ICRR 10784 Report Number : ICRR10784 ICR Review Operations Evaluation Department 1. Project Data: Date Posted : 08/11/2000 PROJ ID : P042236 Appraisal Actual Project Name : Power Development Project Costs 230.0 216.2 US$M ) (US$M) Country : Vietnam Loan/ US$M ) 190.0 Loan /Credit (US$M) 179.6 Sector (s): Electric Power & Other Cofinancing Energy Adjustment US$M ) (US$M) L/C Number : C2820 Board Approval 96 FY ) (FY) Partners involved : ADB, Danish Government Closing Date 12/31/1999 12/31/1999 Consultant Trust Fund, Danish Government Environmental Fund, Japanese Grant Fund, ESMAP, ASTAE, OECF Prepared by : Reviewed by : Group Manager : Group : 2. Project Objectives and Components a. Objectives The project had five objectives : 1. Help meet the rapid growth in electricity demand in the south of Vietnam through the addition of new gas -fired generating capacity; 2. Strengthen the high voltage (HV) transformation capacity in Vietnam; 3. Assist the Government in introducing private power in the country; 4. Strengthen the institutional capability of Electricity of Vietnam (EVN) through technical assistance (TA) and training; and 5. Assist in the formulation of a national strategy and master plan for rural electrification b. Components Installation of 2x150 MW gas turbines for the first 450 MW Phu My 2, Phase-1 PHMY2-1 Combined Cycle (CC) power block; 1. Addition of about 900 MVA of high voltage transformation capacity at existing substations in the South of Vietnam and about 1,350 MVA of such capacity in other parts of the country; 2. Resettlement and compensation of persons affected by the Phu My plant; and 3. Consulting services for: (i) project design and supervision for Phu My; (ii) development of BOT type of arrangement for the second CC power block of Phu My on the basis of competitive bidding; (iii) technical assistance (TA) and training for EVN managerial staff; (iv) master plan for rural electrification; and (v) technical studies for the Dai Ninh hydropower project . In addition, ESMAP group of the World Bank provided continuing technical assistance for development of a legal and regulatory framework for the power sector . c. Comments on Project Cost, Financing and Dates Total project costs were estimated at appraisal at US$ 230 million. Actual project cost was US$216.2 million, a reduction of 6 percent. The main reduction in project costs was for the Phu My component which was 15 percent lower than estimated and this was mainly due to : (a) procurement through International Competitive Bidding (ICB); (b) controlled construction schedule; and (c) excellent project management resulting in the commissioning of Phu My 1, Phase 1, in record time. The Government provided US$36.9 million, which is US$3.4 million less than the appraisal estimate. The project closed on time. 3. Achievement of Relevant Objectives: 1. Help meet the rapid growth in electricity demand in the south of Vietnam through the addition of new gas- gas -fired generating capacity : This objective was achieved . Phu My 2-1, completed in record time, assisted in meeting the rapid growth in demand in the southern areas of Vietnam . 2. Strengthen the high voltage (HV) HV) transformation capacity in Vietnam : This objective was achieved . The Project added 2,447 MVA (SAR: 2,250 MVA) of transformer capacity, which assists in reducing the recurring brown outs and improving the voltage profile in the system . 3. Assist the Government in introducing private power in the country : This objective was achieved . The Bank's strategy to predicate financing on a clear up -front policy decision by the Government to introduce private power for the second block of Phu My was successful . Competitive bidding for Phu My 2-2 CC, the first plant targeted for private power participation, was satisfactorily concluded and resulted in competitive and favorable low price of power obtained from Phu My bidders . The International Competitive Bidding (ICP) process was successful in introducing the concept and procedures for ICB in BOT projects . However, at the time of the writing of the ICR, the Government, Ministry of Industry (MOI), and EVN have not yet concluded the negotiations and signed the contracts . In addition to Phu My 2-2 CC, there are two other independent power producers now in commercial operation ( the 3x125 MW Hiep Phuoc, and the 7 MW Amata), one in which commercial operation is expected in 2000 (the 50 MW Nomura), and seven others for which PPAs have either been agreed or are under negotiation . Also, the final draft of the Electricity Law was completed and is currently under review with the National Assembly, with approval expected in early 2001. 4. Strengthen the institutional capability of Electricity of Vietnam (EVN) TA ) and EVN ) through technical assistance (TA) training : This objective was achieved . Under the project, EVN has adopted uniform accounting policies, procedures, and chart of accounts, as well as a computerized and comprehensive accounting system . It has also implemented a procurement monitoring system and the practice of external auditing by independent auditors. Customer service has improved. 5. Assist in the formulation of a national strategy and master plan for rural electrification : This objective was achieved. The TA was financed by the Danish Government Consultant Trust Fund, the Danish Government Environmental Fund, and the Bank's Asia Alternative Energy Program (ASTAE). It was aimed at providing assistance to the Government in developing a national rural electrification strategy and implementation plan to extend electric service to more than 65% percent of the population by the year 2010. The TA was completed in June 1999 and its findings and recommendations were used by EVN and IDA for the preparation of the Rural Energy Project which was approved by the IDA's Board on May 30, 2000. 4. Significant Outcomes/Impacts: The introduction of private power in Vietnam is a major accomplishment of this Project . 5. Significant Shortcomings (including non-compliance with safeguard policies): Because of cumbersome government processes, the project's aim to establish a legal and regulatory framework has been delayed by three years and the Electricity Law has yet to be signed . The Government's continued involvement in EVN is a shortcoming . Further government action is needed to improve EVN’s organizational and management system and increase independence . EVN's financial sustainability is still largely dependent on government support through periodic tariff revisions . Without such support, EVN will not be able to generate consistent cash flow to maintain its operations, service its debt, and fund future capital investments, nor will it be able to meet the sector's huge capital investment requirements . External financing and government support is not sufficient to support the investment needs of EVN . Therefore, the pace at which the power sector is opened to greater private sector participation needs to be accelerated. 6. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev .: Substantial Substantial Sustainability : Highly Likely Likely The Government continues to be involved in EVN, including decisions about tariff revisions. Bank Performance : Highly Satisfactory Highly Satisfactory Borrower Perf .: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13.55, but are listed for completeness. 7. Lessons of Broad Applicability: Careful coordination between the Bank, IFC and the Borrower is necessary when preparing fast track projects involving the private sector and IFC financing . The processing of this project was particularly strenuous largely due to IFC’s view that the Project be redesigned to create a separate entity to own and operate Phu My that would include IFC’s participation in the capital structure at the outset . The issue was resolved with the Government deciding that it was not prepared to risk possible delays with the IFC's proposal and that it was not ready to establish a separate entity with a majority private ownership . However, the Government agreed to have Phu My 2-2 constructed under a BOT approach, the condition laid down by IDA to ensure private sector participation. In transitioning political systems, the Bank and the Borrower should have a realistic view of the risks associated with protracted government approval processes . 8. Assessment Recommended? Yes No 9. Comments on Quality of ICR: The overall quality of the ICR moderately satisfactory . The Lessons Learned section requires more in -depth discussion and the ICR, while listing ADB, Danish Government Consultant Trust Fund, Danish Government Environmental Fund, Japanese Grant Fund, ESMAP, ASTAE, OECF as partners, does not provide information on cofinancing.