|Project Rationale and Linkage to Country/Regional Strategy
Trends in Viet Nam's Official Development Assistance (ODA) portfolio. Viet Nam's rapid economic growth has been impressive during the past decades. Although growth is not directly attributed to ODA, it has nevertheless played an important role in catalysing investments. This is reflected in the Government's Socioeconomic Development Plan (SEDP) 2011-2015, which highlights development targets in key economic sectors and the importance of ODA along with projected increases in the number, size and complexity of investments. In monetary terms, from 2006-2010, signed ODA for Viet Nam was $20.26 billion, whereas estimated ODA for 2011-2015 is $ 32.0 billion. Increased investments have not been complemented by aid effectiveness. Currently, the stock of undisbursed ODA is over $6 billion and is expected to increase to over $10.0 billion by the end of 2015. As aid is channeled through ODA-funded programs and projects, its effectiveness is measured in terms of how well programs and projects are implemented, required time for completion, and impacts on beneficiaries. Viet Nam's track record has been mixed. Project evaluation reports of donors show that in general, projects have been completed satisfactorily, yet the same reports indicate poor project performance during implementation which, among others, is caused by delayed project preparation and startup. Based on Viet Nam Country Portfolio Review by ADB, it takes around 12 to 18 months on average from fact-finding to loan effectiveness; an additional 2 years for project startup and first contract award, and approximately 2 years of loan extensions. These, in turn, cause unnecessary implementation difficulties, increased transactional costs, and delayed development benefits, which subsequently reduce aid effectiveness and investment efficiency. Comparison across development partners show that the portfolio performance indicators of Viet Nam fare poorer than those of other Asian countries.
The Government, together with the development partners, has realized the importance of addressing implementation bottlenecks, including actions to improve effective utilization of ODA-funded projects. For example, the ODA Inter-Ministerial Task Force, established in 2004, conducts annual reviews of ODA utilization in coordination with the development partners (including ADB) and produces action plans for improvement of ODA. Decree 131/2006/ND-CP on delegated management of ODA funded projects is, currently, undergoing revision to better utilize ODA resources and define the responsibilities of stakeholders involved in ODA in Viet Nam. The Aid Effectiveness Forum (AEF), comprising key Government agencies and development partners, are engaged in various thematic group dialogues (e.g., on social impact assessment, environmental impact assessment, and procurement etc.,) to narrow gaps between Government procedures and international practices. However, these initiatives will need to be supplemented by concrete actions to address implementation delays arising from inadequate project preparation and project readiness; lack of effective mechanisms to fast track project startup; and limited capacity of counterpart staff to administer projects and manage implementation. This is consistent with the various portfolio performance reviews on Viet Nam (footnote 3), which have identified several underlying technical, institutional and financial constraints that hinder smooth project preparation, startup, and implementation.
Project startup. Once loan negotiations are concluded and loan documents are signed, most project management units (PMUs) are reluctant to start any project related activities (even inviting expressions of interest from consultants) before the loan is declared effective, even where advance action has been approved . In Viet Nam, the legal structure usually restricts any agency implementing an ODA-funded project from spending counterpart funds until the loan is declared effective. On average, it takes 8 months from loan signing to loan effectiveness; over 12 months to recruit consultants; and 18 months from loan effectiveness to the first loan disbursement. Startup delays can delay projects for up to 2 to 3 years. While the revision of Decree 131/2006/ND-CP will allow advance action, the funding needed for advance action may still not be available.
Capacity issues. There is a varied level of capacity to implement projects at the central and provincial levels. In many cases, the executing and implementing agencies do not have the requisite experience to implement ODA-funded projects. Even those which have previous experience may lack the capacity to implement ODA-funded projects because of limited financial resources, lack of technical skills and ability to communicate with the donors.
The Government, therefore, needs a facility that will adequately address the technical, institutional and financial shortcomings to startup ODA-funded projects. The PPSSF will allow the selected agencies to startup, prepare and implement ADB-financed projects to ensure effective aid utilization. This can only be achieved, if adequate front-loading of needed resources is provided. The PPSSF is, therefore, proposes to enable: (i) better preparation of investment projects by providing funds for updating feasibility studies, finalizing detailed engineering designs, and preparing bidding documents; (ii) quick project startup; (iii) resolution of project implementation related bottlenecks due to the lack of capacity of most executing and implementing agencies on safeguards (conducting baseline surveys, updating resettlement plans and compensation plans, incorporating environmental management plans into the bidding documents), procurement (selecting the first consulting firm for detailed design and supervision) and disbursement (opening imprest accounts and managing withdrawal applications); and (iv) provision of transaction advisory services. As a result, PPSSF will improve project performance, enhance the quality of investments, speed up disbursements, and ensure the realization of economic benefits.
A project design advance (PDA) from the Project Design Facility (PDF), available to a borrowing country supports project formulation encompassing detailed engineering design, feasibility studies and due diligence, safeguard and pre-implementation work including advance procurement actions of up to $5 million. However, the Government has no mechanism to fast track the processing of a PDA, which would then have to be processed as a loan. As such, the PPSSF intends to go beyond the PDF, with mobilization of the funding after only a one off approval by the EA, no funding restriction, and provide capacity building to the EA for the implementation of the PPSSF and to the IAs for project preparation and advance action, including recruitment of consultants, preparation of detailed engineering design and bidding documents.
By financing detailed engineering designs, bidding and other key project documents, PPSSF will accelerate and complete the project preparation in a way that a typical project preparation technical assistance (PPTA) grant would not be able to accommodate. In addition, the PPSSF could also be used as an alternative to a PPTA to finance the entire project preparation from feasibility study to bidding documents. The PPSSF is included in ADB's Country Partnership Strategy (CPS) 2012-2015. Lessons learned. In 2010, the World Bank (WB) developed the Project Preparation Technical Assistance Facility (PPTAF). The PPTAF supports World Bank-funded projects by preparing feasibility studies, detailed designs and bidding documents, and providing necessary resources to speed up project preparation. Several issues were encountered during its early stages of implementation, mostly delays caused by the complicated application process and lack of capacity in implementing agencies to prepare and process applications.