||The Program will assist water supply companies in Viet Nam to strengthen their business practices and improve their performance. The Program will also support a capital investment program in water companies and cofinance the National Non Revenue Water (NRW) Program. The Development Program will utilize a MFF with a view to providing longer-term support to the institutional reform of the Viet Nam Water Sector for the next ten years. The MFF will be used to leverage parallel cofinancing, and most importantly to prepare access to commercial finance and increased private sector participation. The funds will be made available in tranches through loans. Four pilot cities, Da Nang, Hai Phong, Ho Chi Minh City (HCMC) and Hue were identified for project preparation in 2008. The first Periodic Financing Request (PFR1) of the MFF will only cover HCMC. Subsequent tranches would finance part of the National NRW Program and investment sub-programs for water companies in the other three cities, as well as other Vietnamese water companies.
|Project Rationale and Linkage to Country/Regional Strategy
Sector Performance: ADB's Water and Sanitation Sector Assessment Strategy and Roadmap shows that Viet Nam's water sector has achieved significant gains in improving coverage for both water supply and sanitation in the last two decades. Official statistics for monitoring the achievement of Millennium Development Goals record that Viet Nam in 2006 reached 92% overall coverage for improved water supply compared to 52% in 1990. However, there are significant gaps in the quality and reliability of service, and in the efficiency and environmental sustainability of service delivery. Key areas requiring attention for water companies are: (i) financial sustainability; (ii) efficiency and accountability of decentralized sector institutions; (iii) data on utility assets and performance. The proposed program will address those three gaps in a significant manner. Furthermore, the level of NRW in Vietnamese cities is still unacceptably high, ranging from 15% to 40% . To meet Government targets and to improve the financial viability of water companies, considerable effort is required to identify the physical and commercial losses, and subsequently massively invest in a pipe replacement program. ADB will support operational work on the distribution networks necessary to identify NRW and finance pipe repair and replacement, as required. ADB's proposed methodology promotes ownership of the NRW reduction program by the respective water companies, by including NRW as a core function of overall operation and maintenance.
Policy Framework: The policy and legal basis for the sector is relatively strong, as the Government issued two key Decisions, detailing a clear vision, setting targets and implementation measures. Decree 117/2007/ND-CP transforms water from a social to a commercial commodity and requires water supply tariffs to be set to full cost recovery and Decision 1929/2009/QD-TTg sets ambitious targets for the water sector, in particular for NRW reduction to 25% by 2015, and 18% by 2020, from the current average of 30%. The objectives of the Government's current Socioeconomic Development Plan (SEDP) 2006 2010 in regard to the water sector include the provision of essential infrastructure, especially water supply and sanitation, to poor households in cities and towns across the country and enhancement of cost recovery for infrastructure investments by setting and collecting appropriate tariffs and fees. ADB's sector program within the Country Strategy and Program 2007 2010 is consistent with these policies and was confirmed by the 2008 Country Operations Business Plan and the Mid Term Review of the Country Strategy and Program in 2009. The strategy is explicitly designed to give substance to the Government's initiatives to decentralize planning, financing and decision making and to support the current legal framework in the water sector. The MFF will contribute to the Water Operational Framework , which emphasizes water availability and its value in the broadest possible context. As such, the MFF addressed the supply demand gap and improve efficiency in the water sector. It therefore also addresses resource protection, storage improvement, and the impact of technology, especially for NRW.