-/ -<JJ-MVJiC Public Disclosure Authorized 18748 April 7, 1999 Public Disclosure Authorized orf - - /L- ac lEz~~~~~~~~~, 4. Public Disclosure Authorized 4 5 W Public Disclosure Authorized --I- Report No. 18748-VN Product ID No. VN-SE-53452 VIETNAM MOVING FORWARD ACHIEVEMENTS AND CHALLENGES IN THE TRANSPORT SECTOR April 7. 1999 East Asia Transport Sector Unit East Asia and Pacific Regional Office CURRENCY EQUIVALENT Currency Unit = Vietnamese Dong (D) 1995: US$1.(0 = D I 1,000 1996: US$I.00 = D 11,000 1997: USS 1.00 = D 12.000 GOVERNMENT FISCAL YEAR January I to December 31 WEIGHTS AND MEASURES Metric System Vice President : Jean-Michel Severino. EAPVP Countrv Director: Andrew Steer. EACVF Sector Manager : Jitendra Bajpai, EASTR Task Manager : Dieter Havlicek. Senior T ransport Economist. EASTR CONTENTS Preface ...................................................... iii Acknowledgments................................................................ iv Abbreviations and Acronyms ....................................................... v Executive Summary...................................................... Vii 1. TRAANSPORTIN A CHANGING ENVIRONMENT....................................................... 1 The Spatial and Structural Distribution of Economic Activity............................................ 1 The Policy Environment....................................................... 5 2. OPTIMIZING RESOURCE USE AND SERVICE DELIVERY........................................ 12 Transport Sector Priorities to 2010 ................................................ , 13 3. FINANCING ROAD iMI AINTENANCE...................................................... 27 Current Financing Arrangements ...................................................... 28 Cost Recovery Policies ...................................................... 31 Options for Mobilizing Maintenance Funds for the Core Network ....................................35 The Way Forward ........... , 45 4. THE ROLE OF DONORS AND THE WORLD BANK...................................................... 46 Potential Areas of Donor Intervention ...................................................................... 47 Proposed Transport Sector Initiatives for the World Bank ................................................48 Annex 1.1: Vietnam-Summary of Status of Recommendations for Transport Sector Reform... 54 Annex 1.2: Vietnam-Selected Transport Statistics ..................................................................... 59 Annex 1.3: Summary of Projects and/or Studies in the Vietnam Transport Sector ...................... 77 Annex 2.1: Transport InlfrastructureInvestment Proposals (Ministry of Transport) ..................... 90 Annex 2.2:Vietnam Railways: Making the Transition ................................................................. 95 Annex 2.3: Vietnam-Annex9.3: Por-ts Vitnamand Ports Shipping....109 an Shippint.................................................................... 10 Annex 3.1: Road User Charges Model for Vietnam................................... ................................ 124 Annex 3.2: Key Tasks of Road FtundBoards ...................................................................... 128 Annex 3.3: TranisfundNew Zealand ...................................................................... 130 Annex 3.4: Workshop on Sustainable Road Maintenance Financing ..133 Bibliography ....................................................................... 137 IBRD Map No. 29633 (June 1998) /~~~,,UC.L iii PREFACE The World Bank's first review of the transport sector (collaborating with the Transport Research Institute of Vietnam's Ministry of Transport) was carried out in 1992-93 and the report was published in 1994 (World Bank 1994b). It reviewed the status and role of the transport sector in Vietnam's developing market economy, recommended guidelines for spending priorities and suggested a core public investment program through 2000, discussed techniques to mobilize resources from transport activities (roads and inland waterways), reviewed the organization of the transport industry and regulatory framework in light of Vietnam's goal of moving to a market-based economy, and assessed the institutional and human resource implications of the sector's transition to a market economy. The report was widely disseminated within Vietnam's government entities and served as a reference document for the donor community and subsequent specialized transport studies. Since the review was published, there have been important developments in the transport sector. The sector benefited from the country's economic growth of the past few years and from renewed donor interest. Transport infrastructure is now being rehabilitated and modernized, with donor and some private sector assistance. Moreover, spending on maintenance has increased in key subsectors, although it is still not at a sufficient level. Still, serious weaknesses (identified in the 1994 Transport Sector Review) persist in the management and administration of thq sector, at the central, provincial and local levels. In many instances the available resources' are not used to maximum benefit. Further, the Government of Vietnam should pay more attention to improving the quality of its human resources, allocating insufficient resources to this task. In addition, policymakers inust address new challenges: the gap between rural and urban areas in terms of access to reliable and affordable transport must be reduced, and measures must be taken to avoid the impending urban gridlock in Hanoi and Ho Chi Minh City. Thus developments of the past few years must be assessed, strengths and weakniessesidentified, and corrective actions tak-en. Transport services are vital to virtually every economic sector and the efficient functioning of markets. Moreover, they are an important means of communication and a conduit for services such as health and education. 'I'hus the thrust of this sector report is to outline a framework for a well-planned, professionally managed. efficient transport system. This review builds on the findings and recommendations of the 1994 report. It assesses the progress made so far, highlights the areas that still need to be improved, suggests solutions where possible or further in-depth analysis where needed, and will hopefully serve as a reference document for the Government of Vietnam, donors, and the public at large. Finally, it explores the future role that donors and the Bank could play in the sector and their possible contribution to help the Government of Vietnam achieve its development objectives. I'v .1 cknowlecgmen:s ACKNOWLEDGMENTS This report was prepared in the Transport Unit of the East Asia and Placific Region of'the World Bank by a team headed by Dieter Havlicek (Senior Transport Economist), and comprising Christina Malmberg Calvo (Economist), Jitendra N. Bajpai (formerly Principal Transport Specialist), Richard Scheiner (Senior Port Engineer), Louis S. Thompson (Railway Advisor) and Wael Zakout (Environmental Engineer). Ms. Dang Tlhi Quynh Nga, Task Assistant (EACVF) provided valuable support with data collection. Messrs. Anil Bhandari (Principal Transport Specialist) and Jacques Yenny (Consultant) were peer reviewers. The assistance of the Ministry of Transport's Transport Development Strategy Institute ('T'DSI) with data collectioni is muclh appreciated. Thanks also goes to all those officials in government agencies. the donors. World Bank colleagues and others who provided the team with valuable commen-iets.Meredith Dearborn assisted with the production of the report. The conclusions and recommendations of this report are solcly the responsibility of the World Bank and not necessarily endorsed either in part or in whole by the Government of Vietnam. ,Ibbrevictizons and .4crovmnis v ABBREVIATIONS AND ACRONYMS AADT Average annual daily traffic ADB Asian Development Bank APEC Asia-Pacific Economic Cooperation ASEAN Association of Southeast Asian Nations BOT Build-operate-transfer ESA Equivalent standard axle FAO Food and Agriculture Organization FDI Foreign direct investment GDP Gross domestic product GST The New Zealand equivalent of a value-added tax GTZ Gesellschaft fuirTechnische Zusammenarbeit I4DM Highway Design and Maintenance Model IDA International Development Association IRI International roughness index kg/ha Kilograms per hectare km/h Kilometers per hour ODA Official development assistance OECD Organization for Economic Cooperation and Development PIP Public Investment Program TEU Twenty-foot equivalent unit VLSS Vietnam Living Standards Survey VOCs Vehicle operating costs vpd Vehicles per day VRA Vietnam Road Administration WTO World Trade Organization Executive Sunmun1ari: vii EXECUTIVE SUMMARY THE CHANGING SOCIOECONOMIC ENVIRONMENT AND TRANSPORT Since Vietnam introduced market-based policies a decade ago, the country has undergone a marked transformation. Macroeconomic and microeconomic reforms under the Doi Moi (renovation) policy laid the foundation for vigorous econumic growth of about 9% a year in real terms. The country was gradually opened and is now linked to the global economy. Foreign trade and exchange rate and investment regimes were substantially liberalized, and exports and imports have mushroomed. Also, opening most sectors to private initiative, allowing markets to set prices, and removing distortions created by state subsidies and other policies spurred domestic growth. Notwithstanding these reforms, the country still faces formidable challenges, even in