Vietnam’s commitment to boost water services-

 

Vietnam has been investing in its water infrastructure in an endeavour to increase coverage and bring its water service standards on par with those of its more affluent neighbours in the region. Towards this end, it has mobilised $1 billion in funding in 2011; this figure will double by 2020.

The funds will be used to extend coverage to nearly two-thirds of the country’s towns that currently do not have piped water. In addition, the piped network that serves 87 million in the remaining towns needs to be upgraded in order to stem the 30–40 per cent of leakage of water through leaky pipes. Water loss has, in turn, contributed to intermittent service because of low pressure. Moreover, it poses public health risks.

Policy fillip

The Vietnamese government has issued two decrees that have provided an economic basis for new investments in the sector. The first decree mandates that water supply tariffs be set to full cost recovery, thus ensuring that investors will obtain reasonable profits. According to the second decree, wastewater can be charged via a surcharge in the form of a water tariff so as to recover for operation and maintenance (O&M) costs. The second decree requires wastewater to be charged via a surcharge in the form of a water tariff, at a minimum of 10 per cent so as to recover the O&M costs, with subsidised capital investment.

Moreover, the government has formulated the Orientation Master Plan for Urban Development 2020 that aims to reduce non-revenue water (NRW) or water lost to leakages and other inefficiencies gradually from the current average of 40 per cent to 15 per cent by 2025. The importance of water to the government’s policies is further underscored by the inclusion of specific goals pertaining to water in its Social Economic Development Plan for 2011–15:

  • Supporting local economic development, with water identified as a limiting factor for growth, by developing large-scale modern urban infrastructures;
  • Improving quality of life and health of the people by providing safe water;
  • Raising the level of service and the efficiency of water supply companies; and
  • Enhancing environmental protection through the efficient use of water as a limited natural resource in the current context of Vietnam as a water-stressed country, which is also strongly impacted by climate.

 

ADB’s assistance to the water sector

To help the Vietnam government attain its goals, the Asian Development Bank (ADB) has offered a $1 billion multi-tranche financing facility (MFF) for Vietnam’s water sector till 2020 under the Vietnam Water Sector Investment Program (VWSIP). The VWSIP has two key components:

The first component involves the construction, improvement, upgradation, and rehabilitation of water pipeline networks to expand coverage, increase water conservation, reduce NRW, and introduce climate change mitigation measures.

As for the second component, institutional reforms will be enacted to improve efficiencies in service delivery by strengthening diverse management measures including the introduction of:

  • Performance-based service contracts;
  • System accountability through better information flow, decentralised systems, and benchmarking costs and performance; and
  • Financial management through revenue enhancement measures, budget prioritisation, and asset and liability management.

The total cost of the VWSIP is estimated to be over $2.78 billion, including the $2 billion for Ho Chi Minh City – the country’s most important commercial and industrial centre. In Ho Chi Minh City, the Saigon Water Company (SAWACO) will receive assistance under the programme to increase water distribution to 530,000 households, including about 20,000 poor households which will have access to piped water for the first time. SAWACO will also use the funds to reduce NRW and set up a comprehensive information and communication system. Table 1 contains key facts on the service coverage provided by SAWACO. Box 1 presents details of performance targets and objectives for the Ho Chi Minh City water project under the VWSIP.

The loan to Ho Chi Minh City is the first tranche of ADB’s MFF. The $138 million loan has a term of 25 years, including a grace period of five years, an interest rate that is determined in accordance with ADB’s Libor-based lending facility, and a commitment charge of 0.15 per cent on the undisbursed loan amount. Vietnam’s counterpart fund of $16 million will cover, among other things, taxes, duties, commitment charge in full, and part of the safeguard costs. The project is expected to be completed by December 2015. Table 2 gives the breakdown of costs for the Ho Chi Minh City water project.

In December 2012, ADB sanctioned the second tranche of $212 million to improve the delivery of water services in six cities and provinces of Vietnam to more than 3 million people, including 94,000 households that will receive piped water for the first time. The six provinces and cities are Binh Duong province, Dak Lak province, Da Nang City, Hai Phong City, Thua Thien Hue province, and Quang Tri province. Projects including the construction of water production plants, pumping stations, as well as transmission and distribution pipelines will be undertaken. The water supply companies have committed a counterpart funding of $43 million to cover taxes and duties, interest and other charges during construction, and part of the construction cost. Table 3 provides the breakdown of financing.

Under the second tranche, nine other water supply companies will borrow to prepare an investment project for financing under a subsequent tranche. These companies are Bac Giang, Thai Nguyen, Thanh Hoa, Vinh, Thai Hoa, Cua Lo, Dak Lak Boo, Quang Nam, and Lam Dong.

Towards a better future with clean water

Reiterating the need for investments in Vietnam’s water sector, A. Leung, Director of the Urban and Water Division of ADB’s Southeast Asia Department, states, “Clean water is crucial to development. The government recognises that access to clean water can support local economic development and improve the quality of life and health of people.”

The Vietnam government’s intent to improve access to safe water for its residents is strong. The rapid pace of activity is proof of that. Over the next 10 years, more than 15 million people will receive improved water services, which will enable the country to rapidly scale up its socio-economic profile.