ASIAN DEVELOPMENT BANK Operations Evaluation Department

PROJECT PERFORMANCE AUDIT REPORT

ON THE

ROAD IMPROVEMENT PROJECT (LOAN 1272-VIE[SF])

IN

VIET NAM

In this electronic file, the report is followed by the Chairperson’s summary of a discussion of the report by the Board of Directors’ Development Effectiveness Committee.

ASIAN DEVELOPMENT BANK PPA: VIE 25093

PROJECT PERFORMANCE AUDIT REPORT

ON THE

ROAD IMPROVEMENT PROJECT (Loan 1272-VIE[SF])

IN

VIET NAM

April 2004

CURRENCY EQUIVALENTS

Currency Unit – dong (D)

At Appraisal At Completion At Operations Evaluation (September 1993) (June 2000) (November 2003)

D1.00 = $0.000095 $0.000071 $0.000065 $1.00 = D10,500 D14,000 D15,500

ABBREVIATIONS

AADT – annual average daily traffic ADB – Asian Development Bank EIRR – economic internal rate of return GDP – gross domestic product HCMC – Ho Chi Minh City HDM-4 – highway design and maintenance model, version 4 IRI – international roughness index JBIC – Japan Bank for International Cooperation km – kilometer m – meter MOT – Ministry of Transport NH1 – National Highway Number 1 OEM – Operations Evaluation Mission PCR – project completion report PMU-1 – Project Management Unit Number 1 PPAR – project performance audit report SDR – special drawing rights TA – technical assistance TEDI – Transport Engineering Design Institute VRA – Viet Nam Road Authority

NOTES

(i) The fiscal year (FY) of the Government ends on 31 December. (ii) In this report, “$” refers to US dollars.

Director General, Operations Evaluation Department : Eisuke Suzuki Director, Operations Evaluation Division 2 : David Edwards Evaluation Team Leader : Lester Neumann

Operations Evaluation Department, PE-641

CONTENTS

Page BASIC DATA iii EXECUTIVE SUMMARY iv MAP ix I. BACKGROUND 1 A. Rationale 1 B. Formulation 1 C. Purpose and Outputs 1 D. Cost, Financing, and Executing Arrangements 2 E. Completion and Self-Evaluation 2 F. Operations Evaluation 3 II. PLANNING AND IMPLEMENTATION PERFORMANCE 3 A. Formulation and Design 3 B. Achievement of Outputs 5 C. Cost and Scheduling 6 D. Procurement and Construction 7 E. Organization and Management 7 III. ACHIEVEMENT OF PROJECT PURPOSE 8 A. Operational Performance 8 B. Performance of the Operating Entity 11 C. Economic and Financial Reevaluation 11 D. Sustainability 12 IV. OTHER DEVELOPMENT IMPACTS 12 A. Socioeconomic Impact 12 B. Environmental Impact 13 C. Impact on Institutions and Policy 13 Lester Neumann, Senior Evaluation Specialist (Team Leader), was responsible for the preparation of this report, and conducted document reviews, key informant interviews, and guided the fieldwork undertaken by the consultant, William Hopper. Barbara Palacios, Evaluation Officer, supported the team with research assistance from Manila.

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V. OVERALL ASSESSMENT 13 A. Relevance 13 B. Efficacy 14 C. Efficiency 14 D. Sustainability 14 E. Institutional Development and Other Impacts 14 F. Overall Project Rating 14 G. Assessment of ADB and Borrower Performance 15 VI. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS 15 A. Key Issues for the Future 15 B. Lessons Learned 16 C. Follow-Up Actions 17 APPENDIXES 1. Project Cost 18 2. Traffic Statistics 19 3. Accidents and Vehicle Numbers 20 4. Review of Study for World Bank Projects 21 5. Project Road Maintenance Expenditure 23 6. Selected Gross Domestic Product Statistics 24

BASIC DATA

Loan 1272-VIE(SF): Road Improvement Project Project Preparation/Institution Building TA No.

TA Name

Type

Person-Months

Amount ($’000)

Approval Date

1996 Institutional Strengthening of the Ministry of Transport

ADTA 96 1,900 29 Nov 1993

19971 Second Road Improvement PPTA 53 2,100 29 Nov 1993 19971 Second Road Improvement (Supplementary) PPTA 34 850 31 May 1995 Key Project Data ($ million)

As per ADB Loan Documents

Actual

Total Project Cost 141.0 131.1 Foreign Exchange Cost 120.0 111.1 ADB Loan Amount/Utilization 120.0 111.12 ADB Loan Amount/Cancellation 4.8 Key Dates Expected Actual Fact-Finding Mission Mar 1991 13–29 Mar 1991 Appraisal Jun 1991 29 Jul–13 Aug 1993 Loan Negotiations Oct 1993 21–22 Oct 1993 Board Approval Nov 1993 29 Nov 1993 Loan Agreement 28 Sep 1994 Loan Effectiveness 21 Feb 1994 9 Nov 1994 First Disbursement 4 Apr 1995 Project Completion 31 Dec 1997 31 Dec 1999 Loan Closing 31 Dec 1998 29 Jun 2000 Months (effectiveness to completion) 46 62 Rate of Return (%) Appraisal PCR PPAR Economic Internal Rate of Return 32.3 25.8 — Borrower Socialist Republic of Viet Nam Executing Agency Ministry of Transport

MISSION DATA Type of Mission

No. of Missions

Person-Days

Reconnaissance 1 31 Fact-Finding 1 30 Appraisal 1 48 Project Administration

Special Loan Administration 1 3 Inception 1 9 Review 11 135 Project Completion 1 30 Operations Evaluation3 1 42

— = not calculated, ADB = Asian Development Bank, ADTA = advisory technical assistance, PCR = project completion report, PPAR = project performance audit report, PPTA = project preparatory technical assistance, TA = technical assistance. 1 Financed by the Japan Special Fund. 2 The special drawing rights (SDR) exchange rate depreciated during implementation from SDR1 = $1.39 at

appraisal to SDR1 = $1.34 in July 2000. That explains the difference in the amount in the ADB loan document and actual.

3 The Operations Evaluation Mission comprised L. Neumann (Mission Leader) and W. Hopper (Staff Consultant).

EXECUTIVE SUMMARY

The Road Improvement Project (the Project), one of the first in Viet Nam after the Asian Development Bank (ADB) resumed lending in the country, was to rehabilitate the 435-kilometer (km) section of the main National Highway Number 1 (NH1) from Ho Chi Minh City to Nha Trang. The works mainly comprised pavement overlays, pavement strengthening, shoulder paving, replacement of some small bridges and culverts, drainage improvement, and two truck-weighing stations. Decades of economic isolation, conflict, and reliance on central planning had left Viet Nam with a deteriorated infrastructure, outdated policies and regulations, a small private sector, and weak government institutions. The Project was part of a coordinated program involving ADB, the World Bank, and the Japan Bank for International Cooperation to rehabilitate the entire main national highway as a start toward addressing those weaknesses. Rehabilitation was expected to lower transport costs and improve road safety. The weighing stations would enhance road administration. All of these improvements were to lead to economic growth. The project loan of SDR84.5 million (then equivalent to $120 million) to fund the foreign exchange portion of the $141 million project cost was approved in November 1993. At the same time, two technical assistance (TA) grants were approved. One TA was for $1.9 million to formulate a road act and strengthen the Government’s institutional capabilities in transport operations, transport data, and project management. The other TA was for $2.10 million, later increased to $2.95 million, to prepare a second road project involving NH1. The Executing Agency for the Project and the TAs was the Ministry of Transport (MOT), which vested implementation responsibility to its Project Management Unit Number 1 (PMU-1). Road maintenance after project completion, and transport operations, were the responsibilities of the Viet Nam Road Authority (VRA), also part of MOT.

During project implementation, deficiencies were found in the contract documents, and some of the detailed design, that required modification. The amount of pavement strengthening, as opposed to just pavement overlay, was reduced substantially as a result of the design changes. These changes, plus lower-than-expected bid prices for the construction contracts, led to cost savings and subsequent modification of the project scope to include two town bypasses at Phan Thiet and Phan Rang; additional drainage works; widening and rehabilitation of an additional 41 small bridges; and reversal of a prior decision to reduce the road shoulder width in sections with lower traffic. Rehabilitation of severely flooded sections of NH1 north of Nha Trang was also included.

The Project was completed according to the revised scope, except that only one of two planned weighing stations was constructed (the Government had already used its own funds to build the other weighing station). The first 25 km is a four-lane divided road with 2.5 meter (m) shoulders (wider, in places). The remainder of the road is a 7.5-m, two-lane carriageway with 2.5-m shoulders on each side. The road shoulders are delineated from the carriageway by white lines so they serve as separate lanes for slow-moving motorcycles and bicycles. At completion, the international roughness index (IRI) for the road averaged 2.4—an acceptable level of riding quality for this type of road. One weakness is that not all bridges were replaced or rehabilitated, so load capacity varied from 18 to 30 tons along the road. That makes freight traffic difficult to manage, and poses a risk of damage to the weaker bridges that, if realized, would hinder movement along the road. A second weakness is that some bridges are narrow, which forces slow-moving traffic onto the main carriageway, increasing the risk of accidents.

The institutional strengthening TA achieved many of its expected outputs. A draft road act was prepared, but because of debate at the time about a proposed road fund within the draft

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law, it was not enacted until 2002, and then with assistance from ADB’s Second Road Improvement Project. The TA consultants helped PMU-1 develop capabilities in international contract management, and VRA received assistance in driver licensing, vehicle registration and inspection, vehicle overloading, and safety. The attempt to establish a computer-based transport databank within MOT for better management and planning of the overall transport sector was not successful.

The project preparatory TA completed feasibility studies for two road sections of NH1 that were eventually funded under ADB’s second and third road projects, and prepared detailed designs for the roads under the second. Problems arose during implementation of the second project because of errors traced to a lack of detail in the surveys under the detailed design phase of the TA. These errors caused extra work for the implementation supervision, consultants, and for government staff. That led to some delays—but no substantial cost increases—in the second project.

The Project was completed in December 1999, 2 years later than expected. The cost was $131.1 million, about 7% less than the appraisal estimate. But this actual cost includes $6.8 million used to rehabilitate several short sections of flood-damaged highway north of Nha Trang; only $124.3 million was spent on the project road. Main reasons for the cost savings include the reduction in pavement strengthening and lower-than-expected construction prices.

Implementation efficiency was marred by problems within the supervising consultant team, which led to frequent changes of individual consultants, cumbersome government processes, nonfamiliarity of the Government and PMU-1 with ADB procedures, and initial slow performance of the construction contractors. These problems caused delay, and negated the advantages of the approved arrangement for advanced procurement of civil works contracts. The three major construction contracts were awarded to joint venture partnerships of foreign and local contractors. Their initial construction progress was slow because each joint venture had problems. In two joint ventures, the foreign partners provided no substantial management or material support. In the third joint venture, the local contractor’s lack of experience led to frequent partnership disputes. The joint ventures did not result in any significant technology transfer to the local partners.

By the time of this evaluation, in late 2003, the pavements had been in service for 4–6 years, a significant portion of their 10-year design life. Although 10–20% of the road surface suffers from cracking or bleeding, most of the pavement has performed well. The average IRI measured 2.9 in 2001, with less than 5% of the road measuring more than 4. (At appraisal, resurfacing was deemed necessary when the IRI reached 4). In late 2003, parts of the road had an IRI of 4 or higher, but long sections of road had relatively good riding surface. The good pavement performance was despite a steady increase in traffic over the past 6 years to reach levels exceeding appraisal forecasts.

The road improvements increased vehicle speeds, and shortened travel times by 15–30%. The gains would be larger if compared with the hypothetical “without-Project” scenario for 2003, under which traffic levels would exceed those of before the Project. Improved travel has led to the expected reduction in operating costs for vehicle owners. The effect on transport prices has been mixed for nonvehicle owners. Some, but not all, bus fares and freight tariffs have lowered. The mixed response of transport prices is because regulation of bus services, and existence of transport associations, limits the effect that competition has on prices. Nevertheless, all transport users benefit from reduced travel times and better travel comfort.

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The limited data show that the number of accidents, injuries, and fatalities along the project road has increased in recent years, mirroring the overall national performance. Although alarming, a rapid increase in vehicle numbers and improved accident reporting are also significant causes of the deterioration in road safety statistics. The Government, concerned with the worsening situation, recently increased its efforts in improvement of road safety including, for example, in driver and pedestrian education. The preliminary 2003 statistics show some improvement. The Project’s provisions for improving road safety were limited to physical road design. A broader approach, including other aspects of road safety, might have been better. Road safety conditions were probably improved by the wide paved shoulders and delineation of the shoulders as separate lanes for slow traffic, provision of traffic signs, center lines, lights at strategic points, and the two city bypasses. However, not all bridges were improved; some narrow bridges remain, and are potential hazards. In addition, people and businesses along the road, particularly in urbanized areas, are encroaching on the road’s right-of-way, and travel speeds have increased. These factors contribute to lower road safety.

An economic analysis was not done for the investment, but comparison with similar road improvements funded by the World Bank indicates that the Project is likely to generate a favorable economic internal rate of return. Broader effects of the road improvements on the economy are apparent around Nha Trang in Khanh Hoa Province, where tourism has grown relatively rapidly since the mid 1990s and now accounts for about 40% of the provincial gross domestic product (GDP).

The road has received funding for both routine maintenance and to repair cracking. Nationally, maintenance funds are insufficient, but continued maintenance funding and sustainability of the project investment is likely, considering the importance of NH1. Nevertheless, not all of the cracking was immediately attended to, indicating that funding, while likely, may be delayed. The funding of maintenance for NH1 may be at the expense of other roads. Inadequate maintenance on roads feeding into NH1 would limit the spread of benefits from the upgrading of NH1. Equally important, diversion of maintenance funds from other roads to NH1 can lead to early deterioration and economic loss on such roads.

Overall, the Project is rated as successful. The Project is relevant, efficacious, and efficient. The outcomes are likely to be sustained, and the institutional and other impacts are moderate. The institutional strengthening TA is rated as successful. The project preparatory TA is considered partly successful. ADB’s performance is assessed as satisfactory. Although cumbersome government processes caused delays, the Government’s overall performance is also rated satisfactory.

Key issues for attention include the need to (i) address the remaining narrow and low-load capacity bridges along the road, (ii) overcome constraints caused by regulation and other anticompetitive arrangements within the transport sector, (iii) enhance maintenance funding so that roads that feed traffic to the main highway are maintained along with the highway itself, (iv) improve control of encroachment onto the road right-of-way in order to enhance road safety, and (v) support current efforts to improve data collection and management by developing the regular use of data as part of the decision-making process.

Useful lessons learned from the Project include (i) the importance of timely maintenance as exemplified by comparing results for areas where cracks were sealed early versus areas of delayed sealing; (ii) the value of wide shoulders, considering the substantial growth in slower-moving traffic; (iii) if funds are limited, a shorter road built according to development needs may be better than a longer road with low capacity, narrow bridges, and inadequate drainage;

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(iv) care is needed in planning detailed design studies to ensure sufficient funding to enable completion of all work at the required level; (v) local contractors can undertake construction of the type that they handled under this Project; (vi) contracts should include provisions to ensure technology transfer, if that is an important objective; (vii) hardships for individuals can arise during construction when maintenance staff of companies, under the Regional Road Management Unions, become temporarily unemployed; and (viii) efficient decision making by government agencies, based on clear lines of authority and preparedness to make timely decisions, is necessary to avoid delays in implementation.

The evaluation recommends that, as soon as practical (such as by mid-2004), MOT prepare a detailed list of substandard bridges along the project road, along with details and an action plan for bringing each bridge to standard. In addition, VRA should investigate and determine the cause of cracking before overlaying the rough areas of the road, which will probably be required in the next few years. If the main cause is weak structure, a simple overlay might not be the best option. Eisuke Suzuki Director General Operations Evaluation Department

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I. BACKGROUND A. Rationale 1. The Road Improvement Project (the Project) arose during a period of rapid change in Viet Nam. Economic isolation, reliance on central planning, and conflict had left the country with a deteriorated infrastructure, outdated policies and regulations, a small private sector, and weak government institutions. Recognizing these conditions, the Asian Development Bank’s (ADB) country strategy at the time supported improvement of the country’s infrastructure to support growth in agriculture, energy, industry, and trade; and support for policy reform and strengthening of institutions. Against this background, the Project was conceived as a first stage in a long-term plan worked out in coordination with the World Bank and aid agencies to rehabilitate the main national highway, which runs from north of Hanoi to south of Ho Chi Minh City (HCMC), and improve the sector’s legal framework and institutional capability. Both the long-term plan and the Project itself were supported by recommendations of a 1990–1992 National Transport Sector Review funded by the United Nations Development Programme. B. Formulation 2. Project formulation, design, and appraisal were from 1990 to1993. During 1990–1991, ADB staff consultants, in conjunction with the Transport Engineering Design Institute (TEDI) of the Ministry of Transport (MOT), completed basic feasibility studies. These studies culminated in project formulation by an ADB Sector Review Mission in March 1991. Subsequently, from June 1992 to August 1993, consultants financed by the Canadian International Development Agency prepared the detailed engineering designs and tender documents. Appraisal coincided with the end of the detailed engineering design study. C. Purpose and Outputs 3. The Project was classified as an economic growth project. Its main purposes were to reduce transport costs and improve road safety.1 To achieve this, the Project was to rehabilitate 435 kilometers (km) of National Highway Number 1 (NH1) from HCMC north to Nha Trang, mainly by strengthening the pavement where necessary, and applying an asphaltic concrete overlay that would be good for the next 10 years, with only normal maintenance;2 replacing all steel culverts; and strengthening the decks of selected bridges along the road. The first 25-km section from HCMC, where traffic was highest, was a divided four-lane road. The remainder was a two-lane road. About 80% of the length of the road was expected to require strengthening by removing the existing pavement and placing it back as a reshaped, compacted base course before overlaying with asphalt. The existing alignment was to be used, although short bypasses on new alignments around some towns were to be considered during implementation. Wide, paved shoulders of 2.5 meters (m) were to be provided as separate lanes for slow traffic (e.g., motorcycles and bicycles) along the heavily trafficked road sections. Road signs and markings were also to be provided to enhance road safety. Fifteen bridges, including all large bridges (more than 20 m long) plus a few shorter ones, were to be replaced through a separate project

1 The appraisal report states the Project objectives are to “(i) rehabilitate the road to an economically maintainable

state, (ii) reduce transport costs by facilitating more efficient transport services, (iii) improve road safety, and (iv) strengthen the institutions concerned with road administration.” The first point is interpreted by the Operations Evaluation Mission (OEM) as a statement about the quality of the output, and the fourth point is attributed partly to the Project, but mostly to the associated technical assistance (TA) as described in para. 5.

2 That is, without periodic maintenance, which was not expected until after 10 years.

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funded by the Japan Bank for International Cooperation (JBIC).3 Two weighing stations were provided to help prevent overloading of trucks and to achieve the complementary project purpose of strengthening of road administration. International companies were to undertake construction and supervision. 4. The project scope was modified several times to include two town bypasses at Phan Thiet and Phan Rang; additional drainage works; widening and rehabilitation of an additional 41 bridges; increasing the width of shoulders along parts of the road; and rehabilitation of severely flooded sections of NH1 north of Nha Trang.4 The amount of pavement strengthening, as opposed to only pavement overlay, was also reduced (para. 12). The changes conformed with the general project scope and did not cause the original project cost to be exceeded. The favorable cost outcome was because the added works were approved only after cost savings from reduced pavement strengthening and lower bid prices became apparent. 5. Parallel with the Project, road administration was to be improved through one of two technical assistance (TA) grants approved along with the Project.5 TA 1996-VIE was to help MOT reorganize and improve the Viet Nam Road Authority (VRA), one of its recently formed modal entities, particularly in areas relating to road management, vehicle and driver licensing, and other complementary operational aspects; drafting of a road act; and strengthening of its Center for Statistics and Project Management Unit Number 1 (PMU-1). The second TA, TA 1997-VIE, was to fund feasibility and detailed design studies for further sections of NH1. D. Cost, Financing, and Executing Arrangements 6. The project cost was appraised in 1993 at $141 million, of which foreign exchange would comprise $120 million (Appendix 1). A loan of SDR84.5 million (then equivalent to $120 million) from the Asian Development Fund was approved on 29 November 1993 to fund all foreign exchange costs. MOT was the Executing Agency for the Project and TAs, and gave implementation responsibility to its PMU-1. Construction was expected to take about 4 years and be completed by December 1997. This was ADB’s first road loan project, so ADB approved advance action for recruitment of supervision consultants and procurement to minimize the risk of delay. E. Completion and Self-Evaluation 7. ADB’s project completion report (PCR), prepared in October 2000, reviewed the outputs, including their quality, as well as the implementation performance, schedule, and costs. The PCR reported that the Project was constructed essentially as designed, although with delay and at a cost lower than anticipated. Delay and cost variation analyses were provided. The PCR assessment of the Project’s achievement of its purpose was done through recalculation of the economic internal rate of return (EIRR). Although direct measurement of achievement of the purposes would have been preferable, three important indicators of purpose achievement— 3 Originally the Overseas Economic Cooperation Fund of Japan. 4 The sections north of Nha Trang were within the scope of ADB’s Third Road Improvement Project (ADB. 1998.

Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Socialist Republic of Viet Nam for the Third Road Improvement Project. Manila [Loan 1653-VIE(SF), for $130 million, approved on 10 December 1998]).

5 ADB. 1993. Technical Assistance to the Socialist Republic of Viet Nam for the Institutional Strengthening of the Viet Nam Ministry of Transport. Manila (TA 1996-VIE, for $1.9 million, approved on 29 November 1993); and ADB. 1993. Technical Assistance to the Socialist Republic of Viet Nam for the Second Road Improvement Project. Manila (TA 1997-VIE, for $2.1 million, approved on 29 November 1993; a supplementary amount of $850,000 was approved on 31 May 1995 for TA 1997-VIE).

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change in traffic, and deemed savings in transport and maintenance costs—are embodied in the EIRR recalculation. The EIRR was recalculated to be 25.8%, less than the appraisal expectation of 32%. Road safety, another important indicator for the project purpose, was not assessed because data were lacking, but the completed road improvements were considered to have potential to improve safety. Although savings in vehicle operating costs were believed to be occurring, the PCR considered it too early to determine if such savings had led to reduced freight charges and passenger travel costs. The PCR did not comment on non-price aspects such as improved transport reliability, access, and travel times. Nevertheless, on the basis of the good EIRR, the PCR concluded that the Project’s road works had helped promote economic development. The PCR found that transfer of road construction technology (para. 25) was not achieved to the extent expected because of poor joint venture management and limited participation of the foreign partners. The PCR concluded that the Project was successful, and provides lessons and recommendations to guide future operations. 8. The PCR also briefly described outputs of the two TAs. Both TAs were completed as planned, but the PCR did not rate them, and they have no separate completion reports. F. Operations Evaluation 9. This project performance audit report (PPAR) draws on project records, discussions with ADB staff, and information obtained by an Operations Evaluation Mission (OEM) to Viet Nam in November 2003. The OEM inspected the length of the road and met with staff of the Government, transport companies, and other beneficiaries, as well as members of the donor community working in the sector. The PPAR assesses the Project’s relevance, its efficacy and efficiency in achieving its outputs and purpose, sustainability of its outcomes, and its institutional development and other impacts. The PPAR covers both positive and negative aspects, and identifies lessons for future ADB operations. This report incorporates comments from Government and ADB staff on an earlier draft of the PPAR.

II. PLANNING AND IMPLEMENTATION PERFORMANCE A. Formulation and Design 10. When the Project was approved, ADB’s operations were guided by the interim operational strategy of the September 1993 economic review and bank operations in Viet Nam. Viet Nam’s development needs were many (para. 1), but the strategy identified the rehabilitation of road and other transport infrastructure as a particular area where ADB should help. The Project was highly relevant to the development needs and operational strategy. The strong growth in transport—8% per annum since the time of project appraisal—highlights the appropriateness of this strategy. Subsequent country operational strategies retained transport as a priority investment, although emphasis switched to rural areas and regional corridors after all parts of the main highway had been addressed.6 11. The project objectives include statements about improving transport efficiency and road safety. But many problems of transport efficiency were not addressed, particularly the lack of competition in bus services (paras. 35–37). Similarly, the project design focused on road design as the sole mechanism for improving road safety, and even then the broad design had negative aspects (paras. 38–39). In addressing both transport efficiency and road safety, the project

6 ADB and the World Bank have funded rehabilitation of the entire highway through several projects. All bridges

more than 20 m long were replaced through JBIC-funded projects.

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design was focused too narrowly and missed opportunities to introduce other measures whose effects might have been synergetic. 12. At appraisal, pavement strengthening through scarifying and breaking up of the existing asphalt and relaying it as a compacted base, followed by new overlay, was planned for about 350 km or 80% of the road. The remaining 20% of road was to receive only an overlay, which would improve riding quality without substantially increasing the pavement’s strength, and was less expensive than pavement reconstruction. After loan approval, but before construction began, this plan was changed because ADB staff believed that the detailed design missed important points, including that part of the pavement was built with large-sized aggregate, and was not suitable for reworking. Furthermore, further testing, including by an ADB staff consultant, showed less need for pavement strengthening than the detailed design had predicted. The revised construction plan provided for pavement reconstruction for only 23% of the road length, a large change from the engineering design estimate of 80%. At project completion, pavement strengthening of the type originally proposed at appraisal comprised only 8% of the road length. Most of the road—about 400 km—was found sufficiently sound, structurally, to require only an overlay. The predominance of overlay as opposed to pavement reconstruction, both in the revised plan and as constructed, is consistent with the World Bank’s first Highway Rehabilitation Project, which started slightly ahead of the Project and covered other sections of NH1. 13. The major reduction in pavement strengthening indicates that the detailed design, which was done by a Canadian aid-funded consultant working with TEDI, was inadequate. The contract documents prepared by the detailed design consultant also had to be substantially revised. But the consultant’s performance is not the main cause of the problem. The main reason is that funds for the detailed design phase were insufficient to achieve the required level of detail. 14. The original project design seems to have been governed more by cost and loan considerations than actual rehabilitation needs. This is apparent from the variability in the capacity and width of the bridges on the road (para. 15), and the bypasses and drainage works added during implementation. The traffic levels and traffic growth expectations at the time of appraisal made the need for bypasses apparent. The bypasses would have been included in the original project scope, had the cost and loan amount been less of an issue. Also, the appraised design included only 5 km of drainage works for each of the three road contracts, a level that seems substantially inadequate for 435 km of roadway. The extra drainage works and bypasses were beneficial. Budget considerations also affected the width of road shoulders. Originally, the road was designed with 2.5-m shoulders on each side. At appraisal, to limit the project cost, shoulder widths were reduced to 1.5 m along parts of the road with less traffic. But as funds became available, full-width shoulders were built over the entire road length. Considering the relatively high traffic over the entire road length, this enhanced road safety. An alternative to limiting road design to the available budget is to include all necessary improvements and rehabilitate only the length of road that can be afforded, deferring the balance to subsequent projects. 15. The feasibility study noted that 45 bridges showed severe signs of deterioration and, at the detailed design stage, 129 bridges required strengthening or widening. But to reduce costs, only 24 bridges were included for rehabilitation at appraisal. Another 15 bridges were to be replaced through a JBIC project. As cost savings became apparent during project implementation, more bridges were rehabilitated. The eventual total of project-rehabilitated bridges was 65. But many bridges remain along the project road with inadequate load-carrying

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capacity, and some are too narrow to carry both the carriageway and the shoulders. The variable load capacity presents an awkward arrangement for dealing with truck loading, and probably results in some bridges carrying excessive loads at times. Furthermore, bicycles and motorcycles use the shoulders, so narrow bridges force them onto the main carriageway, causing a safety hazard. Ninety-nine bridges along the road still require some form of rehabilitation. All bridges on sections of NH1 rehabilitated with World Bank funds were upgraded to uniform load capacity and width. B. Achievement of Outputs 16. The main project output, rehabilitation of 435 km of NH1, was achieved as planned. The completed works include two town bypasses, 65 bridges, and drainage, which exceeded appraisal targets. Almost all pavement works included overlays. Pavements were reconstructed on about 8% of the road length, which was less than the revised expectation of 23% of the road length for this type of rehabilitation work. Most of the road has a 7.5 m carriageway; the first 25 km, the four-lane divided road section, is wider. Sealed shoulders, 2.5-m wide, were formed along each side of the entire road length. As planned, the shoulders were delineated from the carriageway by white lines to separate fast-moving traffic from slower motorcycles and bicycles. The existing rights-of-way were used throughout the road, except for the two new bypasses.7 Traffic signs, lights, and barriers were also provided as planned. Only one of the two planned truck-weighing stations was built because the Government had already used its own funds to build the other. The truck weighing station built through the Project was larger than originally planned, and was built with facilities on both sides of the road, as it was sited along the divided four-lane section. 17. At completion in 1999, the international roughness index (IRI)8 over the road averaged 2.4, which is an acceptable riding quality for this type of road, and similar to the IRI levels of 2.3 to 2.5 for the World Bank’s first and second highway rehabilitation projects. The target roughness varies with project documents, ranging from 1.8 at the feasibility stage to 2.0 at the early design stage to “under 3.0” in later documents. In 1992, the feasibility study estimated an average IRI for the road of 5.1. 18. Not all bridges were replaced or rehabilitated, so load capacities of bridges on the road vary from 18 to 30 tons. Some are narrower than the combined carriageway and shoulders (i.e., narrower than 12.5 m). This causes problems for controlling truck loading and road safety (para. 15). 19. The TA outputs for institutional strengthening were partly achieved. A draft road act was prepared, but not enacted, because of debate over a proposed road fund in the draft law. The law was passed after deletion of the road fund, and after further revision with assistance through ADB’s Second Road Improvement Project.9 The TA consultants also helped PMU-1 develop capabilities in international contract management, and VRA received assistance in areas concerning driver licensing, vehicle registration and inspection, vehicle overloading, and

7 An existing bypass at Phan Rang was widened under the Project (para. 45). 8 The lower the number, the smoother the surface. 9 ADB. 1996. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the

Socialist Republic of Viet Nam for the Second Road Improvement Project. Manila. (Loan 1487-VIE[SF]: Second Road Improvement Project, for $120 million, approved on 21 November 1996.)

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safety.10 The TA was to establish a computer-based transport databank within MOT to better plan and manage the overall transport sector. Although a database was established within the Inland Waterways Administration and may have formed the basis for its data management capability, neither the broader target encompassing all transport modes nor data collection and management within VRA were achieved. VRA’s database is weak, but the weakness is system wide, encompassing data collection, storage, and processing, through to data use.11 20. The project preparatory TA completed feasibility studies for two road sections of NH1 that were eventually funded under ADB’s second (footnote 9) and third (footnote 4) road projects, and prepared detailed designs for the roads under the second. Funding for this TA was increased substantially, from $2.1 million to $2.95 million, to enable a sufficient scope of work. Even with extra TA funds, problems arose during implementation of the second project due to errors traceable to lack of detail in the surveys done under the detailed design phase of the TA. For example, soil survey points were too widely spaced, and alignments were based on measurements from aerial photographs with insufficient ground control to ensure accuracy. These errors caused extra work for the implementation supervision consultants and government staff, and led to some delay—but no substantial cost increases—for the second project. C. Cost and Scheduling 21. At $131.1 million, the actual project cost was less than the appraisal estimate of $141.0 million (Appendix 1). But the actual cost includes $6.8 million used to rehabilitate several short sections of flood-damaged highway north of Nha Trang. Only $124.3 million was spent on the project road.12 Excluding flood damage works, the actual cost of civil works was near the appraisal estimates (i.e., $242,000 per km), despite additions to the scope of works, which meant lower-than-expected costs for its individual components (para. 22). The cost of supervision consultants increased from $5.4 million to $8.7 million due to implementation delays and the resulting need to extend the period of consultant services. The cost of the right-of-way rose to $8.4 million versus the original estimate of $6.0 million because the additional bypasses caused increased resettlement. About $4.8 million of the ADB loan was unused and canceled. 22. The main reasons for the lower-than-expected costs for civil works include the shift from the more-expensive reconstruction to the less-expensive overlay-only rehabilitation (para. 12), and cheaper construction costs than anticipated. Construction prices were lower, partly because at appraisal the works were expected to be done by international contractors, but were actually done through joint venture partnerships of local and international companies. The lower costs were also partly because costs were overestimated at appraisal. But the appraisal estimate probably could not have been better because there was no recent experience of open bidding in Viet Nam at the time, and lower-cost joint venture arrangements could not be counted on. It is noteworthy that the appraisal estimate was not much higher than the $218,000 per km13 estimated for rehabilitation works under the World Bank’s Highway Rehabilitation Project, which was appraised a few months before the project appraisal. The World Bank project’s 10 A detailed list of the outputs is available in ADB. 2001. Technical Assistance Performance Audit Report on Advisory

Technical Assistance for Institutional Strengthening in Transport Planning and Administration in Cambodia and Viet Nam. Manila.

11 The weak database is to be addressed through consultant inputs under ADB’s Third Road Improvement Project (footnote 4), and through initiatives of other aid agencies. These inputs are titled “Implementation of the Sector Development Policy.”

12 The flooded sections were packaged as contract R500. These sections were within the scope of ADB’s Third Road Improvement Project (footnote 4), but required urgent attention.

13 The World Bank estimate was net of taxes. The figure of $218,000 per km includes an allowance of 5% tax to make it comparable to the project estimate.

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rehabilitation works were predominantly overlays rather than reconstruction, which could explain the difference between the two appraisal estimates. 23. The Project was completed in December 1999, 2 years later than expected. First, there was a delay of about 1 year in the preconstruction process, then construction took 4 years versus the budgeted 3 years. The first delay was caused by the late appointment of the supervision consultant and a need to revise the technical designs and contract documents. These problems led to a 19-month gap between construction contractor prequalification and contract award, and largely negated the approved arrangement for advanced procurement of civil works contracts. Unfamiliarity by the Government and PMU-1 with ADB procedures, the Project being the first in the sector, and cumbersome approval procedures, such as for the supervision consultant contract, contributed to the pre-construction delay and the inability to utilize the advance procurement facility (para. 28). 24. The 1-year construction delay was caused by a combination of factors, including poor contractor-joint venture performance (para. 25), design changes because of inadequate initial designs, time-consuming procedures for approval of variation orders and obtaining permits, delays in resettlement and in relocating utilities, cumbersome handover procedures, poor initial performance of the supervising consultant (para. 29), and periods of unusually bad weather. D. Procurement and Construction 25. Three contract packages, R100, R200, and R300, were procured using international competitive bidding procedures in accordance with ADB’s Guidelines for Procurement. Bidding was efficient and attracted sufficient bidders. But bidding was preceded by delays in appointment of the supervision consultant and, subsequently, in government approval for award of contracts. All three contracts were awarded to joint ventures of international and domestic firms. Although the international partners were lead firms in the joint ventures, the domestic firms were dominant. The domestic partner for the R100 package, the one closest to HCMC, was the most efficient because it had previous experience in the Lao People’s Democratic Republic. The foreign partner for this contract did not provide significant managerial input or import any plant and equipment for the works. The lead partner for R300, the contract nearest to Nha Trang, mobilized sufficient foreign staff and equipment to complete the work satisfactorily, but the partnership suffered from major conflict between the partners. For contract R200, the foreign partner provided some inputs but the local partner’s lack of experience caused conflict and delay. Work on all contracts progressed slowly at first, largely because of partnership problems. About 10–20% of the road appears to have problems of cracking and bleeding (para. 33), but it is not yet known if these problems are related to construction. Despite the delay and the possibility of defects, the quality of work completed by the contractors was mostly satisfactory. 26. The contract for the flooded sections north of Nha Trang, packaged as contract R500, was procured through local competitive bidding in accordance with ADB’s Guidelines for Procurement. All work was completed satisfactorily. The civil works for two bridges on the Phan Thiet bypass, contract R400, were also procured using local competitive bidding procedures in accordance with ADB’s guidelines. The works were completed satisfactorily. E. Organization and Management 27. Different agencies under MOT undertook the design, implementation, and subsequent operation and maintenance of the project road. Consultants aided by TEDI prepared the

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technical road designs. PMU-1 was responsible for implementation of the Project and its accompanying TAs. PMU-1 was also responsible for implementation of other World Bank and ADB projects. Upon completion of construction, VRA became responsible for normal operation and maintenance, with actual maintenance operations done by companies under two of VRA’s regional road management unions located along the highway. These arrangements worked satisfactorily, except for implementation of the institutional strengthening TA. The main outcomes of that TA were to have been enhanced VRA capabilities, including for data collection, storage, and analysis. Achievements were mixed, and the result, particularly in data collection and management capabilities for roads, might have been better had VRA rather than PMU-1 been the implementing agency for the TA, or at least parts of it. 28. The Government’s decision making was sometimes slow because of the many layers of bureaucracy, and a lack of understanding of ADB procedures. International contracting arrangements and specific aspects of construction, such as the engineer’s role, were also poorly understood at first. This is understandable because this was one of ADB’s first projects in Viet Nam after the resumption of lending, and the country was just emerging from a long period of central planning. Many of these problems have been overcome, some through the experience of implementation of this and other internationally funded projects, the institutional strengthening TA, and other ADB TAs. The loan covenants, including those related to maintenance, were generally complied with. 29. A consultant for supervision of the civil works, except for those under contract R500, was engaged under ADB’s Guidelines on the Use of Consultants. The consultant’s early performance was less than satisfactory, particularly because of conflict within the team and difficulties in providing adequate and experienced foreign staff. The project manager was replaced three times and the pavement engineer, five times. These problems caused almost a 1-year lapse of the civil works contracts before the consultant gave guidance to the contractors on pavement design, which also contributed to the overall delay. Also, road defects related to the bitumen mix appear to have been caused by inconsistent construction that the consultants did not detect. 30. Supervision of contract R500, for the flooded sections north of Nha Trang, was by the consultant engaged for the feasibility and detailed design under TA 2636-VIE: Third Road Improvement. The OEM did not inspect this section, and the consultant’s performance was not assessed. However, PMU-1 reported that the works were completed satisfactorily.

III. ACHIEVEMENT OF PROJECT PURPOSE A. Operational Performance

1. Traffic and Road Performance 31. At the time of the OEM in late 2003, average annual traffic levels ranged from 2,200 to 12,500 vehicles14 per day on the two-lane sections of the project road, and about 39,000 vehicles per day on the four-lane section (Appendix 2). The statistics generally show a

14 Vehicles are defined in this report to include all cars, buses, and trucks (i.e., all motorized vehicles except

motorcycles). Motorcycles are commented upon separately.

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steady increase in traffic since 1997. Current traffic exceeds forecasts at appraisal.15 Traffic has already reached levels estimated at appraisal for 2017 for the four-lane section near HCMC, and parts of the two-lane section near Phan Thiet, a major town about halfway along the road, at the intersection with highway 55. The data show strong growth since 1997 for cars, pickups, large trucks with more than three axles, and buses over the entire road length, and trucks of all sizes near HCMC. 32. Motorcycles and bicycles are common along the road, with counts of 1,700 to 3,000 motorcycles per day over most of the road. But the number increases to 7,700 near Phan Thiet, and to 80,000 near HCMC. Bicycle traffic is typically about 500 to1,500 per day, but is 9,000 per day near HCMC. Motorcycles and bicycles move relatively slow, and can create a road safety problem when they mix with faster-moving vehicles. The large number of motorcycles and bicycles at all counting stations justifies the construction of wide shoulders, which create separate lanes for slower traffic over the entire road length. 33. The first road section was finished in 1997 and the entire road, by late 1999. By the time of the OEM, the pavements had been in service for 4 to 6 years. This is a significant portion of their nominal design life of 10 years, particularly considering the high traffic volumes, which shorten road life. Since completion of construction, about 10–20% of the road surface has suffered bleeding or cracking. Bleeding is a construction defect, but cracking may be caused by construction problems, or damage from truck overloading, or both. Many of these pavement problems became apparent early on, but not all were addressed quickly. The riding surfaces did not deteriorate badly in sections where problems were addressed rapidly, mainly sections under Regional Road Management Union Number 7. But the riding surfaces deteriorated far faster on sections where the problem was not addressed immediately. Nevertheless, pavement conditions for most of the road were good. The average IRI measured in 2001 was 2.9, with less than 5% of the road measuring higher than 4. At appraisal, resurfacing was deemed necessary when the IRI reached a level of 4. In 2003, some parts of the road had an IRI of 4 or higher, but long sections of road had relatively good riding surface.

2. Travel Times, Speeds, and Transport Costs 34. The road improvements reduced travel times by 15–30%. For example, at the time of the OEM, normal bus travel time between Nha Trang and HCMC, the towns at both ends of the 435-km road, was reported to have decreased from about 14 hours to 10 to 12 hours. Reductions in travel time, percentage-wise, were similar for shorter journeys. Gains would be greater if compared with the hypothetical “without-Project” situation for 2003, where traffic levels would be higher than before the Project. Travel speeds for light vehicles at the time of inspection were around 60–70 km per hour in the heavily trafficked sections near HCMC and immediately near major towns, but were higher at 70–90 km per hour over most of the road length. Anecdotal evidence from transport operators indicates that the faster travel has not always led to more trips or savings in crew time because of how trips were scheduled, but that fuel and repair costs had decreased since road rehabilitation. The conclusion from this limited evidence is that vehicle owners have benefited from lower vehicle operating costs. That conclusion is supported by a study by World Bank consultants hired in early 2003 to review its

15 These are the OEM’s best estimates based on available statistics. But there is a possibility for error because many

locations where traffic counts are made have changed over time, and large and unexplainable discrepancies exist in the data. For the project road, only seven stations appear consistent over time, and provide the estimates for 1997–2003. But it is not known if any are the same stations used at appraisal.

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first two road projects in Viet Nam.16 Those projects included sections of NH1 with similar pre-existing conditions, traffic levels, rehabilitation treatments, and improved surface conditions as for the Project. The consultants reviewed vehicle ownership and operating data extensively, and concluded that vehicle operating costs had decreased in real terms. 35. For nonowners of vehicles, some transport prices decreased, but others did not. Some transport prices even increased. Bus transport is still regulated, despite the existence of many private operators. For example, licenses are given for routes with specific origin and destination towns; buses that do not originate or terminate in a specific town cannot accept passengers there; all companies that operate between the origin and destination towns must agree to changes in bus fares; and the provincial transport authorities must approve such changes before they go into effect. Partly because of limitations these regulations place on competition, changes in bus fares are not strongly correlated with changes in road conditions. Changes in fares were widespread in 1997, before completion of the road. The changes mostly increased bus fares along the project road and around HCMC, but fares decreased for some routes, like from Phan Thiet to Phan Ri. Most bus fares have remained unchanged since 1997. Some prices also rose, for example, due to a company’s investment in new buses, which increased depreciation costs. The introduction of new services, especially luxury class buses, also was not due to road improvements, but was in response to new government regulations, and generally happened across Viet Nam. 36. Freight prices are of two types. The Government has a schedule of rates that apply to goods transported by private carriers for the Government. The other type of price is between private carriers and owners of private goods. The government rate varies with type and condition of each road. Because the project road was improved, it was reclassified from level 2 to level 1, which lowered the freight price.17 The OEM could not clearly determine the effect on private freight tariffs, other than that the effect appeared mixed. The World Bank’s consultants, in their 2003 study of various completed World Bank road sections (footnote 16), reached the same conclusion. The private sector’s inconsistent response is thought to be due, partly, to transport operator associations that guide tariffs. That reduces the effect of competition in driving down prices in response to improved road conditions. 37. True competition does not exist in Viet Nam’s bus and freight operations, so nonvehicle owners do not benefit fully from reductions in vehicle operating cost that result from road improvement. But nonvehicle owners, like vehicle owners, benefit from shorter travel and delivery times, and more comfortable journeys.

3. Road Safety 38. The number of accidents, injuries, and fatalities has increased rapidly across Viet Nam (Appendix 3). But the reasons include not only an increased accident rate, but also the increasing number of vehicles and better accident reporting. The Government, concerned about the situation, recently increased efforts to improve road safety through, for example, driver and pedestrian education. Preliminary 2003 statistics indicate some improvement.

16 Asia Pacific Engineering Consultants in Association with Maunsell Group. June 2003. Report on Project Monitoring

and Evaluation Study. Study done for the World Bank. 17 The government schedule was also revised in 2000. Because of improved conditions, the tariff for the project road

was reduced from D518/ton per km, the new rate for a level 2 road, to D435/ton per km, the new rate for a level 1 road.

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39. The data provided to the OEM is too limited in time frame covered and of comparative information from other road sections to draw a relationship between road improvement and road safety. The limited data show that the number of accidents, injuries, and fatalities along the project road has increased in recent years, mirroring overall national performance. On the positive side, the road was built with wide, 2.5-m paved shoulders along its full length, with painted lines to delineate the shoulders from the main carriageway, forming separate lanes for slower traffic. This, along with traffic signs, center lines, lights at strategic points, and two town bypasses, should have improved road safety. But not all bridges were improved. Some narrow bridges continue to be potential hazards because slow traffic must move to the main carriageways to pass over them. Also, people and businesses along the road, particularly in urbanized areas, are encroaching on the road right-of-way, and travel speeds have increased. Both factors could decrease road safety. B. Performance of the Operating Entity 40. VRA responsibilities include road maintenance and supporting transport operations, such as driver and vehicle licensing and control of truck overloading. VRA’s support function capabilities were to be improved through the institutional strengthening TA and vehicle weighing stations were to be constructed under the Project to help VRA combat truck overloading. Various reports, including assessment by World Bank consultants (footnote 16), indicate that vehicle overloading has not been reduced. The attempt under the institutional strengthening TA to establish a database for road information was unsuccessful, mirroring the lack of success, so far, of other international agencies in installing working pavement and bridge management systems. Consequently, maintenance planning is not objective. Instead, the works are selected from needs that field staff identifies.18 Nevertheless, the project road is maintained, although with occasional delays (para. 43), and the work of VRA’s regional road management unions appears adequate. The OEM could not assess VRA capabilities in other areas. C. Economic and Financial Reevaluation 41. Data on vehicle operating costs and other parameters needed to recalculate the Project’s EIRR were limited, and the reliability of those data was questionable. That constrained the accuracy of any economic analysis, based primarily on secondary data. But in early 2003, the team of consultants for the World Bank’s review (footnote 16) completed detailed evaluations for parts of the first two World Bank highway improvement projects. All data problems were addressed, where necessary, through new surveys. Features of two of the World Bank-evaluated NH-1 road sections were similar enough to those of the Project to use their results as a proxy. Key similarities were found in improvement works; investment costs per km; the investment period; and effects of improvements on riding quality, traffic volumes, and traffic growth (Appendix 4). The World Bank analysis produced EIRRs of 21–30% for these two road sections. Reduction in future traffic growth rates from 8 to 4% per annum, considered low and unlikely, still produced EIRRs higher than 19%. The high traffic volumes and reasonable maintenance on both the project road and the World Bank road sections intuitively suggest that high EIRRs, as indicated in the analyses, are probable. The PCR reestimated the Project’s EIRR as 25.8%. 42. The good project EIRR depends upon adequate future road maintenance. Maintenance funds for the project road will probably be adequate—but at the expense of maintenance of

18 Assistance under ADB’s Third Road Improvement Project (footnote 11) will also address objective selection of

maintenance treatments and maintenance planning.

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other roads. The resulting early deterioration and increase in vehicle operating costs on the other roads represent an economic loss attributable to the Project—which will reduce the EIRR. Additionally, early deterioration on roads connecting to the project road may limit the use of better buses and trucks on the project road, which would further reduce the project benefits. The extent of such benefit reductions have not been estimated, but are pointed out for a balanced view of both the EIRR and maintenance funding. D. Sustainability 43. Since project completion, the Government has funded routine maintenance through its normal budget process. In 2002–2003, about D10 million per km was provided for routine maintenance, the standard amount for highways. Based on the OEM observations, routine maintenance appears adequate. The regional road management unions also requested funds for resealing pavement cracks, which is not part of routine maintenance. The Government provided about D10 billion for this in 2001–2003 (Appendix 5). Not all of these requests were made immediately after the resealing problem was detected, and some road surface deterioration had already occurred. The delay in resealing will bring forward the need for resurfacing in some areas. The cost of resealing is low compared with the cost of an overlay to restore riding quality, estimated at about D2 to 3 billion per km. More road sections will need resealing soon. For Viet Nam as a whole, the funds provided for road maintenance are only a third to half of the amount required. Given NH1’s importance, the Government will probably give it priority, providing the necessary funds for overlays, although later than would be optimal. The road will probably be sustained, albeit suboptimaly. But the limited maintenance funds will mean that other roads, including those linking with the project road, are less likely to be adequately maintained.

IV. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS A. Socioeconomic Impact 44. The road improvements probably contributed to the relatively rapid growth in tourism since the mid-1990s in Khanh Hoa province and Nha Trang, its main city. This growth is reflected in figures for the provincial gross domestic product (GDP), which have risen faster than those for Viet Nam as a whole (Appendix 6). The area boasts many resorts and other facilities, and tourism now accounts for about 40% of the provincial GDP. Nha Trang is also connected by railway and air, and the northern continuation of NH1, which have also contributed to the growth of tourism. The GDPs of other provinces along the project road also seem to have grown similarly to that of Viet Nam as a whole. There are no clearly identifiable effects of the road improvement on economic activity in these provinces, other than those indicated by traffic growth. 45. Almost 10,000 households lost small portions of land to widen the rights-of-way, but were not relocated or affected otherwise. Another 175 households required resettlement because of construction of the two town bypasses and the widening of a third bypass at Nha Trang. About half of the affected households relocated voluntarily. The other households were relocated on nearby land. Another 880 households had some adjustment of their houses or the area they used because these infringed upon the right-of-way. Compensation was provided in all cases. 46. The road works created short-term employment, particularly for unskilled workers. But on the negative side, some less-skilled staff of maintenance companies under the regional road

13

management unions became unemployed because road maintenance was transferred to the construction contractors. B. Environmental Impact 47. The Project had no major environmental impact. Apart from two short town bypasses, the existing alignment was used. Most earth works were relatively simple, involving shoulders, culverts, drains, and small bridges. Problems that are sometimes associated with soil movement and disposal in road development were not noted. Widening of the paved section of the road and drainage works improved control of dust and rainwater. C. Impact on Institutions and Policy 48. Institutional impact was to be mainly through the Project’s associated institutional strengthening TA. Institutional support through the Project itself was limited to the supply of vehicle weighing stations. A 2001 evaluation of the TA’s outcomes (footnote 10) concluded, with respect to VRA, that many, but not all, of the expected TA outputs were achieved. Also, while VRA had improved capabilities, it remained a relatively weak part of MOT. The study found that development of the database for the transport sector was poor, and covered only part of the sector, but that ratification of the Road Act and issuance of the VRA Regulation provided a legal basis for the sector. In addition, the PMU-1’s capabilities in international contract management were improved, which benefited subsequent projects. The OEM confirmed the study’s conclusions about the database, legal framework, and PMU-1. About the database: VRA lacks the capability and funding for data collection, storage, and processing. This partly seems to be because of the lack of need for road data to help higher government levels plan and make decisions.19 VRA’s control of truck overloading was limited and ineffective. 49. Because joint venture partnerships of international and local companies won the construction contracts, some transfer of modern road construction techniques and management practices to the local partners was expected. The foreign partners provided sufficient inputs in only one of the three contracts to provide meaningful technology transfer but, even in that case, disputes between the partners made such transfer minor. Technology for the processing of old bituminous surfaces was introduced, and is being adopted for some town areas where old road surfaces must be removed before laying new surfaces.

V. OVERALL ASSESSMENT A. Relevance 50. At appraisal, Viet Nam’s road infrastructure was deteriorated and its road laws and institutions were weak—a condition not conducive to economic growth and change to a market-based economy. Thus, the assistance was very relevant to the country’s needs, and was in line with ADB’s development priorities as set out in the interim strategy at the time. This situation continues today. The focus on relatively low cost rehabilitation and the road section selected for improvement also were appropriate. However, the project design could have provided a broader range of initiatives to address transport efficiency and road safety. The Project is rated as relevant.

19 The World Bank and the Department for International Development of the United Kingdom have new programs to

improve data collection for roads and bridges, and its use in asset management.

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B. Efficacy 51. The main purposes of the Project were to reduce transport costs and improve road safety. For vehicle owners, transport costs, that is, vehicle operating costs, were reduced. For nonvehicle owners, some transport costs, such as bus fares and freight tariffs, were reduced, but others were not, because of regulations and a lack of competitive forces in the industry. Nevertheless, all road users benefit from shorter travel times and more comfortable journeys. The relative performance of the road in terms of road safety is not known. The number of road accidents, injuries, and fatalities along the project road has increased, mirroring those problems for Viet Nam as a whole. Road safety remains an issue but, overall, the Project is rated efficacious. C. Efficiency 52. All indications are that the Project has a high EIRR despite some reservations concerning maintenance and the diversion of maintenance funds from other roads. Thus, the investment was an efficient use of development funds. Nevertheless, the process by which the Project was prepared and implemented was not so efficient. Weaknesses in the process included the requirement to revise the road design and contract documents prepared at the detailed design stage, the slow appointment of the supervision consultant, and construction delays. These all contributed to a 2-year delay in project completion. But on balance, the Project is rated as efficient. D. Sustainability 53. The road has performed satisfactorily since completion, despite higher-than-expected traffic. Considering its importance, NH1 will probably receive funds for maintenance. For example, the cracking or bleeding problems that affect about 10–20% of the road are being addressed. But given the general inadequacy of the Government’s maintenance budget, maintenance may be later than optimal (this happened in the case of cracking). The low load capacity of some bridges is also a potential problem area. The replacement or upgrading of the bridges has not yet been provided, so there may be damage that interferes with smooth traffic flow and future benefits. Overall, sustainability of the Project is likely. E. Institutional Development and Other Impacts 54. Previous studies, and the OEM’s limited information concerning VRA, indicate that the institutional strengthening TA produced mixed results. VRA still requires substantial strengthening, and the road database is a particular sector weakness. But the legal framework for the sector was established (although with delay), and some capabilities of both VRA and PMU-1 were improved. There were no significant negative impacts. Overall, the performance under this criterion is rated as moderate. F. Overall Project Rating 55. Based on the combination of achievements under the five criteria, the Project is rated as successful. As a result of this and subsequent ADB projects, and assistance from the World Bank and JBIC, the entire length of the NH1 has been upgraded.20

20 A tunnel to bypass a winding section on NH1 at Da Nang is currently being built.

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56. The successful rating for the institutional strengthening TA given by the 2001 study (footnote 19) is considered appropriate. Considering the problems experienced with the design of ADB’s Second Road Improvement Project, the project preparatory TA is considered partly successful. G. Assessment of ADB and Borrower Performance 57. Staff continuity and frequent short missions in the early years after loan approval were notable features of ADB’s supervision. The frequency of missions was high in view of the Project being the first in the sector for Viet Nam, and given that the Government was in a state of transition and needed regular advice and support. Although the early missions addressed many issues, they could not overcome all sources of delay. ADB also fielded a staff consultant to review in detail the technical designs, and provided other general support through advisory TA to improve the Government’s systems of tendering and procurement. ADB’s performance is considered satisfactory. 58. Continuity is also seen in ADB’s efforts to support institutional development in the road sector. One output of the institutional strengthening TA was defining an institutional strengthening component funded under ADB’s Second Road Improvement Project. That component involved preparation of an action plan that identified activities, physical needs, human resource development needs, and policy requirements for a wide range of management and technical areas in VRA. Important among these were road network planning, needs identification for planning of road infrastructure, information management systems for user and infrastructure activities, guidance and control documents for maintenance, modernization of technical standards and specifications, and quality assurance systems. Implementation of the action plan is funded under ADB’s Third Road Improvement Project (footnote 4). Detailed terms of reference for technical consultant inputs for that project were being prepared at the time of the OEM. The institutional strengthening component under ADB’s Second Road Improvement Project also defined further institutional strengthening activities for development of funding arrangements for road maintenance, resettlement procedures, and further legislative improvements. These are to be implemented under ADB’s fourth road project.21 59. The Government’s procurement and decision-making procedures were cumbersome, and caused delays. But many of the problems were subsequently addressed. All loan covenants were complied with, and the Government’s overall performance was satisfactory.

VI. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS A. Key Issues for the Future

1. Low-Capacity Bridges 60. More than 50 small bridges on the road have load capacities of 18–25 tons. The larger bridges, and the road in general, have 30-ton capacity. These small bridges either will restrict freight operations by limiting vehicle loading to the lowest capacity in the section being traversed, or are at risk of being damaged, which, if it occurs, would hamper the smooth flow of traffic and realization of project benefits. Some other bridges are narrower than the carriageway

21 Loan 1888-VIE(SF): Provincial Roads Improvement Sector Project, for $70 million, approved on 18 December

2001.

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and shoulders and thus, pose safety risks. All of the low-capacity and narrow bridges should be upgraded.

2. Regulation of Transport 61. The regulation of transport operations limits the size and spread of the Project’s development impact by weakening the link between road condition and transport prices. Greater freedom for bus and truck operators to set prices and to organize their operations, and allowing transit buses to pick up passengers in towns they pass through, would probably produce a price structure more responsive to changes in road conditions. 3. Sustainable Maintenance Funding 62. Maintenance funds are limited, and funds are prioritized to maintain foreign-funded roads such as the project road. Thus, it is likely that some roads will not be adequately maintained. But for full benefits of road improvement to be realized, the entire network, including provincial and other roads that feed into or off the main highways, should also be maintained. Increased funding is clearly needed. 4. Accidents 63. Like narrow bridges, encroachments onto the right-of-way are avoidable hazards that can contribute unnecessarily to accidents. These encroachments can and should be corrected. Other actions to improve safety could include review of speed limits, better enforcement of road laws, and continued educational programs for drivers and residents. 5. Databases 64. Proper road and bridge management requires comprehensive, accurate, and up-to-date data. Thus, efforts to acquire specialized software for this purpose, such as Bridgeman, Rosy, and the highway design and maintenance model, version 4 (HDM-4) are in the right direction. But there must be a perceived need for data collection if it is to be sustained, with accuracy assured. Thus, upper management must support the use of Bridgeman, Rosy, and HDM-4 so they will become integral parts of VRA’s and MOT’s management systems. The database component of the institutional strengthening TA may have failed because of the lack of a perceived need for the data and, thus, low interest in continuing data collection and ensuring accuracy. B. Lessons Learned 65. Lessons learned through the Project include:

(i) Early resealing of areas of cracked pavement by Regional Road Management Union Number 7 limited deterioration of road quality. But treatment was delayed, and road quality deteriorated, in sections under Regional Road Management Union Number 5. This demonstrates the benefits of timely maintenance.

(ii) The wide paved shoulders were justified by the growth in motorcycle and other slower-moving traffic. Wide shoulders should be considered in other road projects in Viet Nam, and in similar traffic environments.

(iii) Available funds seem to have largely dictated the road design. Thus, the original scope of work included little drainage, no town bypasses, and rehabilitation or replacement of only 24 of the more than 100 small bridges. Also, the width of the

17

paved shoulders was reduced in areas of low traffic because of fears that the tender prices might exceed the budget. Fortunately, cost savings allowed widening of all shoulders, the addition of drainage works, rehabilitation of more bridges, and two town bypasses. But not all weak and narrow bridges were replaced. An alternative, if the budget is limited, would be to include all necessary works in the design, but to reduce the length of road to be improved.

(iv) Weakness was apparent in the detailed design studies for both the Project and ADB’s Second Road Improvement Project. In both cases, the major cause of weakness seems to have been insufficient funds for the studies. That indicates a need for greater care in planning for detailed design.

(v) If technology transfer was important, then the joint venture contracts should have included provisions to ensure more foreign personnel and equipment in joint ventures.

(vi) Quality of the completed road was acceptable, with little input from foreign partners in most cases. That indicates that local contracting companies are capable of such work. But supervision and monitoring to avoid delay may be required.

(vii) During construction, many maintenance staff of the companies under the regional road management unions may lose employment. Future projects should consider this potential hardship for individuals.

(viii) Efficient decision making by government agencies, based on clear lines of authority and preparedness to make timely decisions, is necessary to avoid implementation delays.

C. Follow-Up Actions 66. As soon as practical, such as by mid-2004, MOT should prepare a detailed list of substandard bridges along the project road; details of work required to bring each bridge up to standard; and an action plan for implementation. Even under a relatively efficient program of identification, design, and construction, bringing the road up to a uniform load capacity would take 2–3 years. 67. Before overlaying rough areas of the road, which will probably be necessary in the next few years, VRA should investigate and determine the causes of cracking. A simple overlay might not be the best option, if weak structure is the main cause of cracking.

18 Appendix 1

Civil Works 95.00 10.50 105.50 100.70 11.50 112.20Contract R100 33.83 3.74 37.57 26.08 2.90 28.98Contract R200 30.77 3.40 34.17 30.60 3.71 34.31Contract R300 30.40 3.36 33.76 37.59 4.18 41.77Contract R400 (Phan Thiet Bridges)

0.00 0.00 0.00 0.29 0.03 0.32

Contract R500 (Flooding Sections)

0.00 0.00 0.00 6.14 0.68 6.82

Right-of-Way 0.00 6.00 6.00 0.00 8.40 8.40

Consulting Services 5.20 0.20 5.40 8.55 0.20 8.75

Physical Contingencies 8.70 1.50 10.20 0.00 0.00 0.00

Price Contingencies 8.90 2.80 11.70 0.00 0.00 0.00

Interest During Construction 2.20 0.00 2.20 1.84 0.00 1.84

Total 120.00 21.00 141.00 111.09 20.10 131.19Source: Asian Development Bank loan financial information system data.

PROJECT COST ($ million)

ActualTotal Cost

Foreign Exchange

Local CurrencyItem

Foreign Exchange

Local Currency

Total Cost

Appraisal Estimate

Appendix 2 19

Item R100-4 Lane1551 1613 1687 1750 1816 1832 1879

1997 2,837 2,113 2,148 9,913 3,805 4,585 15,471 1998 3,544 1,879 6,560 6,129 6,686 4,828 18,816 1999 3,401 2,070 7,035 5,997 6,063 5,094 24,927 2000 3,183 2,029 6,023 7,590 5,568 5,206 36,302 2001 3,263 2,469 6,930 8,325 5,205 5,885 60,122 2002 3,805 2,497 7,499 11,938 6,784 6,320 42,102 2003 Estimate a 3,629 2,199 7,998 12,545 6,276 8,597 39,051 2017 Estimate b 8,205 4,972 18,083 28,363 14,189 19,437 88,291

package for 2017 c 38,143

B. Motorcycles1997 1,515 1,363 4,495 4,028 3,905 1,016 36,571 1998 1,729 1,136 4,356 3,934 2,918 1,240 35,384 1999 2,027 1,354 4,819 4,032 3,248 2,314 36,538 2000 2,716 1,686 5,155 4,057 2,063 2,583 52,129 2001 1,918 1,958 7,066 3,797 1,776 2,407 67,960 2002 1,716 2,177 7,736 3,825 2,128 3,023 84,857 2003 Estimate a 1,816 2,624 7,752 2,988 2,323 1,729 80,021

C. Bicycles1997 903 834 2,672 2,766 852 547 2,870 1998 1,111 669 2,728 2,203 1,914 426 3,892 1999 1,454 914 2,541 3,340 1,787 1,152 5,228 2000 1,625 1,190 2,070 2,842 1,213 829 11,789 2001 1,211 1,143 1,920 2,764 344 312 22,482 2002 1,197 1,237 1,445 3,125 756 186 12,389 2003 Estimate a 1,083 998 1,452 2,861 1,509 488 9,039

c Based on ADB, 1993. Report and Recommendation of the Presdient to the Board of Directors on a Proposed Loan and Technical Assistance Grant to the Socialist Republic of Viet Nam for the Road Improvement Project. Manila.Source: Viet Nam Road Authority.

A. Cars, Buses, and Trucks

Annual Average Daily Traffic (AADT)

12,5376,498

R300 R200 R100-2 Lane

TRAFFIC STATISTICS

Note: Construction contract R300 was the furthest from Ho Chi Minh City and was between kilometer posts 1455 and 1615; R200 was between kilometer posts 1615 and 1786, and R100 was between 1786 and 1888.a Mission estimates based on data for January–June 2003.b Mission estimates.

5,645

Construction Contract Package and Kilometer Post

Appraisal estimate for each construction contract

No. of No. of No. of No. of No. ofYear Accidents Fatalities Injuries Vehicles Motorcycles Accidents Fatalities Injuries1992 8,165 2,755 9,040 270,036 1,704,225 3,024 1,020 3,3481993 11,678 4,350 12,590 292,899 2,427,163 3,987 1,485 4,2981994 13,118 4,533 13,056 330,000 3,000,000 3,975 1,374 3,9561995 15,376 5,430 16,920 340,779 3,578,156 4,512 1,593 4,9651996 19,075 5,581 21,556 386,976 4,208,274 4,929 1,442 5,5701997 19,159 5,680 21,905 417,768 4,827,210 4,586 1,360 5,2431998 19,975 6,067 22,723 443,000 5,200,000 4,509 1,370 5,1291999 20,733 6,670 23,911 465,000 5,586,000 4,459 1,434 5,1422000 22,486 7,500 25,400 486,608 6,478,954 4,621 1,541 5,2202001 25,040 10,477 29,188 557,092 8,359,042 4,495 1,881 5,239

Rate of Increase1992–2001 (% p.a.) 13 16 14 8 19 5 7 5no. = number, p.a. = per annum.Note: Vehicles include all motorized vehicles except motorcycles.Source: Viet Nam Road Authority.

No. per 100,000 Vehicles

ACCIDENTS AND VEHICLE NUMBERS

20 Appendix 3

Appendix 4 21

REVIEW OF STUDY FOR WORLD BANK PROJECTS 1. During the first half of 2003, consultants engaged by the World Bank conducted surveys and completed economic analyses for several of the road improvement components under the World Bank’s First and Second Highway Rehabilitation Projects.1 Two components—the 292-kilometer (km) Vinh-Dong Ha portion of National Highway 1 (NH1) under the first project, and the 289-km Dong Ha-Quang Ngai section of NH1 under the second project—have similar features as the Project. 2. Comparative features of the two road components of the first and second World Bank projects and the Project are outlined in Table A4. Compared with the Vinh-Dong Ha roadworks, the Project was slightly less expensive per km and carries heavier traffic over part of its length. Both roads were constructed to the same standard, involved almost the same type of work, and had similar roughness levels just after construction. The Dong Ha-Quang Ngai road was built to a slightly lower standard than the Project by having narrower shoulders. Otherwise, the work was similar and involved some strengthening of the base and subbase courses, even though this work was labeled as periodic maintenance. Compared with the Project, the unit cost per km was significantly less, but so too are the traffic levels over much of its length. 3. The consultants evaluated the World Bank project road components using the highway design and maintenance model, version 4 (HDM-4). As benefits, they identified vehicle operating cost and maintenance cost savings in the same manner as used in the Asian Development Bank (ADB) road evaluations. In addition, there were benefits from the improvements to otherwise flooded sections and from passenger time savings, which do not always appear in ADB road evaluations. The passenger time savings were calculated on the basis of different values for work-related travel and other travel. Other travel was accorded a minor economic value. The split between the two types of travel was determined from origin-destination surveys. 4. Future traffic, after 2003, was expected to increase at 8% per annum. This is higher than the 5–6% per annum growth rates assumed in ADB’s project completion report for the Project. However, actual traffic during 2000–2003 for the Project’s road (Appendix 2) exceeded the levels predicted by the project completion report and, for parts of the road near to Ho Chi Minh City, exceeds even the 8% per annum growth rate predicted by the World Bank’s consultants. 5. In their report, the consultants indicated the many problems with data from available sources. To overcome these weaknesses, they conducted traffic surveys and collected new data on vehicle ownership and operation to enable them to use the HDM-4 computer model for evaluating the roads. 6. The resultant economic internal rate of return (EIRR) for Vinh-Dong Ha was 21.6%, and for Dong Ha-Quang Ngai, it was 30%. Sensitivity results showed that slower traffic growth of 4% reduced the EIRRs to 17.8% for Vinh-Dong Ha and 26.6% for Dong Ha-Quang Ngai. Excluding all passenger travel time savings from the benefits reduced the EIRRs to 13.6% for Vinh-Dong Ha and 20.5% for Dong Ha-Quang Ngai.

1 Asia Pacific Engineering Consultants in association with Maunsell Group. June 2003. Report on Project Monitoring

and Evaluation Study.

ADB Road World Bank First World Bank SecondParameter Improvement Project Highway Rehabilitation Highway Rehabilitation

Vinh-Dong Ha Portion Dong Ha-Quang Ngai PortionRoad Construction Period 1996–1999 1999–2001 2000–2002Length 437 km 292 km 240.5 km within 289 km roadPavement Width 7 m + two 2.5 m shoulders 7 m + two 2.5 m shoulders 7 m + two 1.5 m shouldersPavement Type Asphaltic concrete Asphaltic concrete Asphaltic concreteInclusions Minor bridges Minor bridgesCost per Kma $299,000/km $324,000/km $229,000/kmIRI after Construction 2.4 2.3 2.5

Traffic on Two-Lane Sections - 1999 Vehicles (vpd) 2,070–7,035 1,700–2,400 1,875–3,850 - 2003 Vehicles (vpd) 2,199–12,545 2,200–3,100 2,500–5,000 - 1999 Motorcycles (mpd) 1,354–4,819 1,550–3,500 1,160–6,150 - 2003 Motorcycles (mpd) 1,716–7,736 2,000–4,500 1,500–12,500

ADB = Asian Development Bank, IRI = international roughness index, km = kilometer, m = meter, mpd = motorcycle per day, vpd = vehicle per day (excluding motorcycles) .a Civil works for asphalt sections only, plus provision for 5% tax. Does not include consultants or resettlement. Adjusted to 2003 prices.

Table A4: Comparative Road Data

22 Appendix 4

Source: The Operations Evaluation Mission for the ADB Road Improvement Project; and the Project Monitoring and Evaluation Study, June 2003, Asia Pacific Engineering Consultants for World Bank projects.

Appendix 5 23

Year Routine ResealingMaintenance

2000 2,906 02001 3,777 7602002 4,135 7,1182003 4,699 1,966Source: Viet Nam Road Authority.

PROJECT ROAD MAINTENANCE EXPENDITURE(D million)

24 Appendix 6

Year

1995 195,567 2,991 1,417 926 1996 213,833 3,260 1,476 1,022 1997 231,264 3,589 1,577 —1998 244,596 3,866 1,687 1,119 1999 256,272 4,022 1,745 1,176 2000 273,582 4,446 1,922 1,252 2001 292,535 4,926 2,082 1,367 2002 313,135 5,508 2,275 1,512

— = not available, GDP = gross domestic product.Sources: Asian Development Bank. 2003. Key Indicators 2003 . Manila; and Provincial Transport

Departments of Khanh Hoa, Binh Thuan, and Ninh Thuan.

SELECTED GROSS DOMESTIC PRODUCT STATISTICS(D billion, constant 1994 prices)

Viet Nam Khanh HoaProvince

Ninh ThuanProvince

Binh ThuanProvince