Validation Report
December 2017
Viet Nam: Greater Mekong Subregion Kunming–Hai
Phong Transport Corridor: Yen Vien–Lao Cai
Railway Upgrading Project
Reference Number: PVR-548
Program Number: 39175-013
Loan Numbers: 2302, 8227
ABBREVIATIONS
ADB – Asian Development Bank
AFD – Agence Française de Développement
DMF – design and monitoring framework
EIRR – economic internal rate of return
GMS – Greater Mekong Subregion
HRC – Hanoi Railway Company
IED – Independent Evaluation Department
km – kilometer
PCR – project completion report
PRC – People’s Republic of China
RPMU – Railway Projects Management Unit
RRP – report and recommendation of the President
SCF – standard conversion factor
SEDP – socioeconomic development plan
TA – technical assistance
VNR – Viet Nam Railways
NOTE
In this report, “$” refers to US dollars.
Director General Marvin Taylor-Dormond, Independent Evaluation Department
(IED)
Deputy Director General Veronique Salze-Lozac’h, IED
Director Nathan Subramaniam, Independent Evaluation Sector and
Project Division (IESP), IED
Team Leader Toshiyuki Yokota, Principal Evaluation Specialist, IESP, IED
The guidelines formally adopted by the Independent Evaluation Department (IED) on avoiding
conflict of interest in its independent evaluations were observed in the preparation of this report.
To the knowledge of IED management, there were no conflicts of interest of the persons
preparing, reviewing, or approving this report. The final ratings are the ratings of IED and may or
may not coincide with those originally proposed by the consultants engaged for this report.
In preparing any evaluation report, or by making any designation of or reference to a particular
territory or geographic area in this document, IED does not intend to make any judgments as to
the legal or other status of any territory or area.
PROJECT BASIC DATA
Program Numbers 39175-013 PCR Circulation Date 30 Jun 2017
Loan Numbers 2302, 8227 PCR Validation Date Dec 2017
Project Name Greater Mekong Subregion Kunming–Hai Phong Transport Corridor: Yen
Vien–Lao Cai Railway Upgrading Project
Sector and Transport Rail transport (non-urban)
Subsector
Strategic Agenda Regional Integration
Safeguard Environment B
Categories Involuntary Resettlement –
Indigenous Peoples C
Country Viet Nam Approved Actual
($ million) ($ million)
ADB Financing ADF: 60.00 Total Project Costs 161.66 154.54
($ million) OCR: Loan
2302 61.66 55.72
(SDR) (40.40) (39.07)
Borrower 22.50 17.19
Beneficiaries
Others
Cofinancier AFD, DGT Total Cofinancing 77.50 81.63
Approval Date 19 Dec 2006 Effectiveness Date 16 Apr 2007 25 Sep 2007
Signing Date Closing Date
2302 16 Jan 2007 2302 31 Dec 2012 21 Dec 2016
8227 8 Feb 2007 8227 31 Dec 2012 30 Apr 2014
Project Officers Location From To
A. Ahonen ADB Headquarters Dec 2013 Dec 2016
S. Date ADB Headquarters Oct 2013 Dec 2013
M. Alam ADB Headquarters Mar 2013 Oct 2013
A. Kunth ADB Headquarters Jan 2011 Oct 2012
IED Review
Director N. Subramaniam, IESP
Team Leader T. Yokota, Principal Evaluation Specialist, IESP*
ADB = Asian Development Bank, ADF = Asian Development Fund, AFD = Agence Française de Développement,
DGT = Direction Générale du Trésor (Treasury and Economic Policy General Directorate of the French Ministry of
Finance), IED = Independent Evaluation Department, IESP = Sector and Project Division, OCR = ordinary capital
resources, PCR = project completion report, SDR = special drawing right.
*Team members: F. De Guzman (Senior Evaluation Officer), R. Brockman and P. Choynowski (Consultants).
I. PROGRAM DESCRIPTION
A. Rationale
1. The Yen Vien–Lao Cai railway line is part of the Eastern Economic Corridor of the Greater
Mekong Subregion (GMS). The line opened in the early 1900s and runs northwest from Ha Noi
to the city of Lao Cai on the border with Yunnan Province in the People’s Republic of China (PRC).
Trade between Yunnan Province and Viet Nam had grown rapidly with the total value registered
at the Hekou–Lao Cai border expanding by 36% in 2003 and by 51% in 2004. This accounted for
80% of Yunnan–Viet Nam trade and 10% of that between the PRC and Viet Nam in 2004.
According to the report and recommendation of the President (RRP), roads were the dominant
2
mode of freight transport in Viet Nam in 2006, accounting for 65% of traffic by weight, although
rail also played a significant role, particularly for the transport of bulk cargo over long distances.1
2. The railway line in the Kunming–Hai Phong transport corridor is an important infrastructure
element of the GMS north–south economic corridor. However, the railway line in the Kunming–
Hai Phong transport corridor had been neglected because it lacked maintenance and investment
and would not be able to meet the expected traffic demand. Equipment and system capacity still
could not meet the demands of a market economy. Moreover, the export of goods produced in
Yunnan was constrained by the limited capacity of the Fangcheng and Beihai ports in the PRC.
Viet Nam’s Hai Phong port, which was about 250 kilometers (km) closer to Yunnan, had more
capacity.
3. Border districts and provinces, including Lao Cai, were among the poorest areas in Viet
Nam, but their development depends partly upon that of the country’s neighbors, including
Yunnan Province. Given Viet Nam’s strategic location, better regional cooperation and integration
has the potential to increase trade and investment through improved infrastructure links and
expanded markets, thus stimulating development. The Socioeconomic Development Plan
(SEDP) 2006–2010 for Viet Nam recognized the importance of regional cooperation and
integration in the attainment of the Millennium Development Goals and the country’s own
development goals.
4. Greater synergy between Viet Nam’s SEDP 2006–2010 and the GMS program was
supported by the Asian Development Bank’s (ADB) country strategy and program for Viet Nam
(2007–2010),2 and the regional cooperation strategy and program for the GMS.3 The overarching
objective of ADB’s strategy was the reduction of poverty through the implementation of an
economic development strategy aligned with the SEDP 2006–2010. The strategy emphasized the
importance of the efficient movement of people and goods in an economically, socially, and
environmentally sustainable manner. The objective of ADB’s strategy for the railway sector was
an economically viable railway system to meet the demands of a rapidly growing economy in an
efficient and effective manner.
B. Expected Impacts, Outcomes, and Outputs
5. The project’s expected impacts were (i) increased cross-border trade with PRC’s Yunnan
Province, and (ii) accelerated economic growth in northern Viet Nam. These impacts were
expected to be achieved with (i) Viet Nam–Yunnan trade increasing by 15% annually between
2011 and 2020, and (ii) gross domestic product per capita in the project area outside Ha Noi
increasing to 70% of the national average by 2020.
6. There were four outcomes of the project: (i) a more efficient rail transportation system that
will meet transport demand to 2020, (ii) financially sustainable railway operation, (iii) improved
traffic safety, and (iv) improved governance of Viet Nam Railways (VNR). Performance targets
corresponding to the outcomes were (i) railway rehabilitation and upgrading works to be
completed by 2011 and the line meeting rail freight transport demand to 2020; (ii) railway
operation to be commercially viable by 2015 and incremental revenues sufficient to meet debt
service requirements of the rehabilitation loan; (iii) reduction in the number of accidents on the
1 ADB. 2006. Report and Recommendation of the President to the Board of Directors: Proposed Loan and
Administration of Loan from Agence Française de Développement for Socialist Republic of Viet Nam on Greater
Mekong Subregion Kunming–Hai Phong Transport Corridor: Yen Vien–Lao Cai Railway Upgrading Project. Manila.
2 ADB. 2006. Country Strategy and Program for Viet Nam (2007–2010). Manila.
3 ADB. 2006. TA 6195-REG: GMS Transport Sector Strategy Study, Final Report. Manila.
3
railway by 25% and on the adjacent roads by 10% by 2015; and (iv) all implementing decrees for
the Railway Law in force by mid-2007, and modern accounting and management reporting
systems deployed throughout VNR implemented in 2010.
7. The project comprised three outputs: (i) railway infrastructure rehabilitation and upgrading,
and associated resettlement and social mitigation measures along the railway line; (ii) an agreed
agenda for institutional strengthening to ensure financial sustainability of railway operations; and
(iii) an agreed agenda for railway reform for facilitating the implementation of the Railway Law
that seeks to provide opportunities for private sector participation in the development of railway
infrastructure and operations. The corresponding performance targets were (i) completion of
realignment, embankment stabilization, track renewal, bridge building and repairs, building station
facilities for upgrading the line capacity, and safety works at level crossings; and all affected
people compensated in full and on schedule; (ii) institutional strengthening consultants to submit
a final report in June 2007 with recommendations on financial management and sustainability of
VNR; and (iii) railway reforms to enable implementation of the Railway Law.
8. The project completion report (PCR)4 indicates that the opening of the bid for the first
construction package under the project showed a significant cost increase compared to estimates
made by the feasibility study consultants 4 years earlier. The bid price was about 71% above the
appraisal estimate. The surge in commodity prices, mainly steel, which started in 2005 and
peaked in 2008, and the 4-year gap between project design and bidding partly explained the
higher bid prices. Material quantities were another source of error in the cost estimates in the
RRP. The increase in cost required a reduction in project scope, since additional financing was
not possible. However, this change was not considered to fundamentally alter the project’s nature
and outcome, and was not considered major according to ADB’s guidelines.5
9. The change in scope included removing the section from km 283+550 to km 292+317 with
a length of 6 km near Lao Cai from the project. This component was originally to improve the
alignment of the existing track. A total of about 213 km was to be replaced with new rails, sleepers,
and fastenings. This output was reduced to 173 km. The construction of six new bridges was
reduced to two new bridges. The strengthening of up to 60 substandard bridges to enable use of
heavier locomotives was reduced to 22. The construction of a new intermediate station at Mai
Tung, including passing loops, was deleted from the project. The construction and extension of
passing loops at 17 stations was reduced to 11. The upgrading of station facilities at North Yen
Vien, Van Phu, Yuan Giao ‘A,’ and Lao Cai, and the construction of a road flyover to eliminate
level crossing at the Dong Anh rail intersection were deleted. The upgrading of 31 at-grade
crossings by providing improved track-crossing structure for motorized and pedestrian road traffic
was reduced to eight. The provision of about 5.5 km of fencing and permanent rights-of-way to
channel traffic toward official crossing points at selected unauthorized at-grade rail crossing points
and rail safety works supported by a public awareness campaign were deleted.
10. The change in scope led to the modification in the project’s design and monitoring
framework (DMF). The expected impact became increased cross-border trade with Yunnan
Province in the PRC with an associated performance target of Viet Nam–Yunnan province trade
increasing by 15% per annum between 2011 and 2020. Expected outcomes were reduced from
four to one, namely, a more efficient rail transportation system (para. 6). The four associated
4 ADB. 2017. Completion Report: Socialist Republic of Viet Nam: Greater Mekong Subregion Kunming–Hai Phong
Transport Corridor: Yen Vien–Lao Cai Railway Upgrading Project. Manila.
5 According to the guidelines, “a major change materially alters or fundamentally affects the scope and project outcome
as approved by the Board.” ADB. 2015. Change of Loan and/or Grant Funded Projects. Project Administration
Instructions. PAI No. 5.02. Manila.
4
performance targets were also reduced to two: (i) travel time reduced by 13% from 9 hours in
2012 and (ii) the number of accidents on the railway reduced by 25% and on the adjacent roads
by 10% by 2015. Expected outputs were reduced by one, with the elimination of the agreed
agenda for railway reform. One performance target was also deleted.
C. Provision of Inputs
11. The loan for the Yen Vien–Lao Cai Railway Upgrading Project was approved by the
ADB Board on 19 December 2006. It was effective on 25 September 2007, about 5 months later
than the expected date. The loan closed on 21 December 2016 or some 4 years later than the
expected date. Project implementation suffered from start-up delays caused by poor performance
of the design consultants and the slow responsiveness of government to take remedial action.
12. The project was estimated to cost $160 million, including taxes and duties of
$12.17 million. The cost included land acquisition and resettlement, and environmental mitigation
and monitoring. ADB provided a $60 million loan from its Special Funds resources. The
government also obtained a €32 million loan (about $40 million equivalent) from Agence
Française de Développement (AFD), and a €30 million loan (about $37.5 million equivalent) from
the Treasury and Economic Policy General Directorate of the French Ministry of Finance as tied
overseas development assistance credit. ADB and AFD agreed to cofinance the civil works and
consulting services. The remaining cost of $22.5 million equivalent was to be met by the
government. Since the RRP and PCR were silent on the operation of the project assets and the
associated loans, this validation presumes that the loans provided by ADB, AFD, the Treasury
and Economic Policy General Directorate, and funds provided by the government were not on
lent to the Hanoi Railway Company (HRC), the Yen Vien–Lao Cai railway line operator.
13. The Government of France provided a $980,000 advisory technical assistance (TA) to
support the government of Viet Nam’s efforts to reform and modernize VNR’s business processes
and operations.6 The TA’s expected impact was to achieve cost-effective and efficient railway
services. The expected outcome was a modernized financial accounting and management
system implemented on a pilot basis and improved Hekou–Lao Cai railway cross-border
operation. The expected outputs were (i) a new financial and accounting management system
implemented in selected VNR units and (ii) a template for the improvement of cross-border
facilities and procedures. The TA was rated successful based on the evaluated achievement of
outcomes and outputs.7
14. The government was to engage an international consulting firm supported by national
consultants for detailed engineering design, preparation of technical specifications and bid
documents, construction supervision, and quality assurance. The consulting firm was also to be
responsible for environmental supervision and management, updating, implementation and
monitoring of the resettlement plan, socioeconomic impact assessment, and project performance
monitoring. It was expected that 200 person-months of international consultants and 524 person-
months of national consultants would be required. During implementation, consultants were
recruited for design and construction supervision and for independent project implementation
support, financed by the ADB loan. The PCR did not provide data on the number of person-
months of international and domestic consultants used in the project.
6 ADB. 2007. Technical Assistance to the Socialist Republic of Viet Nam for Strengthening Operations and Business
Processes in Viet Nam Railways. Manila.
7 ADB. 2012. Technical Assistance Completion Report: Strengthening Operations and Business Processes in Viet
Nam Railways. Manila.
5
D. Implementation Arrangements
15. The VNR was to be the executing agency for the project. The Railway Projects
Management Unit (RPMU), within VNR, was to be responsible for day-to-day management and
overall implementation of the project, including procurement, withdrawal of loan proceeds, and
reporting to ADB and cofinanciers. Qualified technical, financial, and support staff would be
recruited for project management and implementation. ADB was to provide training in
procurement and project management to technical staff of VNR and the RPMU.
16. Until November 2014, VNR was the project’s executing agency, and the RPMU was
responsible for the day-to-day activities during implementation. In November 2014, the Ministry
of Transport assumed ownership of the project from VNR. The transfer involved moving the
RPMU to the ministry, where it was incorporated into their other project management units. A
team of consultants provided independent project implementation support in contract
management. The team determined reporting requirements and guided the RPMU on their
responsibilities.
17. The consulting contract for the detailed engineering design was awarded only in February
2009 and, because of poor performance, was terminated in April 2010. National consultants
subsequently completed the detailed engineering design and prepared the tender documents for
civil works and supplies.
18. This validation noted that in Appendix 7 of the PCR, one covenant was not complied with
and two were partly complied with. VNR did not comply with the requirement to prepare a report
to ADB “on the execution and initial operation of the project, including its cost, the performance
of VNR of its obligations under this Project Agreement and the accomplishment of the purposes
of this Loan.” VNR also partly complied with the covenant to furnish ADB quarterly reports on the
project’s execution and on the operation and management of the project facilities. The
government partly complied with the covenant for ensuring that VNR did not start land acquisition
and relocation nor commence any works until an updated resettlement plan was prepared.
II. EVALUATION OF PERFORMANCE AND RATINGS
A. Relevance of Design and Formulation
19. The PCR rated the project relevant. The intended outcomes were strategically aligned
with Viet Nam’s development priorities and ADB’s corporate strategies and country partnership
strategy. The relevant rating was also supported by the government’s master plan8 to gradually
modernize and expand the country’s railway sector.
20. The PCR highlighted the design deficiencies of the project, especially that the design
should have considered the condition of the rolling stock and the emergence of a competing mode
of transport. The age of VNR’s fleet of rolling stock was a constraint to efficient railway operations
and AFD had proposed including a rolling stock component at the project’s design stage.
VNR had plans to procure rolling stock from the PRC and, therefore, rolling stock was not
considered part of the project at the time of appraisal. However, this did not materialize and the
design was not modified to include the component.
8 Government of Viet Nam, The Prime Minister of the Socialist Republic of Viet Nam. 2015. Approving the Adjusted
Master Plan on Development of Vietnam’s Railway Transport through 2020, with a Vision Toward 2030. Ha Noi.
6
21. The risk of traffic diversion to the new expressway had been recognized, but ADB’s project
appraisal assumed that the railway would have a comparative cost advantage, as determined by
the feasibility study.9 Subsequent reduction of rehabilitation work and a weakening of the railway’s
competitive position meant the cost advantage did not materialize to the extent expected. Also,
shippers and consignees often preferred truck transport because of advantages of just-in-time
and door-to-door deliveries and there was no need to transfer cargo at the border from truck to
train or from train to train.
22. In validation’s view, the rationale and design of the project were not well reasoned. The
RRP stated that the project would increase access to Lao Cai province—it is among the poorest
in Viet Nam and its population includes a number of ethnic minorities. The project aimed to open
up opportunities for trade and investment and foster economic growth in the GMS. The
employment and income-generating opportunities from increased trade and economic growth
would help reduce poverty. Other than stating these impacts, the RRP provided no evidence or
explained how these development impacts would arise.
23. The PCR adequately discussed the shortcomings of the project’s design, the cost
overruns, and the reduction of the project scope (paras. 8 and 9). This validation agrees that the
project design was seriously flawed particularly the need for replacing rolling stock and the
comparative cost advantage of rail with respect to road. Given the 3.5 years delay in starting
physical works and the increase in costs of materials, the design should have been reassessed
to determine its viability, rather than just deleting components. Indeed, para. 12 of the PCR states
that, “although it was clear that the reduction would adversely affect railway operations in
efficiency, safety, and available capacity, the changes were not considered to fundamentally alter
the project’s nature and outcome.” In validation’s view, the project was less than relevant.
B. Effectiveness in Achieving Project Outcomes and Outputs
24. The PCR rated the project less than effective in achieving expected outcomes. The
outcome in the modified DMF to account for the deleted components, an efficient rail
transportation system, was not fully achieved. Travel time was reduced from about 5.7 hours to
4.9 hours or by 11%. The indicators in the modified DMF required a reduction of 13%. A reduction
of 25% in accidents on the railway and a 10% reduction on adjacent roads was also targeted.
Since mid-2015, no train accidents occurred on the Yen Vien–Lao Cai railway section. No data
was provided in the PCR on road accidents. Regarding project outputs, civil works were
substantially completed by June 2015 and resettlement activities were completed by December
2015. Financial management reforms were implemented as part of ongoing VNR institutional
reforms supported by the government. Based on the partial achievement of outcomes, this
validation concurs that the project was less than effective.
25. The environmental assessment rated the project category B. The project’s potential
environmental impacts that could arise were from (i) earthwork disposal, (ii) soil erosion, (iii) site-
specific degradation of surface water quality, (iv) noise pollution, and (v) vibration. However, the
project should have overall beneficial impacts in terms of safety, travel time, and socioeconomic
conditions along the project corridor. The RRP did not rate the indigenous peoples’ safeguard
category. A socioeconomic survey of the PCR indicated that the project was not expected to have
any adverse effect on ethnic groups. The RRP also did not rate the resettlement safeguard
category. It was estimated that about 591 households (2,378 persons) would be affected by the
9 ADB. 2006. Kunming–Haiphong Transport Corridor Project. Upgrading Hanoi–Lao Cai Railway. Feasibility Study and
Preliminary Design. Main Report (Final). Consultant’s report. Manila (TA 4050-VIE).
7
rehabilitation of the railway. There were 411 households in the project area and, of these,
128 would be relocated and 88 would lose more than 10% of their agricultural land. Therefore, a
full resettlement plan was prepared. The project proposed two resettlement sites to accommodate
180 households. At completion, the PCR indicated that the project adversely affected
1,225 households (4,445 persons), of which 224 lost 10% or more of productive landholdings,
and 580 lost their homes and had to relocate. The project developed 10 relocation sites.10
26. The project was not expected to have any long-term adverse impacts on the environment.
From random interviews with stakeholders, the project was completed without any major
complaints about environmental management. Compensation and allowances paid to affected
households, including relocation site development, amounted to about $4.5 million. The local
governments in Lao Cai and Yen Bai provided income rehabilitation assistance on their own
initiative to affected households through vocational training and access to credit facilities. Hence,
the income restoration program for severely affected households was not required. The HIV and
human trafficking prevention program succeeded in improving knowledge and increasing
awareness of related health risks and prevention measures. However, success was limited
because of low participation by construction workers and local communities, and the limited
interest of contractors.
C. Efficiency of Resource Use
27. The PCR rated the project less than efficient. The economic internal rate of return
(EIRR) of the completed project shown in the PCR was 9.9%, lower than the appraisal estimate
of 15.7% and below ADB’s benchmark of 12%.
28. In validation’s view, there appears to be methodological issues in the calculation of the
EIRR. It was not clear what numeraire was used in the EIRR calculation. The PCR stated that
“the unit of account (the numéraire) of the analysis is the dollar…” The dollar was the currency
used in the EIRR calculation, but it is not the numeraire, which should have been stated as
domestic price or border price. Since the unit of account was the dollar, then validation suggests
that border price should be the numeraire. This is consistent with the PCR’s use of a standard
conversion factor (SCF) of 0.95, the value of which was the same as used in the 2006
EIRR calculation. After 11 years, this value of the SCF had likely changed and should have been
updated. With border price as numeraire, non-tradables are adjusted by the SCF and tradables
are not adjusted. On this basis, the shadow pricing indicated in Table A8.1 of the PCR had major
shortcomings. Equipment was correctly designated as tradable, but it should not have adjusted
by the SCF. Tradable materials should also not have been adjusted by the SCF and cement
should have been considered as tradable. Labor is not tradable and should have been shadow
priced by the shadow wage rate factor and the SCF. Transport may be considered as non-
tradable, but it should have been adjusted by the SCF. Vehicle operating cost savings are
tradable, but should not have been adjusted by the SCF.
29. The EIRR calculation should have been based on incremental forecasts of rail traffic
comparing the “without project” and “with project” scenarios. Resource cost savings (non-
incremental benefits) should have been quantified and valued on the basis of the rail traffic
forecast in the “without project” scenario. Since the decline in rail traffic was a result of greater
competitiveness of road transport, the analysis could ignore any diverted traffic from road to rail.
Only benefits accruing to rail traffic in the “without project” scenario should have been valued in
terms of savings in rail operating costs. The balance of economic benefits from rail traffic should
10 Footnote 4, para. 47.
8
have been valued in terms of willingness to pay and/or foreign currency earnings from the
transshipment of goods from the PRC. Since there was no diversion of road traffic to rail, there is
no justification for including environmental benefits or savings from reduced road maintenance.
30. The PCR did not discuss process efficiency in the Efficiency in Achieving Outcome and
Outputs section. This validation rates the project less than efficient.
D. Preliminary Assessment of Sustainability
31. The PCR rated the project less than likely sustainable. The financial internal rate of return
(FIRR) was estimated at –2.1%. Although the PCR did not calculate the weighted average cost
of capital, it was positive and higher than the recalculated FIRR.
32. Although the HRC was restructured, thus improving its prospects for financial
sustainability, the Ministry of Transport still sets passenger fares at a low level. Freight rates are
unregulated. The company’s revenues cover operating costs and, as the railway infrastructure
owner, the Ministry of Transport compensates the HRC for maintenance costs incurred. In turn,
the company’s financial performance deteriorated in 2015, mainly because of a large increase in
“overheads and depreciation.” With the project now in operation, it may be expected that this
charge will continue to increase. In this validation’s view, the financial position of the HRC is
unsustainable. Therefore, the validation concurs that the project less than likely sustainable.
III. OTHER PERFORMANCE ASSESSMENTS
A. Preliminary Assessment of Development Impact
33. The PCR did not rate the development impact of the project. The expected impact in the
modified DMF was increased cross-border trade with Yunnan Province in the PRC. The
performance target was Viet Nam–Yunnan Province trade increasing by 15% annually between
2011 and 2020. The PCR indicated that the value of cross-border trade between the PRC and
Viet Nam decreased from 2012 to 2015, but this was unrelated to the project. Traffic on the railway
grew by about 5% from 2015 to 2016, while freight volume to Yunnan increased by 58.3% in
2016 over the previous year. However, freight volume originating in Yunnan Province dropped
sharply, so that the overall volume for both directions increased only by 5.3%.
34. According to the PCR, the project’s institutional impact was substantial. The project
accelerated important structural reforms which resulted in the HRC becoming a more effective
organization with increased capacity to respond to the transport market needs. The skills and
competencies of VNR staff were enhanced through the financial management system developed
under the ADB TA project. In validation’s view, the development impact was less than satisfactory.
B. Performance of the Borrower and Executing Agency
35. The PCR stated that the borrower and the executing agency performed satisfactorily. The
PCR noted that the government carried out its own feasibility study, independent from ADB-
supported due diligence activities. This was a requirement for final project approval. The
government’s feasibility study was approved after the project’s external financing arrangements
had been completed and ADB had approved the project. The late approval of the government’s
feasibility study contributed to a delay in loan effectiveness and, consequently, in the start of
project implementation. The decision that made the Ministry of Transport the executing agency
helped improve implementation because of its experiences with internationally funded projects.
9
This validation holds a similar view that the performance of the borrower and the executing agency
is satisfactory.
C. Performance of the Asian Development Bank and Cofinanciers
36. The PCR rated ADB’s performance satisfactory and rated their project supervision and
management during implementation highly satisfactory. However, the project design had
shortcomings, which led to unrealistic assumptions regarding development results. A contributing
factor was the use of a feasibility study as the basis for determining the project’s financing needs.
According to the PCR, feasibility studies do not ensure project readiness and rarely deliver results
exact enough to serve as a basis for final financing arrangements. A more thorough assessment
of risks regarding rail and road traffic forecasts, the comparative advantage of rail versus road,
the impact on poverty reduction, and a better validation of the cost estimates and resulting
financing requirements should have been undertaken. The PCR also stated that the design was
a result of an insufficient understanding of Viet Nam’s railway sector.
37. It was not clear why the reduction in scope of the project was not considered to be a major
change that required Board approval. According to ADB’s Project Administration Instructions No.
5.02 (revised on June 2015) and noted in footnote 5, a major change is one that materially alters
or fundamentally affects the scope and project outcome as approved by the Board.11 The project
scope was materially altered as well as the project outcome. The change in scope also
fundamentally affected the project outcomes stated in the DMF. Originally there were four project
outcomes, and these were reduced to one. Those deleted were (i) the financial sustainable
operation of the railway, (ii) improved traffic safety, and (iii) improved governance of VNR. In
validation’s view, these outcomes were crucial to the success of the project. Moreover, the Board
was not given the opportunity to recommend on accepting the revised project scope or whether
to increase the amount of project financing. This validation rates ADB’s performance less than
satisfactory because of an inadequate justification of the project at the preparatory stage, the
subsequent design flaws, and the absence of an ADB Board review of the change in scope.
IV. OVERALL ASSESSMENT, LESSONS, AND RECOMMENDATIONS
A. Overall Assessment and Ratings
38. The PCR’s overall rating of the project was less than successful. It rated the project
relevant, less than effective, less than efficient, and less than likely sustainable. The project's
design was less than robust and implemented with significant changes in scope. Implementation
fell significantly behind the original schedule. Project outputs were not delivered as originally
envisaged and its impact and outcome were only marginally achieved.
39. This validation concurs with the PCR’s ratings for effectiveness, efficiency, sustainability,
and borrower and executing agency performance. However, the design of the project had major
shortcomings and its rationale was not well presented. In particular, the project’s impact on poverty
was not well established nor its potential benefit to Viet Nam in the transshipment of goods from
Yunnan, PRC. Therefore, this validation rates the project less than relevant. Based on the four
evaluation criteria of relevance, effectiveness, efficiency, and sustainability, the validation’s overall
rating of the project is less than successful. The table below provides a summary of PCR and
validation ratings.
11 This is consistent with PAI 2011 which indicates that a major change in project scope is approved by the Board (PAI
No. 5.02, para. 9, Revised on January 2011).
10
Overall Ratings
Reason for Disagreement
Validation Criteria PCR IED Review and/or Comments
Less than relevant Project rationale and design had
Relevance Relevant
major shortcomings.
Effectiveness Less than effective Less than effective
Efficiency Less than efficient Less than efficient
Less than likely Less than likely
Sustainability
sustainable sustainable
Less than Less than
Overall Assessment
successful successful
Preliminary Assessment Less than
Not rated
of Impact satisfactory
Borrower and Executing
Satisfactory Satisfactory
Agency Performance
The subsequent design flaws, lack of
Less than appropriate due diligence, and the
Performance of ADB Satisfactory
satisfactory absence of a Board review of the
change in scope.
Quality of PCR Satisfactory Para. 48.
ADB = Asian Development Bank, IED = Independent Evaluation Department, PCR = project completion report.
B. Lessons
40. Country-level lesson. None.
41. Sector-level lesson. None.
42. Project-level lessons. The PCR identified two lessons. First, in cases where project cost
is higher than the available financing, ADB should either (i) await a more robust cost estimate
(typically produced through a detailed design), or (ii) if time is of the essence and finalization of
detailed designs cannot be awaited, financing arrangements should be flexible enough to respond
to foreseeable cost increases. The validation concurs with the lesson on the cost overrun, but the
second option is not realistic since financing cannot be flexible for several reasons12 and project
costs are rarely foreseeable.
43. The second lesson was related to the reduced project scope that was unable to achieve
the modified development results because other constraints in the system remained unaddressed
or unrecognized. The validation concurs with the lesson that the unfinished rehabilitation program
and the inefficient rolling stock reduced the comparative cost advantage of rail versus road
transport.
44. Results framework and methodology level lessons. This validation also suggests the
following lessons in terms of ADB process: (i) project benefits, particularly those that are
supposed to address poverty concerns, should be explicitly identified and quantified at the project
preparatory stage; and (ii) when preparing a project for Board approval, ADB should have a
thorough knowledge of government procedures for approvals needed to begin project
implementation. In the case of this project, ADB should have delayed Board approval until
government approval was obtained.
12 Financing often depends on borrower absorptive capacity and funds available to donors for lending, among other
reasons.
11
C. Recommendations for Follow-Up
45. The PCR suggested that the scope of Phase 2 should be reviewed given the
developments that occurred since the project was formulated in 2008. The scope should include
all components omitted by the project, excluding those that VNR had rehabilitated using its own
resources. This validation has no further recommendations to offer.
V. OTHER CONSIDERATIONS AND FOLLOW-UP
A. Monitoring and Reporting
46. The project’s loan agreement13 required that VNR would implement a project performance
monitoring and analysis system for use throughout the project period. VNR was to establish
measurements of the project indicators (baseline data) before project approval including, among
others: (i) economic development and socioeconomic indicators, (ii) transport costs and time for
passenger and freight services, (iii) transport services and transport charges, (iv) accident rates,
(v) financial sustainability of the railway sector, (vi) affected persons’ incomes, (vii) access to
social services, and (viii) jobs created in construction and maintenance. The baseline data would
be collected within 6 months after the date of loan effectiveness; a second survey was to be
conducted upon project completion, and a third survey, 3 years after completion to establish its
impact. The design of the baseline and impact surveys were to include data collected from
(i) secondary data from government sources, (ii) household socioeconomic sample surveys, and
(iii) participatory rapid appraisals. Where relevant, indicators were to be disaggregated by gender.
Project supervision consultant services were to include professional inputs to help establish the
monitoring and evaluation system and train VNR staff in its use.
47. However, ADB’s back-to-office reports indicated that the baseline data for the project
performance monitoring system was only completed in April 2014, much later than the required
date of 6 months after loan effectiveness on 25 September 2007. Moreover, back-to-office reports
after April 2014 made no mention of follow-up surveys, particularly that required at project
completion. It is highly likely that this survey was not conducted and, therefore, the covenant
regarding the project performance monitoring system was only partly complied with.
B. Comments on Program Completion Report Quality
48. The PCR was generally well-written, succinct, candid, and followed ADB guidelines,
although there is the shortcoming of the methodology used in the calculation of the EIRRs.
Overall, the PCR was satisfactory.
C. Data Sources for Validation
49. Data sources included the RRP, PCR, and mission reports.
D. Recommendation for Independent Evaluation Department Follow-Up
50. No further IED follow up is recommended.
13 ADB. 2007. Loan Agreement for Greater Mekong Subregion Kunming–Haiphong Transport Corridor: Yen Vien–Lao
Cai Railway Upgrading Project between the Socialist Republic of Viet Nam and the Asian Development Bank. Manila
(Schedule 5, para. 22).
