Urban Development Strategy Meeting the challenges of rapid urbanization and the transition to a market oriented economy Alan Coulthart, Nguyen Quang and Henry Sharpe Vietnam's infrastructure challenge As Vietnam becomes richer it faces challenges in adapting its infrastructure policies and institutions. While the old challenges of providing basic services to all remain, new challenges are emerging, such as accessing new sources of finance, refining planning processes, preparing for rapid urbanization, improving the efficiency of infrastructure service providers, developing stronger institutions to encourage private finance of infrastructure or direct private provision of infrastructure, and developing more targeted approaches to poverty alleviation. This report on Urban Development Strategy - Meeting the Challenges of Rapid Urbanization and the Transition to a Market Oriented Economy is one of six volumes dealing with Vietnam's Infrastructure Challenge. Other volumes deal with Infrastructure Cross Sectoral Issues, Water and Sanitation, Transport, Telecommunications, and Electricity. The work for these reports was carried out between 2004 and 2006 by World Bank staff and consultants. The reports have been revised to take account of comments made by the Government in workshops during May 15- 17, 2006. The comments of numerous colleagues from the World Bank, the United Kingdom's Department for International Development Bank, the Asian Development Bank, and the Japan Bank for International Cooperation are gratefully acknowledged. Contents Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .v Chapter I: Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Political Context of Urbanization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 GDP Growth and Economic Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Classification of Cities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Urban Population Growth and Migration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Comprative Urbanization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Incidence of Poverty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Chapter II: Guiding Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Urban Policy Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Decentralisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 Chapter III: Infrastructure Access, Needs, and Goals . . . . . . . . . . . . .15 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 Water Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 Drainage, Wastewater Collection and Wastewater Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Solid Waste Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 Urban Transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 Estimated Future Financing Requirements for Urban Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 Urban Water Supply, Wastewater Collection & Treatment, and Drainage . . . . . . . . . . . . . . . . . . . . . . .23 Urban Transport: Estimated Future Financing Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 Housing for Low-Income Residents: Estimated Future Financing Requirements . . . . . . . . . . . . . . . . .24 Chapter IV: Urban Planning and Urban Management . . . . . . . . . . . .27 Overview of the Vietnamese Planning System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27 Socio-economic Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28 Spatial Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30 Sector Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32 The Challenge of Peri-Urban Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33 iii Land Law 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34 Construction Law (2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35 Urban Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36 Infrastructure Development and Investment Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37 Chapter V: Municipal Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39 Strategic Change in the Infrastructure Financing Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39 Financing Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40 Requirements for Success in Diversifying Municipal Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47 Chapter VI: Recommendations for Improving Urban Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49 Guiding Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49 Needs, Access and Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50 Urban Management and Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52 Municipal Finance - Resources and Needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53 Chapter VII: Annexes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55 ANNEX 1A: City Classification and Decentralized Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56 ANNEX 1B: Current City Classification (2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58 ANNEX 2: Official MOC Urban Population Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59 ANNEX 3: Central Governmental Responsibilities for Urban Issues . . . . . . . . . . . . . . . . . . . . . . . . . . .60 iv Urban Development in Vietnam An Assessment and Recommendations for Improvement Executive Summary C hapter I of this report presents an rural to urban migration. Urbanisation is in turn assessment of the current status of urban fueling further economic growth. development in Vietnam. The main Vietnam is still relatively un-urbanised by policies impacting urban areas are reviewed in Asian standards. In 2001, the urban population Chapter II. Chapter III covers the extent to was only 25%, compared to 37% in China and which urban residents have access to basic 42% in Indonesia. In 2003 the urban population, infrastructure services and provides an estimate including unregistered migrants who are not of what it will cost to provide full coverage by included in official census data, was around 23 2010 and 2020 for all current and future million. Annual growth projections vary but residents. The challenges of urban planning and Government accepts that the urbanisation rate management are described in Chapter IV and will be high. Around one million people per year Chapter V identifies the various sources of are being added, which would lead to a doubling finance that cities can mobilize for the of the urban population by 2020. infrastructure investments identified in Chapter The percentage of people in poverty is lower in III. Finally Chapter VI makes recommendations urban areas in Vietnam than in rural areas. on how the various challenges identified in the However, the poverty density is greater in urban preceding chapters can be addressed. The areas i.e. there are more poor per square kilometer. report is summarized below. This applies equally to the rapidly urbanizing areas in the hinterlands of the large cities and the Background intensively cultivated Red River and Mekong deltas. The economies of scale and agglomeration Two major transitions are taking place in that underpin the existence and growth of cities Vietnam's economy - one is the movement from meanthatpoorpeoplecanberaisedoutofpoverty a rural to an urban base and the other the more cost effectively in urban areas than in rural evolution from central planning to a market areas. The extent to which urban areas are going to oriented economy. Vietnam's future economic be home to an increasing percentage of the growth will depend on its ability to develop population of Vietnam calls for more investment competitive, market driven industrial and in their infrastructure. service sectors. These are primarily urban-based activities. Already Vietnam's cities and towns Guiding Policies account for about 70% of total economic output. Most FDI is directed toward cities. Economic Over the past decade, the central government opportunities in urban areas are propelling rapid has introduced many reforms that have affected growth in the urban population with significant urban development. Government's broad urban v policy is set down in the Orientation Master Plan provinces, ranging in population from for Urban Development to 2020, which was approximately 6 million to 0.3 million. Included adopted in 1998. Unfortunately it falls short in in these 64 are the five largest cities which have providing meaningful strategies to achieve provincial status: Hanoi, Ho Chi Minh City, Hai efficient urban development, or for urban Phong, Danang and Can Tho. The provinces are management. Its principal policy initiative subdivided into 643 districts, which, in turn, are explicitly addresses urbanisation through subdivided into 10,602 communes/wards. demographics by designating a hierarchy of Smaller cities and towns have "district" status. urban settlements. It envisages managing A cornerstone of the decentralisation program growth in the largest cities by developing was approval of the 1996 State Budget Law, which satellite cities and managing rural migration by was further amended in 2002. The result has been promoting economic development in secondary a substantial and growing level of fiscal cities. Three major economic growth triangles decentralization, with the share of local are identified: the Red River Delta bounded by governments in total expenditures increasing Hanoi, Hai Phong and Ha Long in the North; the from 26 percent in 1992 to 48 percent in 2002. The Mekong Delta anchored by Ho Chi Minh City in Budget Law distinguishes three types of revenue: the South; and a Central triangle based on Da taxes assigned 100 percent at the central level; Nang. Numerous provincial export processing taxes assigned 100 percent at the provincial level; zones/industrial estates are seen as key drivers and shared taxes. The revenue sharing rate is of economic growth. The strategies described determined by a formula, based on estimates of are dominated by outmoded top-down central the gap between expenditure needs and revenue planning targets dependent on state-run capacity. In Vietnam, all tax collections are construction, specific land use controls through centralized. The General Taxation Department allocation of land, and centrally planned uses. collects all domestic taxes and the Customs This urban orientation sets out objectives but Department collects all import taxes. Only minor gives no concrete steps of how they will be fees and charges are collected by financial financed. With the many changes that have agencies and service providers, mainly at the occurred since 1998, it has become outdated and provincial level. Tax administrators report to both Government is in the process of revising it. levels of government. In terms of State Budget Additional orientations were issued for the revenues (central and provincial governments Water Supply, Sewerage and Drainage and Solid combined), the provincial governments' share is Waste Management sub-sectors in the late 1990s. estimated to have grown to 30% in 2004 from a These too are in the process of being updated. A fairly steady 25%for the 1997-2002 period. One draft decree on "Clean Water Production, Supply limitation of current revenue assignments is the and Consumption" was finalized early in 2006 lack of any material revenue autonomy by local and is expected to be approved by mid-year. governments. Like many other countries Vietnam Preparation has started on a similar decree for suffers from fiscal imbalances. These are sewerage and drainage. addressed through equalization, or balancing On a broader level, central government's transfers, which are unconditional grants, policy of increasing decentralization to the three determined using a formula. This remains fixed in lower levels of government - the provinces, nominal terms for periods of three-to-five years. districts and communes, or wards in urban areas The formula is based on the difference between - is having a profound effect on urban estimated expenditure needs and revenue development. Vietnam is divided into 64 capacity, or potential. vi Significant reforms were also introduced projects at the feasibility stage. Unfortunately through three new laws in 2004: the Land Law, the opportunity was not taken to streamline the the Construction Law, and the Law on People's multiple and often redundant reviews that cause Committees and People's Councils. Key significant delays in the approval of most features of the new Land Law include: formal infrastructure projects. recognition of real estate markets (Government The Law on People's Councils and People's has previously attempted to control the supply Committees outlines the functions, and cost of land); devolution of responsibility to responsibilities and authority of these organs for local governments for land administration and all three local government levels. The Law was registry and promulgation of local single points revised in 2004 to strengthen the supervision of contact for land registration; the adoption of powers of People's Councils and to increase the land values that are close to market values authority and more precisely define the instead of being set administratively by functions and responsibilities of People's government - this allows fairer compensation Committees. for land that is compulsorily acquired; and some The changes described above are very limited public participation in planning, positive, but much more needs to be done, including public notification of approved plans. particularly in terms of giving local The most important changes introduced by governments more power to raise revenues, to the new Construction Law (2004) are control spatial planning, and to approve incorporated within the new Decrees on projects. The main challenges are in building the Planning and on Construction Investment necessary capacities in local governments and in Project Management, both of which were changing the attitude of local government enacted in early 2005. The main new features of officials from their current largely passive role, the Planning Decree are: decentralization of the to a more proactive one. responsibility for preparing spatial plans for most cities and provinces to Peoples Committees Infrastructure Needs Access, and (however, they are still subject to approval by Financing Requirements central government); review of plans by elected Peoples Councils; the addition of regional While looking to the future, Vietnam faces a planning requirements; coverage of the major challenge in dealing with a past legacy of redevelopment of existing urban areas (instead urban neglect. The poor are particularly of just new construction); and the introduction disadvantaged. Access to basic services needs to of public consultation (though the extent is still be extended to all urban residents. rather limited) in the planning process. Whilst Statistics vary on water supply coverage, the new Planning Decree introduces several but a benchmarking survey carried out in worthwhile improvements, and the spatial 2002 of all of Vietnam's Water Supply planning process remains largely top-down. The Companies revealed that only 50% of urban Construction Law and Investment Project residents had access to piped water that Management Decree cover technical standards, meets national standards. Coverage rates project management, and procurement. The vary from an average 67% in the larger cities ceilings for infrastructure projects that can be to only 11% in small towns. approved at the local level have been increased None of Vietnam's cities or towns treats and the Investment Decree requires more wastewater, though this is a stated detailed preparation of proposals infrastructure Government priority. In 2005 plants were vii under construction in Danang, Halong, Ho which are still state owned, to build planned Chi Minh City (Binh Chanh), Hanoi (West developments. However, making Lake), Da Lat, Hue, and Buon Ma Thuot and affordable housing available for low income project preparation was under way in people, including students and those several other cities including Can Tho, Soc requiring resettlement arising from Trang and Bac Ninh. Serious environmental development projects, remains a major degradation and health concerns are caused challenge for Government. by water pollution from untreated human In 2004, the in-situ incremental improvement waste and unregulated discharge of of existing slums (urban upgrading) was industrial wastewater. recognized by Government as an Solid waste collection is generally fairly well appropriate policy for improving low- managed in Vietnam. However, safe income areas. The World Bank supported disposal is becoming a major issue in the Urban Upgrading Project is funding such largest cities. Government has classified improvements in Can Tho, Haiphong, Ho fifty urban dump sites as environmental Chi Minh City and Nam Dinh and hazards. preparation of a National Urban Upgrading Vietnam has reportedly the highest per Program to scale this up, was started in 2005. capita motorbike ownership in the world. Government has set some very ambitious Rapid motorization with resultant (and sometimes inconsistent) targets in various congestion is choking city streets and policy documents such as the Comprehensive increasing air pollution. Public transport is Poverty Reduction and Growth Stratetgy, the underdeveloped in the largest cities and Vietnam Development Goals, and the various needs to be given higher priority. Road "Orientation Master Plans" for urban safety also needs to be given increased development; water supply; drainage and priority to deal with the very high traffic wastewater; and solid waste management. accident rates (Vietnam has on of the highest None of the documents attempts to cost, or rates in the world). prioritise, the objectives. Estimates (see Chapter Vietnam has largely emerged from its legacy III) of the financing needs to meet the urban of dilapidated state housing from the central infrastructure coverage targets set by planning era. Many housing units were sold Government for 2010 suggest that around $26 to tenants. Prior to the new Land Law of billion would have to be mobilized. This would 2004, around eighty percent of housing was require an annual rate of investment several owner constructed. Most was built on an orders of magnitude higher than that achieved informal basis outside planning and in the late 1990s. Such levels are clearly beyond building regulations and without adequate what can be financed from the State budget. supporting infrastructure. Housing is Other sources of finance that can be mobilized cramped with 30% of the population having are described below and in Chapter V. less than 3m2 per capita. Around 25% of housing is classified by Government as sub- Urban Planning and Management standard, or temporary. The Land Law of 2004 coupled with Vietnam's rapid The responsibilities for urban planning in economic growth has provided incentives Vietnam are much more fragmented than in for property developers, the majority of western countries. The fragmentation occurs viii between ministries and also between the master plans (province or city), and detailed area different levels of government. Three types of plans (ward, industrial zone, or project). Most plans, each the responsibility of different are prescriptive for specified land uses in ministries, are prepared for cities and provinces: specific locations, rather than permissive as in socio-economic development, for which the Western land use planning. It is master plans Ministry of Planning and Investment is that have the greatest impact on urban responsible; spatial (also called construction or development. It is widely acknowledged that master plans) for which the Ministry of the current master plans prepared for Vietnam's Construction is responsible; and sector cities are not effective. There is a large development, for which respective line ministries disconnect between the beautifully drafted are responsible. The intended sequence of idealized plans that hang in the offices of planning with spatial plans following socio- Peoples Committees and the reality of urban economic plans and sector plans does not development on the ground. They tend to be always occur. representations of what the planning experts Most plans are prepared by a few central and city administrators would like their city to Government planning institutes. They tend to become if there were unlimited resources. promulgate official political ideals and Unfortunately that is never the case. To become Government mandated production targets, more effective, firstly, spatial plans need to be rather than responding to measured demand better coordinated with socio-economic plans and market signals. There is very limited public and sector plans; secondly they should be more participation, or even consultation, in the strategic and less prescriptive; thirdly all process. stakeholders, including residents and private Most entities with planning responsibility investors, should be allowed to participate in have a dual reporting relationship, a vertical their preparation; and fourthly they need to be relationship to the central ministry and a based on levels of resources that are likely to be horizontal relationship to the appropriate available for the time period they cover. Peoples Committee, the executive level of city The master plans are unfortunately driven and provincial governments. Government and by rigid technical standards, which result in the Party also have parallel policy guidance and unrealistic and unaffordable "ideals" that reporting requirements. Most important cannot be implemented and are consequently planning decisions are taken at the central largely ignored. It would be better to replace government level, but without effective cross- these with performance standards e.g. road sector coordination. It is a very top down widths should relate to estimated traffic process. The widely dispersed responsibilities projections rather than pre-defined dimensions without clear procedures and decision making for a particular classification of city. The authority to bring the various different views performance standards can be increased step- together to form a broad consensus makes by-step over time in line with economic growth. effective urban planning, as understood in Current master plans lack the phasing and the western countries, a challenge in Vietnam. incremental development mechanisms Spatial planning in Vietnam was designed necessary to translate them to the reality of a for the era when all construction was carried market economy where development is likely to out by the state. Spatial plans are prepared in occur on a more piecemeal and unpredictable four levels of detail: orientation plans (national basis governed by the availability of land and policy), regional plans (introduced in 2005), capital to the developer. ix Detailed area plans predetermine the someone feels a plan doesn't meet these specific uses of urban space and include the guidelines they can challenge it in court. quality, quantity and position of each Development in the peri-urban fringes of development type and building footprint. large cities and in the highly populated rural Unfortunately they are often prepared before areas of the Red River and Mekong deltas the necessary funding for their implementation where population densities in towns and has been secured. As a result development is villages are approaching those of cities, presents either constrained, or proceeds in a manner that special challenges. Over 100 km2 of rural land is inconsistent with the approved plans. Many is reportedly being urbanized every year. of the residential areas in Vietnam's cities have Informal urbanisation takes place in an ad hoc, developed on an ad-hoc basis as tightly packed unregulated manner, where local authorities are warrens of narrow, twisting lanes, without not well prepared, or inclined, to manage the properly functioning drainage or sewerage urban expansion. Rapid, unplanned growth is systems, or open spaces for recreation. in many instances leading to serious Installing properly designed infrastructure after environmental degradation. Fortunately there unplanned development has taken place is have in the past five years been some good significantly more expensive, because of land examples of well planned peri-urban areas, acquisition and resettlement costs and the such as the Tu Lien and Ciputra developments difficulties of working in confined space, than in Hanoi and Phu My Hung, in Ho Chi Minh would have been the case if it had been built at City. These examples need to be replicated in an earlier stage. all new development areas. Local governments need to be given more As already noted above several policy authority to adjust spatial plans quickly to meet reforms relating to spatial planning were changing needs. In most industrialized introduced in 2004 under the Construction Law, countries, central Governments delegate its related Planning Decree and the Land Law. considerable responsibility for spatial planning Under the Land Law, all land continues to be to local Governments. The central Government owned by the State, but land regulation and typically retains control over planning related management have become more market to defense and national security; national oriented. The streamlined land registration transport links; and national parks. Local procedures introduced will facilitate the Governments prepare and implement sequencing of land allocation, which did not consistent land use plans (equivalent to detailed necessarily follow the development proposed in area plans in Vietnam) and ensure adequate spatial plans, the provision of infrastructure, infrastructure provision. The land use plans and the timing of the financial allocations for specify permissible uses and standards state sector activity. The move towards pricing establish the impacts those uses are allowed to land based on market values, should reduce have (e.g., traffic impact, surface water runoff, speculative development that was not height, health standards, etc.). Generally, local synchronized with infrastructure provision. The plans do not have to be approved by higher previous price distortion promoted corruption levels of government. Individual projects are and also created significant delays to subject to rigorous permitting and inspection. investment projects arising from protracted The legal system is used to ensure that local negotiations of compensation for land plans meet the guidelines, standards and acquisition. The Planning Decree introduces policies of higher levels of government i.e. if some public consultation in planning but there x are still no specific requirements or mechanisms above. In parallel it will be essential to to promote active public participation in the significantly strengthen the capacity of local process. governments to enable them to deal with the The new requirement for regional planning increased responsibilities that will be delegated is a useful step. It will promote more rational to them. Improved governance arrangements, utilization of scarce resources. One consequence with appropriate checks and balances to make of the lack of regional planning has been the local government officials accountable for their proliferation of industrial zones throughout the decisions, will also have to be introduced. An country, many of which are under-utilised. In important step will be to allow much greater 2005 a start was made on preparing regional public participation. plans from the greater metropolitan areas of Hanoi, Ho Chi Minh City and Danang. So far Municipal Finance this is being limited to spatial planning. It needs to be better integrated with socio-economic and As Vietnam prepares to meet the demand for sector planning. Also, the establishment of an increased investment, it needs to reduce its effective institutional framework to implement reliance on the state budget and to start the plans will be essential. preparing for the transition away from The weakness of urban management in concessional donor financing for urban Vietnam will need to be overcome to enable infrastructure services. The necessary transition strategy must involve diversification of financing more effective planning to contribute to better sources for infrastructure development, focusing urban development. The best plans are useless on increasing the role of the private sector as a if they are not, or cannot be, followed. While the source of finance for infrastructure and as a Ministry of Construction and its Departments of developer of infrastructure. The strategy must Construction at the city/provincial level are also recognize the increasing role of local nominally responsible for urban management, governments in promoting infrastructure many other ministries and their departments investments in accordance with government's have overlapping responsibilities. In western decentralization policy. The increased countries at the city/province level the various participation of the private sector in financing sector departments report to a mayor or infrastructure in coordination with local governor, whose office is responsible for governments will support decentralization and coordinating the various inputs and taking improve the efficiency of infrastructure decisions. The previously referred to dual investments. However, the success of this new reporting requirements of sector departments in trend rests very critically upon continued cities and provinces means that Peoples improvements in the corporate governance Committees do not have sufficient power to environment at the local government level. efficiently fulfill this coordination and Budget resources, which currently are for the management role. Thus, to promote more most part passed on as grants, will have to be effective urban development, it will be used more strategically in the future and used necessary to delegate more authority to local only for investments with a high social rate of governments for urban management, as well as return for which full cost recovery is not feasible urban planning, and to give Peoples e.g. wastewater treatment, or for social equity. Committees clearer responsibility for urban Even in these cases budget resources should to management. The first step must be to change the extent possible be used to leverage other spatial planning along the lines described sources of finance. xi With the rising affluence of people in cities level and Local Development Infrastructure Funds there is scope to significantly increase the (LDIFs) at the provincial level (thirteen finance raised by local governments by provinces have established LDIFs so far), can increasing user charges for infrastructure provide loans for infrastructure investments services e.g. water supply, car parking etc. This that generate sufficient revenues to repay the will open up the possibility for alternative loans. This should include for example most financing sources that rely on future revenue water supply investments, strategic roads and streams. Local taxes could also be introduced bridges that can be tolled. The LDIFs offer the such as a single property tax to replace the greatest potential for local governments. In many overlapping fees on different real estate 2004 the total operating capital of LDIFs was assets and transactions and perhaps also a local approximately $300 million and the top seven income tax that could be efficiently collected funds invested almost $100 million, which together with national income tax. It is likely represented an increase of 118% from 2002. A that the revenues collected through the sale of distinctive feature of the LDIFs is that they can land use rights to property developers, the so develop joint ventures with private investors called "land for infrastructure" deals, could also and make equity contributions to projects. be increased if more transparent and Some weaknesses in the governance and competitive procedures were adopted. transparency of LDIFs are being addressed Further sources of finance are briefly under a new decree being prepared by the described below. All, perhaps with the Ministry of Finance. exception of equitizing state-owned enterprises, There is great potential for increased private will require local governments to demonstrate investment in infrastructure. Private investment, that they are credit worthy by making their including foreign private investment, offers a budgets and accounts open to public scrutiny, virtually limitless source of financing, and including independent auditing. Local could go far towards meeting the infrastructure governments will also have to improve their investment agenda. So far however, private efficiency by adopting more transparent sector investment in Vietnam's urban procurement of public works and by infrastructure has been weak. Investors need to developing a track record for the timely earn a return on the capital invested processing and implementation of commensurate with the risks undertaken, but infrastructure projects. A major step towards this needs to be balanced with the protection of achieving this would be for cities and provinces consumers from the market power of privatized to obtain independent credit ratings. infrastructure. This balancing act must be Potential additional sources of finance implemented in transaction documents (legal include: contracts, licenses, and laws established to Government investment funds - induce the initial investments) and in an Development Bank and Local Development appropriate regulatory environment. To get all Infrastructure Funds of this right is a highly complex affair, requiring Private investment skilled economists, accountants, and lawyers, as Bond Issues well as careful political guidance. The best way Commercial Banks of establishing these skills would be through Equitisation of State-Owned-Enterprises experience, which suggests that Vietnam The Development Bank (DB), formerly the should seek to establish pilot projects at the Development Assistance Fund, at the national local government level with private sector xii participation in a range of urban infrastructure financing if their financing was directed sectors. The Song Da Build Own Operate towards projects with the highest returns. (BOO) Water Treatment Plant project in Hanoi Vietnam's financial sector is currently being promoted by Vinaconex, a SOE owned by dominated by four major SOCBs, accounting for the Ministry of Construction, will provide some about 80% of the capital, lending and assets of useful lessons. However, projects involving the banking system. Over the past decade the private companies, rather than SOEs and SOCBs have evolved from specialized policy- private sources of finance, rather than state lending vehicles to more commercially oriented owned banks, would be even more useful in financial intermediaries. However, much more terms of providing potential access to much needs to be done to reform the banking sector greater sources of finance. before it can be appropriately utilized to finance Government has been working to develop urban infrastructure development. the government bond market, in part to directly Internationally, many governments have finance investment, including infrastructure, used the sale of shares of state-owned and more broadly to serve as a benchmark for enterprises as a means of raising substantial broader capital market development. At the revenue. To date, Vietnam's equitization of state- provincial level, the first municipal bonds were owned enterprises appears to have been directed issued by Ho Chi Minh City in 2003, in the form at expected efficiency benefits, rather than as a of a general obligation bond, raising US$ 127 major revenue-raising device. But as Vietnam million. In 2004, the Ho Chi Minh City confronts the financing challenges of its major Infrastructure Fund (HIFU), which is wholly investment program, equitization could owned by HCMC Peoples Committee, managed provide an additional source of finance. For the the issue of another US$ 127 million of equitization program to raise significant municipal bonds. Disclosure rules for the public revenues improvements will need to be made: offerings either do not exist, or are very weak. on the disclosure of information about the Overall the market for bonds is poised for accounting and business position of companies; significant development but important to corporate governance, particularly the institutional reforms, addressing governance protection of minority shareholder rights; and and transparency in particular, are required to the listing of companies shares on a stock permit this potential to be realized. The stock of exchange to facilitate trading. local government debt in Vietnam is not In order to successfully diversify the currently a threat to fiscal stability, but care will sources of municipal finance, local need to be exercised through national oversight governments will have to develop the technical to ensure borrowing, with the contingent capacity and the appropriate policy and liability it imposes on the national government, operational frameworks to work with the is kept within prudent limits. private sector via direct (public-private- The mismatch between the long-term partnerships, management contracts, etc.) and financing needs of infrastructure investment indirect (municipal bonds, revenue bonds, and the short-term deposits held by state-owned bank loans, etc.) financing structures. The commercial banks (SOCBs) means that banks are central government will also have to play an not the ideal financing institutions for active role in a) providing the appropriate infrastructure. Nevertheless, by pooling their incentives to the local governments and the contributions in investment consortia the banks private sector to focus on urban infrastructure could play an important role in infrastructure development, and b) establishing clear and xiii consistent regulatory frameworks for urban particular the often redundant multiple reviews infrastructure finance involving direct and currently required for investment projects need indirect private sector participation. The to be streamlined. success of the emerging municipal finance Given the enormous demand for basic model will in particular depend upon the infrastructure and the limited financial quality of the corporate governance resources available, it will be vitally important environment at the local government level. to prioritise investments more effectively through more systematic economic and social Recommendations for Improving cost benefit analysis. The design horizons and Urban Development technical standards adopted for new investments should be changed. In most cases In terms of policy, the Orientation Master Plan for it would be best to adopt a more incremental Urban Development to 2020 needs to be updated approach with a relatively short initial design because it has become out of date since it was horizon of 10 to 15 years. This reduces initial approved in 1998. It should be revised to reflect investment needs thereby enabling more people the country's move towards a market oriented to benefit. Technical standards should be economy and to recognize the changes that performance based, as described above. have arisen from the increased decentralization Adopting demand driven approaches with that is taking place. The draft Urban Water beneficiary participation throughout all stages Supply Decree that is expected to be approved by of the investment cycle would make mid 2006 sets a good example of a policy prioritization easier. document that provides a solid framework to In terms of relative priority across sub- guide sub-sector growth. Similar initiatives are sectors, it is probably most important to ensure required for wastewater and drainage, solid waste that all urban residents have access to piped management and urban transport. Particular water that meets national standards. issues that need to be addressed in these sub- Fortunately cost recovery levels for water sectors include guidance on carrying out the supply are already fairly high and it should be economic and financial appraisal of high cost relatively easy to mobilize finance from the urban mass transit systems and mechanized capital markets and the private sector. The recycling and composting processes for solid demand for wastewater collection and waste; and transparent procedures to safeguard treatment, improved drainage and the safe the social and environmental interests of people disposal of solid waste is increasing as people affected by the construction of new wastewater become better-off and more informed about the treatment and solid waste disposal facilities. health effects of environmental pollution. With Other broader policy areas such as this increased awareness people will be willing Decentralisation and Financial Sector Reform are to pay higher charges for wastewater and solid having a profound impact on urban waste collection and disposal. Government's development. Decentralisation requires a huge policy of prioritizing the largest cities will capacity building effort to strengthen the deliver the highest level of cost/benefit. For managerial and technical skills of staff at the these sub-sectors most of the funding, at least in local government level. Further the next 5 to 10 years, will have to come from decentralization of authority for revenue the State budget (including ODA). To enable as generation, urban planning and the review and many urban residents as possible to be covered, approval of projects would be beneficial. In it will be necessary to progressively increase xiv wastewater and solid waste charges, so that responsible for socio-economic plans, sector they can begin to contribute towards plans, and spatial (master or construction) investments costs. Also the current policy of plans. All of the plans and spatial plans in providing full grant financing from the State particular should be based on the level of budget should be changed. Wealthier cities investment that is realistically likely to become should be required to mobilize part of the available in the time period they cover. Spatial funding on a matching basis. The need to plans need to become more strategic and less address traffic congestion is becoming prescriptive. They also need to be able to increasingly important in the largest cities. City respond much more rapidly to market signals. planners will need to balance the need for more There should be much higher levels of road and parking space against conflicting consultation with all stakeholders. To achieve demands to preserve the historic character and this, planning should be increasingly attractive human scale of Vietnam's cities. decentralized. At the same time, local Introducing improved public transport systems Governments should be made more should be given high priority to offset the accountable. In particular there must be much demand for more roads. This should focus stricter enforcement of planning controls. initially on the introduction of bus-based Performance standards for infrastructure systems, which are much more cost-effective tailored to local situations should replace than rail systems. It is likely that pubic transport prescribed national standards. The will have to be subsidized, but this can be kept development of peri-urban areas presents to a minimum by competitively contracting out special challenges. Ideally the infrastructure the right to operate routes. Taxes associated should be constructed ahead of industrial, with car ownership and parking fees should be commercial and residential development. The used to manage demand. establishment of effective institutional Making affordable housing available, given arrangements by cities to manage the the very high cost of land in Vietnam's main development of peri-urban areas will be of key cities, is a major challenge. The solution lies in importance. providing the necessary incentives to private In 2005 Government recognised the sector developers and to encourage landlords to importance of regional planning and a high invest in rental property. In parallel it will be level steering committee chaired by a Deputy important to develop the housing finance Prime Minister was established to oversee the market as part of the broad financial sector preparation of plans for the greater Hanoi and reform. ADB is providing support for this. A greater HCMC regions. So far this has focused very cost effective and socially benign way to primarily on spatial planning. It needs to be improve living conditions and housing for poor broadened to ensure coordination socio- people is through the in-situ incremental economic and sector planning. One of the most improvement, or urban upgrading, of existing important matters that will have to be low-income areas. Research from other addressed is the establishment of an effective countries shows that residents will invest up to institutional framework to ensure that the plans 7 times in their houses what the city invests in can be implemented. infrastructure. Mobilising additional sources of finance for Urban planning needs to be improved. There urban development is the most pressing should be much closer coordination amongst requirement that Government should address. Ministries and local government departments The financing needs of urban infrastructure are xv well in excess of State budget resources. indicate that people are generally willing to pay Government should empower cities/provinces more than authorities have been prepared to to mobilize more funds from sources such as: charge. Measures will however need to be taken national development funds, or banks, such as to protect the poor and disadvantaged. In the the Development Assistance Fund; Local case of wastewater charges, Decree 67 on Development Infrastructure Funds (LDIFs), Environmental Protection needs to be amended such as HIFU; municipal bond issues; and to remove the limitation it places on wastewater commercial banks. Cities should also be tariffs not exceeding 10% of the water tariff, with empowered to increase their self-generated half of the revenue raised being transferred to revenues. Government should prioritise use of Central Government. The very high value of the limited State budget resources that are land and property in Vietnam's main cities is a available for urban development: to leverage potential source of additional revenue that is other sources of finance; for pilot investments to utilized in many other countries throughout the demonstrate new ideas and policies; to support world. Consideration should be given to the most disadvantaged urban areas; and to introducing taxes related to property values. address problems that directly affect the health The rules for issuing municipal bonds need of large numbers of people, such as high levels to be strengthened by developing disclosure of environmental pollution. rules and giving greater emphasis to repayment Cities/provinces should give priority to planning. LDIFs should focus on lending on full developing an appropriate enabling commercial terms, either entirely, or in parallel environment to attract investment in with a grant provided from a separate funding infrastructure from the capital markets and the source. In cases where parallel loans and grants private sector. To do so cities will need to make are adopted the eligibility criteria and process themselves more credit-worthy - ideally by should by fully transparent. obtaining a credit rating from an independent Vietnam has made great strides in urban agency. City finances and also their development since the "doi moi" reform procurement practices will need to become initiatives were introduced in 1987. However more transparent and subject to independent much remains to be done to enable its cities and audit in order for this to happen. Cities should towns, which are the nation's main engines of increase their self generated revenues by raising growth, to compete more effectively in the user charges for infrastructure services so that global market place. Adoption of the they eventually cover the cost of investment as recommendations outlined above would make a well as operation and maintenance. Surveys significant contribution towards achieving this. xvi Chapter I Background "Urbanisation has a well known positive Introduction association with long-term economic growth. Two major transitions are taking place in Nations with higher levels of urbanisation Vietnam's economy - one is the movement from invariably have higher levels of per capita a rural to an urban base and the other from income."1 Urban areas are the engines for GDP central planning to a market oriented economy. growth. In Vietnam they generate Both trends are mutually reinforcing. Vietnam's approximately 70% of GDP. Urban areas future economic growth will depend on its support an inherently more diverse economy ability to develop competitive, market driven including increased domestic consumption and industrial and service sectors. These are are more resilient and resistant to external primarily urban-based activities. Already dislocation as change or contraction ripple Vietnam's cities and towns account for about through the global economy. A sound and 70% of total economic output. Most FDI is pragmatic urban policy is necessary to balance directed toward cities. Economic opportunities growth and its potential consequences. In in urban areas are propelling rapid growth in Vietnam's case, particular challenges arise from the urban population with significant rural to a legacy of urban neglect. urban migration. Urban growth is in turn Vietnam's situation can be summarized as creating economic growth prospects. follows: Vietnam is at a crucial point where its continued development and dramatic progress on poverty alleviation is dependant on long term stable development. Adequate infrastructure is essential to alleviate poverty, improve the quality of life and expedite sustainable economic development. Sound development is dependant on managing urbanization effectively, greater decentralization, and provision of the levels of access to basic infrastructure necessary to support economic growth and improve the quality of life of urban residents. Rapid urbanisation of Ho Chi Minh City 1. UNCHS Fukuoka (2001), The Urban Transition in Vietnam, Second Report, First Draft of Text, 15 October 2001, Fukuoka, Department of Urban and Regional Planning, University of Hawaii. 1 In 2005 about a quarter of the urban various ways by for example frequently population lives in substandard housing; changing classifications and assumptions. Basic infrastructure is deficient: according Statistics and data need to be more objectively to benchmarking studies of all provincial and candidly analyzed. water companies carried out in 2004 only Some of the factors that complicate an around 61% of urban residents had access to objective comparison of urban performance treated piped water; no cities treat include: wastewater; few have safe solid waste The primary urban policy document - the disposal facilities and transportation Orientation Master Plan for Urban services are limited; Development to the Year 2020 - prescribes Serious environmental degradation and population targets with a strong emphasis health problems are caused by untreated on managed demographic distribution that human waste and unregulated discharge of is already out of date. industrial wastes; Targets for basic infrastructure coverage are Growing motorization and the resultant unrealistic. The orientations for water congestion is threatening urban transport supply, drainage and wastewater as well as and increasing air pollution; the Comprehensive Poverty Reduction and Planned and unplanned growth is rapidly Growth Strategy (CPRGS) all set impossible occurring at the peri-urban fringes of cities, targets e.g. by 2010 all urban areas to have often without adequate infrastructure. 100% piped water, 100% of all wastewater Retro-fitting infrastructure into unplanned treated, 100% of all solid waste collected and developments is much more expensive than disposed of safely and all slums and constructing it as an integral part of the temporary houses eradicated. developments. Official population data does not include Vietnam requires a more coherent and unregistered migrants, who account for at integrated urban strategy to more effectively least 15% of residents in the larger cities. promote economic growth and poverty The definition of "urban" is changed alleviation through better management of the periodically and geographical boundaries urbanization process. The case for a strong are frequently modified for administrative urban strategy is particularly acute in Vietnam purposes because Government has established very There are strong incentives for local ambitious urbanisation objectives, but has not governments to exaggerate or distort yet developed a practical time-bound plan to statistical data to try and increase their achieve them. allocation of the state budget from central government Political Context of Urbanization Historical Legacy: Under the socialist system adopted in the 1950s in northern Government places strong emphasis on data Vietnam, cities were seen as centers of collection, quantification of production targets, production and were planned and managed as and statistical comparisons. This tends to production resources without regard for obscure more analytical views of reality and secondary impacts. The urban development often overshadows the need for more coherent strategy was essentially a list of public works strategies and programs to achieve change. projects approved by Government. Public Data is often inaccurate, or manipulated in benefit was measured in terms of production. 2 There was little evaluation of the cumulative Republic of Vietnam were faced with the need effect of decisions and no strategic view for a to accommodate large numbers of refugees city, or cities, in general. Cities in Vietnam from rural areas. Providing basic infrastructure have entered the 21st century without the in these circumstances was not given high urban policy, management, governance, or priority and cities such as Ho Chi Minh City are infrastructure to fulfill the role cities typically still having to deal with the legacy of this play in a market economy. problem. For example many of the city's canals Urban planning in the Democratic Republic are still lined with ramshackle slums which of Vietnam (DRV) was intended to eliminate the have no basic services. contradictions of capitalism through integration Doi Moi - The renovation process of Doi Moi of urban and rural areas and agricultural and adopted by Government in 1987 followed on industrial sectors and to relocate up to one fifth the heels of a decade of policy emphasis on of the population. In practice this meant that a collective agriculture and integration of the mixture of industrial facilities, housing blocks south into the social, economic and political for workers and other state employees, parks philosophy of the country. Doi Moi effectively and recreational areas, long-established ended a period of urban neglect. The policy villages, and rice fields and gardens were changes that accompanied Doi Moi made cities retained within designated urban areas. more acceptable and attractive as centers of Infrastructure improvements gave priority to formal and informal economic activity and defense, or the various forms of agricultural and opportunity. Controls on official migration industrial production. Urban management and continued but were less strictly enforced over planning were guided by a need to resolve time. It became politically and socially immediate problems regarding food and acceptable to move to a town or city, although national security. ties to the place of origin remained strong. The Rural urbanisation was promoted by income difference between urban and rural area attempting to create 500 urban industrial increased, further stimulating migration and centers at the district level and by establishing urbanization. Government policies continue to a new rural town for every 5,000 people that try to balance development and investment were resettled. By 1984, 2.4 million people had between urban and rural provinces. been resettled. Political hegemony also drove urbanisation. A boundary expansion of Hanoi GDP Growth and Economic Change in 1979 that added one million people to the city's census was appears to have been Vietnam's progress in terms of economic motivated by the desire to bring Hanoi's growth and poverty alleviation has been official population closer to that of Ho Chi dramatic. The average annual GDP growth rate Minh City. over the decade from 1994 to 2003 was about "If the process of urbanisation in the north 7.4%. Vietnam has the eighth fastest growing could be characterized as deliberate planning, economy in the world.3 About 70% of GDP is the south could be characterized by its generated in urban areas. Due in large measure absence"2. City authorities in the former to the economic growth, Vietnam has managed 2. UNCHS Fukuoka, (2001), The Urban Transition in Vietnam, Second Report, First Draft of Text, 15 October 2001, Fukuoka, Department of Urban and Regional Planning, University of Hawaii. 3. Viet Nam News, April 17, 2004. 3 to lift 20 million people out of poverty since driven by a mix of non-state investment, foreign 1993. The official percentage of urban poor investment, state promotion of the service sector, declined from 25% in 1993 to 3.6% in 2004.4 and demand for services and consumer goods However, if unregistered migrants had been that have accompanied the rise in non-state included, the percentage of urban poor in 2002 investment and personal disposable income. would likely have been closer to 15%.5 The Economic productivity of the major cities in housing of about 25% of the urban population Vietnam exceeds their proportionate share of the in 2002 was classified by government as slums population. As the table below indicates it is in a or temporary housing.6 similar range to other major cities in the The economically dynamic cities of Ho Chi developing countries of East Asia. Minh City, Hanoi, Da Nang, Can Tho, Hai Phong, Ha Long, Vung Tau and Nha Trang have Classification of Cities seen the most dramatic urban population growth. City economies are gradually shifting Urban areas in Vietnam are categorized in from manufacturing toward services.7 The accordance with two classification systems: increase in the service sector has accelerated urban hierarchies, and administrative level. The since 2000. National macroeconomic policy is urban classification of cities is a cornerstone of just beginning to consider service-based and urban policy and management in Vietnam. knowledge-based sectors of the economy. These Urban places are officially designated and sectors are urban based. The shift has been classified by MOC. There are six classes of urban center (see table below and Annexes 1A and 1B). The classification is based on physical Comparison of City GDP in Asia criteria, population, population density, level and nature of economic activity, GDP, and City City GDP as % of % of total pop infrastructure provision. Class V marks the National GDP (2000) demarcation between urban and rural. Class V Shanghai 11 1 towns are required to have a population of more than 4,000 with over 65% employed in Beijing 6 1 non-agricultural sectors. Striving for higher Guangzhou 4 1 classification standards is a major Bangkok 40 12 preoccupation of local government authorities Jakarta 7 5 as the higher classifications receive a larger NCR * (Philippines) 30.8 13 share of state resources. The classification system provides incentives for cities to try to Ho Chi Minh City 19.3 6 move to a higher class. Cities often make Hanoi 8 3 4. Vietnam: Growth and Reduction of Poverty - Annual Report of 2003-2004. 5. The World Bank, Project Appraisal Document for the Urban Upgrading Project, 20 February 2004. 6. The percentage of slum population targeted by the WB Urban Upgrading Project in Can Tho City is 16%. The corresponding percentage in Hai Phong is 31%, and for Nam Dinh is 10%. 7. The state-owned sector in Hanoi's economy declined from 72.9 percent of GDP in 1990 to 63.1 percent in 2000. The foreign direct investment increased from zero in 1987 to 13.3 percent of the city's GDP in 2000. Between 1990 and 1997, total investment in Hanoi was about US $4.76 billion with 14.6 percent from non-state sources and 56.3 percent from foreign sources. The state sources represented only 29.1 percent of the new investment. (HSO [1995 and 2001]) 4 investments in infrastructure to enable them to unchanged. In fact, the projections made when meet the requirements of the next classification the Plan was approved are already out of date level, rather than in direct response to the because of continuing reclassifications, immediate needs of the population. For migration to larger urban areas, and under- example a city or town may invest in road counting of envelopment and increased density expansion when there is only limited traffic of existing cities towns and villages.9 The demand, instead of expanding piped water average population of each urban classification supply, where clear need exists. is expected to triple over the 20 years covered The role and responsibilities of local by the plan (see Annex 2). authorities are designated by administrative Historically, Government has promoted level.8 The five Special and Class I cities have urbanization of district towns and the provincial status. Class II, III, and some Class urbanization of some rural areas as a means of IV cities have the same status as districts and trying to reduce migration to the large cities. come under the authority of provincial However future urbanization projections show a authorities. The remainder of Class IV and decreasing proportion of the urban population is Class V urban areas have commune status and expected to live in district centers and towns also come under the authority of provincial despite the fact that the number of centers and authorities. The classifications are dynamic as towns is expected to increase by a factor of three. Government adds provinces and reclassifies This is probably realistic as experience from cities. For example Can Tho became a Class 2 other developing countries indicates that it is city in 2004. Chapter IV provides more detail. virtually impossible to control migration to large Based on the Orientation Master Plan to cities, which offer the best opportunities for 2020, MOC expects the population and employment and at least perceived distribution of cities by class to remain basically improvements in the quality of life. From the Number and Percentage Population of Cities 1998 to 2020 1998 2010 2020 Urban Class % Urban % Urban % Urban (as of January 2005) Cities Population Cities Population Cities Population Hanoi & HCMC - Special Cities 2 37% 2 39% 2 40% National Cities - Class I 3 9% 3 10% 3 11% Regional Cities - Class II 12 15% 12 16% 12 17% Provincial Cities - Class III 16 7% 18 8% 20 9% District Towns - Class IV 58 14% 62 13% 66 12% Townlets - Class V 612 18% 1172 14% 1831 11% Total Urban Centres 703 1269 1934 8. According to the 1992 Constitution, there are four level of State Administration, namely, (i) Central Government; (ii) Province (including cities under direct Central Government); (iii) District (including provincial cities and towns); and (iv) Sub-district (urban wards, townlets and rural communes) 9. DiGregario and Vogler (2003), "The Invisible Urban Transition: Rural Urbanization in the Red River Delta, 7th International Congress of Asian Planning Schools Association, Hanoi, September 2003. 5 perspective of the city authorities, migrants to the year 202011 changing the urban should be seen as a valuable resource to their population from 20 million in 2000 to at least 40 economies, rather than a problem. It would million by 2020. The Ministry of Construction's seem advisable to place more focus on meeting official population targets acknowledge the basic infrastructure needs of poor residents, dramatic growth in Ho Chi Minh City and including migrants, in the large cities where Hanoi even though the official policy initiatives there is likely to be high growth, than on district of Government are directed toward controlling towns where the rate of growth could well be growth and preventing "mega cities". The much lower than expected. It is clearly Orientation Master Plan for Urban Development important that the patterns of urban growth to the year 2020, which was approved in 1998, should be carefully monitored to ensure lays out the geographic parameters for the optimal use of limited investment resources. Hanoi and Ho Chi Minh City metropolitan areas Account also needs to be taken of urbanization as having a radius of 30 to 50 km. that occurs through the densification and The Ministry of Construction predicts the envelopment of villages located within the zone urban population will account for 45% of the of influence of large cities and in regions with total by 2020. The General Statistics Office has high average population densities such as the prepared three different forecasts, with the Red River and Mekong Deltas.10 median set projected an urban population of 33% by 2020. The variation is largely explained by the Urban Population Growth and inclusion or exclusion of unregistered migrants. Migration Migration statistics in Vietnam are obscure, in part because unregistered migrants are not In 2003 it was estimated that the urban counted in the national census. The actual population, including an allowance for population, including unregistered migrants, is unregistered migrants, accounted for about 25 10 - 15 percent higher than the official population percent of the total population of Vietnam. in the larger cities. A census carried out in 2004, The percentage of urban residents is lower which for the first time included unregistered than most other countries in Southeast Asia residents, found that the population of Ho Chi due to the legacy of the war, subsequent Minh City was 6.2 million. This compares with relocation programs, and the limited economic the General Statistical Office's estimate, based on growth between 1975 and the beginning of the 1990 census, of 5.8 million. Hanoi's official Doi Moi in 1987. population was 2.84 million in 2001. Hanoi and Although there are different forecasts, Ho Chi Minh City attracted 40% of inter- Vietnam's urban population (official and provincial migration during the period 1994- unofficial) is set to increase rapidly over the next 1999. Authorities in Ha Long, one of the fastest 15 to 30 years - more than doubling by 2020. growing cities in the nation, estimate that 20-25% Most analysts agree that at least 1 million people of the city's population are recent migrants, who will be added annually to Vietnam's urban areas are not registered. 10. DiGregorio and Vogler (2003), "The Invisible Urban Transition: Rural Urbanization in the Red River Delta, 7th International Congress of Asian Planning Schools Association, Hanoi, September 2003 11. Cour, (2001) assuming a slightly "high side", but quite plausible, future urbanization rate of 3.8% forecasts a gain in the urban population of 21.5 million over a 22 year period (1998-2020). See Cour, J., Migrations, Urbanisation and Changes in the Rural World of Vietnam, May 2001. (Report prepared for French Ministry of Foreign Affairs.) 6 There are different opinions about the impact adults who are attempting to maximize saving, that migrants have on the economy of cities. Some migrants consume relatively few urban resources see them as a vital resource necessary to maintain and have high levels of savings."13 a high rate of economic growth, while others see them as problem. To quote Guest "Many of the Comparative Urbanization problems that planners believe migrants bring to the city - increased poverty, participation in The table below illustrates that Vietnam is less marginal and/or illegal occupation, increases in urbanised than most of its neighbours in the stock of sub-standard housing, greater crime - Southeast Asia could be reduced by removing institutional constraints against their full participation in the Incidence of Poverty social and economic life of the cities."12 As a self- selected and highly motivated group, research The percentage of people in poverty, using any indicates that the probability of migrants of the standard poverty classifications improving their economic status is high. Only (international, national, or nutritional poverty), is 12% of recent migrants are reported as living in lower in urban areas in Vietnam than in rural poverty; a percentage comparable with the and remote districts. However, while the underlying poverty rates. Again to quote Guest: percentage of population classified as poor in "Migrants to Ho Chi Minh City and Hanoi have predominantly rural provinces is higher, the higher labour force participation rates than non- absolute number of poor is greater in cities and migrants living in those cities, they are also much urbanized provinces, as illustrated in the poverty better off than they were in rural areas. Migrants density map below. The number of poor in cities use family and social networks to obtain will increase, at least in the medium term, as employment and spend little time looking for more of the rural poor migrate. The economies of work. Because migration is selective of young scale and agglomeration that underpin the Comparative Urbanisation14 Country Urban Population Urban Ratio Urban Pop. Urban Pop. Forecast Urban 2001 2001 Growth Growth Ratio 2030 (in millions) (% of total pop.) 1995-00 (%) 2001-30 (% of total pop.) Cambodia 2.4 17.5 6.4 3.5 36.1 China 471.9 36.7 3.5 2.2 59.5 Indonesia 90.4 42.1 4.2 2.4 63.7 Mongolia 1.5 56.6 0.9 1.4 66.5 Philippines 45.8 59.4 3.6 2.3 75.1 Vietnam 19.4 24.5 3.1 3.0 41.3 12 . Guest, Philip (1998) The Dynamics of Internal Migration in Vietnam, UNDP Discussion Paper, United Nations Development Programme (Vietnam Office), Hanoi. 13. Guest, Philip (1998) The Dynamics of Internal Migration in Vietnam, UNDP Discussion Paper 1, United Nations Development Programme (Vietnam Office), Hanoi. 14. Webster, Douglas (2002), "Urban Dynamics and Public Policies in Developing East Asia: Implications for EASUR Programming", Asia Pacific Research Center, Stanford University. 7 existence and growth of cities mean that poor people can be raised out of poverty more cost effectively in urban areas than in rural areas. Urban areas also offer greater economic growth potential to move families out of poverty. The extent to which urban areas are going to be home to an increasing percentage of the population of Vietnam calls for a greater focus on urban areas and more investment in their infrastructure. Slum areas near new high rise housing 8 15 Poverty Density 15. Poverty and Inequality in Vietnam, The Inter-Ministerial Poverty Mapping Task Force. 9 Chapter II Guiding Policies Urban Policy Priorities Promote the development of medium and small cities and district towns There are a wide range of laws, decrees and Create new urban areas in the more remote orientations with related guidance notes that provinces and in proximity to major cities as a relate to policy in urban areas. Those with the means of controlling growth of the larger cities greatest impact on the infrastructure aspects of Preserve agricultural land and plan rural urban development include: the Budget Law development (2002); the Law on People's Councils and People's In addition, other broad Government policies, Committees (2004), the Land Law (2004), and the priorities of other sector ministries, and the record Construction Law (2004). The national Five Year of Government investment contribute the Socio-Economic Development Plans (SEDP) and following to the urban agenda: the Comprehensive Poverty Reduction and Achieve industrialization by 2020 Growth Strategy (CPRGS) also influence urban Increase GDP policy as do sector plans and/or orientations, Balance investment and development such as the Orientation Master Plan for Urban between regions Development to 2020 referred to above. While Maintain social stability in the major cities these cover the whole country, cities and Develop three major growth triangles with provinces also develop specific sectoral master urban focal points - northern triangle based on plans e.g. for urban transport, drainage and the Hanoi/Haiphong axis; central triangle sewerage etc, all of which have a policy element. based around Danang; and the southern The official urban policy is the Orientation triangle centred on greater HCMC Master Plan for Urban Development to 2020 Move "polluting" industries away from prepared by the Ministry of Construction. The existing residential areas main elements of the Master Plan are: Encourage cities to become engines of growth Establish population targets for cities and by promoting financial self-sufficiency district towns in an urban growth hierarchy Utilise urban areas as sources of increased Limit growth of Hanoi and Ho Chi Minh City state revenues16 and reduce population densities in the center The Ministry of Construction is responsible for of the primary cities urban policy and development. Its principal Create satellite cities for Hanoi and Ho Chi policy initiative of record explicitly addresses Minh City urbanisation through demographics by Encourage growth at the urban fringe designating the hierarchy of urban places 16. CPRGS states this is a purpose for vigorously pursuing land registration. 11 described in Chapter 1. However, it falls short in The management of decentralization to local providing meaningful strategies to achieve urban government is a challenge in many countries objectives, or for managing urban places. The around the world. Decentralization of fiscal strategies are dominated by outmoded top-down authority to local government presents some central planning targets dependent on state-run major opportunities: local management of the construction, specific land use controls through budget can result in better mobilization and allocation of land, and centrally planned uses. allocation of resources, and in the delivery of Very little guidance is given on how to achieve the services which are more appropriate and targets. responsive to the needs and wishes of local The urban hierarchy and plans are not well people. Equally, there are significant threats: of linked to other urban activities in the duplication, weakened coordination, and even macroeconomic strategy and are a remnant of an growing inequity and the deterioration of service era with a more static economy and less mobility. delivery in critical sectors. There is no apparent linkage between the Over the past decade, Vietnam has embarked Orientation Master Plan and the financing needed on an extensive decentralization program. A to implement it. cornerstone of this program was the approval of the 1996 State Budget Law. In 2002 a new State Decentralization Budget Law consolidated the reforms and went further by giving provincial governments much Vietnam has four levels of government. The greater discretion over the budgets of districts and country is divided into 64 provinces, ranging in communes under their authority. This provides population between approximately 6 million and the opportunity for more efficient and equitable 0.3 million. Included in these 64 are the five largest resource mobilization and allocation. The result cities which are granted provincial status: Hanoi, has been a substantial and growing level of Ho Chi Minh City, Hai Phong, Danang and Can decentralization, with the share of local Tho. The provinces are subdivided into 643 governments in total expenditures increasing districts, which, in turn, are subdivided into from 26 percent in 1992 to 48 percent in 2002. This 10,602 communes. Class II, III and some Class IV positions Vietnam amongst some of the most cities/towns have "district" status. highly decentralized countries. At the central level, legislative power resides The Budget Law distinguishes three types of with the National Assembly which, according to revenue: taxes assigned 100 percent at the Article 84 of the Constitution, approves the State central level, taxes assigned 100 percent at the Budget (which comprises the central government provincial level, and shared taxes. The tax budget plus the consolidated provincial-district- revenues assigned 100 percent to the central commune budgets). On the executive side, the government include export and import taxes, Prime Minister is the head of the government and VAT and excises on imports; taxes and other he and the rest of the government are appointed revenues from the petroleum industry; and by the National Assembly. The Communist Party corporate income tax on enterprises with operates in parallel to the government structure at uniform accounting. Those assigned 100 percent all levels of government. At each lower level of to the local level include land and housing taxes, government there is an elected assembly, the natural resource taxes excluding those on People's Council, and an executive authority, the petroleum activities, license tax, tax on transfer of People's Committee, which is appointed by the land use rights, fees on land use, land rent, People's Council. revenues from the leasing and sale of publicly 12 owned dwellings, and registration fees and other administrators. The important role played by fees and charges. Shared taxes include all VAT local incentives for tax collection is captured by receipts with the exception of VAT on imported the practice of letting local authorities retain a goods; corporate income tax with the exception of share of the collections above the targeted amount receipts from enterprises under the whole-unit for taxes. Currently, the retention rate is 100 accounting system; personal income tax; tax on percent for Hanoi and HCM City and 30 percent profits remitted abroad excluding tax on overseas for all other provinces. remittances of the petroleum industry; excise In terms of (consolidated) State Budget taxes on domestic goods and services; and revenues (central and provincial governments gasoline and oil fees. combined), the provincial government's share for The State Budget Law does not specify the the 1997-2002 period was a fairly steady 25%. The sharing rates between the center and the expectation is that provincial revenues will grow provinces. They can differ by province and are faster than central revenues and that by the end of calculated as part of the budget process over 2004, about 30 percent of state budget revenues "stability periods" of 3 to 5 years. The revenue will be derived from provincial governments. sharing rate is determined by a formula, which One limitation of current revenue assignments estimates the gap between expenditure needs in Vietnam is the lack of any material revenue (estimated on the basis of norms) and revenue autonomy by local governments. The only form of capacity (estimated on the basis of past revenue autonomy for district and commune revenues). In the stability period ending in 2003, governments that currently exists is the ability to the sharing rate for the 56 poorest provinces was introduce certain fees; for example, waste 100 percent. For the other 5 provinces, the collection fees. The full benefits of fiscal sharing rate in 2004 ranged from 24 percent to 53 decentralization in terms of greater expenditure percent. efficiency are only likely to arise if local In Vietnam, all tax collections are centralized. governments are able to become more The General Taxation Department collects all accountable and responsive to the needs and domestic taxes with offices that extend through preferences of taxpayers by granting them a more the provinces and the districts, and the Customs meaningful degree of tax autonomy. Department collects all taxes falling on imports. Like many other countries Vietnam suffers Only minor fees and charges are collected by from fiscal imbalances. Imbalances are generally financial agencies and service providers. This has addressed through a system of transfers. Vietnam many advantages: it simplifies cash management, has a system of equalization transfers (the facilitates coherent implementation of tax policy "balancing transfer"), which plays an important throughout the country and limits undesirable role in reducing otherwise significantly larger local interference. One problem with centralized disparities. Large disparities in public funds tax collections is the potential lack of incentives arising from the assignments of shared taxes (a that central government bureaucrats may have to difference between maximum and minimum per mobilize and collect local revenues. But in capita revenue values of 47-fold) and from taxes Vietnam, there is defacto dual subordination of tax assigned 100% to local governments (a difference administrators to the central administration and between maximum and minimum per capita the local authorities, meaning that provincial and values of 20-fold) are significantly reduced after district officials can have a recognizable influence transfers. Total revenues per capita, which include on the decisions and activities of tax revenues from transfers, show a difference 13 between maximum and minimum per capita markets. The new Construction Law delegates valuesoflessthan5.Thus,significantequalization approval of higher levels of capital investment to takes place. the local governments. The promulgation of The "balancing transfers" (equalization standards for construction and urban planning transfers) from the central government are are retained at the central level, while approval of unconditional grants, determined using a plans and projects is being progressively formula, and which remain fixed in nominal decentralized to Peoples Committees. terms for "stability periods" of three-to-five years. The most significant changes introduced by The current system of equalization transfers the new Construction Law (2004) are incorporated represent a significant improvement over the "gap within the new Decrees on Planning and on filling" ad hoc negotiated transfers used prior to Construction Investment Project Management, the 1996 law. The formula uses the difference both of which were enacted in early 2005. The between estimated expenditure needs and main new features of the Planning Decree are: revenue capacity or potential. The minimum decentralization of the responsibility for expenditure needs of the provincial governments preparing spatial plans to Peoples Committees for are derived on the basis of expenditure norms, most cities and provinces (except inter-provincial and are intended to cover all current and capital cities, high tech and special economic zones); expenditures. decentralization of the approval of plans for Class There are also conditional transfers. These are III and IV cities to Provincial and District Peoples principally transfers for the implementation of Committees; review of plans by elected Peoples "National Target Programs," such as those for Councils; addition of broader brush "Orientation rural water supply and sanitation. These National Plans" covering 20 year periods for Special, Class I Target Programs are a key tool by which central and Class II cities; the addition of regional government can ensure the delivery of key planning requirements; coverage of the national initiatives at the local level in a fiscally redevelopment of existing urban areas (instead of decentralized system. just new construction); and the introduction of Vietnam does not have an explicit separate greater, though still rather limited, consultation in system of capital transfers. The bulk of the funds the planning process. Generally the new Planning that can be used by local governments for Decree introduces some worthwhile investment in capital infrastructure is included in improvements. However, the process of the balancing, or equalization transfer, although developing spatial plans for cities and provinces some of the conditional grant funds are also for remains largely top-down. The Construction Law investment in infrastructure. From 1997 to 2004, and Investment Project Management Decree capital expenditures at the local level have combine aspects of project management, represented between 75 percent and 100 percent procurement and technical standards. The of recurrent expenditures. Construction Law increases the ceiling that can be The new Land Law introduced in 2004 (see approved at the local level for most infrastructure Chapter IV for more information), also delegates projects to VND 400 million (around $25 million) increased responsibilities to local governments. and VND 600 billion (around $40 million) for These additional responsibilities include: land housing. The most significant change arising from allocation, titling, land administration, land the Decree relate to a requirement for more registry, and the creation of formal real estate detailed preparation of investment proposals. 14 Chapter III Infrastructure Access, Needs, and Goal General No provision is being made to make housing available for low-income earners While looking to the future, Vietnam still faces a The adequacy and condition of infrastructure major challenge in dealing with the past legacy of facilitates economic development and is capable of urban neglect. The poor are particularly shiftingcomparativeadvantagefromoneregionto disadvantaged. Access to basic services needs to another. Economic growth, in turn, facilitates be extended to all urban residents. moving people out of poverty. The direct Only 61% of urban residents in 2004 had access provision of infrastructure, particularly basic to treated piped water that meets national infrastructure such as water supply, drainage, standards17. sewerage, paved access, solid waste management, None of Vietnam's cities or towns treats schools and health facilities, also plays a major role wastewater. Serious environmental in lifting disadvantaged sections of communities degradation and health concerns are caused by out of poverty. water pollution from untreated human waste The Orientation Master Plan for Urban and unregulated discharge of industrial Development to 2020 identifies urban wastewater. infrastructure goals. It also incorporates More than 50% of Vietnam's solid waste construction master (spatial) plans for Hanoi and disposal dumps have been officially declared Ho Chi Minh City through the year 2020. These environmental hazards that must be closed as plans delineate expansion areas for the cities and soon as possible. are replete with lists of projects across all sectors. Rapid motorization with resultant congestion Industrial zones and major infrastructure is choking city streets and increasing air investments in the three regional economic pollution. growth triangles are also included. The Plan, Housing is cramped and around 25% is however, does not define priorities for investment classified by Government as sub-standard or nor does it indicate the costs, or sources of temporary. Roughly 300,000 people live in funding. Where implementation strategies are slums in Ho Chi Minh City; mentioned, the plan seldom goes beyond Eighty percent of housing is owner direction to "construct" a list of specific state sector constructed, most on an informal basis outside facilities. planning regulations and without adequate In addition to the urban targets in the supporting infrastructure; Orientation Master Plan, infrastructure goals, 17. Bechmarking survey by VWSA in 2004. The Vietnam Household Living Standards Survey indicates urban access to the lower definition of "improved" water sources is 82% 15 targets, and priorities are set forth in several other at around 2.5% per year. The data show that there Government policy documents, including the has been a slight decline in the availability of water Comprehensive Poverty Reduction and Growth to the urban population (on a percentage basis), Strategy (CPRGS), and Vietnam's Millennium indicating that the level of investment in new DevelopmentGoals(VDG),whicharesimilartothe facilities has not been adequate to keep pace with international Millennium Development Goals. the rate of urbanisation. As noted above, the There are also sector-specific goals and targets, benchmarking survey and other research reveal including the Ministry of Planning and significant differences in the levels of access. On Investment's Ten Year Infrastructure Plan, and average, in 2002 large cities had 67.3% coverage, Government's Environmental Strategy to 2010. Not while small towns had only 10.6%. Even amongst all the documents are consistent. the larger cities there are significant differences. Access to basic services, even in Vietnam's Haiphong has close to 100% coverage, while in largest cities, is far from being comprehensive. This Danang, coverage is less than 50%. placesconstraintsonlocaleconomicgrowthandthe The goals and targets for water supply in the poor face a disproportionate burden arising from CPRGS are: incomplete coverage. Data on coverage is often Complete water supply networks for major contradictory and incomplete. For example a and heavily-populated cities benchmarking survey of all water supply Double supply capacity for urban and companies carried out by the Vietnam Water industrial centers to 5 to 5.5 million cubic Supply Association with World Bank funding in metres per day by 2010 2002 indicated that piped water coverage in urban Reach 90% of urban dwellers with clean water areas is only around 50%, while official data by 201020 published by the Ministry of Construction claims Reduce unaccounted-for-water from 39.4% to 76% coverage. Some of the variations are explained 30% by 2010 by different definitions e.g. MOC refer to "clean" water sources, which aren't necessarily piped to users. It is clearly important to develop more reliable data collection to enable investments to be more effectively targeted and prioritized. Water Supply As noted above, in 2002 only about half the population had regular access to piped water that meets national standards.18,19 The proportion of the population with access has increased Many city residents still don't have piped water 18. Joint Donor Report (Vietnam Development Report 2004 - Poverty) (2003) 19. Clean water is defined as all "bought water" and excludes all water from "hand-dug wells". 20. 95% according to Government's Environmental Strategy and 80% by 2005 according to VDG. 16 Purchased Water22 "projects in major cities and Income Category Monthly Expenditure % of Household industrial areas such as Hanoi and per Capita (VND) Income HCMC will receive higher priority in order to meet the demand for Poorest Quintile 17,900 2.8 drinking water and step by step Near Poor Quintile 14,300 2.7 solve flood issues in these cities".23 Middle Quintile 27,900 2.2 Near Rich Quintile 51,700 1.8 This statement is one of the very few Richest Quintile 68,900 1.3 direct indicators in the Comprehensive Poverty Reduction and Growth Strategy (CPRGS) Train water supply staff in management, and giving specific priority to urban areas. maintenance Provide soft credit for water supply systems Drainage, Wastewater Collection and The cost and availability of water in major Wastewater Treatment cities is an issue for the poor. In terms of percentage of household income, the poor spend The "Orientation for the Development of Urban more than twice that of the better off (see table SewerageandDrainagetotheYear2020",approved below). When unable to secure water connections, by the Prime Minister in March 1999, sets out the poor must buy water from those with Government's policy. Generally it is very sound connections, or from water sellers, usually at and aims to: (a) put sector financing on a new many times the rate charged by the public water footing by gradually eliminating the need for company.21 subsidies for operation and maintenance through Water supply and drainage are express the introduction of wastewater charges; (b) reduce priorities of Government for major urban areas: flooding by allocating more resources to increasing the capacity, and expanding the coverage, of drainage; (c) gradually introduce wastewater collection and treatment; and (d) strengthen institutional and human resource capacity. The largest cities, where the problems are most acute, are to be given highest priority. "Environmental quality and urban sanitation are major problems facing Vietnam's cities, especially the larger ones, exacerbated by the high densities" in the city cores.24 Only Frequent flooding with polluted wastewate occurs in Vietnam's around 68% of the urban population cities 21. Charges of seven or eight times the official rate are cited in Participatory Poverty Assessment. 22. Joint Donor Report (Vietnam Development Report 2004 - Poverty) (2003). 23. CPRSG. 24. Webster (2002), Douglas (2002), "Urban Dynamics and Public Policies in Developing East Asia: Implications for EASUR Programming", Asia Pacific Research Center, Stanford University unpublished 17 was reported to have access to hygienic latrines become denser, septic tanks can not adequately in 2002. In 2004 none of Vietnam's cities handle the quantity and pollution load of collected or treated municipal wastewater. wastewater discharged. Instead, wastewater However wastewater treatment plants were needs to be collected and transferred to a central under construction in Danang, Halong, Hanoi location where it can be safely treated in an (West Lake), Ho Chi Minh City (Binh Chanh), environmentally acceptable way. Da Lat, Hue, and Buon Ma Thuot and project Some industrial zones have wastewater preparation was under way in several other treatment facilities, but few operate effectively cities including Can Tho, Soc Trang and Bac and there is very little enforcement by city Ninh. Residential and commercial premises are authorities of the quality of effluents that factories required to have on-site septic tanks. discharge to public drains or sewers. In the Unfortunately they are rarely properly competition to attract investment, cities seem to designed, constructed or maintained. Effluent give greater priority to providing favorable from septic tanks either soaks into the financial conditions for investors and the surrounding soil thereby polluting requirement for pre-treatment facilities for groundwater, or finds it's way to drains, which treating effluents before they are discharged to are only designed to cope with rainwater runoff, public sewers is often neglected. "In Hanoi, 300 causing pollution in canals and rivers. In smaller factories discharge untreated waste including towns, where population densities are low and chemicals and some heavy metals directly into soil and water table conditions are suitable, water bodies but the city has no wastewater septic tanks can be an acceptable treatment treatment facilities" 25 solution. However, as urban areas expand and Drainage systems also need greater attention. All of Vietnam's largest cities are subject to flooding during the rainy season. They are built on flat land only a few metres above the level of the large rivers on which they are sited, or the sea. Prior to development the land was swamps with many natural water channels and lakes. As the cities have grown and water courses and lakes have been filled in, the natural drainage systems were disrupted and have been replaced with concrete or brick drains and culverts. The natural topography of the cities and the fact that rainfall in Vietnam comes in relatively short duration, high intensity storms, means that drains have to be Heavily polluted canal in Ho Chi Minh City larger than would be the case if there were natural slopes and less intense 25. Webster (2002), Douglas (2002), "Urban Dynamics and Public Policies in Developing East Asia: Implications for EASUR Programming", Asia Pacific Research Center, Stanford University unpublished. 18 rainfall. Alternativelylargepumpsneedto be installed to drain the networks. Pumped systems are however very expensive to operate and need good management to ensure the pumps function when required. Drainage systems have not kept pace with expansion of the cities and those that are built are often not planned as part of an integrated city network. Construction quality also needs to be improved to ensure systems operate effectively. Waste dump polluting the envionment Government gives high priority to constructing drainage and wastewater systems in urban areas. The target of encouragement of private sector participation, achieving 100% coverage in urban areas by 2010 and the adoption of appropriate modern must however be regarded as impossible to technologies. achieve, given the very low starting point. Towns and villages generally lack organized MOC report that 65% of domestic waste was wastewater collection and treatment systems. In collectedin2004.The2010EnvironmentalStrategy smaller towns and villages, with low population sets targets of 90% solid waste collection in urban densities and which remain predominantly areas and the safe disposal of 60% of "dangerous agricultural in character, this does not create waste" from industry, hospitals, etc. The Vietnam serious problems. However, as the towns grow Development Goals target of 100% collection is and densities increase properly designed systems even more ambitious. In this case finance in not become necessary. really a serious constraint in terms of purchasing the necessary equipment and constructing safe Solid Waste Management disposal facilities. However, generating the necessary revenues to operate and maintain Vietnam has put in place sound policies for solid equipment and properly manage sanitary landfills waste management that specifically address is a problem because People's Committees and guidelines for the management and disposal of People's Councils are reluctant to raise user all waste streams. The main policy document is charges to the necessary levels. the "Strategy for the Management of Solid Waste Safe disposal of solid waste is becoming a in Vietnam Cities and Industrial Parks" that was major issue in Vietnam, particularly in the larger approved by the Prime Minister in 1999. A cities. Resident's living in the vicinity of waste "National Strategy for Environmental Protection" dumps in Hanoi, Ho Chi Minh City and approved in 2003 also includes coverage of solid Haiphong have blocked access out of concern waste management. The solid waste strategy about the environmental pollution that was promotes a comprehensive approach to solid taking place. Only 17 out of a 91 disposal waste management. Key features include: legal facilities in the country are reported to be reform, increased awareness and training, properly designed sanitary landfills with increased cost recovery from users, leachate collection and treatment facilities. 19 Government has designated 50 waste dumps as emissions. They are also relatively quiet environmental hazards that should be closed as compared to two-stroke models. Motorbike and soon as possible. Constructing environmentally automobile parking has significantly infringed on safe disposal facilities is one of Government's pedestrian space. priorities. Ministry of Construction recommends Road safety is a major issue in Vietnam. It has the adoption of sanitary landfills as the most one of the highest traffic accident rates in the appropriate disposal solution. A number of world. In recent years efforts have been made to composting facilities have been constructed e.g. in improve road safety as evidenced by crackdowns Nam Dinh and Hue, but they have not proven to on vehicle registration, unlicensed drivers, and be financially viable because there is no demand poorly maintained vehicles. Helmets are for the compost when it is priced at the cost of required on national highways and the incidence production. of use has improved to some extent in the last Smaller towns also face increasing problems of three years. More rigorous helmet use solid waste management. In recent years, as enforcement was announced in July 2004. greater proportions of their population have However, helmet wearers are still a significant turned to non-agricultural work and as minority in urban areas. consumption standards have changed, traditional Although congestion in Hanoi and HCMC waste recycling programs - systems that recycled does not reach the levels experienced in Bangkok, organic wastes back into the agricultural Manila, or Jakarta, it is beginning to have an environment - are becoming overloaded with impact on economic efficiency. Both cities are wastes that pose risks both to the land and to actively pursuing public transport as a solution. human health. Ho Chi Minh City is in the final stages of preparing a feasibility study for urban rail transit. Urban Transport In Hanoi, bus ridership dramatically increased from 2002 to 2004 with new buses and routes Vietnam has the highest motorbike ownership being introduced. The World Bank is working per capita in the world and is experiencing with the city authorities on a project to develop a exponential growth in motorbike ownership. Bus Rapid Transit system, which will have road More than 1.5 million motorbikes are registered in Hanoi and 2.5 million in HCMC. Hanoi has recently prohibited motorbike registration in three inner urban districts, but the regulations are easily evaded. Over the past decade people have rapidly switched from bicycles to motorbikes. Now people in the large cities are beginning to move to automobile ownership. The price of the cheapest car is only about twice the cost of the more expensive motorbikes. Fortunately the motorbikes are overwhelmingly four- stroke models with attendant low Encroachment for Commercial Purposes on Hai Ba Trung Street in Hanoi 20 lanes dedicated to buses. The French Government Land Law coupled with Vietnam's rapid economic is also supporting the development of a tram growth has provided incentives for property system. developers, the majority of which are still state In Hanoi, 11% of the city land area is reported owned, to build planned developments. to be devoted to transport facilities. Newly Where planned housing developments occur, proposed standards project increasing this to they have shifted from state-driven to a more 25%. In reality, space allocated to transport is market-driven paradigm. This has created a used for other purposes. Many of the urban, housing boom in the major cities. State owned suburban, village and inter-city roads suffer from companies are now taking on the role of diminished capacity as a result of encroachment commercial developers and building significant into the rights-of-way. Encroachment is typically numbers of houses, particularly high-rise for commercial activity, but also for dwellings. apartment blocks e.g Tu Lien in Hanoi. The current boom is geared largely to middle and Housing upper income earners e.g. Ciputra development in Tay Ho, Hanoi and Phu My Hung in South It was reported that about 25% of the urban Saigon. It is fueled by increased disposable population was living in substandard, or income, increased savings, changes in lifestyle temporary, houses in 2002. Housing conditions such as a decline in the role of the extended differ significantly between northern and family, and rapid inflation of housing and land southern Vietnam. This is largely due to available prices. However, the provision of appropriate building materials and climate. The quality of housing for low-income people, including housing also varies with income level. The students and those requiring resettlement arising incidence of slums is higher in the south. Ho Chi from development projects, remains a major Minh City Land and Housing Department challenge for Government. While incomes of the estimates that 300,000 people live in slums. Hanoi lower quartile of urban dwellers are too low for officials estimate that 30% of their population them to be able to afford housing, the lives in very crowded conditions (as little as 3 m2 Government is reluctant to re-embark on per person). By comparison, Ministry of subsidized state housing because it has only Construction standards have set a target of 14 m2 recently extracted itself from many of the problems per person. associated with poorly managed state housing The CPRGS priorities for housing are: the provision e.g. poor housing management, provision of safe housing in flood prone areas, insufficientcostrecoveryforadequatemaintenance calamity-affected areas in the North, the highlands etc.However,therealityisthatincreasingnumbers intheSouth,thecoastalareasintheCentralRegion of poor people are moving to cities, where they are and the Mekong Delta; and housing in new urban an important part of the country's rapid economic areas and industrial zones growth. Meeting their housing needs is an issue Prior to the Land Law of 2004 between 75 and thatneedsseriousconsideration. In2003therewere 85% of new residential construction was built roughly 300,000 people live in slums in Ho Chi informallywithoutlegalconstructionapprovaland Minh City. In 2004, the in-situ incremental frequently without land use certificates.26 The new improvement of existing slums, or urban 26. MOC Seminar, April 28, 2004. 21 upgrading, was recognized by Government as an for housing are still new, but the demand for appropriate policy for improving low-cost housing. housing finance is rapidly increasing. The ADB is The World Bank supported Urban Upgrading supporting the Government through a Housing Project is funding such improvements in Can Tho, Finance Project to promote a more active housing Haiphong, Ho Chi Minh City and Nam Dinh and mortgage finance market. The World Bank preparation of a National Urban Upgrading supported Urban Upgrading Project includes a Program to scale this up, was started in 2005. component to support low-income residents The provision of affordable housing for low improve their houses. This comprises micro- and middle income groups is unfortunately finance schemes, which make available loans of constrained by land speculation. Large amounts around VND10 million, or USD 620, for of money are made in the conversion of land incremental improvements to houses. Before After Low cost in-situ Urban Upgrading of low-income areas from rural to urban use. Unfortunately the Estimated Future Financing beneficiaries tend to be neither the original users Requirements for Urban of the land, nor the purchasers of the new Infrastructure housing built on it (the purchase cost of the land is up to ten times higher than the compensation It has not been possible within the limited scope paid to previous occupiers). This has in fact of this study to make a detailed assessment of the resulted in a "freeze" in the real estate market future finance requirements for urban since mid 2004 causing serious financial infrastructure. However, some indicative problems to housing developers. Housing that is estimates for different sub-sectors are provided built is too expensive for low income earners and below. All estimates are based on per capita unit no provision is being made for simple housing rates derived from recent investment projects. It that could be incrementally extended over time is clear that in order to achieve the rather e.g. a core house built on a serviced site. ambitious targets for access to infrastructure set Traditionally housing has been financed on a by Government that annual finance levels of cash basis, often through borrowing from the several orders of magnitude higher than what extended family. Loans and mortgage financing was mobilised in the 1990s will be required. 22 Urban Water Supply, Wastewater full cost information on these projects, or to Collection & Treatment, and Drainage check if they are based on the full economic cost of inputs. Water coverage levels were The estimates below to achieve 100% obtained from a benchmarking survey carried coverage are based on MOC's population out in 2002 of all provincial water companies. projections, and the average cost/capita from For wastewater collection and treatment and several donor financed projects carried out in drainage, account has been taken of existing the late 1990s, early 2000s. MOC report much coverage in the cost estimates. lower per capita costs on Government funded The estimated annual financing requirement projects, but it has not been possible to obtain to achieve the 2010 to 2020 is $377.5 million. Urban Water Supply: Estimated Future Financing Requirements 2000 2010 2020 Total Urban Population 19,000,000 32,000,000 46,000,000 Urban population with piped water in 2000 (48%) 9,120,000 9,120,000 9,120,000 Population requiring piped water 9,880,000 22,880,000 36,880,000 Estimated cost/capita in 2000 prices ($) US$165 US$165 US$165 Funds required for 100% coverage ($ million) US$1,630 US$3,775 US$6,085 Wastewater Collection and Treatment: Estimated Future Financing Requirements 2000 2010 2020 Population of all urban areas 19,000,000 32,000,000 46,000,000 Average cost/capita in 2004 prices for wastewater collection ($) 30 30 30 Average cost/capita in 2004 prices for wastewater treatment (based on oxidation ditches) ($) 57.5 57.5 57.5 Average total cost/capita ($) 87.5 87.5 87.5 Cost of providing wastewater collection & treatment to entire urban population ($ million) 1,663 2,800 4,025 Drainage: Estimated Future Financing Requirements 2000 2010 2020 Population of all urban areas 19,000,000 32,000,000 46,000,000 Average cost/capita in 2004 prices for primary, secondary and tertiary drains ($) 53.3 53.3 53.3 Average cost/capita in 2004 prices for canal rehabilitation (Special & Class 1 cities only - say 40% of population) ($) 53.4 53.4 53.4 Cost for primary, secondary & tertiary drains ($ million) 1,015 1,709 2,456 Cost for canal rehabilitation for 40% of the population ($ million) 406 684 983 Total Cost ($) 1,420,440,000.00 2,392,320,000.00 3,438,960,000.00 23 This compares to average annual expenditure in Housing for Low-Income Residents: the 1990s of only around $100 million. Of this, Estimated Future Financing around 80% came from ODA contributions and Requirements around 40% of the investments were made in the four largest cities. As previously noted, housing is predominantly privately financed. However, it is clear that low- Urban Transport: Estimated Future income households, say 25% of urban residents, Financing Requirements can not afford housing. Of these 60% (15% of urban population) may need social housing. The It is more difficult to derive per capita investment other 40% could be assisted through the requirements for urban transport. The needs are provision of microfinance to enable them to large and growing as a result of the combined incrementally improve their existing houses. impact of rapid urbanization and rapid There are obviously several variables affecting motorization. Within the next decade Ho Chi the cost of social housing: the size of town/city, Minh City and Hanoi will need to develop it's location within the country, the location of effective mass transit systems and significantly housing within the city and the size and type of expand their highway networks. This will be house/apartment. The following table calculates costly. The recently prepared transport master the weighted average cost/capita of social plans for Ho Chi Minh City and Hanoi estimate housing throughout the country and the next the financing requirements to 2020 at $13.5 billion table the estimated cost of providing social and $5 billion respectively. The Class I cities, housing. Haiphong, Danang and Can Tho and the largest While the above estimates are only indicative Class II cities will also need to start making of the level of financing necessary to meet significant investments over the same time frame. Government's stated targets, the projections to Weighted Average Cost/Capita Of Social Housing Percent of Cost of National Urban Walk-Up Apartment Cost per Weighted City/Town Population ($) capita ($) cost/capita ($) HCMC/Hanoi 13.7 10,000 2000 1087 Class 1 5 8,000 1600 317 Class II 3.3 7,000 1400 183 Class III & IV 3.2 6,000 1200 152 Average cost/capita 1740 Low-Income Housing: Future Financing Requirements 2000 2010 2020 Total Urban Population 19,000,000 32,000,000 46,000,000 Estimated weighted cost/capita in 2000 prices ($) 1,740 1,740 1,740 Funds required assuming 15% of population need social housing ($ million) 4,960 8,354 12,009 24 2010 of around $17.3 billion for water supply, reinforces the critical importance of mobilizing wastewater collection and treatment, drainage additional financial resources beyond the state and social housing alone, plus a further $8-9 budget and ODA, which have financed most billion for urban transport, are daunting. This infrastructure in the past. 25 Chapter IV Urban Planning and Urban Management I t is widely acknowledged that the current on central control to a more flexible and spatial, or master, plans of Vietnam's cities adaptable system with considerable authority are not effective. There is a large disconnect delegated to local governments. The main between the beautifully drafted idealized master challenges are in building the necessary plans (often referred to locally as "Quy hoach capacities in local governments and in changing treo"), that hang in the offices of Peoples the attitude of local government officials from Committees and the reality of urban their current largely passive role, to one that is development on the ground. Firstly, spatial plans much more active. need to be more effectively coordinated with In Vietnam the responsibilities for urban socio-economic and sector plans; secondly they planning are much more fragmented than in should be more strategic and less prescriptive; western countries. Three types of plans, each the thirdly all stakeholders, including residents and responsibility of different ministries, apply to private investors, should be allowed to urban areas: socio-economic development; spatial participate in their preparation; and fourthly (also called construction or master plans), and they need to be based on levels of resources that sector development. are likely to be available for their Socio-economic development plans - are implementation. Finally, once effective plans are development strategies, but they also set put in place, they need to be implemented and precise development and investment targets enforced through a more effective system of and combine (often without prioritizing) urban management. This will require clearer proposals contained in sector plans (e.g., designation of decision making authority, transport, industry, education, health). They greater delegation of authority to local are prepared at all levels of government governments, and the adoption of a governance including wards and communes and structure for local government with appropriate consolidated at higher levels. checks and balances to prevent the abuse of Spatialplans-commonlyreferredtoas"master" power. The most effective way of doing this is to or "construction" plans, or as "detailed area have extensive public participation and to make plans" for sub-divisions of urban areas, or all decisions public. specific projects. They present the proposed spatial arrangement of land uses, building Overview of the Vietnamese footprints and infrastructure for a province, Planning System city, district, or development site in progressively greater detail. Planning in Vietnam is in the process of slowly Sector development plans - are production evolving from a highly prescriptive model based targets and strategies for output of 27 individual sectors e.g. water supply, urban central government level, but without effective transport, main industries and agriculture. cross-sector consultation and discussion. It is a In the Vietnamese language, two terms with very top down process. The widely dispersed distinct meanings, are used for "plan" or responsibilities without clear procedures and "planning". "Quy hoach" means long-term decision making authority to bring the various planning, either socio-economic, spatial, or different views together to form a broad sector. "Ke hoach" means short or medium term consensus makes effective urban planning, as planning. It covers plans that have real standing understood in western countries, a challenge in and/or a high probability of implementation. Vietnam. The term "quy hoach treo", which translates as "hanging plan", is used for those plans that look Socio-economic Planning beautiful hanging on the wall of the office of a high level official, but which are rarely The five-year Socio-economic Development Plan implemented. (SEDP) has been the main pillar of Vietnam's Planning of all types is carried out both strategic planning architecture for many years. horizontally and vertically within government. The last five year planning period (2001-2005) Most entities with planning responsibility have involved the production of both a SEDP and a a dual reporting relationship, a vertical Comprehensive Poverty Reduction and Growth relationship to the central ministry and a Strategy (CRPGS), the latter described as an horizontal relationship to the appropriate "action plan" for the SEDP by the Ministry of executive level of government. Government Planning and Investment (MPI) and accepted as and the Party also have parallel policy a poverty reduction strategy by the international guidance and reporting requirements. Most donor community. These two planning important planning decisions are taken at the instruments will be merged for the 2006-2010 planning period. SEDPs are prepared after formal consultation within Government and Party structures. MPI has the primary role in coordinating and ultimately producing the SEDP. At the provincial level, the Departments of Planning and Investment (DPI) take the lead role. Each level of local government (communes, districts, provinces) submits proposals to the next level where they are screened, consolidated and passed on up eventually to MPI. Past practice has been for the SEDPs to set out goals and detailed production targets for all geographical regions and productive sectors of the economy. Economic, social and poverty data underpinning the SEDP and used as a basic for Master (spatial) Plan for Danang 28 As noted above, Government decided to merge the CPRGS and SEDP for the 2006-2010 planning period. Guidance for preparation required that some of the participatory approaches to planning that characterized the preparation of the CPRGS be adopted. The guidelines specifically require that the five year plan should address the VDGs, which should result in a more outcome-focused plan. They also require that the analysis used to underpin the plan should make use of international methods and standards, which will allow a broader range of robust data to inform the development of the plan. This is important, since one strength of the CPRGS lay in its openness in bringing some sensitive issues to the debates on poverty reduction, issues such as migration that have not been covered by SEDPs in the past. SEDPs don't appear to be subjected to projections are drawn from government sources. rigorous economic and financial analysis, nor do Once an SEDP is approved, it becomes the basis they take much account of the resources likely to for the annual budget proposals from ministries be available. There is a general tendency to and local governments. optimistically approve plans and related lists of The CPRGS, approved by the Prime Minister projects in the hope that funding will become in 2002, has not had the same central role in available. They are essentially driven by directing the activities of government but it has production targets. There is also a tendency not pioneered some new approaches to socio- to take adequate account of potential social economic planning, both in terms of process and and/or environmental impacts. For example substance. Consultations were broader, implementation of aspects relating to urban involving actors outside government including development may be undertaken without taking local organizations and some poor communities. due account of integrated infrastructure The CPRGS presents a stronger analytical networks, or proper budget support, resulting in framework for growth and poverty reduction delays, low efficiency, and environmental than was included in the SEDP and made use of impacts and costs. a wider range of credible data from both inside One of the most significant manifestations of and outside government. Achievement of economic expansion and socio-economic strategic outcomes - rather than production planning in Vietnam has been the proliferation of targets - motivates the policy measures and special purpose planned industrial zones to public actions identified in the CPRGS. The attract FDI and locate domestic investment. CPRGS also outlines mechanisms to monitor While some industrial zones have been an progress, framed around the Vietnam unquestionable success, many others, Development Goals (VDGs, localized versions of particularly in more remote provinces, are the Millennium Development Goals). seriously under-utilised. "If the experience of 29 other Asian countries is relevant to Vietnam, the Both are subsidiaries of MOC. Only the four ten general tendency of these overtures is for a largest provinces/cities have their own planning limited number of sites, especially around major institutes. metropolitan areas, to be successful, while others Spatial plans are prepared in four levels of experience substantial difficulty in attracting detail: orientation plans (national policy), regional branch plants and other footloose investments. plans (introduced in 2005), master plans (province Research on this question shows FDI to be much or city), and detailed area plans (ward, industrial more spatially concentrated than domestic zone, or project). Most are prescriptive for investment in the same sectors."27 The spatial specific land uses in specific locations, rather dimension of the investment and production mix than permissive as in Western land use planning. is a critical factor. The synergy and The intended sequence of planning with spatial complementarities of cluster locations and the plans following socio-economic plans and sector corresponding competitiveness are diminished plans does not always occur. In fact, spatial by forced location to inappropriate industrial plans are required to have a longer time horizon zones. than the socio-economic plans, or sector plans, for which they provide the physical and spatial Spatial Planning component. The lack of coordination in sequencing is It is spatial plans, master plans in particular, that probably exacerbated by the fact that the have the greatest impact on urban development. planning institutes tend to overlook economic Spatial planning in Vietnam was designed for and social dimensions, while the socio-economic the era when all construction was carried out by planners (equivalent institutes affiliated with the state. With the move towards a market MPI) seem to overlook the spatial and economy, the spatial planning system is environmental implications of investment undergoing revision. In 2004 a new Land Law programs. The result is that spatial plans are too and a new Construction Law, which incorporates abstract with insufficient attention given to the a Planning Decree, were issued. This "real world". The poor nexus between socio- demonstrates Government's commitment to economic and spatial planning is reflected in improving the planning and urban management other problems related to the overlapping systems, but much remains to be done to enable responsibilities of central and local agencies. Vietnam's cities to compete effectively in the These include: complicated procedures for global economy and to improve the lives of their project assessment and approval (investments residents. require up to fourteen separate official In terms of administrative responsibility, the approvals, which can take upwards of one year Ministry of Construction (MOC), or to obtain); difficulties in sharing information subordinated departments of construction at the within and amongst agencies; and weak human province and city level undertake spatial resource capacity - staff have not been trained to planning i.e. master, or detailed area plans. Most carry out rigorous project appraisal e.g financial plans are prepared by the National Institute of and economic analyses. Urban and Rural Planning Institute (NIURP) or Until the Planning Decree was issued in it's sister organization in the south, NAGECO. early 2005, no consideration was given to 27. UNCHS Fukuoka, (2001), The Urban Transition in Vietnam, Second Report, First Draft of Text, 15 October 2001, Fukuoka, Department of Urban and Regional Planning, University of Hawaii. 30 regional planning i.e. there was no coordination specified floor area ratios, or standardized floor amongst neighboring provinces. As noted area per occupant. above, one consequence of this is the Master plans in Vietnam tend to be idealized proliferation of industrial zones throughout the top-down representations of what the planning country. A start has been made on preparing experts and city administrators would like their regional plans from the greater metropolitan city to become if there were unlimited resources. areas of Hanoi, Ho Chi Minh City and Danang. Unfortunately that is never the case. The plans Unfortunately, so far this is being limited to also have a serious limitation in that they only spatial planning. It is however a step in the right take account of the views of a fairly narrow direction towards more rational utilization of range of stakeholders, primarily government resources. The establishment of an effective and party officials. The opinions of ordinary institutional framework to implement the plans residents and private investors are rarely will be essential. sought. They lack the phasing and the Master plans are required to include long incremental development mechanisms essential and medium term direction for physical to translate them to reality in a mixed economy development and the arrangement of urban where development is more likely to occur on an space and infrastructure networks and facilities. incremental basis directed by decisions made by They also cover the characteristics of urban investors rather than government planners. In areas, population size, land use, resettlement, most industrialized countries, central redevelopment, conservation, and zoning. The governments delegate considerable Prime Minister approves the master plans for responsibility for spatial planning to local Special, Class I and Class II cities. A map is the governments. Box 1 outlines how the principal element of the plan. They must assure responsibility for planning is typically delegated that prescribed technical standards are met. The in North America. technical master planning specifications These idealized master plans can result in the (Ministry of Construction, Circular 322 wholesale clearance of communities and BXD/DT)28 that drive plan design, city housing to permit redevelopment to a higher investment priorities, and city classification technically mandated standard. This often reduce local flexibility. They stifle creative or results in the destruction of tightly knit strategic thinking and often lead to the communities with their own carefully inefficient use of capital. The technical developed economic and social support systems standards should have only a limited and that have evolved over many years. Experience guiding role in a reformed planning system that from other countries, including many in will allow greater flexibility and adaptability to Western Europe and the United States, indicates local situations and demand. In the current that demolishing such neighborhoods, often system a formal and arduous process must be with the best intentions, results in irreparable followed to obtain approval to modify technical damage to the social fabric and well being of the standards to officially allow infill development, residents. Housing prices in the newly created urbanisation of villages, or the upgrading of development will often be well beyond the existing urban areas, without requiring for affordability of those displaced. Experience in example maximum (standard) street widths, many other countries such as Indonesia and 28. Revision of the circular to coincide with the new Construction Law and Planning Decree is under consideration in May 2004. 31 Box 1 In developed countries, the degree of spatial consistent land use plans and make provision for planning specificity increases with each degree of infrastructure. The land use plans specify decentralization. Using the United States or Canada permissible uses and standards establish the as examples (although master planning laws and impacts those uses are allowed to have (e.g., traffic procedures differ by state/province), the federal impact, surface water runoff, height, health government reserves a few very specific planning standards, etc.). Individual projects are subject to activities or land use controls to itself and delegates rigorous permitting and inspection. Local plans are the balance. Master planning is primarily a local subject to proscribed standards for environmental government activity. A typical state or province will review. Generally, local plans do not have to be also reserve some specific plans to itself (e.g., state approved by higher levels of government although level highway system, and resource preservation) distribution of funds can depend on their and determine what topics local plans must address consistency. The legal system is used to test and establish policies for consistency between local whether local plans meet the guidelines, standards pland. Local governments prepare and implement and policies of higher levels of government. Brazil demonstrates that it is usually better on produce usable guidelines for channeling urban cost effectiveness and social grounds to adopt an expansion. Consequently much growth takes incremental approach developed with the active place in unauthorized and unplanned areas. participation of the beneficiaries. An investment Many of the residential areas in Vietnam's cities in basic infrastructure by the city can leverage have developed on an ad-hoc basis as tightly investments up to seven times higher in packed warrens of narrow, twisting lanes, property improvements from the residents without properly functioning drainage or themselves. This approach is recognized in the sewerage systems, or open spaces for 2005 Planning Decree and investments that recreation. Because of the rigid way they are adopt the approach are under way in Can Tho, prepared, area development plans must either Haiphong, Ho Chi Minh City and Nam Dinh. be amended, or ignored, to accommodate new, Detailed area plans, prepared under the market driven proposals where development guidance of provincial/city People's occurs on a more flexible and dynamic basis Committees, are a requirement for urban governed by the availability of land on the development schemes. They predetermine the market, and capital to the developer. Amending specific uses of urban space and include the the plans is bureaucratically complex and time- quality, quantity and position of each consuming. As a consequence, public development type and building footprint. An infrastructure (water supply, solid waste urban design element to express architecture, management, drainage and sewers) and the built form, construction heights and landscape provision of recreational space often have to of each urban area and street was introduced by follow after development has occurred, at much the 2005 Planning Decree. Unfortunately they greater cost. are often prepared before the necessary funding for their implementation has been secured. As a Sector Planning result they do not provide a development control framework for all stakeholders and The overall goal of sector planning is the potential developers and therefore often fail to maintenance of the socialist market-oriented 32 economy, particularly for major industries and The Challenge of Peri-Urban agriculture. Sector plans are also prepared for Development infrastructure e.g transport, water supply etd . The main planning functions are divided Vietnam currently transforms 10,000 hectares of between ministries at the national level, agricultural land to urban use every year - departments at the provincal level, and some of mostly at the peri-urban fringe. Interestingly the large State Owned Enterprises (SOEs). this appears to contravene national policies Under central planning, one of the roles of against loss of prime agricultural land and sector planning was to define targets for the preservation of food security. The largest cities production of large SOEs and to ensure the (Hanoi, HCMC and Haiphong) are all located availability of raw materials and the means of on fertile river deltas. Fortunately advances in production. As the market economy takes hold agriculture production which enable more and SOEs have to respond to demand, costs intensive use of land, mean that increases in related to physical location, design, or production are keeping ahead of demand. proximity to either suppliers or users will have The formal and the informal sectors are both to be borne by the SOE themselves, and not the at work in peri-urban development. Informal state at large. Prescriptive sector plans are urbanisation takes place in an ad hoc, likely to hamper industries in the new market unregulated manner, where local authorities are oriented era. not well prepared, or inclined, to manage the Government also uses sector planning to try urban expansion. Densities increase in towns and manage the geographic allocation of state and villages without geographic expansion as resources to balance development in all regions. new residents and new families seek Showcase, or national self-sufficiency projects accommodation. This is a function of additional remain the responsibility of sector planning. crowding by extended families, or the renting Unfortunately many are inefficient and have to out of rooms, and also, more recently, through be protected by tariffs and subsidized in other new construction and infill. ways. They are often a significant drain on In the past the delay in issuing land use national resources and divert capital from more certificates contributed to urban sprawl, economically viable investments. through lack of control. It provided a rationale Unfortunately sector plans and spatial for permissive officials to ignore informal plans for the same location are often not construction. Densities have reached levels that coordinated in phasing, finance or overwhelm the sanitary and flood control implementation. For example the drainage methods that functioned in an agricultural included as part of a transport master plan environment. There is also a cumulative may not be coordinated with the separate negative impact from many small drainage and sewerage master plan. In some manufacturing facilities discharging wastes and cases they may even propose conflicting effluents that are often highly toxic e.g from strategies. Land use plans formulated by local tanning, dyeing and metal working, directly to Natural Resources and Environment the environment. There has however been a Departments are also frequently inconsistent major initiative started in 2003 to issue LURCs with detailed construction plans. The solution for all urban land. Coverage in the major cities lies in allocating specific responsibility within was reported to have increased from below 20% the city, or provincial administration, for to well over 60% by 2005. coordination. Urbanisation takes place both at the urban 33 New Construction in the Peri - Urban Tu Lien District of Hanoi fringe where suburban communes and Not all development in peri-urban areas is previously discrete villages face envelopment unplanned. Many of the SOEs owned by the into cities and towns. It also occurs through the Ministry of Construction and large city densification of rural towns and villages. This authorities are active housing and multi-use affects the ways in which infrastructure services developers e.g the Tu Lien district in Hanoi. need to be provided. This has a significant Private developers including foreign impact on urban provision. For example a rural investors are also active e.g. Ciptura in Tay water supply project being supported by the Ho District, Hanoi and Phu My Hung in World Bank for the Red River Delta has, because South Saigon. of the growing population densities, many of the characteristics of an urban water supply project. Land Law 2004 Central treatment and piped supply is economic and there are sufficient economies of scale to The new Land Law which came into effect on organise management on a utility basis. July 1, 2004 is having a significant effect on Household who previously obtained water from urban planning and urban management. Under wells within their properties are now willing the law, all land continues to be owned by the and able to pay for treated piped water. In many State, but land regulation and management will cases, because the groundwater had been become more market oriented. polluted by increasing levels of domestic and The law delegates the responsibility for land industrial wastewater discharges arising from administration and registry to local densification, they have little choice. Techniques governments. This has already reduced the for wastewater and solid waste collection and long delays in issuing land use right certificates disposal that were adequate for rural (LURCs) by Government to companies and settlements have been overwhelmed, as has the individuals, which created problems in terms of ability of the local administrations to protect the them not being able to provide collateral for health and welfare of the residents. loans and in enabling the timely provision of 34 infrastructure. The sequencing of land Local officials to become more accountable allocation did not necessarily follow the Long term leases for foreigners and overseas development proposed in spatial plans, the Vietnamese to become transferable provision of infrastructure, or the timing of the As understanding and training increase, financial allocations for state sector activity. The these changes should facilitate the work of law also moves closer to adopting land pricing departments responsible for urban based on market values, rather than it being set infrastructure and reduce delays and administratively by government. Significant uncertainties. In the short term, lack of differences between the administrative price of sufficiently detailed mapping systems in land and the price on the informal, but vibrant, medium and smaller cities and towns may real estate market, contributed to speculative delay progress. The land administration development that was not synchronized with component of the World Bank Urban the provision of infrastructure. The price Upgrading Program will provide technical distortion promoted corruption and also assistance and capacity building to land created significant delays to investment projects registration offices in HCMC, Hai Phong, Can arising from protracted negotiations of Tho, and Nam Dinh that will facilitate the compensation for land acquisition. The new granting of land use rights and issuing Land Law should improve coordination, certificates and the subsequent management of governance, planning, management and the land. ability to provide infrastructure. The following The effectiveness of the new law will depend is a summary of the key improvements in part on the response of financial institutions introduced: that will need to develop lending procedures, Modernization of state land ownership and risk assessment skills, and mortgages to provide administration loans for housing and small businesses. The Use of market values for establishing ADB is supporting a "Housing Finance Project" compensation, taxes, and fees (given the to pilot procedures for the development of a imperfect mechanics of the current market, broader based housing finance market. it is however difficult to identify a true "market" rate) Construction Law (2004) Recognition of real estate markets Devolution of responsibility to local levels The most significant changes introduced by the for land administration and registry and new Construction Law (2004) are incorporated promulgation of uniform standards and within the new Decrees on Planning and on local single points of contact for land Construction Investment Project Management, registration both of which were enacted in early 2005. The Greater availability of land registration main new features of the Planning Decree are: information Decentralization of the responsibility for Public participation (though still rather preparing spatial plans to Peoples limited) in planning and public notification Committees for most cities and provinces. of approved plans Decentralization of the approval of plans for Consolidation of land use right certificates Class III and IV cities to Provincial and into a single type District Peoples Committees respectively Improvements in compensation procedures Review of plans by elected Peoples Councils for expropriated land Addition of broader brush "Orientation 35 Plans" covering 20 year time periods for "Investment Reports". The content however Special, Class I and Class II cities remains largely the same. Feasibility Studies Addition of regional planning requirements. will be replaced by Project Investment This is a useful step towards helping deal Formulation Reports. The latter require a higher with rapid urbanization. However, no level of technical detail, referred to as "basic guidance is given on the administrative design" than was formerly the case. structure that will be necessary to implement regional planning. Urban Management Coverage of the redevelopment of existing urban areas (instead of just new The weakness of urban management in construction). This is significant. It requires Vietnam needs to be overcome before effective that spatial plans should take account of planning will be able to contribute to areas that can be upgraded rather than urbanization. The best plans are useless if they focusing only on re-development which has are not, or cannot be followed. been the case in the past. In Vietnam the term "quan ly do thi", loosely The addition of an urban design component translated as urban management, is used to to detailed construction plans. This is cover a broad mix of activities including: intended to address the lack of an effective administration; coordination; planning; development control framework for the building and construction controls; urban form, architectural patterns and enforcement of regulations; fiscal control; and landscape. the maintenance of facilities; that make urban Introduces consultation in the planning areas function. The Ministry of Construction process - People's Councils are required to and Departments of Construction at the review plans and the plans must be put on provincial/city level are nominally responsible public display. However, there are still no for state management related to construction specific requirements or mechanisms to and urban development, housing, architecture, promote active public participation in the technical infrastructure development and process. related public services. However, several other The new Planning Decree introduces ministries and departments have overlapping worthwhile improvements. However, the responsibilities in areas such as: land process of developing spatial plans for cities management, transportation, environmental and provinces still remains largely top-down protection, finance and budget allocation, socio- and is likely to continue the tendency to create economic planning, and the management of idealized, rather than strategic and practical State Owned Enterprises (SOEs). A table visions of the future. The opportunity has not showing the various responsibilities for urban been taken to promote meaningful coordination issues among ministries is presented in Annex and integration with socio-economic planning 3. In western countries at the city/province and sector planning. level the various sector departments would The Construction Investment Project report to a mayor or governor, whose office Management Decree combines aspects of project would be responsible for coordinating the management, procurement and technical various inputs and taking decisions. In standards. The most significant changes relate to Vietnam, where sector departments at the the procedures for large investment projects. city/province level report vertically to central Pre-feasibility studies will be replaced by ministries as well as horizontally to Peoples 36 Committees the latter do not have sufficient Interestingly, the traditional urban power to efficiently fulfill this coordination and management systems of China and Vietnam, management role. based on Confucian principles, vested local The lack of clearly designated authority and official, then mandarins, with a high moral limited local autonomy make urban authority to make decisions on behalf of the management difficult. Each functional common people. They had a mandate to department or entity protects its independence manage. Despite adoption of the Soviet model and autonomy. Strengthening and rationalizing of socialism in the 1950s, this traditional form of urban management through both institutional management effectively persisted at the district and cultural change is the most important task and ward/commune level, albeit informally as for successful urban management. The a management principal in regard to land Government's attention and its urban policy issues.29 Such a decentralized system has tend to be focused on master planning and large advantages and disadvantages; the main scale projects. Much less attention is directed advantage being that it brings decision making on how to make urban areas more functional close to those affected, thereby allowing greater and efficient. In the smaller cities and towns participation. The disadvantages include (Class II and lower), which report to provincial fragmentation, diminished cooperation and authorities, urban management is stymied coordination, and the risk of self-serving and because of their limited powers and the inability "rent-seeking" behavior. It is therefore very to cooperate across district lines with adjacent important to ensure that effective governance rural districts. structures are put in place. In addition to delegating authority for urban management to Peoples Committees, as Infrastructure Development and indicated in the sections above, the form of Investment Approval master plans and the way they are prepared needs to be changed and much greater The infrastructure and development approval responsibility for detailed planning, including procedure in the country is very complicated the flexibility to regularly adjust plans within a and subject to the nature and size of project broad approved framework, also needs to be (projects are classified as A, B or C), the delegated to local governments. This will enable investment capital status (private, foreign direct local governments to better cope with the investment, ODA, state enterprises, and/or demands of a market economy and the rapid individual), and the category of land use right. pace of urbanization in a proactive way. This There are three types of development approval will need to be done within an effective and most projects require all three: governance structure with appropriate checks Investment approval and balances to ensure local officials do not Issuance of land use right certificate abuse the authority delegated to them. The most Development approval and building or effective way to do this is to allow extensive construction certificate. public participation in urban planning and Investment projects that require land management processes and to make all allocation for development go through a pre- decisions public. planning process with the local Department of 29. John Gillespie, 22 March 2004 37 Planning and Investment for investment central government. After getting the approval and the local Department of investment approval, the proponent submits a Construction for guidance on the project request for land allocation to the local location. After approval, the project proponent Department of Natural Resources and negotiates the compensation and resettlement Environment. A construction permit based on plan. For large projects, initially an detailed design of the project is also required. "Investment Report" (formerly a pre-feasibility Under the new Construction Law 2004, report) is required by the Ministry or construct permits are issued either by the Department of Planning and Investment. provincial Department of Construction, or the Subsequently a more detailed "Project District People's Committee, depending on the Investment Formulation Report" and a basic complexity of the project. In some cities, for design has to be submitted. Group A projects relatively small investments, the process has funded from foreign sources need approval by been consolidated into a "one stop shop". 38 Chapter V Municipal Finance Strategic Change in the Infrastructure infrastructure services can also improve the Financing Model financing possibilities. The authorization by central government to allow local governments to As Vietnam prepares to meet the demand for borrow up to 30% of their annual budget for increased investment, it needs to reduce its development investments (100% in the case of reliance on the state budget and to start HCMC and Hanoi) was a step in the right preparing for the transition away from direction. It will be important for local concessional donor financing for urban governmentstodeveloptheircredit-worthinessby infrastructure services. The necessary transition ensuring, to the extent possible, cost-covering strategy must involve diversification of tariffs (operation, maintenance and investment financing sources for infrastructure costs) for infrastructure services and by development, focusing on increasing the role of developing new sources of revenue. Improved the private sector as a source of finance for cost recovery will provide infrastructure infrastructure and as a developer of enterprises with the possibility of self-financing infrastructure. The strategy must also recognize using retained earnings, and open the possibility the increasing role of local governments in promoting infrastructure investments in State-owned accordance with government's Community commercial banks decentralization policy. The 1% 8% increased participation of the Budget private sector in financing 11% infrastructure in coordination with Government local governments will support ODA bonds decentralization and improve the 37% 13% efficiency of infrastructure investments. However, the success of this new trend rests very critically upon continued Private improvements in the corporate 21% governance environment at the Users local government level. 14% Key reforms related to the Infrastructure Investment Financing Mechanisms planning and management of (% of Investment Finance) 39 for alternative financing sources that rely on future the economy whenever budget funding is used. revenue streams. The development of new Hence, it is desirable to use alternative financing sources of revenue such as a broad based property sources to the maximum extent possible, and to tax and/or a local income tax would provide limit the use of budget funding to only those further opportunities. projects for which other financing sources are not available or appropriate. Financing Sources Considerations of externalities, or social equity, involved in the provision of urban Sources of finance are described below. All, with infrastructure services can in some cases justify the exception of budget funding and equitizing the provision of government funds, without a state-owned enterprises, will require local requirement of full repayment. For example, governments to demonstrate that they are credit private individuals' willingness to pay for worthy by making their budgets and accounts treatment of waste water may be low, but there open to public scrutiny, including independent are public health and environmental benefits for auditing. Local governments will also have to the entire population of the city that would improve their efficiency by adopting more frequently be sufficient to justify investments in transparent procurement of public works and by waste water treatment plants. Ideally, the set of developing a track record for the timely projects eligible for budget support should be processing and implementation of infrastructure limited to projects where: projects. A major step towards achieving this Cost recovery through user charges is would be for cities and provinces to obtain achieved to the maximum extent possible, independent credit ratings. but this is not sufficient to ensure financial Potential sources of finance include: viability of the project using non-budgetary Budget transfers and local revenues financing; and Government investment funds - The social benefits of the project have been Development Bank and Local Development shown to exceed private benefits by reason Infrastructure Funds of externalities or social concerns. Private investment At the local government level, Bond Issues decentralization has increased their spending Commercial Banks obligations. As decentralization has Equitisation of State-Owned-Enterprises progressed, the share of local governments in Budget Transfers and Local Revenues: The total government expenditures has risen from limited funding available for urban 26% in 1992 to 48% in 2002. As noted in infrastructure from budget transfers from the Chapter 3, during 2006-2010 annual national government and local fees and charges requirements will be of the order of US$ 378 needs to be allocated to its most productive uses. million for urban water supply, US$ 280 million Since budget funds are drawn from tax for wastewater collection and treatment, US$ revenues30 and taxation imposes welfare costs 239 million for drainage including canal on the economy, there is a real cost imposed on rehabilitation, and around US$ 800-900 million 30. General government revenue amounts to about 23% of GDP, of which tax revenue constitutes about 57% and oil revenues about 30%. When the Government seeks to adjust its level of spending it must ultimately adjust its tax collection, since its sales of oil are driven by commercial conditions. Consequently the marginal dollar of budget revenue is usually thought of as being derived from taxes. 40 for urban transport. This gives a total of US$ 1.7 the private sector under less than ideal to 1.8 billion annually, or around 3.7% of GDP disclosure environments, possibilities exist for over the period 2001-2010. In addition, annual inappropriate behavior. There is a need for a required spending on low income housing in basic framework at the provincial level that urban areas has been estimated at US$ 835.4 makes public the operational standards of the million, or 1.8% of GDP. provincial government for partnering with This has increased the urgency of local developers, both from the private and public governments to mobilize financing. The 2005 sectors. Ideally, the standards should be PER-IFA (Public Expenditure Review - Integrated developed by each local government and Fiduciary Assessment) examined the challenges announced to the public; alternatively, they inherent in assigning adequate revenues to local may be proposed by the central government. governments. One potential area for reform is These standards should impose an obligation to greater revenue autonomy at local level. At use competitive bidding, and should establish a present all taxes are centrally collected. The transparent procedure for dealing with revenues from some taxes are retained 100% at unsolicited proposals. the central level, some other taxes are assigned Government Investment Funds: In recent 100% to provinces, and revenues of remaining years specialist government investment funds taxes are shared between the central government have been created at the national and provincial and the provincial governments where the taxes level, with significant roles in infrastructure are collected. District and commune governments financing. At the national level, the key public can collect certain fees such as waste collection financing institution for infrastructure is the and school tuition fees, but there are no local Development Bank (DB) formerly the taxes. The PER-IFA suggested the possibility of Development Assistance Fund (DAF), permitting provincial governments to introduce established in 2000, with branches throughout local income taxes that could be collected together the country. At the local government level, with the existing national income tax, and of twelve provinces have followed the lead of Ho introducing a modern property tax at district and Chi Minh City in establishing Local commune levels. At present there are many Development Investment Funds (LDIFs). These overlapping fees on different real estate assets investment funds serve as mechanisms for and transactions, which could be consolidated in aggregating and managing funds from a variety a single more efficient property tax. Since of sources, to finance a range of projects focused property development is a strong driver of primarily on infrastructure development. An demand for municipal infrastructure, property important difference between the DB and the taxes are frequently seen as an efficient form of LDIFs is that the DB raises its funds solely from cost recovery for publicly provided public sources, and lends to public enterprises. infrastructure. There may also be the potential for One of the motivations for the LDIFs is to greater cost recovery for a range of municipal provide a legal structure for organizing joint services (e.g. parking fees). ventures with private investors. The LDIFs can At present municipal governments also make equity contributions to projects. The frequently raise revenue through deals with financial resources involved in the government private property developers, particularly investment funds are considerable: through the sale of land use rights. As The DB is the biggest financial institution in provincial governments do ad hoc deals with the country. In 2004, the DB stock of loans 41 outstanding was around 12 percent of GDP, Decree 106/2004/ND-CP is a recent and its capital amounted to VND 94,145 improvement in the DB's regulatory framework. billion (US$ 6 billion), including It narrows the list of eligible borrowers, and contributions from ODA (39.9%), states that only projects that are capable of direct Government bonds (14.8%), domestic trust repayment, are socio-economically efficient and funds (12.1%), social security fund (10.2%), have feasible business plans are eligible for DB postal savings (5.9%), Treasury bills (4.2%), support. Project assets are to be used as security, state budget (3.6%), capital mobilized by and those assets cannot be assigned until loans DB's branches (3.1%) and State credit (1.4%). are fully repaid. An element of risk-sharing, Of the resources mobilized domestically, through co-payments by other government about 80 percent has been on-lent to SOEs. bodies or by commercial banks, is also required. In 2004 the total operating capital of LDIFs DB investment lending and credit guarantee in Vietnam was approximately US$ 300 cannot exceed 70% of the total capital of a million, and the trend of provincial project. These measures, if effectively governments using LDIFs to increase implemented, will increase the probability that investment in infrastructure is rising. debts will be serviced and fiscal costs Available data indicate that the top-seven minimized. But other problems of governance LDIFs invested approximately US$98 and transparency remain. million in 2004, reflecting an investment The same general weaknesses in governance increase of 118% for these funds over the and transparency exist in the case of the LDIFs. 2002 level." The Ministry of Finance, the lead agency for Because these institutions are fairly new, municipal finance, has plans to legislate in this their governance arrangements have not been area, and a new decree envisaged in the 2001 fully developed. Public Administration Reform Master Program The DB formally reports to the Prime is in draft form and currently under government Minister, but is also subject to oversight review. The absence of central regulation on through its Board of Management by the governance has been a source of flexibility, Minister of Finance, State Bank of Vietnam, allowing provinces to experiment with different and the Ministry of Planning and structures. It is important that if, or when, the Investment. The combination of these central government legislates, the best features various lines of authority mean the DB of each LDIF be retained. At the same time, suffers from mixed management incentives, legislation on crucial features such as weak accountability, and limited governance of the funds should help to provide supervision. confidence that investors' rights will be The DB has no reserves for bad debts, no protected, helping the funds to raise more long- mechanism for evaluating the credit- term capital. The LDIFs have to date not been worthiness of loans, no portfolio limits on able to appropriately leverage their initial weighting for individual sectors or charter capital. companies, and no external audits. The most fundamental issues that need to be Many operational aspects of the institutions, addressed in the new legislation include: including the LDIFs, are still at an early stage While the decisions regarding how the of development, including credit risk provincial governments use the LDIFs is appraisal and management. appropriately left to the provincial 42 governments, the framework has no transparency reforms are required to lessen incentive structure (through the budget these risks. Government appears well aware of allocation process, for example) to the associated risks. In particular, government is discourage provinces from using the LDIFs taking significant actions with the support of for policy lending purposes. donors to provide the appropriate incentives to Repayment planning is not adequately the provincial governments and to establish an emphasized in provincial government appropriate regulatory framework to support borrowing. Absence of an independent the development of LDIFs. credit rating agency is a key problem. Private Investment: There is great potential There is a perception at the provincial in Vietnam for increased private investment in government level that successful issuance of infrastructure. Private investment, including municipal bonds may result in a decline in foreign private investment, offers a virtually budget support to the province by the central limitless source of financing, and could go far to government. meeting the infrastructure investment agenda. The rules for issuance of municipal bonds As the table below indicates, over the period are not yet clear, and they do not always 1997-2003 private investment in infrastructure provide the right incentives to the issuers. amounted to about 15% of the total For example, the tenure and the coupon rates infrastructure investment - or only 8.5% if one of the bonds are largely determined by the large US$ 1.3 billion gas field and pipeline MoF. In addition, disclosure rules for the project is excluded. Private sector participation public offerings either do not exist, or are in urban infrastructure (water, solid waste, and very weak. other development infrastructure sectors) Overall, these funds are helping to fill the gap financing has been particularly weak. in long-term finance in Vietnam's capital A wide range of modalities exist for private markets, but they also pose some important sector participation, from simple service risks. In particular, they pose a risk to the fiscal contracts, or management contracts where the positions of local governments and given the Private Investment in Vietnam 1997-2003 (Contractual Commitments)- unitary nature of Vietnam's US$ millions government structure they Ports Airports Toll roads Telecoms Water Electricity Gas may well impose a contingent 1994 10 liability on the national 1995 128 government. Given the 1996 15 40 205 magnitude of their operations 1997 70 714 110 there is a need to develop 1998 237 38.8 governance structures that 1999 120.5 places the institutions at arms' 2000 20 length from the national and 2001 154 local governments, to 2002 20 10 480 1300 discourage false expectations 2003 230 412 that projects are ultimately 2004 backed by government. Various governance and Source: PPI database, except for telecommunications, where BCC network investments are drawn from USAID (2005). 43 private sector partner provides only their 2004 the Government issued about VND 5 expertise to more complicated build, own and trillion of bonds for infrastructure development operate (BOO) schemes where the private sector and VND 2.5 trillion for the education sector, provides all of the investment and remains the representing about 0.7% of GDP. Bonds of 2 owner and operator of the facilities. years and 5 years maturity have carried coupons Involving the private sector in undertaking of around 8%. In October 2005 the Government significant investments in infrastructure is a issued its first overseas government bonds, fairly complicated task. To attract private raising US$ 750 million at a rate of 7.125%. finance, investors need to earn a fair return on The bonds are kept off-budget, to comply their capital invested commensurate with the with the State Budget Law's limit on the budget risks undertaken, but these need to be balanced deficit of 5% of GDP. Including off-budget with the protection of consumers from the bonds and state-owned commercial banks market power of privatized infrastructure. This (SOCBs) recapitalization would raise the official balancing act must be implemented in level of public debt by about 3 percentage transaction documents (legal contracts, licenses, points, from its current level of around 33% of and laws established to induce the initial GDP. The overall level is not currently worrying investments) and in an appropriate regulatory from the viewpoint of macroeconomic stability, environment. To get all of this right requires but as the bond program expands the skilled professionals, as well as careful political contribution to the level of public debt will guidance. The best way of establishing these increase. Clearly the bond issues should be skills is through pilot transactions. Ho Chi Minh reflected in official statistics of public debt, and City Infrastructure Fund (HIFU) is promoting if the bonds make economic sense, the State the Thu Duc BOO Water Treatment Plant deal Budget Law's limit on the deficit should be worth around $100 million and in Hanoi another amended. similar deal for the Song Da BOO Water The principal purchasers of bonds have been Treatment Plant was signed with Vinaconex, a SOCBs and insurance companies. To ensure full SOE owned by the Ministry of Construction. subscription, the government has directed These transactions involving SOEs and mainly SOCBs to purchase bond issues. Insurance state owned banks will provide some useful companies are obliged to invest in bonds or lessons. However, pilot projects involving bank deposits. These investors would, if they private companies, rather than SOEs, and could, seek alternative investment private sources of finance, rather than state opportunities. Obliging financial intermediaries owned banks, would be even more useful in to invest in bond issues is not the ideal fashion to terms of opening up access to much greater ensure the highest returns for the country's sources of finance. savings. Bond Issues: The national Government has At the provincial level, the first municipal been working to develop the government bond bonds were issued by the Ho Chi Minh City market, in part to directly finance investment, government in 2003, in the form of a general including infrastructure, and more broadly to obligation bond, raising US$ 127 million. In 2004, serve as a benchmark for broader capital market HIFU managed the issue of another US$ 127 development. It plans to raise VND 63 trillion million of municipal bonds for the city. The rules (US$ 4 billion) by 2010 to be used mainly to for issuance of municipal bonds are not yet clear, finance infrastructure and education projects. In and they do not always provide the right 44 incentives to the issuers. Disclosure rules for the and assets of the banking system. Over the past public offerings either do not exist, or are very decade the SOCBs have evolved from weak. The stock of local government debt in specialized policy-lending vehicles to more Vietnam is not currently a threat to fiscal stability, commercially oriented financial intermediaries. but care will need to be exercised through However, much more needs to be done to national oversight to ensure borrowing, with the reform the banking sector before it can be contingent liability it imposes on the national appropriately utilized to finance urban government, is kept within prudent limits. infrastructure development. Issuance of corporate bonds for Infrastructure enterprises have to date not infrastructure development was pioneered by borrowed large amounts from the SOCBs, with Electricity of Vietnam (EVN), which issued the exception of construction companies in the bonds for the development of the Ialy hydro- transport sector where the SOCBs and electric power plant in 2001. On May 5, 2005 contractors are facing significant financial EVN began issuing bonds to raise VND 200 problems as a result of a mismatch between billion to finance a 500 kV transmission line planning and financing approvals, combined project in the Central Highlands region. The with the failure of SOCBs to provide credit on coupon rate is 8.8% for the first year of the five- strictly commercial criteria. The practice of year bond, while in the following years the informally directing SOCBs for purposes of interest rate will be equivalent to the average government policy, and the limited credit interest rate of the four major SOCBs plus 1.1%. analysis capacity of SOCBs has led to the Between now and 2010, EVN plans to sell more accumulation of non-performing loans (NPLs), than US$ 1.6 billion worth of registered bonds amounting to about 18% of outstanding loans at on local and international markets. In the future the end of 2003. A large proportion of NPLs water companies, or groups of water companies were accumulated during the period 1995-98 working in conjunction with a financial when policy loans were made to inefficient institution, should also be able to issue bonds. state-owned enterprises. Since then: the State Overall the market for bonds is poised for Bank of Vietnam has applied stricter control, significant development but important including increased reserve requirements to institutional reforms, addressing governance account for NPLs: the banks have improved and transparency in particular, are required to their credit analysis; the Government has permit this potential to be realized. provided state budget resources to resolve Commercial Banks: The mismatch between NPLs of state-owned enterprises, and has the long-term financing needs of infrastructure established the DB as a specific vehicle for investment and the short-term deposits held by policy lending and the Debts and Assets banks means that banks are not the ideal Trading Company to help finance SOEs that financing institutions for infrastructure. can still trade their way out of debt. However, Nevertheless, by pooling their contributions in more progress is required as the practice of investment consortia the banks can play an directed credit continues, and the SOCBs are important role in infrastructure financing if their carrying low average capital adequacy ratio financing is directed towards projects with the (equity/risk assets) of 3.5% (compared to the highest returns. Vietnam's financial sector is international standard of 8%). currently dominated by four major (SOCBs), Equitization of State-Owned Enterprises accounting for about 80% of the capital, lending (SOEs): Internationally, many governments 45 have used the sale of shares of state-owned sewage treatment works in big cities and enterprises as a means of raising substantial public lighting. revenue. To date, Vietnam's equitization The State will retain at least 50% of capital in program appears to have been directed at large urban water companies. expected efficiency benefits, rather than as a The State will retain at least 50% of the major revenue-raising device. But as Vietnam companies operating in the management confronts the financing challenges of its major and maintenance of important roads, investment program, equitization could provide waterways, boats and bus stops. an additional source of finance. Construction companies no longer appear on The equitization program is a process of lists of SOEs where the State will retain at diversification of ownership of state-owned least 50% of the capital. enterprises by sale of shares. For the most part, Thus the new Decision and the new Decree equitization has involved sales of shares to provide a legal basis for the equitization of some workers, and has been attributed with infrastructure SOEs. increasing workplace productivity by providing Several features of the current equitization stronger worker incentives. Equitization can program reduce its financing benefits. Investors also entail sale to another SOE, so it is not will reduce the amount they are willing to pay necessarily equivalent to privatization. for shares in a company if: Equitization frequently entails a sale of as little There is inadequate disclosure of as 15% of the shares, with the State remaining information about the accounting position the dominant owner. and the business risks; In 2003, about 450 SOEs were equitized, and An underdeveloped corporate governance a further 700 in 2004. Surveys conducted in 850 regime does not provide adequate equitized SOEs found that businesses which shareholder rights to direct managers, or successfully completed restructuring increased does not protect minority shareholders' their capital by 44%, turnover by 24% and labor rights to a proportional share of profits; income by 12%. Most of the equitized Investors in infrastructure are not able to enterprises have been small, with capital under obtain management control; VND 5 billion (US$ 300,000). Firms with over Shares are not listed on a stock exchange, VND 10 billion capital accounted for only 13% of reducing the ease with which shares can be the equitized companies in 2004.31 sold. Only a small proportion of equitized Rules related to the equitisation of companies companies are listed. In 2005 only 28 involved in urban infrastructure under Decision equitized SOEs were listed on the Ho Chi 155 of 2004 include: Minh stock exchange, out of more than 2,400 The national electricity transmission system equitized SOEs. will remain State owned, but distribution Sales are frequently restricted to managers and generation are open to equitization of up and workers, who may be willing or able to to 49%. pay less for particular shares than general Management and maintenance of the investors. national railway network are to remain State As the equitization process expands in size owned, as are large airports and seaports, and scope, these problems need to be remedied. 31. Source: Vietnam Economy (2005) 46 This could, in part, be achieved by a new decentralized municipal finance system. comprehensive law on equitization (or on Lack of disclosure affects citizens' trust in the equitization of infrastructure firms), dealing local government, undermines investor with the methods of sale, legal rights of redress confidence in government's investment of minority shareholders etc. Alternatively, the vehicles/agencies, and limits the ability of government could start with pilot projects, and local government to form partnerships with improve its practice as it goes on. professional private sector players. Public Private Partnerships Framework: Requirements for Success in As provincial governments do ad hoc deals Diversifying Municipal Finance with the private sector under less than ideal disclosure environments, possibilities exist The primary factors that will determine the for inappropriate behavior. Hence, there is magnitude and quality of municipal finance a need for a basic framework at the mobilized at the provincial government level provincial level that makes public the include: operational standards of the provincial Technical Capacity: Local government government for partnering with the private capacity to undertake innovative municipal sector. Ideally, the PPP standards should be finance will greatly limit the extent to which developed by each provincial government provincial governments can take advantage and announced to the public; alternatively, of the new municipal finance tools - such as they may be proposed by the central issuance of municipal bonds and government. partnerships with the private sector. In the Focus on Debt Repayments: The incentive future, the difference in local government structure at the provincial government level technical capacity may result in greater must emphasize the need for developing disparities in economic growth and living comprehensive financing plans that can standards across the country. match investment needs with repayments. Disclosure Standards: The absence of Recovering costs, to the extent possible, appropriate and consistent disclosure through user charges will be a key part of standards for provincial government this as will the establishment of mechanisms operations is, and will continue to become, a for prioritizing investments and sound credit significant bottleneck to the emerging management policies. 47 Chapter VI Recommendations for Improving Urban Development I t is very important for Government to deal financial resources. The draft Urban Water proactively with the rapid pace of Supply Decree that is expected to be approved by urbanization in order to maintain the high mid 2006 sets a good example of a policy rate of economic growth (cities are the primary document that provides a solid framework engines of growth) and to help alleviate within which the sub-sector can grow. Similar poverty as increasing numbers of the rural poor initiatives are required for wastewater and migrate to the cities. Although there are drainage, solid waste management and urban pockets of poverty spread throughout cities, transport. Particular issues that need to be Vietnam has so far managed to avoid the vast addressed in these sub-sectors include guidance sprawling slums that have developed in the on carrying out the economic and financial large cities of other developing countries in appraisal of high cost urban mass transit Asia like the Philippines and India. systems and mechanized recycling and Government should give priority to ensuring composting processes for solid waste; and that all urban residents, including the poor, transparent procedures to safeguard the social have access to basic infrastructure services and and environmental interests of people affected affordable housing. by the construction of new wastewater treatment and solid waste disposal facilities. Guiding Policies The need for policy guidance on urban transport is particularly critical given the high With regard to policies that are specific to the growth rate of car ownership and the moves urban sector, the Orientation Master Plan for being made to develop high cost mass transit Urban Development to 2020 needs to be revised systems in Hanoi and Ho Chi Minh City. because it has become out of date since it was Other broader policy areas such as approved in 1998. It should reflect the country's Decentralisation and Financial Sector Reform are move towards a more market oriented economy having a profound impact on urban and recognize the changes that have arisen from development. Transferring greater the increased decentralization that has taken responsibility to the administrative levels place. In particular it should take account of the closest to the residents of urban areas through change of Central Government's role from that decentralization is obviously a positive step in of directly controlling development to that of terms of being able to respond more quickly facilitating, guiding and regulating it. The and effectively to their needs and desires. Orientation should also be more realistic on However, this is a fundamental change in the what can be achieved within the time-frame it way the country is administered and requires a covers, given the constraints that exist on huge capacity building effort to strengthen 49 managerial and technical skills at the local horizons. Adopting demand driven approaches Government level. Further decentralization of with beneficiary participation throughout all authority for urban planning and for the stages of the investment cycle would make implementation of projects is also likely to be prioritization easier. It should also make it easier beneficial. Project implementation suffers to mobilize additional financing by increasing unnecessary delays in the approval of feasibility beneficiaries' willingness to pay. This is studies, designs and the procurement process demonstrated by the World Bank supported because of multiple, often redundant, reviews pilot water supply projects in District Towns in at both local and central Government levels. Haiphong and Bac Ninh and the initial stages of These reviews need to be streamlined with as the Urban Water Supply Development Project, much responsibility as possible delegated to the all of which adopt a demand driven approach local Government level. Financial sector with intensive beneficiary consultation. This has reforms will enable city and provincial resulted in the acceptance of full cost recovery Governments to mobilize additional resources tariffs that are much higher than the tariffs being for development (see below). paid in nearby cities. In terms of relative priority across sub- Needs, Access and Goals sectors, it is probably most important to ensure that all urban residents have access to piped The percentages of urban residents with access water that meets national standards. to basic infrastructure services given in Chapter Fortunately, it is easier to attract private sector 3 indicate there is much still to be done to catch participation and to mobilize domestic capital up on the remaining backlog and to address the for the water supply sector, than for most other needs arising from rapid urban growth. The cost infrastructure sub-sectors. Use of the state estimates presented in Chapter 5 indicate that budget should therefore be limited to the funding requirements are enormous. providing transparent subsidies to the poor Mobilising additional sources of finance will be and for making investments in poor provinces, essential. It will be vitally important to where attracting others sources of finance will effectively prioritise investments within the be difficult. constraints of what can realistically be financed. Government has correctly been giving This should include selecting appropriate priority to dealing with environmental design horizons and technical standards for new investments. For many infrastructure projects such as urban roads, water, and wastewater treatment plants etc, it would be best to adopt an incremental approach with a relatively short initial design horizon of 10 to 15 years. This would minimize initial investment needs thereby enabling more people to benefit. It would also allow designs to be better tailored to meet the demand that actually materializes in the future. Where the incremental cost of providing additional capacity is small, for example large drains and sewers, it is more appropriate to adopt longer term design New water Treatment Plant at Nam Du, Hanoi 50 pollution and flooding, which is worst in the problems is becoming increasingly important in largest cities, where the densities of people and the largest cities. Car ownership growing at industry are highest. The costs from flooding, in around 10% per year is giving rise to congestion terms of property damage, are also highest in the creating demand for more road and parking largest cities. The demand for wastewater space. City planners will need to balance this collection and treatment, improved drainage and against conflicting demands to preserve the the safe disposal of solid waste increases as historical character of cities such as Hanoi and people become wealthier and better educated Hue, which make them so attractive to tourists (Vietnam's literacy rate is very high). who bring in substantial revenues. Care also Government's policy in prioritizing the largest needs to be taken to preserve the pleasant cities will deliver the highest level of human scale and vibrancy of Vietnam's cities. cost/benefit. It will be more difficult to mobilise Introducing improved public transport systems other sources of finance for these sub-sectors and should be given high priority to offset the for at least the next 5 to 10 years funding will demand for more roads. This should focus have to come primarily from the State budget initially on the introduction of bus-based (including ODA). Currently all funding for systems. In most cities around the world public environmental sanitation, with the exception of transport has to be subsidized to some extent to equipment for solid waste management, is make it affordable. Subsidies can be minimized provided by Central Government as grants. It by contracting out the right to operate routes on will be necessary to change this to make the State a competitive basis and by adopting least cost budget go further by requiring wealthier cities to options - usually bus-based systems. Where mobilize part of the funding, possibly on a roads have to be widened, or car parks matching basis e.g. the city/province is required provided, car owners should contribute to match every VND 1 billion grant provided by towards their cost through taxes and parking Central Government with VND "x" billion from fees. Taxes and fees should also be used to their own resources. Cities/provinces would manage demand. need to increase wastewater and solid waste Making affordable housing available, given charges for this to happen. the very high cost of land in Vietnam's main The need to address urban transport cities, is a major challenge. The provision of New wastewater Interceptor Tunnel under Nhieu Loc Thi Nghe Canal, Ho Chi Minh City New Solid waste Landfill being built in Danang 51 social, or public, housing by Governments has respond much more rapidly to market signals. generally not been successful in most countries. Attracting investment in a global market The solution is in providing the necessary economy is unpredictable. Cities, in order to incentives to private sector developers and to compete effectively, must be able to quickly encourage landlords to invest in rental adapt their plans, within an overall strategic property. In parallel it will be important to framework, to meet the needs of investors. develop the housing finance market as part of There should be much higher levels of the broad financial sector reform. Borrowing consultation with all stakeholders (residents, will become more affordable with increased businessmen and investors) during the competition and through longer lending terms, preparation of plans to ensure the plans which will become feasible as the capital respond to their needs. The approval of market matures. A very cost effective and planning applications also needs to be made socially benign way to improve living more transparent, with affected residents given conditions and housing for poor people is the right to participate in the process. through the in-situ incremental improvement, Planning should be increasingly or urban upgrading, of existing slums. This decentralized and subject to more local control. involves the city investing in the In parallel with the delegation of increased comprehensive improvement of tertiary level authority to local Governments there must be infrastructure (drains, sewers, water supply, greater accountability. In particular there must paved roads/alleys, street lighting etc), be much stricter enforcement of planning providing householders with security of tenure controls. The most effectively prepared city (land use right certificates), and making small master plan is worthless if the strategies loans available to enable residents to improve presented are not enforced. Performance their houses. Research from other countries standards for infrastructure that fit and benefit shows that residents will invest up to 7 times in local situations should replace the practice of their houses what the city invests in adopting prescribed national standards. Such infrastructure. The World Bank is supporting performance standards should be applied to this type of urban upgrading in Can Tho, road capacity, wastewater treatment standards, Haiphong, Ho Chi Minh City and Nam Dinh the provision of open space, height limits, and the preparation of a National Urban setbacks, mixed use compatibility, noise levels, Upgrading Program for the entire country. etc. This would allow the incremental development approach to infrastructure Urban Management and Planning referred to above to be adopted. Provided land reservations are made for the ultimate There needs to be much better coordination projected need the physical infrastructure can amongst Ministries and local Government be developed gradually over time as needed departments responsible for socio-economic e.g. an arterial road that ultimately is expected plans; sector plans; and spatial (master or to require six lanes could start off with the construction) plans. All of the plans and spatial construction of only two and be expanded as plans in particular should be based on the level traffic grows. of investment that is realistically likely to The development of peri-urban areas become available in the time period they cover. presents special challenges. Ideally the Spatial plans need to become more strategic and infrastructure should be constructed ahead of less prescriptive. They also need to be able to industrial, commercial and residential 52 development, or at least on a "just-in-time" Within the inter-Governmental transfer basis. It is however always difficult to mobilize arrangements that apply to the State budget, the necessary finance when it is needed. Government should use the scarce resources Enforcing the protection of road and utility available for urban development: to leverage reservations over long time periods is also a other sources of finance; for pilot investments challenge. To address these matters it is vital to demonstrate new ideas and policies; and for that: all the different forms of planning are the most disadvantaged urban areas. Wealthier coordinated; the plans take a realistic account cities and provinces should be able to mobilise of the level of funding likely to be available for other sources of finance. The current inter- infrastructure; and the funding is effectively Government budgetary transfer mechanism prioritized. The establishment of effective described in Chapter 2 should be reviewed and institutional arrangements by cities to manage possibly modified to ensure that there are the development of peri-urban areas will be of positive incentives to encourage the key importance. mobilization of additional funds. In 2004 Government recognized the Cities/provinces should give priority to importance of regional planning by developing an appropriate enabling establishing a Steering Committee chaired by a environment to attract investment in Deputy Prime Minister to oversee their infrastructure from the private sector. To attract preparation. So far this has focused on spatial finance, cities will need to make themselves planning. It needs to be broadened to ensure more credit-worthy - ideally by obtaining a coordination of the different types of planning credit rating from an independent agency. City and an effective institutional framework put in finances and procurement processes will need place to ensure that the plans can be to become more transparent and subject to implemented. independent audit in order for this to happen. In addition, a basic framework of regulations is Municipal Finance - Resources and required to guide public private partnerships to Needs avoid actual, or perceived, conflicts of interest. Cities should increase their self generated As already noted, the financing needs of urban revenues by raising user charges so that they infrastructure are well in excess of State budget fully cover the cost of providing infrastructure resources. The cost estimates provided in Chapter services, including some, or all, of the capital III indicate that investment levels for the two costs (through depreciation including loan decades from 2000 to 2020 need to be several repayments). People's Councils tend to be orders of magnitude higher than they were for the reluctant to approve the levels of increase 1990s if all urban residents are to receive access to necessary, despite the fact that surveys indicate basic infrastructure by 2020. To meet these needs that people are generally willing to pay more Government should empower cities/provinces to than authorities are prepared to charge for a mobilize more funds from sources such as: decent level of service. Research is required to national development funds, or banks, such as the determine the impact that full cost recovery Development Assistance Fund; Local would have on the poor and disadvantaged Development Infrastructure Funds (LDIFs), such and to identify how they can be protected. as HIFU; municipal bond issues; and commercial Water tariffs are already close to full cost banks. Cities should also be encouraged to recovery levels in a few cities such as Hanoi, increase their self-generated revenues. Haiphong and Halong. However, more needs 53 to be done in other cities/provinces. Solid The rules for issuing municipal bonds need waste and wastewater charges are well below to be strengthened by developing disclosure full cost recovery levels in all cities/provinces. rules and giving greater emphasis to In the case of wastewater charges, Decree 67 on repayment planning. LDIFs should focus on Environmental Pollution needs to be amended lending on full commercial terms, either to remove the limitation it places on entirely, or in parallel with a grant provided wastewater tariffs not exceeding 10% of the from a separate funding source. In cases where water tariff, with half of the revenue raised parallel loans and grants are adopted the being transferred to Central Government. For eligibility criteria and the process should be urban transport, care will need to be taken in fully transparent. The practice of using LDIFs setting fare levels to establish the appropriate to manage other sources of money on a "pass- balance between achieving cost recovery and through" basis should be stopped. attracting passengers away from personal Vietnam has made great strides in urban forms of transport to alleviate congestion. development since the "doi moi" reform The very high price of land and property in initiatives were introduced in 1987. However Vietnam's main cities is a potential source of much remains to be done to enable its cities revenue that is utilized in many other countries and towns, which are the nation's main throughout the world. City authorities should engines of growth, to compete more seek to mobilize some of this value through effectively in the global market place. stricter enforcement of transfer taxes and the Adoption of the recommendations outlined introduction of annual taxes based on property above would make a significant contribution values. towards achieving this. 54 Chapter VII Annexes ANNEX 1A: City Classification and Decentralized Responsibilities ANNEX 1B: Current City Classification (2006) ANNEX 2: Official MOC Urban Population Forecasts ANNEX 3: Central Governmental Responsibilities for Urban Issues 55 than or than national system more no more housing industrial sewage sites no is (excluding and capital owned size planned heritage state of system C) locality drainage and budgets registered project foreigners the clinics, and Provinces and in B the the and transport and supply, with City plan plan construction investment local schools, Cities use SOEs development and -- water (classes HCM Responsibilities size projects and organizations Class land project investment for housing vocational the highways, infrastructure middle Hanoi the land enterprises Special limits plans, infrastructure and investment (for as manage implementation schools, investment lease Administrative zones manage the railroads) manage same financial and small manage high state foreign million) million and non-state & and & and 5 10 $ $ lower Socioeconomic Plan Prepare Manage Organize processing Plan roads Manage Decide License US US Allocate Register Approve stock Generally with with 1,500,000 1,500,000 cities populations to over with Classification Responsibilities Characteristics Largest 500,000 Cities populations from of Decentralized 2 3 and Number Cities/Towns I City Classification Class- (Hanoi Minh City 1A: Administrative Cities Chi Cities Classification Ho ANNEX Urban Special and National 56 the with roads, by drainage small and and contract and delegated primary sewage through schools) limits unpaved capital) centers roads, individuals clinics, (usually financial sub-district health Institute) and clinics, budget secondary businesses alleys, plans district the budgets small plans and state lower in households & & use district (i.e., small owned Planning with (using and land households (i.e., plans service (i.e., Responsibilities primary physical network Rural for family scale, of structures, and Local and road projects public land infrastructure certificates individuals structures, smaller the for cultural Urban lease villages construction use II, for infrastructure Administrative budgetso internal social operation schools) authorities socioeconomic and craft local the land investment land land local cultural the the class fund socioeconomic the as National City Local the Allocate Manage Control district Manage Mange secondary Issue Monitor Approve provincial Allocate Same Sub-district Allocate Kindergartens, Improve systems) (continiue) 500,000 250,000 100,000 50,000 to to to to populations populations populations populations with with with with 4,000 Classification Responsibilities Characteristics 250,000 100,000 50,000 Cities Cities Cities from from from from Cities of Decentralized 12 16 58 612 and Number Cities/Towns III II IV Classification Class- Class- Class- V City Cities Cities Class- 1A: Administrative Towns Classification ANNEX Urban Regional Provincial District Townlets 57 Annex 1B: Current City Classification (2006) Number Urban Classification of Cities Classification Characteristics /Town Special Cities 2 National center to promote national development (Hanoi and Ho Chi Minh City) More than 90% of non-agricultural labor Basically completed infrastructure Population over 1,500,000 people Population density over 15,000 people / km2 Class I (Haiphong, Danang and 3 National center to promote national or regional Hue) development More than 85% of non-agricultural labor Completed infrastructure in many aspects Population over 500,000 people Population density over 12,000 people / km2 Class II (Thai Nguyen, Nam 14 Regional center to promote inter-regional or some Dinh, Viet Tri, Ha Long, Thanh sector development Hoa, Vinh, Quy Nhon, Nha More than 80% of non-agricultural labor Trang, Buon Me Thuot, Dalat, Relatively completed infrastructure Bien Hoa, Vung Tau, My Tho Population over 250,000 people and Can Tho Population density over 10,000 people / km2 Class III (Vinh Yen, Bac Ninh, 23 Regional or provincial center to promote a Hai Duong, Thai Binh, Lao Cai, provincial or some sector development within Lang Son, Yen Bai, Bac Giang, province Cam Pha, Dien Bien Phu, Son More than 75% of non-agricultural labor La, Hoa Binh, Dong Hoi, Tam Completed infrastructure in certain aspects Ky, Quang Ngai, Tuy Hoa, Population over 100,000 people Pleiku, Phan Rang, Phan Thiet, Population density over 8,000 people / km2 Long Xuyen, Rach Gia, Soc Trang, Ca Mau) Class IV 54 Provincial center to promote the provincial development More than 70% of non-agricultural labor Completed infrastructure in certain aspects Population over 50,000 people Population density over 6,000 people / km2 Class V 622 Provincial center to promote the district and/or rural center development More than 65% of non-agricultural labor Infrastructure in development Population over 4,000 people Population density over 2,000 people / km2 Total 718 Sources: Department of Architecture and Construction Planning, Ministry of Construction (2006) 58 )%(etaRhtworG 2020-0 % % 5%6. % 7.1 %94. 4%6. 4%6. %74. %0.10 %84. %24. %76. 3%4. %81. %76. 3%4. %04. %25. % 7.5 %26. 3%3. 24.9 %5.18 7.2% %25. na 20.4 201 2020-0 5%6. % 7.1 %94. 4%6. 4%6. %74. %0.10 %84. %24. %76. 3%4. %81. %76. 3%4. %04. %25. % 7.5 %26. 3%3. %16. %05. %31. % 2.3 %211. 5%6. 201 nnualA 0 -201 9981 %6.10 % 9.6 %5.13 %211. % % 8.7% 8.6 1%11. 7.9% 8.8% %03. %25. % 2.3 %94. %5.12 % % % na 24.0 8.8% 7.4 9.2% 9.5 9.8% %86. 7.1 3%6. 8.9% 2020- 5% % %1 3% 3% % % % % % 27 269 29 24 23 99%1 5% 36 %718 %219 %712 1%13 3% 52% 65%1 257 44 11%2 230% 241 %618 249 %518 72 115 na 204% ) 9981 (% te Ra thworG 2020-0 % 65 %71 % % % % % % % 49 64 64 47 00%1 48 42% 67 43 %18 % % % % % 67 43 40 52% 75 62% 33 %61 % 50 %13 % % 23% 112 65 201 0 201- %812 % 115 %216 35%1 %410 %310 % 33%1 95 %610 % % 36 62% 28% 59 %015 % % % % % % na 9981 288% %510 89 110 114 117 %81 85 75 %710 2020- 2020 8,000 000, 0 0,000 9,000 ,000 ,000 000, 000,8 000,4 093 1108, 044,9 9981 ,097,00021 8,74 3493, 994,000,2 26,1 94 785 39,6823, 000, 00,0 559 280,000 284 2,00001 291 360 000,175 25 24 207,000 0,00031 77,,381 0495,815, 0,00085 26,4 000,825,1 29,93 Year to ge anhC 2020-0 0003, 0003, 000, 000, 5306, 0,000 000, 480, ,000 201 486, 000,000,5 48,1 657,1 700,000 457 00,0005 62,1 25 200,000 0,00051 ,00064 8,00081 0,00051 200,000 0,00031 0,00051 112 ,00005 5306,67,9 67 8,00051 2,6 9,99074,1 0008,251, 00,651 0 000 000 04 20,1 Development 201- 9981 4,615, 8,00047,3 000,6 000, 000, ,000 608, ,000 ,000 068,01 3,1 0095, 000, 86,1 337,1 560 2,00094 285 659,1 9,00003 80,000 34,1 ,00065 000,301 0,00021 000,173 8,00021 94 95 80,000 8,6 2,27 68 2,788 360,1 020,187,15 Urban ,000 0,000 000, 000, % for ,000 80,4 ,990 40 2020 32 00,561 0005, 8,000 ~ Plan ,000,00021 00,0005,4 000,522,4 800,000,1 42,1 000,000,1 530,0405, 85 00,0005 00,0005 00,0003 467 00,0005 700,000 0,00083 350 293 200,000 ,00056,7 7,991 9,00083,1 205,800 25 7,965 2,88 38, Master Forecasts notialup 0 201 Po 000,170,10 0006, 8,000 000, 000, 000 0,000 ,0001 0006, 000, % 32 96 00,0005 00,0006 00,0003 000,4 350 25 279,000 350 00,0005 0004, 25 200, 0001,18 0,00051 7,000,000 7,00001,3 58,2 00,0001,1 0004,413, ,999,00051 325, ,231 486, 360,1 ,000368, ~ 23 000,3 0002, Population 9981 404, 25,3 0001,151, 047,0321, 000, % Orientation 540 000,674 000,521 0144,571, ,000 291 220,000 000,621 ,000 5405, 065 8,00091 000,671 0,00041 9,00021 23 22,0001 000,601 86 70,000 8,0008 088,7 7,3 802, 809,000 693, --- ~ ,700,41 (1998) Urban I V) MOC )snio Is II)I, aslC asslC S, )sn ssal m Construction classifications Official 33ytCi icatsifaslC 2: 998(1 esitiCssaClla tyiChni ­ t ­ owT( setiiC m of n uohT sslaC( NateVi City MihC g sretn a g h h (CsretneCl ioN setiiC gno Ce Tran Din Nguye uaT Bin seitiC estiiC esitCi Urban NateVi Nan e g Rura Ministry 1999 eci oH Ha alno Phi Ha Da Hu ANNEX Sp Nati alnogieR HoneBi ohTnaC ahN Nam aihT gnoL Vun Ha hniV Men Buo irTteiV aoH 16latoT IIIssalC VIssaCl weN Urban District, 20 taloT Urban 32. 33. % 59 ANNEX 3: Central Governmental Responsibilities for Urban Issues Ministry Urbanisation Functions and Responsibilities Communist Party Policy guidance Published party priorities minimally address urban issues National Assembly Approves budget, sets expenditure priorities, prioritizes major projects Controls decentralization Sets formulae for local retention of revenue Prime Minister Manages conflicting policies and agendas of ministries Finance (MOF) Proposes budget (rural/urban priorities) Allocates resources for state investments Manages decentralization of revenues Planning and Investment (MPI) Plans the state (or city, province or region) economy Prioritizes sectors and major project locations Integrates sector plans into overall socio-economic plan Picks state investment projects Seeks and approves FDI and ODA projects Construction (MOC) Designated responsibility for urban issues Prepared Urban Development Orientation Plan for 2020 Spatial (physical master plans) planning to locate projects Sets standards for city classifications and approves advancement Prepares spatial plans for most cities and provinces through the National Urban and Rural Planning Institute34 Controls urban water and sanitation projects Controls SOEs doing construction and builds major projects Controls permission for large building projects Runs civil engineering and architectural universities Transportation (MOT) Major transport projects (ports, rail, airports, national roads) Road priorities and design Controls SOE's that build transport facilities Natural Resources and Environment Responsible for land allocation (MONRE) Sets regulations for allocation of urban land Responsible for environmental regulations and controls Industry Responsible for power generation and electricity management Responsible for the management of energy SOEs Telecommunications Responsible for the management of telecommunications Issue regulation for the operation in the telecommunication sector Trade, Industry, Commerce Sectors Plans and runs industrial and production sector economy Owns and operates sectoral SOEs Rural Development Management of agriculture and rural production and development Set regulations and plan the agricultural cultivation zoning Responsible for the forest and water resources management Responsible for rural water supply and sanitation. 34. Only the largest cities Special and most Class I have their own planning institutes and even they are not autonomous. 60