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Viet Nam needs $5 billion for water projects, but the country’s self-imposed borrowing cap stunts increased investments. The country also gives the energy sector a higher priority, and is reluctant to borrow for the water sector. But with ADB’s new Water Financing Program (WFP) and its new financial services, the country’s officials begin serious talks about water financing with ADB. |
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| Hubert Jenny Senior Urban Development Engineer |
At the 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.
Jenny 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, Jenny says, 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.
Securing 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 Jenny. There has been a “very positive” response from the Government. However, there is still reluctance to borrow more from OCR for water.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 to 12 years at 8% to 12%) with the use of ADB’s new financial instruments from the Innovation & Efficiency Initiative and ADB’s new Multitranche Financing Facility (MFF), an instrument allowing the financing of a sector over 10 years.
For example, ADB is proposing to the Government 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. |
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| Viet Nam Country Dialogue at the Water Financing Program Conference, September 2006 |
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. 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 Phase1 of the Red River water supply project supply for the capital, and a non-revenue water project of about $25 million to lower the 42% leakage rate in Hanoi.
| Date | Activity | Related Documents |
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| 14-16 March 2007 | Water Financing Program Conference in Viet Nam (Ha Long, Viet Nam) |
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