in Viet Nam" aimed at introducing a modem accounting and management information system, and the study on "Power Sector Institutional Strengthening" under PSREP (Credit No. 2724-VN) aimed at improving and modernizing the commercial systems and institutional strengthening of the power sector, should assist EVN in carrying out some of the important reforms and restructuring necessary. Reporting and Management Information System 3.20 The guidelines for EVN's project development and procedures, accounting systems and practices, infornation reporting, approval process and decision-making are extensive and reflect prinarily a "top down" centralized approach to management control and decision-making. The reason for the top-heavy decisior2 making seems to be lingering doubts as to the extent to which delegation to the business units can be justified. The management reporting system has evolved primarily in response to existing external reporting requirements and is used by the Government and EVN for strict monitoring of the business units. Information is exchanged within EVN through written reports and the computer network. Access to financial data is highly restricted and centralized. The ADB and IDA- -27- supported studies referred in para. 3.19 will address this issue and should help EVN decentralize and improve the management of and operational relationship between the business units. Audit 3.21 Auditing capability in Viet Nam has developed significantly over the past two years. Six international accounting firms now have self-sufficient in-country practices. Three have been licensed to operate independently in Viet Nam, while three operate as joint ventures with local firms. In addition, there are five strictly local firms, which are state-owned enterprises. Operating under the supervision of MOF, they are expected to compete and be financially self-sufficient. While two of these local firms are joint venture entities with foreign accounting firms, they also operate separate entities under their own namnes. Recently, MOF has also established a certification program for local accountants, with technical assistance from the European Economic Union. 3.22 Currently, there is no independent external audit of Government entities in Viet Nam. EVN has no Internal Auditing Department nor are there plans to create one. The Government does not require the annual financial statements of the consolidated EVN and the independent business units to be published or audited by independent auditors. The consolidated financial accounts of EVN will be submnitted to MOE, MOF and the Tax Department for review and approval. MOF audits are used to determine tax liabilities, scheduled payments of "state-rented" capital, and other financial matters. IDA is advising MOF in initiating work under an Institutional Development Fund grant for improving Viet Namn's audit capacity that will represent the first important steps toward designing and implementing modem govemmental accounting and financial importation systems. At negotiations, agreement was reached with EVN that it would appoint independent auditors acceptable to IDA and that an audit report in a form acceptable to IDA would be made available to IDA within nine months after the close of each financial year. Taxes and Insurance 3.23 EVN is subject to the following major taxes: (a) tax on revenues (turnover tax) levied at 8% of power sales; (b) royalty tax at 2% on the use of water for hydro generation and calculated on the basis of share of revenues from power sales generated from hydro against total generation; (c) capital tax at 2.4% of government capital; and (d) income tax on net profit at 25%. 3.24 Unless otherwise provided by law or by MOE, EVN does not carry any insurance protection for its assets and their contents. EVN does not also have either property or liability insurance arrangements. Only company vehicles, as mandated by law, are insured. EVN is aware of the IDA requirement for provision of insurance for assets financed by IDA and that insurance could be obtained from external insurers or be effected through specific internal insurance funds of individual business units or a common EVN fund. Agreement was reached during negotiations that EVN would make provisions, satisfactory to IDA, for insurance against such risks and in such amounts consistent with appropriate practice. Budgd Arrangements 3.25 The existing budget process is designed to support applications by state-owned enterprises for funds from the governnent budget and to provide the Government with a tool to exercise tight financial control. Each business unit of EVN is required to submit an annual revenue and expenditure -28- budget and a five-year budget by September. These budgets are submnitted to the General Director, who presents the annual budget to the Management Board for approval. The five-year plan for the period 1996-2000 is currently being prepared and will be proposed to the Prime Minister for approval. EVN will review the financial performance of the business units and will compare it with the annual budget for the purpose of granting bonuses to the units. The bonuses will be in the form of cash although no definite criteria has been set by EVN with regard to the level and funding for them. The budget process of EVN would be reviewed by the Power Sector Institutional Strengthening Study under PSREP (Credit No. 2724-VN). Chapter IV The Project A. Objectives and Description 4.1 The main objectives of the proposed project are to: (a) help meet the rapid growth in electricity demand in the south of Viet Nam through the addition of new gas-fired generating capacity; (b) strengthen the high voltage (HV) transformation capacity in Viet Nam; (c) assist the Government in introducing private power in the country; (d) strengthen the institutional capability of EVN through technical assistance and training; and (e) assist in the formulation of a national strategy and master plan for rural electrification. The achievement of project objectives would be monitored during and after project implementation through specific project performance indicators (para. 4.20). Project Description 4.2 The proposed project would cover: (a) the installation of 2x150 MW gas turbines for the 450 MW Phu My 2, Phase-1 (PHMY2-1), Combined Cycle (CC) power block; (b) addition of about 900 MVA of HV transformation capacity at existing sub-stations in the South of Viet Nam and about 1,350 MVA of such capacity in other parts of the country; (c) resettlement and compensation of persons affected by PHMY2-l; and (d) consulting services for: (i) project design and supervision for PHMY2-1 CC power block; (ii) development of a BOT-JYV type of arrangement for the Phu My 2, Phase-2 (PHMY2-2) CC power block on the basis of competitive bidding; (iii) technical assistance and training for EVN managerial staff; (iv) master plan for rural electrification; and (v) technical studies for the Dai Ninh hydropower project. In addition, technical assistance for development of the legal and regulatory framework for the power sector would be provided by the ESMAP group of the World Bank. Description of The Project Components Phu Mv Power Station 4.3 The Phu My Power Station would be located in Phu My village, Ba Ria-Vung Tau province in South Viet Nam. The site is about 600 mneters from the Thai Vai River which would be the source of cooling water for the power station. The first phase of the Phu My development (PHMY1) would comprise 3x200 MW conventional gas/oil fired power units financed by the OECF of Japan. This phase is expected to be conmmissioned in 1998. The second phase of the Phu My development (PHMY2) would comprise 2x450 MW gas-fired CC power blocks. The two 150 MW internal combustion turbines (GTs) of the first block (PHMY2-1), which constitute the proposed project and which are being constructed on a fast-track basis, would be commnissioned by end-1996; the full CC block would be functional by 1998. The second 450 MW CC block (PHMY2-2) is expected to be commissioned in 1998199. A detailed feasibility study for PHMY2 was prepared by the Power Investigation and Design Company No 2 (PI)C2) and was reviewed and updated by consultants, ESBI of Ireland. The study has been approved by EVN and the State Appraisal Committee and is acceptable to IDA. -30- Gas Supplv for the Phu MY Power Station 4.4 In the near term (1997-1998), gas supply for Phu My would be available from the off- shore Bach Ho associated gas field. Petro Viet Nam (PVN) would arrange to install gas compressors which would increase the capacity of the existing pipe line from Bach Ho to the Ba Ria power station to 109-128 million cubic feet per day (MMCFD) by the middle of 1997. This would be sufficient to meet the gas requirement of about 56 MMCFD for the 2x150 MW GTs of PHMY2-1, about 38 MMCFD for the gas turbines at the Ba Ria power station and about 30 MMCFD for the liquified petroleum gas (LPG) plant. For a period of about six months after commissioning (end-1996 to mid-1997), the 2x150 MW GTs of PHMY2-1 would use distillate. The natural gas reserves of Bach Ho would suffice only for a period of about five years. The price of natural gas from the Bach Ho field, following commissioning of the compressors, has been fixed by the Government at US$2 per MMBTU. 4.5 In the long-term, PHMY2-2 will have to use gas from the off-shore Nam Con Son Basin (Block 6), which is expected to be available on-shore at Vung Tau by the end of 1998. The participants in Block 6 gas are, British Petroleum (BP) (30% stake), Statoil of Norway (15% stake), and Oil and Natural Gas Commission of India (ONGC) (55% stake). At the present time, PVN (which has an option to take a 5% stake in field development) is the owner of the gas since the existing Production Sharing Agreement (PSC), which is for oil, has yet to be renegotiated with the participants in regard to the gas discovery. The feasibility study for the 375 km mid-stream gas pipeline is currently under progress by British Petroleum (BP), Statoil, Mobil and PVN. The pipeline would be constructed through international competitive bidding. Evaluation of the Nam Con Son gas reserves (estimated at around 2 trillion cubic feet (TCF)) has been completed by BP and Statoil and by PVN. The gas reserves have subsequently been certified by an independent body, the National Natural Resources Committee of Viet Nam. The Nam Con Son gas reserves would be enough to fire as much as 2,400 MW of CC capacity for 20 years. The price of Nam Con Son gas has yet to be determined, but is expected to be in the range of US$2.5 to 3.5 per MMBTU. 4.6 The gas from Block 6 is earmarked for: (a) PHMYI - 3x200MW, to be financed by OECF of Japan; (b) PHMY2-1 - 450 MW, being constructed by EVN; (c) PHMY2-2 - 450/600MW, which would be constructed through a BOT type arrangement; and (d) PHMY3 - 600/900 MW, which would be constructed by BP through a BOT type arrangement. EVN needs to conclude a Gas Supply Agreement (GSA) for PHMY1, PHMY2-1 and Ba Ria (total 180-190 MMCFD for 20 years) with the owner and developer of the gas. The GSAs for PHMY2-2 and PHMY3 would be concluded by the BOT developers. 4.7 The estimated cost of development of the Nam Con Son gas systen is about US$760 mnillion, comprising: (a) US$150 million for Lan Tay field development; (b) US$180 million for compression platform for Lan Tay, 7-9 years down the line; (c) US$100 million for Lan Do field development; and (d) US$330 million for the trunkline to shore and terminal. Several ownership structures are currently being explored for the construction and operation of the pipeline. The minimum gas supply required to make the pipeline and field development economically viable, is estimated by BP to be about 150 MMCFD. 4.8 Agreement was reached at negotiations that EVN will enter into contractual arrangements by no later than December 31, 1996, for gas supply to PHMY2-1 for a period of at least 20 years. Further, (a) receipt by IDA of certification of gas reserves for Namn Con Son, satisfactory to IDA; and -31- (b) EVN entering into contractual arrangements for gas supply to PHMY2-1 for a period of at least five years, are conditions for effectiveness of the IDA Credit. Addition of HV Transformation CapacitY 4.9 EVN has done a detailed analysis of the transformer capacity and the forecast demand (1995-2000) at each of its existing HV (66, 110 and 220 kV) sub-stations. Most of these sub-stations not only do not have firm transformer capacity, but are operating near (and in some cases above) their name plate ratings. This situation is a cause for alarm and augmentation of transformer capacity at these sub-stations is imminent. Twenty-three sub-stations in the South of Viet Nam and 28 sub-stations in the rest of Viet Nam, where the need for additional transforming capacity (based on current loading and forecast demand) is most urgent, are listed in Annex 5. A total of about 2,250 MVA of transforming capacity (900 MVA in the south and 1,350 MVA in the rest of Viet Nam) together with the associated switching and control facilities are proposed to be installed under the project. Consulting Services: (a) CC Block of PHMY2-1: Desien and Project Management: and (b) Dai Ninh Hydropower: Technical Studies 4.10 Provision has been made in the project for about 350 staff-months (SM) of consulting services to assist in engineering, design, procurement and construction supervision for the CC Block of PHMY2-1. As this project component has to be implemented on a fast track basis, EVN has appointed ESBI of Ireland as consultants, on a sole source basis, for the two GTs of PHMY2-1 for about 160 SM. This is acceptable to IDA as ESBI (selected on a competitive basis for the Ba Ria CC power plant under PSREP) are already in Viet Nam and are fully familiar with the requirements of PHMY2-1. It would also be impossible to meet the extremely tight project schedule if EVN were to embark on a new selection process. Consulting services for the steam cycle of PHMY2-1, amounting to about 190 SM, would be procured following the Bank's procedures for the selection of consultants. EVN has adequate in-house capability to undertake engineering, design, procurement and construction supervision for the transformer reinforcement proposed to be undertaken under the project and hence, no provisiorn has been made for external consulting services for this project component. 4.11 A provision of US$2.0 million has been made in the project for consulting assistance of about 130 SM for technical studies associated with the Dai Ninh Hydropower project which is currently under preparation as a prospective IDA-assisted project for FY97. These consulting services would be engaged following the Bank's procedures for the selection of consultants. Technical Assistance for Development of PHMY2-2 on Build. Operate. Transfer-Joint Venture (BOT- JV) Basis 4.12 The main objectives of this technical assistance (TA) would be to: (a) review the Govermnent's overall private sector policy and legal framework vis-a-vis development, ownership, and operation of private power projects; (b) recommend the necessary legal and incentive framework for the implementation of power generation projects by the private sector in Viet Nam; (c) develop the solicitation package for PHMY2-2 (including selection criteria and security package) and evaluate the proposals; and (d) assist the Govermment in contract negotiations and executing the contract with the selected project sponsor. The terms of reference for this TA are at Annex 6. Agreement was reached at negotiations that EVN would develop PHMY2-2 through a BOT-JV type of arrangement following a -32- competitive bidding process and would engage TA for this exercise according to terms of reference agreed with IDA. Technical Assistance and Training for EVN 4.13 PSREP (Credit No. 2724-VN) provides for TA directed at institutional strengthening, focusing on the development of appropriate organizational structures, adoption of commercial management practices, budget and control systems, reporting procedures and information flows, under the reformed sector structure. This TA is currently under implementation. It is envisaged that considerable resources (in terms of advisory services, computer hardware and software) would be required in the strengthening of EVN management, including training of staff, following the reconrmendations of the aforementioned TA. The proposed project provides for about 18 SM of in- country consulting assistance, about 6 SMs of staff training and about US$100,000 worth of computer hardware and software. The terms of reference for the proposed TA would be drafted after completion of the first TA. Agreement was reached at negotiations that following completion of the TA under the PSREP (Credit No. 2724-VN), and taking into account its recommnendations, EVN would discuss and agree with IDA the requirements for further TA and training and implement such TA and training according to a plan and schedule to be agreed with IDA. Technical Assistance for Master Plan for Rural Electrification 4.14 Extension of electrification to rural areas in the past has been dictated primarily by the need for agricultural pumping. To achieve a more widespread improvement in the living standards of the rural population, the Government has set specific targets for per capita electricity consumption to the year 2020 in various rural areas of the country. As costs of extensive rural electrification (RE) become increasingly higher, the Government would need to optimize its limited resources and undertake RE in the most cost effective manner. This would require development of a master plan that lays down policies, strategies and criteria for meeting provincial rural area development priorities. There are a number of technical, financial and institutional issues that would need to be addressed including: (a) inadequate transmission and distribution networks, poor power supply reliability and poor loading characteristics in rural areas; (b) scarcity of investment capital, subsidized pricing practices, inadequate private investment mechanisms and underdeveloped domestic equipment enterprises; and (c) lack of locally based institutions to manage and operate grid-connected and/or isolated rural electric networks. The main objectives of the rural electrification master plan study would be to define: (a) appropriate regulatory, institutional and financing frameworks; (b) methodologies for forecasting and economic evaluation of alternative supply locations and options; and (c) technical standards of design, construction and operation. The terms of reference for the study are at Annex 7. Agreement was reached at negotiations that EVN would undertake a master plan study of rural electrification according to terms of reference agreed with IDA, review with IDA the reconunendations of the study and fornulate a rural electrification mnaster plan and implementation program consistent with the reconmmendations of the study. Technical Assistance for Le2al and Regulatory Framework 4.15 This TA would be a follow up on the TA on "Power Sector Reform and Restructuring" that was provided by ESMAP in association with PSREP (Credit No. 2427-VN). The main objective of the proposed TA (which would also be funded by ESMAP) is to assist the Government in identifying the issues and options in creating a legal and regulatory framework for the power sector that would be -33- conducive to private sector participation. The terms of reference for this TA, which would include drafting of an Electricity Law and a Grid Code, are given in Annex 8. Agreement was reached at negotiations that EVN would review with IDA the recommnendations )f this TA and thereafter take measures, mutually acceptable to IDA and the Borrower, for implementing the regulatory framework and the Grid Code and take further actions in passing the Electricity Law. B. Implementation 4.16 EVN, through its appropriate business units, would have full responsibility for implementing the physical components of the project, including the Resettlement Action Plan (RAP) for Phu My. MOE (now MOI) and EVN would be responsible for managing the TA associated with the project's policy aspects. Steering committees would be formed and representatives from relevant line ministries would be involved in the development of the legal and regulatory framework and in the solicitation of private power proposals. For managing the implementation of large thermal power projects in the south of Viet Nam EVN has established the Phu My Ba Ria Management Board (PMBRMB). PMBRMB will be responsible for implementing the PHMY2-1 component of the project. For managing the implementation of high voltage transmission lines and sub-stations in the south, north and center of Viet Nam, respectively, EVN has established Management Boards of the Power Projects for the Southern, Northern and Central Regions (MBPPSR, MBPPNR and MBPPCR). These Boards will be responsible for irnplementing the transformer augmentation component of the project falling in their respective regions. The organization charts of the PMBRMB and the MBPPSR, MBPPNR and MBPPCR and the project management units created by them for implementation of the project comnponents are shown in Charts 4 and 5. Most of the personnel of these Boards have been drawn from the erstwhile power companies and have adequate experience in technical and managerial aspects of project implernentation. PMBRMB will employ consultants for assistance in engineering, design, bid evaluation and construction supervision of the PHMY2-1 project component (para. 4.10). The 2x150 MW GTs of PHMY2-1 will be installed under a single responsibility supply and erection contract. MBPPSR, MBPPNR and MBPPCR have substantial in-house expertise in engineering, design, procuremnent and construction supervision for installation of transformers and no external consulting assistance is required (para. 4.9). This project component will be installed by local contractors under the supervision of staff of the respective Boards and with supervision services from foreign contractors for the installation of major equipment like transformers and circuit breakers. Bid documents following the Bank guidelines were prepared by consultants for PHMY2-1; the bids were received in September 1995 and contract award has been made. Bid documents for some of the transformer installations have also been issued. Bidding Evaluation Committees (having representation from the MOI) have been set up for evaluating bids and approving contract awards. 4.17 EVN has prepared a Project Implementation Plan in line with Bank guidelines (Annex 19, Ref. 1). The bar charts for implementing the various project components are given in Charts 2 and 3. Most of the project would be implemented over the 1996-1997 period. Vietnamese institutions are technically well experienced in implementing the project components and with the consulting assistance provided under the project for PMHY2-1, no substantive problems are foreseen in efficient and timely implementation of the project. The implementing arrangements are satisfactory to IDA. -34- Monitoring and Reporting 4.18 Satisfactory procedures for monitoring the progress of the project in terms of physical execution and financial reports were agreed with EVN, at negotiations. It was also agreed that EVN will furnish quarterly progress reports. An Implementation Completion Report (ICR) will be drafted by IDA not later than six months after completion of the Credit and agreement was reached with EVN to assist in its preparation. EVN will adopt the plan for the operational phase of the project. EVN will also prepare and make available to IDA its own evaluation report, including a summary report which will be attached unedited to the ICR. The evaluation would assess the project execution and initial operation, its costs and benefits, IDA's performance, its own performance of the obligations under the Credit Agreement, and the extent to which the purposes of the Credit were achieved. Supervision Plan and Key Performance Indicators for Project Monitoring 4.19 Supervision of this project will extend over a period of three years, 1996-1998. The key issues that would be focused upon are: (a) review of Viet Nan's power development plan in keeping with changes in the economic scenario; (b) a continuing dialogue with the Government on tariffs for the power sector; (c) monitoring of compliance with financial covenants to assure the financial health of the sector while undertaking large investment programs; (d) monitoring of the implementation of the environmental impact mitigation measures and resettlement plans for PHMY2-1; and (e) technical supervision of physical implementation of the project components. The IDA missions, accompanied with ESMAP as necessary, would also assist the Government in: (a) legal and regulatory framework issues for the power sector; (b) realizing a BOT-JV type of arrangement for PHMY2-2; (c) institutional strengthening of EVN; and (d) development of strategies and master plan for rural electrification. Supervision of the project would require expertise in power engineering, economics, financial analysis, power sector regulation and private power development, and resettlement. Three missions annually for a period of three years (normally coinciding with preparatory missions for ongoing and future IDA- assisted projects) are foreseen for adequate supervision of this project. The total estimated staff inputs are: (a) power engineer, economist and financial analyst - 24 staff-weeks; (b) environmental impact assessment and rehabilitation - 4 staff weeks; and (c) regulatory framework and private power development - 15 staff-weeks (see Annex 9 for details). 4.20 Key project performance indicators that would be used for monitoring and supervision are given in Annex 9. These performance indicators are closely linked to the project objectives spelled out in para. 4.1. The targets for some of the performance indicators have been defined, while targets for others would be developed, early during implementation. In addition to the perfomiance indicators, target dates have been defined to monitor: (a) commissioning of PHMY2-1 on schedule to ensure that there is no load shedding in the south; (b) availability of gas by mid-1997 so that PHMY2-2 turbines do not bum costly distillate fuel for more than six months; (c) taking of timely steps by EVN towards development of PHMY2-2 on a BOT-JV basis; and (d) timely completion of the TA on legal and regulatory framework for the power sector and the process of subsequent decisions on its incorporation. -35- C. Environment and Resettlement Phu My Power Project Environmental Impacts 4.21 A detailed environmental impact assessment (EIA) (Annex 19, Ref. 2), which takes into account the 3x200 MW conventional power plants of PHMY1 and the 2x450 MW CC power blocks of PHMY2, has concluded that with proper design and mitigation measures, atmospheric impacts (NO., SO, and noise levels) and aquatic impacts (cooling water temperature, chlorine concentration and impact on shrimp farming and mangroves) would be within acceptable limits. A summary of main environmental impacts and mitigation measures is presented in Annex 10. The EIA has been approved by the Governrnent. It was agreed during negotiations that EVN would: (a) design the PHMY2-1 plant to meet specified environmental requirements and adopt appropriate mitigation measures; and (b) set up an environmental unit and an environmental coordinator as part of the management structure of the power station. Resettlement 4.22 About 18 ha of land are being acquired by PMBRMB for the overall PHMY2 development, which would accommodate the 450 MW block of PHMY2-1, whose GTs are being financed under the project, and the future 450 MW block of PHMY2-2. About 63% of the area is covered with cashew trees, about 30% comprises other tree crops and the remaining 7% is fallow land. The total number of families that would be affected by the PHMY2 development is 55 of which 9 (currently residing on the right-of-way of the transmission line) will need to be resettled and the remaining 46 compensated and rehabilitated. A Resettlement Action Plan (RAP) has been prepared for the 55 families that would be affected by the project (see Annex 11 for details). The principles of that RAP would also apply for resettlement/compensation of people affected by future phases of development at the Phu My site. The project affected persons (PAPs) will be relocated, as far as possible, close to their present location in order to ensure that their socio-economic lifestyles will not be affected. The form of compensation for land will be "land for land", unless PAPs specifically insist on cash compensation. PAP's opting for cash compensation would be given a choice between land-based and non-land based rehabilitation. Compensation will be paid at replacement cost for houses and structures and at market rates for trees and crops. The RAP will be implemented by PMBRMB with the involvement of PAPs and the peoples' committees at the district and commune levels. Adequate mechanisms have been provided for the redressal of grievances and for external and internal supervision and monitoring. The RAP is in compliance with the Bank's operational directives and is acceptable to IDA. The RAP was agreed with the Government at negotiations. It was also agreed at negotiations that EVN would carry out the RAP as approved by the Government and accepted by IDA. Installation of Transformers 4.23 All transformers and their associated switchgear will be installed in existing substations which have been in operation for several years. Hence, no acquisition of new land would be necessary and thus there would be no persons affected by this project component. An environmental analysis pertaining to the installation of transformers at sub-stations is given in Annex 12. No PCB is used in -36- the transformers in Viet Narn and none would be used for the transformers that would be installed under the project D. Cost Estimates 4.24 The total cost of the project (including capitalized interest during construction) is estimated at US$242 million, with a foreign exchange component of US$180 million. The cost estimates for the gas turbines for PHMY2-1 are based on bids already received. The cost estimates for the transformers and associated switchgear are based on contracts recently placed for such equipment in Viet Nam. Physical contingencies are assumed at 10% of the base cost for all project components. Price contingencies are estimated on the basis of escalation factors of 6% per annum for local cost components and 2.2% per annum for foreign cost components, following the Bank's latest forecasts. Table 4.1 summarizes the cost estimates for the project (details are at Annex 13). E. Financing Plan 4.25 The financing plan for the project is shown in Table 4.2. The proposed IDA credit of US$180 million equivalent would meet 100% of the foreign cost of the project and about 74% of project financing requirements. The proposed IDA credit would be made to the Govermnent at IDA's standard rate for a 40 year term including 5 years of grace on repayment of principal. The Credit would be onlent to EVN in US dollars at a fixed interest rate of 6.9% per annum, with repayment over 20 years, including a grace period of 5 years, and foreign exchange risk being borne by EVN. The finalization of subsidiary loan agreement between the Govemrnment and EVN, acceptable to IDA, would be a condition of effectiveness of the IDA credit. -37- Table 4.1: COST ESTIMATE la Local I Foreign I Total L |ca Foreignl Total Foreign R Item .o bi.io US$. 'on - as % of D billion USS million Total PHMY2-1, 2xl50 MW GTs Installation 99.9 999.0 1098.9 9.0 90.0 99.0 90.9 HV Transformer Lnstallation 131.0 680.4 811.4 11.8 61.3 73.1 QC3. S Base Cost 230.9 1679.4 1910.3 20.8 151.3 172.1 87.9 Physical Contingencies 22.2 167.6 189.8 2.0 15.1 17.1 88.3 Price Contingencics 30.0 51.1 81.1 2.7 4.6 7.3 63.0 Instabllatia Cost 283.1 1898.1 2181.2 25.5 171.0 196.5 87.0 Resettlement and Compensation 11.1 0.0 11.1 1.0 0.0 1.0 0.0 Eng. & Admin. Overheads 71.0 0.0 71.0 6.4 0.0 6.4 0.0 Duties & Taxes 189.8 o.b 189.8 17.1 0.0 17.1 0.0 Sub-Total Project Cost 555.0 1898.1 2453.1 50.0 171.0 221.0 77.4 Consult-ng Services PHMY2-1 CC Block 0.0 50.0 50.0 0.0 4.5 4.5 100.0 Dai Ninh Hydropower Project: Studies 0.0 22.2 22.2 0.0 2.0 2.0 100.0 Technical AZssistance_ For Strengdlening EVN 0.0 5.5 5.5 0.0 0.5 0.5 100.0 Development of PHMY2-2 on BOT-JV Basis 0.0 16.7 16.7 0.0 1.5 1.5 100.0 Rural Electrification Master Plan 0.0 5.5 5.5 0.0 0.5 0.5 100.0 Total Project Cost 555.0 1998.0 2553.0 50.0 180.0 230.0 7B.2 IDC 133.2 0.0 133.2 12. 0 0.0 12.0 0.0 Told Fincing Required 688.2 1996.0 2686.2 62.0 180.0 24.0 74.3 /a September 1995 price levels. Exchange rate US$I = VN Dong 11,100 Table 4.2: FINANCING PLAN (US$ million) _______ Local Foreign Toa IDA 180.0 180.0 Internal Cash Generation and Local Borrowing 62.0 - 62.0 Total | 62.0 180.0 j 242.0 F. Procurement 4.26 About 94.5% (US$170 million equivalent) of the IDA credit would be used for financing goods procured through International Competitive Bidding (ICB) using the Bank guidelines. In the evaluation of bids obtained following ICB procedures, a margin of preference equal to 15% of the CIF -38- bid price of imported goods or the actual customs duties and import taxes, whichever is less, will be allowed for domestic manufactures. About 3.5% (US$6.5 million equivalent) of the credit amount would be used for financing consulting services and TA procured following the Bank procedures for the employment of consultants. Consulting services for the two GTs of PHMY2-1 amounting to about US$2.0 million equivalent have been procured on sole source basis (para. 4.10). About 0.5% (US$1.0 million equivalent) of the credit would be used for financing specialized equipment (including testing and measuring equipment, computer hardware and software) using the following procedures complying with the Bank guidelines: (a) Limited International Bidding (LIB), aggregating US$0.5 million equivalent; and (b) International Shopping (IS) aggregating USS0.5 million equivalent. Contracts under these procedures would not exceed the equivalent of US$200,000 each for LIB and US$50,000 each for IS. 4.27 The bid documents would follow the text of the Bank's Standard Bidding Documents. All bid documents, contract award recommendations and contracts for goods and services would be subject to prior review and approval by IDA. The total number of procurement packages is foreseen to be: (a) ICB - 8 packages (Annex 14); and (b) LIB and IS - about 5 packages. A total of about 660 staff- months of consulting services will be engaged under 6 contracts. 4.28 Civil and installation work for transformer additions would be contracted to local finns through a competitive bidding process satisfactory to IDA. Such local contracts would not be financed from the IDA credit. 4.29 Table 4.3 summarizes the procurement arrangements for the components expected to be financed out of the proposed IDA credit. G. Disbursements 4.30 The IDA credit would be disbursed against: (a) 100% of foreign expenditures, or 100% of local expenditures (ex-factory cost) for items procured through ICB; (b) 50% of local expenditures for other items procured locally; and (c) 100% of expenditures for consulting services, excluding taxes. Statement of Expenditures (SOE) procedures would be followed for consultancy contracts below US$100,000 for firms and US$50,000 for individuals. To facilitate disbursements, a Special Account would be established in US currency for EVN on terms and conditions satisfactory to IDA with a deposit of US$3.0 million. Replenishment applications would be submitted monthly or when the account is drawn by 30% of the authorized allocation, whichever occurs first. For withdrawal outside of the Special Account (applications for direct payment or for issuance of Special Commitments) a minimum application value of 30% of the authorized allocation of the Special Account would be observed. 4.31 Retroactive financing would be permitted to the extent of US$15.0 million equivalent for payments made, prior to the date of the Credit Agreement but after October 1, 1995 (the appraisal starting date), for contracting urgently required goods and consulting services. This is necessary to meet the project implementation schedule. -39- 4.32 Annex 15 gives the disbursement schedule for the proposed IDA credit and the standard profile of disbursements for power projects in Asia. This is a fast track project and the Credit is assumed to be disbursed about two years faster than the profile, based on actual performance of Viet Nam on other power projects and the preparatory work already undertaken. The project is expected to be completed by June 30, 1999 and the closing date for the credit would be December 31, 1999. Table 4.3: SUMMARY OF PROCUREMENT ARRANGEMENTS /a (US$ million) ICB Other /b NIF/c Total Cost Goods 2x150 MW GTs and Auxiliaries for PHMY2-1 /d 109.0 - - 109.0 (99.0) (99.0) Transformers 32.0 - - 32.0 (32.0) - - (32.0) Switching/Control Equipment 39.0 - - 39.0 (39.0) - - (39.0) Testing Equipment, Computer H/W and S/W - 1.0 - 1.0 (1.0) - (1.0) Cosultancies Design/Supervision: PHMY2-1 CC Block - 4.5 - 4.5 (4.5) (4.5) Technical Studies: Dai Ninh Hydropower Project - 2.0 - 2.0 (2.0) (2.0) Technical Assistance and Training Strengthening of EVN - 0.5 - 0.5 (0.5) (0.5) Development of PHMY2-2 on BOT-JV Basis - 1.5 - 1.5 (1.5) (1.5) Rural Electrification Master Plan - 0.5 - 0.5 (0.5) (0.5) Miscelneous Eng. and Admin. Overheads - - 7.0 7.0 Duties and Taxes - - 16.5 16.5 Resettlernent and Compensation - - 1.0 1.0 Local Civil and Erection Work - - 15.5 15.5 Total 10.0 10.0 40.0 230.0 (170.0) (10.0) (0.0) (180.0) /a Figures in parenthesis refer to amounts to be financed from the IDA credit. /b Others - Procurement through Limited International Bidding or Itemational Shopping for equipment and procument of consulting services. /c NIF - Not IDA Financed. /d Single Responsibility Supply and Erection basis; comprising civil works of about USS10 million equivalent. Chapter V Financial Aspects A. Past and Present Financial Performance PAst P'rformce of the Pwer Sector 5.1 Since 1990 the power companies (PCs) were allowed by the Govermment to manage and utilize their resources "paying attention to high rates of return" and to continuously accumulate finds for the Government and themselves." Key performance figures of PCI, PC2 and PC3 for 1994 are sunmarized in Table 5.1. Table 5.1: Fbianclal Operating Ststics, FY94 !.. iPc I PC 2 PC 3 Total Operating Revenues 2.114 2,440 373 4.927 Operating Expenses 1,827 2,367 428 4,622 Opeating Inconc 287 73 (55) 305 Net Income After Income Tax 287 73 (55) 305 Fixed Asmu 8,058 4,408 1.534 14,000 Currnt Assets 2,558 814 272 3,644 Total Assets 10,616 5,222 1,806 17,644 Total Liabilities 1,890 925 138 2,953 Current Liabilities 1,878 589 138 2,605 Total Equity 8,726 4,297 1,668 14,691 Governent Capital 8,586 4,224 1,7231 14,533 Reained Profit Loss 140 73 (55) 158 PImry Ra _ _ I D Operating Ratio (%) 86 97 115 94 Debt as % of Total Capitalization(%) 1 7 0° 2 Current Ratio (times) 1.4 1.41 2.01 1.4 Note: All figures are in Dong billion unless otherwise noted. 5.2 The past financial results showed that the three PCs' overall financial performance, representing the operations of the entire power sector, were satisfactory as PCI and PC2 generated revenues sufficient to cover all their operating and maintenance expenses, including depreciation. While PCI and PC2 indicate reasonably acceptable results, PC3's finances were seriously negative and as an independent company, it could be considered bankrupt. 5.3 Notwithstanding the acceptable financial results related to the overall operation of the PCs, they continue to have serious cash flow constraints. This problem, which constrains the PCs' ability to finance their investment program, is clearly discerned from the serious weakness in the capital structure -41- of the power sector. The PCs simply have not been provided with any paid-in capital nor allowed to accumulate adequate earnings to sufficiently finance capital expenditures. The structure of the sector's equity base consists of Government capital at D 14,533 billion (representing the non-cash residual interest in the assets of the PCs after deducting liabilities), and accumulated profits of only D 158 billion, representing a mere 1 % of total equity. Furthermore, until 1995, the PCs were required to remit anywhere from 30-100% of their depreciation charge to the Govermnent and to continue depreciating and remitting fully depreciated assets. In other words, the PCs' financial constraints derive from their balance sheets, not their income statements. With these constraints, the PCs' financial performance and liquidity have suffered, ruining their ability not only to maintain existing assets but also to finance capital investments and future expansion. Without adequate retained earnings, the financial resiliency of the power sector to withstand unexpected business crises has been greatly eroded. 5.4 To address the vulnerable condition of the PCs, particularly, PC2 and PC3, and to achieve financial recovery, the PSREP sought a recapitalization of the PCs' equity with the aim of rebuilding, fully funding, and strengthening the capital base. In 1994, the Government decided to discontinue the requirement of remitting depreciation charges starting 1995. Assurances were also obtained (under IDA Credit No. 2724-VN) that actions, including but not limited to adjustment of tariffs, would be made to enable PC2 to generate enough internal funds to finance its investment program and to ensure viable operations of PC3. Financial Performance of EVN 5.5 The reorganization of the power sector in January 1995 into a corporate structure resulted in the establishment of EVN, as holding company, and numerous subsidiaries or business units involved in specific types of activities under it. For accounting purposes, EVN as a consolidated entity now comprises the following dependent and independent entities: 14 power plants, four transmission companies, five distribution companies, four construction companies, and nine peripheral units consisting of two design companies, two conununications companies, the National Load Dispatch Center, the Energy Institute, the Research Center, an equipment production company, and a finance company. 5.6 Given the very recent establishment of EVN, a financial analysis of its past performance is not meaningful. The first year of operation is 1995, when the accounts of the three formerly fully integrated power companies, PCI, PC2 and PC3 (which were responsible for generation, transmission and distribution in the North, South and Center, respectively), were consolidated into the accounts of EVN. 42- 5.7 EVN's unaudited financial statements for 1995 are presented in Table 5.2. Table 5.2: Actual Operating Results, March 31, 1995 (in billion Dong) Operating Revenues 1,49i5 Less: Operating Expenses Cost of Sale 988 Operations and Maintenance 186 Other Operating Expenses 34 | Taxes Other Than Incornc Tax 105 Sub-total 1,313 Net Operatng Revenues 183 Lesst: Income Tax 46 | Net Revenues . : 137 5.8 As can be seen in the above table, EVN reported net revenues of about D 137 billion in the first quarter of its first full year of operation. However, these figures are prelirninary and should be treated with caution. The figures reflect accounts submitted by the various business units to EVN for consolidation. It has been the practice of the previous power companies to submit figures that underestimnate financial performance that would result in more fund transfers and less taxable obligations from and to the Govermment, respectively. EVN is convinced that this is the case for the first quarter of 1995 and it is currently discussing this issue with the independent business units on the final numbers. 5.9 EVN's balance sheets as of December 31, 1994 and March 31, 1995 are shown in Table 5.3. -43- Table 5.3: EVN's Abbreviated Balance Sheets as of December 31, 1994 and March 31, 1995 l 12/31194 1 03/31195 l ________________________________________________ 1 12131194 (D ong B illion) Fixed Assets: Gross Fixed Assets 22,373 21,375 Less: Accumulated Depreciation -7,052 -7,218 Net Fixed Assets in Operation 15,321 14,157 Construction in Progress 35 49 Total Fixed Assets 15,356 14,206 Working Capital (net) 1,013 1,434 Total Assets 16,369 15,640 Funded by: l Long term Debt 271 274 Government Equity 16,086 15,176 Accumulated ProfitslLosses 12 190 Net Worth 16,098 15,366 5.10 l accordance with its charter, the State assigns capital and resources to EVN, which is also allowed to mobilize all sources of domestic and foreign funds in line with the provisions of the State. EVN's financial objective, as defined by its charter, is to preserve and develop the assigned capital and fulfill its financial obligations towards the State in conformity with laws. Furthermore, it is responsible for regularly upgrading its equipment, technology and management so as to lower its cost of production and reduce electricity losses. While the financial objectives presented are very broad, the Institutional Strengthening Study financed under PSREP (Credit No. 2724-VN) would greatly assist EVN to define "market-oriented' financial objectives, develop financial planning systems and redefine the process of setting performance targets for its business units. 5.11 Table 5.3 shows that EVN's assets to date have largely been financed by equity as the power companies have not incurred any significant long term debt in the past. The long term debt consists primarily of some term loans contracted by PC2 in 1993 from local commercial banks. Gross Fixed Assets in Operation decreased from D 22,373 billion in 1994 to D 21,375 billion in 1995 on account of EVN's writing off of some assets during the consolidation of its accounts in 1995. EVN's liquidity position is satisfactory with a current ratio of 1.24 during the first quarter of 1995. Fixed Assets Valuation and Distribution 5.12 Major portions of the fixed assets of the PCs were initially recorded at cost. Upon the unification of Viet Nam, the PCs' assets were valued using standard unit prices, which was typical of the system used by many centrally-planned economies. These asset values remained on the PCs' books at cost without regard for the general development of the economy and inflation. After minor adjustments were made in 1981, 1985 and 1989, a nationwide asset revaluation exercise was decreed by the Government in 1990 for all industries, using the following parameters: (a) one Russian Ruble -44- equivalent to D 2,400 for assets procured from the former Soviet Union; and (b) one US Dollar equivalent to D 2,400 for assets procured abroad elsewhere. A second nationwide revaluation was undertaken in January 1992 using: (a) one Russian Ruble equivalent to D 10,000 for all assets procured from the former Soviet union; and (b) one US Dollar equivalent to D 10,000 for assets procured abroad elsewhere. However, due to the high rates of inflation experienced in Viet Nam over the past four years, the varying methodologies used for revaluing fixed assets, and distortions in the value of fixed assets, it is not possible to state definitively whether the assets are properly valued. As a result, computations of annual rates of return, can be misleading. 5.13 Upon the organization of EVN and its subsidiaries, the necessary assets that will be used by the appropriate business units were transferred at net book value. These historical book values were based on the 1992 revaluation exercise. The carrying costs of assets which were acquired prior to the revaluation done in 1992 could not be determined as objective. It is therefore difficult-to determine if the carrying costs of the assets transferred within the EVN group reflect the fair value of the assets at the time of transfer. A revaluation of EVN's fixed assets in operation will be undertaken as part of the ADB Study on "Improvement of Financial and Accounting Systemns of the PCs in Viet Nam". Until this valuation exercise is concluded, the value of fixed assets presented in EVN's balance sheet as of March 31, 1995 is used as basis for future projections. To enable continuous assessment of real earnings to be made which in turn will help in determining the appropriate level of cash generation, agreement was reached during negotiations that EVN will revalue its fixed assets periodically in accordance with sound and consistently maitained methods of valuation satisfactory to IDA. 5.14 As of March 31, 1995, EVN's gross fixed assets representing generation, transmission, distribution and other assets (except land) of the power sector, amounted to D 21,373 billion of which D 7,218 billion was accumulated depreciation. The Hoa Binh hydroelectric plant, formerly operated by PCI and now operated by the Hoa Binh Power Plant Company, represented the biggest asset holding valued at more than a quarter of total EVN assets. Other substantial assets were transferred to Transmission Company No. 1 at D 2,072 billion and to the Tri An Power Plant Company at D 1,848 billion. The new PCI and PC2 recorded asset shares at 9% and 7% of total EVN assets, respectively. The 500 kV transmission system was transferred to Transmission Company No. 4 and the assets were valued at D 1,094 billion. B. Fiunicial Outlook 5.15 Projections of EVN's financial performance for the period 1995-2001 and the assumptions underlying these projections are presented in Annexes 16 and 17. The key financial indicators are presented in Table 5.4 below. In interpreting the ratios shown, it should be borne in mind that EVN will become fully operational only at the end of 1995 and that there are certain outtanding financial issues including appropriate bulk pricing arrngement, d ion of cost and profit centers, unrealistic asset valuation, and the accounting variances and misstatements described in para. 3.16, that could make conventional ratio analysis of limited value. sJ -45- Table 5.4: SUMMARY OF FINANCIAL PROJECTIONS ___________~199 s 1 961 1997i 19992 000 2001 Sales of Power (Gwh) 10,676 12,075 13,856 15,925 18,329 21,128 24,297 Average Revenues per kwh Sold (Dong) 555 641 734 835 944 1,133 1,339 Operating Revenues 6,059 7,880 10,323 13,460 17,481 24,124 32,714 Operating Expenses 5,569 5,959 6,674 8,199 9,466 10,932 12,351 Operating Income 491 1,921 3,649 5,261 8,015 13,191 20,364 Net Income 352 1,412 2,670 3,879 5,362 8,950 13,754 Net Fixed Assets in Operation 29,682 41,499 50,928 60,233 68,191 75,820 83,804 Total Assets 53,202 64.269 75,921 87,624 97,651 108,596 119,097 Total Equity 36,642 37,772 39,908 43,011 47,301 54.461 65,464 Long Term Debts 6,677 14,639 22,912 30,385 36,502 42,504 47,786 Primary Ratios (%) Operating Ratio 91.9 75.6 64.6 60.9 54.1 45.3 37.8 Rate of Retum on Ave. Revalued Net n.a. 3.5 5.4 6.6 9.1 13.5 18.8 Fixed Assets in Operationlll lll Self Financing Ratio 36.2 34.1 34.8 34.0 34.2 33.6 33.6 Debt Service Coverage (times) 82.1 70.9 | 7.51 5.3 | 3.3 | 3.4 | 3.5 Debt to Total Capitalization (%) 20 30 40 40 40 | 40 40 Current Ratio (times) 0.3 0.31 0.31 0.4 | 0.5 | 0.9 | 3.1 Note: Ail figures are in Dong billion unless oferwise noted. 5.16 The future financial situation of EVN will depend heavily on the economic development of the country and the resulting demand and sales increases, and the speed and efficiency with which EVN will be able to develop and finance its potentially large investment program. Maintenance of a sound revenue position for financing operations will be equally important. The assumptions used for EVN's future finances were designed to ensure its financial viability and satisfactory financial performance. In this context, EVN's ability to generate income adequate to meet all financial obligations on a timely basis and to sustain an adequate level of working capital needed for continuous operations will be of great importance. The projections also aim at developing EVN's capability to contribute to the renewal and expansion of assets and maximizing EVN's finances by abandoning its total reliance on the Govermnent budget and instead, using, to the extent possible, internal as well as external sources of funds. Having these principles in mind, the financial projections are based on the parameters dealt with below. 5.17 The Government has developed three demand scenarios: low, base and high. Over the next few years the scenarios are not too different because financing for the generation facilities is more or less secured and the completion of the 500 kV interconnection system provides much of the energy required to satisfy the demand expected to materialize in the short-run. The financial projections are based on the high case scenario with an average growth rate over 1995-2000 of around 12.8% in the North, 16% for the South, and 15% for the Center or an average increase of 14.6% for the country as a whole. Average technical and non-technical losses currently at about 21 % of generation (of which non-technical losses are about 3%) are projected to be maintained at 21% until 1997 and to be gradually reduced until the losses reach 17% in 2001. -46- 5.18 On the basis of these assumptions, EVN's projected financial results are satisfactory showing that it would be able to generate revenues sufficient to cover all operating expenses (including depreciation), as well as interest expenses and income taxes. EVN's load forecast assumes that sales would increase from 10,676 Gwh in 1995 to 24,297 Gwh in 2001-an increase of about 15% p.a. With projected reduction in system losses, review of the power development program, and upward adjustment in tariffs agreed with under PSREP (Credit No. 2724-VN), electricity revenues will increase by an average of about 33% from D 6,059 billion in 1995 to D 32,714 billion in the year 2001. The projected income statements also assumes that EVN would be able to increase tariffs by half a cent (5 USc/kWh) beginning FY96; from its current level of 5 USc/kWh, the average tariff is expected to increase to 5.5 USc/kWh in FY96, and reach 7 USc/kWh by 1999. 5.19 EVN's operating costs are projected to increase on average by 14% annually between FY95-2001. EVN's fuel expenses (as it puts several hydropower projects to operation and switches to more fuel-efficient thermal plants) are expected to reduce significantly over this period. Because tariff increases would rise faster than increases in operating costs, EVN's operating ratio is expected to improve substantially from 92% to 38%. Consequently, operating income is expected to grow steadily from 8% of total revenues in FY95 to 62% in FY2001. While interest expenses are projected to escalate from D 22 billion to D 2,025 billion during the period, as EVN finances a larger portion of future investments through loans, nevertheless, net income is calculated to rise from 6% of total revenues in FY95 to 42% in FY2001. 5.20 The financial projections show that with reasonable tariff adjustments averaging to about 10% p.a. and allowing EVN to accumulate profits and build its cash reserves, EVN would be able to finance about 34% of its future investment from internal sources. At negotiations, agreement was reached with EVN and the Government that EVN would take all actions including but not limited to revision of tariffs, so that funds generated from internal sources would be equivalent to not less than 30% of the annual average of EVN's capital expenditures incurred for the financial year, the previous financial year, and the next following financial year. 5.21 In the past, the power sector has not borrowed long term funds since all funds have been provided through the Government budget. EVN's existing long term debt is only 2% of its debt plus equity, however, long term debt and further borrowing would be needed to finance EVN's investment program, which would involve large debt service payments in the coming years. The projections assume that about two-thirds of future investments would be financed through loans and the balance from internal cash generation. The assumptions on future financing show that no additional capital infusion nor any contribution to the investment program would be made by the Government during the period as it is the Government's intention that EVN becomne self-sufficient from the date of its organization. The decision by the Government to wean the power sector into financial independence through several steps would lay the foundation for a power sector that hopefully would be able to raise its own funds for capital expansion. In order to achieve satisfactory financial performance and contribute to the renewal and expansion of assets, PSREP (Credit No. 2724-VN) included contractual obligations in the legal agreements binding PC2 and PC3 to maintain financial viability. Through these covenants, (suitably modified following the restructuring of the power sector) IDA would monitor the relevant PCs' financial performance and, eventually, assist them to become sufficiently creditworthy to raise funds in the capital markets. -47- C. Financing Plan 5.22 EVN's financing plan is presented in Table 5.5. Table 5.5: EVN FINANCING PLAN (1995-1999) CAPrrAL REQUiREMENTS Investments 49,949 IDC 8,781 Total Capital Requirement 58,730 SOURCES OF FUNDS Intern| Cash Generation 21,792 Less: Debt Service 4,026 Working Capital Requirement (1,810) Net Initenal Cash Generation 19,576 Borrowings 39,153 Govermment Contributions 0 | Total Sources of Funds 5 S8,730 Note: All figures are in Dong billion. 5.23 EVN's development program for the period 1995-1999 is huge when compared to its modest capital expenditures of the past. It is projected at D 58,730 billion or an average annual investment of D 11,746 billion. This is mainly due to the large capital costs of thermal and hydro projects which account for about 43% and 40%, respectively, of the total investment program. The hydro generation program includes investments in the future projects in Ban Mai (D 2,105 billion), Son La (D 4,745 billion), Yali (D 4,907 billion), Plei Kron (D 1,581 billion), and Ham Thuan Da Mi (D 4,779 billion). Thermal generation includes investments in three major plants: Pha Lai (D 8,484 billion), Quang Ninh (D 1,674 billion) and Phu My (D 8,880 billion). The value of EVN's net fixed assets in operations and its revalued rate base at the end of the period are projected to increase to about 1.9 timnes their 1995 levels. 5.24 To finance this substantial investment program, EVN would secure long term financing, net of debt service, of about D 17,766 billion of projected 1995-1999 investments. These borrowings represent an adequate capital structure with long term debt not exceeding 40% of total capitalization for the projected period. EVN is expected to finance the balance from internally generated funds and achieve a significant level of self financing averaging about 35 % throughout the period. 5.25 The financial projections show that with the implementation of adequate tariff increases, the debt service coverage ratio of EVN would be between 3.3 to 82.1 during the period. The initial years of operation would show very high debt servicing capabilities as debts repayments would not occur until the later part of the period. With a view to maintaining debt service at acceptable levels, agreement was reached at negotiations with EVN and the Government that EVN would not incur additional debt unless its estimated internally generated cash, after expenditure for each year, during the -48- term of the debt to be incurred shall be at least 2.0 times its total estimated debt service requirements in such years. 5.26 In the past, the financial constraints of the power sector (para. 5.3) stemmed from the insufficiency of its equity capital. While the Government's policy is to no longer make any capital contributions to EVN in order to set it up as an independent company, it must recognize that the financial viability of EVN is well beyond EVN's control. There are problems which can negatively influence the financial situation of EVN; if projected demand fails to materialize, if the Government is unable or- is delayed in making the necessary tariff adjustments, if the external financing for the investment program is not fully secured, or if other unforseen problems arises, the Government will need to provide relief, either through new equity investments or advances or reimbursements in respect of some portions of the investment program. At negotiations, agreements were reached that by December of each year, EVN will review with IDA its proposed annual budgets and financial plan for each succeeding five year period. A CHAPTER VI Project Justification A. Economic Analysis 6.1 Development of the power sector is crucial for the economic upliftment of Viet Nam. Implementation of the proposed project would help ensure the country's continued economic growth in general and of the rapidly expanding southem region, in particular. The project would make a significant contribution towards: (a) strengthening the managerial capabilities of the power sector entities; (b) establishing a legal and regulatory framework for the power sector, a necessary prerequisite for the introduction of private power; and (c) achieving a BOT type arrangement in the power sector. 6.2 The project supports two crucial investments in the power sector of Viet Nam - PHMY2-1 and HV transformer additions. The acute power shortage predicted for the South from the end of 1996 makes it imperative to add generation within a short period of about 15 months. This is feasible only with internal combustion turbines (GTs). Forunately, natural gas would be available to fuel these GTs from mid-1997 and the use of costly diistillate oil is expected to be limited to about 6 months only. Also, the discovery of large offshore gas reserves in the South and the expected availability of this gas onshore by end-1998 makes gas-fired combined cycle (CC) generation an economically attractive (and environmentally least-objectionable) option for power generation in the South. Gas-fired generation (along with environmentally acceptable hydropower), thus, figures largely in the least-ost power development plan for Viet Nam. 6.3 The second investment supported by the project (HIV transformer additions) is an investment that is long overdue. Due to paucity of funds, many HV transformer substations have aeen operating at or above their rated capacities. The consequences of overloading transformers are a loss of life, high energy losses and unserved energy. PSREP (Credit No. 2724-VN) supports the reinforcement of medium voltage (MV) distribution in some of the heavily loaded MV systems supplying the fast growing areas in and around HCMC. Complementary investments in the HV system are vital to meet the demand growth. The project supports transformer capacity augmentation at some of the critically loaded HV substations in fast growth areas in the South as well as the most urgent capacity additions in the HV transformier substations elsewhere in Viet Nam, especially in the North. PHMY2 6.4 The 2x15OMW GTs of PHMY2-1 are scheduled to be commissioned by end-1996. A detailed feasibility study by PIDC2 has established that it would be economical to convert the GTs to CC operation for gas prices above USSI.75IMMBTU. Accordingly, the GTs would be converted to CC operation by the installation of the associated steam cycle equipment in end-1998. The following Base Case assurmptions are made in the economic analysis: (a) Costs and monetary benefits are converted to 1995 prices. Due to the liberalized nature of the market for foreign exchange in Viet Nam, the exchange rate reflects market prices and no adjustments are made for foreign costs. As the labor component of the project cost is -50- s -. only about 1 % of the total cost, no adjustment is made for the shadow wage rate (estimated at about.0.75). (b) Capital cost for the GTs is US$117.4 million; this includes physical contingency of 10%; price contingencies and duties and taxes are excluded. The capital cost for the steam cycle to be installed at a later date is assumed to be US$7501kW. (c) In the Vietnamese power grid, generation accounts for about 65 % of the total investment, transmission and distribution accounting for the balance 35%. Accordingly, the cost of transmission and distribution associated with the project is assumed to be about US$125 million (US$35 million for transmission and US$90 million for distribution). The cost of distribution system expansion is assumed to be spread uniformly over 7 years. (d) Annual O&M costs as percentage of capital costs are assumed at 5% for GT, 3.5% for CC, 1.5% for transmission and 2.5% for distribution. (e) Based on the data provided by the Energy Institute, the plant is assumed to operate at an annual plant capacity factor of 68%. The plant life is assumed to be 20 years. (f) The plant is assumed to use distillate for the first 6 months and natural gas thereafter. (g) The economnic cost of distillate is 20 USc/liter (24 USclliter with 20% tax). The econonic price of natural gas is assumed to be the same as the expected buying price. The latter is assumed to be in the range of US$2.5-3.5/1,000 cu. ft (Base price - US$2.5/1,000 cu. ft.). The true economic price would be lower, but is not possible to estimate, as the basis of gas pricing has not yet been finalized in Viet Nam. Cn) The net heat rates for the GTs are assumed to be 11 cu. ft./kWh for gas and 0.33 liter/kWh for distillate. (i) The output from the plant (derated for site conditiorLs from 150 to 130 MW) is decreased by the level of technical losses forecast for the system (reducing from 17% in 1996 to 13 % in 2006 and remaining constant thereafter) in each year of operation; this represents the incremental sales from the project. (j) The electricity tariffs are used as proxy for the evaluation of project benefits. The tariff is assumned to increase progressively to 7 USc/kWh by 1999, in nominal terms, based on Government's proposals. 6.5 The EIRR is estimated at about 17% (details are at Annex 18). The EIRR calculated understates the benefits to the economy, as consumer surplus (benefit derived by consumers over and above the price for electricity) is not included. Inclusion of consumer surplus would result in a higher EIRR, largely independent of the tariff; a lower tariff would simply transfer the benefit from the power comspany to the consumners. 6.6 The project faces the following significant risks: (a) delay in the availability of natural gas, forcing the use of distillate for an extended period; and (b) higher than assumed price for natural gas. Other lesser risks faced by the project are: (a) the plant operates at lower than assumed plant capacity -51- factor due to the nature of system demand; and (b) higher than estimated capital cost. Sensitivities are computed for the aforementioned risks (as also for a lower gas price of US$2.0/1,000 cu. ft. and the results are as under: Case %EIRR Base 16.9 Delay in availability of gas: 6 months 15.3 18 months 13.1 Higher gas price: US$3.0/1,000 cu.ft. 13.9 US$3.35/1,000 cu.ft. 12.0 Lower price of gas: US$2.0/1,000 cu. ft. 19.7 Capital cost of the GT/CC plant increased by 20% 14.6 Annual plant capacity factor reduced to 55% 12.4 6.7 Under all scenarios, the EIRR remains at or above the threshold level of 12% (the opportunity cost of capital in Viet Nam) except when the gas price exceeds $3.35/1,000 cu. ft. A combination of adverse events is unlikely, but could render the project marginally un-viable. However, it is to be noted that the analysis-is conservative in that it does not take into account consumer surplus (para. 6.5) which would increase all EIRRs substantially. Transfonner Additions 6.8 The HV transformer additions are essentially components of overall network expansion and rehabilitation programs and it is not feasible to evaluate their EIRRs in isolation. The existing distribution networks in Viet Nam are old, unreliable and overloaded, and incur high losses. With the forecast rapid increase in demands, large investments are needed in rehabilitating the old network components, in expanding the networks to new areas and in connecting new consumers. Part of the reason that sales are expected to increase so rapidly is that there is substantial pent-up demand because of shortages in generating capacity. Detailed feasibility studies for upgrading distribution networks in important areas in the South and North have been conducted by consultants. These studies provide useful data on: (a) demand growths; (b) investment requirements over the next several years for meeting the demands while upgrading the networks to acceptable levels of safety and reliability; and (c) estimates of progressive reductions in losses and improvements in reliability (expressed in terms of unserved energy due to outages). 6.9 The following methodology is used for evaluating the EIRR for the transformer additions as part of distribution expansion and rehabilitation. 6.10 The analysis assumes two scenarios: (a) "with project"; and (b) "without project"'. The "with project" scenario is based on incurring the full investments (in the HV transformer substation reinforcements under the project and the downstream subtransmission and distribution systems) for meeting the forecast demands and a progressive reduction in losses and unserved energy. The "without -52- project" scenario assumes that the system would be able to meet the full forecast demand growth with zero investments but with progressive increase in losses and unserved energy. The "without project" scenario makes the conservative assumption that the existing system would be able to meet the demand growth. Incremental operation and maintenance (O&M) costs are conservatively assumed to be the same for both the scenarios, although in the "without project" scenario these would be higher. The following are the main assumptions: (a) All costs are expressed in constant 1995 prices, mnaking no adjustments for shadow exchange rate or shadow labor costs. (b) The downstream investments in subtransmission and distribution are assumed to be six times the cost of HV transformer additions according to norms currently applicable for power networks in Viet Nam and corresponding well with figures assumed in recent feasibility studies by consultants. (c) The capital investmnent is considered over the 1996-2000 time slice (part of which would be funded by the proposed project). (d) The analysis is made over a project economic life of 25 years, with no increases in sales or losses or improvements in reliability after 2000. (e) The average retail sales tariff is assumed to increase from the current level of about 5 USc/kWh to 7 USc/kWh in 1999 as proposed by the Government. (f) The LRMC of supply at the HV level is assumed at 4.6 USc/kWh based on the Bank's Energy Sector Investment and Policy Review (Report No. 10842-VN). (g) Unserved energy is very conservatively valued at 10 times the tariff level. (h) With the project, the technical losses are assumed to reduce over the years (based on recent feasibility studies). Without the project, the percentage losses are assumed to increase in proportion to the demand. The technical losses are valued at the LRMC of supply at the HV level (non-technical losses are not considered in the economic evaluation). 6.11 The details of the economic analysis are presented in Annex 18. To test the robustness of the EIRR for the base case, a sensitivity is undertaken, with unserved energy not evaluated. The resulting EIRRs are tabulated below: EIRR % Case South Viet Nam Rest of Viet Nam Base 42.6% 40.1% Unserved energy not evaluated 24.8% 20.4% -53- 6.12 The results indicate robust EIRRs for these project components and there is little need to undertake sensitivities for adverse conditions, such as lower demands and higher capital costs. The EIRRs are likely to be underestimates because of the conservative assumptions made about the unserved energy (both in terms of its magnitude and its evaluation) and about the other factors mentioned above. B. Risks 6.13 The Phu My component of the project faces two significant potential risks: First, delays in commissioning of the power plant, which could result in curtailing demand in the south; Second, delays in securing the gas supplies and the uncertainty about the gas price. The Government is conscious about the need to take all measures possible to avoid implementation delays. The contract for the gas turbines is in place and construction is progressing satisfactorily. Gas supply arrangements for the earlier years are being finalized; the plant is not expected to burn distillate oil for more than six months from start, and the EIRR is robust enough to tolerate burning of distillate for a year longer. With regard to the long term gas supply arrangements, the Prime Minister has directed that gas should be available at Phu My by the end of 1998 and negotiations between gas suppliers and EVN are well under way. The project requires short-term gas arrangements to be finalized before credit effectiveness and long-term arrangements by end-1996. It is expected that the price of gas could be satisfactorily negotiated in the range of $2.5-3.5/1,000 cu. ft., within which the project is economically viable. 6.14 The only tangible risk associated with the transforner additions component is that of delay in procurement which could result in overloading of transformers and/or shedding of load. The Vietnamese are well aware of this situation, bids have already been invited, and appropriate arrangements have been made for timely procurement decisions. The risk of demand not materializing is small; in this case, the downstream investments in distribution could be delayed, besides the EIRR is robust enough to tolerate lower demand growth rates. I Chapter VII Agreements Reached and Recommendation A. Agreements 7.1 Agreement was reached with EVN that it would: (a) appoint independent auditors, acceptable to IDA, and make the audit report available to IDA within nine months after the close of each financial year (para 3.22); (b) make provisions, satisfactory to IDA, for insurance against such risks and in such amounts consistent with appropriate practice (para. 3.24); (c) enter into contractual arrangements by December 31, 1996, for the supply of gas to PHMY2-1 for a period of at least 20 years (para. 4.8); (d) develop PHMY2-2 through a BOT-JV type of arrangement following a competitive bidding process and avail of technical assistance as agreed with IDA (para. 4.12); (e) discuss and agree with IDA the requirements for further technical assistance and training and implement such technical assistance and training according to a plan and schedule agreed with IDA (para. 4.13); (f) undertake a master plan study of rural electrification according to terms of reference agreed with IDA, review the recommendations of the study and formulate a rural electrification master plan and implementation program consistent with the recommendations of the study (para. 4.14); (g) review with IDA the recommendations of the technical assistance on drafting of the Electricity Law and Grid Code and thereafter take measures, acceptable to IDA, for implementing the regulatory framework and Grid Code and take further actions in passing the Electricity Law (para. 4.15); (h) carry out satisfactory procedures for monitoring the progress of the project in terms of physical execution and financial reports, and furnish quarterly progress reports to IDA (para. 4.18); (i) adopt a plan for the operational phase of the project (para. 4.18); (j) design the PHMY2-1 plant to meet specified environmental requirements and adopt appropriate mitigation measures, and set up an environmental unit and an environmental coordinator as part of the management structure of the power station (para. 4.21); (k) carry out the RAP as approved by the Government and accepted by IDA (para. 4.22); -55- (I) revalue fixed assets periodically in accordance with methods satisfactory to IDA (para. 5.13); (m) take all actions to ensure that funds generated from internal sources would be equivalent to not less than 30% of the annual three-year average of EVN's capital expenditures (para. 5.20); (n) maintain internally generated cash at the level of at least 2.0 times its total estimated debt service requirements (para. 5.25); and (o) review with IDA its proposed annual budgets and financial plan for each succeeding five year period (para. 5.26). 7.2 Agreement was reached with the Government that it would review with IDA, on an annual basis: (i) its power development program and tariffs; and (ii) its proposals for adjustments, and thereafter, implement adjustments taking into account IDA's commnents (paras. 2.15 and 2.19). 7.3 Conditions for Effectiveness of the Credit: (a) Submnission to IDA of certification of gas reserves of Nam Con Son, acceptable to IDA (para. 4.8); (b) EVN entering into contractual arrangements for gas supply to PHMY2-1 for at least 5 years (para. 4.8); and (c) The finalization of a subsidiary loan agreement between the Borrower and EVN, acceptable to IDA (para. 4.25). B. Recommendation 7.4 On the basis of the aforementioned agreements, the proposed project is suitable for an IDA credit of SDR 121 million (US$180 million equivalent) to the Socialist Republic of Viet Nam on IDA's standard terms with a maturity of 40 years. ANNEXES -56- Annex 1 Page 1 of 2 VIET NAM Power Development Project Electricity Tariffs (In Effect in all of Viet Nam) as of August 1, 1995 Effective ! Effective ? Effective 3/1/92 to 7/31/94 8/l/94 to 7/31/95 8/1/95 to preseit (in Dong per kWh) CUSTOMER CLASSES 3' 1. Industry and Offices 20 kV and higher Regular hours 450 450 520 Peak hours 750 710 750 Off-Peak hours 300 280 350 6 to 20kV Regular hours 450 500 580 Peak hours 750 800 850 Off-Peak hours 300 300 350 6 kV and lower Regular hours 480 550 640 Peak hours 800 800 950 Off-Peak hours 320 320 350 H. Agriculture 6 kV and higher Regular hours 450 450 500 Off-Peak hours 180 180 200 6 kV and lower Regular hours 480 480 530 Off-Peak hours 190 190 210 I/ Until July 31, 1994 surharges were applied for excess conumption above the regular, assignced quota. These quotas, whikh were esablishod by the regional direcrx in cooption with the local People's Committee, amounted to the following: Excess above Monthly Ouota Factor of Increase 1% - 50% 150% >50% - 200% 200% >200% - 300% 250% > 300% 300% 2/ Surcharges were no longer applied since August 1, 1994. 3/ Regular hours are from 4.00 to 18.00 hours, peak hours from 18.00 to 22.00 hours and off-peak hours fron 22.00 to 4.00 hours. -57- Annex 1 Page 2 of 2 Effective Effective Effective 311/92 to 7/31/94 8/1/94 to 7/31/95 8/1/95 to present (in Dong per kWh) m. Water Supply 6 kV and higher 500 6 kV and lower 550 IV. Public Lighting 400 450 500 V. Domestic Retil Consumption from 0 to 150 kWh 450 450 Consumption from 0 to 100 kWh 450 Consumption form 101 to 150 kWh 550 ConsumPtion from 151 to 250 kWh 450 600 650 Consumption from 251 kWh and above 450 800 850 Wholesale Main Meter owned by Village 360 360 Main Meter owned by Wholesaer 400 400 Main Meter owned by PC2/PC3 420 420 Rural Areas Residential 360 Ohers 530 Non-Rural Amas Residential Main Meter Owned by Wholesaer 440 Main Meter Owned by PCs 460 Others 530 VI. Conunercial 750 950 1000 VII. Foreigners, also joint venures with the participation of a foreigner, are subject to payment of the following special tariff, calculated and to be remitted in US currency. Industry 20 kV and higher US cents 8/kWh US cents 7/kWh US cents 7/kWh 6 to 20 kV US cents 8/kWh US cents 7.5/kWh US cents 7.5/kWh 6 kV and lower US cents 8/kWh US cents 8/kWh US cents 8/kWh Commercial 20 kV and above US cents 9/kWh US cents 9/kWh US cents 9/kWh 6 to 20 kV US cents 9/kWh US cents 10/kWh US cents 10/kWh 6 kV and lower US cents 9/kWh US cents 11/kWh US cents 11/kWh Residential 20 kV ad above US cents 9/kWh US cents 8f/Wh US cents 8/kWh 6 to 20 kV US cents 9/kWh US cents 8.5/kWh US cents 8.5/kWh 6 kV and lower US cents 9/kWh US cents 9/kWh US cents 9/kWh -58- Annex 2 M1NISIR OF INDUSIR Page 1 of 7 GENERAL PRINCIPLES OF POWER SECTIORPOLICY Hknoi, December)', 1995 This paper sets out the main elements of Govemment of Vietnam's (GOV) power sector policy, It outlines the objectives and strategy of the Govemment. and the Ministry of Industry for the development of the Power Sector of Vietnam A. Policy Objectives 1.1 The Govemment's power sector policy aims to achieve the following objectives: (a) Provide electricity access to the national economy and the entfre population of Vietnam (b) Increase the operatingltechnical efficiency of the electicity sector to optimize the use of scarce investment resources. (c) Ensure the best quality of elctricity delivered (d) Resolve the mismatch between market - based production costs and State administered prices (e) Clearly delineate state managernent functions and business management functions (f) Enable Vietnam to raise financing in the order of USS 1 billion (10.000 bil. VND) annually for power sector expansion to meet economic growth targets. B. The power Sector In Vietnam - An Overview 1.2 In January 1995, GOV issued Decree No 141CP to establish Electricity of Vietnam (EVN) - a group corporation for the different power sector entitis engaged In generation, transmission, distribution and associated service functions. The business units are grouped under two accounting systems: (i)independent accounting; and, (ii). dependent accounting. The business units fall into three categories: * Those engaged in generation and transmission are subject to dependent accounting, and consolidation of accounts takes place only at the level of EVN as a whole (general EVN). There are 17 business units involved in these activities - 12 for generation, 4 for transmission and I for National Load dispatch center. _59_ Annex 2 Page 2 of 7 * Those responsible for distribution and supply are independent accounting enterprise. There are five distribution units: Hanoi, HCMC, PC1, PC2 and PC3. * Those involved in the provision of services (including finance, design and construction, and planning) have either independent or dependent accounting status. Figure 1. Electricity of Vietnam (EVN) ............................................................................................................................................ Generation Business Unit (12 Power Plants) Transmission Business Unit (NLDC&4 Transmission Cos) IBTPI 4 BTP2 BTP3 4BTP4 _TPS _ani PC1 HCM City PC2 PC3 Distribution Distribution Company Company --1--... ...... ................. .................... .................. . Consumers BTP : Bulk Transfer Price NLDC: National Load Dispatch Center 1.3 EVN has the legal status of a state corporation under the State Enterprise Law. Independent accounting entities will have the status of state enterprises that are members of the state corporation (i.e EVN). Within the EVN, the Board of Management (BoM) has the highest authority and exercises the functions established under the new State Enterprise Law. 1.4 From a sector structure perspective, the core functions of generation and transmission are integrated and under direct management of EVN headquarters. The generation- transmission core sells electricity in bulk to the Annex 2 -60- Page 3 of 7 five independent distribution companies (Figure 1). Retails prices to final consumers are established by the Govemment and are currently uniform across the country. The mechanism for setting the BTP allows the distribution companies to make a target profit - the profit level is determined by EVN. Given uniform retail pricing and differing distribution system costs for each distribution company, the bulk transfer price is different for each distribution company. 1.5 According to State - Owned Enterprise Law the Ministry of Industry (MOI), as and line ministries,. is responsible for policy and oversight functions(as the owners of state enterprises), while all operational responsibility is vested with operating companies. 1.6 The current installed capacity is insufficient to meet the increasing energy demand in Vietnam. Vietnam's power development plan calls for the addition of 3000 MW by the tum of the century and about 6,000 MW by the year 2005. To meet this ambitious expansion program, apart from govemment budget, ODA funds and funds from Multinational Financial Institutions, GOV will increasingly utilize private finance. Decree No. 87/CP on BOT (i.e Build - Operate - Transfer) contracts facilitates private investment in infrastructure including power projects. C. Reform Strategy 1.7 The Govemment reform strategy addresses the following key aspects of power sector reform. A proposed Reform Implementation Plan is attached. (a) Rationalizing Power Sector Institutions and Functions. 1.8 The Govemment plans to rationalize the functions and responsibilities of the various bodies relevant to the power sector and clarify their exact roles. The Govemment proposes: , Ministry of Industry perform the "ownership function" and state management functions over EVN. * Management Board of EVN fulfill the ownership functions related to EVN activities, and be responsible for development of the Power sector to meet the targets set by GOV * Vest all operating and management responsibilities (except regulatory functions) with EVN's General Director and the management team of Deputy General Directors. (b) Structural Reform and Commercializafion of Sector Enterprise 1.9 GOV proposes to rationalize the power sector structure and commercialize the operations of its power sector enterprises. Commercialization would include: (i) strengthening the finances and long-term creditworthiness of sector enterprises; and, (ii) introducing improved operational and management practices. The Govemment proposes to: -61- Annex 2 Page 4 of 7 * Reevaluate the operational efficiency of the four transmission companies. Consider the possibility of consolidation of the operations of the four transmission companies under a single transmission business unit. * Strengthen the internal organizational structure, improve the accountinglfinancial systems and streamline administrative procedures in the distribution companies and the EVN generation-transmission core. * Establish the independent distribution companies as entities with management and financial autonomy; define appropriate incentives to undertake efficient investment and operating decisions; and, establish performance contracts between the EVN Board of Management and distribution companies. * Consider the feasibility of establishing non - core members enteprises of EVN (eg Power Investigation and Design Companies) as seperate business units. (c) Electricity Law and Regulatory Framework 1.10 It is expected to develop a consistent body of laws and regulations that would facilitate efficient and commercial operation of the sector, provide security to domestic and foreign investors in the sector and allow the Govemment to supervise sector operations on an objective basis. It is proposed as follows: - Define the scope and institutional arrangements for regulation - Prepare a draft Electricity Law Prepare a Grid code that would formalize operating arrangements between: EVN generation entities and the integrated transmission operation; independent BOT/JV generators and the EVN purchasing entity; and, EVN generation-transmission core and distribution entities. The Grid Code will be progressively operationalized. (d) Electricity Pricing - Bulk Transfer Price and Retail Price 1.11 It is recognized that cost-based retail prices and intemal transfer prices are essential to a commercial power sector that is expected to raise the required capital for its needs. Retail prices based on these principles will ensure that resources are allocated efficiently in the economy and that consumers face the appropriate price signals to utilize electricity efficiently. Efficient intemal prices will provide incentives -to the distribution companies to operate efficiently and establish an objective basis to evaluate the cost of purchasing power from BOT/JV power generation schemes. It is proposed to: Annex 2 -62- Page 5 of 7 * Progressively raise average retail tariff to levels prevailing in the region by 1999 - 2000. The tariff is proposed to be varied to about 7 USC/kWh by 1999. * Determine and adopt an appropriate bulk transfer prices (BTP) between the distribution companies and the EVN generation-transmission core. (e) Private Sector Participation In Vietnam's Power Sector. 1.12 The objectives for promoting private sector participation are to: (i). mobilize additional financial recourses in the form of debt and equity financing with minimum Government guarantees; (ii). supplement public sector investments; (iii). access the private sector's proven skills in project design, finance, implementation and operation; and (iv) create an enabling environment that fosters competition. It is expected to achieve: (i) balanced portfolio mix: private power projects will be consistent with Vietnam's least-cost power plan in terms of size and technology, and with the system's operational needs; (ii) competitiveness: project sponsors will be selected through a competitive bidding process measured in terms of the lowest price of electricity delivered; and, (iii) limited recourse project financing: foreign investors will secure financing under limited recourse basis where project sponsors and lenders will assume commercial and project risks. (f) Rural Electrification 1.13 Only 65% of the Vietnamese population has access to electricity. Access to electricity is much lower in rural than in urban areas. In order to increase rural access to electricity the Govemment will develop a Rural Electrification Master Plan. This master plan will define: (i). criteria for expanding the electricity network to rural areas; (ii) appropriate regulatory, institutional and financing frameworks; (iii) methodologies for forecasting and economic evaluation of alternative supply locations and options; (iv). technical standards for design, construction and operation. (g) Electricity Conservation 1.14 To facilitate the efficient utilization of electricity and encourage electricity conservation practices and technobgies, the Govemment will examine the potential and scope for electricity demand-side management (DSM), and load management in Vietnam. Attachments: Reform Implementation Plan (2pages) On behalf of Minister of Industry Cc. Vice - Minister Prime Minister Ministry of Planning and Investment Ministry of Finance Nguyen Duc Phan NGUYEN DUC PHAN REFORM IMPLEMENTATION PLAN 1 995 996 997 (July to Dec.) I Rationalization of Ibwer Sector Management Board - Structure reform in relalion to ownership Institutions and Functions and regulatory functions Transmission entities and operalions consolidated under single Separation of transmission Structural Reform and transmission business unit business unit as a prorit center Enterprise Commercialization Review of internal organization and Implcmentation of recommendations management svstem i None-core enterprises under EsN separated as independent I None-core business units divested from EVN lloldin Compan Electricity Law and Regulatory Scope of regulation and institutional form of Implementation of regulatory FrAmework'i regulatory agenc defined system and institutions. Draft Electricity Law Promulgation of Electricity Law and regulations prepared for submission to National Assembly Prepare Grid Code Operationalize the Grid CoDe Tariff Reform Average retail tariffs lo be progressively raised to average power tariff of the region by end 1999 - 2000 Cost-based bulk transfer Cost-based Bulk transfer price determined price implemented ts m 0% X -o REFORM IMPLEMENWATION PLAN 1995 1996 1997 (July to Dec) Private Power Proram Review wal rajionalization of private power Policy Impkmentation procedures for private power procurement developed Prepration of brochure on GOV power development prorm Development of Phu My 2-Phase 11 on a OT/JV basis Rural Ekctrification Preparation of Rural Electrification Materplan c Implementation of institutional and financial recommendations of RE Master plan Electricity Conservation Study on the potential for end -use electricity conservation nd schem for implementing DSM wd eectricity load mAement VI Implementation of electricity conservation, DSM and load manatement pomms i Study fnanced through I st. IDA Credit ii Technical assistance will be provided by IDA (ESMAP) iii Technical assistance will be provided through 1 st. ADB Credit iv Technical assistance will be provided by IDA /IFC v Study financed through 2st. IDA Credit vi Study financed through lst. IDA Credit -a 0 1D -65- Annex 3 Page 1 of 3 VIET NAM Power Development Project Legislation Concerning The Creation of EVN The Government The Socialist Republic of Vietnam Number: 562/TTg Independence - Freedom - Happiness Hanoi, 10th October 1994, DECISION OF THE PRIME MMISTER ON THE ESTABLISHMENT OF THE GENERAL COMPANY OF ELECTRICIT OF VEETNAM THE PRIME MINISTER Pursuant to the Law on Organization of the Government dated 30th September 1992, In order to implemnent the Decision number 911TTg dated 7th March 1994 of the Prime Minister on the pilot establishment of groups of businesses, Considering the proposal of the Minister of Energy, HEREBY DECIDES: Article 1: Establish the General company of Electricity of Vietnam on the basis of rearrangemnent of the units of production, circulation and non-production of the electricity branch of the Ministry of Energy. The General Company of Electricity of Vietnam has juridical personality, its seal, charter of organization and operation and is permitted to open accounts at domestic and foreign banks in accordance with provisions of the State, to carry out business independently, to conduct economic accounting; its member units carry out independent or dependent accounting in conformiity with the division of responsibility levels of the General Company. The General Company of Electricity of Vietnam the international transaction name of which is ELECTRICITY OF VIETNAM (or EVN in abbreviation form) is based in Hanoi city. -66- Annex 3 Page 2 of 3 The General Company of Electricity of Vietnam is subjected to the State management of the Ministry of Energy and other State Agencies in accordance with the Laws and is permitted to contact Ministries, State Committees, Central and local State Agencies to implement its responsibilities. Article 2: The General Company of Electricity of Vietnam has the following major responsibilities: 1. To carry out the responsibility of electricity trading in accordance with the State plans on development of the electricity branch; to take the initiative in doing business, including from working out development plan, investment preparation, capital construction investment, survey and design, construction and installation, production, transmission, consumption of products, exports and imports, supply of materials and equipment; cooperation, joint-venture, alignment with domestic and foreign economic organizations in conformity with the Laws and policies of the State. 2. To organize, manage the research and application of scientific and technological progress and training and educating cadres and workers. 3. To receive, preserve and develop funds allocated by the State to carry out the responsibilities of trading and development of the General Company. Article 3: The structure of organization and operation of the General Company of Electricity of Vietnam includes: 1. The Board of Management, 2. The Director General and Deputy Directors General, 3. Professional divisions and sections to assist the Director General, 4. Member units of the General Company. Article 4: The Board of Management is an organ authorized by the State to carry out a number of functions of State ownership representation regarding the General Company. The President and other members of the Board of Management shall be appointed by the Prime Minister upon the proposal of the Minister of Energy after reaching unanimous view with the Minister, Head of the Government's Comnmission on Organization and Personnel. Article 5: 1. The Director General shall run the business operation of the General Company in accordance with the Chief system, and be the juridical representative of the General Company in the business relations and be responsible before the Laws, and the Board of Management for the operation of the General Company. -67- Annex 3 Page 3 of 3 2. The Director General shall be appointed by the Prime Minister upon the proposal of the Minister of Energy on the basis of the suggestion of the Board of Management and after reaching unanimous view with the Minister, Head of the Govermment's Commission on Organization and Personnel. 3. The Deputy Directors General shall be appointed by the Minister of Energy upon the proposal of the Director General after reaching unanimous view with the Minister, Head of the Government's Commission on Organization and Personnel. Article 6: Assign the Minister of Energy to direct the implenentation of all relevant preparatory work so as to ensure that the General Company of Electricity of Vietnam can soon stabilize its new organization and start its operation on 1st January 1995, including the following tasks: - Adoption of the modalities of rearrangement of business and non-production units which are currently operating in the electricity branch so as to establish the list of member units of the General Company; - Drafting the Charter of organization and operation of the General Company to submit to the Prime Minister for approval in November 1994; - Completion of the arrangement, positioning of personnel at the General Company level in October 1994; - Completion of the allocation and receipt of funds for the General Company before December 1994. Article 7: This Decision shall take effect on the date of signature. The Government The Socialist Republic of Vietnam Number: 562ITTg Independence - Freedom - Happiness Hanoi, 10th October 1994, DECISION OF THE PRIME MINISTER -68- Annex 4 VIET NAM Power Development Project List of EVN Business Units Independent Accounting Member Units Total Staff (December 1994) 1. Power Company 1 15,285 2. Power Company 2 5,640 3. Power Company 3 7,328 4. Power Company of Hanoi City 2,828 5. Power Company of HCMC 2,972 6. Power Construction Company No. 1 2,695 7. Power Construction Company No. 2 2,681 8. Power Construction Company No. 3 2,982 9. Power Construction Company No. 4 2,165 10. Power Investigation and Design Company No. 1 2,180 11. Power Investigation and Design Company No. 2 1,485 12. Electric Equipment Manufacture 1,974 13. Power Communication Company 218 14. Financial Company Dependent Accounting Member Units Power Stations 15. Pha Lai 2,329 16. Uong Bi 1,585 17. Ninh Binh 1,313 18. Thu Duc 558 19. Tra Noc 171 20. Baria 123 21. Hoa Binh 909 22. Thac Ba 280 23. Vinh Son 138 24. Tri An 267 25. Thac Mo 269 26. Da Nhim 161 27. Tramission Company 1 799 28. Tramission Company 2 612 29. Trarnission Company 3 342 30. Trarnission Comnpany 4 1,294 31. National Load Dispatching Center 55 32. Power Conmnunication Center 17 33. Center for Research, Science, Technology, Environment and Computer 39 34. Energy Institute 186 35. Ham Thuan Dami Management Board 36. Phu My Ba Ria Management Board -69- Annex 5 Page I of 2 VIET NAM Power Development Project Addition of Transformer Capacity in South Viet Nam I E_isti_g L4*d Demd (MVA) Augmentation No. Substaton Voltage (v) Capaity (MVA) 1995 1996 1997 | 2000 Voltage (Kv) | Capacity (MVA) 1 Hoc Mon 220/110 2x125 205.0 321.0 418.0 502.0 220/110 Ix250 2 Long Binh 220/110 125 134.0 185.0 247.0 302.0 220/110 lx125 3 Da Nhim 220/110 63 58.0 94.0 103.0 118.0 220/110 Ix63 4 Thap Cham 66/15 15 10.2 14.0 18.0 22.0 110/22/15 lx25 5 Dong Nai 66/15 Ix20 19.0 25.5 37.5 62.5 110/22-15 lx40 6 Phan Thict 66/15 10 12.5 15.0 18.0 23.0 110/22./1S lx25 7 Tay Ninh 66/15 Ixl5 14.1 17.0 20.0 30.0 110/22-15 lx25 8 Trang Bang 66/15 10+5 10.6 14.0 18.0 41.0 110/22-15 lx25 9 Phan Ri 66/15 4 3.5 7.0 9.0 15.0 110/22-15 Ix16 10 Go Dau 66/15 20 20.2 21.0 22.0 40.0 110/22-15 lx25 11 Vung Tau 110/15 2x25 35.6 65.0 85.0 110.0 110/22-15 1 x63 12 Long Xuyen 110/15 2x11.5 24.1 27.8 32.5 38.1 110/22-15 2x25 13 Can Tno 66/15 20 24.1 28.0 35.0 38.0 110/22-15 1x20 14 Soc Trang 110/22-15 13.8 13.9 16.0 18.0 26.0 110/22-15 Ix25 15 Ben Tre 66/15 10+6 15.0 16.0 20.0 31.0 110122(15) Ix25 16 Xuan Loc 110/35 Ix16 15.2 25.0 30.0 35.0 110/35/22 lx25 17 Rach Gia 110/15 lx11.5 12.3 16.0 22.8 35.2 110/22-15 Ix25 18 Ca Mau 110/35 16 14.4 18.0 25.0 33.0 110/35/10 Ix25 19 Sa Dec 66/15 15 15.7 17.0 19.0 32.0 110/22(15) Ix25 20 Vinh Long 66/15 20 18.3 20.0 23.0 40.0 110/22-15 1x25 21 Tra Vinh 66/15 8 8.0 10.0 12.0 23.0 110/22-15 lx16 22 My Tho 66/15 20 22.8 27.0 31.0 51.0 110/22-15 1x40 23 Hung 66/15 Ix33+lx20 50.0 65.0 84.0 108.0 110/22-15 Ix63 Vuong = - = - - - -~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.- -70- Annex 5 Page 2 of 2 VIET NAM Power Development Project Addition of Transformer Capacity in Rest of Viet Nam Eritng Load Demand (MVA) Aupmentation No. Subsitaim |Volta | C9py 1995 19|1 19 197 1 2000 Volta Capacity I I ;(Kv) I (MVA) I I (Kv) (MVA) North I Chem 220/110 2x125 240 275 312 450 220/110 2x250 2 Hoa Lu 220/110 Ix12 120 170 178 186 220/110 Ix125 3 Thanh Hoa 220/110 Ix125 130 142 150 160 220/110 lx125 4 Ha Dong 220/110 2x125 230 265 295 406 220/110 2x250 5 Viih 220/110 lx125 115 128 139 155 2201110 Ix125 6 Nghia Do 110/6-10 2x25 48 56 62 72 110/22-6 Ix40 110/22-10 1x40 7 Dong Anh 110/35/6 2x25 53 57 62 72 110/35-22 1x40 110/35-6 1x40 8 Van Dinh 110/35/6 Ix25 28 32 37 42 110/22-6 Ix25 9 Tia 110/35/10 Ix25 26 29 34 40 110/22-10 lx25 10 Pho Cao 110/35/10 Ix25 27 31 35 40 110/22-10 Ix25 11 Vo Cuong(Bac Ninh) 110/35/10 Ix25 29 33 38 42 110/22-10 Ix25 12 Ha Tinh 110/35/10 Ix25 27 31 34 43 110/22-10 Ix25 13 Viet Tri 110135/6 15+20 38 43 49 61 110/22-6 1x40 14 Thai Binh 110/35110 Ix25 26 29 33 42 110/22-10 Ix25 15 Mai Dong 110/35/6 2x25 48 53 57 71 110/35-22 IX40 16 Gia Lamn 110/35/6 Ix25 24 28 34 50 110/22-10 IX40 17 Son Tay 110/35/6 2x16 30 34 39 47 110/22-10 IX40 18 Hai Duong 110/35/6 2x25 52 56 60 70 110/22-22 IX40 19 An Lac 110/35/6 2x25 51 55 60 72 110/22-6 1X40 20 Cao Ngan 110/35/6 15x20 37 42 48 53 110/22-6 IX40 21 Phu Ly 110135/6 15x20 38 44 49 55 110/22-6 IX40 Center I Qui Nhon 220/110 Ix63 65 78 94 160 220/110 1X125 2 Quang Ngai 110/35/10 Ix25 27 31 36 52 110/22-10 1x25 3 Dong Ha 110/35/10 Ix16 19 23 27 40 110/22-10 Ix25 4 Hue 110/35/6 Ix25 27 32 38 55 110/22-6 Ix25 S Xuan Ha (Da Nang) 110135/6 2x25 48 58 67 80 110/22-6 2x40 6 Tuy Hao 110/35/10 Ix16 18 22 25 36 110/22-10 1x25 7 Nha Trang 110/35/6 Ix25 28 34 40 63 110/22-6 1x40 .~ ~ = , . _ . _- -71- Annex 6 Page 1 of 7 VIET NAM Power Development Project (SRPDP) Development of Phu My 2 Phase 2 with Private Sector Participation Terms of Reference for Consulting Services Background 1. The Government of Vietnam (GOVN) has embarked on reforming its state-owned enterprises and has selected its power sector as a pilot-cxperiment enterprise reform under the Enterprise Group initiative11. GOVN is conmmitted to the implementation of comprehensive reforms in its power sector and as a first step, under Decree 14/CP dated January 22, 1995, it has reorganized and regrouped the different power sector enterprises by establishing Electricity of Vietnam (EVN) as a holding company. The charter of EVN calls for the creation of three hierarchical organizations: Board of Management, Control Section, and Finance Company. Currently, the roles and responsibilities of EVN as owner, regulator, and financier are in apparent conflict with each other. Under a separate technical assistance provided by the joint World Bank/UNDP Energy Sector Management Assistance Progranmme, GOVN is launching a study that will, inter alia, review options and make recommendations for an appropriate legal and regulatory framework. 2. GOVN's power sector reform measures will include setting up of a legal and regulatory framework, commercialization and corporatization of EVN and the four independent distribution companies, and fostering private investment in the power sector through Build-Own-Operate-Transfer (BOOT) or Joint Venture (JV) type of arrangements. GOVN issued Decree No. 87-CP dated November 23, 1993 on "Build-Operate-Transfer (BOT) Contracts" to encourage foreign investments in the construction and development of Vietnam's infrastructure. 3. Although the BOT decree has generated private sector interest in power generation projects, there has been no progress beyond signing of memoranda of understanding (MOUs) to on-the- ground projects. 4. Under the Southern Region Power Developmernt Project (SRPDP), GOVN, in coordination with the World Bank, proposes to take concrete steps towards the developmrent of Phu My 2 Phase 2 (PHMY2-2) under a BOT/JV type of arrangement. It expects that this would be the precursor to future such developments in the power sector of Viet Nam. Objectives of The Consulting Services 5. The objectives of the consulting services are to: (a) review GOVN's overall private sector policy and legal framework vis-a-vis development, ownership, and operation of private power projects; (b) identify constraints and recommend the necessary legal and incentive framework that would help achieve specific power generation projects in an optimum manner through BOOT/JV type of arrangements; (c) develop the solicitation, selection criteria, security package, and evaluation of request for proposals (RFP) for the selection of project sponsors for PHMY2-2; and (d) assist GOVN in 1/ In March 1994, GOVN issued a decree No. 91/Ttg, Pilot-Work to Establish Enterprise Groups. This decree outlines the GOVN's initiative of refofning large sectorAl and regional state-owned enterprises. -72- Annex 6 Page 2 of 7 evaluating proposals, in contract negotiations and in executing contracts with the selected project sponsor. Scope of Work 6. The consulting services will involve three main tasks. The first two tasks will comprise Phase I and the third task, Phase II of this consultancy. Because private power project development in developing countries is driven by financial issues and concerns of the developers and investors, the first task will entail: (a) a thorough diagnostic analysis of (i) the requirements of the project sponsors, lenders, and equity investors; and (ii) the requirements for mobilizing financial resources for successful private sector power project development; and (b) crystallization of project objectives and implementation framework vis-a-vis legal, regulatory, financial, technical, and institutional roles and responsibilities, and preparation of a Request for Qualifications for the PHMY2-2 BOT power project. After the successful completion of the first task, the second task will involve preparation of detailed documents (request for proposals, security package (power purchase agreements, fuel supply agreements, etc.) incorporating findings of the first task, and proposal evaluation criteria and methodology - for the PHMY2-2 development; design and preparation of a Brochure on Vietnam's Private Power Program; and a framework for setting up a "one-stop-shop" within the Ministry of Energy (MOE) as a clearinghouse for information on Vietnam's private power policy and a road map for implementing private power projects. In the third task the consultants will assist the GOVN team in evaluating proposals and contract negotiations. 7. The three tasks would consist of the following main activities: Task I Enabling Environment Diagnostics Schedule: October 1995 - December 1995 Institutional (a) Assist GOVN to crystallize project objectives and implementation environment framework vis-a-vis legal, regulatory, financial, technical, and institutional roles and responsibilities; review the regulatory and policy framework for private power sector participation; (b) evaluate the adequacy of the legal and policy environment in attracting private investments to Vietnam's power sector; (c) review and discuss the scope of EVN to participate as a minority equity partner in a BOT- JV arrangement for PHMY2-2 and at the same time a purchaser of electricity from the PHMY2-2 BOT-JV project company; if the existing legal and contractual framework pose hurdles to EVN's participation as a minority equity partner, discuss contractual and legislative options that will facilitate EVN's participation; (d); review the expectations and conditions from the international investors' and banking community's perspective; discuss the spectrum of risks in project development (pre- and post commissioning) and recommend alternative schemes and security arrangements for risk allocation and resolution; -73- Annex 6 Page 3 of 7 (e) review institutional arrangements in the power sector at the govermment and utility levels, the requirements for concession or license of private generating companies, the roles a11d responsibilities in the private power project proposal approval process, regulation and monitoring of company system operations, contract signatory authority, contract enforcement responsibility, and arbitration venue and procedures; identify areas which would specifically require concurrent processing, authorization and approval, at the central, provincial and local government levels; review adequacy and reliability of fuel and fuel transportation for PHMY2-2. (f) review the adequacy and timing of availability of natural gas, gas supply and transportation contracting arrangements with Petrovietnam and affiliated gas suppliers; Financial (g) meet with potential project sponsors and equity investors to identify their requirements, the paramount issues in the 1993 BOT Law vis-a-vis private power that prevent successful private power development in Vietnam; (h) identify sources and cost of debt and equity finance (international capital markets, export credit agencies, etc.) for such projects; (i) review and evaluate GOVN's fiscal and tax regimes (income tax, withholding tax, import duty, loss carryovers, repatriation of dividends, foreign exchange restrictions, rate of return on equity restrictions, depreciation schedules, etc.); (j) review issues of sovereign guarantees or financial institutions that can provide guarantee for contract performance by the power purchaser; (k) evaluate and recommend different project ownership and financing structures for the Phu My 2 - Phase 2 project and also identify the role of the World Bank Group in catalyzing private sector power development; the range of options for project ownership and financing structures considered should delineate the documentation requirements for each option and conformity or lack thereof with the legal and contractual framework; also see Task 11 (e). (I) evaluate (i) the applicability and implications of non-recourse and/or limited recourse financing techniques to the Phu My 2-phase 2 project, (ii) the nature of risks associated with projects of this type highlighting those areas of risk which will be of particular concern to investors, lenders, and GOVN, (iii) requirements of lenders to such projects, the formulation of alternative credit structures attainable which would limit recourse to shareholders, (iv) sources of debt finance (international capital narkets, export credit agencies, etc.) for such projects, (v) the sharing of risks between the various parties involved in the project, and the costs and implications of non-recourse and/or limited recourse financing to GOVN, (vi) the investors' requirements and the potential for and implications of equity participation by GOVN or other government agencies as joint venture partner with private power developers; (vii) guidelines and measures to evaluate the financial capability of project sponsors; also see Task 11 (e). -74- Annex 6 Page 4 of 7 (m) identify legal, comnmercial, and contractual issues to be evaluated by the local consultants; (n) discuss the work plan, tasks and detailed assignments to be perforned by the consultant team, GOVN team, and local consultants; (in) prepare a Request for Qualifications to solicit expressions of interest from private power project developers. The RFQ will include minimum threshhold requirements for screening the developers who submit expressions of interest to develop PHMY2-2 power project on a BOT-JV basis with EVN. (n) organize a focussed workshop to discuss the requirements of sponsors, lenders, investors, pre- and post commissioning risk issues and mitigation measures, and issues that need to be resolved prior to starting Task 11. The workshop should focus on the requirements of the developers and lenders for developing PHMY2-2 power project; competitive contracting process addressing the perspectives of the developers, investors, and lenders, with respect to risk allocation and mitigation; evaluation criteria for technical / operational, managerial, and financial capabilities of project sponsors, bid evaluation methodologies, and negotiation strategies. Task 1 Preparation Of Bidding Documents and Security Package, and a Brochure on Private Power Program (Technical Feasibility is outside the scope of these services) Schedule: December 1995 - March 1996 (a) Confirm the composition of a GOVN private power team to manage and coordinate the private power development process leading to evaluation of proposals, contract negotiations, and contract award; (b) prepare bidding documents and procedures associated with soliciting, evaluating and selecting bid proposals to facilitate development of the PHMY2-2, [450-600] MW gas fired combined-cycle power plant. Specifically prepare request for proposals (RFP) delineating eligibility criteria, threshold requirements, selection criteria, and proposal evaluation methodology; (c) prepare bidding documents, in English and Vietnamese, which include, inter alia, project background, grid code (minimum functional specifications such as operational interface and standards to be followed for coordinated dispatch operation), security packagea' (at a minimum draft implementation agreement, power purchase agreement, fuel supply agreement, consents and approvals required, and security and guarantees if any provided V A security package is a set of agreements which together offer investors and lenders a measure of comfort to encourage them finance power projects in developing countries. A security package is an umbrella document that nay include an implementation agreement. purchase agreemem, fuel supply agreement, construction contracts, operations and maintenance agreements, land lease agreement, insurance policies, escrow agreernent, loan agreements, inter-creditor agreement, and a share-holder agreement. -75- Annex 6 Page 5 of 7 by the government), evaluation criteria and methodology, project feasibility study report (if available), sponsor's financing capability, project financing plan, GOVN's role during construction and operation, obligation of GOVN to provide approvals and consents, responsibility for enviromnental clearance and environmental impact assessment, tariff setting and indexation, fuel cost pass through, performance guarantee requirements and bonus provisions, fuel supply and transportation responsibility, provisions for liquidated damages; fuel supply and transportation agreement should be coordinated with Petrovietnan and affiliated fuel suppliers; (d) develop proposal evaluation criteria and methodology delineating information required for consistent evaluation of technical specifications, financial terms, and methodology for evaluation of financing plan; and (e) develop financial evaluation criteria and a financial analysis model with capabilities to perform sensitivity analysis for perturbations in interest rates, fuel price change, construction delays, decreased production, increase in operating costs, inflation rates, etc. on the pre- and post-tax return on equity, return on project investment, equity payback, operating coverage and debt service coverage ratios. The foregoing list of variables is for illustrative purposes only. The financial analysis model should also be capable of modeling the different project ownership and financing structures evaluated under Task I (i) and (j). (f) design and prepare a Brochure, in English and Vietnamese, for promoting private power projects in Vietnam. The Brochure should include, inter alia, information on the enabling environment including GOVN's BOT Contracts regulations, foreign investment incentives, tax laws, a list of all permits and clearances required for power projects, the competent agency responsible for the permits, competitive bidding requirements, and a profile of "off-the-shelf" projects for which sites have been secured, fuel supply identified, and a pre-feasibility study completed. (g) develop and recommend a framework for instituting a "one-stop-shop" within the Ministry of Energy to streamline project approvals and to serve as a clearinghouse for information related to Vietnam's private power policy. The purpose of the "one-stop-shop" and the private power brochure is to essentially provide a road map for potential project developers and investors. Task HI Private Power Project Proposal Evaluation Schedule This task is not amenable to scheduling at this time; however, it is linked to the issuance of the competitive bidding documents by GOVN to prospective project developers. (a) define in broad terms the scope, resource, and technical assistance requirements in (i) assisting and participating in a pre-bid conference, and (ii) the evaluation - technical, financial, and legal - of project proposals and contract negotiations to assist GOVN; and -76- Annex 6 Page 6 of 7 (b) the scope and extent of services needed during evaluation and negotiations will depend on GOVN's private power framework that will evolve from Tasks I and II, the number of proposals received, and complexity of proposals. 8. Consultants with direct involvement in competitive bidding, project proposal preparation, evaluation, contract negotiation (power purchase agreement, impelementation agreement, gas supply contract), and financial closing of successful BOT/BOO type private power projects would be identified. In mobilizing the team, the selection criteria for consultants would include the requirement that the consultants' experience represent perspectives of the government, utility, lenders, local and international investors regarding private power projects in developing countries. 9. Two local consultants, a legal expert and a financial expert, well versed in Vietnam's power sector, commercial and contract law, and local and Asia's capital investment market respectively, will be hired to provide needed inputs in the development of the private sector power development framework, and to assess the situation from the perspective of the domestic and non-resident Vietnamese investors. Coordination With GOVN and The World Bank 10. The GOVN will appoint a Counterpart Group (CG) which will be responsible for assisting the activities of the Consultant. The membership of the CG team will include representatives from EVN, Ministries of Energy, Finance, and Constiuction, State Bank of Vietnam, State Committee for Cooperation and Investment, Office of the Government, and State Planning Conmmittee. The task activities will be supervised by the World Bank and CG, and performed by Consultants' team composed of a project manager/contracting expert, legal expert, and corporate/project finance expert. The Consutiants' team will also work closely with the GOVN's CG team. Local Facilities 11. The Consultant will be responsible for all resources required for the execution of its duties including office, secretarial, printing, transportation, and any other resource. Reporting Requirements 12. The Consultant shall prepare draft reports, in English and Vietnamnese, for review by the CG in accordance with the schedule stipulated within the individual tasks: Task I: Draft report on diagnostics of current situation will be submitted to CG no later than 3 months after the signing of the Contract. Task Il: Draft report presenting possible and recommended models for private sector participation, solicitation and selection procedures will be submitted to the CG four (4) months after signing of the Contract. Final Report will be due 15 days later, incorporating CG conmments. -77- Annex 6 Page 7 of 7 Task III: This task is not amenable to scheduling a report because the extent and nature of the Consultants' assistance is not known. Any work accomplished will result in a draft report submitted to CG within one month after completion and final report will be prepared 45 days later, incorporating CG comments. Final Report to be submitted to the GOVN no later than 18 months after signing of the Contract. Execution Schedule 13. The first phase of this consultancy service which comprise Tasks I and II will be completed in 8 months, after Contract signing, in accordance with the attached Schedule (Annex 1). The second phase (Task III) will be completed in 8 to 9 months so as to meet the target commissioning of PHMY2-2 simple cycle (gas turbine operation) by June 1998. General Conditions 14. Due to the complexity and evolving nature of the assignment, the Consultant shall be prepared to act as a conduit for additional expertise that may be identified and required during the implementation of this assignment. This additional expertise may be sourced from individual experts not associated with the Consultant and would be made available through the Consultants contract. Contracting of a consortium of technical, legal, and financial advisory firms will be considered. 15. Experts assigned by the Consultant should have extensive international experience of direct relevance and some knowledge of the Vietnam's power sector. Close coordination with a parallel technical assistance for Vietnam's grid code, and power sector legal and regulatory framework by the joint World Bank/UNDP Energy Sector Management Assistance Progranmne is deemed critical to overall success. -78- Annex 7 Page 1 of 6 VIET NAM Power Development Project Master Plan Study for Rural Electrification Bacdground Current Status of Rural Electrification in Vietnam Present status of rural Rower network development 1. Electricity supply to rural areas in the North of Vietnam started from the late 1950's. Network development was, however, totally halted in the war period (1964-1972), was resumed in 1980 and considerably accelerated from 1985 onwards. In the Southern Region, the electricity supply for rural areas started and developed at a substantial rate only after 1975. 2. As of 1993, electricity consumption in rural areas was 1,243 GWh (23.7% of commercial electricity) of which agricultural use accounted for 485.3 GWh (39% of total rural electricity). Region- wise consumption was: (a) Northern Region (to Ha Tinh province): 883 GWh (23.7% of Northern Region conmnercial electricity) in which agricultural production: 321 GWh (36.4%). (b) Central Region (from Quang Binh to Phy Khanh), Tay Nguyen (except Lam Dong): 112 GWh (17.5% commercial electricity for Central Region) in which for agricultural production: 99.3 GWh (40%). (c) Southern Region: 248 GWh (7.3% of Southern Region commercial electricity) in which agricultural production: 99.3 GWh (40%). 3. The rural power networks have been developed fairly. According to the statistics of 1992 the whole country had 19,872 kan of medium-voltage 6-35 kV lines (76% of total), transformers with capacity of 2,616 MUA (43% of total). 4. The districts and conmmunes being supplied with electricity by power companies are as follows: Disrict Comma Total Havin delectri % TOl Having dectricity % Nortem region 221 170 77 5720 3293 58 in which Red Rivers Delta (*) 56 56 100 1550 1488 96 Central Region 66.7 Southem Region 99 66 89.1 1357 553 40 138 123 2120 1162 54 Whole country 458 359 78.4 9197 5008 54 -79- Annex 7 Page 2 of 6 Rural Electridty Demand Forecast to 2010 5. Population forecast based on results of study carried out by the population and family planning conmmittee: Population Coverage By Rural Electrification Yeat Pobiadjos Populatin pw"l Of Rate compared witb (thousand of perso) the period % total population (%) 1991 54382.4 1.7 79.6 1995 58271.4 1.4 78.1 2000 62452.9 1.0 76.1 2O05 65696.6 0.8 74.2 2010 68527.6 72.6 6. Electricity Demand Forecast per capita year in 2010: Mountainous areas 5OkWh Flat areas lOOkWh Mid-land and low hill land 7OkWh Suburban areas 200kWh Ma Issues 7. As of now, Viet Nam does not have a master plan for rural electrification that lays down policies, strategies and criteria for meeting provincial rural area development priorities. There are a number of technical, financial and institutional constraints, including: (a) inadequate transmission and distribution networks, poor power supply reliability and poor loading characteristics in rural areas; (b) scarcity of investment capital, subsidized pricing practices, inadequate private investment mechanisms and underdeveloped domestic equipment enterprises; and (c) lack of locally based institutions to manage and operate grid-connected and/or isolated rural electric networks. Objectives of the Study 8. The main objectives of the rural electrification master plan study are to define: a) appropriate regulatory, institutional and financing frameworks; b) methodologies for forecasting and economic evaluation of alternative supply locations and options; and c) technical standards of design, construction and operation. The study should provide a basis for detailed project preparation. (a) To establish criteria for supplying electricity to Vietnam Rural Areas. -80- Annex 7 Page 3 of 6 (b) To define the contents of integrated planning of rural electrification for periods of 10-15 years. (c) To define the roles of the State, collective, private sectors in implementing of rural electrification planning. (d) To establish guidelines for tariff formulating and making rural electrification scheme. (e) To form strategies for supplying electricity to rural areas with least cost. (f) To train staffs in order to meet the requirement of rural electrification implementation. Scope of The Study 9. The scope of work shall cover the following aspects: (a) Review of Existing Rural Electrification (i) Organization/financing frameworks (ii) Grid/off-grid electrification Networks and coverage Power reliability Physical and operational conditions (iii) Pricing policy and tariffs (iv) Load characteristics (v) Other energy resources, usage (vi) Legal/political structure (vii) Impact of electrification Commercial, agricultural Education Housing Health (b) National Objectives for RE (i) Regional and sustainable development Urban/rural demographics (ii) Agriculture support (c) Load Forecast for RE (i) Population (ii) Economic features (iii) Survey of rural electrified and non-electrified areas (iv) Suppressed load (v) Domestic characteristics -81- Annex 7 Page 4 of 6 (vi) Conmmercial (vii) Industrial (viii) Affordability, willingness to pay (ix) Promotion of electric uses (d) Distribution (i) Existing standards (ii) Recommended standards (iii) Cost estimates per unit/facility (iv) 0 & M practices (v) Equipment manufacturing (e) Power Supply (i) Existing supply/demand (ii) Transmission planning (iii) Future grid power supply for RE (iv) Non-grid power supply (v) Renewable energy role (f) Site Selection (i) Service area parameters (ii) Screening methodology (iii) Ranking of projects (iv) Map of projects (v) Financial analysis (vi) Economic analysis (g) Institutional Structure (i) Current capabilities (ii) Utility organization options (iii) Access to private capital (iv) Private/public interest (v) National roles/grid generation & transmission (vi) Local roles/distribution, metering, billing (vii) Recommendations (h) 10-15 Program (Computerized design) (i) Proposed projects Grid connected Isolated installation System upgrading -82- Annex 7 Page 5 of 6 (i) Capital requirements (j) Financial plan; subsides (k) Human resource requirements (1) Five-year Program (Computerized design) (i) Project selection (ii) Capital requirements (iii) Financing available (iv) Tariff structure recommendations (m) Five-year Program Implementation Plan (i) Legal adaptations (ii) Institutional changes Staffing Position descriptions Technical assistance (n) Feasibility Studies (scopes-of-work developed) (o) Training Requirements (scopes of work developed) (p) Capital Budgets, Cash Flow (q) Program Management/Training Budgets (r) Equipment Supply and Construction Options (s) Implementation Schedule (t) Monitoring/Evaluation (u) Site Selection Methodology; Field Survey Summary; Technical Analyses and Maps Conduct of The Study 10. The study shall be conducted in two phases. Phase 1 will cover review of the existing system, identification of issues and constraints and recommendations of criteria, standards, and institutional arrangements. Phase 2 will cover refining of work in Phase 1 and: (a) formulation of a 10- 15 Year master plan for RE, including evaluation of costs and benefits, estimation of financing requirements and recommendation of implementation arrangements; and (b) a detailed 5-year implementation program. -83- Annex 7 Page 6 of 6 11. The consultant doing the study would be expected to use the services of the Energy Institute of Viet Nam, on a sub-contract basis for surveys, data compilation and analysis. Such services could amount to approximately 20% of the main consultancy contract. -84- Annex 8 Page 1 of 6 VIET NAM Power Development Project Electricity Law and Regulatory Framework (Terms of Reference for Technical Assistance) Background The Goverrnent of Viet Nam (GOVN) has in conjunction with macro-economic reform efforts, initiated a broad program of power sector reforms. In January 1995, GOVN issued Decree No.14/CP to establish Electricity of Viet Nam (EVN) - a holding corporation for the different power sector entities engaged in generation, transmission, distribution and associated service functions. From a sector structure perspective, the core functions of generation and transmission are integrated, and distribution is separate. There are five distribution companies and they are able to maintain independent accounts, and have the status of state enterprises in accordance with the State Enterprise Law. EVN is classified as a state corporation according to the State Enterprise Law and comprises of member state enterprises. EVNs Board of Management (BoM) has been vested with responsibility to exercise the States ownership function based on the principles established under the new State Enterprise Law. It also oversees the operation and management of EVN. Retail prices to final consumers are established by the Government and are currently uniform across the country. Electricity is sold in bulk by the integrated generation-transmission core to the independent distribution companies. The mechanism for setting the bulk transfer price allows the distribLtion companies to make a target profit - the profit level is determined by EVN. Given uniform retail pricing and differing distribution system costs for each distribution company, the bulk transfer price is different for each distribution company. The Ministry of Energy (MOE) has been significantly rationalized in parallel with the establishment of EVN. Consistent with the Governmend policy for all line ministries, MOE is increasingly responsible for policy and oversight functions, while all operational responsibility is being vested with operating companies. The current installed capacity of [4,200 MW] is insufficient to meet the annual energy demand in Vietnam. VietnamA power development plan calls for the addition of 2,400 MW by the turn of the century and about 6,000 MW by the year 2005. To meet this ambitious expansion program, GOVN will increasingly utilize private finance which is essential to meet the power sector expansion targets. Decree No.87/CP on BOT (i.e. Build-Operate-Transfer) contracts facilitates private investment in infrastructure including power projects. In a recently completed exercise the Ministry of Energy and EVN examined the implications of the sector structure and defined a series of actions to continue the refonn process and ensure that reform objectives can be achieved. This exercise which was conducted with the assistance of IDA/ESMAP concluded that some form of transparent economic regulation was necessary for the power sector. From a reform perspective the development of consistent body of laws and regulations was required to -85- Annex 8 Page 2 of 6 facilitate efficient and commercial operation of the sector, provide security to domestic and foreign investors in the sector and allow the Government to supervise sector operations on an objective basis. Further, as the entry of independent generators is envisaged an operational grid code would clarify the technical and operational standards and responsibilities of independent entities in the sector. This technical assistance project is designed to address this priority area of power sector reform. Objectives The technical assistance project will assist GOVN in developing a legal and regulatory framework for the power sector, to accelerate and support on-going power sector reform efforts. The creation of a suitable regulatory system and institutions is a pre-requisite for a commercially-oriented power system. The mnain elements of this work are: 1. definition of the appropriate regulatory functions to be undertaken by government supervisory agencies; 2. delineating the regulatory responsibilties of different government agencies and ministeries; 3. devising a suitable institutional form for the conduct of these functions, as well as establishing regulatory procedures and mechanisms; 4. preparing the required draft electricity legislation and regulations; and 5. Preparing a grid code that would formalize operating arrangements between: EVN generation entities and the integrated transmission operation; independent BOT/JV generators and the EVN purchasing entity; and, EVN generation-transmission core and distribution entities. The grid code will be progressively operationalized. Scope and Organization of Work Given the complexity of regulatory reform and the need for a process that is open to review and inputs by all stakeholders, the technical assistance activity will be divided into 5 phases. Ph.e 1: Counterpat Arrangements and Background Report GOVN will designate a suitable high-level steering conmnittee to oversee and direct the activity. This Steering Conmnittee will include officials from the relevant government agencies and ministries that have a stake in the process of power sector reform. These agencies will include, but not be limited to, Ministry of Energy, Ministry of Justice, State Planning Conmmission, Ministry of Finance, etc.. The Steering Conmmittee will be responsible for setting up a working group and constituent task forces to interact on a day-today basis with the international advisory team, and carry out the required analytic -86- Annex 8 Page 3 of 6 and conceptual work. It is envisaged that the working group will include representatives from power companies, and the principal government agencies and entities involved in power sector decisions and operations. It is advisable to involve key individuals who assisted with the earlier IDA/ESMAP financed work on 'Options for Power Sector Restructuring' in the working group to provide the required continuity with this activity. The working group will complete a review of the implementation of sector reforms and prevailing institutional arrangements. This review will form the basis of preliminary discussion of issues and regulatory objectives within Viet Nam. The formation of the Steering Committee, Working Group, and preparation of the background report will be completed by Sept./Oct. 1995. Phase 2: Definition of Fundamental Prnciples and Scope of Power Sector Regulation This task will be completed during a two week period of intensive discussions between the working group and international advisory team. The main elements of this second phase of work are the following: (a). Review and discussion of the background report by intemational consultants (b). Presentation and discussion of international experiences in power sector regulation. The focus will be on clarifying the concepts of economic regulation and discussing the advantages and disadvantages of different regulatory techniques. (c). Definition of guiding principles and objectives of power sector regulation in Viet Nam. (d). Outline of the required or desired scope of power sector regulation in Viet Nam. (e). Preliminary scope and requirements for an Electricity Law (f). The requirements of a Grid Code for Viet Nam In effect, the output of this phase will lay the foundations for more discussions on the details and structure of power sector regulation. This task will be undertaken in Dec. 95/Jan. 96. Phase 3: Preliminary Design of the Electricity Law & Regulatory Framework The Working Group and the international consulting team will in this phase focus on four aspects of regulatory framework design. Broadly defined, these are: 1. Price Regulation 2. Separation of Regulatory Function from EVN 3. Regulation of Franchise Operations and Licensing 4. Requirements of a Grid Code -87- Annex 8 Page 4 of 6 The four topics, which are outlined in greater detail below, are inter-related. The Vietnamese working group could be divided into four task forces corresponding to the four topics. The issues that are common to all four topics listed above, relate to: (i). the allocation of regulatory roles and responsibilities; and (ii). the regulatory mechanism and organizational structure to perform these regulatory functions. These issues will be discussed in by the individual task forces, as well as in plenary session when required. A detailed, although not comprehensive, scope of issues to be tackled by the four task forces is as follows: Task Force 1: Price Regulation (a). Retail and bulk prices that need to be regulated: - Retail consumer price - Bulk transfer price regulation (b). Evaluation of mechanisms to regulate prices; principles to establish pricing policies; information needs for price setting/review; administrative processes for price revisions in the regulated monopoly segment of the power sector. (c). Identification of institutional mechanism to regulate prices Task Force 2: Separation of Regulatorv Function from EVN (a). Review and assessment of the role and responsibilities of EVNs Board of Management. The impediments to effective and efficient enterprise management should be clearly identified. (b). Institutional arrangements to undertake all regulatory/government functions currently performed by EVNs Board of Management and completing its separation from enterprise management and ownership. Task Force 3: Regulation of Franchise Operations and Licensine (a). Evaluation of current procedures and institutional responsibility for system planning, and the obligation to serve (b). Identification and evaluation of options to draw a balance between the need for appropriate oversight of planning and investment decision and the obligation to serve by a local supplier. (c). Reconciling the obligation to serve under a workable licensing and franchising framework (d). Identification of methods and mechanisms to separate central and local responsibilities -88- Annex 8 Page 5 of 6 Task Force 4: Requirements and Preparation of a Grid Code (a). Regulatory requirements to facilitate fair entry for new players in the generation sector (b). Creating an objective and arms-length mechanism for: - regulating bulk sales of power - access to transmission networks (c). Implementing and operationalizing a Grid Code Phase 4: Workshop - Power Sector Regulation in Viet Nam A key phase in this technical assistance will be a workshop on power sector regulation. The workshop will targeted at a audience of senior policy makers, power enterprise officials and power sector experts. At this workshop the working groups will present the task force interim reports (i.e. output of phase 3) on power sector regulation in Viet Nam. The workshop will be important in developing broad consensus amongst policy makers in Viet Nam on the pace and scope of regulatory reform in the power sector. The workshop will be held in Hanoi around July 1996. At present a three-day event is envisaged - 1- day for opening session, an overview of the work, and a presentation of international experience in power sector regulation; 2-days for presentation and discussion of task force interim reports by the Vietnamese working group. Phase 5: Recommended Regulatory Framework and Institutional Structure, Draft Electridty Law Based on the inputs and discussions at the workshop, the working group and the international consultant team will begin to develop the elements of a workable regulatory framework. This task will include: (a). Draft power sector regulation that clearly addresses all the major aspects of regulation discussed by the four task forces. It is of crucial importance that the draft regulation clearly delineate the roles and responsibilities of the different government agencies. (b). Design of an institutional structure that will be able to enforce the draft regulations. The structure must clearly identify new/revised roles of existing institutions, clarify their functions and propose an organizational structure and staffing for any new institution. (c). Preparation of a draft Electricity Law Time Schedule This activity should be completed within 12-16 months of initiation. If work is initiated around August/September 1995, a preliminary draft/design of the legal and regulatory framework (Phase 3) __ W_ -89- Annex 8 Page 6 of 6 may be prepared by June 1996. The Workshop will follow soon after, perhaps around July 1996. It should then be possible to prepare and submit the draft Electricity Law and regulations to the legal committee of the National Assembly for prelininary review by end-1996. -90- Annex 9 Page 1 of 3 VIET NAM Power Development Project Supervision Plan and Key Performance Indicators Supervision Plan SURf-Days Calindar Year 1996 1997 1996 TM FA PP EN RS TM FA PP TM FA PP Physical Implementation 10 10 10 Power Development Plan 2 _ 2 2 Dialogue on Tariffs 2 2 2 Compliance with financial covenants - 12 - 12 - 12 Implementation of environmental plan - - 10 - Implementation of resettlement action plan - - - 10 Institutional development of EVN 3 3 12 - - 3 3 8 3 3 5 PTogress of legal and regulatory studies 3 - 12 - 3 8 3 - 5 Progress on developmnt of PHMY2-2 on OT basis 3 - 12 3 - 8 3 - 5 Progress on rual electrification master plan study 2 - 2 - - 2 - - TOTAL Staff-DayS 25 15 36 10 10 25 15 24 25 15 15 Number of fields visits /_ 3 3 2 1 1 3 3 2 3 3 2 Expertise: TM. Task Manager (Power Sector Issues) FA: Financial Analyst PP: Private PowerfLegl nd Regulatory Framework EN: Environment RS: Resettlement /a The costs of field visits would be shred with other power projects in Viet Nun. -91- Annex 9 Page 2 of 3 Project Performance Monitoring Key Performnce Indicators Project Objective Key Performance Indicator Monitoring Requirements A. Meet demand growth. 1. Annual output of Phu My GTs. Record monthly Gwh generation Target annual plant factor: 68%. for 5 years. 2. Annual availability of Phu My Record planned and forced GTs: 85% outage hours monthly for 5 years. 3. MVA loading of project substations. Record substation peak annual MVA demand for 5 years. B. Introduce private power. 1. Number and capacity of private Record annually for 10 years: power units. (a) number, size and type of Target: PHMY2-2 - 1999. units; and (b) total GWh purchased. PHMY 3 - 2000. Others - later. C. Strengthen EVN 1. Introduction of management systems. Record key institutional developments institutionally and Target: to be developed. annually for 5 years. financially. 2. Number of persons receiving training and type of training. Target: to be developed. 3. Self-financing ratio (SFR) and debt Monitor SFR and DSC bi-annually. service coverage (DSC). Target: SFR - 30%; DSC - 2.0 D. Improve sector finances. 1. Introduction of tariff reforms. Record tariff changes annually. Target: US$7/kWh by 1999. -92- Annex 9 Page 3 of 3 Ke Taret Dates A. Construction and Project Management Appoint consultants for steam cycle of Phumy 2 Phase 1 06/96 Commission GT 1 and meet guarantees 12/96 Commission GT 2 and meet guarantees 01/97 Complete gas line to Phu My from Vung Tau 06/97 Complete long term gas supply agreement 12/96 B. Institutional Development Finalize imnplementation schedule for training program for EVN 09/96 Prepare recommendations for regulatory system and institutional franework 09/96 Commence implementation of Grid Code 09/96 Prepare draft electricity law 09/96 C. Development of Phu My Phase 2 on BOT/JV Basis Invite Bids for Consultants 01/96 Issue Request for Proposals 08/96 Execute PPA 08/97 l: I I I I -93- Annex 10 Page 1 of 11 VIET NAM Power Development Project Environmental Assessment Summary Phu My 1 and 2 Power Plants Project Description 1.1 The project is for the development of 800MW of combined cycle plant at Phu My in the South of Vietnam. The plant will burn natural gas which will be available in mid 1997. At this stage the only stack emissions of significance would be NOx (oxides of nitrogen) which will be maintained below a level of 50 ppm by use of low NOx burners. The first two gas turbines will, however, be commissioned in December 1996 and will burn distillate fuel oil for about 6 months until natural gas is available. During this phase emission of NOx will be rather high at about 300 ppm as it is not justifiable to install NOx reduction measures for such a short period. 1.2 A conventional thermal plant called Phu My 1 as also planned for the site and will consist of 3 x 200MW units. Phu My I will also burn natural gas. Residual fuel oil will be used for emergency standby. For completeness of information this EIA considers total emissions from the site, i.e. Phu My 1 and 2. 1.3 Cooling water for the plants will be taken from the Sao stream at the rate of 60n3/s and will be discharged to the Thivai estuary. Chlorination of the system in order to reduce fouling will be carried out so that the residual chlorine level at the discharge is <0.02 ppm. 1.4 Waste water streams will include water treatment plant waste, sewage, surface drains, boiler washings and other minor sources typical of a power station. They will be treated as appropriate so that the effluents will satisfy IBRD and Vietnamese regulations. 1.5 The plant will require fresh water for boiler make-up and domestic use at a maximum rate of about 2000 m3/day. This will be supplied by wells on site. Gas will be delivered by pipeline and distillate and heavy fuel oil by tanker. A 4km power line will be constructed to join the existing transmission system. Baseline Data 1.6 The Phu My site is located in a rural area about 70kn south east of Ho Chi Minh City. The population of the small townlet is about 8000 and the main economic activities are farming and fishing. The average income is low even compared to nearby districts and infrastructure and services such as electrical supply, roads, health services and education are also poor. 1.7 Given the rural nature of the site air quality is expected to be good. Limited measurements on the site show that this is so with levels of NO2 of 0 - 0.06 mg/mn3 and levels of SO2 of 0.010 - 0.02 mg/m3. Ks -94- Annex 10 Page 2 of 11 1.8 Noise measurements carried out at 3 locations show levels of about 40 dBA at night and higher levels at day time, probably due to nearby construction activities for a harbour development. For power station design night time levels are the most significant as the permitted noise levels are lowest during night. 1.9 The most significant ecological system is that of the mangrove forest and associated fish, shell fish and other animal species. This appears under threat in this region as it does in many parts of South East Asia due to:- * Excessive siltation and organic pollution * Harvesting for firewood and charcoal manufacture * Operation of shrimp and fish aquaculture enterprises which may involve clearing mangrove areas as well as, depending on the stocking level, water pollution from biocides and other wastes. 1.10 There is evidence of all the above activities near Phu My; however successful replanting of mangroves has also taken place in areas where they were cut down. Development of shrimp aquaculture probably represents the single greatest threat. 1.11 A survey of mangrove trees in the site and nearby study area indicated the presence of 32 species. The distribution depends on submersion and salinity levels as well as impacts of artificial replanting. The survey also found the following numbers of animal species which are largely associated with the mangrove areas; * 30 species of birds * 17 species of mammals * 8 species of amphibians * 16 species of reptiles 1.12 The site itself, which is 150ha in extent contain, about 20 ha of mangrove area. The rest is mostly cultivated for rice, cashew nut trees, eucalyptus and other crops. Apart from the mangroves there are no significant habitats or wild life areas on the site or in the surrounding area. A study carried out showed the presence of 201 species of plant in the study area of which 101 occurred in the actual site area. 1.13 The Thivai river estuary, which runs by the site, will be utilised to disperse the heat in the cooling water discharged from the plant. It is wide (400m) and deep (15 - 30m) with a tidal variation of about 3m and a large tidal flow (1O,00Om3/s). Analyses of the water quality of the Thivai estuary indicated the following main features:- * High salinity levels, particularly in the dry season. * Some evidence of oil pollution. * Organic pollution from domestic sources. * Moderate levels of dissolved oxygen. -95- Annex 10 Page 3 of 11 1.14 Surveys of the aquatic ecosystem of the Thivai river indicate that it is typical of the nearby large area of delta. It is rich in numbers of species but with some evidence of an impact from organic pollution. The baseline surveys identified the following numbers of species:- * 72 species of phytoplankton and 31 species of zooplancton. * 60 species of fish and 22 species of shellfish. * 42 species of zoobenthos (near site). 1.15 Fish eggs and larvae are considered particularly sensitive to enviromnental disturbance. A survey of eggs and larvae in the Thivai estuary showed numbers and species composition typical of the delta area. The larvae were found to migrate from surface layer to the bottom depending on the time of day. Environmental Impacts 1.16 The proposed project, consisting of combined cycle plant burning natural gas, is the most environmentally benign forn of thermal power plant. It has a very high efficiency, close to 50%, and lower air emissions and cooling water requirements per unit of electricity generated than for conventional plant. In particular, when burning natural gas with a low NOx burner as is planned for this project, there are no significant emissions of NOx or SO2 and emissions of carbon dioxide are 50% lower than for conventional plant burning fuel oil or coal. 1.17 A major and positive impact will be the provision of 800MW generating capacity. This will impact on a regional basis by strengthening the electricity supply network and allowing the connection of extra consumers and the development of industry and services in the region. The employment of large number of people during the construction and operation phase will also benefit the local economy. 1.18 While some disturbance will be caused to the townlet of Phu My the overall impact should be positive by the provision of jobs and improvement of infrastructure. 1.19 During the construction phase there will be a permanent loss of 2 ha of mangrove forest due to the construction of a jetty and a loss of about 0.5 ha of mangrove at the cooling water intake. There will be a temporary loss of 1 ha due to construction of the cooling water outlet pipes. As these will be buried the areas can be replanted. 1.20 Dredging of the Thivai river in order to allow berthing of tankers of 10,000 dw tonnage as well as all the cooling water system construction will cause a local and temporary loss of benthnic animals as well as disturbance of fish and other organisms. 1.21 Impacts of other construction activities such as noise, dust, sewage, after taking into account mitigation measures, will be minor. 1.22 The Phu My 1 and 2 Power Stations will bum natural gas and the only stack emission of interest will be NOx. A dispersion analysis was carried out for the case of plants on full load and showed that the maximum hourly ground level concentration of NO2 when burning natural gas would be 0.11 mg/m3 while the maximum annual average will be 0.002 mg/m3. These relatively low values will -96- Annex 10 Page 4 of 11 be well below IBRD and Vietnamese air quality regulations and will be of minor significance to air quality in the area. 1.23 For about six months the first two gas turbines to be commissioned will burn distillate until natural gas reaches the site. The rate of emission of NOx will be quite high at 300 ppm as methods of reducing NOx levels such as water injection are not considered feasible for this short period. However as they will be on open cycle for this period the high exit temperature will provide good dispersion characteristics. A dispersion analysis for this case showed that maximum hourly ground level concentrations of NO2 would be 0.100 mg/m3. This level will not break ambient air quality standards nor will it have a significant impact over the short period involved. 1.24 Specification for the proposed plant will be such that noise levels at the site perimeter will not exceed permnitted levels for residential areas. This will ensure that no noise nuisance is caused at nearest residences. 1.25 Cooling water discharge will be at a maximum rate of 60m3/s and a temperature rise of 70C. The discharge will be deep into the Thivai estuary which has a large tidal flow of 10,000 m3/sec. A thermal diffusion study indicates that the physical impact will be minor with, for the worst case, a thermal plume of 1°C extending across the estuary. Beyond the immediate outfall the maximum temperature rise will be 1.5°C. 1.26 Ecological impacts of the thermal plume are not predicted to be significant. However, because it is a deep discharge some scouring will take place at the outfall. No significant impacts will be caused to aquaculture or commercial fishery on the Thivai River. 1.27 Chlorination of the cooling water will take place at a rate that will leave a residual level of <0.02 ppm at the outfall. At this concentration the chlorine should not have any significant impacts beyond the discharge point. 1.28 A large number of organisms including fish eggs and larvae will be entrained by the cooling water system and significant mortality will occur due to pressure, temperature rise and chlorination. This is not predicted to have an overall impact on fish numbers in the area due to the large amount of similar habitat in the region and due to the small ratio of CW flow to overall tidal flow. 1.29 Other waste water streams from the plant include water treatment plant effluent, sewage, surface drains, boiler washes and acid cleans. These will all be treated as appropriate so that the effluents will satisfy Vietnamese regulations and will have no environmental impacts on the receiving water. 1.30 Oil spillage into the sensitive mangrove ecosystem represents a serious menace. In order to minimise this risk strict procedures will be implemented for the delivery, unloading, storage and handling of oil as well as an emergency response plan and clean up procedures. 1.31 Dredging will be required occasionally in order to maintain navigable depth at the jetty. This will create a local and temporary disturbance to biota in the area. The dredged material will be transported for land reclamation to an area not yet designated. - l -97- Annex 10 Page 5 of 11 Summary of Altematives 1.32 Alternatives to the proposed project should be seen in the context of a high predicted growth in electricity demand in the South Vietnam area over the next twenty years. This growth is required for economic development and improvement in standard of living. A mixture of thermal and hydroelectric power, which are complimentary to each other, is required to satisfy this demand. Alternative designs and sites were considered. 1.33 A natural gas fired combined cycle plant, such as the present design, has the following major advantage over other types of thermal plant which might be considered * Lower capital cost * Shorter lead times to power production * Small land area requirements * Higher efficiencies * Lower air emissions per unit of electricity generated * Lower cooling water requirements per unit of electricity generated. 1.34 A number of alternative sites were considered and evaluated on the following criteria:- - Proximity to Bach-Ho - Thu Duc gas pipeline - Distance to transmission lines * Cooling water availability - Environmental and socioeconomic issues - Site area available - Construction and engineering issues. The site at Phu My was judged as the optimum available. -98- Annex 10 Page 6 of 11 TABLE 1 Summnary of Enviromnental Impacts During Construction Phase Source Environmental Impact Mitigation Measures Residual Impact Site Acquisition Displacement of people living Adequate and timely Temporary disturbance - and owning land on site resettlement and/or no reduction in assets or compensation income Transmission line Displacement of 16 families Adequate and timely Temporary disturbance construction resettlement only Construction of Jetty Loss of 2ha of Mangrove None Local but permanent Construction of C.W. outlet Loss of I ha Mangrove Pipes are buried and area will Temporary be replanted Dredging activities Loss of benthnic fauna None Local and Temporary loss Sanitation facilities Sewage discharge Effluent will be treated to Minor Vietnamese standards Noise Noise during piling and steam Restrict piling to day light Minor and temporary purging operations hours. Notify residents of steam blows Dust Dust generated Spraying of access roads and Minor truck tyres Construction Work Traffic Increase Road Improvement Minor Work during construction Short term employment for over Beneficial short term 1000 workers J -99- Annex 10 Page 7 of 11 TABLE 2 Summary of Impacts of Atmospheric Emissions for Phu My I and 2 When Burning Natural Gas Impact Predicted Vietnamese IBRD l__________________________________________________ Regulations Nitrogen Oxide (NO2) Ambient 1-hour maximum pg/mr 110 300 _ 24-hour maximum pg/m3 - - Max. annual average pg/rn 2 80 100 Sulphur Dioxide (SO2) (a) Ambient 1-hour maximum pg/r3 0 300 - 24-hour maximum Ag/M' 0 - S00 Max. annual average pg/M3 0 80 100 Carbon Dioxide (CO2) (a) Emission Tonnes/annum (total) 4.7 x 10' - - Noise (dB (A)) Noise Levels at Boundary fence 55 55 (b) Residential Area <55 55/60 (b) 55 (b) Particulates 24-hour maximum Ig/rO < 1 200 500 (a) 100% load factor (b) Varies with day / night; indoors and outdoors and other factors -100- Annex 10 Page 8 of 11 TABLE 3 Summary of Environmental Impacts During Operation of Plant - Aqueous Emissions of Phu My 1 and 2 Source Environmental Impact Mitigation Measures Residual impact Water Treatment Contains strong acids and Treated in neutralisation tank to pH 6- Negligible Plant Waste alkalis 9. Effluent will comply with waste water standards (Ref.8) Oil Contaminated Adverse impact on marine All surface drains will be routed Minor Surface Water organisms if discharged through oil interceptors. directly Effluent will comply with waste water standards (Ref.8) Sewage High BOD and micro Sewage will be treated to < 20 mg/I Minor biological pollutants BOD before discharge Boiler Blowdown Contain very low No treatment necessary Negligible concentration of contaminants Boiler Acid Clean Utilises toxic chemicals. These will be treated with the waste Minor This process arises only removed off site for disposal. Effluent rarely. discharged will satisfy waste water regulations (Ref.8) Chemical Spillage Bulk chemicals stored on Stored bulk chemicals will be bunded Negligible site, in particular acid and so that any spillage will be contained alkali and controlled Boiler Washing If buming residual fuel oil Metals will be precipitated by chemical Minor can contain vanadium and treatment and removed offsite to land other metals fill -101- Annex 10 Page 9 of 11 Table 4 Summary of Impacts of Cooling Water System Operation for Phu My 1 and 2 Source r Environmental Mititption Residual Impact j Measures Impact Intake of 60 m3/s Loss of fish eggs None Small in relation and plankton to overall abundance in the area Intake screens Loss of fish Optimum measures Minor through not yet selected impingement Discharge of Impact on sensitive Discharge designed Minor heated water organisms so that temperature rise will not exceed I.C Chlorination of Impact of Residual chorine Negligible C.W. system residual chlorine levels will be kept on ecosystem to < .02ppm Discharge of CW Scouring of bottom None Perrmanent but local disturbance of area Summary of Mitigation Measures 1.35 In order to reduce enviromnental impacts from the proposed development mitigation measures, sunmmarised below, have already been put in hand or are planned. Apart from these, and taking into account the minor residual impacts of the proposed development, no further mitigation measures are considered necessary. 1.36 Mitigation measures to apply during the construction phase include the following:- * Provision of housing, clean water, sanitation facilities, health services to the construction workers. * Sewage treatment. * Dust suppression control * Noise control 1.37 During the operation phase air emissions will be controlled by burning natural gas and installing low NOx burners. -102- Annex 10 Page 10 of I1 1.38 Noise control will be by housing and acoustic cladding of noisy plant to ensure noise levels at the site perimeter are within regulations. Other noise reduction measures such as tree plantations may be used as appropriate. 1.39 Impacts of the cooling water system will be mitigated by:- * Design of outfall to reduce extent of thermal plumes. * Maintaining residual chlorine levels at less than 0.02 ppm. * Measures to reduce impingement of fish at the intake. 1.40 All other waste water streams will be treated so that effluents will satisfy Vietnamese regulations and will not cause any significant impacts. 1.41 In order to avoid risks of ground water pollution or soil contanination all waste materials that will arise at the site will be monitored as to type and quantity and removed offsite for disposal or recycling. Environmental Management and Training 1.42 It is recommended that an environmental unit be set up as part of the management structure in the new development at Phu My. The main function of this unit would be the monitoring and control of waste water streams and other emissions from the plant. This function could be combined with the already planned water quality analysis programme at little additional expense. 1.43 It is also recommended that as EVN expands its generation programme, an environmental co-ordinator be established with the function of developing environmental policy, issuing in-house guidelines and establishing compliance with standards and regulations and setting up an environmental management system. 1.44 It is further recommended that this co-ordinator would also liaise with other groups such as a coastal zone management group in order to promote strategies for the protection and sustainable development of the delicate coastal zone. Environmental Monitoring 1.45 In order to fully control the implementation of the proposed project, it is recommended that the following monitoring programme be put in place:- * Monitoring programme of the waste water streams from the new project. * Extension of the existing air monitoring programme. * Noise monitoring at the site perimeter. * Monitoring of waste materials arising on site. * A review of the baseline ecological study of the Thivai river estuary particularly in the area near the power plant site. 1.46 During the construction phase monitoring for dust levels, noise levels, sewage effluent should be carried out to ensure no nuisance is created. -103- Annex 10 Page 11 of 11 1.47 Recommendations are made for training programs for management and staff at the proposed plant. Particular attention should be given to staff involved in environmental work, to those handling oil and chemicals and those involved in emergency and safety procedures. i I I I I I I I I -104- Annex 1I1 Page 1 of 16 VIET NAM Power Development Project Resettlement Action Plan TABLE OF CONTENTS Section 1: Introduction The Project The Resettlement Action Plan (RAP) Project Affected People (PAP) Resettlement Principles and Objectives Section 2: Institutional and Legal Framework Institutional Framework Legal Framework Section 3: Entitlement Policy Section 4: People's Participation Section 5: Baseline Information Census and Inventory of PAP Section 6: Implementation Arrangements Resettlement and Construction Schedule Implementation Arrangements Implementation Schedule Complaints and Grievances Supervision and Monitoring Section 7: Costs and Budget Budget for RAP activities -105- Annex 1l Page 2 of 16 Annexes Table 1 Inventory of PAP land losses and compensation - Phu My 2 Site Table 2 Inventory of PAP crop, tree losses and compensation - Phu My 2 Site Table 3 General inventory of PAP - Phu My 2 Site Table 4 Entitlement in cash of PAP - Phu My 2 Site Table S Socio - Economic profile of PAP - Phu My 2 Site Table 6 PAP inventory and entitlement - Temporary transmission line Table 7 Socio - Economic profile of PAP - Temporary transmission line Table 8 Agencies responsible for RAP activities Table 9 Implementation Schedule Table 10 Total budget estimates for compensation and resettlement App. I Format for inventory of PAP land, crop, tree losses Map 1 Phu My 2 - Cadastral and Land Use Map 2 Transmission Line ROW Map 3 General layout of Phu My site - l -106- Annex 11 Page 3 of 16 SECTION 1 INTRODUCTION A - The Project 1. Under the Power Development Project, the Electricity of Viet Nain (EVN) will be constructing the Phu My 2 (PM2) Power Station (the Project), comprising two 300-450 MW combined cycle power blocks. This power station will require acquisition of 180,000 ml of land in 1995. This Resettlement Action Plan (RAP) covers this power station and has been prepared by the Management Board of Phu My - Ba Ria power plants of EVN (PMBRMB) with the consulting support of the Power Investigation & Design Company N°2 and was approved by EVN and the relevant local government bodies at the end of August 1995. The power station is located on land where further power generation development is planned. Resettlement, compensation, and rehabilitation of persons affected by further power station development will follow the principles laid down in this RAP. This RAP applies for PM2. 2. At the Phu My Site it is proposed to construct power plants PM1, PM3 and PM4 in the future. The Land for PM1, PM2 and PM4 and cooling water intake and discharge canals for these plants were acquired together and the compensation payment will be finished by the end of October, 1995. The principles for the total land acquisition process followed the same guidelines, and are described in this RAP. However, the numbers of affected persons and households, the approximate area acquired, etc. are only those for PM2. (See attached Map 3) B - Resettlement Action Plan (RAP) Project Impact Area 3. Phu My 2 power plant will be constructed in Phu My Townlet, Tan Thanh District, Ba Ria-Vung Tau province. Phu My Townlet was set up since August 15, 1994 from the former Phu My village. Phu My Townlet is located in an area running from km 44 to km 47 along the National Road No 51 and on the left bank of the Thi Vai river. The distance from the Townlet to Ho Chi Minh City is about 80 km., 20km to the provincial center of Ba Ria and 40hn to the coastal city of Vung Tau. 4. Phu My Towniet covers 3,000 ha. Its population is 8,126 people living in 1,481 famnilies. There are 3,707 people of working age. The percentage of women is 50%, children under 15 years old is 30%. The percentage of economic dependants is 54.25%. Agriculture, animal husbandry, fishery, salt production and forestry are main professions of local people. The other subsidiary professions are service and handicrafts. 5. More than 65% of the inhabitants live on agricultural activities concentrated mainly on tree crops (fruit and cashew nuts) and partially on rice cultivation. Since soil in the Phu My site is sandy and salty, the agricultural production is very low. Average annual income per capita of local farmers is low, at about VND 891,320 (1994 statistics). -107- Annex I I Page 4 of 16 Project Land Acquisition and Resettlement Impact 6. The Phu My 2 Power Plant covers a total area of 180,000 m2. The total area for this RAP analysis is taken all plots affected particularly/or fully by PM2 plant. On this area will be constructed the power generating plant itself and ancillary buildings like administration, water treatment plant, workshop, warehouse and fuel supply system. The cooling water system and oil unloading jetty will be commnon with Phu My 1 power plant. The plant will be permanently connected to the network through 220kV busbar of Phu My 1 220kV switchyard. 7. Since PM1 will be built after PM2, the PM2 project will temporarily connect to the Ba Ria - Long Binh transmission line by overhead 220kV line. Right - of - way for this temporary transmission line is 4.4km long and 21.6m wide, and it is included in the PM2 project. 8. The transmission line, and its routing, has not been decided and approved by the Government, therefore the land requirement for this has not yet been determined. This RAP is based on the assumption that the transmission line is chosen as indicated on the attached Map 2. 9. Similarly, the underground gas fuel pipeline from the Ba Ria gas supply station to the power plant has not yet been finally located and designed, and land requirements for this has not yet been determined, this will be contracted out for gas fuel delivery at the fence. For both the transmission line and the fuel intake, the principles of this RAP will be followed. 10. The project produces two major impacts. The first is land acquisition and the resettlement of the area of the power station site and the second is the clearance and relocation of houses under the transmission line and the fuel intake line. Il. Based on the survey, the power station area consists of 130 pieces of land belonging to 49 households of the Quang Phu hamlet of Phu My Townlet and 3 households of Vung Tau city. All the 49 households live in the same hamlet. There are no houses on the project area. In land - use structure, cashew plantation covers an area of 13.78 ha (66.7%). Paddy - crop covers an area of 2.5 ha (12%), other trees cover an area of 4.39 ha (21.3%). The number of PAPs affected by the power station area is 305 of which 84% gain their main income from agriculture, 10% from service and small trade, and 6% from handicraft and other occupation. Most of the land under cultivation in the power station site was newly - reclaimed from vacant land after 1975. Land - use certificates has not been issued to any land - users. However, all plots have been surveyed and registered in the cadastral and tax payment book of Town People's Committee. Therefore, there are no disputes over the land - use rights. 12. The second major affected area of the temporary transmission line is the place where the transmission line crosses the National Highway N°51. There are 9 households whose houses and their properties are identified under the 21.6m right - of - way of transmission line. All these 9 households (100 %) gain their living from agriculture. There are 4 households with brick - made houses, the rest are households with thatched and timber structures. 13. The power generating plant area has already been acquired and the first step of compensation payment has been done, the second (last) will be done by the end of October, 1995. The transmission line and fuel intake line ROW has not been acquired yet. J -108- Annex I 1 Page 5 of 16 14. The Socio-Economic study, undertaken as part of the Environmental Impact Assessment shows that while the affected people welcome the project and the economic development and employment opportunities that this will create, the affected people expressed their concerns regarding the level of compensation. For the success of the project such concerns should be covered by adequate rates of compensation and suitable rehabilitation measures. This RAP was prepared after extensive consultations with the project affected people, and the rates of compensation were only determined after careful examination of the cost of replacement of similar land. 15. This RAP defines the PAP, the resettlement principles and objectives, legal and institutional framework, modes of compensation and rehabilitation, people's participation features and grievances procedures that will guide the resettlement and rehabilitation of the PAPs. The RAP is based on the results of the census and socio-economic survey of the PAPs and properties to be affected and includes compensation and/or resettlement and rehabilitation entitlements of various categories of PAPs; a timetable for implementation of the RAP; allocation of the institutional responsibilities for implementation; a budget for funding the various compensation and rehabilitation measures, internal and extemal monitoring arrangements. These components are detailed in the following parts and in the Annex. 16. The principle objective of this RAP is to ensure that all PAPs will be compensated and rehabilitated to assist them to improve, or at least maintain, their living conditions and income earning capacity at the pre-Project levels. The PAPs will be resettled as close as possible to the vicinity of their original residential areas. C -Project Affected People (PAP) 17. The PAPs include the following persons: (a) persons whose residence is in part or in total affected by the Project; (b) persons whose premises and/or agricultural land is in part or in total affected (permanently or temporarily) by the Project; and (c) persons whose businesses are affected in part or in total (temporarily or permanently) by the Project. D - Resettlement Principles and Objectives 18. The principles outlined in the World Bank's Operational Directives 4.30 have been adopted in preparing the RAP. In this regard the following principles and objectives have been applied: (a) Minimize adverse impact on the local population of acquisition by the project location and project design. (b) All PAPs residing or cultivating land in the Project area as of the date of the socio- economic survey are entitled to compensation and rehabilitation, and resettlement if required. -109- Annex 1 l Page 6 of 16 (c) PAPs will be compensated, resettled and rehabilitated so as to improve their standard of living or at least maintain their current standard at pre-project levels. (d) The means of resettlement and rehabilitation are: Compensation at replacement cost for houses and other structures, agricultural land for land of equal productive capacity acceptable to the PAP. PAPs losing productive land will be given a choice among the following alternatives: (i) land for land of equal productive capacity; or (ii) cash for land and a choice to opt for land - based or non - land - based rehabilitation. For PAPs losing house and premise land only, replacement of premise land of equal size acceptable to the PAP, transfer allowance, and compensation for structures, trees, tombs, wells and other fixed assets at replacement value. (e) Replacement premises and agricultural land must be acceptable to the PAP and will be as close as possible to the land that was lost. (f) The resettlement transition period will be minimised and land for land and/or cash compensation will be provided to the PAPs no later than one month prior to the eviction of the PAPs. (g) Comnpensation, resettlement and rehabilitation will be carried out in close consultation with the PAPs. (h) Financial and physical resources for resettlement and rehabilitation will be made available as and when required. (i) Institutional arrangements will ensure effective and timely design, planning and implementation of the RAP. (k) Supervision and internal, as well as external monitoring will be an integral part of the project design to ensure effective and timely implementation of the RAP. SECTION 2 INSIMJTIONAL AND LEGAL FRAMEWORK A -Institutional Framework 19. The responsibilities for implementing the RAP are as follows: (a) EVN (or PMBRMB on its behalf) assumes the overall responsibility for planning and imnplementing the RAP. For this purpose, PIDC2 provides technical consultancy support for RAP planning. PMBRMB is responsible for co-ordinating with the Provincial People's Committee (PPC) of Ba Ria Vung Tau, District People's Committee of Tan Thanh (DPC) and Town People's Committee of Phu My (TPC). The Phu My TPC have held meetings -110- Annex 11 Page 7 of 16 to discuss the various aspects of the RAP with the PAPs in the presence of PMBRMB representatives. (b) Funds for the resettlement program will be provided by EVN based on decisions reached through negotiations between local governments (provincial, district, and town people's committees) and the PAPs. (c) EVN will implement the RAP in co-ordination with the Provincial, District, Town People's Comnnittees and the participation of PAPs. B - Legal Framework 20. The overall objective of the RAP is guided by Article 27 of the Land Law of 1993 as further amplified by Government Decree No 90-CP of 17th August 1994. Article 27 provides that: "In case of utmost necessity, then the State recovers land being used by a land user, for national defence, security, national benefit, or public benefit purposes, the land user shall be given compensation for the damnages". 21. Compensation for land and fixed assets (e.g. houses) is defined by the Government Decrees No. 87-CP and 89-CP of the 17th of August 1994, which provide for land compensation and cash for land, when land is not available, at rates established by Government. These rates have been established for purposes of leasing government land, acquisition of land by government for national purposes, and for tax computing on issuing land use rights certificates. Also, compensation for land and fixed assets is defined by Decision 423/QD-UBT of March 30th 1993, Decision 31/QD-TJBT and Decision 970/QD-UBT of the Ba Ria - Vung Tau People's Committee. SECTION 3 ENTITLEMENT POLICY 22. In respect to resettlement principles and objectives and based on PAP's census survey (Table 1) PAP will be entitled to the following types of compensation and Resettlement and Rehabilitation (R & R) program, according to their entitlement categories. (a) PAPs losing agricultural land will have the choice between the following forms of compensation: (i) either to be provided with land of equal productive capacity by the Peoples' Committee of the District, satisfactory to the PAP. (the land-for-land option) (ii) or to be compensated in cash for the lost land at a rate that can provide for similar type of land in the commune as mutually agreed between PAP and PC of Ba Ria Vung Tau. (the cash-for-land option) -lll- Annex I 1 Page 8 of 16 23. The PAP census showed that all PAPs expressed a clear preference in favour of cash-for- land compensation. This supports their preference to select alternative land themselves rather than be allocated alternative land by the Peoples' Committee. The location of the alternative land will be in the vicinity of the commune. When the PAP have identified land, and agreed with the present land user that the land should be registered in his/her name, the Townlet will arrange for this land to change land user, without fees. The Townlet will monitor that the PAPs wanting land have been able to get land. The cash rate of compensation has been calculated to meet the replacement value by taking the state - authorized land - use value of 70 VND/m2 and adding the a production assistance of 5,930VND/m2 for new land development in the transitional period. This comes to a total of 6,OOOVND ( 0.55 $US) per m2 of land. According to a survey of current rates for land - use transfer, and the PAPs, this is adequate to secure new land in the vicinity. (iii) Compensation in cash at market price is to be provided for the loss of standing crops and other trees, plus the assistance in cash equivalent to the lost production in the transitional period to restore the original income depending on the maturity and quality of the existing plants and trees. The average compensation cost per tree, as well as the production assistance for the trees to restore the present production are shown in Table A. The production assistance is calculated as a product of the number of years to bear fruit and the average annual income from the trees. Table A: Actual Average Compensation Rates Compensation Items Cash Compensation Price Production assistance Total (1000 D) (IOOOD/year) (IOOOD) Remark Cultivated Land 0.070 /m2 5.930/m2 6.0 Cashew trec 40 90 130 3-5 years Eucalyptus 16 0 16 Nursary Coconut tree 20 0 20 Nursary Mango 12.4 0 12.4 Nursary Custard - apple 16 8 24 1 year Cajuput 11 0 l Nursary Blue dragon 10 1 6 16 1 year The above rates have been negotiated with the PAPs and are acceptable to them. (b) PAP losing agricultural land will be provided economic rehabilitation of their own choosing through various activities in support of their requests. (i) For those PAP opting for land based rehabilitation, whenever required, the local committee will assist them in securing the alternative land with necessary procedures like official witnessing and registration. The local committee will monitor progress to ensure that PAPs have acquired land of their choice. If PAPs opt for land in the conunune or nearby area then adequate land will be available. The land in these areas are of better quality than the land currently used by the PAP. Hence, it is expected that the compensation areas will permit more intensive -112- Annex 1I Page 9 of 16 use of the alternative land and therefore yield higher incomes to the PAPs concerned The requisite nursary trees are available in the market at very low prices. (ii) Those PAPs opting for non - land based rehabilitation will be provided opportunities of employment, training and starting new occupations, as well as the assistance needed in order to maintain their living standard. PMBRMB will present PAPs seeking employment to the contractors engaged in construction of PM2, and co-operate with local authorities in fmding employment opportunities for PAPs. EVN has recently started a two year residential course for operation of power plant staff, where suitable PAPs have been accepted. PAPs opting to start their own business (food etc.) will be assisted by EVN and local PCs with registration, tax exemptions in the beginning years. EVN will also be responsible for providing fees for training to the PAP in relevant occupations at local vocational training centers, planned to start early 1996. The training would cover technical training (like tailoring, electrical repair, carpentry) and business training (like running of small enterprises, marketing and finance). (c) PAPs whose house is affected by the project transmission or fuel lines and forced to relocate will be entitled as follows: (i) A equivalent residential site, acceptable to the PAP and cash compensation at full replacement cost for the affected structures and fixed assets without depreciation. The PAP will be allowed to take material from the site before it has to be vacated. (ii) A transfer allowance of about 1 million VND or more for the relocation of the affected house to new resettlement site. (iii) Land not directly acquired for construction (of transmission poles, etc) but is in the right of way can be used by the current user for cultivation, grazing and other activities, and will normally not be compensated. However, as height restrictions of 4 meters will have to be observed by the user in all future, trees above that height will be removed and compensated as above. Because of the restrictions in land use, the PAP will receive a one-time lumpsum 'restriction-fee' of at least 70 VND/m'. (iii) Any damage caused to PAP's properties and crops during project construction period will be compensated at market price by Contractor. SECTION 4 PEOPLE'S PARTICIPATION IN THE PROJECT 24. There are various stages in the RAP planning and implementation activities that require the PAP participation. This was encouraged by favourable conditions created by PMBRMB and the respective conmnittees. -113- Annex 11 Page 10 of 16 25. The PAPs were adequately informed by the relevant local peoples committees of the details of the RAP and meetings were held as follows: Dec. 14, 1994 PAPs informed by local Peoples Committee (PC) on project impacts June 25, 1995 PAPs representatives (7 households) met with Tan Thanh PC. August, 1995 On site verification of losses. The procedure of verifying the number of trees, their age, etc, and determining the value was done with the participation of the concerned PAP, representatives of the local Peoples' Committees (District and Towniet), and an independent consultant. Sep. 9, 1995 PAPs met with PC of Phu My Townlet, Rehabilitation Committee of Baria- Vung Tau Province, Tan Thanh District and PMBRMB representatives. 26. PAPs were specifically informed about the choice available to them and their subsequent choice was recorded. 27. The PAP's participation included their attendance in the meetings jointly held by PMBRMB and the respective people's committee in order to learn of the project impacts, obtain their co-operation in providing adequate information on affected matters, and to give their suggestions for RAP planning. 28. The crucial PAP's participation is their agreement upon the finalisation of RAP. This includes their consensus in joining the consultancy process to mutually arrange compensation choices and rates, and the commitment to the implemnentation arrangenent with the respective people's committee and PMBRMB in the spirit of current law and the R & R policies. 29. The final participation that is also important, is the PAP's co-operation with respective people's committee and PMBRMB in implementing RAP and resolving any issue that may arise in the process. SECTION 5 BASELINE INFORMATION A - Co= and Inventory of Project Affected People 30. The census and inventory of PAP were covered in the survey by PMBRMB and the technical support by PIDC2. Detailed information on PAP is attached in the Annex. The locations of the acquired plots and the affected area under the possible transmission line are specified on Map 1 and Map 2. In the Annex, Table I exhibits the Inventory of land losses and compensation - PM2. Table 2 preents the Inventory of PAP crop, tree losses and compensation - Phu My 2 Site. Table 3 shows the General inventory of PAP - Phu My 2 Site. Table 4 is reference of the Entitlement in cash of PAP - Phu My 2 Site. Table S is the records of Socio - Economic profile of PAP - Phu My 2 Site. Table 6: - l -114- Annex 1I Page 11 of 16 PAP inventory and entitlement - Temporary transmission line. Table 7: Records of Socio - Econoomic profile of PAP - Temporary transmission line. Summnary of project impacts and different PAP categories is listed below: Table B: Pro*ect ImDact Summary PM2 Site Transmission line Total area of land (ha): 20.667 0.058 area of houses - Number of affected households: 52 9 (3 from Vung Tau) - Number of houses on plot: 0 9 - Total number of Cashew trees: 5,058 702 - Total number of other trees: 25,293 569 Table C: Data of PAP of PM2 Land-based rehabilitation Non-land based - Number opting for land purchase: 18 34 - Number losing #100% of land: 2 h. holds 2 h. hold Total land loss (ha): 0.6792 0.4021 Total income loss (IOOOD/year): 4,619 10,791 - Number losing more 20% and less 100%: 15 h. holds 23 h. holds Total land loss (ha): 7.2712 3.9135 Total income loss (lOOOD/year): 94,109 78,539 - Number losing 20% or less land: 1 h. holds 9 h. holds Total land loss (ha): 0.0071 0.4607 Total income loss (IOOOD/year): 425 18,191 Remark: The above percentage of land loss is only taken in comparison to the total agricultural land area in Phu My commune fields belonging to h. holds. 31. Incomes of PAPs are expected to improve due to new ability to intensify agricultural production ( in the case of those opting for land-based rehabilitation) or due to the potential offered by small scale enterprise. Typical incomes from small scale trading is 7.2 million VNDJyear and for food services, 12 million VND/year. Construction firm labour income is about 9.8 million VND/year. -115- Annex 1I Page 12 of 16 SECTION 6 IMPLEMENTATION ARRANGEMENT A - Resettlement and Construction Schedule 32. The PAPs have been informed by project authorities and/or LPCs about the detailed description of project impacts and the properties to be acquired . Payment of compensation for crops, trees and other properties, allotment of land for construction of relocated houses, and replacement land of equal productive capacity, will be completed before the affected people will be evicted from the land and construction can start on the affected area. B - Implementation Arrangements 33. Implementation of the Resettlement and Compensation (RIC) program will be a joint effort of EVN and it's subsidiary (PMBRMB), the Provincial Peoples Committees (PPC), District peoples' Committees (DPC) and the commune authorities. The overall responsibility for implementing the RAP will be that of EVN. EVN will exercise its functions through MB of PMBRMB. Though most of the activities will be carried out in close co-ordination with the Peoples' Committees at various levels, the officials of EVN and of PMBRMB will ensure that implementation complies with the RAP (Par 45). EVN will be responsible for co-ordinating the disbursement of funds. The funds would be disbursed to the people directly by PPCs, with the Local Peoples Committee Representatives acting as a witness. 34. The PPCs will inform the concerned district about the resettlement program and direct it to take the steps necessary for compensation and resettlement of the PAP. The DPCs will inform the PAP and the respective communes about the project and the R/C program and co-ordinate its activities. 35. PMBRMB and PIDC2 have carried out a socio-economic survey on PAP covering the following information: (a) The losses of PAP's land, properties, crops. (b) PAP's claims on compensation choices and compensation rates. (c) PAP's aspiration for R/C. 36. The PPCs are responsible for checking and fixing compensation amounts for various types of affected properties in agreement with PAP and in accordance with the principles of this RAP. Payment of compensation will be supervised by PPC & PMBRMB and its agencies. Allotment of alternative lands for PAP's house relocation will be the responsibility of the DPCs. 37. The town authorities will be in charge of informing the PAPs about the RAP implementation schedule, and to redress their grievances and to act as a communication link between the PAPs and the DPCs, PPCs, EVN & PMBRMB. Most routine activities will be co-ordinated directly by the town and district authorities. EVN will finance the total cost of the RAP and ensure the timnely availability of funds. Table 8 in the Annex shows the activities which need to be carried out as a part of the R/C program and the organisation(s) responsible for it. I -116- Annex I Page 13 of 16 Table 8: Agencies Responsible for RAP Activities No RAP Activities Agency Respodble C Inform the PAPs about the project and the resetlement program MB PM-BR 2 Conduct Survey to detennine affected houses and properties MB PM-BR; PIDC2 3 Conduct detailed survey for fixing compensation MB PM-BR; PI=C2 4 Fixing compensation rates and amount Provincial Compesation Committee; MB PM-BR 5 Paying compensation Provincial Compensation Conmittee; MB PM-BR 6 R&R Town People's Committee; MB PM-BR 38. With regard to economic rehabilitation of PAPs, it is important to note that the area is an rapid growth area, with several new employment opportunities emerging. Not only from the power plant development, but from several industries already established in the area (e.g. Vinakyoei Steel Mill). As noted earlier, the Townlet of Phu My was established in August last year, in order to facilitate the economic growth of the area, and the local PC have made several plans for improving the general as well as the technical educational facilities. Many PAPs, and especially their teen-age children, have expressed their desire for changing their sources of income from agriculture to off-farm employment, either in the opportunities established by incoming industries or by self-employment to render services to these enterprises and their workers. Therefore the challenge of the economic rehabilitation program of this RAP is to ensure that PAPs avail of the opportunities that are being created in the area. This require general education, vocational training, access to credit, and initial extension support. The major responsibility for implementing these measures lies with the PC of the Townlet and the district, and funding will be provided by EVN. 39. The first step in this process will be to carry out a detailed survey of the capacity, wishes and plans of PAP households. Every person, belonging to an affected household, between 16 and 50 years of age will be offered assistance for economic rehabilitation to be availed of within a two year period from the time of the survey. Based on this survey, a rehabilitation plan will be worked out for the PAPs. This survey will be carried out by the agency that EVN will contract for external monitoring and evaluation during November-December 1995. C - Implementation Schedule -117- Annex 11 Page 13 of 16 Table 8: Agencies Responsible for RAP Activities No RAP Activities Agency Respousble| I nform the PAPs about the project and the resettlement program MB PM-BR 2 Conduct Survey to determine affected houses and properties MB PM-BR; PIDC2 3 Conduct detailed survey for fixing compensation MB PM-BR; PIDC2 4 Fixing compensation rates and amount Provincial Compensation Committee; MB PM-BR S Paying compensation Provincial Compensation Committee; MB PM-BR 6 R&R Town People's Comnmittee; MB PM-BR 38. With regard to economic rehabilitation of PAPs, it is important to note that the area is an rapid growth area, with several new employment opportunities emerging. Not only from the power plant development, but from several industries already established in the area (e.g. Vinakyoei Steel Mill). As noted earlier, the Townlet of Phu My was established in August last year, in order to facilitate the economic growth of the area, and the local PC have made several plans for improving the general as well as the technical educational facilities. Many PAPs, and especially their teen-age children, have expressed their desire for changing their sources of income from agriculture to off-farm employment, either in the opportunities established by incoming industries or by self-employment to render services to these enterprises and their workers. Therefore the challenge of the economic rehabilitation program of this RAP is to ensure that PAPs avail of the opportunities that are being created in the area. This require general education, vocational training, access to credit, and initial extension support. The major responsibility for implementing these measures lies with the PC of the Townlet and the district, and funding will be provided by EVN. 39. The first step in this process will be to carry out a detailed survey of the capacity, wishes and plans of PAP households. Every person, belonging to an affected household, between 16 and 50 years of age will be offered assistance for economic rehabilitation to be availed of within a two year period from the time of the survey. Based on this survey, a rehabilitation plan will be worked out for the PAPs. This survey will be carried out by the agency that EVN will contract for external monitoring and evaluation during November-December 1995. -118- Annsex I11 Page 14 of 16 C - Implementation Schedule 40. Table 9 shows the Implementation Schedule of the RAP activities. Table 9: Implementation Schedule No Activities 1995 1996 Rark _ bo~e d d 'e 6 7 8 9 1I1t112 1 2 3 4 l_S -Inf-torm PAPs about projea and the _ _ _ __ Frm Dvc 14. 1994 comperudion nd resctew ct _ _ program =_=_=______ _ 2 Conduct surveys to demnine people and properties affected ____________ 3 Fix rats of comp_iado of various ypes of affected 1ands and 4 Conduct detailed surveys to MInalie= the amnount of tuoal coapesadic payable 5 Redress the coumptai of dte PAPs regarding mmue and ra mtes of compensation 6 Pay compension 7 Rehabilitation ________________ Securing altemaive land Survey of raining needs =_=_= =_=__=_= =_=_ Training Altenative profession…_ _ j ______ 8 Monitoring ____ = ___ _ . For 5 yeam D - Complaints and Grievancs 41. Complaints and grievances related to any aspect of the RAP will be handled through negotiations aimed at achieving consensus. 42. Settlement between the PAP and local government will be first attempted at the level of the Commune. If this first conciliation attempt fails, the case will be discussed a second time at the District level. If at the District level the case is not resolved, an ad-hoc committee established by the PPC will decide the matter 43. In case where, despite the above efforts, no agreement is reached between the parties, the case will be submitted to the District court. 44. PAPs who present their cases to the Commnune, District and Provincial authorities, will be exempted from any legal fees. PAPs, who bring their case to the District Court, will have to follow the prevailing laws. -119- Annex 11 Page 15 of 16 E - Supervision and Monitoring 45. Implementation of the RAP will be regularly supervised and monitored by EVN in co- ordination with the respective local peoples committees. An agency nominated by EVN, namely PMBRMB will periodically carry out internal monitoring and evaluation. External monitoring will be done by an organisation such as an academic or a research institution, an NGO or an independent consulting firm. They will be identified and hired in November 1995, prior to commencement of project implementation. 46. Internal monitoring and supervision will: (a) verify that the census and socio-economic survey of all PAPs has been carried out and that property assessment and compensation, resettlement and rehabilitation has been carried out in accordance with the provisions of the RAP; (b) oversee that RAP is implemented as approved; (c) verify that funds for implementing the RAP are provided in a timely manner, are sufficient for their purposes, and are spent in accordance with the provisions of the RAP. (d) ensure that all PAPs opting for land-based rehabilitation have been able to secure land and all those opting for non-land-based rehabilitation have been set up in their new occupations; and (e) monitor the implementation of training to the PAPs. 47. In addition to verifying the reports generated by the internal monitoring, the extemal nonitoring agency will carry out the following tasks: (a) evaluate the initial social and economic impact of land acquisition and assess the training needs of PAPs, based on which a training programme, availing of existing institutions will be proposed; (b) verify if the objective of enhancement or at least restoration of income levels and standards of living of the PAPs has been met; and (c) suggest modification in RAP implementation to achieve the principles and objectives set forth in of this RAP. 48. Monitoring activities will start from the time the PAPs have been compensated and will continue for a period of about five years. The extemal monitoring agency will undertake surveys on an annual basis and produce reports. J -120- Annex 11 Page 16 of 16 SECTION 7 COSTS AND BUDGET A - Budget for RAP activities 49. Timely availability of funds for carrying out surveys, payment of compensation, allotment of alternative sites and transfer of houses to new sites is crucial for effective implementation of the RAP. It is the responsibility of EVN to ensure that adequate funds for implementing the RAP are available on schedule. Table 10 provides an estimnate of the RAP costs. Table 10: Total Budget Estlmates for Compensation and Resettlement No RAP Activities Quantity Unit Average Price Total (IOWD) (IOOOD) I Physical and socio-economic surveys _ X______ 352,000 2 Compensation for 9 houses under tr. lines 580 m2 299 173,338 3 Compensation for land 206,674 m2 6.00 1,240,044 4 Compensation for Crops 5,760 Nunber of Cashew 133 763,624 5 Compensation for Trees 30,920 Number of trees 38 1,164,191 6 Assistance of transfer to new sites 9 Household 1,000 9,000 7 Administrative expenses 1% of all of above . 37,022 8 Training in new profession 150,000 9 Contingencies 15% 555,329 Total Budged Cost 4,444,S4 I I I I _l -121- Annex 12 VIET NAM Power Development Project Environmental Analysis for Installation of Transformers 1. All transformer sub-stations in Viet Nam follow the Vietnamese Environmental and Safety Regulations for these installations. All installations are subject to approval of the Electrical Inspector. The design and layouts of substations at rated voltage of 110 kV and above are subject to approval by the Fire Protection Authority. The following are some of the environmental and safety measures followed: (a) Provision of fire partition walls if distance between two transformers is less than 25 meters (mainly applicable for 220 kV substations). (b) Provision of retention basins with gravel below transformers for quenching burning oil in the event of fire (for transformers 25MVA and above). (c) Provision of automatic fire protection system including a sump tank for transformers rated 220 kV and above. (d) Provision of adequate safety clearances for all high voltage equipment. (e) Use of only oil-less or minimum oil circuit breakers indoors. (f) Specification of Noise Level (70db) for transformers. PCB is not used in transformers or switchgear in Viet Nam. 2. The installation of transformers and associated switchgear at existing sub-stations pose no significant environmental risks nor create any significant environmental impacts. I I I I I I -122- Annex 13 Page 1 of 3 VIETNAM Power Development Project Project Cost Estimate Phu My 2 x 150 MW Gas Turbine Generator Sets .Local Foreign Total (USS '000) Site Preparation 2.0 0.0 2.0 Buildings and Setting 5.0 11.0 16.0 2x150 MW GT Sets 0.0 37.0 37.0 Mechanical Systems 0.0 9.0 9.0 Electrical Systems 0.0 9.0 9.0 Auxiliaries 0.0 8.0 8.0 220 kV System 0.0 6.0 6.0 Erection, Testing and Commissioning 2.0 10.0 12.0 Base Cost 9.0 90.0 99.0 Physical Contingencies 0.9 9.0 9.9 Price Contingencies 1.1 1.0 2.1 Installation Cost 11.0 100.0 111.0 Resettlement and Compensation 1.0 0.0 1.0 Eng. and Admin. Overheads 5.0 0.0 5.0 Duties and Taxes 10.0 0.0 10.0 Consulting Services 0.0 2.5 2.5 Total Project Cost 27.0 102.5 129.5 -123- Annex 13 Page 2 of 3 VIETNAM Power Development Project Project Cost Estimate Transformer Additions in South Viet Nam Loal Forin Total (US$ '000) Civil Works 4.2 0.0 4.2 Power Transformers 0.0 9.3 9.3 Switching Control and Protection Equipment 0.0 15.5 15.5 Erection, Testing and Commnissioning 1.0 0.0 1.0 Base Cost 5.2 24.8 30.0 Physical Contingencies 0.5 2.5 2.0 Price Contingencies 0.7 1.3 2.0 Instalation Cost 6.4 28.6 35.0 Eng. and Admin. Overhead 0.7 0.0 0.7 Duties and Taxes 2.8 0.0 2.8 Total Project Cost 9.9 28.6 38.5 -124- Annex 13 Page 3 of 3 VIEINAM Power Development Project Project Cost Estimate Transformer Additions in Rest of Viet Nam Local Foreip Toed (US$ '000) Civil Works 5.4 0.0 5.4 Power Transformers 0.0 14.8 14.8 Switching Control and Protection Equipment 0.0 21.7 21.7 Erection, Testing and Commissioning 1.2 0.0 1.2 Base Cost 6.6 36.5 43.1 Physical Contingencies 0.6 3.6 4.2 Price Contingencies 0.9 2.3 3.2 Installation Cost 8.1 42.4 50.5 Eng. and Admin. Overhead 0.7 0.0 0.7 Duties and Taxes 4.3 0.0 4.3 Total Project Cost 13.1 42.4 55.5 1/l I I I -125- Annex 14 VIET NAM Power Development Project Procurement Packages Contract Packages Nos. 1. 2x150 MW GTS for Phy My 1 2. Power Transformers for Southern Region 1 3. Switching and Control Equipment for Southern Region 1 4. Power Transformers for Other Regions 1 5. Switching and Control Equipment for Other Regions 2 6. Miscellaneous Equipment 2 7. Special Testing Equipment, Computer Hardware and Software 5 .i I I I I -126- ANNEX 15 VIET NAM Power Development Project Disbursement Schedule IDA Estmated Disbursement Disbursement Profile Fiscal Year Annual Cumulative Project Country Standard /a (US$ million) (%) 1996 30.0 30.0 17.0 1.0 1997 90.0 120.0 67.0 6.0 1998 30.0 150.0 83.0 22.0 1999 20.0 170.0 94.0 52.0 2000 10.0 180.0 100.0 74.0 2001 90.0 2002 100.0 /a Standard Profile for Power Projects in Asia. _ N ___ I I I I I I I -127- Annex 16 Page 1 of 3 VIET NAM POWER DEVELOPMENT PROJECT EVN CONSOLIDATED STATEMENTS PROJECTED INCOME STATEMENTS 1995-2001 (in Dong billion) Fiscal Years Ending December 31 1995 1996 1997 1998 1999 2000 2001 -------- -------- -- projected ----- - A. SALES OF POWER (GWh) 10676.0 12074.6 13856.1 15925.3 18328.7 21127.6 24296.5 Sales Increase-% 13.1 14.8 14.9 15.1 15.3 15.0 Average Revenues VND per kWh Sold 555.0 641.0 734.3 835.2 944.4 1133.3 1338.8 B. REVENUES l. Revenues from Sales ofPower 5925.2 7740.1 10174.0 13301.2 17310.5 23944.7 32527.0 2. Customer Installations 108.6 113.0 120.1 127.5 136.8 143.2 148.9 3. Meter Rentals 21.2 21.9 23.0 24.3 25.8 27.5 29.1 4. Other Operating Revenues 4.2 4.9 6.1 6.7 7.5 8.3 9.1 TOTAL REVENUES 6059.2 7879.9 10323.2 13459.7 17490.6 24123.7 32714.1 C. EXPENSES 1. Purchase of Power 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2. Cost of Fuel 1697.7 1668.2 1933.5 2202.1 2400.1 2657.0 2921.3 3. Salaries, Wages and Benefits 244.2 278.6 307.5 367.4 420.7 487.3 527.3 4. Operation, Maintenance and Administration 610.5 697.1 768.1 918.0 1052.3 1217.7 1318.7 5. Other Operating Expenses 355.2 405.2 447.3 533.9 612.7 708.2 767.0 6. Taxes other than Income Taxes -- Tax on Revenues 484.7 630.4 825.9 1076.8 1398.4 1929.9 2617.1 - Charge on Natural Resources 89.2 109.8 134.6 175.4 222.2 300.0 390.5 - Tax on Capital 609.8 609.8 609.8 609.8 609.8 609.8 609.8 7. Depreciation 1477.4 1559.6 1647.2 2315.5 2749.5 3022.5 3199.0 TOTAL EXPENSES 5568.7 5958.6 6673.9 8198.7 9465.7 10932.3 12350.7 D. OPERATTNG INCOME 490.5 1921.3 3649.3 5261.0 8014.9 13191.4 20363.5 E. INTEREST 21.7 38.5 88.9 88.9 865.4 1257.9 2024.7 F. INCOME TAX 117.2 470.7 890.1 1293.0 1787.4 2983.4 4584.7 G. NET INCOME 351.6 1412.1 2670.3 3879.1 5362.2 8950.1 13754.0 Average Net Fixed Assets in Operation 41499.0 50927.9 60232.5 68191.2 75819.7 83803.9 RATE OF RETURN ON NET FIXED ASSETS IN OPERAT1ON (%/.) 3.5 5.4 6.6 9.1 13.5 18.8 OPERATING RATIO 91.9 75.6 64.6 60.9 54.1 45.3 37.8 -128- Annex 16 Page 2 of 3 VIET NAM POWER DEVELOPMENT PROJECT EVN CONSOLIDATED STATEMENTS PROJECTED SOURCES AND APPLICATION OF FUNDS STATEMENT, 1995-2001 (in Dong billion) TOTAL Fiscal Years Ending December 31 1995 1996 1997 1998 1999 2000 2001 1994-2001 A. SOURCES 1. INTERNAL SOURCES a. Operating Income (less income tax) 373.3 1450.6 2759.2 3968.0 6227.5 10208.0 15778.8 40765.4 b. Depreciation 1477.4 1559.6 1647.2 2315.5 2749.5 3022.5 3199.0 15970.7 c. Profit Distribution to Employees -70.3 -282.4 -534.1 -775.8 -1072.4 -1790.0 -2750.8 -7275.9 Total Internal Sources 1780.4 2727.7 3872.4 5507.6 7904.6 11440.5 16227.0 49460.1 Debt Service a. Interest Expense 21.7 38.5 88.9 88.9 865.4 1257.9 2024.7 4385.9 b. Debt Repayment 0.0 0.0 427.1 957.9 1537.9 2100.0 2610.2 7633.0 Total Debt Service 21.7 38.5 515.9 1046.7 2403.2 3357.9 4634.9 12018.9 NET INTERNAL CASH GENERATION 1758.7 2689.2 3356.4 4460.9 5501.3 8082.7 11592.0 37441.3 11. EXTERNAL SOURCES a. Govemment Contributions 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 b. Long-Term Borrowing 6406.0 7962.0 8700.0 8431.3 7654.0 8102.0 7892.7 55148.0 TOTAL EXTERNAL SOURCES 6406.0 7962.0 8700.0 8431.3 7654.0 8102.0 7892.7 55148.0 TOTAL SOURCES 8164.7 10651.2 12056.4 12892.2 13155.3 16184.7 19484.7 92589.3 B. APPLICATIONS 1. INVESTMENTS a. Investmcnts 9096.5 10800.2 11233.2 10237.8 8580.6 8774.4 8037.8 66760.5 b. Interest During Construction 512.5 1149.4 1811.3 2409.2 2898.4 3378.6 3801.2 15960.6 Total Investments 9609.0 11949.66 13044.45 12647 11479 12153 11839 82721.1 II. CHANGES IN WORKING CAPITAL -1444.3 -1298.4 -988.0 245.2 1676.3 4031.7 7645.7 9868.1 TOTAL APPLICATIONS 8164.7 10651.2 12056.4 12892.2 13155.3 16184.7 19484.7 92589.3 SELF FINANCING RATIO 36.2 34.1 34.8 34.0 34.2 33.6 33.6 34.3 DEBT SERVICE COVERAGE 82.1 70.9 7.5 5.3 3.3 3.4 3.5 4.1 -129- Annex 16 Page 3 of 3 VIET NAM POWER DEVELOPMENT PROJECT EVN CONSOLIDATED STATEMENTS PROJECTED BALANCE SHEETS, 1995-2001 (in Dong billion) Fiscal Years Ending December 31 1995 1996 1997 1998 1999 2000 2001 projected - - A. ASSETS 1. Fixed Assets a. Gross Fixed Assets in Operation 39746.9 50318.5 61810.4 72895.9 82792.7 93924.9 104982.7 b. Accumulated Depreciation 2757.2 4310.1 5962.9 8278.4 11027.9 14050.4 17249.4 c. Net Fixed Assets in Operation 36989.6 46008.4 55847.4 64617.5 71764.8 79874.5 87733.3 d. Work in Progress 13438.0 14809.4 16367.6 17929.0 19511.2 20532.0 21313.2 Total Fixed Assets 50427.7 60817.8 72215.0 82546.5 91276.1 100406.5 109046.5 2. Current Assets a. Cash and Banks 271.0 356.0 556.0 645.8 745.8 775.8 806.8 b. Receivables 497.2 667.0 852.2 1157.7 1514.3 2101.2 2686.7 c. Stock 745.7 1000.5 852.2 1736.5 2271.4 3151.8 4030.1 d. Other 1260.5 1427.5 1445.5 1537.3 1843.8 2160.8 2527.2 Total Current Assets 2774.4 3450.9 3705.8 5077.8 6375.3 3189.6 10050.8 TOTAL ASSETS 53202.1 64268.7 75920.8 87624.3 97651.4 108596.1 119097.3 B. LIABILMES 1. Equity a. Capital 36292.9 36292.9 36292.9 36292.9 36292.9 36292.9 36292.9 b.AccurnulatedProfit/Loss 349.0 1478.7 3614.9 6713.2 11007.9 1163.0 29171.3 -Total Equity 36641.8 37771.5 39907.8 43011.0 47300.8 54460.9 65464.1 2. Long-Term Debt 6677.0 14639.0 22911.9 30385.4 36501.5 42503.6 47786.0 3. Current Liabilities a. Current Payables 9883.2 1135t.2 12674.0 13270.0 12311.2 9531.7 3236.9 b. Current Maturities 0.0 0.0 427.1 957.9 1537.9 2100.0 2610.2 Total Current Liabilities 9883.2 11858.2 13101.1 14227.3 13349.1 11631.7 5847.1 TOTAL LIABILITIES 53202.1 64268.7 75920.3 37624.3 97651.4 108596.1 119097.3 DEBT AS % OF TOTAL CAPITALIZATION 15% 23% 36% 41% 44% 44% 42% CURRENT RATIO (tines) 0.3 0.3 0.3 0.4 0.5 0.9 3.1 1 i I I I I I -4 -130- Annex 17 Page I of 2 VIET NAM Power Development Project Assumptions in the Financial Statements The following assumptions were used for the projected consolidated financial statements of EVN and its affiliates as discussed in paras. 3.2 - 3.8 of the Beneficiary Chapter. Revenues 1. Power will be generated in accordance with the load forecasts based on economic data, prepared by the Energy Institute. The revenue forecast assumes that the average growth rate over 1995-2000 would be around 12.8% for the North; 16% for the South; and 15% for the Center or an average increase of 14.6% p.a. for the country as a whole. Losses 2. Average technical and non-technical losses currently at about 21 % of generation (of which non-technical losses are about 3%) are projected to be maintained at 21% until 1997 and to be reduced to 20% in 1998; to 18% in 1999-2000; and to 17% in 2001. Tariff 3. The average price of electricity is about D 580/kWh, or about 5.3 USc/kWh. The financial projections assume that tariffs would be progressively raised to an average level of 7 USc/kWh by 1999 as proposed by the Government. Assuming a 5% annual depreciation of the Dong vis-a-vis the dollar, this tariff in 1999 would be about D 944/kWh. Cost of Fuel 4. Cost of fuel includes the cost of coal, heavy fuel, diesel and gas consumed by EVN's thernal generating facilities. The fuel mix is based on EVN's generation plan. The base fuel costs as of July 1995 are as follows: (a) Coal - US$42 per MT; (b) Heavy fuel oil - US$140 per MT; (c) Diesel oil - US$280 per MT; and (d) Gas - US$2.5 per MMBTU. Salaries, Wages and Benefits 5. EVN records base salaries, wages and benefits in the Income Statement; staff, however, also draws bonuses which are not recorded in the costs of the Income Statement. Consistent with the practice of other state-owned enterprises in Viet Nam, EVN will distribute 20% of its profits to employees as bonuses. In the financial projections, this allocation of profit is not carried forward to retained earnings but instead is recorded as current payables to employees and treated as a reduction from funds generated from operations in the Funds Flow Statement. -131- Annex 17 Page 2 of 2 Other Operating Expenses 6. Other Operating Expenses are based on current EVN experience, with projections for future plants based on historical costs for similar plants and escalated with inflation rates of 10% per annum. Taxes 7. Taxes are based on current levels as follows: (a) Tax on Revenues (Turnover Tax) at 8% of total revenues; (b) Tax on Natural Resources (Royalty Tax) at 2% of that part of revenue from sales of power which corresponds to the percentage of hydro generation versus total generation; (c) Tax on Capital at 2.4% of total Government capital; and (d) Income Tax at 25%. Depredation 8. Depreciation rates are prescribed by the Government and calculated on the following basis: turbines (8%), rockfill dams (2%), concrete dams (3%), and distributionsystems (8.5%). Capital Investment 9. Projected capital expenditures are those estimated to provide the additional plant and equipment required to meet the demand forecast, escalated in accordance with the latest projection of inflation rates. These expenditures are projected by EVN in accordance with the power development plan. Capital Structure 10. The following capital structure is assumed: (a) existing Government capital and Enterprise capital remain as equity; (b) capital balance remains unchanged for the duration of the projected period; (c) starting FY95 new investments are assumed to be financed at two-thirds debt; (d) interests on outstanding loans are assumed to be totally capitalized; (e) long termn debts are assumed to have an annual interest rate of 8% per annum and repaynent tems of up to 15 years including two years of grace; and (f) no dividend payments on equity are assumed. Fixed Assets 11. Due to doubtful past valuation procedures, fixed assets as recorded may not represent the fair value of the assets at the time of transfer from the PCs to EVN. Consequently, the financial projections are based on fixed assets values provided by EVN as available at the end of March 31, 1995. Current Assets 12. Accounts receivable are projected to be approximately one month of total revenues while stocks are assumed to be one-eighth of total revenues. VIItI fNAM Phu My Combined Cycle Power Project Economic Rate of Return (All figures in US$ million unless otherwise stated) Investment Operation and Maintenance Energy Loss Tariff Revenue Net Year Gener. Trans. Disir. Gener. Trans. Distr. Fuel Generated % USc/kWh Benefit ,_ _ __ _ _ __ _ _ _ GW h ____ 1995 10.0 (10.00 1996 90.0 5.0 13.0 - (108.00 1997 17.4 10.0 13.0 6.5 0.23 0.65 72.4 1,549.0 17.0 5.6 72.0 (48.18 1998 100.0 10.0 13.0 6.5 0.38 0.98 42.6 1,549.0 17.0 5.9 75.9 (97.56 1999 12.5 10.0 13.0 9.8 0.53 1.30 42.6 2,323.0 16.0 6.1 119.0 29.27 2000 13.0 9.8 0.53 1.63 42.6 2,323.0 16.0 6.1 119.0 51.44 2001 13.0 9.8 0.53 1.95 42.6 2,323.0 15.0 6.1 120.4 52.52 2002 13.0 9.8 0.53 2.28 42.6 2,323.0 15.0 6.1 120.4 52.19 2003 9.8 0.53 2.28 42.6 2,323.0 14.0 6.1 121.9 66.69 2004 9.8 0.53 2.28 42.6 2,323.0 14.0 6.1 121.9 66.69 2005 9.8 0.53 2.28 42.6 2,323.0 13.0 6.1 123.3 68.09 2006 9.8 0.53 2.28 42.6 2,323.0 13.0 6.1 123.3 68.09 2007 9.8 0.53 2.28 42.6 2,323.0 13.0 6.1 123.3 68.09 2008 9.8 0.53 2.28 42.6 2,323.0 13.0 6.1 123.3 68.09 2009 9.8 0.53 2.28 42.6 2,323.0 13.0 6.1 123.3 68.09 2010 9.8 0.53 2.28 42.6 2,323.0 13.0 6.1 123.3 68.09 2011 9.8 0.53 2.28 42.6 2,323.0 13.0 6.1 123.3 68.09 2012 9.8 0.53 2.28 42.6 2,323.0 13.0 6.1 123.3 68.09 2013 9.8 0.53 2.28 42.6 2,323.0 13.0 6.1 123.3 68.09 2014 9.8 0.53 2.28 42.6 2,323.0 13.0 6.1 123.3 68.09 GQ Q x 2015 9.8 0.53 2.28 42.6 2,323.0 13.0 6.1 123.3 68.09 t H 2016 9.8 0.53 2.28 42.6 2,323.0 13.0 6.1 123.3 68.09 2017 9.8 0.53 2.28 42.6 2,323.0 13.0 6.1 123.3 6809 Economic Rate of Return = 16.9% L -133- Annex 18 Page 2 of 4 POWER DEVELOPMENT PROJECT Economic Rate of Return Transformer Additions in South Viet Nam (Key Data) 1996 1997 1998 1999 2000 With the Project meand MVA 1064 1347 1471 1607 1755 emand Gwh 5703 7220 7885 8614 9407 nserved Energy % 1.5 1.4 1.3 1.2 1.1 nserved Energy Gwh 85.5 101.1 102.5 103.4 103.5 echnical Loss % 14 12.5 11 10 9 echnical Loss Gwh 798.4 902.5 867.4 861.4 846.6 Without the Project Unserved Energy % 1.5 1.6 1.7 1.8 1.9 UnservedEnergyGwh 85.5 115.5 134 155.1 178.7 echnical Loss % 14 17.7 19.3 21.1 23 echnical Loss Gwh 798.4 1277.9 1521.8 1817.6 2163.6 Transformer Additions in Rest of Viet Nam (Key Data) 1996 1997 99 199 20 With the Project F )emand MVA 1911 2132 2310 2505 2715 Demand Gwh 10245 11428 12382 13427 14552 Vnserved Energy % 1.5 1.4 1.3 1.2 1.1 Unserved Energy Gwh 153.7 160 161 161.1 160.1 echnical Loss % 14 l 12.5 1 1 10 9 echnical Loss Gwh 1434.3 1428.5 1362 1342.7 1309.7 Without the Project Uiserved Energy % 1.5 |1.6 .1.7 8 19 nserved EnergyGwh 153.7 182.8 210.5 241.7 276.5 echnical Loss % 14 iS.6 16.9 18.3 19.8 echnical Loss Gwh 1434.3 1782.8 2092.6 2457.1 2881.3 POWER DEVELOPMENT PROJECT Transformer Additions (South Viet Nam) (Economic Rate of Return) With the Project _ Without the Project Investment (USS..) Tech Unserved Loss Unserved Total Cost Tech Unserved Losses Unserved Total Cost Net Benefit Transformer Sub-trans. Losses Eng. GWh Value Energy USS-n Loaw Eng. GWh Value Energy USS.. USS-n sod Distr. GWb USS-n USSon GWb USS-. USSo_ 1996 35.0 42.0 798.4 35.5 35.9 46.2 159.1 798.4 85.5 35.9 46.2 82.1 (77.00 1997 0.0 42.0 902.5 101.1 40.6 56.6 1392 1,277.9 115.5 57.3 64.7 122.2 (17.04 1998 0.0 42.0 167.4 102.5 39.0 60.5 141.5 1,521.8 134.0 68.5 79.1 147.5 6.03 1999 0.0 42.0 861.4 103.4 38.3 63.1 143.8 1,817.6 155.1 31.8 94.6 176.4 32.57 2000 0.0 42.0 S46.6 103.5 38.1 63.1 1432 2,163.6 173.7 97.4 109.0 206.4 63.14 2001 0.0 0.0 846.6 103.5 31.1 63.1 101.2 2,163.6 178.7 97.4 109.0 206.4 105.14 2002 0.0 0.0 846.6 103.5 33.1 63.1 101.2 2,163.6 178.7 97.4 109.0 206.4 105.14 2003 0.0 0.0 846.6 103.5 38.1 63.1 101.2 2,163.6 178.7 97.4 109.0 206.4 105.14 2004 0.0 0.0 346.6 103.5 33.1 63.1 101.2 2,163.6 178.7 97.4 109.0 206.4 105.14 2005 0.0 0.0 346.6 103.5 38.1 63.1 101.2 2,163.6 173.7 97.4 109.0 206.4 105.14 2006 0.0 0.0 346.6 103.5 38.1 63.1 101.2 2,163.6 178.7 97.4 109.0 206.4 105.14 2007 0.0 0.0 346.6 103.5 33.1 63.1 101.2 2,163.6 173.7 97.4 109.0 206A 105.14 2008 0.0 0.0 346.6 103.5 38.1 63.1 101.2 2,163.6 178.7 97.4 109.0 206.4 105.14 2009 0.0 0.0 346.6 103.5 38.1 63.1 1012 2,163.6 173.7 97.4 109.0 206.4 105.14 2010 0.0 0.0 346.6 103.5 38.1 63.1 101.2 2,163.6 173.7 97.4 109.0 206.4 105.14 2011 0.0 0.0 346.6 103.5 38.1 63.1 101.2 2,163.6 178.7 97.4 109.0 2064 105.14 2012 0.0 0.0 346.6 103.5 38.1 63.1 101.2 2,163.6 173.7 97.4 109.0 206.4 105.14 2013 0.0 0.0 846.6 103.5 38.1 63.1 101.2 2,163.6 173.7 97.4 109.0 2064 105.14 2014 0.0 0.0 346.6 103.5 38.1 63.1 101.2 2,163.6 17t.7 97.4 109.0 206.4 105.14 2015 0.0 0.0 346.6 103.5 38.1 63.1 101.2 2,163.6 178.7 97.4 109.0 206.4 105.14 2016 0.0 0.0 346.6 103.5 38.1 63.1 101.2 2,163.6 173.7 97.4 109.0 206.4 105.14 2017 0.0 0.0 S46.6 103.5 38.1 63.1 101.2 2,163.6 178.7 97.4 109.0 206.4 105.14 2013 0.0 0.0 346.6 103.5 38.1 63.1 101.2 2,163.6 178.7 97.4 109.0 206.4 105.14 2019 0.0 0.0 346.6 103.5 33.1 63.1 101.2 2,163.6 173.7 97.4 1090 2064 105.14 2020 0.0 0.0 346.6 103.5 38.1 63.1 101.2 2,163.6 178.7 97.4 109.0 206.4 105.14 2021 0.0 0.0 346 6 103 5 31.! 63.1 101.2 2,163.6 17S.7 97.4 109.0 206.4 105.14 EIRIt - 42.4% 00O Io4 o Co POWER DEVE:LOPMENT PROJECI Transformer Additions (Rest of Viet Non) (Economic Rate of Return) With the Project Wi_hout the Project Irvesttent (iSS-r) Tech Ile mved Losses tUmerved Tetal Cost Tech tiDwrved Losses IUserved Total Cost Net BeIel Trausormer Sub-trsm. Losse En.. GWI Value Emergy t1S$m. Lose E.g. GWh Value Energy tISS-e USS-. sod Distr. GWb _tSS.. tUSS-o GWb tlSSr. tSSt-s 1996 49.0 59.0 I.434.3 153.7 64.5 33.0 255.5 I.434.3 153.7 64.5 83.0 147.5 (108.00 1997 0.0 59.0 1.428.5 160.0 64.3 89.6 212.9 1.782.1 182.1 80.2 102.4 182.6 (30.29 1993 0.0 59.0 1.362.0 161.0 61.3 95.0 215.3 2.092.6 210.5 94.2 124.2 218.4 3.03 1999 0.0 59.0 1.342.7 161.1 60.4 91.3 217.7 2.457.1 241.7 110.6 147.4 253.0 40.31 2000 0.0 59.0 1.309.7 160.1 53.9 97.7 215.6 2.381.3 276.5 129.7 168.7 298.3 32.73 2001 0.0 0.0 1.309.7 160.1 53.9 97.7 156.6 2.U13 276.5 129.7 168.7 2983 141.73 2002 0.0 0.0 1.309.7 160.1 58.9 97.7 156.6 2.831.3 276.5 129.7 168.7 293.3 141.73 2003 0.0 0.0 1.309.7 160.1 53.9 97.7 156.6 2.S1t3 276.5 129.7 168.7 293.3 141.73 2004 0.0 0.0 1.309.7 160.1 58.9 97.7 156.6 2.8t13 276.5 129.7 161.7 2983 141.73 2005 0.0 0.0 1.309.7 160.1 53.9 97.7 156.6 2.8U1.3 276.5 129.7 168.7 293.3 141.73 2006 0.0 0.0 1.309.7 160.1 53.9 97.7 156.6 2.8313 276.5 129.7 163.7 291.3 141.73 2007 0.0 0.0 1.309.7 160.1 53.9 97.7 156.6 2.8813 276.5 129.7 163.7 293.3 141.73 200S 0.0 0.0 1.309.7 160.1 5S.9 97.7 156.6 2.881.3 276.S 129.7 168.7 298.3 141.73 Ln 2009 0.0 0.0 1.309.7 160.1 53.9 97.7 156.6 2.8813 276.5 129.7 163.7 2983 141.73 2010 0.0 0.0 1309.7 160.1 53.9 97.7 156.6 2.3813 276.5 129.7 168.7 298.3 141.73 2011 0.0 0.0 1309.7 160.1 58.9 97.7 156.6 2.8813 276.S 129.7 168.7 298.3 141.73 2012 0.0 0.0 1309.7 160.1 53.9 97.7 156.6 2.8813 276.5 129.7 168.7 2983 141.73 2013 0.0 0.0 1309.7 160.1 53.9 97.7 156.6 2.3313 276.S 129.7 163.7 2933 141.73 2014 0.0 0.0 1309.7 160.1 53.9 97.7 156.6 2.8813 276.5 129.7 163.7 2933 141.73 2015 0.0 0.0 1.309.7 160.1 58.9 97.7 156.6 2.8813 276.5 129.7 168.7 2983 141.73 2016 0.0 0.0 1.309.7 160.1 53.9 97.7 156.6 2.S813 276.5 129.7 168.7 2933 141.73 2017 0.0 0.0 1.309.7 160.1 53.9 97.7 156.6 2.tS13 276.5 129.7 168.7 2983 141.73 2018 0.0 0.0 1,309.7 160.1 5t.9 97.7 156.6 2.t113 276.5 129.7 168.7 2933 141.73 2019 0.0 0.0 1.309.7 160.1 53.9 97.7 156.6 2.8813 276.5 129.7 168.7 2983 141.73 2020 0.0 0.0 1.309.7 160.1 53.9 97.7 156.6 2,881.3 276.5 129.7 163.7 2983 141.73 2021 0.0 0.0 1.309.7 160.1 58.9 97.7 156.6 . 2.381.3 276.5 129.7 168.7 2983 141.73 ERR 460.6% I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I * D u OD -136- Annex 19 VIET NAM Power Development Project List of Documents in Project File 1. Project Implementation Plan for Power Development Project, November 1995. 2. Environmental Assessment Report for the Combined Cycle Development at Phu My 11, Viet Nam, August 1995 (Vols. 1 and 2). 3. Power Plant Phu My 2, Feasibility Study, The Last Report, March 1995. 4. Decision on Electricity Tariff. Chairman of Government Pricing Board. Hanoi, May 29, 1995. 5. Charter of the General Company of the Electricity of Viet Nam. Hanoi, January, 1995. 6. Power Plant Phu My 2, Resettlement Action Plan, October 1995. I i I I I I I CHARTS I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ I I I I urganization tnart - ieectricity ot Vietnam (EVN) Board of Management Director Generalj Deputy Director Deputy Director Deputy Director Deputy Director Production Investment Development Construction Management Business- Finance .~ ~ ~ ~ Dpt Director | . NLDC nvesttent Development PCI)i 12 Power Plants ] PIDC I Power Construction PC2 Transmission Co. No. I Power Construction Co. 2 PC3 Transmission Co. No. 2 Power Information and Power Construction Co. 3 Power Company of Hanoi Transmission Co. No. 3 Institule of Energy Power Construction Co. 4 Power Company of HCMC Transmission Co. No. 4 P|tower Information Center Power Financial Company Repr sentative Offices of EVN abroad Power Information and Center for Scientific Research Telecom Co. Ic.lhnology, Environment and Compuling 1995 1996 1997 May Junc July Aug Sept Out Nov l)ec Jan Feb Mar May June July Aug Sept Oct Nov Dec Jan Feb Mar Apr May IPrepare Conceptual Design I reparc Bid Document Prepare 1IA World Bank Approval EIA Invitc Bids llid Evaluation _ Contract Negotiation - _ - _ =… Worid Bank Approval _ - - - = _B Sign Contract __ Design Review P reparc Site (EVN) = Precparc Roads i tirbinc Foundalion_ i,. Bluildi__g Control Duilding _ _ _ _ _… OtOer Buildings _ _ _ _ _ _ = = - _ = _ = _ _ Marine Oil Loading Facility Mantifacture Delivery GTG I Manufacture Delivery arG2 _ _ = m = _ =… Erect JI*G I Erect GICG2 Erect & Conm. Ancilltry Services LV Erct. Com. _ _ _ _ _ = _ _=… Commissioning GTGI Commissioning G2TG Manmfacturc/DElivery 'I'ransformer__ Manufacture/Delivery 220kV Switcligear Erect and Comnn. I IV Elet_. Syisliroimization = = - - = = =I Sys/tcn est and Rehabilily Run Acceplance'lecst - _ _ - _ Completion Works Ilake Over Unit I Unit 2 !~~ …- 1996 1997 Sep OctI Nov Dec Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec Jan Fcb Mm Prpare Bid Documents Invite Bids - Evaluate Bids Place Contracts Desipi by Supplier Approval by Purchaser _ _ _ _ - - …- Manufacture, Inspection Shipment Civil Works _ Installsioning I 7 Commissioning _ _ _ _ _ _ _- _- _ _ _ _ / -140- CHART 4 Organization Chart of Phu My Baria Management Board (PMBRMB) Project Manager Necvject ESBI ConaulItant for forfo Phu My 1 Baria Consultants Chief Accountant Deputy Project Manager [euyri DeputyProjectManager for for (to be no ainated) Phu My I + BPhu My ar - Economic | Technical Financial Organization | To be Tobe I Planning |I Section Accounting Personnel eatablished established Section I Section Section I Organization for Construction and Implementation of Phu My 2-1 Project Manager DSpyp Projet Manager of Phu My 2-1 Consultants |Co-ordinator | | upporting eVtnames n Enciers Residcnt enginecrs| for Phu My 2-1 (Technical Section) J -14;- CHART 5 Organization Chart of Management Boards of the Southern, Northern and Central Region Power Project Project Manager Deputy Proj Deputy Prcect Manager fo gr Techcl matedional IPlanning- Fnancilh|Ozto lgitc Sein Coopemlo Ssion Accountin | Peoine einl Soe SecAion ection Organization for Construction and Implementation for Augmentation of High Voltage Transforming Capacity ,Project Manager: D)ept. Project Manager for Augmnenltation of transformers Resident i. Resident ...Resident ...Resident. .. Engineer Enginecr Engineer Engineer . Hoc Mon Danhim .Vinh Long' K ~~~~CHINA MYANMAR 4JAo CHINA -' 'P) D \ IET NAM Son n o -: 220g Ninh I MALAfIIA VIET NAM f -''POWER GRID .nhH.o POWER DEVELOPMENT PROJECT DEMOCRATIC EXISTING FUTURE PROJECT REPUBLIC ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ * A, A* I1 0 kV SUB STATiONS I 0 ~~~ * 0* 220 kV SUB STATIONS _______ ~~~220 kV LINES lb rink ~0 0 500 Ky SUB STATIONS - - 500 kV LINES - - HYDRO POWER STATIONS * * * THERMAL POWER STATIONS * All e-Ist,,, sub stot,o- s II G All p--sub st-tos m - he nor-h of Vial Norn no sIhown for clo-y THAILAND T.l AO~ Ng., 15'- Nhuso Lj ~ ~ ~ ~ ~ ~ en )d TOy NnonOH n~~~~~~~~~~~~~~~~A1t (7110,, KILOMETNERS .it TiAz i 7 hs, -~~~~~~~ ~~~~~~~~~~~ II ,; VDa SOl/ Clik y t sX 57- 15~~~~~~~~~~~~~~~,o.lgb f " ;, CAMBODIA n H1h t Sambor hydro . P i J > ~~~~~~scheme developmen I/ ( _ [ [ \ _tl ~ ~ ~ ~ ~~~~~Joul)chi)( E ~~~RIVERS L o1? So1°l PROVINCE BOUNDARIES rIhebunnd,,rsi.,n,o .od, ,O. ,,ot Sy . __ INTERNATIONAL. .......... o *CuMno shes sit, urdnop iedllrSt,vL sea _ ~~~~BOUNDARIES oss,Oio uotrplseoiahl ,.sI.......eu.s .21~~~~~~~~~~~~~~~~~~~~~~~~~ 'to. T.. IMAGING Report No: 14893 VN Type: SAR