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«VIETNAM COUNTRY STUDY Adam McCarty, Alexander Julian, and Daisy Banerjee Mekong Economics Ltd. 389 Thuy Khue, Hanoi, Vietnam ...»

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Adam McCarty, Alexander Julian, and Daisy Banerjee Mekong Economics Ltd.

389 Thuy Khue, Hanoi, Vietnam www.mekongeconomics.com adam.mccarty@mekongeconomics.com December 2009 i Acknowledgements The research team on untied aid at Mekong Economics Ltd. would like to thank all the organisations and individuals who participated in this study and offered their assistance. We would like to thank the Government of Vietnam for their cooperation, AusAID for facilitating the study, AFD, Danida, JICA, AusAID and Lux-Dev for participating in the study, and all donor representatives, project staff, and contractors involved. The statistical tables derived from the OECD CRS data base used in Chapter 3 and the econometrics section in Chapter 4 using the same data base were prepared by the ODI core study group.

The Thematic Study is being undertaken with the support of the Secretariat for the Evaluation of the Paris Declaration and OECD DCD. The views expressed are solely those of the country study team and do not reflect the views of the sponsoring organisations.

ii Table of Contents List of Acronyms

Executive Summary

1. Introduction

1.1 Purpose and Scope

1.2 Synopsis of Vietnam

1.3 Economic Background of Vietnam

2. Aid and tying/untying status

2.1 Overview

2.2 Paris Declaration (PD) and the Hanoi Core Statement (HCS)

3. Statistical review of ODA to Vietnam

3.1 ODA Overview

3.2 Donor Review

3.2 Statistical review of ODA to Vietnam

4. Econometric Analysis

5. Consequences of untying for aid uses

5.1 ODA to Vietnam and the Hanoi Core Statement

5.2 Introduction to the Discussion of Aid uses and Causality

5.3 Procurement Options

5.4 ‘New’ Aid Modalities

5.5 Aid Instruments

5.6 Technical Cooperation

6. The process and consequences of untying – project analysis

6.1 Rules and Regulations

6.1.1 Vietnam Procurement Law (VPL)

6.1.2 Project / Programme specific procurement guidelines

6.2 Practices

6.2.1 Contracts at the Primary Level

6.2.2 Sub-contracting and workers at the ground level

6.2.3 Procurement of goods and services

6.3 Conclusions from case studies

7. Aid and developmental effectiveness

7.1 Cost Effectiveness

7.2 General Aid Effectiveness

7.3 Developmental Effectiveness

7.4 Cross-effectiveness issues

7.5 Issues of Implementing Untying

8. Conclusions

iii Annex A: Case Study Of The Saigon River Lowlands Flood Prevention Project... 61 Annex B: Case Study Of The Rural Water Supply And Sanitation National Target Programme

Annex C: Case Study of the Nam Tuan Irrigation Project

Annex D: Case Study of the Phan Ri-Phan Thiet Irrigation Project

Annex E: Econometric Analysis


List of Tables and Figures

Table 1: Indicators and targets in the Hanoi Core Statement

Table 2: Planned, signed and total ODA by sector 2006-2008 and 2006-2010

Table 3: Japan ODA to Vietnam; value by aid instrument and year (100 million JPY)

Table 4: NET OECD ODA 2000-2008 in US$ Million

Table 5: Net Untied ODA, 2004-8 (US$ Millions)

Table 6: Top donors (bilateral and multilateral) in Vietnam over the period 2005-2007 (US$ Millions),(inclusive of negative disbursements )

Table 7: Tying status of bilateral ODA of DAC donors during 2004-2006

Table 8: CRS Tying status of bilateral ODA by sector; 2005-2007

Table 9: Flow type (Grants / Loans) shares

Table 10: Commitments by donor and flow over the period 2005-2007

Table 11: Donor Aid Modalities, Procurement and Untied Status

Figure 1: ODA Committed, Signed and Disbursed, 1993 - 2008

Figure 2: ODA Structure: by Sectors and Areas, 1993-2008

Figure 3: ODA Source 2000-2003

–  –  –

v PPC Provincial People’s Committee PRSC Poverty Reduction Support Credit QBS Quality Based Selection ROK Republic of Korea SBS Sector-budget Support SCP Singapore Cooperation Programme SDC Swiss Agency for Development and Cooperation SECO State Secretariat for Economic Affairs (Switzerland) SEDP Socio-Economic Development Plan (GoV) SME Small-Medium Enterprise SOE State-Owned Enterprise SPO Sub-project Management Office (GoV) TAD Tender Approval Dossier TPBS Targeted Programme Budget Support UNDP United Nations Development Programme UN collaborative programme on Reducing Emissions from UN-REDD Deforestation and Forest Degradation VAST Vietnamese Academy of Science and Technology VND Vietnam Dong VPL Vietnam Procurement Law WRM Water Resource Management WSS Water Supply and Sanitation WUAs Women’s Union Association

vi Executive Summary

Introduction In the 2008 Phase I study The Developmental Effectiveness of Untied Aid, it was found that aid to LDCs is now overwhelmingly untied (excluding exempt categories, technical co-operation and food aid). However, it was also found that there existed very little formal analysis of both the donor practices in partner countries and the actual consequences of untying aid at a country level. The Phase II study is in response to the proposals of the Working Party on Aid Effectiveness and the Development Assistance Committee (DAC) Network on Development Evaluation and the reporting requirement in the 2001 DAC Recommendation on untying ODA to LDCs.

Phase II of the project is intended to provide evidence-based conclusions about the implications of untying aid and its impact on aid effectiveness in selected case-study countries, for presentation to the DAC by December 2009. This report provides the results of the Vietnam Country Study.

This report provides the results of the Vietnam Country Study and is part of the LDC South East Asian Laos-Vietnam Country pair. Using a sample of four project case-studies, combined with a brief statistical and econometric review, this study aims to contextualise the key issues of aid effectiveness and implications of untying aid in Vietnam. The selected project case-studies focus on procurement practices of the donors and governmental executing agencies, which may have a significant impact on how goods and services are purchased, with implications for aid effectiveness.

The four selected case studies were:

• two irrigation projects funded respectively by Lux-Development and JICA

• a water supply and sanitation programme funded by AusAID, Danida and the Netherlands

• a flood prevention construction project funded by AfD.

Statistical and Econometric Analysis ODA commitments to Vietnam have increased steadily since 1993, with larger contributions in the past decade. In an overall review of OECD ODA to Vietnam, donor countries had by 2007 formally untied over 70% of their ODA commitments. From 2005 to 2007, Vietnam received aid through both grants (41%) and loans (59%), with donors providing a significant amount of technical assistance.

Approximately 65% of all ODA commitment to Vietnam was untied from 2005 to 2007. A large proportion of donor ODA to Vietnam is in the form of technical co-operation (TC), and the tying status of this kind of ODA is not reported to the DAC.

–  –  –

Aid Modalities and Tying Although the majority of donors in Vietnam continue to provide ODA through a project based approach, there is an increasing trend to move towards non-project based modalities and use country systems, through general or sector budgetary support and pooled funding. Donors providing ODA through project based approaches are progressively tailoring projects to ensure untying status through greater use of country systems, by decentralising project implementation and execution at sub-national levels and, in some cases, ensuring government agencies remain the main contracting authority for procurement. As of 2008, ‘untied aid’ represented 74.3% of all committed aid received by Vietnam from DAC countries.

Project Analysis The four selected case studies consisted of three active projects and one programme, all located within the water supply and sanitation sector. Aid modalities varied across the case studies, yet all four were similar in that they largely involved procurement of services, while the procurement of equipment and materials was relatively similar, allowing for cross-comparison.

1. The Saigon River Lowlands Flood Prevention Project was handed over for financing to AfD in 2007, after the Government of Vietnam decided it was no longer able to continue funding the project.

AfD is contributing US$ 11.8 million, through general budget support. The executing agency through MARD is the Hydraulic Project Investment and Construction Management Board 9 (ICMB-9), responsible for the projects along the right bank, and the Ho Chi Minh City PMU for projects along the left side of the Saigon River.

2. The Rural Water Supply and Sanitation National Targeted Programme II (RWSS NTP II) is a follow up programme to the Rural Water Supply and Sanitation programme (RWSS NTP I), which started in the early 1990s in co-operation with Australia and Denmark, with the government. The RWSS NTP II is a pooled funding programme between Denmark, Australia, the Netherlands and the government, and it is expected to run from 2006 to 2011. Total funding for the project is US$ 315 million, of which AusAID has committed US$ 34 million. Danida contracted the Danish company Mercer Ewer to assist in the procurement of the international TAs, while AusAID contracted the Australian company URS to procure national consultants and TAs for this programme.


3. The Nam-Tuan Irrigation project is a single-donor project which commenced in April 2006, and is expected to complete in April 2010. Luxembourg Development is supporting the project, at the request of the government, through a non-reimbursable grant of EUR 3,293,100. The international TC is of British nationality, directly appointed by Lux-Dev. Lux-Dev remains the contracting authority for all services and construction works contracts, but the executing agency responsible for procurement is the DARD, specifically the PMU of the Nam-Tuan Irrigation project, led by the international TC.

4. The Phan Ri-Phan Tiet Irrigation project is funded by JICA through a loan agreement, and is intended to be implemented from March 2006 until December 2012. JICA is the sole donor, committing a total ODA loan of US$ 51.9 million to the government. The aid modality is project based aid assistance, and the project is executed through the ‘Central Project Office’ (CPO) under MARD, which is responsible for its management, including holding responsibility for procurement of contractors and the employment of consultants. BCEOM Company (France) was awarded the contract to provide consultancy services for project implementation, and was procured through short listed method. All construction contracts were awarded to Vietnamese firms.

Cost and Development Effectiveness At the sub-national and national level, development effectiveness was improved through knowledge transfers, firstly between donors and the government, and secondly between the international TAs and national consultants or project owners. Local labour and local sourcing of goods increased the incomes and employment of some of Vietnam’s poorest provinces, where these development initiatives take place. Yet problems of seasonal or temporary employment question the sustainable long-term development impact. Difficulties also lie in determining whether the effect on local employment is a direct effect of the untied nature of the projects, i.e. there is little evidence to assume that if these projects were tied that they would source labour from foreign markets.

In terms of cost effectiveness, certain projects indicated a clear trade-off between time-efficiency and cost effectiveness, such as the Nam Tuan Irrigation Project and the AfD Saigon River Flood Prevention, both of which used Vietnamese government agencies to procure consulting services and construction works. However, the projects suffered delays due to bureaucratic procedures or often in efforts to prevent collusion. By comparison, AusAID outsourced the procurement of national consultants to an Australian firm, which led to the timely procurement and awarding of national consultancy contracts.

The four case studies indicated that prices paid for equipment and materials procured through the GoV project implementation units is likely to have been above or equal to the market price due to the effect of direct contracting, local supply constraints and social networks.

ix Conclusion and Recommendations In actual practice, the procurement of goods and services for all four projects suggests little evidence of implicit or de facto tying of aid by donors, since the decentralisation of all four projects ensured extensive use of local suppliers for both services and works contracts.

The biggest obstacle to untying aid completely in Vietnam is the government’s current capacity to procure quality contracts in a timely, effective and transparent manner. Efforts have been made by all four donors to enhance the Vietnamese Procurement Law (VPL) in various ways to improve this.

However, this can lead to confusion and overlapping, inevitably resulting in an ineffective procurement system. Further efforts need to be made to ensure an improved VPL is applied to all donor projects.

Furthermore, the strong donor focus on monitoring and evaluation constrains ODA from being completely untied. Based on the findings from the case studies, policies which strengthen government’s capacity in international procurement and enhance the government’s financial and project monitoring systems would perhaps bring about some improvement.

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