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Viet Nam
ADB Review [ December 2006 - January 2007 ]

At the Water Financing Program (WFP) conference in September at ADB headquarters, a high-level delegation from Viet Nam came with ideas for $5 billion worth of projects, including hydropower, river basins, urban and rural water supply, and sanitation. "They knew what they wanted," says Hubert Jenny, a Senior Urban Development Engineer in the Infrastructure Division at ADB.

VIET NAM At the September Water Financing Program conference in Manila, the Government showed that they have plans for several water projects, including hydropower, river basins, urban and rural water supply, and sanitation

He says that the question is not what, but how? The country is still eligible for cheap money from ADB's concessionary Asian Development Fund (ADF), but has access to ordinary capital resources (OCR) funding. However, officials are reluctant to borrow OCR for anything outside the energy sector, a highly important sector in Southeast Asia's fastest-growing economy, while ADF funding is at its cap and mostly mobilized for 3 years.

In discussions with Government officials, says Mr. Jenny, ADB is pointing out that investment in water utilities, like power utilities, can also pay off if adequate tariffs are in place. "There are 300 towns without central water-supply systems—they use wells or are supplied by trucks—and I guarantee those people are willing to pay, but is the Government willing to charge?" he says, adding that tanker water is typically much more expensive than piped water.

Improving the tariff structure would provide funds for debt service and operation and maintenance of facilities. "The rationale is there, and a tariff on water is also an effective inducement to its conservation," says Mr. Jenny. There has been a "very positive" response from the Government.

ADB is exploring several ways to boost investment, including OCR loans, guarantees, and local currency financing, which offer better rates than local commercial banks (typically 7-12 years at 8-12%) with the use of ADB's new financial instruments from the Innovation & Efficiency Initiative, this includes the Multitranche Financing Facility (MFF), an instrument allowing the financing of a sector over 10 years. For example, ADB is proposing to the Government an MFF funding for project preparation in Viet Nam of $300 million or more, including $50 million for a first tranche for the Tien Giang water supply project, with another tranche of the same amount for a Tien Giang sanitation project.

Meanwhile, another tranche could fund the remaining towns excluded from the Central Region Small and Medium Towns Development Project. A proposed $50 million ADF loan for the Small and Medium Towns Development would provide water supply and sanitation investments in Binh Thuan, Dac Nong, Khanh Hoa, Ninh Thuan, and Phu Yen provinces. Seven towns with urban and water components duly prepared were dropped due to lack of ADF resources.

The objectives are to expand and rehabilitate facilities, support decentralized management of water supply and sanitation, and sustain the delivery of services through institutional and policy reforms, capacity building, and adequate cost recovery.

ADB has also been in discussion with state-owned Hanoi Water Company No.1 regarding the $60 million Phase 1 of the Red River water supply project supply for the capital, and a nonrevenue water project of about $25 million to lower the 42% leakage rate in Hanoi.

Know more about the Central Region Small and Medium Towns Development Project

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