Yen Vien–Lao Cai railway line back on track-

The Yen Vien–Lao Cai railway line, though less than 300 km, is an important part of the Asian Development Bank (ADB)-supported Greater Mekong Subregion (GMS) subregional cooperation programme. It aims to enhance connectivity and improve the competitiveness of the 2.6 square km region that is bound by the Mekong river. In the short term, the project will meet the growing demand for connectivity between Vietnam and the People’s Republic of China (PRC). This line connects Hanoi and Hai Phong in Vietnam to Kunming in the PRC.

Marred by delays, the project is now back on track: several design and construction contracts have been awarded. The project is now expected to be completed by December 31, 2015.

Yen Vien–Lao Cai Railway Upgrading Project

The project aims to increase the capacity of a long-established 285 km rail link from the Yen Vien station in the northern suburbs of Hanoito Lao Cai on the border with the PRC. As most of the line was built in the early twentieth century and limited maintenance work had been done, it had deteriorated significantly. Old and worn-out rails, tight curves, steep gradients, and passing loops make the tracks too short to accommodate full-length trains. Furthermore, damaged bridges limit the train speed to 10–15 km per hour. Table 1 lists the various components of the railway upgrading project.

The executing agency for the project is Vietnam Railways (VNR), while the Railway Project Management Unit (RPMU), under VNR, is the implementing agency.

The total cost of the project is estimated to be over $160 million; the maximum funding from ADB is $60 million. ADB’s loan has a 32-year term and a grace period of eight years, with an interest rate of 1 per cent per annum during the grace period and 1.5 per cent for the rest of the term. The loan from ADB and Agence Française de Développement (AFD) will be allocated for the project’s detailed design and preparation of bidding documents; construction supervision services; and construction works for capacity enhancement and rehabilitation/upgrading. The Treasury and Economic Policy General Directorate of the French Ministry of Finance (DGTPE) will be responsible for the procurement of rails, track switches, and fittings. Fig. 1 provides the financing structure of the Yen Vien–Lao Cai Railway Upgrading Project.

The procurement of goods, financed by ADB and AFD loans, is being executed in accordance with ADB’s procurement guidelines. Civil contracts have been packaged according to three subsections of the project route. Each package comprises works on the subsection including tracks, bridges, station upgrading, and safety works.

For works estimated to cost above $1,000,000 and for goods costing above $500,000, the international competitive bidding (ICB) method is being used to award civil works contracts. In the case of works costing between $100,000 and $1,000,000 and goods costing between $100,000 and $500,000, the national competitive bidding method is being adopted. Supply contracts that do not exceed $100,000 in value are being procured through the shopping method. As for the purchase of the DGTPE-financed package of rails, track, switches, and fittings, the Government of France’s procurement rules is being followed. Finally, in consulting services, the quality- and cost-based selection (QCBS) method is being employed for works costing above $200,000, while consultants’ qualifications selection and the least-cost selection  methods is being used for works costing in the $100,000–$200,000 range and below $100,000, respectively.

Regional benefits

Being Vietnam’s largest trading partner,Chinastands to gain the most from the railway upgrading project. The bilateral trade between Vietnam and China stood at $36 billion in 2011, which constituted a year-on-year (YoY) increase of 30 per cent. In fact, Vietnam has been Yunnan’s second largest trading partner for the last five years, with bilateral trade reaching $12.1 billion in 2011 – a YoY growth of 28 per cent. Over the next two to three years, trade between the two countries is expected to exceed $60 billion.

The Yen Vien–Lao Cai railway line is also an important part of the Kunming–Hai Phong transport corridor that is a strategic link in the GMS north–south economic corridor. The line will improve the transfer of goods from Kunming in China to a container port at Hai Phong in Vietnam, which is closer to Kunming than ports in the PRC. Hai Phong is around 850 km from Kunming, while the nearest container port in the PRC, Fangcheng port, is 1,100 km away. By improving access to Hai Phong, the project will provide benefits to industrial and agricultural producers in the Yunnan province. In 2010, Qinzhou port in China opened a direct shipping route to the port of Hai Phong.

The line is also an integral part of the Singapore–Kunming link that is expected to be completed by 2015, with the construction of the final link betweenPhnom PenhandHo Chi Minh City. Overall, the Yen Vien–Lao Cai railway line is a strategic link in the GMS north–south economic corridor that connects Kunming to Bangkok. The transport corridor is a key subregional transport project under the GMS Economic Cooperation Program that aims to develop efficient multimodal infrastructure links among the GMS countries. One of the priorities of the region is to get connected via a rail network system by 2020. At present, the national railway systems of the six GMS countries are not connected, except for a line that links China and Vietnam (the 855 km Yunnan–Vietnam Railway).Laoshas no rail networks at all.

Besides facilitating trade, the project will offer easy access to major tourist destinations in Vietnam including the World Heritage Site at Halong Bayand the Sa Pa mountain resort.

On track after initial delays

Originally targeted for completion in 2012, the project was marred by delays since its launch. Although ADB and VNR had signed the loan agreement in January 2007, it became effective only after about eight months. Factors that led to delays included the late procurement of contractors, the executing agency’s lack of familiarity with ADB’s procurement guidelines, and cost escalations. Nevertheless, the project has shown considerable progress over the last few months.  Contracts have been awarded for consulting services in detailed design, construction supervision, and independent project implementation support. Two of the three construction packages have also been awarded. Table 2 gives a summary of the contracts awarded for the project.

Highlighting the progress of the project, M. Alam, head of the Project Administration Unit in ADB’s Southeast Asia Department, noted: “A delay was caused when a consultant recruited to work on designs and procurement had to be replaced. But a new team of consultants is now in place. Most of the designs are available and most of the packages have been awarded.”

Going forward

Considering the increasing trade between Vietnam and China, there is a fairly significant need for rehabilitating the existing rail route. During the past two decades (1992–2011), China–Vietnam trade has increased at a compound annual growth rate of 32 per cent. Moreover, upgrading the existing rail link would be a first step towards building an integrated rail network between GMS countries. As the project is an important link in the Singapore–Kunming railway link and the Kunming–Hai Phong transport corridor, it would also be extending the connectivity of the GMS region to the rest of Southeast Asia.

As the project has picked up pace, with most of the consultants and contractors in place, it appears to be back on track; thus, it will likely meet its revised deadline of 2015.