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Regions and Countries Country Assistance Plans Document
Country Assistance Plans - Viet Nam : III. Sector Strategies
B. Infrastructure1. Energy42. Compared with many countries, Viet Nam is relatively well endowed with energy resources, diversified among gas, anthracite coal, crude oil, and hydropower potential. Nevertheless, per capita consumption of both commercial energy (144 kilograms of oil equivalent per annum in 1997) and electricity is one of the lowest in the region. ADB’s activities in the Energy Sector have been primarily focussed on the electric power subsector, where consumption has grown at 12-13 percent annually in recent years. Electrification needs are still considerable: although 76.8 percent of communities have electricity supply, only 58 percent of households have been fully connected. The Government’s development plans (based on annual GDP growth of 7 percent) project a total installed capacity of approximately 14,000 MW by 2010, compared to existing levels of just under 5,000 MW. Annual investments of up to $1.5 billion (including transmission and distribution) will be required to meet these objectives and to keep pace with demand. Reliable and expanding supply of power, accompanied by increased efficiency of sector institutions, will be necessary in the coming years to support economic growth and rural industrialization. 43. Past ADB assistance has focused on the rehabilitation of transmission and distribution infrastructure in three northern cities and in the central and southern part of the country. ADB has also provided TA to improve the financial and accounting systems of power companies; provide training in the area of power distribution planning, and to support the commercialization of power companies and the establishment of a regulatory framework for the energy sector. In December 1999, ADB’s Energy Sector Profile for Viet Nam was completed. The profile suggests that the ADB’s strategic focus should remain on the electric power sector, with a primary focus on sector reforms, supported by strategic investments in transmission and distribution. Selected generation projects would be considered if they contribute to overall reforms in the sector, financing through the public sector window is specifically justified, and environmental and social concerns can be adequately addressed. ADB assistance for thermal generation should be limited to rehabilitation and corporatization of existing facilities or to preparation of new generation projects for private sector development. TAs in the sector should focus on capacity building, improvements in the regulatory environment and preparation of future investment projects. 44. The proposed program will support further sector reforms through TA for the preparation of an Electricity Sector Road Map and a formal Grid Code, to assist the Government in determining and documenting the appropriate structure for the electricity subsector, and help to identify the various steps and investments necessary to execute the restructuring program. A Power Sector Development Project, combining investment in transmission with policy reforms and institutional strengthening, could provide the momentum and the opportunity to bring forward implementation of the reforms. 2. Transport45. At the resumption of ADB’s activities in 1993, transport assets, though largely adequate in extent and coverage, were dilapidated, and responsible institutions weak. The initial focus of external assistance, in line with Government priorities, was mainly on national highways, inland waterways (Mekong River Delta and the Red River) and ports (Saigon Port, Haiphong Port and Da Nang Port). Significant improvements have been made: between ADB, the World Bank, and JBIC, financing is in place for the rehabilitation of the main North-South Highway. ADB has also actively supported institutional development of the Viet Nam Road Administration. Issues of relevance for the transport sector now include the adequacy of the operations and maintenance budget, the promotion of private sector involvement in construction and maintenance, and the prioritization and adequate economic justification of planned network expansions. Viet Nam has been actively pursuing integration in the Greater Mekong Subregion (GMS) road network, in terms of physical infrastructure through the Phnom Penh-Ho Chi Minh City road project and the East-West Transport Corridor project, and otherwise through cross-border agreements and, most recently, economic corridor planning. 46. The Country Program for the 2001-2003 period has a strong orientation toward poverty reduction. To support this emphasis, rural (mainly provincial) roads in the northern part of the country will be improved under the Provincial Roads Improvement Project scheduled for 2001. Afterwards, the focus is expected to shift to the even poorer Central Region, first with advisory TA to update an earlier Central Region Transport Master Plan, to be followed by project preparatory TA in 2002, and a loan currently included on a stand-by basis in 2003. GMS activity during the period will focus on the Kunming-Hanoi-Haiphong Transport Corridor. This corridor will include possible improvement to road, rail and inland waterways. A cross-border agreement will also be developed to help the full realization of improved efficiency and economic integration. 3. Finance and Industry47. Progress has been made since the early 1990s to deepen and diversify the financial sector, to introduce market principles in the management of SOEs, and to level the playing field between state and private enterprises. A number of constraints and obstacles still remain to be addressed. Entry restrictions to the banking sector were eased in 1990. The sector expanded quickly and at the end of 1999 comprised five State Owned Commercial Banks (SOCB), four joint venture banks, 50 joint stock banks, 21 foreign bank branches, and 62 foreign bank representative offices. People’s Credit Funds also expanded rapidly, and numbered around 1,000 at the end of 1999. The soundness of some of these financial institutions, however, is affected by potentially non-performing loans. Restructuring of joint stock banks has started recently, while action on the SOCB front has been more cautious. Solution of the exposure problems of SOCBs cannot be delinked from the reform of SOEs, which are the most significant clients. Action on this front has been slow as well, and the equitization program, after a substantial reduction in the number of SOEs in the early 1990s, has only affected a small number of SOEs in recent years. Liberalization of the non-bank financial sector has also been cautious, with concession of licenses to a few joint venture insurance companies, joint stock finance companies, and leasing companies. The Government also made an effort to develop a foundation for the capital market establishing a Bond Dealing Center in Ho Chi Minh City in late 1999 and a stock market in July 2000. 48. ADB has supported financial sector reform, rural finance, and SOE reform and corporate governance improvement. During the program period, support will continue to be provided to financial sector reform, through policy-based lending or SDP operations. In line with the Bank’s emphasis on poverty reduction and decentralized development, greater emphasis will be placed on the support for microfinance, rural finance, and small and medium enterprise (SME) development. It is expected that removal of constraints in these areas will broadly support private sector development, leading to a more balanced economic structure and greater labor absorption. The role and potential of the Social Security System will be analyzed in the context of financial markets development, given the role it could play as an institutional investor, in addition to its function as a social safety net.
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