39595-013: Mong Duong 1 Thermal Power Project · 3. Project title Mong Duong 1 Thermal Power...

Completion Report

Project Number: 39595-013 Loan Numbers: 2353 and 2610 July 2018

Viet Nam: Mong Duong 1 Thermal Power Project

This document is being disclosed to the public in accordance with ADB’s Public Communications Policy 2011.

CURRENCY EQUIVALENTS

Currency unit – dong (D)

At Appraisal At Project Completion (24 July 2007) (31 December 2016)

D1.00 = $0.0000619770 $0.0000439194 $1.00 = D16,135 D22,769

ABBREVIATIONS

ADB – Asian Development Bank BOT – build-operate-transfer CFB – circulating fluidized bed DER – debt–equity ratio DMF – design and monitoring framework DSCR – debt-service coverage ratio EIA – environmental impact assessment EIRR – economic internal rate of return EMP – environment management plan EPC – engineering, procurement, and construction EVN – Vietnam Electricity FFA – framework financing agreement FIRR – financial rate of return FWSS – freshwater supply system GDP – gross domestic product ICB – International competitive bidding IDC – Interest during construction LIBOR – London Interbank Offered Rate MD1TPP – Mong Duong 1 Thermal Power Plant MD2TPP – Mong Duong 1 Thermal Power Plant MFF – multitranche financing facility MMMP – mangrove management and monitoring plan NCB – national competitive bidding OAI – Office of Anticorruption and Integrity OCR – ordinary capital resources PMU – project management unit QCBS – quality- and cost-based selection SFR – self-financing ratio SOE – state-owned enterprise TOR – terms of reference TPMB1 – Thermal Power Management Board No. 1 TPPMU1 – Thermal Power Project Management Unit 1 WACC – weighted average cost of capital

WEIGHTS AND MEASURES GWh – gigawatt-hour (1,000 kWh) ha – hectare (unit of area) km – kilometer (1,000 meters) kV – kilovolt (1,000 volts) kW – kilowatt (1,000 watts) kWh – kilowatt-hour (1,000 watt-hours) MW – megawatt (1,000 watts) TWh – terawatt-hour (1,000 gigawatt-hour)

NOTES

(i) The fiscal year (FY) of the Government of Viet Nam ends on 31 December. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2014 ends on 31 December 2014.

(ii) In this report, "$" refers to United States dollars.

Vice-President Stephen Groff, Operations 2 Director General Ramesh Subramaniam, Southeast Asia Department (SERD) Director Andrew Jeffries, Energy Division, SERD Team leader Aruna Wanniachchi, Senior Energy Specialist, SERD Team members Renalyn Padilla, Senior Operations Assistant, SERD Aloha Samoza, Senior Project Officer, SERD Indah Setyawati, Senior Safeguards Specialist (Resettlement), SERD Au Minh Tuan, Senior Project Officer (Energy), SERD Kyoko Uematsu, Safeguards Specialist, SERD

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page

BASIC DATA i

I. PROJECT DESCRIPTION 1

II. DESIGN AND IMPLEMENTATION 1

A. Project Design and Formulation 2 B. Project Outputs 3 C. Project Costs and Financing 4 D. Disbursements 5 E. Project Schedule 6 F. Implementation Arrangements 7 G. Technical Assistance 7 H. Consultant Recruitment and Procurement 8 I. Safeguards 9 J. Monitoring and Reporting 10

III. EVALUATION OF PERFORMANCE 12

A. Relevance 12 B. Effectiveness 12 C. Efficiency 13 D. Sustainability 13 E. Development Impact 14 F. Performance of the Borrower and the Executing Agency 16 G. Performance of Cofinanciers 16 H. Performance of the Asian Development Bank 16 I. Overall Assessment 16

IV. ISSUES, LESSONS, AND RECOMMENDATIONS 17

A. Issues and Lessons 17 B. Recommendations 17

APPENDIXES 1. Design and Monitoring Framework 19 2. Project Cost at Appraisal and Actual 22 3. Project Cost by Financier 23 4. Disbursement of ADB Loan Proceeds 27 5. Project Implementation Schedule (At Appraisal vs. Actual) 30 6. Chronology of Main Events 32 7. Contract Awards of ADB Loan Proceeds 34 8. Summary of Contracts Funded by the Asian Development Bank 36 9. Implementation of Environmental Safeguards 37 10. Implementation of Resettlement & Ethnic Minority Development Plan 42 11. Status of Compliance with Loan Covenants 47 12. Economic Analysis 59 13. Financial Evaluation 65 14. Summary Financial Statements – Generation Company 3 68

BASIC DATA A. Loan Identification 1. Country Viet Nam 2. Loan number and financing source 2353, 2610, Ordinary Capital Resources 3. Project title Mong Duong 1 Thermal Power Project 4. Borrower Socialist Republic of Viet Nam 5. Executing agency Viet Nam Electricity 6. Amount of loan 2353 – $27,860,000, 2610 – $902,850,000 7. Project completion report number 1681 8. Financing modality Multitranche financing facility

B. Loan Data 1. Appraisal – Date started – Date completed

23 August 2006 1 September 2006

2. Loan negotiations – L2353 – Date started – Date completed Loan negotiations – L2610 – Date started – Date completed

16 May 2007 17 May 2007 19 November 2009 20 November 2009

3. Date of Board approval – MFF – L2353 – L2610

21 September 2007 2 October 2007 21 December 2009

4. Date of loan agreement – Loan 2353 – Loan 2610

9 October 2007 9 November 2010

5. Date of loan effectiveness – L2353 – In loan agreement – Actual – Number of extensions Date of loan effectiveness – L2610 – In loan agreement – Actual – Number of extensions

7 January 2008 27 March 2008 2 7 February 2011 12 May 2011 3

6. Project completion date – L2353 – Appraisal – Actual Project completion date – L2610 – Appraisal – Actual

30 April 2012 30 April 2012 30 June 2014 31 December 2016

7. Loan closing date – L2353 – In loan agreement – Actual – Number of extensions Loan closing date – L2610 – In loan agreement – Actual – Number of extensions

30 June 2013 30 June 2013 0 31 December 2014 31 December 2016 1

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8. Financial closing date – L2353 – L2610

18 February 2014 9 June 2017

9. Terms of loan – Interest rate – Maturity (number of years) – Grace period (number of years)

LIBOR + 0.60% per annum 25 years 6 years

10. Terms of relending (if any) – Interest rate

LIBOR + 0.60% + 20% on-lending fee

– Maturity (number of years) 25 years – Grace period (number of years) – Second-step borrower

6 years Vietnam Electricity

11. Disbursements

a. Dates

L2353

Initial Disbursement 22 January 2009

Final Disbursement 1 July 2013

Time Interval 53.3 months

Effective Date 27 March 2008

Actual Closing Date 30 June 2013


L2610

Initial Disbursement 5 December 2011

Final Disbursement 15 May 2017

Time Interval 65 months

Effective Date 12 May 2011

Actual Closing Date 31 December 2016


b. Amount ($ million)

L2353

Category

Original Allocation

(1)

Increased during

Implementation (2)

Canceled during

Implementation (3)

Last Revised

Allocation (4=1+2–3)

Amount Disbursed

(5)

Undisbursed Balance (6 = 4–5)

Civil works 15.24 22.00 1.50 20.50 18.66 1.84 Consulting services 3.00 3.40 0.00 3.40 2.64 0.76 IDC and commitment charges

7.16 2.00 1.20 0.80 0.72 0.08

Unallocated 2.46 0.46 0.30 0.16 0.00 0.16 Total 27.86 27.86 3.00 24.86 22.02 2.84

L2610

Category

Original Allocation

(1)

Increased during

Implementation (2)

Canceled during

Implementation (3)

Last Revised

Allocation (4=1+2–3)

Amount Disbursed

(5)

Undisbursed Balance (6 = 4–5)

EPC package 764.33 835.57 835.57 827.90 7.67 Civil works 19.02 29.52 29.52 22.01 7.51 Consulting services 13.06 13.06 13.06 11.54 1.52 IDC and commitment charges

42.73 23.00 23.00 18.68 4.32

Unallocated 63.71 1.70 1.70 0.00 1.70 Total 902.85 902.85 0.00 24.86 880.13 22.72

EPC = engineering, procurement, and construction; IDC = interest during construction.

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C. Project Data

1. Project cost ($ million)

L2353

Cost Appraisal Estimate Actual

Foreign exchange cost 10.82 3.36 Local currency cost 33.19 36.62 Total 44.01 39.98

L2610


Foreign exchange cost 837.20 1,347.17 Local currency cost 306.20 185.44 Total 1,143.40 1,532.61

2. Financing Plan ($ million) L2353


Implementation cost Borrower financed 16.15 17.96 ADB financed 20.70 21.30 Total implementation cost 36.85 39.26

Interest during construction costs Borrower financed 0.00 0.00

ADB financed (includes commitment charges)

7.16 0.72

Total interest during construction cost 7.16 0.72

L2610


Implementation cost Borrower financed 240.53 163.43 ADB financed 860.12 861.45

Other external financing (The Export- Import Bank of Korea)

0.00 489.05

Total implementation cost 1,100.64 1,513.93

Interest during construction costs Borrower financed 0.00 0.00 ADB financed (includes commitment charges) 42.73 18.68 Other external financing 0.00 0.00 Total interest during construction 42.73 18.68

ADB = Asian Development Bank.

3. Cost breakdown by project component ($ million)

L2353

Component Appraisal Estimate Actual Civil works 16.28 20.38 Field surveys and bidding documents 2.55 0.40 Land acquisition and resettlement 2.50 7.95 Project implementation consultant 3.00 2.64 Social and environmental monitoring 0.31 0.02 Project management 5.82 5.95 Taxes and duties 1.83 1.92 Subtotal 32.30 39.26 Physical contingencies 3.42 0.00 Price contingencies 1.13 0.00 IDC and commitment charges 7.16 0.72 Total 44.01 39.98

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L2610

Component Appraisal Estimate Actual

Engineering, procurement, and construction contract 884.03 1,316.95 Civil works 23.14 22.01 Compensation and resettlement costs 7.15 4.92 Project management cost 9.45 1.51 Consulting services 13.06 11.54 Taxes and duties 30.57 157.00 Subtotal 967.40 1,513.93 Physical contingencies 77.39 0.00 Price contingencies 55.86 0.00 IDC and commitment charges 42.78 18.68 Total 1,143.38 1,532.61

IDC = interest during construction.

4. Project schedule

L2353

Item Appraisal Estimate Actual

Consultant recruitment (stage 1) Aug 2006–Jun 2007 Aug 2006–Dec 2008 Design, bid preparation, and tendering Apr 2007–Dec 2008 Apr 2007–Sep 2010 Resettlement plan and EMP implementation Oct 2007–Dec 2009 Jan 2009–Apr 2012 Consulting services implementation (stage 1) Jun 2007–Sep 2008 Dec 2008–Jul 2012 Civil works Dec 2008–Dec 2009 Nov 2008–Apr 2012 Site leveling and construction of diversion channel Nov 2008–Apr 2012 35 kV power system for construction Feb 2009–Apr 2012 Construction of site offices for PMU and consultants Apr 2009–Oct 2010 Construction of access road to highway No. 18 Sep 2010–Oct 2011

EMP = environmental management plan, kV = kilovolt, PMU = project management unit.

L2610


Engineering, procurement, and construction package Jul 2009–Dec 2014 Nov 2009–Dec 2015 Consulting services (stage 2) Oct 2009–Dec 2014 Mar 2010–Dec 2016 Civil works Freshwater supply system Apr 2010–Apr 2013 Jul 2011–Nov 2014 Cooling water discharge canal Apr 2010–Mar 2013 Oct 2011–Jul 2014 Ash pond No. 1 Sep 2010–May 2013 Oct 2012–Dec 2014 Fence between two plants Nov 2012–Dec 2013 Jul 2014–Aug 2015

5. Project performance report ratings

L2353

Implementation Period

Ratings

Development Objectives Implementation Progress

From 31 October 2007 to 31 May 2008 Satisfactory Satisfactory From 30 June 2008 to 31 December 2010 Satisfactory Highly Satisfactory

Single Project Rating

From 31 January 2011 to 30 June 2013 On Track

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L2610

Implementation Period

Ratings

Development Objectives Implementation Progress

From 31 December 2009 to 31 May 2010 Satisfactory Satisfactory From 30 June 2010 to 31 December 2010 Satisfactory Unsatisfactory

Single Project Rating

From 31 January 2011 to 30 June 2011 On Track From 31 July 2011 to 30 September 2011 Potential Problem From 31 October 2011 to 31 December 2012 On Track From 31 January 2013 to 31 March 2013 Potential Problem From 30 April 2013 to 30 June 2017 On Track

D. Data on Asian Development Bank Missions

Name of Mission

Date

No. of Persons

No. of Person-

Days Specialization of Members

Fact-finding mission 21 Jun–3 Jul 2006 4 52 a, b, i, j Appraisal mission 22 Aug–1 Sep 2006 5 55 a, b, f, g, h Inception mission 21–28 Nov 2007 3 24 a, h, i Loan review mission 1 7–11 Jul 2008 3 15 a, b, f Loan review mission 2 2–6 Mar 2009 5 25 a, c, i, k, l Loan review mission 3 11–15 May 2009 4 20 a, c, f, h Special project administration mission 1 22–26 Jun 2009 1 5 c Loan review mission 4 21–30 Jun 2010 2 20 a, h Loan review mission 5 17–24 Oct 2011 4 32 a, b, d, h Special project administration mission 2 1–3 Nov 2011 3 9 a, b, d Special project administration mission 3 2–8 May 2012 4 28 a, d, h, l Loan review mission 6 3–7 Jun 2013 4 20 a, d, h, l Special project administration mission 4 10–12 Jul 2013 3 9 c, k, l Special project administration mission 5 14–20 Nov 2013 3 21 c, k, l Loan review mission 7 26–27 May 2014 4 9 a, c, h, k Midterm project review mission 10–13 Nov 2014 4 12 a, c, h Project completion review mission (L2353) and loan review mission 8

17–20 Apr 2015 4 16 a, c, d, h

Loan review mission 9 10–12 Nov 2015 5 15 a, c, d, h, l Loan review mission 10 29 Mar–1 Apr 2016 4 16 a, d, h, l Loan review mission 11 4–7 Oct 2016 4 12 a, d, h, l Loan review mission 12 7 Apr 2017 1 1 a Project completion review mission (L2610) 12–19 Sep 2017 5 35 a, c, d, h, l Environmental review mission 14–15 Dec 2017 2 4 d, k Environmental review mission 28–30 Mar 2018 3 6 d, k

a = mission leader/energy specialist, b = energy economist, c = resettlement/social specialist, d = environment specialist, f = financial specialist, g = counsel, h = project analyst or project officer, i = resettlement consultant, j = power systems specialist/energy consultant, k = environment consultant, l = VRM national staff.

I. PROJECT DESCRIPTION 1. On 21 September 2007, the Asian Development Bank (ADB) approved a multitranche financing facility (MFF) comprising two loans in an aggregate principal amount of $930.71 million.1 The project supported Vietnam Electricity (EVN) in the construction of the 1,000 megawatt (MW) Mong Duong 1 Thermal Power Plant (MD1TPP), the first phase of a power complex of two coal-fired power plants with total installed capacity between 2,000 and 2,200 MW. The intended impacts of the project were an adequate and reliable supply of power to meet national electricity demand in an environmentally sustainable manner, and a diversified fuel mix in power generation. The project outcome was that households and industries in northern Viet Nam have access to reliable and stable electricity supply. The main project outputs were (i) a 1,000 MW coal-fired thermal power generating station that uses circulating fluidized bed (CFB) boiler technology—a “cleaner coal” technology, and (ii) common facilities for both the MD1TPP and the 1000–1,200 MW Mong Duong 2 thermal power plant (MD2TPP), the second plant in the complex, developed under a build-operate-transfer arrangement by a private investor. The project scope also included institutional and technical capacity building, particularly in CFB boiler technology and power plant operation. 2. At the time of project formulation in 2006, Viet Nam’s gross domestic product (GDP) had grown at an average of 7.5% per annum over 1996–2006 and achieved 8.2% growth in 2006. The government was determined to maintain high economic growth of 8.0%–8.5% in the 5-year socioeconomic development plan (2006–2010) so as to reduce poverty to 11%–15% by 2010. To sustain this economic growth, a reliable power supply is essential; thus, the updated sixth Power Development Plan 2006–2015 (PDP VI), with an outlook until 2025, forecast 16% annual growth in demand from 2006 to 2011 and 11% growth from 2011 to 2015. The high growth rate in electricity demand coupled with the country’s disproportionate dependency on hydropower at the time left Viet Nam with dangerously low reserves during the annual dry seasons, when hydropower outputs fall to about 40–50% of installed capacity. The reliability of supply was thus poor during the dry season. Without significant increases in thermal plant generation capacity, the continuing demand for electricity was expected to reduce the reserve capacity to zero by 2010. To address system imbalances and seasonal power generation shortages, EVN therefore planned to develop thermal power plants rapidly. 3. The project was included in the PDP VI prepared on the basis of least-cost power generation planning. The government had identified the Mong Duong power complex as a priority power generation project for meeting the country’s rapidly growing demand. Thus, the project was formulated to support the government by directly financing one power plant and to facilitate private sector investment for the second power plant in the same complex.

II. DESIGN AND IMPLEMENTATION

4. The project achieved the originally envisaged output targets following the sound project design described in the Report and Recommendation of the President to the Board of Directors (footnote 1). 2 Due diligence was properly implemented. The design was relevant at the appraisal and remained so at completion. The design and monitoring framework (DMF) was not changed,

1 2007. Report and Recommendation of the President to the Board of Directors: Proposed Multitranche Financing

Facility to the Socialist Republic of Viet Nam for Mong Duong 1 Thermal Power Project. Manila. 2 Since the multitranche financing facility (MFF) was used to finance a single time-sliced project, the terms “MFF”, and

“the project” were used interchangeably. Discussions on each of the two tranches under this MFF are specifically referred to as “tranche 1” and “tranche 2”.

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and there were no major changes in the project scope during project implementation. Appendix 1 compares the DMF prepared at appraisal in 2006 with project achievements at the completion of the power plant in December 2015.

A. Project Design and Formulation 5. Relevance of the project. ADB’s Viet Nam country strategy and program for 2007–2010 recognized the remarkable poverty reduction that the government had achieved by 2006 and focused on improving the efficiency of Viet Nam’s investments to sustain economic growth and further reduce poverty. To this end, ADB’s strategy was to help the government respond to the rapidly growing demand for new infrastructure and to promote private sector investment. 6. Annual GDP growth during 2006–2010 was robust at 6.3%, albeit lower than the 7.5% annual growth in the decade prior to 2006. Similarly, annual growth in electricity demand during 2006–2011, although lower than the projected 16%, was very strong at 12.8%. From 2011 to 2015 it remained at about 11%. The forecast growth in both GDP and demand for power for 2006–2011 were affected by the 2007 Asian financial crisis. Even though the economic slowdown resulted in lower electricity demand as businesses shut down and manufacturing slowed, growth in demand was still in double digits, unlike in the rest of the Southeast Asian countries. The project contributed to meeting increased demand to provide adequate power supply, a key requirement for socioeconomic growth. Therefore, the project remains relevant to attaining the objectives of the government’s socioeconomic development plan and ADB’s country strategy and program.

7. Also notable is that the privately funded MD2TPP added 1,240 MW to the grid (the first unit was commissioned in June 2014, the second in May 2015). The MD2TPP was one of the first few thermal power plants successfully developed by foreign investors in Viet Nam under a build-operate-transfer arrangement. Therefore, the project is also assessed as relevant for facilitating foreign investment in the power generation subsector.

8. Project preparation. The project was formulated by EVN and supported by a consultancy firm engaged by ADB to conduct feasibility studies and a firm engaged under the loan to update the power plant design and finalize the engineering, procurement, and construction (EPC) contract. The project also used clean, proven CFB technology which efficiently uses poor-quality and waste coal from mines near the project site. Stakeholder participation and consultation was satisfactorily undertaken during project preparation. Due diligence and environmental and social assessments, and preparation of impact mitigation plans were satisfactory.

9. Coal-based generation. Under the PDP VI, coal-fired power plants are to provide essential base-load power generation to ensure the security of the electricity supply. The government had made a policy decision to use domestic and imported coal. Coal’s share in the country’s generation mix was expected to more than double, from 16% in 2006 to 34% in 2020, while hydropower’s share would fall gradually, from 37% in 2006 to 27% in 2020, while remaining the second largest component in the generation mix in terms of capacity. The project is in Quang Ninh Province of northern Viet Nam, where coal is abundant— accounting for 90% of the country’s reserves. Viet Nam is a signatory to the Kyoto Protocol, though it was not required to reduce carbon emissions under the agreement, which lasted until 2012.

10. The 2005 United Nations Framework Convention on Climate Change shows that Viet Nam emits 0.3 tons of carbon dioxide (CO2) per capita, compared with 6.3 tons per capita by Japan, 8.8 tons per capita by the United Kingdom, and 20.6 tons per capita by the United States. As Viet Nam’s economy was rapidly developing, its consumption of energy was also expected to increase

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to sustain economic growth and reduce poverty to 15% (footnote 1). The government was aware that the country’s CO2 emissions would increase and therefore chose the use of cleaner technologies such as CFB to minimize those emissions. 11. Financing modality. An MFF with two loans was the preferred financing modality for the project for three reasons: (i) during the first 2 years of project implementation only about $27.86 million of the estimated $1 billion project cost was required for preliminary works (the estimated duration of site clearing and leveling and river diversion works was 20 months); (ii) sufficient time was needed to design, bid, negotiate, and award the main EPC contract to construct the power plant under international competitive bidding (ICB) following ADB’s Procurement Guidelines (2007, as amended from time to time); and (iii) to attract interest from reputable contractors, financing for the EPC contract had to be firmly in place prior to bidding. Given the uncertain timing in the procurement and negotiation of such large contracts, the government prudently opted to defer the second, larger loan to avoid paying commitment fees over a long period. Hence, the second loan was scheduled for when the EPC contract was substantially ready for award. 12. EVN is the executing agency, and Thermal Power Management Board 1 (TPMB1) under EVN—originally named Thermal Power Project Management Unit 1—is the implementing agency. EVN and TPMB1 have shown strong ownership of the very large and complex project and consistency in progressing with project implementation.

B. Project Outputs 13. The project outputs are a 1,000 MW CFB technology coal-fired power plant and common facilities for shared use by the MD2TPP. The outputs were successfully achieved. The peak generation capacity of the MD1TPP is 1,080 MW, owing to the use of more efficient boilers by the EPC contractor. All the common facilities (the freshwater supply system [FWSS], the cooling-water discharge canal, and the access roads) and ash pond were constructed satisfactorily and are performing satisfactorily. EVN constructed a 500 kV transmission line in parallel to the project for evacuation of power from both power plants. Between its commissioning in 2015 and December 2017, the plant generated 9,500 GWh of electricity. 14. The institutional and technical capacity building was provided efficiently. It was included

in the scope of the stage 1 and stage 2 consultancy services and in the EPC contract. Throughout the project implementation, capacity building for TPMB1 staff was carried out by providing training sessions and hands-on training, starting from the preparation of the basic technical design and specifications with the stage 1 consultant, and the technical design review and approval with the stage 2 consultant, and continuing with plant operation during the commissioning stage with the EPC contractor. TPMB1 technical staff were qualified technically prior to the start of commercial operations and took over operations, with continued technical support from the EPC contractor, during the 2-year warranty period. 15. Tranche 1. Outputs were (i) preconstruction works and (ii) consulting services, referred to as “stage 1” consultants. The scope of the preconstruction works included (i) site clearing and leveling for the power complex; (ii) the Mong Duong river diversion channel; (iii) access roads, including a road connecting the power complex to Highway 18; (iv) provision of power supply through a 35 kV transmission line to the construction site; (v) provision of water supply; and (vi) a site office and quarters for the project management unit (PMU) and consultants. Stage 1 consulting services included (i) updating the technical designs and drawings, (ii) assisting EVN in procuring the EPC package, (iii) supervising the tranche 1 civil works contracts, and (iv) updating

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the environmental management plan (EMP) and resettlement plan, and supervising their implementation. The outputs were achieved satisfactorily and there were no scope changes.

16. Tranche 2. Outputs were (i) the 1,000 MW CFB technology coal-fired thermal power plant (output 1); and (ii) common facilities for the two power plants (output 2). The scope of output 1 included the EPC package and stage 2 consulting services. Stage 2 consulting services included overall project management, supervision of the EPC and other civil contracts for the common facilities and monitoring of implementation of EMP and the resettlement plan. The scope of output 2 included (i) the FWSS, (ii) the cooling-water discharge canal, (iii) the ash pond,3 and (iv) the perimeter fence between the two plants. There were no major changes in the scope of tranche 2, although the implementation schedule slipped by 2 years as a result of the procurement delays in the EPC package.

C. Project Costs and Financing

1. Project costs

17. The actual project cost is $1,572.59 million, which is $472.99 million higher than the $1,099.60 million estimated at project appraisal. The cost overruns occurred mainly in tranche 2, due to high price escalations in the EPC contract. EVN sourced financing for the gap from the Export-Import Bank of Korea, which offered a $510 million loan. 18. Tranche 1. The actual project cost of tranche 1 is $39.98 million, which is $4.03 million less than the $44.01 million estimated at appraisal. This difference arises mainly from the decrease in the interest during construction (IDC) owing to the lower than projected London Interbank Offered Rate (LIBOR) during project implementation. The actual project implementation cost, excluding IDC and commitment charges was $39.26 million, $2.41 million higher than the $36.85 million estimated at appraisal. This increase is due to (i) the larger quantity of work in the site leveling and river diversion contract, particularly additional slope protection works and more rock excavations required at the project site; and (ii) greater land acquisition and resettlement costs ($7.95 million versus the $2.50 million at project appraisal). 19. Tranche 2. The estimated cost of tranche 2 was $1,055.59 million at MFF approval and $1,143.38 million at appraisal. The actual cost was $1,532.61 million, which is $477.02 million higher than the estimate at appraisal. The estimated cost of the EPC contract at appraisal was $884.03 million; the actual cost was $1,316.95 million—a $432.92 million difference. The cost overruns were caused by high price escalations during the 3 years of the EPC procurement process, risk premiums included in the price owing to the complexity of the package and the 2-year warranty requirement, and the quality of equipment offered by the reputed companies selected based on pre-qualification and ICB two-stage, two-envelope method. There was about $44.10 million in cost overruns for other civil works components, most of it caused by variations in work quantities and scope, changes that were anticipated for this kind of project at appraisal.4 Appendix 2 compares the detailed project costs by component at project appraisal and completion.

3 Initial plan was to construct a common ash pond for both plants in the power complex on cost sharing basis, however

EVN later opted to separate the ash ponds due to the different compositions of the ash discharged by the two power plants. Land acquisition and site leveling for Mong Duong 2 thermal power plant was implemented under the project but constructed separately. The two ash ponds are built in the same location separated by an embankment in the middle.

4 Cost overrun of ash pond was due to the variation in work quantities and change in scope to build an embankment to split the pond between the two power plants.

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2. Project financing 20. The financing plan for the original estimate of $1,099.60 million for the MFF consisted of (i) a $930.71 million (85%) ADB loan and (ii) $168.89 million (15%) counterpart financing. The actual financing of $1,572.59 million consisted of $912.15 million (57%) from ADB, $489.05 million (31%) from the Export-Import Bank of Korea, and $181.39 million (12%) counterpart financing. The original financing plan and actual allocation by financier at completion is in Appendix 3. 21. Tranche 1. The original estimated cost of $44.01 million for tranche 1 consisted of (i) a $27.86 million (63.3%) first loan from ADB for site preparation works and consulting services, contingencies, IDC and commitment charges; and (ii) counterpart financing in local currency equivalent to $16.15 million (36.7%) for project management, preparation of technical design and bid documents, payment of taxes and duties, implementation of the resettlement and environmental plans, and conduct of hydrological surveys. The actual financing plan did not deviate from the original, but loan proceeds were reallocated from unallocated and IDC and commitment charges cost categories to civil works and consulting services, to cover adjustments in costs related to contract variations. The actual ADB financing was $22.02 million, against the approved $27.86 million loan, and counterpart financing was $17.96 million. Unutilized loan proceeds of $3 million were partially canceled on 16 May 2013, and the remaining $2.84 million was canceled at the financial closure of the loan account on 18 February 2014. There was no material change in the financing between appraisal and completion. 22. Tranche 2. The original estimated cost of tranche 2 was $1,055.59 million at MFF approval in 2007. It consisted of (i) $902.85 million (85.5%) from ADB for the EPC package, stage 2 consulting services, the common facilities, contingencies, and IDC and commitment charges; and (ii) EVN counterpart funding in local currency equivalent of $152.74 million (14.5%) for resettlement and compensation, project management costs, taxes and duties, and a significant portion of the physical and price contingencies. The total cost of tranche 2 was updated to $1,143.38 million in January 2008 to reflect price escalations and exchange rate fluctuations between January 2008 and October 2009. The financing plan was revised to (i) $902.85 million in an ADB loan (79.0%) and (ii) EVN counterpart funding equivalent to $240.52 million (21%). It was updated again in December 2011, taking into consideration (i) the increased EPC contract price of $1,274.57 million (net of taxes and duties), (ii) $510 million parallel financing from the Export-Import Bank of Korea for the EPC package, (iii) financing charges borne by EVN for the Export-Import Bank of Korea loan, and (iv) reallocation of loan proceeds between cost categories. The total cost was re-estimated at $1,734.31 million. The revised financing plan was $902.85 million (52.1%) in an ADB loan, the Export-Import Bank of Korea loan of $510 million (29.4%), and EVN counterpart funding of $321.46 million (18.5%).

23. The actual financing for tranche 2 was $880.13 million (57.4%) from ADB, $489.05 million (31.9%) from the Export-Import Bank of Korea, and counterpart financing of $163.43 million (10.7%). The Export-Import Bank of Korea closed the loan on 15 February 2016. The remaining undisbursed ADB loan proceeds of $22.72 million were canceled at the financial closing of the loan account on 9 June 2017. The savings were largely due to the decrease in IDC caused by lower LIBOR rates during project implementation. Counterpart funds were provided in a timely manner, ensuring smooth project implementation.

D. Disbursements

24. The loans were disbursed in accordance with ADB’s Loan Disbursement Handbook (2007 as amended from time to time). Actual disbursements under tranche 1 during the first 3 years

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were slightly lower than projected at appraisal because of initial delays in project implementation. Disbursements were generally consistent with projections but lower in amounts because of the decrease in IDC and the partial cancellation of the loan proceeds. Disbursements under tranche 2 were generally consistent with the projections but took longer than anticipated because of the 2-year extension of the loan and the delays in resolving the commercial issues under the EPC package. Disbursements were completed for tranche 1 in July 2013 and for tranche 2 in May 2017. Appendix 4 shows the projected versus actual disbursements.

E. Project Schedule 25. The planned implementation period at MFF appraisal was 6 years, and was scheduled to be completed by June 2013. At the time of MFF approval in September 2007, the project had been appraised fully, and the advance actions for consultant recruitment and procurement of civil work packages for tranche 1 was underway and it was to be implemented within 2 years, from June 2007 to June 2009, to accord with the anticipated contract award for the EPC package in July 2009. 5 However, it took almost 4 years to complete for two reasons: (i) the stage 1 consulting services were engaged 11 months after the loan effectiveness date, and (ii) implementation of the civil works for site preparation took 42 months as a result of additional works, design changes, and difficulty in excavation under the site leveling and river diversion contract caused by larger than expected rock quantities—not uncommon in this kind of projects. At MFF approval, tranche 2 was expected to be implemented from July 2009 to June 2013. At tranche 2 approval in December 2009 this was revised, with a utilization period of 5 years to loan closing at 31 December 2014. During implementation, the tranche 2 loan closing date was extended by 2 years until 31 December 2016, owing to (i) the delayed award of the EPC contract on 15 September 2011. A comparison of the projected and actual implementation schedules appears in Appendix 5. 26. All the expected outputs under tranche 1 were satisfactorily completed in April 2012, in time for the handover of the site to the contractors for both power plants. The 2-year delay in the completion of the civil works under tranche 1 did not cause a significant impact in the implementation of tranche 2 as the procurement of the EPC contract was delayed by 3 years. Tranche 1 was financially closed on 18 February 2014, about 8 months after the loan closing date. The financial closing was delayed by late confirmation of loan closure from the borrower and EVN. 27. The packages for the FWSS and cooling water discharge canal under tranche 2 were initially tendered in July 2011 and October 2011. The FWSS package was rebid in February 2012, after ADB rejected the bidding results due to conflict of interest between the two recommended bidders and contract was awarded in July 2012. The cooling water discharge cannel package was rebid in April 2012 after TPMB1 rejected all received bids for not meeting the technical and bid security requirements and contract was awarded in October 2012. All tranche 2 components were substantially completed in December 2015 before the extended loan closing date of 31 December 2016. Thus, the actual delay of the project is 2.5 years. There were no changes under either tranche other than this delay. 28. The EPC package had a 2-year warranty period, until December 2017. The MD1TPP has two units. The provisional acceptance certificates were issued on 10 October 2015 for unit 1 and on 3 December 2015 for unit 2. All eligible costs were financed out of the ADB loan proceeds as

5 Loan effectiveness was delayed by 5.4 months for tranche 1 and 6 months for tranche 2 because of the delay in the

execution of the subsidiary loan agreement between Vietnam Electricity and the government. This did not have any impact on project implementation since the project was mostly ready by loan approval. Readiness include completion of original environmental impact assessment and resettlement plan as early as 2006, and consultants recruitment and procurement commenced in 2006.

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designed and the loan account was closed on 9 June 2017, almost 6 months after the loan closing date. The major events in project processing and implementation are presented chronologically in Appendix 6.

F. Implementation Arrangements

29. There were no changes in the project’s implementation arrangements. The executing agency (EVN) and the implementing agency (TPMB1) delivered the outputs required and achieved the outcomes specified under the MFF. As the project is one of the largest undertaken by TPMB1, it had established and staffed the PMU based in Ha Noi as early as May 2006. TPMB1 senior and technical staff and the consultants moved to the project site after the completion of the site offices in October 2010 to closely supervise project implementation and commissioning works, and most of the PMU staff moved to the project site offices at the commencement of works under the EPC package. 30. TPMB1 encountered difficulties in the initial stages of the project because of the delay in the recruitment of the consultant for the stage 1 consulting services. It also took some time for TPMB1 to become familiar with ADB’s procurement procedures and reporting requirements. ADB engaged an international procurement specialist to assist TPMB1 in procurement-related matters until stage 1 consultants were engaged. TPMB1 was also assisted by the stage 2 consultant during the implementation of tranche 2. With these measures, the project was managed satisfactorily.

31. TPMB1 started to operate under EVN’s Generation Company 3 (GENCO3) in 2013, when three generation companies (GENCO1, GENCO2, and GENCO3) were established. EVN and TPMB1 remained the project executing and implementation agencies, and there were no material changes to the original implementation arrangements. During the project completion review mission in September 2017, EVN indicated that it had a plan for a gradual equitization and divestment of its three generation companies starting in 2018.6 In March 2018 GENCO3 was equitized. It is an autonomous legal entity, responsible for its financial sustainability. Its revenues, expenses, assets, liabilities, and equity are accounted separately from those of EVN, and it produces audited financial statements. The government plans to divest its stake in GENCO3. The details of the sale and required debt restructuring have not been decided. According to the loan agreement, EVN will need ADB’s approval to divest its stake.

G. Technical Assistance 32. ADB provided small-scale advisory technical assistance (TA) for $150,000 on 17 October 2005 to assist EVN in preparing the project.7 Following TA approval, the government requested to support the common facilities for the MD2TPP. A major change in scope and an additional $400,000 was approved on 1 December 2005. The TA was implemented by a team of individual consultants from November 2005 to May 2006. The TA delivered the following: (i) confirmation that the project was part of EVN’s least-cost generation development plan; (ii) determination of the general approach to developing the project with public and private sector components; (iii) confirmation that CFB technology was the most appropriate coal-burning technology for the

6 Equitization in Viet Nam means turning a state-owned enterprise ownership into a joint stock company and selling

some shares (up to 49%) to either local or foreign private investors. The majority share ownership by the state does not necessarily change.

7 ADB. 2005. Small-scale Technical Assistance to the Socialist Republic of Viet Nam for the Mong Duong Thermal Power Generation Project. Manila (TA 4670).

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project; (iv) recommendation of an MFF as the lending modality; and (v) preparation of the terms of reference (TOR) for consultants to support EVN in the detailed design, procurement, and supervision of construction of the project and in capacity building, particularly in CFB boiler technology and power plant operation. The TA also supported preparation of ADB loan processing documents. 33. The TA contributed directly to the successful achievement of the MFF performance targets by identifying and confirming the appropriateness of the project design, implementation arrangements, and financing scheme during project preparation, and providing interim technical support during the transition prior to project commencement.

H. Consultant Recruitment and Procurement 34. With the approval in August 2006 of advance action for the recruitment of the stage 1 consultants, TPMB1 began to recruit. However, recruitment was delayed by two failed bidding attempts. The main issues were inadequate TOR and a low cost estimate for the consultancy package. With the support of a consultant engaged by ADB, the TOR were enhanced, and the budget was increased to attract proposals from the shortlisted firms. The consulting services contract was awarded after the third bidding in December 2008. There were no issues in the recruitment of the stage 2 consultancy services. 35. The procurement of the EPC contract was challenging because of the size and complexity of this package. It took about 3 years from prequalification in august 2008 to contract award mainly because it used the two-stage, two-envelope procurement method, which took additional time. The EPC contract was awarded to Hyundai Engineering & Construction Company of Korea, which has good global experience. Commercial issues that arose between EVN and the EPC contractor included (i) payments by EVN to the contractor due to price escalations; (ii) payment by the contractor to EVN of the increase in the cost of commissioning fuels (under the contract, commissioning fuel was to be provided by the contractor); and (iii) liquidated damages paid by the contractor to EVN because of the delayed implementation of the contract. After lengthy negotiations between EVN and TPMB1 and the contractor, the issues were resolved amicably. The works were delivered in accordance with the approved design. However, during the final acceptance tests for the EPC package conducted within the 2-year warranty period, corrosions in some parts in the unit 2 turbine were identified. This needs replacement of hot isostatic pressing bladed rotor and high pressure lower diaphragm of the unit 2 turbine. This has no immediate impact and unit 2 is in operation, however unit 2 turbine will not be able to operate guaranteed life time. Therefore, EVN has signed an agreement with the contractor to replace above spare parts by July 2019 for which contractor has placed the order from the original manufacturer. The final acceptance certificate for unit 1 has been issued. Due to the pending repairs for unit 2, a bank guarantee is being processed for issuing the final acceptance certificate by July 2018. 36. TPMB1 adhered to ADB’s Procurement Guidelines (2007, as amended from time to time). There were no deviations from the procurement methods except for the FWSS and cooling water discharge cannel contract packages resulted in rebidding (paragraph 27). Initial procurement plan was to procure the two contacts under ICB using single stage, two-envelope bidding procedure, however, both packages were retendered using single stage, one envelope bidding procedure to catch up with the project schedule to ensure that these facilities will be completed for commissioning of the two power plants. 37. Actual contract awards under tranche 1 were higher than the projected contract awards at appraisal due to contract variations based on actual works quantities, yet were generally

9

consistent with the projections. Actual contract awards under tranche 2 are significantly higher than the projections, which was primarily due to the high contract amount for the EPC Package and increases in other civil work contracts due to contract variations based on actual works quantities and price escalations. 38. The performance of the consultants and contractors was generally satisfactory. Appendix 7 compares projected and actual contract awards. A summary of the contracts funded by ADB is in Appendix 8. There were no integrity issues other than that the ADB Viet Nam Resident Mission received an anonymous complaint concerning the bidding for the EPC contract. It is alleged that the contractor won the EPC contract by paying bribes to government officials. This was referred to the ADB Office of Anticorruption and Integrity (OAI). The OAI examined the case and advised that there was insufficient basis to support the complainant's claim. Moreover, the procurement process surrounding the decision to award the contract to the winning bidder was sound. Therefore, the OAI decided to close the case.

I. Safeguards 39. Environment Safeguards. As the project is category A for environment under ADB’s Environmental Assessment Guidelines (2003), a comprehensive environmental impact assessment (EIA) was prepared, covering both the MD1TPP and the MD2TPP, as they would share common facilities. TPMB1 implemented the EMP through contractors during the construction phase and conducted monitoring with the support of loan consultants. Before any commencement of works, TPMB1 obtained all required environmental and forest approvals at national, provincial, and commune levels, including an unexploded ordinance clearance certificate from the military. Impacts on surface water and groundwater quality, fisheries, and air pollution were discussed in regular monitoring reports. Mitigation measures were implemented for dust reduction, noise abatement, sewage treatment, and waste management during construction. Mitigation measures also included planting 52 ha of mangrove to offset identified biodiversity losses caused by the project; this plantation was successfully implemented, with sustainable mechanisms in place for its conservation. 40. Starting in 2009, regular environmental monitoring reports were submitted until the end of 2017, about 2 years after the MD1TPP began commercial operation. The reports before the loan closing were prepared with the support of the stage 1 and stage 2 consultants; during the operational phase, TPMB1 prepared monitoring reports without the consultant’s support. The monitoring of air, soil and water quality did not take place until 2012, because the engagement of a third-party monitoring agency was delayed. Since 2012, a monitoring agency engaged by TPMB1 conducted monitoring of air, soil and water quality. No complaints were received regarding environmental impacts from the activities carried out under the project. There was no change to the EMP that was prepared in 2006. Overall, the EMP implementation was satisfactory. The analysis of the implementation of the EMP is in Appendix 9. 41. Social Safeguards. The categorization of the involuntary resettlement impacts is “B” for tranche 1 and “A” for tranche 2. A total of 349 households (1316 people) were affected; 56 households had to be relocated and 156 were severely affected. The categorization of impacts on indigenous people is “B” for impacts due to power plant, ash pond and cooling water discharge cannel and “A” for impacts FWSS. The project activities for the FWSS affected households from two ethnic minority groups (the Dao and the Tay). A resettlement plan for the power plant, ash pond and cooling water discharge cannel was prepared in September 2006 on the basis of the preliminary design and updated in December 2008 and in July 2009. A resettlement and ethnic minority development plan (REMDP) for the FWSS were prepared and disclosed in October 2012.

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REMDP was necessary due to all the affected people due to FWSS were ethnic minority. Both the resettlement plan and REMDP were prepared and updated in accordance with ADB’s Involuntary Resettlement Policy (1995) and Safeguard Policy Statement (2009) and government regulations in close consultation with the affected households. 42. The resettlement plan and REMDP were implemented and monitored satisfactorily; there are no pending issues. Compensation payments and support allowances following the provisions of the updated resettlement plan for main plant area, ash pond and water discharge cannel was started in 2008 and substantially completed by end of 2009 except some support allowances under income restoration program which were completed in 2013. 8 Compensation due to FWSS was completed in 2014.9 TPMB1 coordinated closely with the district compensation committee and resettlement board of Cam Pha city in the preparation and implementation of resettlement.

Compensation rates were adjusted in the updated resettlement plan to reflect current rates. Affected people were not displaced before receiving compensation and support, and construction activities started after land was handed over by affected people. Grievances were received and resolved through the grievance redress mechanism established for the project. Most grievances involve discrepancies in measurements, disputes between claimants, and absence of records. These were typically resolved in a few weeks, except for one case involving an unused structure on the access road to the project staff housing complex, which was resolved later. 43. Arrangements were made to provide training courses to help affected people improve the productivity of their remaining land, find new jobs, start other income generating activities, and diversify their income sources. Internal and external resettlement monitoring conducted throughout the project implementation followed up on the conditions of the affected households. Issues that emerged during construction were addressed. Regular safeguards supervision missions were also conducted. Social safeguard monitoring reports were submitted regularly and disclosed. The external monitoring agency submitted its final monitoring and evaluation report and disclosed it on the ADB website in December 2017. The detailed analysis of the implementation of the resettlement plan and REMDP is in Appendix 10.

J. Monitoring and Reporting 44. Appendix 11 shows the status of compliance with the loan covenants. EVN has complied with the loan covenants, except for the financial ratios and reporting covenant in the loan agreements of tranche 1 and tranche 2, with which it has partially complied. Part of the covenant that EVN could not maintain is the three financial ratios and internal audit function. For the financial ratios it was required that EVN maintains (i) a self-financing ratio (SFR) of 25% or above, (ii) debt–service coverage ratio (DSCR) of 1.5 or above, and (iii) a long-term debt–equity ratio (DER) of 70:30 or less. EVN complied at the time of project approval. During implementation, EVN complied with the SFR only in 2012, was in breach of the DSCR throughout 2009–2015, and complied with the DER from 2012 to 2015 and was in breach in 2010 and 2011 (Table 1).

8 Government of Viet Nam, Vietnam Electricity. 2009. Mong Duong 1 Thermal Power Plant Project: Fourth Independent

Monitoring Report. Ha Noi. 9 Government of Viet Nam, Vietnam Electricity. 2015. Mong Duong 1 Thermal Power Project - Tranche 2: Quarterly

Resettlement Monitoring Report (January-March 2015). Ha Noi.

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Table 1. Financial Ratios of Viet Nam Electricity, 2006–2015 Ratio Covenant 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

DER < 70:30 (2.33) 1.33 1.44 1.17 2.57 3.17 4.57 1.78 1.83 1.90 1.80 DSCR > 1.5% 2.77 2.63 1.37 1.24 0.59 0.70 1.27 1.12 1.14 1.03 SFR > 25% 34.40 43.60 15.55 23.60 3.22 (24.53) 29.00 (4.85) 15.0 24.15

( ) = negative, DER = debt–equity ratio, DSCR = debt–service coverage ratio, SFR = self-financing ratio. Source: EVN’s audited financial reports.

45. National and sectoral issues were the reasons why EVN could not maintain the financial ratios. Viet Nam has relied predominantly on a public sector model for financing power infrastructure expansion. This model has come under strain as demand for power supply and investment needs have continued to grow rapidly. The maintenance of retail electricity prices below cost recovery levels over many years has affected cash flows in the sector, leaving EVN with no option but to increase debt to meet capital expenditure needs. EVN’s financial performance has also been adversely affected by other factors, including hydrology, fuel price hikes, and currency risks. The devaluation of the dong from 2009 to 2016 was almost 40%. This affected EVN's financial performance significantly by increasing its debts in dong terms, as most were denominated in foreign currencies such as the US dollar and yen. 46. The government initiated work on a reform road map to develop a competitive electricity market and a detailed tariff reform, both of which are ongoing. ADB has been instrumental in this reform process through the provision of nine TA projects, which led to the promulgation of the Electricity Law in 2005, the road map for the development of a competitive electricity market in 2006, the launching of a competitive generation market in 2012, and ongoing development of the wholesale electricity market and transmission pricing regulation. The progress is deemed satisfactory and the government is closely monitoring the implementation. Furthermore, the World Bank is assisting EVN in addressing financial challenges, including obtaining a corporate credit rating and issuing a long-term bond in the international capital markets. 47. EVN and TPMB1 submitted quarterly progress reports regularly during project implementation. Safeguards monitoring reports were also submitted regularly during project implementation. The finalization and disclosure of annual environmental monitoring reports during the operation stage were delayed. TPMB1 has adequate and qualified staff who are familiar with the operation of the plant, including financial management. However, the environmental staff lacked the capacity for environmental monitoring and its reporting during operation. After ADB’s continuous follow-up and support including several awareness-raising sessions, environmental monitoring reports from the commissioning up to December 2017 were finalized and disclosed on the ADB website in April 2018. 48. EVN submitted acceptable audited project financial statements and audited entity financial statements, together with management letters, on time from the date of effectiveness until the financial closing for tranche 1 and until 2016 for tranche 2. The 2017 audit reports for tranche 2 are due by 30 June 2018. The annual audits raised the issue of EVN’s noncompliance with the financial ratios. The lack of internal audit within EVN also was raised in an annual audit because it was a loan covenant. This noncompliance did not affect project performance. As EVN has been submitting audited financial statements and audited project accounts prepared using international financial reporting standards, with the audit carried out by reputed international auditors following international auditing standards, in the projects approved by ADB after 2011 the covenant on internal auditing was not used. However, in 2016 EVN established an internal audit and financial supervision department directly reporting to EVN board of directors.

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III. EVALUATION OF PERFORMANCE

A. Relevance 49. The project was highly relevant at appraisal and remained so at completion. To support the least-cost generation expansion plan in the PDP VI, the project added 1,080 MW of installed capacity to the power grid. The project was also an integral part of a highly effective power sector investment program that enabled power supply growth to keep pace with the 11% annual growth in demand in the period 2011–2015. 50. The design and formulation of the project is also assessed as highly relevant, given that the timing of the implementation of the outputs of tranche 1, as preparation for the bigger and more complex components financed under tranche 2, and the MFF arrangement were very suitable and appropriate. The MFF modality provided the advantage of not requiring commitment fees on the project until tranche 2 (96% of the $930 million ADB loan) was approved. 51. The two tranches were designed to mitigate the risks identified in the review of ADB’s previous energy programs10 by (i) ensuring a high degree of readiness, with detailed technical designs, government approvals, and advanced procurement in place before a tranche is approved; (ii) implementing procurement plans with an appropriate number of procurement contracts; and (iii) building the capacity of implementing agency staff to prepare and implement safeguard plans, and to operate and maintain a power plant using CFB boiler technology. 52. The use of CFB technology is very appropriate, given the high sulfur content in the coal being used in the MD1TPP. CFB is one of the innovative technologies for reducing the sulfur content in emissions. It is widely used for mine-mouth coal projects and in places where high-grade coal either is not available or is used mainly for metallurgical industries (e.g. steel production). The project added 1,080 MW of power at low operation cost, with good control over future fuel costs as it uses domestic coal.

53. The cost overrun in the EPC package of $433 million was explained in paragraph 19. The risk of project cost increases, especially the cost of the EPC package, was known, and EVN managed to source financing to cover the gap. The capital expenditure for the MD1TPP is $1.5 billion. The average construction cost of a 1,000–1,200 MW comparable coal-fired power plants in Viet Nam is in the range of $1.3–2.3 billion (Table A12.2, Appendix 12). The range is wide because different technologies have different costs.

B. Effectiveness 54. The project is rated highly effective. The project outcome of households and industries having access to reliable, stable electricity supply is consistent with Viet Nam’s development priorities and ADB’s country and sector strategies to meet high growth in electricity demand both at appraisal and at completion. To meet the huge investment needs identified in the PDP VI, the government sought development partners support and ADB responded effectively through the MFF.

10 ADB’s country assistance program evaluation for Viet Nam, 1999–2008, identified efficiency issues related to

implementation delays in energy sector programs, in particular (i) lengthy government administrative and approval procedures involving several ministries; (ii) many layers of approval for procurement, construction, land acquisition, and safeguards; (iii) delays in finalizing detailed technical designs; (iv) small procurement packages, to attract local bidders; and (v) limited trained human resources to implement safeguard measures in an effective and timely way.

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55. The project has helped foster sustainable national economic growth and generate employment. It improved the reliability of power supply. Thermal power generation during the dry season prevents load shedding to industrial, commercial, residential, and rural consumers. The project addressed the imbalance between hydropower and thermal generation capacity in the power system by increasing base-load thermal generation. Furthermore, by financing the required common facilities for the MD2TPP, the project helped EVN to award that project on a stand-alone basis to the private sector.

56. In parallel, EVN expanded transmission and distribution networks, power system losses dropped to 7.7% in 2016 from 10.2% in 2010, and retail tariffs and transmission tariffs increased several times, as stipulated in the loan covenants.

57. Project management and implementation units were set up on schedule. Advance recruitment of consultants was undertaken, although there were delays due to failed bidding attempts. Capacity building of TPMB1 in CFB technology and project management was implemented. The resettlement plan, REMDP and EMP were implemented satisfactorily. 58. Tranche 1 effectively funded the required preparatory activities towards. The 2-year delay did not affect the overall project delay. The required outputs from tranche 1 were completed in time for the start of tranche 2 and the MD2TPP. Tranche 2 of the project is also highly effective. Although tranche 2 was delayed by 2 years, it did not have any impact on the outcome as the other power projects in the PDP VI were implemented in parallel, including several hydropower plants, and the first unit of the MD2TPP was commissioned in June 2014. EVN thus managed to maintain a reserve margin above 20% from 2013 to 2015 (the delay period) and in consistent with the actual demand growth of 12.8% from 2006 to 2011, which was lower than the forecast demand growth of 16% mainly because of the global recession during the period. The project outcomes and outputs were fully achieved.

C. Efficiency

59. The project is rated highly efficient. The economic internal rate of return (EIRR) was calculated and confirmed the economic viability of the project. Both the before and after economic internal rate of return (EIRR) exceed the minimum economic hurdle rate of 12%. The reevaluation resulted in an annualized EIRR of 17.54%, which is lower than the EIRR of 23.9% estimated at appraisal but still confirms that the project is economically beneficial. This lower result was due to the cost overruns of the EPC contract and the increase in fuel costs since appraisal.11 60. The economic costs considered in the evaluation of EIRR are the investment and the operating costs of the project, and environmental management costs. The economic benefits are: (i) the non-incremental benefits accrued by not having to run thermal power plants at suboptimum levels, thereby producing savings; and (ii) the benefits both incremental and non-incremental accrued to the consumers by having a sufficient supply of electricity.

D. Sustainability

61. The project is rated likely sustainable. Its financial internal rate of return (FIRR) is calculated as 7.83%. This is above EVN’s weighted average cost of capital of 3.64% and comparable to the FIRR of 6.49% anticipated during appraisal. The financial analysis is based on

11 The coal costs considered for the calculation are $0.015 per kWh at appraisal and $0.019 per kWh at evaluation.

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the incremental revenues arising from the project. It considers only the project cash flows arising from the capital investments. The financial evaluation is provided in Appendix 13. 62. Strengthening power generation capacity to meet increasing demand remains one of the government’s priorities in the energy sector. The project contributed 1,080 MW to the country’s installed power generation capacity, through cleaner and proven CFB technology which efficiently utilizes poor-quality and waste coal from coal mines near the project site. The power plant is a revenue-generating asset. The project assets are being operated and maintained by TPMB1 under GENCO3, and both have the in-house capacity to operate and maintain coal-fired power plants as well as the institutional resources to maintain the outputs and expected outcome. There are regular annual training programs for operation and maintenance staff on the operation and special maintenance for sustainable operation of these assets. Therefore, the likelihood that project outcomes and outputs will be maintained over the economic life of the project is high.

63. GENCO3 has been equitized and is an autonomous legal entity. It will start to operate as a joint stock company from July 2018. As such, GENCO3 is responsible for its own financial sustainability. The future sustainability of the project will depend on the financial performance of GENCO3. Its revenues increased by 27.6% in 2016, the year in which the MD1TPP started its operations. In 2016, it generated a cash flow of $267 million from its operating activities before paying an interest cost of $99 million. The annual electricity demand growth of 12.1% over 2015–2017 and the projected annual electricity demand growth of 10.5% reconfirms that this revenue stream is sustainable. Forward looking financial statements for GENCO3 are provided in Appendix 14. One of the important concerns in the financial performance of GENCO3 is its vulnerability to foreign exchange risk. The dong saw an average annual depreciation of 3.47% between 2008 and 2017. Tariffs paid to GENCO3 are executed in dong, so if the depreciation continues, GENCO3’s revenues may not cover its dollar-dominated debt-service payments after a period of time. GENCO3 can sustain its debt-repayment capacity if the tariff policy is reformed to index the electricity tariffs to mitigate the currency depreciation risk. The risk is assessed as low because market-based tariff reforms were initiated in 2009 and tariff levels have improved towards full cost recovery. The latest tariff regulation incorporated a lower threshold of 3–5% for tariff adjustment and allows EVN to adjust retail tariffs within this threshold without seeking government approval.12 To operate Viet Nam’s wholesale electricity market effectively, starting in 2019, the government plans to develop a new retail tariff structure to reduce the level of cross-subsidies and better target low-income households, which will improve the efficiency of the tariff pricing mechanism. 64. EVN is planning to divest its stake in GENCO3 by bringing in some strategic investors. This would result in a change in the ownership and control of the organization. A detailed analysis of different mechanisms by which EVN could restructure its debt, the risks associated with each mechanism, and the different assessments needs to be carried out. Owing to the absence of information from EVN about the potential future investors, a comprehensive financial management assessment is not possible.

E. Development Impact

65. The project impacts are (i) adequate and reliable power supply to meet Viet Nam’s electricity demand in an environmentally sustainable manner, and (ii) a diversified-generation fuel mix. Both impact targets were achieved. The achievement of impact is rated as highly satisfactory.

12 Government of Viet Nam. 2017. Decision 24/ 2017/QĐ-TTg, mechanism for adjustment of average retail electricity

price. Ha Noi.

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66. Economic impact. Adequate and reliable power supply is an essential prerequisite to drive Viet Nam’s socioeconomic development. The high concentration of industrial plants and economic development requires reliable and good-quality power supply, especially in the centers of dynamic development in the Southeast, Central Highlands, and Red River Delta. Without expanding power generation and transmission networks, the main load centers in these regions would suffer a worsening electricity supply deficit, which then would affect production capacity for both domestic consumption and for export and reduce economic growth potential. The country’s sustained economic growth (more than 6% per year during 2005–2015) would not have been possible without expansion of the power system. Savings for the economy can also be realized as the existing power plants need not be operated outside their optimal regimes to cater to increased demand, thereby increasing efficiency. Coal-fired generation also diversifies the energy mix and helps in alleviating seasonal variations in generation capacity brought about by the large amount of hydropower capacity in the generation mix. 67. Environmental impact. An EIA, which includes an EMP with mitigation measures and a monitoring program, was developed during the project preparation stage. A series of public consultations were carried out during EIA preparation; these continued into the implementation phase. Mangrove replantation has been effectively implemented and handed over to the local commune which is managing a government program for conservation of the plantation in the area. TPMB1, supported by ADB, complied with all the requirements of ADB’s Safeguards Policy Statement (2009) and government environmental safeguards requirements during the preparation, implementation, and operation of subprojects. There are no outstanding environmental issues to resolve.

68. Social impact. All relocating households opted to self-relocate and built better houses in the places where they resettled. Many affected people successfully shifted to other businesses, with support of the livelihood enhancement program and support from their social networks. Post-resettlement reviews conducted in July 2009 for resettlement plan implementation, and independent post-resettlement evaluations in December 2014 confirmed the compensation payments were sufficient to help them to acquire new plots, build better houses, and start new income-generating activities. Independent post-resettlement evaluations in January 2017 confirmed that many affected people were able to improve or at least restore their living conditions and livelihood compared with their pre-project conditions.

69. Poverty alleviation and social aspects. Viet Nam has made remarkable progress in expanding access to electricity, as the percentage of households without electricity fell from 22% in 1999 to 2% in 2015. Affordability and public welfare must be strongly considered at all stages of Viet Nam’s development. Gradual tariff increases to cover greater costs associated with power system increases basic living costs, reducing the amount of disposable income and/or access to services. The poorest households in Viet Nam spend less than 2.5% of household income on paying electricity bills. For all households, the first 50 kWh is priced at 92% of the national average price and the second block (50–100 kWh) at 95% of that price. Usage over 100 kWh is priced above the average tariff. Poor households and those eligible for social welfare who use less than 50 kWh of electricity per month receive monthly cash subsidies to cover the first 30 kWh. This arrangement ensures that the poorest households can afford to use electricity. The project ensures sufficient capacity for providing access to people in grid-connected areas. The project also created approximately 6,000 jobs during construction and 200 jobs during operation.

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F. Performance of the Borrower and the Executing Agency 70. The performance of the borrower, EVN, and the executing agency, TPMB1, is rated as highly satisfactory. EVN and TPMB1 managed to address the initial difficulty in consultant selection and the bidding process for the EPC package. TPMB1 submitted progress reports, safeguards reports, and other requested documents and information on time. Throughout the project, EVN and TPMB1 were responsive to the requests of ADB. As specified in the loan agreement, EVN provided counterpart funds in time. EVN complied with the loan covenants, except for the financial ratio covenants. Project financial reports and financial audits were submitted on time and were of good quality. Furthermore, EVN took actions to establish internal audit function which eventually was established in 2017. TPMB1 ensured that procurement plans were implemented properly, and there were no delays in submission of procurement documents for ADB approval. The resettlement plan, REMDP, and EMP were carried out satisfactorily. ADB noted the delays in submission of environmental monitoring reports during operation, which were resolved through discussions and awareness raising by the ADB safeguards specialist.

G. Performance of Cofinanciers

71. Parallel financing from the Export-Import Bank of Korea was arranged by EVN after the EPC contract was awarded in September 2011 exclusively for that contract because the winning bidder was a Korean company. ADB and the Export-Import Bank of Korea maintained adequate communications and consultations related to the implementation of the contract. The Export-Import Bank of Korea signed the loan agreement on 13 March 2013. Its representatives joined a loan review mission in May 2014. The cofinancier’s performance was rated as satisfactory.

H. Performance of the Asian Development Bank 72. ADB’s performance is rated as highly satisfactory. Regular project review missions, including several special-purpose missions and a project completion review mission, were fielded on time and assistance was provided to resolve project issues. ADB maintained close communications with EVN and TPMB1. ADB provided small-scale advisory technical assistance and additional financing to assist EVN in the preparation of the project, an international consultant to assist in consultant selection, consultants to support the initial stage of procurement of the EPC package, and train TPMB1 staff. ADB also provided supervision consultants for environmental monitoring and reporting, which helped TPMB1’s performance in EMP implementation monitoring and reporting during the construction phase. ADB was very prompt and responsive to the requests of the borrower, EVN, and TPMB1. During discussion of contractual issues between EVN and the EPC contractor, ADB closely followed up and provided guidance on finding amicable solutions. During the project completion review mission, EVN, GENCO3, and TPMB1 confirmed ADB’s support, supervision, and administration of the loan was highly satisfactory. In particular, EVN and TPMB1 appreciated ADB’s guidance and close follow-up on safeguards planning, implementation, and monitoring, which helped TPMB1 properly implement project safeguards.

I. Overall Assessment 73. The project is considered highly successful overall because it was implemented as conceived and designed, and met its intended outcome and output targets (Table 2).

17

Table 2. Overall Ratings

Criteria

Rating

MFF

Relevance Highly Relevant Effectiveness Highly Effective Efficiency Efficient Sustainability Likely Sustainable Overall Assessment Development impact Highly Satisfactory Borrower and executing agency Highly Satisfactory Performance of ADB Highly Satisfactory

ADB = Asian Development Bank, MFF = multitranche financing facility. Source: Asian Development Bank.

IV. ISSUES, LESSONS, AND RECOMMENDATIONS

A. Issues and Lessons

74. Factors that contributed to successful implementation of the EMP, resettlement plan and REMDP include the early assignment of a dedicated onsite team from TPMB1 to assess the impacts and prepare the plan in 2006; effective consultation and communication with the affected people; coordination with the affected communes, wards, and district authorities that have good experience in resettlement; and effective mobilization of experienced institutions for monitoring. 75. Because of the delay of engagement of the environmental monitoring agency at start-up phase, surface water and groundwater quality, fisheries, and air pollution were not monitored until 2012. The post monitoring environmental reports initially did not include all the measurements stipulated in the EIA. ADB observed lack of capacity of the operation staff and guided the relevant staff on proper environmental monitoring and its reporting.

76. The cost overrun of the EPC package was $432.92 million—a 49% increase from the appraisal estimate of $884.03 million, resulting in the actual cost of $1,316.95 million. While the project cost is comparable with the costs of other coal-fired power plants and cost overruns are common due to the complexity of the project and use of better technologies, a proper market sounding at the beginning would have provided a more realistic cost estimate.

B. Recommendations

1. Project Related 77. Future monitoring. All project outcomes and outputs have been achieved. The project has adequately met environmental and social safeguards policies and the requirements of ADB and the government. As the project is environment category “A” and monitoring during operation is important, ADB should maintain close contact with EVN through future loans to ensure it continues to have adequate in-house capabilities for environmental monitoring during operation in accordance with the monitoring plan proposed in the EIA. 78. Covenants. All the covenants were complied with, except for the financial ratios covenant which is partially complied. These financial covenants should be continued in future projects to ensure government commitment to improving sector sustainability. The noncompliance was mainly caused by the retail electricity prices that were below the cost recovery level. A road map to develop a competitive electricity market and a detailed tariff reform are ongoing. Progress on those two objectives should be continuously monitored.

18

79. Further action or follow-up. The sustainability of the project depends on the financial performance of GENCO3 until divestment. EVN plans to divest its stake in GENCO3 by bringing in some strategic investors. As this would result in a change in the ownership and control of the organization, EVN should demonstrate to ADB before divestment that the project will remain sustainable. 80. Timing of the project performance evaluation report. The power plant was fully commissioned in October 2015. It may be prudent to conduct a project performance evaluation after 3 years of operation. Hence, it is recommended that a project performance evaluation be scheduled in 2019.

2. General 81. Building on the successful implementation of REMDP, the following recommendations are made to include in similar projects: (i) assessment of impacts and land acquisition requirements, and meaningful consultations with all stakeholders early on; (ii) a carefully designed livelihood restoration program, with specific activities targeting the specific beneficiaries and ensuring access to job opportunities; and (iii) inclusion of wealth management coaching and assistance as part of the income restoration activities to ensure that the affected households manage their compensation income appropriately to secure the continuation of their livelihood income. Since stabilization of livelihoods for affected people takes several years, it is prudent to conduct a survey after 4-5 years after resettlement to supplement the survey done in 2017. 82. Procurement of the EPC contract took nearly 3 years because EVN was unfamiliar with the two-stage two-envelope bidding procedures. The ADB country partnership strategy (2012–2015) final review also notes that greater emphasis is needed on investing enough time and resources in the preparation of projects.13 This includes greater upstream work on preparing technical designs and cost estimates, ensuring procurement packages and bidding documents are correct, and ensuring that executing agencies have sufficient capacity to reduce implementation delays. 83. It also took considerable time for TPMB1 to prepare annual environmental monitoring reports during operation. This situation could have been avoided by having trained staff. Therefore, it is recommended that an environmental consultant is mobilized for at least one year during the operation stage to ensure operation staff prepare regular environmental monitoring reports in accordance with EIA provisions.

13 ADB. 2015. Country Partnership Strategy Final Review: Viet Nam, 2012–2015. Manila.

Appendix 1 19

DESIGN AND MONITORING FRAMEWORK 1.1 DMF for the multitranche financing facility

Design Summary Performance Indicators and Targets

Project Achievements

Impact Adequate and reliable supply of power to meet Viet Nam’s electricity demand in an environmentally sustainable manner. Diversified generation fuel mix.

5 years after project completion About 30 GW of additional generation capacity by 2015. Ratio of hydro to thermal plant capacity reduced from 37% in 2006 to 27% by 2015. Economic growth in Quang Ninh Province and northern Viet Nam to achieve Government framework growth targets. Improved environmental compliance and performance of the sector.

Total generation capacity was 11 GW in 2006, and 38.5 GW in 2015, an increase of 27.5 GW. This lacks 2.5 MW to meet the target. The gap is due to the growth during 2006-2011 was lower than predicted. In 2015 there was sufficient reserve margin (20%) to supply a reliable power supply. This is a good achievement. The target was revised during tranche 2 approval. RRP indicated 37% in 2006, 27% in 2020 which is more realistic. In 2015, the generation mix comprised 38% hydro, 33.5% coal, 2.3% oil, 20.7% gas, 0.4% renewable, 5.1% diesel and small hydropower which is a good diversified generation mix and by 2020 the generation mix will have a good balance with increased gas and renewable generation. Project contributed to achieve the target. This is a better fuel mix. This shall be assessed after 5 years, i.e 2020. Baseline not provided This shall be assessed after 5 years, i.e 2020. Baseline not provided

Outcome Households and industries in northern Viet Nam have access to reliable, stable electricity supply.

After project completion About 14 GW of additional generation capacity by 2010. Reliability of power supply to consumers. Project environmental management in operation.

Total generation capacity in 2010 was 19 GW, an increase of 8 GW compared to 11 GW in 2006. The project could not contribute to this increase. The outcome target was revised during tranche 2 approval. However the addition of 8 GW was sufficient as the demand did not grew at high forecast (16%) due to global recession 2007-2009. In 2006, power outages during the dry season was 8 hours/day. At project completion, outages did not occur during the dry season because the reserve margin was sufficient (20% in 2015). Project environmental management is in place.

Outputs Project completed: 1,000 MW CFB technology coal-fired power plant

During project implementation ADB-financed construction of the Project, comprising:

• EPC contract comprising: Civil works, CFB boilers and auxiliaries, turbine generators and auxiliaries, coal handling plant, electrical equipment,

Achieved

20 Appendix 1

Design Summary Performance Indicators and Targets

Project Achievements

control and instrumentation, Balance of plant, Implementation consulting services and civil works.

• Provision of common services to the project and BOT project comprising: main access road to site, water supply, construction power and water, Cooling water discharge channel and ash pond.

• Implement environmental management plan: mitigation measures during preconstruction, construction and operational phases; environmental monitoring (water quality, air quality, noise levels, aquaculture activity, and mangrove planting).

• Implement resettlement plan: Implementation of resettlement plans, compensation payments, and restoration of livelihood; monitoring of implementation of the plans.

Achieved. Initial plan was to construct a common ash pond for both plants in the power complex on cost sharing basis, however EVN later opted to separate the ash ponds due to the different compositions of the ash discharged by the two power plants. Two ash ponds are built in the same location separated by an embankment in the middle. Achieved Environmental monitoring during operation phase was not consistent with the environmental monitoring plan and reporting was delayed. ADB safeguards specialist trained the relevant operation staff and environmental reports were updated to include the results of measurements, submitted to ADB and uploaded in ADB website. Achieved

ADB-financed construction of the Project, comprising:

• EPC contract comprising: ▪ Civil works. ▪ CFB boilers and

auxiliaries. ▪ Turbine generators and

auxiliaries. ▪ Coal handling plant. ▪ Electrical equipment. ▪ Control and

instrumentation. ▪ Balance of plant.

• Implementation consulting services.

• Civil works. Provision of common services to Project and BOT project under Project, comprising:

• Main access road to site.

• Water supply.

• Construction power and water.

• Cooling water discharge channel.

• Ash pond. Implement environmental management plan:

• Mitigation measures during preconstruction, construction and operational phases.

• Environmental monitoring (water quality, air quality, noise levels, aquaculture

ADB = Asian Development Bank; BOT = build-operate-transfer; CFB = circulating fluidized bed; EIA = environmental impact assessment; EMP = environmental management plan; EPC = engineering, procurement and construction; EVN = Viet Nam Electricity; GW = gigawatts; MW=megawatt; RRP = Report and Recommendation of the President to the Board of Directors

1.2. DMF For tranche 2 Design Summary Performance Indicators and Targets Project Achievements

Impact More reliable, uninterruptible supply of electricity to industries, businesses and households to enable socio-economic development and industrialization in northern Viet Nam.

System reserve margin of 25% for the period 2014–2020 Economic growth in northern Viet Nam to achieve Government socio-economic development plan's targets for the period 2011–2020.

To be assessed in 2020. 2015-2016 the reserve margins were 20% in 2015, 25% in 2016. To be assessed in 2020.

Outcome Adequate system generating capacity to meet growing electricity demand in northern Viet Nam.

After project completion 1,000 MW generating capacity added to the system by 2014.

About 30 GW of additional generation capacity by 2020.

1,080 MW added in October 2015

(unit 1 with 540 MW) ⎯a 10-months delay, unit 2 with 540 MW in December 2015. This delay did not have any impact on the reliability or the quality of electricity supply because the reserve margin in 2014 was 35%.

Already achieved in 2016. In 2016 total capacity was 42 GW an increase of 31 GW compared to 11 GW in 2006 base year.

Appendix 1 21

Design Summary Performance Indicators and Targets Project Achievements

Ratio of hydro to thermal plant capacity reduced from 37% in 2006 to 27% by 2015.

RRP indicated 37% in 2006 and 27% in 2020 which is more realistic. In 2015, the generation mix comprised 38% hydro, 33.5% coal, 2.3% oil, 20.7% gas, 0.4% renewable, 5.1% diesel and small hydropower which is a better diversified fuel mix and by 2020 the fuel mix will have a good balance with increased gas and renewable generation.

Outputs

1. A 1,000 MW CFB technology coal-fired power plant. 2. Common facilities for MD2.

1,000 MW power plant constructed, tested and commissioned by May 2014.

Full and satisfactory completion of resettlement plans.

Environmental protection and mitigation satisfactorily implemented. ADB-financed construction of the Project completed by May 2014, comprising:

• EPC contract comprising: civil works, CFB boilers and auxiliaries, turbine generators and auxiliaries, coal handling plant. Electrical equipment, control and instrumentation, balance of plant, implementation consulting services and civil works.

• Provision of common services comprising: main access road to site, freshwater supply, power and water for construction, cooling water discharge channel and ash pond.

• Implement environmental management plan: mitigation measures during preconstruction, construction and operational phases.

Environmental monitoring (water quality, air quality, noise levels, aquaculture activity, and mangrove planting).

• Implement resettlement plan: Implementation of resettlement plans, compensation payments, and restoration of livelihood; and Monitoring of implementation of the plans.

Unit 1 with 540 MW was tested and commissioned in October 2015 and Unit 2 with 540 MW was tested and commissioned on 10 December 2015.

Achieved

Achieved

Achieved Achieved

Achieved

Environmental monitoring during operation phase was not consistent with the environmental monitoring plan. ADB safeguards specialist trained the relevant operation staff and environmental reports were updated to include the results of measurements.

Achieved

ADB = Asian Development Bank; BOT = build operate and transfer; CFB = circulating fluidized bed; EMP = environmental management plan; EPC = engineering, procurement and construction; EVN = Viet Nam Electricity; GW = gigawatt; HIV/AIDS = human immunodeficiency virus/acquired immunodeficiency syndrome; IEE = Initial Environmental Examination; MD2 = Mong Duong 2 power project; MW = megawatt; RRP = Report and Recommendation of the President to the Board of Directors

22 Appendix 2

PROJECT COST AT APPRAISAL AND ACTUAL

($ million)

L2353


Foreign Local Total Foreign Local Total

Civil Works 16.28 16.28 20.38 20.38 Field Surveys and Bidding Documents 2.55 2.55 0.40 0.40 Land Acquisition and Resettlement 2.50 2.50 7.95 7.95 Project Implementation Consultant 3.00 3.00 2.64 2.64 Social and Environmental Monitoring 0.31 0.31 0.02 0.02 Project Management 5.82 5.82 5.95 5.95 Taxes and Duties 1.83 1.83 1.92 1.92 Sub Total (1) 3.31 28.99 32.30 2.64 36.62 39.26 Physical Contingencies 0.30 3.12 3.42 Price Contingencies 0.05 1.08 1.13 IDC and Commitment Charges 7.16 7.16 0.72 0.72 Sub Total (2) 7.51 4.20 11.71 0.72 0.00 0.72 Total 10.82 33.19 44.01 3.36 36.62 39.98

L2610


Foreign Local Total Foreign Local Total

Engineering, procurement and construction 712.50 171.50 884.00 1,316.95 1,316.95 Civil Works 23.10 23.10 22.01 22.01 Dredging of cooling water discharge 0.90 0.90 0.00 0.00 Ash pond 1 2.30 2.30 4.13 4.13 Cooling water discharge canal 6.90 6.90 9.78 9.78 Fresh water system 9.20 9.20 7.85 7.85 Residential area for staff 3.20 3.20 0.00 0.00 Fence between the two power plants 0.60 0.60 0.25 0.25 Compensation and Resettlement Costs 7.20 7.20 4.92 4.92 Project Management Cost 9.40 9.40 1.51 1.51 Consulting Services 13.10 13.10 11.54 11.54 Taxes and Duties 30.60 30.60 157.00 157.00 Sub Total (1) 725.60 241.80 967.40 1,328.49 185.44 1,513.93 Physical Contingencies 58.00 19.40 77.40 Price Contingencies 10.90 45.00 55.90 Sub Total (2) 68.90 64.40 133.30 IDC and Commitment Charges 42.70 42.70 18.68 18.68 Sub Total (3) 42.70 42.70 18.68 18.68 Total 837.20 306.20 1,143.40 1,347.17 185.44 1,532.61

IDC = interest during construction Sources: Viet Nam Electricity, Thermal Power Project Management Unit 1 and Asian Development Bank.

Appendix 3 23

PROJECT COST BY FINANCIER

Table A3.1a: Project Cost at Appraisal by Financier- L2353 ($ million)

EVN ADB Total Costa

Item Amount % of Cost Category Amount

% of Cost Category Amount

Taxes and

Duties

A. Baseline Costs 1. Civil Works 1.23 0.0% 17.40 93.4% 19.10

a. De-mining 1.23 100.0% 0.00 0.0% 1.23 b. Site Leveling and Diversion Channel 0.00 0.0% 13.73 100.0% 13.73 c. PMU Office and Staff Quarters 0.00 0.0% 0.83 100.0% 0.83 d. Access Road to Highway 18 0.00 0.0% 0.57 100.0% 0.57 e. Installation of Power Supply 0.00 0.0% 1.90 100.0% 1.90

f. Installation of Water Supply 0.00 0.0% 0.37 100.0% 0.37 2. Field Surveys and Bid Documents 2.95 100.0% 0.00 0.0% 2.95

3. Land Acquisition and Resettlement 2.90 100.0% 0.00 0.0% 2.90

4. Project Implementation Consultants 0.00 0.0% 3.30 100.0% 3.30

5. Social and Environmental Monitoring 0.38 100.0% 0.00 0.0% 0.38 6. Project management 6.59 100.0% 0.00 0.0% 6.59

7. Taxes and Duties 2.10 100.0% 0.00 0.0% 2.10 2.10 Subtotal (A) 16.15 43.8% 20.70 56.2% 36.85 2.10

B. Financial Charges During Implementation 0.00 0.0% 7.16 100.0% 7.16

1. Interest During Construction 0.00 0.0% 6.98 100.0% 6.98 2. Commitment Charges 0.00 0.0% 0.18 100.0% 0.18

Total Project Cost (A+B) 16.15 36.7% 27.86 0.0% 44.01 2.10 % Total Project Cost

36.7%

63.3%

4.7%

ADB: Asian Development Bank, and EVN: Viet Nam Electricity Source: Report and Recommendation to the President (RRP) for MFF, August 2007.

24 Appendix 3

Table A3.1b: Project Cost at Appraisal by Financier- L2610

($ million) EVN ADB Total Costa



Taxes and Duties

A. Investment Costs

1. Engineering, procurement and construction 119.70 13.5% 764.33 86.5% 884.03 2. Civil works 4.12 17.8% 19.02 82.2% 23.14

a. Dredging of cooling water discharge 0.89 100.0% 0.00 0.0% 0.89 b. Ash Pond 1 0.00 0.0% 2.31 100.0% 2.31 a. Cooling water discharge canal 0.00 0.0% 6.92 100.0% 6.92 b. Fresh water system 0.00 0.0% 9.22 100.0% 9.22 a. Residential area for staff 3.23 100.0% 0.00 0.0% 3.23 b. Fence between the Two Power Plants 0.00 0.0% 0.58 100.0% 0.58

3. Compensation and Resettlement Costs 7.15 100.0% 0.00 0.00% 7.15 Subtotal (A) 130.97 14.3% 783.35 85.7% 914.32

B. Recurrent Costs

1. Project Management Cost 9.45 100.0% 0.00 0.0% 9.45 2. Consulting Services 0.00 0.0% 13.06 100.0% 13.06 3. Taxes and Duties 30.57 100.0% 0.00 0.0% 30.57 30.57

Subtotal (B) 40.02 75.4% 13.06 24.6% 53.07 30.57 Total Base Cost (A+B) 170.98 17.7% 796.41 82.3% 967.40 30.57

C. Contingencies 1. Physical Contingency 13.68 17.7% 63.71 82.3% 77.39 2. Price Contingency 55.86 100.0% 0.00 0.0% 55.86 Subtotal (C) 69.54 52.2% 63.71 47.8% 133.25 D. Financial Charges During Implementation 0.00 0.0% 42.73 100.0% 42.73

Total Project Cost (A+B+C+D) 240.53 21.0% 902.85 79.0% 1,143.38 30.57 % Total Project Cost

21.0%

79.0%

2.7%

ADB = Asian Development Bank; EVN = Viet Nam Electricity. Source: Periodic Financing Request Report for tranche 2, December 2009.

Appendix 3 25

Table A3.2a: Project Cost at Completion by Financier – L2353

($ million)

EVN ADB Total Costa



Taxes and

Duties

A. Baseline Costs 1. Civil Works 3.76 16.8% 18.66 33.2% 22.42

a. De-mining 0.40 100.0% 0.00 0.0% 0.40 b. Site Leveling and Diversion Channel 3.12 15.7% 16.80 84.3% 19.92 1.47 c. PMU Office and Staff Quarters 0.09 11.2% 0.71 88.8% 0.80 0.09 d. Access Road to Highway 18 0.01 11.9% 0.07 88.1% 0.08 0.01 e. Installation of Power Supply 0.07 6.2% 1.07 93.8% 1.14 0.07

f. Installation of Water Supply 0.07 100.0% 0.00 0.0% 0.07 2. Field Surveys and Bid Documents 0.00 0.0% 0.00 0.0% 0.00

3. Land Acquisition and Resettlement 7.95 100.0% 0.00 0.0% 7.95

4. Project Implementation Consultants 0.25 8.7% 2.64 91.3% 2.89 0.25

5. Social and Environmental Monitoring 0.02 100.0% 0.00 0.0% 0.02 6. Project management 5.98 100.0% 0.00 0.0% 5.98

Subtotal (A) 17.96 45.8% 21.30 54.2% 39.26 1.89 B. Financial Charges During Implementation 0.00 0.00% 0.72 100.0% 0.72

Total Project Cost (A+B) 17.96 44.9% 22.02 55.1% 39.98 1.89 % Total Project Cost

44.9%

55.1%

4.7%

ADB = Asian Development Bank, EVN = Viet Nam Electricity. Sources: Viet Nam Electricity, Thermal Power Project Management Board No. 1 and Asian Development Bank.

26 Appendix 3

Table A3.2b: Project Cost at Completion by Financier – L2160 ($ million)

EVN

ADB The Export-Import Bank of Korea

Total Costa




Taxes and Duties

A. Investment Costs

1. Engineering, procurement and construction 151.76 10.3% 827.90 56.4% 489.05 33.3% 1,468.71 151.76 2. Civil works 2.16 8.9% 22.01 91.1% 0.00 0.0% 24.17 2.16

a. Dredging of cooling water discharge 0.00 0.0% 0.00 0.0% 0.00 0.0% 0.00 0.00 b. Ash Pond 1 0.41 9.0% 4.13 91.0% 0.00 0.0% 4.54 0.41 a. Cooling water discharge canal 0.96 8.9% 9.78 91.1% 0.00 0.0% 10.74 0.96 b. Fresh water system 0.76 8.8% 7.85 91.2% 0.00 0.0% 8.61 0.76 a. Residential area for staff 0.00 0.0% 0.00 0.0% 0.00 0.0% 0.00 0.00 b. Fence between the Two Power Plants 0.03 10.7% 0.25 89.3% 0.00 0.0% 0.28 0.03

3. Compensation and Resettlement Costs 4.921 100.0% 0.00 0.0% 0.00 0.0% 4.92 0.00 Subtotal (A) 158.84 10.6% 849.91 56.7% 489.05 32.7% 1,497.80 153.92

B. Recurrent Costs

1. Project Management Cost 1.51 100.0% 0.00 0.0% 0.00 0.0% 1.51 0 2. Consulting Services 3.08 21.1% 11.54 78.9% 0.00 0.0% 14.62 3.08

Subtotal (B) 4.59 28.5% 11.54 71.5% 0.00 0.0% 16.13 3.08 Total Base Cost (A+B) 163.43 10.8% 861.45 56.9% 489.05 32.3% 1,513.91 157.00

C. Financial Charges During Implementation 0.00 0.0% 18.68 100.0% 0.00 0.0% 18.68 0.00 Total Project Cost (A+B+C) 163.43 10.7% 880.13 57.4% 489.05 31.9% 1,532.61 157.00 % Total Project Cost

10.7%

57.4% 31.9%

10.3%

ADB = Asian Development Bank, EVN = Viet Nam Electricity. Sources: Viet Nam Electricity, Thermal Power Project Management Board No. 1 and Asian Development Bank.

Appendix 4 27

DISBURSEMENT OF ADB LOAN PROCEEDS

Table A4.1a: Annual and Cumulative Disbursements of ADB loan proceeds – L2353 ($ million)

Annual Disbursement Cumulative Disbursement

Year Amount

($ million) % of Total Amount

($ million) % of Total

2008 0.07 0.3% 0.07 0.3% 2009 8.34 37.8% 8.41 38.2% 2010 6.41 29.1% 14.82 67.3% 2011 1.38 6.3% 16.20 73.6% 2012 4.05 18.4% 20.25 92.0% 2013 1.77 8.0% 22.02 100.0% Total 22.02 100.0% 22.02 100.0%

Table A4.1b: Annual and Cumulative Disbursement of ADB Loan Proceeds - L2160

($ million) Annual Disbursement Cumulative Disbursement

Year Amount



2011 129.84 14.8% 129.84 14.8% 2012 39.47 4.5% 169.31 19.2% 2013 464.87 52.8% 634.18 72.1% 2014 122.77 13.9% 756.95 86.0% 2015 7.55 0.9% 764.50 86.9% 2016 86.03 9.8% 850.53 96.6% 2017 29.60 3.4% 880.13 100.0% Total 880.13 100.0% 880.13 100.0%

ADB = Asian Development Bank. Source: Asian Development Bank.

28 Appendix 4

Figure 4.1a: Projection and Cumulative Disbursement of ADB Loan Proceeds – L2353 ($ million)

Year Projected Actual

2008 2.05 0.07 2009 9.43 8.41 2010 16.71 14.82 2011 10.41 16.20 2012 22.21 20.25 2013 22.51 22.02 Total 22.51 22.02

Source: Asian Development Bank.

0

5

10

15

20

25

2008 2009 2010 2011 2012 2013

AM

OU

NT

(in

mill

ion

)

YEAR

Projected and Actual Disbursements

Projected Actual

Appendix 4 29

Figure 4.1 b: Projection and Cumulative Disbursement of ADB Loan Proceeds- L2610 ($ million)

Year Projected Actual

2011 129.84 129.84 2012 215.73 169.31 2013 600.53 634.18 2014 806.11 756.95 2015 764.50 2016 850.53 2017 880.13 Total 806.11 880.13


30 Appendix 5

PROJECT IMPLEMENTATION SCHEDULE (AT APPRAISAL VS. ACTUAL)

Appendix 5 31

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

A Processing

1 Loan processing

2 Management approval of PFR1

3 Loan signing

4 Loan effectiveness

B Implementation

1 Consultant recruitment (Stage 2)

2 Design, bid preparation and tendering

3 EPC Package

4 Consulting services implementation (Stage 2)

5 Civil works

a Fresh waster supply system

b Cooling water discharge canal

c Ash Pond No. 1

d Fence between Two Plants

C Loan closing

Source: Asian Development Bank estimates.

Appraisal

Actual

Warranty period (appraisal)

Actual warranty period (EPC) / limited services during warranty period (consulting services stage 2) / contract extensions (ash pond 1)

2015 2016 2017

ADB = Asian Development Bank, EMP = environmental management plan, MFF = multitranche financing facility, PFR = periodic financing request, PMU = project management unit, Q1 = first quarter, Q2 = second quarter,

Q3 = third quarter, Q4 = fourth quarter.

L2610-PFR2

Project Implementation Schedule (At Appraisal vs. Actual)

ID Task

2009 2010 2011 2012 2013 2014

32 Appendix 6

CHRONOLOGY OF MAIN EVENTS

Date Event A. Project Processing

17 October 2005 Approval of project preparatory assistance (TA 4670-VIE) Tranche 1 (L2353) 21 June–3 July 2006 Fact-finding mission 15 August 2006 Management review meeting 22 August–1 September 2006 Appraisal mission 27 September 2006 Staff review committee meeting 16–17 May 2007 Loan negotiations 21 September 2007 Board approval of the MFF 2 October 2007 Management approval of tranche 1 9 October 2007 Loan and project agreements signing 27 March 2008 Loan effectiveness Tranche 2 (L2610) 22 September 2009 Management review meeting 16 October 2009 Staff review committee meeting 19-20 November 2009 Loan negotiations 21 December 2009 Management approval of tranche 2 9 November 2010 Loan and project agreements signing 12 May 2011 Loan effectiveness B. Implementation

21-28 November 2007 Inception mission 7–11 July 2008 Loan review mission 1 4 November 2008 Contract for site leveling and river diversion works signed (PCSS 0001)

(L2353) 9 December 2008 Contract for consulting services engineering stage 1 signed (PCSS 0002)

(L2353) 2 February 2009 Contract for supply of equipment/materials and construction of 35 kV power

system signed (PCSS 0003) (L2353) 2–6 March 2009 Loan review mission 2 14 April 2009 Contract for construction of site offices for PMU and consultants signed

(PCSS 0004) (L2353) 11–15 May 2009 Loan review mission 3 22-26 June 2009 Special project administration mission 1 21–30 June 2010 Loan review mission 4 8 September 2010 Contract for construction of road connecting Mong Duong 1 to Highway No.

18 signed (PCSS 0005) (L2353) 17–24 October 2011 Loan review mission 5 1–3 November 2011 Special project administration (handover) mission 2 5 December 2011 Minor change approved to revise percentage of ADB financing for the EPC

Package from 87% to 100% and to reallocate loan proceeds (L2610) 2 – 8 May 2012 Special project administration mission 3 4 February 2013 Reallocation of loan proceeds approved (L2353) 16 May 2013 First partial cancellation of $3,000,000 (L2353) 3 – 7 June 2013 Loan review mission 6 17 June 2013 Extension of L2610 loan closing date from 31 December 2014 to 31

December 2016 30 June 2013 Original loan closing date (L2353) 10 – 12 July 2013 Special project administration mission 4 14 – 20 November 2013 Special project administration mission 5

Appendix 6 33

Date Event 18 February 2014 Final cancellation of $2,839,889.68 unutilized loan proceeds (L2353) 18 February 2014 Actual loan closing date (L2353) 25 February 2014 Minor change approved to revise disbursement plan for the EPC Package in

relation to adjustments needed to satisfy the Export-Import Bank of Korea disbursement plan (L2610)

26 – 27 May 2014 Loan review mission 7 31 December 2014 Original loan closing date (L2610) 17 – 20 April 2015 Project completion review mission (L2353) and loan review mission 8 10-12 November 2015 Loan Review Mission 9 29 March-1 April 2016 Loan Review Mission 10 22 April 2016 Minor change approved to revise disbursement plan for the EPC Package

and reallocate loan proceeds (L2610) 4-7 October 2016 Loan Review Mission 11 31 December 2016 Revised loan closing date (L2610) 7 April 2017 Loan Review Mission 12 9 June 2017 Final cancellation of unutilized loan proceeds (L2610) 9 June 2017 Actual loan closing date (L2610) 12-19 September 2017 14-15 December 2017 28-30 Mar 2018

Project Completion Review Mission (L2610) Special environmental safeguards review mission Special environmental safeguards review mission

34 Appendix 7

CONTRACT AWARDS OF ADB LOAN PROCEEDS

Table A7.1a: Annual and Cumulative Contract Awards of ADB Loan Proceeds- L2353 ($ million)

Annual Contract Awards Cumulative Contract Awards

Year Amount



2008 19.44 91.3% 19.44 91.3% 2009 1.78 8.4% 21.22 99.7% 2010 0.07 0.3% 21.29 100.0% Total 21.29 100.0% 21.29 100.0%


Table A7.1b: Annual and Cumulative Contract Awards of ADB Loan Proceeds- L2610 ($ million)

Annual Contract Awards Cumulative Contract Awards

Year Amount



2011 839.45 97.45% 839.45 97.45% 2012 17.63 2.05% 857.08 99.49% 2013 4.13 0.47% 861.21 99.97% 2014 0.25 0.03% 861,46 100.00% Total 861.46 100.00% 861.46 100.00%


Figure A7.1: Projection and Cumulative Contract Awards of ADB Loan Proceeds ($ million)

L2353 Year Projected Actual

2008 15.50 19.44 2009 17.30 21.22 2010 21.29 Total 17.30 21.29


Appendix 7 35

L2610 Year Projected Actual

2011 776.87 839.45 2012 796.10 847.08 2013 803.95 861.21 2014 861.46 Total 803.95 861.46


36 Appendix 8

SUMMARY OF CONTRACTS FUNDED BY THE ASIAN DEVELOPMENT BANK L2353

PCSS No.

Contractor/Supplier

Description

Contract Amount (VND)*

$

Equivalent

A. Category 01A: Civil works

0001 Licogi Corporation Limited Site Leveling and Construction of Mong Duong River Diversion Canal

309,143,197,983 16,800,869

0003 Entec/My-Dinh 1 Power Construction Co. Ltd.

Supply of Equipment/Materials and Construction of 35kV Power System for Construction

18,874,337,239 1066,875

0004 Bach Dang Joint Stock Company No. 10

Construction of Site Offices for PMU and Consultants

12,998,847,884 713,827

0005 Bach Dang TMC Construction Investment JSC

Construction of Road Connecting Mong Duong 1 to Highway No. 18

1,490,070,687 73,815

Subtotal (A) 342,506,453,793 18,655,386

B. Category 01B: Consulting Services

0002 WorleyParsons Pte Ltd Consulting Services for Engineering Stage 1

$1,172,181

S$2,018,018

2,640,388

Subtotal (B) $2,640,388 2,640,388

Total $21,295,774 21,295,774

L2610

PCSS No.

Contractor/Supplier

Description

Contract Amount (VND)*

$

Equivalent

A. Category 01A: Works – EPC Package

0001 Hyundai Engineering & Construction Co., Ltd.

Engineering Construction Procurement (EPC)

$827,903,004 827,903,004

Subtotal (A) $827,903,004 827,903,004

B. Category 01B: Civil Works

0003 Song Da 11 Joint Stock Company Construction of Freshwater Supply System

164,753,297,460 7,850,454

0004 Hoa Hiep-HCJC1 Joint Venture Construction of Cooling Water Canal 204,270,753,990 9,782,191

0005 Phu Xuan Construction and Consultants JSC

Construction of Ash Pond Phase 1 87,475,011,954 4,125,473

0006 Lilama 69-1 Pha Lai Joint Stock Company

Construction of Fence Separating Two Plants

5,424,547,379 249,536

Subtotal (B) 461,923,610,783 22,007,654

C. Category 02: Consulting Services

0002 Poyry Switzerland Ltd. Engineering Consulting Services Stage 2

$11,542,951

11,542,951

Subtotal (C) $11,542,951 11,542,951

Total $861,453,609 861,453,609

PCSS No. = procurement contract summary sheet number

Source: Asian Development Bank

*except where currency is indicated

Appendix 9 37

IMPLEMENTATION OF ENVIRONMENTAL SAFEGUARDS

A. Environmental Safeguards Categorization and Due Diligence

1. The project was classified as category A in accordance with ADB’s Operations Manual (OM) and Bank Policies (BP) FI/BP: Environmental Considerations in ADB Operations. An environmental impact assessment (EIA) was prepared to meet the requirements of ADB’s Environmental Assessment Guidelines (2003) and the Environment Policy (2002). The EIA was based on a separate national environmental impact assessment prepared by Viet Nam Electricity (EVN) and approved by Ministry of Natural Resources and Environment (MONRE) and Ministry of Agriculture and Rural Development (MARD). An environmental and social assessment working group, comprising of ADB consultants, EVN’s environmental specialists, Thermal Power Management Board 1 (TPMB1) staff, staff of MONRE and MARD, and environmental experts of a national consultancy firm (Power Engineering Consulting Company 1), was established in 2006 to ensure consistency between the impact assessment reports prepared by EVN and the EIA.1 A summary environmental impact assessment (SEIA) was provided to the government, circulated to ADB’s Board of Directors, and disclosed in the ADB website in August 2006.2 2. A core part of the EIA is an environmental management plan (EMP) which documents the environmental mitigation and monitoring activities to be implemented throughout preconstruction, construction, and operation of the project. Supported by detailed cost estimates, the EMP contained the roles and responsibilities of institutions and contractors along with the capacity building activities to ensure adequate resources to fulfill their obligations under the plan. A survey and public consultation on the project were held to share the potential environmental and social benefits and impacts as well as to solicit the views of the project affected peoples.

B. Institutional setup and environmental management 3. Construction phase. The project implementation unit was established and staffed in May 2006.3 An environmental management system was defined in the EMP and was established during project inception under the guidance of Worley Parson, the stage 1 project implementation consulting company (PIC) engaged in 2009. PIC had one international environmental expert (12 months) and several qualified national environmental experts (7 person-months). PIC assisted TPMB1’s safety department to supervise and monitor the construction contractor’s EMP implementation and to prepare semi-annual environmental monitoring reports since 2009. 4. Operation phase. TPMB1’s power plant safety department which has five staff: (i) supervised the compliance of environmental and safety issues of the power plant operation; (ii) conducted periodic environmental monitoring; and (iii) prepared annual environmental monitoring report for Quang Ninh Department of Natural Resources and Environment (DONRE), while TPMB1’s technical department which has 19 staff prepared environmental monitoring reports for submission to ADB, based on the information shared by safety department. 5. Capacity building. During the construction phase, ADB provided training to TPMB1 staff, PIC and contractors on environmental monitoring and reporting which helped efficient EMP implementation, monitoring and reporting. During the operation phase, TPMB1’s safety

1 BTOR of Consultation Mission, 16-25 January 2006 2 http://www.adb.org/sites/default/files/project-document/66985/39595-vie-seia.pdf 3 BTOR of Loan Fact-Finding Mission, 21 June – 3 July 2006

38 Appendix 9

department provides regular safety training to its operation staff. TPMB1’s staff also participate in several trainings on environment organized by Quang Ning DONRE.

C. Implementation

6. Public consultation and grievance redress. Several public stakeholder consultations were held during the project preparation. A survey on the project and its potential environmental and social benefits and impacts as well as the views expressed by the project affected people was incorporated in the EIA. During the operation phase, people in the project area were invited to tour MD1TPP several times, and they expressed satisfaction at the environmental friendly facilities. Overall, it is concluded that public consultation and participation was commensurate with the identified risks. Complaints were not received during project implementation. 7. Prior to commencement of works, all required environmental and forest approvals at national, provincial and commune levels were obtained including unexploded ordnance clearance certificate from the military. Important issues that was considered in the EIA include the project effects on ambient air, and the quality of surface water and groundwater. A range of technical mitigation and pollution control measures, monitoring activities, as well as capacity building, was conducted during preconstruction, construction, and operation phases to mitigate the impacts. The impact of the project on mangrove ecosystems was also considered, and a program of mangrove replanting to offset identified biodiversity losses was implemented. 8. Mangrove plantation. Mangrove offset program is the major environmental mitigating measure identified since 31.3 hectares (ha) of mangroves and 20 ha of forests were removed during power complex site clearing. Planting of mangrove seedlings was completed in 52 ha offset area in Binh Dan commune, Van Don district, Quang Ninh province in 2009-2010. However, it was later found that according to the latest approved master plan, the location was within the planned economic zone of Van Don district. Therefore, TPMB1 obtained permit from the Quang Ninh People Committee to relocate the offset area in Dong Rui commune, Tien Yen district and replanting was completed in June 2011. A contractor was engaged to plant and maintain the 52 ha of mangroves. In addition, at the early stage several guards were engaged onsite to make sure that the local people do not encroach to catch fish since that might trample young plants. This ensured healthy growth of the mangroves. ADB strictly adhered to field semiannual safeguards missions supported by national environmental consultants and provided timely guidance on corrective actions such as to combat barnacle infestation at early stage. ADB review found that satisfactory local procedures were followed to conserve the forest and the government has assigned Dong Rui commune to conserve the forest.4 TPMB1 staff conducted the latest site visit of the mangrove plantation area on 9 February 2018 and confirmed that mangrove trees were developing well, two photographs during low tide is provided in Figure A9.1.

4 Dong Rui commune’s office manages the mangrove plantation mainly through voluntarily community-based forest

management groups established at commune and village levels. The ADB project completion review mission met with the chairman of Dong Rui commune who explained that several awareness programs about mangrove forest benefits and protection were implemented for local people who are allowed to harvest seafood products in the mangrove forest. Quang Ninh DONRE is working with University of Natural Sciences, Vietnam National University, Hanoi to develop the 2,000 ha mangrove forest in Dong Rui in the same area which includes the Project’s 52 ha of Mangrove plantation to make the area follow requirements of Ramsar Convention on Wetlands as the long-term development and protection of mangrove forest.

Appendix 9 39

Figure A9.1 - Photos of Mangrove Plantation Area

Source: Thermal Power Management Board 1 under Viet Nam electricity dated 9 February 2018

9. Air quality measurements. During the operation phase, ambient air quality of the project area was measured four times each year in 2016 and 2017. Total suspended particles did not meet Vietnamese standards three times in 2016. TPMB1 informed that the exceedance is due to external factors (national highway No.18 development activity and coal mining activities taking place about 5 km from the complex) and emissions from MD1TPP are generally compliant with Vietnamese standards. Based on the government porocedures,TPMB1 needs to send the results to Quang Ninh Provincial People’s Committee, Cam Pha District People’s Committee, Mong Duong Commune People’s Committee, Quang Ninh DONRE and Quang Ning Department of Public Security. The measurements were taken when the boilers were re-started. TPPMB1 is planning to change the starting-up fuel from fuel oil (FO) to diesel oil (DO) by October 2018 to reduce damage to the emission gas treatment system and to improve the emissions. 10. Ash disposal. The capacity of the exiting ash pond is 2,250,000 m3. Bottom ash is being sold for cement manufacturing, however, according to TPMB1, fly ash from MD1TPP is not suitable for cement manufacturing. As of 26 February 2018, the ash pond’s remaining capacity is estimated to be 588,819 m3, which will serve for only 9 more months. This means that the ash pond will be full by January 2019. TPMB1 plans to construct a second ash pond, but its construction is expected to be completed by December 2020. During appraisal need of ash pond 2 in 2015 (after 5 years of operation) and ash pond 3 in 2030 (after 20 years of operation) was considered. For proper operation of MD1TPP and sustainable ash disposal in the upcoming years, TPMB1 is planning to use fly ash for the ground levelling of an area about 30 km away from power complex and waiting for the approval of “Technical Guidance for use of ash from coal thermal power plant for construction material” by the Prime Minister which is expected to be approved in Q2 2018.5 A detailed plan for the ash use has been prepared by TPMB1 which is under review by GENCO3.

D. Monitoring 11. External and internal monitoring. Environmental Monitoring and Analysis Center of Quang Ninh Province was the third-party external monitor retained by TPMB1 during construction since 2012 and operation phase, except for the period from 1 April 2016 to 31 December 2016 when Environmental Monitoring Center of Viet Nam Environment Administration was contracted. They monitored noise and vibration levels, and the quality of air, groundwater and surface water. Internal monitoring was conducted by TPMB1’s safety department. PIC assisted TPMB1 in

5 The plant discharges annual average of 1 million Ton of bottom and fly ash. TPMB1 has managed to find a land

backfilling company for using 3 million tons of fly ash which can consume both bottom and fly ash from the power plant in the next 3 years.

40 Appendix 9

monitoring and reporting during the construction phase. At the time of project appraisal, Viet Nam’s standard for air emissions was more stringent than the World Bank standard for sulfur dioxide (SO2) and nitrous oxide (NOx) (footnote 21, Report and Recommendation of the President to the Board of Directors of the project). Therefore, Vietnamese environmental standards were referred in assessing the monitoring results. 12. Monitoring during construction. The monitoring of air, soil and water quality did not take place until 2012, because the recruitment of the monitoring agency was delayed.6 Stage 1 PIC was recruited in December 2008, semiannual environmental reports prepared by the stage 1 PIC were submitted to ADB since 2009 on time which included the progress of EMP implementation and highlighted the issues with proposed actions. For example, Mangrove replantation was completed in 2010 and it needed relocation to another site which was implemented in time and completed in 2011. There were issues in growing of Mangrove due to barnacles and based on the quarterly project progress reports actions were taken timely. The monitoring of air, soil and water quality did not take place until 2012, because the recruitment of the monitoring agency was delayed.7

13. Monitoring during operation. After the power plant came into operation in October 2015 (Unit 1) and December 2015 (Unit 2), two EMRs were submitted covering the period until December 2017. ADB found in March 2017, when the first draft monitoring report for operation phase (October 2015 – March 2016) was submitted, that TPMB1 conducted environmental monitoring during the operation phase but not following the Environmental Monitoring Plan (EMoP) included in the EMP. The monitoring in accordance with the EMoP started after ADB explained the EMoP requirement in April 2017. The lapse was mainly because there were no consultants to support TPMB1 in monitoring all the parameters at the frequencies stipulated in the EMoP and reporting during the operation stage, and it took considerable time for TPMB1 to prepare annual environmental monitoring repots during operation. Two meetings and two special environmental safeguards missions were conducted by ADB to support TPMB1 to collect relevant information to finalize the EMRs which were finally updated in April 2018 and disclosed on the ADB website. 14. Government monitoring. The government (Quang Ninh DONRE) also conduct separate monitoring based on domestic environmental impact assessment, its management plan provisions and national environmental standards. Both during the construction phase and operation phase, Quang Ninh DONRE conducted periodic environmental monitoring to check the compliance of domestic environmental impact assessment. DONRE continually monitors the data of online environmental monitoring system; and conducts site inspection annually to check the operation of facilities and also take environmental samples to verify the values in online system. Not only for the project, to meet environmental requirements, EVN has drastically improved the system of environmental protection equipment for the old thermal power plants and has installed automatic monitoring systems for dust parameters and smoke emission stacks in all thermal power plants, all of which are connected to the local Department of Natural Resources and Environment for monitoring and inspection.8

6 ADB. 2009. Back to office report of ADB loan review mission for VIE: Mong Duong 1 Thermal Power Project, Multi Tranche Financing Facility, 11-15 May 2009. Manila

7 ADB. 2009. Back to office report of ADB loan review mission for VIE: Mong Duong 1 Thermal Power Project, Multi Tranche Financing Facility, 11-15 May 2009. Manila

8 Government of Viet Nam, Viet Nam Electricity. 2017. Annual Report. Ha Noi.

Appendix 9 41

E. Conclusion and Recommendations 15. Negative environmental impacts produced in the construction and operation phases have been mitigated by proper measures implemented by the contractors and operators. Loan covenants on environmental aspects are complied with. Based on series of assessments during ADB project review missions, regular monitoring reports, and discussions with relevant stakeholders, the implementation of environmental mitigation measures deemed effective. 16. The post monitoring reports initially did not include all the measurements. ADB observed lack of capacity of the operation staff and guided the relevant staff on proper environmental monitoring and reporting in accordance with EMoP. Therefore, it is recommended that environmental consultant is available for at least one year during the operation stage and that the consultant provide thorough training on regular environmental monitoring to the operation staff.

42 Appendix 10

IMPLEMENTATION OF RESETTLEMENT & ETHNIC MINORITY DEVELOPMENT PLAN

A. Introduction 1. The Multitranche Financing Facility (MFF) for Mong Duong 1 Thermal Power Project (MD1TPP) was approved in September 2007. The main construction activities financed by the two loans are (i) construction of MD1TPP with installed capacity of 1,000 megawatt (MW) using circulating fluidized bed boiler (CFB) technology; and (ii) construction of shared auxiliary infrastructure components for MD1TPP and Mong Duong 2 power plant (MD2TPP) constructed in the same complex by a private company. Auxiliary infrastructures include the construction of freshwater supply system (FWSS), Cooling Water Discharge Channel (CWDC), ash pond,1 and a fence between the boundaries of the two power plants. 2. The sections involving land acquisition and resettlement for the project include the power plant site, cooling water discharge channel, the ash pond and the freshwater supply system. Land acquisition activities of the project are divided into two phases: phase 1, site clearance for powerplant area, cooling water discharge channel, the ash pond which required a resettlement plan (RP); and phase 2, site clearance for FWSS. All affected people due to FWSS belong to ethnic minority of the areas. Consequently, the project is categorized as A for indigenous people’s (IP) impact and a Resettlement and Ethnic Minority Development Plan (REMDP) was prepared for FWSS.

3. RP and REMDP were prepared and coordinated by Thermal Power Management Board No. 1 (TPMB1), the implementing agency under the guidance of Viet Nam Electricity, the executing agency. Five government agencies involved in the implementation of the RP and REMDP. They are Quang Ninh Province People Committee (PPC); Quang Ninh Province of Ethnics; Cham Pha Town Committee of Resettlement; and Town and ward People Committees. Each agency has specific tasks related to the land acquisition and resettlement activities. The compensations for affected households were done by Cham Pa Town Resettlement Committee. B. Resettlement plan and ethnic minority development plan 4. Phase 1. A draft RP for phase 1 was prepared in September 2006 based on preliminary design. This is a very satisfactory start and due to this early preparation, there were no project delays due to resettlement issues. The RP was updated in December 2008 and again in July 2009 in close consultation with the affected people. Based on original RP, about 2,694 ha of land and 37 households (137 people) were expected to be affected including 16 physically displaced households and three severely affected2 households. During project implementation, the total land acquisition impacts, project affected households and its related cost increased substantially. The land impacts remained the same, but the affected households increased from 37 households to 154 households (53 families from land acquisition for the power complex and 101 families from ash pond and water discharge cannel). Four of the affected households needed relocation and 39 of them were severely affected. The cost increased from originally estimated D84,124, 657,353 to D158, 506, 531,800. Most of the increase is attributed to additional involuntary resettlement impacts from the auxiliary components.

1 Initial plan was to construct a common ash pond for both plants in the power complex on cost sharing basis, however

EVN later opted to separate the ash ponds. Two ash ponds were separated by an embankment in the middle. 2 Losing more than 10% of their income generating assets.

Appendix 10 43

5. Phase 2. Once the site was approved for FWSS, a REMDP was prepared in 2012 with specific assistance and livelihood rehabilitation program. The REMDP includes a gender strategy. Ethnic minority development plan was required because all the affected people due to fresh water component belong to ethnic minority of the areas. The FWSS consists of a reservoir, a pumping station, a 10 kV power supply for the pumping station, a water pipe line from the reservoir to the power complex, and an access road. Only the reservoir area and the right of way of water pipeline required land acquisition and resettlement. The original REMDP stated that 10,550 ha of land will be required and 32 households (185 people) will be affected and 30 of them will be either physically and/or economically displaced. During implementation the acquired land increased from 10,550 ha to 18,719 ha.3 The affected families increased from 32 to 195 families, and 37 of them needed relocation and 117 were severely affected. Thus the land acquisition cost is also increased to D108,100,507,500 vs the original estimate of D28,627,426,600. In addition to the compensation cost, the project also covered implementation costs total of D5,441,106,400related to resettlement activities. Summary of land acquisition of the project is in Table A10.1. Table A10.1. Summary of land acquisition Component Land (ha) Affected Households Cost (VND)

Original Final Original Final Original Final

Power complex 269.4 269.4 37 -

53 84,124,657,353 91,416,103,300 Ash pond and water discharge cannel

- 70.25 101 - 67,090,328,500

Fresh Water 105.5 187.19 32 195 28,627,426,600 108,100,507,500 Cost of implementation 5,441,106,400

Source: Viet Nam Electricity project reports

6. Income restoration program. Income restoration program (IRP) for severely affected people and physically displaced people was identified and RP and REMDP was updated in 2012. The program was designed based on demand of affected households through interviews since the establishment of data for the project since 2008. IRP is divided into two components: (i) assistances in accordance with regulations of Quang Ninh PPC, and (ii) training courses for severely affected households focusing on agricultural and forestry extension activities, training for vets and other job trainings applicable to the area. The job training courses concentrated on instruction on cultivation, breeding, cooking, motorbike or car repairs amongst other jobs relevant to the area. There are 156 severely affected households who were entitled to participate in IRP and only 101 members of affected household attended the training program. 4 All the participants were from affected households by the FWSS. Affected households from the main plant and auxiliary components did not register or attended the income restoration training program. This is due to the majority of affected households moved to business and services sector to serve residents and workers during the construction and operation of the project. 96% of the respondents participating in the IRP said that these programs were relatively useful, especially vocational training programs, elementary and immediate technical training classes and training on power plant work in getting jobs in the two power plants.5 3 The Mong Duong thermal complex needs a large amount of fresh water (15,000 m3 per day) for cooling the two

plants. 4 Government of Viet Nam. 2017. Mong Duong 1 Thermal Power Project. Social monitoring report, December 2017.

Ha Noi. 5 Government of Viet Nam. 2017. Mong Duong 1 Thermal Power Project. Social monitoring report, January 2017. Ha

Noi.

44 Appendix 10

C. Implementation 7. Policy and Legal Framework. The land acquisition activity of the project was implemented based on the approved RPs and REMDP and approved updates, ADB Involuntary Resettlement Policy (1995), ADB Indigenous Policy (1998) and relevant laws and regulations of Government of Viet Nam. Specific measures were prepared for the project to mitigate the entitlement gaps between ADB policies and Viet Nam government laws and regulations to the affected households. 8. Compensation. Compensation payments and support allowances following the provisions of the updated RP and REMDP were substantially completed for the power complex, ash pond and water discharge channel (phase 1) in March 2009 and FWSS in 2014. Compensation rates were adjusted in the updated RP to reflect the current rates. TPMB1 coordinated closely with the district compensation committee and resettlement board (DCARB) of Cam Pha city in the preparation and implementation of resettlement. Construction activities were started only after the land has been handed-over by the affected peoples. Arrangements were made to provide training courses to help affected people improve the productivity of their remaining land and diversify income sources. In addition to the IRP, affected people were also advised and assisted in depositing their compensation in banks which allowed them to earn interest income. Internal and external resettlement monitoring conducted throughout the project implementation followed-up on the conditions of the affected people and identified emerging issues during construction. Regular safeguards missions by ADB reviewed the compliance thoroughly.

9. Relocation. All relocated households (relocation was required only due to power plant area and freshwater reservoir area located in Quarter 10, Mong Duong Ward) were self-relocated according to their wishes in consultation with DCARB of Cam Pha city and there are registered applications of these households sent to them by TPMB1 and Mong Duong Ward. Therefore, a resettlement site was not needed. Self-relocated households were assisted as follows: each relocated household, on top of their compensation for land, house, and assets attached to land, is provided with cash assistance of D90 million (following the Decree No.69/2009/ND-CP issued by the government and Decision No.499/2010/QD-UBND issued by PPC for self-relocation (assistance is not counted by amount of losses but the resettlement plot). However, there were differences in each area on the basis of location of the plots and land price issued by PPC (e.g, Mong Duong ward: D90 million, communes: D75 million). The resettlement assistance was paid in cash. Relocated households have built their new houses, settled down and have better income. Compared to the pre-project condition, all the affected people are now living in standard one or two-story houses with corrugated iron roof, running water, electricity and attached toilets. None of the affected households live in houses build from temporary materials (bamboo/cottages) as before the project activities. The affected indigenous people from FWSS component are now living in the main village area with access to electricity, good roads, schools, health facilities and better houses with proper sanitary facilities. Most of the above facilities (electricity, access roads, schools, health facilities) were not available to them before the project. 10. Public participation and disclosure information. Public consultation, stakeholder meeting and participations were conducted before and throughout the project implementation. Meetings were conducted with the local people to get their feedback on the compensation and income restoration program activities. Information dissemination was conducted by TPMB1 and DCARB of Cam Pha city. Orientation meetings have been conducted since 2009 with relevant parties and affected people. Project information has been delivered to 100% affected households (such as introduction of detailed technical design, scope of impacts on land and asset upon on

Appendix 10 45

lands, entitlements for compensation, assistance and resettlement, implementation schedule of land acquisition, compensation, assistance and resettlement and grievance redress mechanism). The documents were reported to been placed in public places and in the house of village leaders and head of mass-organization. The affected people were also actively involved during the inventory of loss activity and social economic survey during the preparation and updating of the RP and REMDP. 11. Grievance redress mechanism. Grievances were resolved through the grievance redress mechanism established for the project which was well implemented. The involvement of ward committee members since the beginning of project implementation provided easy access to affected houses to voice their complaints. The affected households could log their complaints and addressed by the project team satisfactory. Most grievances involve discrepancies in measurements, disputes between claimants, and absence of records. These were normally resolved in a few weeks, except for one case involving an unutilized structure on the access road to the staff house which tool longer time to resolve. Until the project completion date there were no complaints. D. Resettlement Monitoring and Evaluation 12. Project implementation consultants. Project implementation consultants (PIC), Worley Parsons was recruited in January 2009. The consulting team includes a competent national resettlement specialist and an experienced international specialist. PIC was responsible for monitoring the implementation of the RP, devising income restoration strategies, and ensuring project’s compliance to ADB’s Involuntary Resettlement and Indigenous Peoples policies. In parallel, Development Research and Consulting Center (DRCC) to serve as an external monitoring agency was mobilized in November 2008. Internal and external monitoring mechanism were in place to ensure thorough implementation. Since the project commencement in 2008, regular monitoring reports in various forms were submitted by TPMB1 with the assistance of PIC and DRCC. A total of 21 resettlement reports were, submitted and disclosed on ADB website since 2008 to 2017 which included 10 independent monitoring reports and 11 various safeguard monitoring reports. 13. Post evaluation survey. A post-resettlement evaluation report prepared by a local consultancy company engaged by TPMB1 was submitted to ADB in April 2017. The report was poor quality and there were gaps in rationalizing the statements on the status of post project livelihood of affected people based on appropriate facts and figures, and inconsistent information. The sample selected for the final evaluation survey was also small where sampling size was only 61 affected households (17.4% with confidence interval about 11 or 12) out of total 349 affected households. The survey focused on relocated households, severely affected and vulnerable households. Stratified and bigger sampling survey size is required to provide more balanced post evaluation report. ADB brought this the notice of TPMB1 and an updated post evaluation report was submitted to ADB in December 2017 which was still not based on a sound assessment to confirm the status of post project livelihood of the affected people. The report states, the percentage of households participating in other occupation such as business and services, handicrafts and free labor increased from 3.19% to 8.76%, and free labor increased from 6.77% to 11.95%. This labor movement may be due to the number of affected people started businesses using compensation or they started to work as free labor. Clear evaluation was not provided in the report. The report also indicates a concern raised by some affected households on the sustainability of their livelihood income which is also not supported with sufficient assessment. However, changing occupation from farmers to other economic activities (i.e. services/business) that require more live skills are challenging. The training activities designed as part of IRP for

46 Appendix 10

livelihood rehabilitation were not attended by all the affected people. It is reported that among the training courses offered in the IRP only animal husbandry and plantation techniques were considered useful. Providing trainings to the affected families need to be completed with opening access to the local job market and a start capital for opening new business. Concerns of sustainability of livelihood/income by the small landholders affected by the project also have been mentioned in the report without details of number of such households. A proper post evaluation by experienced consultants is required to confirm the status of the livelihoods of the affected people after 4-5 years of the resettlement. E. Lessons and recommendations 14. The cost of implementation activities increased almost three times from the original estimated cost due to the increased number of affected households are also doubled. 15. Livelihood assistances and income restoration program were provided to the entitled affected households. Until the project closing date all affected people received all their entitled compensation, resettled and reconstructed their affected houses at better condition compared to pre-project conditions. Based on the monitoring reports submitted prior to the final evaluation report, they are mostly socially and economically better off. Some affected households use part of the compensation money for establishing new business (small shops / houses for rent) and some invested in other economic activities such as animal husbandry. Some affected people obtained employment from the Cam Pha forestry company and work in the power plant. A sound post evaluation has not been undertaken to confirm the status of livelihoods of affected people. The power plant was commissioned in 2015, it is recommended to review if the livelihoods of the resettled persons are restored to pre-project levels in parallel to the project performance evaluation.

16. Implementation of RP and REMDP are completed timely and satisfactorily. Factors contributed to successful implementation of the RP and REMDP include: the early assignment of a dedicated onsite team from TPMB1 to assess the impacts and prepare the plan in 2006; effective consultation and communication with the affected people; support by the affected communes, wards, and district authorities that have good experience in resettlement; and effective mobilization of experienced institutions for monitoring during implementation.

17. Building on the successful implementation of REMDP, the following recommendations are made to include in similar projects: (i) assessment of impacts and land acquisition requirements, and meaningful consultations with all stakeholders early on; (ii) a carefully designed livelihood restoration program, with specific activities targeting the specific beneficiaries and ensuring access to job opportunities with secure tenure; and (iii) inclusion of wealth management coaching and assistance in the income restoration activities to ensure that the affected households manage their compensation income appropriately to secure the continuation of their livelihood income.

Appendix 11 47

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Tranche 1 - L2353

Covenant Reference in

Loan Agreement

Status of Compliance

Sector

Except as ADB may otherwise agree, all Goods, Works and Consulting Services to be financed out of the proceeds of the Loan shall be procured in accordance with the provisions of Schedule 4 to this Loan Agreement. ADB may refuse to finance a contract where Goods, Works or consulting services have not been procured under procedures substantially in accordance with those agreed between the Borrower and ADB or where the terms and conditions of the contract are not satisfactory to ADB.

LA, Section 3.03 / PA, Section 2.03 (b)

Complied with.

The Borrower shall cause EVN to carry out the Project with due diligence and efficiency and in conformity with sound administrative, financial, engineering, environmental and power generation practices.

LA, Section 4.01 (a) /

PA, Section 2.01 (a)

Complied with.

In carrying out of the Project and operations of the Project facilities, the Borrower shall perform, or cause to be performed, all obligations set forth in Schedules 5, 6 and 7 of this Loan Agreement.

LA, Section 4.01 (b) /

PA, Section 2.01 (b)

Complied with.

The Borrower shall make available or cause to be made available to EVN, promptly as needed, the funds, facilities, services, land and other resources which are required, in addition to the proceeds of the Loan, for carrying out of the Project.

LA, Section 4.02 /

PA, Section 2.02

Complied with.

The Borrower shall ensure that the activities of its departments and agencies with respect to the carrying out of the Project and operation of the Project facilities are conducted and coordinated in accordance with sound administrative policies and procedures.

LA, Section 4.03

Complied with.

The Borrower shall take all action which shall be necessary on its part to enable EVN to perform its obligations under the Project Agreement and shall not take or permit any action which would interfere with the performance of such obligations.

LA, Section 4.04

Complied with.

The Borrower shall exercise its rights under the Subsidiary Loan Agreement in such a manner as to protect the interests of the Borrower and ADB and to accomplish the purposes of the Loan.

LA, Section 4.05 (a)

Complied with.

No rights or obligations under the Subsidiary Loan Agreement shall be assigned, amended, abrogated or waived without the prior concurrence of ADB.

LA, Section 4.05 (b)

Complied with.

Execution The Executing Agency for the Investment Program will be EVN and the Implementing Agency will be TPPMU1. The Project Director, who will be the Director of TPPMU1, will report to the Vice President of EVN, responsible for thermal power generation in northern Viet Nam, on a regular basis.

LA, Schedule 5, Item I, Para. 1

Complied with.

TPPMU1 Chief Accounts Officer will be responsible for coordinating all accounting procedures under the Investment Program and ensuring compliance with ADB’s auditing and accounting requirements.


Complied with.

EVN and TPPMU 1 will consult with ADB on matters related to the Investment Program implementation. All matters relating to selection or appointment or to any changes to such selection or appointment, of any officer-in-charge or the Project Director of the PMU will be promptly notified to ADB.


Complied with.

Technical Issues. The Borrower shall ensure that EVN: (a) adopts appropriate seismic design standards in designing the Investment Program Project; has 14 days of coal stock on site for the duration of the life of the Investment Program Project; (c) takes satisfactory measures along the discharge channel to safeguard power plant operations; (d) assigns adequately trained staff to operate and maintain the project facilities; and (e) takes measures to ensure annual operation and maintenance of MD1 is carried out.

LA, Schedule 7, Para. (i)

Complied with.

48 Appendix 11


Loan Agreement


In the carrying out of the Project, EVN shall employ competent and qualified consultants and contractors, acceptable to ADB, to an extent and upon terms and conditions satisfactory to ADB.


Complied with.

EVN shall carry out the Project in accordance with plans, design standards, specifications, work schedules and construction methods acceptable to ADB. EVN shall furnish, or cause to be furnished, to ADB, promptly after their preparation, such plans, design standards, specifications and work schedules, and any material modifications subsequently made therein, in such detail as ADB shall reasonably request.

PA, Section 2.04

Complied with.

EVN shall take out and maintain with responsible insurers, or make other arrangements satisfactory to ADB for, insurance of Project facilities to such extent and against such risks and in such amounts as shall be consistent with sound practice.


Complied with.

Without limiting the generality of the foregoing, EVN undertakes to insure, or cause to be insured, the Goods to be imported for the Project and to be financed out of the proceeds of the Loan against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable to replace or repair such Goods.


Complied with.

ADB and EVN shall cooperate fully to ensure that the purposes of the Loan will be accomplished.


Complied with.

EVN shall promptly inform ADB of any condition which interferes with, or threatens to interfere with, the progress of the Project, the performance of its obligations under this Project Agreement or the Subsidiary Loan Agreement, or the accomplishment of the purposes of the Loan.


Complied with.

ADB and EVN shall from time to time, at the request of either party, exchange views through their representatives with regard to any matters pertaining to the Project, EVN and the Loan.

PA, Section 2.07 (c)

Complied with.

Without limiting the generality of the foregoing, EVN shall furnish to ADB quarterly reports on the execution of the Project and on the operation and management of the Project facilities. Such reports shall be submitted in such form and in such detail and within such a period as ADB shall reasonably request, and shall indicate, among other things, progress made and problems encountered during the quarter under review, steps taken or proposed to be taken to remedy these problems, and proposed program of activities and expected progress during the following quarter.


Complied with.

Promptly after physical completion of the Project, but in any event not later than three (3) months thereafter or such later date as ADB may agree for this purpose, EVN shall prepare and furnish to ADB a report, in such form and in such detail as ADB shall reasonably request, on the execution and initial operation of the Project, including its cost, the performance by EVN of its obligations under this Project Agreement and the accomplishment of the purposes of the Loan.


Complied with.

EVN shall enable ADB's representatives to inspect the Project, the Goods and Works financed out of the proceeds of the Loan and any relevant records and documents.

PA, Section 2.10

Complied with.

EVN shall, promptly as required, take all action within its powers to maintain its corporate existence, to carry on its operations, and to acquire, maintain and renew all rights, properties, powers, privileges and franchises which are necessary in the carrying out of the Project or in the conduct of its business.


Complied with.

EVN shall at all times conduct its business in accordance with sound administrative, financial, environmental and power generation practices, and under the supervision of competent and experienced management and personnel.


Complied with.

EVN shall at all times operate and maintain its plants, equipment and other property, and from time to time, promptly as needed, make all necessary repairs and renewals thereof, all in accordance with sound administrative,


Complied with.

Appendix 11 49


Loan Agreement


financial, engineering, environmental, power generation, and maintenance and operational practices.

Except as ADB may otherwise agree, EVN shall apply the proceeds of the Loan to the financing of expenditures on the Project in accordance with the provisions of the Loan Agreement, and shall ensure that all Goods, Works and consulting services financed out of such proceeds are used exclusively in the carrying out of the Project.

PA, Section 2.13

Complied with.

Financial

Auditing and Accounting Without limiting the generality of the requirements in the legal documents, the Borrower shall ensure that EVN maintains separate accounts for the Investment Program’s expenditures in accordance with sound accounting principles. All accounts for the Investment Program Project, including financial statements of expenditures and account records will be audited annually as part of the regular audit of accounts and financial statements by an independent auditing firm. Within 6 months of the close of the financial year, the Borrower shall ensure that EVN submits to ADB (i) annual accounts of the Investment Program Project, and (ii) annual financial statements. The annual accounts will contain detailed descriptions of the sources of receipts and expenditures. The annual financial statements will consist of an income statement, balance sheet, statement of cash flows, and for all of EVN’s operations. The annual financial statements will be consolidated for all of EVN’s operations. The consolidated audit reports (in English) will be submitted to ADB in accordance with the requirements and within the deadlines stated in the applicable Loan Agreement. The audit opinion will include (i) a detailed description of the source of funds and expenditures made; (ii) an assessment of the adequacy of accounting and internal controls systems with respect to each project‘s expenditures and other financial transactions, and to ensure safe custody of the assets financed by the Investment Program; (iii) a determination as to whether EVN has maintained adequate documentation for all financial transactions, specifically including the statement of expenditures (SOE); and (iv) confirmation of compliance with the financial covenants set out in the Loan Agreement.

LA, Schedule 5, Item II

Complied with.

Financial ratios and reporting. The Borrower shall ensure through appropriate tariff adjustments and other means, that EVN (a) achieves a self-financing ratio of 25%, (b) a debt service coverage ratio of 1.5 or above, and (c) a long-term debt-equity ratio of at least 70:30 or less. EVN shall (a) maintain an internal audit function to undertake timely audit of Investment Program Project accounts in accordance with generally accepted accounting principles; (b) maintain separate accounts for the Investment Program Project including the financing provided by EVN; and (c) submit to ADB quarterly progress reports, annual audited accounts for the Investment Program Project and consolidated annual audited accounts of EVN.

LA, Schedule 7, Para. (ii)

Partially complied with EVN increased tariff but financial ratios could not be maintained. EVN submitted audited financial reports in time. Internal audit function implemented in 2016 Achieved

EVN shall maintain, or cause to be maintained, records and accounts adequate to identify the Goods, Works and consulting services and other items of expenditure financed out of the proceeds of the Loan, to disclose the use thereof in the Project, to record the progress of the Project (including cost thereof) and to reflect, in accordance with consistently maintained sound accounting principles, its operations and financial condition.

PA, Section 2.06

Complied with.

50 Appendix 11


Loan Agreement


EVN shall furnish to ADB all such reports and information as ADB shall reasonably request concerning (i) the Loan and the expenditure of the proceeds thereof; (ii) the Goods, Works and consulting services and other items of expenditure financed out of such proceeds; (iii) the Project; (iv) the administration, operations and financial condition of EVN; and (v) any other matters relating to the purposes of the Loan.


Complied with.

EVN shall (i) maintain separate accounts for the Project and for its overall operations; (ii) have such accounts and related financial statements (balance sheet, statement of income and expenses, and related statements) audited annually, in accordance with appropriate auditing standards consistently applied, by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB; and (iii) furnish to ADB, promptly after their preparation but in any event not later than 6 months after the close of the fiscal year to which they relate, certified copies of such audited accounts and financial statements and the report of the auditors relating thereto (including the auditors' opinion on (i) the use of the Loan proceeds and a detailed description of the source of funds and expenditures made, (ii) an assessment of the adequacy of accounting and internal controls systems with respect to each Project’s expenditures and other financial transactions, and to ensure safe custody of the Project’s financed assets, (iii) a determination as to whether EVN has maintained adequate documentation for all financial transactions, and (iv) compliance with the covenants of the Loan Agreement), all in the English language. EVN shall furnish to ADB such further information concerning such accounts and financial statements and the audit thereof as ADB shall from time to time reasonably request.


Complied with.

EVN shall enable ADB, upon ADB's request, to discuss EVN’s financial statements and its financial affairs from time to time with the auditors appointed by EVN pursuant to Section 2.09 (a) hereabove, and shall authorize and require any representative of such auditors to participate in any such discussions requested by ADB, provided that any such discussion shall be conducted only in the presence of an authorized officer of EVN unless EVN shall otherwise agree.


Complied with.

Others

Good Governance Consistent with its commitment to good governance, accountability and transparency, ADB reserves the right to investigate directly, or through its agents, any possible corrupt, fraudulent, collusive or coercive practices relating to the Investment Program. To support these efforts, the Borrower shall ensure that:

(a) in its bidding documents for the Investment Program, and in all contracts financed by ADB in connection with the Investment Program, EVN includes provisions specifying the right of ADB to audit and examine the records and accounts of EVN, TPPMU1 and all contractors, suppliers, consultants and other service providers as they relate to the Investment Program; and

(b) EVN requires all procurement activities to be supervised by EVN’s Procurement Department to ensure transparency as well as objective and independent assessment of those activities;

(c) EVN’s auditors have the right to conduct random or spot audits for contract implementation activities under this Loan;

(d) EVN, and TPPMU 1 will cooperate with any such investigations and extend all necessary assistance, including access to all relevant contracts, and accounting and bookkeeping records, as well as engagement of independent experts that may be needed for satisfactory completion of such investigations; and

LA, Schedule 5, Item III, Para. 4

Complied with.

Appendix 11 51


Loan Agreement


(e) EVN publishes in its web site all procurement contracts valued at $1 million and above. It will include the name of the winning bidder, value of the contact and contact details of the bidder.

Anticorruption. The Borrower shall cause EVN to ensure that, EVN’s inspectorate department takes necessary action to prevent corruption by: (a) supervising the bidding processes, bid evaluation and construction of the Investment Program Project; (b) preventing interference in project contract bidding and evaluation processes; and (c) regularly briefing TPPMU1 and relevant government authorities including, as and when an incident of corruption has been detected, the local prosecutor’s office.

LA, Schedule 7, Para. (iii)

Complied with.

Except as ADB may otherwise agree, EVN shall not sell, lease or otherwise dispose of any of its assets which shall be required for the efficient carrying on of its operations or the disposal of which may prejudice its ability to perform satisfactorily any of its obligations under this Project Agreement.

PA, Section 2.12

Complied with.

Except as ADB may otherwise agree, EVN shall duly perform all its obligations under the Subsidiary Loan Agreement, and shall not take, or concur in, any action which would have the effect of assigning, amending, abrogating or waiving any rights and obligations of the parties under the Subsidiary Loan Agreement.

PA, Section 2.14

Complied with.

EVN shall promptly notify ADB of any proposal to amend, suspend or repeal any provision of its Charter and shall afford ADB ab adequate opportunity to comment on such proposal prior to taking any action thereon.

PA, Section 2.15

Complied with.

Environmental

EVN shall ensure that the Investment Program is developed, conducted, implemented and maintained in accordance with all applicable laws and regulations, including ADB’s Environment Policy (2002). If there is any discrepancy between the Borrower’s laws and regulations, and ADB’s Environment Policy (2002), the requirements of ADB’s Environment Policy (2002) shall apply. EVN shall ensure that (a) an environmental management plan (EMP) and the mitigation measures included therein, as specified in the Summary Environmental Impact Assessment (SEIA) for the Investment Program Project, are properly implemented; (b) the Investment Program Project will incorporate all mitigation measures identified in the EMP; (c) any environmental permits, licenses and clearances are obtained in a timely manner; (d) any adverse impact on the environment that may arise from the implementation activities of the Investment Program Project is promptly mitigated or minimized in accordance with the EMP; (e) if there are any major changes in the specific locations or components of project facilities after any periodic financing request is approved, the Borrower shall cause EVN to complete a supplementary environmental assessment in relation to such change in compliance with ADB’s Environment Policy (2002), as such policy may be from time to time amended and updated; (f) in designing the cooling water system, ensure that the rise in temperature in the discharge channel does not exceed acceptable parameters; (g) implementation of the EMP, including any safety breaches, violation of environmental standards and corrective measures taken thereto, is reported semi-annually to ADB; and (h) all civil works and consultant contracts will contain provisions that reflect the above requirements to mitigate negative environmental impacts caused by the construction and to give due consideration to prevention of damage to the natural environment in the design, construction, operation and maintenance of the facilities relating to the Investment Program Project.

LA, Schedule 6, Para. 1

Complied with.

EVN shall (a) monitor the contractors’ implementation of the EMP; (b) ensure that specific provisions are included for the preparation and implementation of the EMP in the EPC contract and in any consulting services contracts; (c) ensure that the environmental mitigation measures in the EIA and SEIA are adequately implemented by the contractors; and (d) provide adequate budgetary allocation for this activity.


Complied with.

EVN shall cause the consultants engaged for construction supervision to monitor closely the compliance by the contractors with the environmental


Complied with.

52 Appendix 11


Loan Agreement


impact mitigation requirements. The Borrower shall ensure that EVN submits to ADB semi-annual monitoring reports on implementation of the EMP.

Resettlement

The Borrower shall cause EVN to engage (i) international resettlement consultants to assist in updating and supervising the implementation of the Resettlement Plan (resettlement plan) and (ii) an independent monitoring organization to monitor the implementation of the resettlement plan and compensation payments before commencement of any land acquisition activities.


Complied with.

The Borrower shall cause EVN to update the resettlement plan following the completion of a detailed measurement survey. The updated resettlement plan will also include components that have resettlement impacts which were not anticipated, fully determined or identified as part of the Project during the feasibility study. The updated resettlement plan will be prepared in full consultation with affected persons and will be disclosed to the affected persons prior to submission to ADB for review and approval.


Complied with.

The Borrower shall cause EVN not to commence any land acquisition and relocation activities until the resettlement plan has been reviewed and approved by ADB.


Complied with.

The Borrower shall cause EVN to carry out all activities related to resettlement, in accordance with the resettlement plan agreed on between the Borrower and ADB, Borrower’s laws, regulations and procedures, and ADB’s social safeguards policies. In case of discrepancies between the Borrower’s laws, regulations and procedures and ADB’s policies, ADB’s policies will prevail. The Borrower shall cause EVN to implement the resettlement plan to the satisfaction of ADB.


Complied with.

The Borrower shall cause EVN not to issue a notice of possession of site to any civil works contractor for any section of construction works unless EVN and TPMMU1 has satisfactorily completed all resettlement activities in a geographic area, ensured that the required rehabilitation assistance is in place, and the area required for civil works is free from all encumbrances.


Complied with.

The Borrower shall cause EVN to ensure timely provision of counterpart funds for resettlement to meet any unforeseen obligations in excess of the resettlement budget estimates in order to satisfy resettlement objectives.


Complied with.

The Borrower shall cause EVN to ensure that (a) it designs and implements an alternative livelihood program for affected persons to ensure sustainable alternate livelihoods are in place prior to the end of year 5 of implementation; (b) it ensures that baseline and monitoring reports are provided to ADB and to affected people; (c) it ensures that any loss of fishery livelihood that has not been mitigated by the livelihood development program are inventoried and immediately compensated and restored in accordance with the agreed updated resettlement plan and RF; (d) it engages resettlement specialist consultants to assist in implementing the resettlement plan and engages an independent monitoring organization; (e) it updates the resettlement plan for the first periodic financing request on completion of detailed design and submits this to ADB for review prior to award of civil works or similar milestone including; (f) it discloses of the updated resettlement plan to affected persons; (g) it prepares the resettlement plan for the second periodic financing request in accordance with the RF agreed between the Borrower and ADB and (h) it mobilizes the resettlement consultant and the independent monitoring organization before any land acquisition activities commence.


Complied with.

Social

The Borrower shall cause EVN to ensure that all civil works contractors (i) comply with all applicable labor laws, (ii) use their best efforts to employ women and local people living in the vicinity of the Investment Program Project, (iii) include a line item in their budget for contracting a qualified non-governmental organization (NGO) to conduct an information and education campaign on human immunodeficiency virus/acquired immunodeficiency syndrome


Complied with.

Appendix 11 53


Loan Agreement


(HIV/AIDS) and other sexually transmitted diseases, targeting workers employed to construct the Investment Program Project and communities along the transmission line routes and substations; (iv) ensure that such campaign will be undertaken as part of the health and safety programs at campsites during construction, and is supplemented by an education/information program targeted at the local communities and mobile populations living within the site of the Investment Program Project; and (v) provide annual medical checkups for the people living close to the Investment Program Project.

The Borrower shall ensure that EVN (i) requires its contractors not to differentiate between men’s and women’s wages or benefits for work of equal value; (ii) ensures that contracts for the Investment Program Project include specific clauses on the undertakings referred to in the foregoing paragraph, and (iii) strictly monitors compliance with the relevant requirements during Project implementation.


Complied with.

Tranche 2 - L2610

Project Specific Covenants Reference


Sector

Except as ADB may otherwise agree, all Goods, Works and consulting services to be financed out of the proceeds of the Loan shall be procured in accordance with the provisions of Schedule 4 to this Loan Agreement. ADB may refuse to finance a contract where Goods, Works or consulting or services have not been procured under procedures substantially in accordance with those agreed between the Borrower and ADB or where the terms and conditions of the contract are not satisfactory to ADB.

LA, Section 3.03/ PA, Section, 2.03 (b)

Complied with.

The Borrower shall cause EVN to carry out the Project with due diligence and efficiency and in conformity with sound administrative, financial, engineering, environmental and power generation practices.

LA, Section 4.01 (a)/PA Section 2.01 (a)

Complied with.

In the carrying out of the Project and operation of the Project facilities, the Borrower shall perform, or cause to be performed, all obligations set forth in Schedule 5 to this Loan Agreement and the Project Agreement.

LA, Section 4.01 (b)/ PA Section 2.01 (b)

Complied with.

The Borrower shall make available to EVN, promptly as needed, the funds, facilities, services, land and other resources which are required, in addition to the proceeds of the Loan, for the carrying out of the Project.

LA, Section 4.02/PA Section 2.02

Complied with.

The Borrower shall ensure that the activities of its departments and agencies with respect to the carrying out of the Project and operation of the Project facilities are conducted and coordinated in accordance with sound administrative policies and procedures.

LA, Section 4.03 Complied with.

The Borrower shall take all action which shall be necessary on its part to enable EVN to perform its obligations under the Project Agreement, and shall not take or permit any action which would interfere with the performance of such obligations.

LA, Section 4.04 Complied with.

The Borrower shall exercise its rights under the Subsidiary Loan Agreement in such a manner as to protect the interests of the Borrower and ADB and to accomplish the purposes of the Loan.

LA, Section 4.05 (a) Complied with.

No rights or obligations under the Subsidiary Loan Agreement shall be assigned, amended, abrogated or waived without the prior concurrence of ADB.

LA, Section 4.05 (b) Complied with.

Implementation Arrangements EVN shall be the Project Executing Agency. TPPMU 1 shall be the Implementing Agency. The Project Director, who will be the Director of TPPMU 1, shall report to the Vice President of EVN, responsible for development of power generation in the Project area, on a regular basis.


Complied with.

TPPMU 1 Chief Accounts Officer shall be responsible for coordinating all accounting procedures under the Project and ensuring compliance with ADB’s auditing and accounting requirements.


Complied with.

54 Appendix 11

EVN and TPPMU 1 shall consult with ADB on matters related to the Project implementation. All matters relating to selection or appointment or to any changes to such selection or appointment, of any officer-in-charge or the Project Director will be promptly notified to ADB.


Complied with.

Technical Issues The Borrower shall ensure that EVN (a) has at least 14 days of coal stock on site for the duration of the Project life, (b) takes satisfactory security measures along the discharge channel to safeguard power plant operation, (c) assigns adequately trained staff to operate and maintain the Project facilities, and (d) takes measures so that annual operation and maintenance of the plant is carried out.


Complied with.

Financial Ratio and Reporting

The Borrower shall also ensure that EVN (b) maintains separate accounts for the Project, including the financing provided by EVN.


Partially Complied with. Achieved

The Borrower shall ensure, through appropriate tariff adjustments and other means, that EVN shall maintain (a) self-financing ratio of 25% or above, (b) debt service coverage ratio of 1.5 or above, and (c) long-term debt-equity ratio of at least 70:30 or less.

Tarif adjustment made but was not sufficient to maintain the financial ratios

The Borrower shall also ensure that EVN (a) maintains an internal audit function to undertake timely audit of project accounts in accordance with generally accepted accounting principles.

Internal audit function established in 2016.

The Borrower shall also ensure that EVN (c) submits to ADB quarterly progress reports, annual audited project accounts, and consolidated audited accounts of EVN.

Achieved

Anticorruption and Good Governance The Borrower shall, and shall cause EVN and TPPMU 1 to, comply with ADB’s Anticorruption Policy (1998, as amended to date). The Borrower, EVN and TPPMU1 acknowledge that consistent with its commitment to good governance, accountability, and transparency, ADB reserves the right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive, or coercive practices relating to the Project. To support these efforts, the Borrower shall cause EVN and TPPMU 1 to ensure that: a. relevant provisions of ADB’s Anticorruption Policy are included in the bidding documents for the Project and all contracts financed by ADB in connection with the Project include provisions specifying the right of ADB to audit and examine the records and accounts of EVN, and all contractors, suppliers, consultants, and other service providers as they relate to the Project;


Complied with.

b. EVN requires all procurement activities to be supervised by EVN’s Procurement Department to ensure transparency as well as objective and independent assessment of those activities;


Complied with.

c. EVN’s auditors have the right to conduct random or spot audits for contract implementation activities under this Loan;


Complied with.

d. EVN and TPPMU 1 shall cooperate with any such investigations and extend all necessary assistance, including access to all relevant contracts, and accounting and bookkeeping records, as well as engagement of independent experts that may be needed for satisfactory completion of such investigations; and


Complied with.

e. EVN publishes on its web site information on all procurement contracts valued at $1 million and above. Such information shall include the name of the winning bidder, value of the contract and contact details of the bidder.


Complied with.

Resettlement and Social Safeguards

The Borrower, through EVN, shall engage and mobilize resettlement and LA, Schedule 5, Para. Complied with.

Appendix 11 55

ethnic minority consultants experienced in ADB's Involuntary Resettlement Policy (1995) and ADB's Policy on Indigenous Peoples (1998) to (a) assist in updating and implementing the REMDP, and (b) prepare resettlement plans for project components in accordance with the RF.

8

The Borrower shall cause EVN to ensure that (a) the REMDP is implemented efficiently in accordance with the Borrower's applicable laws and regulations and ADB’s Involuntary Resettlement Policy and Policy on Indigenous Peoples; (b) all affected people are given adequate opportunity to participate in resettlement planning and implementation; (c) focus is placed on the needs of the most vulnerable including ethnic minorities and gender issues; (d) the affected people are compensated and assisted prior to displacement from their land and assets such that they shall be at least as well off as they would have been in the absence of the Project; (e) implementation of the REMDP is monitored and evaluated by EVN and the independent monitoring organization acceptable to ADB; (f) monitoring and evaluation is undertaken using gender and ethnic group disaggregated indicators, and related reports are submitted to ADB on a quarterly basis; (g) the resettlement plans for project components shall be prepared in accordance with the RF, and submitted to ADB for review and approval; and (h) the REMDP and any subsequent resettlement plans are disclosed to the affected people in accordance with ADB policies.


Complied with.

The Borrower shall ensure that the gender strategy provided in the REMDP is undertaken to minimize resettlement related impact, including the following specific actions: (a) separate consultation meeting shall be held to disclose each resettlement plan; (b) registration of the replacement land in the names of both husband and wife in cases where land acquisition has taken place; (c) compensation money given to both husband and wife; and (d) consultation with women in planning of income restoration program and livelihood activities, and involvement of women in livelihood training program.

LA, Schedule 5, para. 10

Complied with

The Borrower shall cause EVN to ensure that (a) funds needed for land acquisition and resettlement, including unforeseen obligations in excess of the resettlement budget estimates, are allocated and disbursed in a timely manner; (b) the REMDP and subsequent resettlement plans (for staff quarters, etc.) are updated and submitted to ADB within 3 months of completing the detailed measurement surveys; and (c) ADB is promptly advised of any substantial changes in the resettlement impacts and, if necessary, a revised REMDP/resettlement plan is submitted to ADB for approval.


Complied with

In the event of any conflict or gap between provisions and principles of ADB's Involuntary Resettlement Policy and Policy on Indigenous Policy and the Borrower's laws and regulations, the provisions and principles of ADB's policies shall prevail.


Complied with.

The Borrower, through EVN, shall ensure that all Works contracts under the Project incorporate provisions and budgets to the effect that contractors (a) comply with the Borrower’s applicable labor laws and related international treaty obligations and do not employ child labor; (b) provide safe working conditions, water and separate sanitation facilities for male and female workers in the construction camps and in the construction sites; (c) provide equal wages to male and female workers for work of equal value; (d) provide child day-care services for female construction workers; (e) recruit local labor for construction work; and (f) undertake HIV/AIDS and human trafficking education and awareness campaigns in the construction camps, other risk groups and villages, and along the constructions sites, labor camps and surrounding villages.


Complied with.

Environmental Safeguards

The Borrower, through EVN, shall ensure that the Project is developed, conducted, implemented and maintained in accordance with the Borrower's applicable laws and regulations, ADB’s Environment Policy (2002) and the EIA. If there is any discrepancy between the Borrower’s


Complied with.

56 Appendix 11

laws and regulations, and ADB’s Environment Policy, the requirements of ADB’s Environment Policy shall apply. The Borrower, through EVN, shall ensure that (a) a detailed EMP is prepared by EPC contractor for construction phase consistent with the EMP contained in the EIA and the detailed design; (b) any environmental permits, licenses and clearances are obtained in a timely manner; (c) any adverse impact on the environment that may arise from the implementation of Project activities is promptly mitigated or minimized in accordance with the EMP; (d) if there are any major changes in the specific locations or components of the Project facilities after the Project is approved, a supplementary environmental assessment is completed in relation to such change in compliance with ADB’s Environment Policy; (e) design of the cooling water system does not allow the rise in temperature in the discharge channel above acceptable parameters; (f) implementation of the EMP, including any safety breaches, violation of environmental standards and corrective measures taken thereto, is reported semiannually to ADB; and (g) all Works and consultant contracts shall contain provisions that reflect the above requirements to mitigate negative environmental impacts caused by the construction and to give due consideration to prevention of damage to the natural environment in the design, construction, operation and maintenance of the Project facilities.

The Borrower, through EVN, shall (a) monitor the implementation of the EMP by contractors; (b) ensure that specific provisions are included for the preparation and implementation of the EMP in the EPC contract; and (c) ensure that the environmental mitigation measures in the EIA are adequately implemented by the contractors; and (d) provide adequate budgetary allocation for this activity.


Complied with.

The Borrower, through EVN, shall cause the consultants engaged for construction supervision to monitor closely the compliance by the contractors with the environmental impact mitigation requirements


Complied with.

The Borrower, through EVN, shall ensure proper implementation of environmental mitigation and monitoring measures specified in the IEE for the freshwater supply component. Environmental monitoring reports on the implementation of such measures shall be included in the semi-annual reports on EMP implementation for the entire Project


Complies with

In the carrying out of the Project, EVN shall employ competent and qualified consultants and contractors, acceptable to ADB, to an extent and upon terms and conditions satisfactory to ADB.

PA, Section 2.03 (a) Complied with.

EVN shall carry out the Project in accordance with plans, design standards, specifications, work schedules and construction methods acceptable to ADB. EVN shall furnish, or cause to be furnished, to ADB, promptly after their preparation, such plans, design standards, specifications and work schedules, and any material modifications subsequently made therein, in such detail as ADB shall reasonably request.

PA, Section 2.04 Complied with.

EVN shall take out and maintain with responsible insurers, or make other arrangements satisfactory to ADB for, insurance of Project facilities to such extent and against such risks and in such amounts as shall be consistent with sound practice.


Without limiting the generality of the foregoing, EVN undertakes to insure, or cause to be insured, the Goods to be imported for the Project and to be financed out of the proceeds of the Loan against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable to replace or repair such Goods.

PA, Section 2.05 (b) Complied with.

EVN shall maintain, or cause to be maintained, records and accounts adequate to identify the Goods, Works and consulting services and other items of expenditure financed out of the proceeds of the Loan, to disclose the use thereof in the Project, to record the progress of the Project (including the cost thereof) and to reflect, in accordance with consistently maintained sound accounting principles, its operations and financial condition.


Appendix 11 57

ADB and EVN shall cooperate fully to ensure that the purposes of the Loan will be accomplished.


EVN shall promptly inform ADB of any condition which interferes with, or threatens to interfere with, the progress of the Project, the performance of its obligations under this Project Agreement or the Subsidiary Loan Agreement, or the accomplishment of the purposes of the Loan.


ADB and EVN shall from time to time, at the request of either party, exchange views through their representatives with regard to any matters relating to the Project, EVN and the Loan.

PA, Section 2.07 (c) Complied with.

EVN shall furnish to ADB all such reports and information as ADB shall reasonably request concerning (i) the Loan and the expenditure of the proceeds thereof; (ii) the Goods, Works and consulting services and other items of expenditure financed out of such proceeds; (iii) the Project; (iv) the administration, operations and financial condition of EVN; and (v) any other matters relating to the purposes of the Loan.


Without limiting the generality of the foregoing, EVN shall furnish to ADB quarterly reports on the execution of the Project and on the operation and management of the Project facilities. Such reports shall be submitted in such form and in such detail and within such a period as ADB shall reasonably request, and shall indicate, among other things, progress made and problems encountered during the quarter under review, steps taken or proposed to be taken to remedy these problems, and proposed program of activities and expected progress during the following quarter.


Promptly after physical completion of the Project, but in any event not later than three (3) months thereafter or such later date as ADB may agree for this purpose, EVN shall prepare and furnish to ADB a report, in such form and in such detail as ADB shall reasonably request, on the execution and initial operation of the Project, including its cost, the performance by EVN of its obligations under this Project Agreement and the accomplishment of the purposes of the Loan.


EVN shall (i) maintain separate accounts for the Project and for its overall operations; (ii) have such accounts and related financial statements (balance sheet, statement of income and expenses, and related statements) audited annually, in accordance with appropriate auditing standards consistently applied, by independent auditors whose qualifications, experience and terms of reference are acceptable to ADB; and (iii) furnish to ADB, promptly after their preparation but in any event not later than 6 months after the close of the fiscal year to which they relate, certified copies of such audited accounts and financial statements and the report of the auditors relating thereto (including the auditors' opinion on the use of the Loan proceeds and compliance with the covenants of the Loan Agreement), all in the English language. EVN shall furnish to ADB such further information concerning such accounts and financial statements and the audit thereof as ADB shall from time to time reasonably request.


In addition to annual audited financial statements referred to in paragraph (a) of this Section, EVN shall furnish to ADB within 2 months after the end of each fiscal year, unaudited annual financial statements on the Project operations for such fiscal year.


EVN shall enable ADB, upon ADB's request, to discuss EVN’s financial statements and its financial affairs from time to time with the auditors appointed by EVN pursuant to Section 2.09(a) hereabove, and shall authorize and require any representative of such auditors to participate in any such discussions requested by ADB, provided that any such discussion shall be conducted only in the presence of an authorized officer of EVN unless EVN shall otherwise agree.


EVN shall enable ADB's representatives to inspect the Project, the Goods and Works financed out of the proceeds of the Loan, all other plants, sites, properties and equipment of EVN to the extent relevant to the project, and any relevant records and documents.


58 Appendix 11

EVN shall, promptly as required, take all action within its powers to maintain its corporate existence, to carry on its operations, and to acquire, maintain and renew all rights, properties, powers, privileges and franchises which are necessary in the carrying out of the Project or in the conduct of its business.


EVN shall at all times conduct its business in accordance with sound administrative, financial, environmental and power generation practices, and under the supervision of competent and experienced management and personnel.


EVN shall at all times operate and maintain its plants, equipment and other property, and from time to time, promptly as needed, make all necessary repairs and renewals thereof, all in accordance with sound administrative, financial, engineering, environmental, power generation, and maintenance and operational practices.


Except as ADB may otherwise agree, EVN shall not sell, lease or otherwise dispose of any of its assets which shall be required for the efficient carrying on of its operations or the disposal of which may prejudice its ability to perform satisfactorily any of its obligations under this Project Agreement.


Except as ADB may otherwise agree, EVN shall apply the proceeds of the Loan to the financing of expenditures on the Project in accordance with the provisions of the Loan Agreement and this Project Agreement, and shall ensure that all Goods, Works and consulting services financed out of such proceeds are used exclusively in the carrying out of the Project.


Except as ADB may otherwise agree, EVN shall duly perform all its obligations under the Subsidiary Loan Agreement, and shall not take, or concur in, any action which would have the effect of assigning, amending, abrogating or waiving any rights or obligations of the parties under the Subsidiary Loan Agreement.


EVN shall promptly notify ADB of any proposal to amend, suspend or repeal any provision of its Charter and shall afford ADB an adequate opportunity to comment on such proposal prior to taking any action thereon.


Appendix 12 59

ECONOMIC ANALYSIS

1. The economic analysis uses a domestic price numéraire and all values are in real terms in US$ at 2015 prices. To reflect the social value of the equipment, based on the domestic price numeraire, a shadow exchange rate factor is used (SERF = 1.05 for Viet Nam)1. Labor costs have been assumed to be 20% of the total project cost and this was split as 60% skilled labor cost and 40% unskilled labor. A shadow wage rate factor (SWRF) of 1 has been assumed for skilled labor. SWRF of 0.75 for unskilled labor has been assumed to reflect surplus availability of unskilled labor. 2 According to ADB’s Guideline on Economic Analysis of Projects, the economic viability of the Mong Duong 1 Thermal Power Project (the project) was examined. a. Cost Valuation 2. The costs to the society are the investment and the operating costs of the project, and environmental mitigating costs. Investment costs broken down into different components, have been multiplied by their respective shadow exchange rate factors (SERF) for calculating actual costs to the society. The total costs considered also include physical contingencies, but exclude interest during the construction and price contingency. A significant part of operating cost includes fuel costs (coal) and costs of limestone used in the circular fluidized bed (CFB) boiler. Investment costs of the project are in Table A12.1.

Table A12.1: Investment costs of the project in economic terms

Item Cost

($million) SERF

Shadow Value ($ million) 3

Engineering, procurement and construction 1,316.96 1.05 1343.29 Civil Works

Dredging of cooling water discharge 0.00 1.05 0.00

Ash pond (phase 1) 4.13 1.05 4.21

Cooling water discharge canal 9.78 1.05 9.98

Fresh water system 7.85 1.05 8.01

Residential area for staff 0.00 1.05 0.00

Fence between the two power plants 0.25 1.05 0.26

Compensation and Resettlement Costs 4.92 1 4.92

Project Management Cost 1.51 1 1.51

Consulting Services 11.54 1 11.54

Total 1,356.93 1383.71 IDC = interest during construction, SERF = shadow exchange rate factor. Source: Based on Electricity of Viet Nam’s project cost estimates.

1 The SERF has been estimated following the ADB Guidelines and ERD Technical Note No. 11 "Shadow Exchange

Rates for Project Economic Analysis" on the calculation of the shadow conversion factor assuming there are no distortions in factor or commodity prices. The estimation uses import and export data from IMF. For Import taxes, values from the state budget revenue from the General Statistic Office of Vietnam (www.gso.gov.vn) have been used. Export taxes have been estimated by applying the export tax rate to the respective values of the three most relevant exports products where export taxes are applicable (Statistic Yearbook on Vietnam Trade 2012).

2 ADB estimates: SWRF for labor surplus countries in the range of 0.50-0.75 3 Shadow values calculated assuming 20% of project cost as labor costs and a combined shadow wage rate factor of

0.9 based on 60% skilled labor and 40% unskilled labor

60 Appendix 12

3. Capex for construction of MD1TPP is well within the observed range of capex for plants of similar capacities. Table A12.2 summarizes the data used for benchmarking project costs for coal-fired power plants.

Table A12.2: Project Costs of Coal-fired power plants in the region

Project Name Capex ($ million)

Capacity (MW)

Project Country

Capex ($ million/MW)

Van Phong 1 Coal-Fired Power Plant 2,750 1,200 Viet Nam 2.29 Vung Ang 3 Coal-fired Power Plant 2,400 1,200 Viet Nam 2.00 Nam Dinh I Coal-Fired Plant 2,300 1,200 Viet Nam 1.92 Vung Ang 2 Thermal Power Plant 2,200 1,200 Viet Nam 1.83 Cirebon 2 Coal-Fired Power Plant 2,175 1,000 Indonesia 2.18 Coal-fired Tanjung Bin Power Plant Johor 2,132 1,000 Malaysia 2.13 GNPower Mariveles Coal-Fired Plant 2,000 1,200 Philippines 1.67 Cirebon 3 Coal-Fired Power Plant 2,000 1,000 Indonesia 2.00 Mong Duong 2 Thermal Power Plant 1,948 1,200 Vietnam 1.62 Hai Duong Coal-Fired Power Plant 1,912 1,200 Viet Nam 1.59 Yokosuka Coal-Fired Power Plant 1,910 1,000 Japan 1.91 Duyen Hai 2 Coal-Fired Power Plant 1,760 1,200 Viet Nam 1.47 Vinh Tan 1 Coal-Fired Thermal Power Plant 1,754 1,200 Viet Nam 1.46 Vinh Tan 4 Coal-Fired Power Plant 1,700 1,200 Viet Nam 1.42 Thai Binh 2 Thermal Power Plant 1,656 1,200 Viet Nam 1.38 Vung Ang 1 Power Plant Project 1,600 1,200 Viet Nam 1.33 Long Phu 1 Thermal Power Plant 1,595 1,200 Viet Nam 1.33 3A Coal-Fired Power Plant 1,532 1,000 Malaysia 1.53

Source: IJGlobal database (https://ijglobal.com/data/search-transactions)

b. Economic Analysis Approach 4. Results of the "with Project” scenario simulation show that the system dispatches about 6,400 gigawatt-hour (GWh) from the plant every year. To gauge the impact of the power plant on system, Loss of Load Expectation (LOLE) has been utilized. Loss of Load Expectation is defined as the cumulative amount of time (hours / annum) when shortage of power will be experienced. In the "without Project” scenario, LOLE increased substantially. This reflects severe worsening of the system reliability without project. Given the national standard of less than 24 hours of outage per year and increasing LOLE in the “without project” scenario, EVN will face severe difficulty in meeting reliability standards. The shortage of electricity in the north and south will have high societal costs as industrial and commercial businesses are concentrated in these regions. More importantly, since the system is integrated, lack of capacity in the north would also lead to increase in LOLE in the South over the simulation period. The increase of the LOLE between the "with" and "without" project scenarios is a measure of expected energy not served had the same value of LOLE been used in both scenarios. Increased production of thermal power plants in the northern and southern regions will cover part of the shortage without project.

5. The demand and generation capacities considered for the analysis are given in the table A12.3. Installed capacity and power demand growth rate in Viet Nam were taken from the Power Development Plan VII (PDP VII) updated in 2016. The installed annual capacities will be escalated at a growth rate taken from the PDP VII. The installed capacities after the year 2030 are considered to be constant over the period until the end of analysis period which is 2050.

Appendix 12 61

Table A12.3: Generating Capacity vs. Peak Demand of the System (2015–2030)

Item 2015 2016 2017 2018 2019 2020 2021 2022

Demand (MW) 25,300 27,956 30,892 34,135 37,712 41,680 45,014 48,616

Installed Capacity (MW) 38553 42135 43370 45130 46099 46399 47085 47771

Annual demand Growth 10.50% 10.50% 10.50% 10.50% 10.50% 10.50% 8.00% 8.00%

2023 2024 2025 206 2027 2028 2029 2030

Demand (MW) 52,505 56,705 61,242 66,141 71,432 77,147 83,319 89,984

Installed Capacity (MW) 48457 49143 49829 50515 51201 51887 52573 53259

Annual demand Growth 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00%

MW: megawatt Sources: Power Development Plan VII

c. Valuation of Costs 6. The operation & maintenance (O&M) costs for the MD1TPP are estimated by averaging O&M costs for other CFB based plants. Based on this analysis, cost of coal is $0.019/kWh and cost of limestone is $0.0012/kWh. The fixed costs of staff (overhead) considered in the calculation is $19.08 million ($17,670/MW/year).4 The O&M costs of water and oil considered in the calculation is $1.22 per MWh and $2.58 million. Since O&M is carried out by EVN, a composite SWRF of 0.95 has been assumed for O&M services with labor representing 20% of the O&M cost.5 7. An additional capex of $8.50 million has been assumed in 5th year of operation (2020) for construction of Ash Pond 2. This cost is inclusive of pre-feasibility study required for construction. Cost estimates for construction of Ash Pond 2 have been kept the same as estimated at appraisal. Further expansion of Ash Pond (Ash Pond 3) is assumed in 2035. Since capacities of both ash ponds are estimated to be the same, capex of $8.50 million for ash pond 3 has been assumed. d. Valuation of benefits 8. The economic value of electricity generated by MD1TPP is measured by the costs to the society not having electricity. This cost comprises the costs of suboptimal operation of thermal power plants to partly replace the project, and the costs to the consumers (industrial, residential, commercial) due to energy not served. In other words, the societal benefits of having MD1TPP is the sum of two components: (i) the non-incremental benefits accrued by not having to run thermal power plants at suboptimum levels, thereby producing savings; and (ii) the benefits both incremental and non-incremental accrued to the consumers by having a sufficient supply of electricity. The incremental benefits and non-incremental benefits calculated for the evaluation are given in the Table A12.4. 9. Avoided cost of thermal generation. The extra production by power plants in the northern region is coal-based using domestic coal, whereas in the southern region is gas-based and/or furnace oil-based power generation. The corresponding average costs are $ 0.047/kWh for coal and $0.053/kWh for gas. These production costs are used to value the benefits of MD1TPP—i.e., non-incremental benefits from the avoided costs of running thermal power plants outside their optimal regime.

4 Based on EIA estimate for conventional fired plants https://www.eia.gov/outlooks/aeo/assumptions/pdf/table_8.2.pdf 5 During plant operations, skilled labor would be required for activities like preventive maintenance, monitoring of

equipment etc. Involvement of unskilled labor would be reduced. An allocation of 20% of labor cost to unskilled labor has been assumed during operations.

https://www.eia.gov/outlooks/aeo/assumptions/pdf/table_8.2.pdf

62 Appendix 12

10. Incremental benefits. As anticipated electricity demand cannot be met in the "without project” scenario, consumers will experience power shortages. This represents the incremental value of the benefits of having the project. The shortage of electricity supply in the "without" project scenario results in different costs to different consumer categories. Household consumers will have to curtail their consumption, while industrial and commercial consumers will use alternative generating sources to replace the shortage of electricity. Incremental benefits to households are valued at the willingness to pay assumed to be average retail tariff plus the consumer surplus. The consumer surplus is estimated using the willingness to pay curve derived from the cost for small scale self-generation and a price elasticity of -0.43. The avoided cost of self-generation for households is estimated to be $0.11 / kWh.6 11. Nondomestic consumers (commercial and other users) are assumed to use self-generation to meet their energy need when electricity supply is curtailed or non-available and is therefore considered non-incremental and is valued at the resource cost saving for self-generation. Their benefit per kWh is estimated to be $0.14 / kWh.7

12. The distribution of electricity consumption among the households and industries is taken from the ADB’s Viet Nam energy sector assessment, December 2015. The shares of industrial consumption and household consumption are 54 % and 36 % respectively, with 10% consumed by other sectors.

Table A12.4: Economic benefits of the project valued by consumer categories ($ million)

Year Avoided Costs of Thermal Power

domestic consumers

industrial consumers

commercial consumers

Total Benefits

2016 82.40 93.89 175.89 32.57 384.75 2017 74.67 96.24 180.30 33.39 384.60 2018 166.11 98.33 184.20 34.11 482.75 2019 164.51 99.97 187.27 34.68 486.43 2020 158.02 106.63 199.75 36.99 501.40 2021 150.47 114.39 214.29 39.68 518.83 2022 177.20 86.94 162.87 30.16 457.16 2023 159.25 105.37 197.39 36.55 498.56 2024 159.23 105.39 197.43 36.56 498.61 2025 168.33 96.05 179.93 33.32 477.63 2026 160.84 103.73 194.33 35.99 494.89 2027 152.76 112.03 209.87 38.87 513.54 2028 144.04 121.00 226.66 41.97 533.67 2029 134.61 130.67 244.80 45.33 555.41 2030 124.43 141.13 264.38 48.96 578.90 2031 to 124.43 141.13 264.38 48.96 578.90

2050

Source: Asian Development Bank estimates.

13. The data used for calculating the economic benefits are tabulated in table 12.5.

6 Based on retail tariff of D 1535 / kWh and self-generation cost estimated by using an efficiency factor of 30% and

diesel consumption of 0.26 liters / kWh 7 Assuming a diesel price of $0.53/litre, conversion of 1 litre to 10.75 kWh and generator efficiency of 35%

Appendix 12 63

Table A12.5: Data used for calculating the economic benefits

Year Loss of Load Expectation (hrs / Year) Reduction in generation at

South Gas plant (GWh)

Reduction in generation at

North Gas plant (GWh)

with MD scenario without MD scenario

North Central South North Central South

2015 21.97 7.87 23.24 118.68 12.53 32.82 0.00 0.00 2016 21.61 0.00 22.29 88.00 0.00 38.62 1094.06 519.68 2017 21.53 0.09 23.02 86.32 0.11 34.93 991.46 470.94 2018 22.92 1.64 21.26 82.92 2.32 31.52 2205.50 1047.61 2019 20.38 4.76 20.11 72.33 6.20 31.99 2184.31 1037.55 2020 21.68 23.84 22.81 72.35 29.48 29.49 2098.17 996.63 2021 22.04 14.09 24.35 72.67 16.85 33.54 1997.82 948.97 2022 20.84 13.38 22.45 58.63 12.85 29.23 2352.77 1117.56 2023 22.21 25.91 22.89 63.74 30.02 26.68 2114.48 1004.38 2024 20.96 11.41 24.41 57.28 13.60 31.66 2114.22 1004.26 2025 20.61 14.72 23.87 53.94 17.10 26.79 2234.97 1061.61 2026 20.61 14.72 23.87 53.94 17.10 26.79 2135.62 1014.42 2027 20.61 14.72 23.87 53.94 17.10 26.79 2028.32 963.45 2028 20.61 14.72 23.87 53.94 17.10 26.79 1912.44 908.41 2029 20.61 14.72 23.87 53.94 17.10 26.79 1787.28 848.96 2030

to 20.61 14.72 23.87 53.94 17.10 26.79 1652.12 784.76 2050

Source: Asian Development Bank Estimates

e. Economic cost-benefit analysis 14. The calculation of the economic benefits, costs and the economic internal rate of return (EIRR) is given in the Table A12.6. The net present value (NPV) of the benefits amounts to $478.87 (calculated at a discount rate of 12%). EIRR of the project is 17.64% which is lower than the estimated 23.9% at project appraisal. This is mainly due to the cost overruns of the project and the increased costs of coal and limestone used in the operation of the plant.

Table A12.6: Cost Benefits Calculation for Economic Analysis

Year Investment

Cost VOM

Cost 1 FOM Cost2

Total Cost

Avoided Costs of Thermal Power

Incremental Benefits to Household Consumers

Benefits to Industrial

Consumers

Benefits to Commercial Consumers

Total Benefit

Net Benefit

2009 6.97 - - - - - - - - (6.97)

2010 8.40 - - - - - - - - (8.40)

2011 5.15 - - - - - - - - (5.15)

2012 80.58 - - - - - - - - (80.58)

2013 985.79 - - - - - - - - (985.79)

2014 129.52 - - - - - - - - (129.52)

2015 6.84 10.28 21.47 31.75 - 20.66 38.70 7.17 66.52 27.93

2016 104.70 88.96 21.47 110.44 82.40 93.89 175.89 32.57 384.75 169.62

2017 75.61 86.17 21.47 107.64 74.67 96.24 180.30 33.39 384.60 201.35

2018 - 134.09 21.47 155.56 166.11 98.33 184.20 34.11 482.75 327.19

2019 - 134.09 51.68 185.77 164.51 99.97 187.27 34.68 486.43 300.67

2020 - 134.08 29.97 164.05 158.02 106.63 199.75 36.99 501.40 337.35

2021 - 134.06 21.47 155.54 150.47 114.39 214.29 39.68 518.83 363.30

2022 - 134.11 21.47 155.58 177.20 86.94 162.87 30.16 457.16 301.58

2023 - 134.08 51.68 185.76 159.25 105.37 197.39 36.55 498.56 312.81

2024 - 134.08 21.47 155.55 159.23 105.39 197.43 36.56 498.61 343.06

64 Appendix 12

Table A12.6: Cost Benefits Calculation for Economic Analysis

Year Investment

Cost VOM

Cost 1 FOM Cost2

Total Cost

Avoided Costs of Thermal Power

Incremental Benefits to Household Consumers

Benefits to Industrial

Consumers

Benefits to Commercial Consumers

Total Benefit

Net Benefit

2025 - 134.10 91.95 226.04 168.33 96.05 179.93 33.32 477.63 251.59

2026 - 134.08 21.47 155.55 160.84 103.73 194.33 35.99 494.89 339.34

2027 - 134.07 51.68 185.74 152.76 112.03 209.87 38.87 513.54 327.79

2028 - 134.05 21.47 155.52 144.04 121.00 226.66 41.97 533.67 378.15

2029 - 134.03 21.47 155.51 134.61 130.67 244.80 45.33 555.41 399.91

2030 - 134.02 21.47 155.49 124.43 141.13 264.38 48.96 578.90 423.41

2031 - 134.02 51.68 185.69 124.43 141.13 264.38 48.96 578.90 393.21

2032 - 134.02 21.47 155.49 124.43 141.13 264.38 48.96 578.90 423.41

2033 - 134.02 21.47 155.49 124.43 141.13 264.38 48.96 578.90 423.41

2034 - 134.02 21.47 155.49 124.43 141.13 264.38 48.96 578.90 423.41

2035 - 134.02 130.6 264.67 124.43 141.13 264.38 48.96 578.90 314.23

2036 - 134.02 21.47 155.49 124.43 141.13 264.38 48.96 578.90 423.41

2037 - 134.02 21.47 155.49 124.43 141.13 264.38 48.96 578.90 423.41

2038 - 134.02 21.47 155.49 124.43 141.13 264.38 48.96 578.90 423.41

2039 - 134.02 51.68 185.69 124.43 141.13 264.38 48.96 578.90 393.21

2040 - 134.02 21.47 155.49 124.43 141.13 264.38 48.96 578.90 423.41

2041 - 134.02 21.47 155.49 124.43 141.13 264.38 48.96 578.90 423.41

2042 - 134.02 21.47 155.49 124.43 141.13 264.38 48.96 578.90 423.41

2043 - 134.02 51.68 185.69 124.43 141.13 264.38 48.96 578.90 393.21

2044 - 134.02 21.47 155.49 124.43 141.13 264.38 48.96 578.90 423.41

2045 - 134.02 71.81 205.83 124.43 141.13 264.38 48.96 578.90 373.07

2046 - 134.02 21.47 155.49 124.43 141.13 264.38 48.96 578.90 423.41

2047 - 134.02 51.68 185.69 124.43 141.13 264.38 48.96 578.90 393.21

2048 - 134.02 21.47 155.49 124.43 141.13 264.38 48.96 578.90 423.41

2049 - 134.02 21.47 155.49 124.43 141.13 264.38 48.96 578.90 423.41

2050 - 134.02 21.47 155.49 124.43 141.13 264.38 48.96 578.90 423.41 EIRR 17.64%

ENPV@12%

$ 478.87 million

1 VOM – Variable Operations & Maintenance costs including cost of fuel, limestone etc 2 FOM – Fixed Operations & Maintenance costs including staff expenses and overheads. Major maintenance capex and replacement capex. Cost for major maintenance is assumed to be 3% of EPC cost. Replacement capex is assumed to be 7% of the EPC cost. Capex for additional ash pond in 2020 and 2035 has been included as part of the O&M costs. Source: Asian Development Bank estimates

Appendix 13 65

FINANCIAL EVALUATION

1. The operational performance of Vietnam Electricity (EVN) has been good. During 2005–2014, average annual growth in electricity demand was 12.1%, and electricity consumption increased from 86.9 terawatt-hours (TWh) to 143.5 TWh1.

a. Financial Costs and Benefits 2. The reevaluated financial internal rate of return (FIRR) of the project is 7.83%, which is higher than EVN’s weighted average cost of capital (WACC) of 3.64%. The financial NPV (discounted at the WACC of 3.64%) is estimated to be D9,013.36 billion (Table A13.1). 3. The financial analysis is based on the incremental revenues (incremental benefits less incremental costs) arising from the project. For estimating the financial returns, only the project cash flows arising from the capital investments in Mong Duong 1 thermal power plant (the project) are considered.

Table A13.1: Weighted average cost of capital

Item

Financing Component

Equity (EVN) Debt (ADB) Debt KEXIM Debt Local

currency Loan Total

Amount ($ million) 149.17 902.15 489.05 32.22 1,572.59

Weights (%) 9.49% 57.37% 31.10% 2.05% 100.00%

Pre-tax nominal rate (%) 18.90% 3.60% 5.90% 9.80%

Post-tax real rate (%)a 11.69% 2.02% 4.25% 2.59%

Contribution to WACC 1.11% 1.16% 1.32% 0.05% 3.64%

ADB= Asian Development Bank, EVN= Viet Nam Electricity, KEXIM= Korean Export-Import Bank of Korea a Post-tax real rate was computed as 7.21% over 2008-2017 after adjustments for high inflation (28.5%) in 2008 in

Viet Nam.

Source: Asian Development Bank estimates, Export-import bank of Korea Loan agreement

4. The WACC calculations outlined in Table A13.1 are based on the weighted average cost of debt and equity towards the project costs by ADB, the Export-Import Bank of Korea and EVN. The cost of equity is estimated in accordance with the capital asset pricing model, which relates the required equity return to the relative risk of an investment.

5. The cost of equity is derived from the currently prevailing risk-free rate and the market risk premium. The current yield on Vietnamese government 10-year bonds, which is taken as a proxy for the risk-free rate for dong-denominated assets, is 4.60%.2 Vietnamese stock market data are limited and unreliable due to low levels of capitalization and limited free floats of shares. Therefore, some of the electricity generation companies from other geographies are considered to estimate the appropriate equity data. The market return from the Ho Chi Minh City Stock Exchange (HOSE) is calculated as the computed annual growth rate (CAGR) of the price returns of the Viet Nam VNX and HSX indices for the past years. The equity risk premium is assumed to be equal to 12.63%3 and the equity beta equal to 1.1324. The resulting estimated normal cost of equity, in VND-terms, is 18.90%. The real cost of equity after adjustments for inflation is 11.69%.

1 Government of Viet Nam, Viet Nam Electricity. 2014. Annual Report. Ha Noi. 2 Asian Bonds Online. asianbondsonlne.adb.org (accessed on 13 May 2018). 3 Estimates are based on the returns on VNX HSX index for the past 10 years (2008-2017) 4 The estimates used are from the companies: (i) National Thermal Corporation India (electricity generation); (ii) PT

Cikarang Listrindo, Indonesia (electricity generation) (iii) Khulna Power Company, Bangladesh (electricity generation)

66 Appendix 13

6. The financial internal rate of return (FIRR) was calculated over a 40-year period (5-year construction period plus 35 years operations) on an after-tax basis. The calculations of the costs and returns over the 40-year period are given in the Table A13.2.

Table A13.2: Project financial internal rate of return calculations

(D billion)

Year Investment

Income

Operating Costs

Taxes

Operating Cash Flow

Net-Cash Flow

2009 116.33 - - - - (116.33)

2010 140.28 - - - - (140.28)

2011 94.46 - - - - (94.46)

2012 1,475.07 - - - - (1,475.07)

2013 18,095.83 - - - - (18,095.83)

2014 2,377.96 - - - - (2,377.96)

2015 125.67 711.51 539.74 - 171.77 46.10

2016 1,922.18 5,911.61 1,920.04 797.17 3,194.40 1,272.21

2017 1,388.11 5,506.51 1,871.24 674.73 2,960.54 1,572.43

2018 - 8,233.57 2,710.55 1,201.44 4,321.58 4,321.58

2019 - 7,916.90 3,365.45 932.80 3,618.65 3,618.65

2020 - 7,612.40 2,894.85 983.06 3,734.49 3,734.49

2021 - 7,319.62 2,710.55 956.82 3,652.24 3,652.24

2022 - 7,038.09 2,710.55 882.55 3,444.99 3,444.99

2023 - 6,767.40 3,365.45 628.41 2,773.54 2,773.54

2024 - 6,507.11 2,710.55 744.44 3,052.11 3,052.11

2025 - 6,256.84 4,238.64 252.61 1,765.59 1,765.59

2026 - 6,016.19 2,710.55 619.83 2,685.81 2,685.81

2027 - 5,784.80 3,365.45 379.10 2,040.25 2,040.25

2028 - 5,562.31 2,710.55 508.36 2,343.39 2,343.39

2029 - 5,348.37 2,710.55 457.48 2,180.33 2,180.33

2030 - 5,142.67 2,710.55 409.84 2,022.27 2,022.27

2031 - 4,944.87 3,365.45 182.06 1,397.37 1,397.37

2032 - 4,754.68 2,710.55 324.27 1,719.86 1,719.86

2033 - 4,571.81 2,710.55 286.40 1,574.85 1,574.85

2034 - 4,395.97 2,710.55 251.87 1,433.55 1,433.55

2035 - 4,226.90 5,077.83 - (850.93) (850.93)

2036 - 4,064.32 2,710.55 175.22 1,178.55 1,178.55

2037 - 3,908.00 2,710.55 131.45 1,066.00 1,066.00

2038 - 3,757.70 2,710.55 89.37 957.78 957.78

2039 - 3,613.17 3,365.45 - 247.72 247.72

2040 - 3,474.20 2,710.55 9.99 753.66 753.66

2041 - 3,340.58 2,710.55 - 630.02 630.02

2042 - 3,212.09 2,710.55 - 501.54 501.54

(iv) Summit Power Limited, Bangladesh (electricity generation); (v) Glow Energy, Thailand (electricity generation); and (vi) YTL Power, Malaysia (electricity generation, 2009). The respective estimates of the equity beta are 0.82, 0.791, 0.943, 0.745, 0.75 and 0.871

Appendix 13 67

Table A13.2: Project financial internal rate of return calculations

(D billion)

Year Investment

Income

Operating Costs

Taxes

Operating Cash Flow

Net-Cash Flow

2043 - 3,088.55 3,365.45 - (276.90) (276.90)

2044 - 2,969.76 2,710.55 - 259.21 259.21

2045 - 2,855.54 3,802.04 - (946.50) (946.50)

2046 - 2,745.71 2,710.55 - 35.16 35.16

2047 - 2,640.11 3,365.45 - (725.34) (725.34)

2048 - 2,538.56 2,710.55 - (171.99) (171.99)

2049 - 2,440.93 2,710.55 - (269.63) (269.63)

2050 - 2,347.05 2,710.55 - (363.51) (363.51) FIRR 7.83%

NPV @ 3.64% D 9,013.36

billion

7. The electricity output is valued at D1,398.5 per kilowatt-hour (kWh) based on the contracted tariff for power from the project. The revenues are converted to constant 2015 prices and assumes no tariff indexation. The revenues have been adjusted for inflation by annual inflation of 4.00% for conversion to constant prices. 5 8. The O&M costs of the power plant are estimated by averaging O&M costs for other CFB based plants. Based on this analysis, cost of coal is $0.019/kWh and cost of limestone is $0.0012/kWh. The fixed costs of staff overhead considered for calculation are $0.35 million ($0.05496/MW per year). The O&M costs of water and oil considered for calculation are $2.58 million ($1.22 per MWh).

9. Capital expenditures for major maintenance and replacement have been estimated to occur at 4 year and 10 year intervals respectively. Cost for major maintenance is assumed to be 3% of EPC cost. Replacement capex is assumed to be 7% of the EPC cost.

10. Sensitivity of FIRR to 10% lower generation and 10% higher coal prices have been evaluated and results are robust as in Table A13.3.

Table A13.3: Internal rate of return calculations for sensitivity analysis

Case EIRR ENPV

($ million) FIRR

FNPV (D billion)

10% lower generation 17.16% 430.91 6.69% 6174.10

10 % increase in coal cost 17.06% 424.57 7.05% 6724.04

5 On the basis of St. Louis FED estimates for Viet Nam (International Monetary Fund, Prices: Consumer Price Index

for Viet Nam [VNMPCPIPCPPPT], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/VNMPCPIPCPPPT, June 20, 2018.

68 Appendix 14

SUMMARY FINANCIAL STATEMENTS – Generation Company 3

1. Forecast financial statements of Generation Company 3 (GENCO3) have been prepared based on guidance provided in the information for strategic investors note issued by Viet Nam Electricity and investments plans shared by GENCO3.1 In the absence of detailed financial guidance from GENCO3, several assumptions have been utilized for developing the financial statements. Key assumptions are listed below.

- Debt repayment has been assumed to be constant and is calculated based on long term debt for 2017 and in increase in debt for 2017 based on GENCO3’s investment plans;

- Any shortfall in funding required for new investments will be met through increase in share capital of GENCO3;

- Asset base is increased by new investments and it has been assumed that other current assets are maintained at 2016 levels;

- GENCO3 cash has been utilized in paying off other liabilities and is reflected in the balance sheet in the form of reduced liabilities. This assumption has to been utilized as interest expenses etc. have not been segregated and are included under total costs.

2. Statement of profit and loss is in Table A14.1 and balance sheet is in Table A14.2.

Table A14.1 Statement of profit and loss

Statement of Profit and Loss

(all figures in billion VND) 2016 2017 2018 2019 2020

Total Revenue 33,812 36,037 38,033 37,877 38,075 Total Costs 33,663 35,549 37,035 36,450 36,571 Profit Before Tax 149 488 998 1,427 1,504 Tax (1) (61) (170) (255) (270) Profit After Tax 148 427 828 1,172 1,234

Table A14.2 Balance sheet

Balance Sheet

(all figures in billion VND) 2016 2017 2018 2019 2020

Assets Total Assets 83,397 84,798 85,909 88,195 89,310

Liabilities 74,668 75,418 74,701 74,578 74,058 Current Debt 3,338 553 3,338 3,338 3,338 Long term Debt 65,842 65,855 64,776 64,635 64,159 Other liabilities 5,488 9,010 6,587 6,605 6,561

Equity 8,729 9,380 11,208 13,617 15,252 Equity 10,913 11,137 12,137 13,374 13,775 Reserves (2,184) (1,757) (929) 243 1,477

1 https://en.evn.com.vn/userfile/User/huongbtt/files/2018/1/Information%20for%20STRATEGIC%20INVESTORS. pdf

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