10/27/20151 PUBLIC INVESTMENT PROJECT APPRAISAL IN VN CAPACITY BUILDING PROGRAM TO IMPROVE PUBLIC INVESTMENT APPRAISALS IN VN LESSON 4 EVALUATING PUBLIC INVESTMENT PROJECTS IN VIETNAM PRACTICES AND RISING ISSUES

10/27/20152 PUBLIC INVESTMENT PROJECT APPRAISAL IN VN CAPACITY BUILDING PROGRAM TO IMPROVE PUBLIC INVESTMENT APPRAISALS IN VN CONTENT 1. Practices on appraising public investment projects 2. Content of evaluating programs and projects in the Draft Law on Public investment 3. Emerging issues in appraising public investment projects in Vietnam

10/27/20153 PUBLIC INVESTMENT PROJECT APPRAISAL IN VN CAPACITY BUILDING PROGRAM TO IMPROVE PUBLIC INVESTMENT APPRAISALS IN VN 1.1. Common characteristics of investment activities An activity of investing capital to receive benefits in the future Characteristics  An activity of investing capital and using resources  A long-lasting activity  An activity of exchanging short-term benefits with long-term benefits  An activity that contains risks 1. Practices in appraising public investment projects

10/27/20154 PUBLIC INVESTMENT PROJECT APPRAISAL IN VN CAPACITY BUILDING PROGRAM TO IMPROVE PUBLIC INVESTMENT APPRAISALS IN VN 1.2. Characteristics of public investment projects  Belonging to public sector, acting a role of making pre-conditions for socio-economic development; the State is responsible for investing  Partly or fully using the State’s investment resource  The main goal is the common benefits for the whole economy and for the people  Requirements on rate of return and profits are not regarded as a priority in assessing projects’ feasibility Those characteristics, to different extents, relate to the content, method and organization of appraising public projects

10/27/20155 PUBLIC INVESTMENT PROJECT APPRAISAL IN VN CAPACITY BUILDING PROGRAM TO IMPROVE PUBLIC INVESTMENT APPRAISALS IN VN 1.3. Principles on appraising investment projects a) Common principles on appraising investment projects b) Specific principles on appraising investment projects Assessing the feasibility of solutions in all aspects (market, technology, technique, finance, implementation management, exploitation, etc) to ensure reaching investment goals Review and assess the compatibility with legal regulations, standards, norms… of Vietnam and international practices. Review and assess the sufficiency, confidence, necessary accuracy of economic, technical parameters in project dossier. Assess the feasibility of solutions and of projects: - Ability to implement project in reality and in specific conditions - The chosen project must be the best which has the highest efficiency among selected projects

10/27/20156 PUBLIC INVESTMENT PROJECT APPRAISAL IN VN CAPACITY BUILDING PROGRAM TO IMPROVE PUBLIC INVESTMENT APPRAISALS IN VN 1.4. General content of project appraisal Issues C ontents Legal Compatibility with regulations, policies, plans; complying with legal norms in managing investment and international practices Technology, Technique Rationality of chosen technology and technical solutions (plan, construction…); modernity, advance and efficiency of selected equipments and means Environment Environmental impacts of the project and measures for environmental protection… Economic and financial Forecast for market demand; project size; input and output factors; demand for resources; solutions for capital sources; investment results… Implementation organization Assess sufficiency and feasibility of related components (strucuture, roles, missions, relationships) in implementing investment and operating project; Efficiency Assess the efficiency of aspects (financial, economic, social) and general efficiency

10/27/20157 PUBLIC INVESTMENT PROJECT APPRAISAL IN VN CAPACITY BUILDING PROGRAM TO IMPROVE PUBLIC INVESTMENT APPRAISALS IN VN Criteria for appraising projects a)Selection of criteria for appraising projects 5 assessment criteria (OECD) Relevance Effectiveness Efficiency Impacts Sustainability These criteria are used for comprehensively assessing programs/projects. They can be applied in the phase of appraising public investment projects

10/27/20158 PUBLIC INVESTMENT PROJECT APPRAISAL IN VN CAPACITY BUILDING PROGRAM TO IMPROVE PUBLIC INVESTMENT APPRAISALS IN VN b) Usage of criteria for assessing projects CriteriaDescription Relevance To review the strategy of the project and to assure the necessity (goals, final results) of the project Effectiveness To assess the direct efficiency of the project (intermediary results) - necessary factors for reaching final results EfficiencyTo assess the efficiency of the project (comparing the inputs and the outputs, efficiency of using resources) Impact To assess long-term results of the project (looking forward, spill-over impacts) SustainabilityTo assess the sustainability of the project’s outcomes after finishing the project (long-term effects)

10/27/20159 PUBLIC INVESTMENT PROJECT APPRAISAL IN VN CAPACITY BUILDING PROGRAM TO IMPROVE PUBLIC INVESTMENT APPRAISALS IN VN 2.Regulations on appraising programs, projects as mentioned in the Draft Law on Public investment 2.1. Authority to organize appraisal of public investment projects Person with investment deciding competence must organize appraisal of which the result will be a foundation for investment decision Dossier of public investment project appraisal includes: a) Investor’s statement; b) Feasibility study report (investment projects on construction of works); c) Legal documents related to the project..

10/27/ PUBLIC INVESTMENT PROJECT APPRAISAL IN VN CAPACITY BUILDING PROGRAM TO IMPROVE PUBLIC INVESTMENT APPRAISALS IN VN 2.3 Content of appraising public investment projects includes: a)The necessity of the project; b)Legal foundation, information and data used for establishing the project; c)The compatibility with socio-economic development plans, sector development plans, construction plans, land usage plans; d)The rationality of investment scale, technology options; quality standards; e)Options of location, land usage; mechanism to exploit and use national natural resources; f)Solutions for environmental and ecological protection, resettlement plan; solutions to resolve social problems of the project (if any); g)Base to calculate and the accuracy of investment capital demand; h)Modality to mobilize investment capital; i)Assessment on capital payback (if the project can take back a part of the invested capital); j)Socio-economic efficiency, sustainablity of the project; k)Other contents as regulated by laws.

10/27/ PUBLIC INVESTMENT PROJECT APPRAISAL IN VN CAPACITY BUILDING PROGRAM TO IMPROVE PUBLIC INVESTMENT APPRAISALS IN VN 2.4. Organizing the appraisal of public investment projects: a) The Prime Minister shall set up the State Council for Appraisal of Investment Projects to appraise nationally important projects. b) For decentralized projects, person with investment decision authority shall assign an affiliated unit to be in charge of appraising public investment projects; for projects of localities, agency managing public investment planning shall be in charge of organizing the appraisal; c) Clue unit shall ask for evaluation opinions from related agencies; if necessary, it is allowed to hire domestic and foreign independent consultants to evaluate the projects. d) Organizations and individuals implementing the evaluation on the project must be independent from the investor and the project establishing consultant organization;

10/27/ PUBLIC INVESTMENT PROJECT APPRAISAL IN VN CAPACITY BUILDING PROGRAM TO IMPROVE PUBLIC INVESTMENT APPRAISALS IN VN Some comments : - Current regulations and ones mentioned in the Draft Law on Public investment on appraisal of projects mainly are regulations and instructions on legal procedures - In general, content of project appraisal as mentioned in the Draft Law is sufficient and can be applied for reviewing and appraising public investment projects - Regulations and instructions have not mentioned operational issues which serve the appraisal of public projects: + Quantifying cost and benefit factors + Assessment methods... - Issues related to content, method and organization of appraisal haven’t been fully institutionalized

10/27/ PUBLIC INVESTMENT PROJECT APPRAISAL IN VN CAPACITY BUILDING PROGRAM TO IMPROVE PUBLIC INVESTMENT APPRAISALS IN VN 3. Emerging issues in appraising public investment projects in Vietnam 3.1. Content of appraisal  Cost and investment result  PPP project  Issues on environment, climate change, sustainable development 3.2. Method: (analysing and assessing feasibility)  Determining costs and benefits  Determining general efficiency

10/27/ PUBLIC INVESTMENT PROJECT APPRAISAL IN VN CAPACITY BUILDING PROGRAM TO IMPROVE PUBLIC INVESTMENT APPRAISALS IN VN 3.3. Organization of appraisal  Requirements on the capacity of organizations and individuals implementing the appraisal  Capacity conditions of organizations and individuals  Ensuring the quality of appraisal 3.4. Institution  Criteria and standards for assessing the feasibility  Socializing the appraisal and the responsibilities of organizations and individuals taking part in project appraisal 3.5. Ex post monitoring and evaluation Some emerging issues in appraising public projects

10/27/ PUBLIC INVESTMENT PROJECT APPRAISAL IN VN CAPACITY BUILDING PROGRAM TO IMPROVE PUBLIC INVESTMENT APPRAISALS IN VN 3.1. Specific issues on appraisal content Determining investment costs and benefits of public projects Present: Concerning cost and benefit, it is hard to fully calculate the value of resources used for investment and the value of investment benefits Project costs should be calculated in accordance with the socio-economic price - Cost for investing in equipment building,… - Land cost (not including the value of land usage right or land hiring fee); the value of natural resources above and in earth’s womb - Compensation payment for site clearance, cost for resettlement paid by State capital Concerning benefits, project’s benefits should be sufficiently calculated - Economic benefits (there has been no guidance on a standard calculation method) - Social benefits (environment, security, national defense, employment, health, culture, etc)

10/27/ PUBLIC INVESTMENT PROJECT APPRAISAL IN VN CAPACITY BUILDING PROGRAM TO IMPROVE PUBLIC INVESTMENT APPRAISALS IN VN Contracted investment projects - The payment value the State pays for investors in the case of BOT, BT investment projects (there has been no standard calculation method and regulations) -Determining the content related to State capital contribution in PPP projects; the proportion of State capital contribution in PPP projects (there hasn’t been clear institutions; just doing some pilot cases) Issues of environment, climate changes and sustainable development  How to embed the content of environment, climate changes into investment cost (supporting researches, building and evaluating environmental impact assessment schemes)  Investment schemes should consider costs for maintenance, repairing, reinforcing and ensuring safety of works during the process of project operation and usage to reach the goal of sustainability (at present, those costs haven’t been fully calculated).

10/27/ PUBLIC INVESTMENT PROJECT APPRAISAL IN VN CAPACITY BUILDING PROGRAM TO IMPROVE PUBLIC INVESTMENT APPRAISALS IN VN 3.2. Methods: (analyzing and assessing the feasibility) Assessment on the feasibility of technology, technical and financial aspects: Similar to other projects (production and business projects) Assessment on the feasibility of socio-economic aspects a) Calculating socio-economic costs and benefits: Now, in Vietnam, there hasn’t been instructions about a standard method) b) Calculating the general efficiency - Because analyzing financial, economic and social benefits is carried out separately, it is difficult to assess the general efficiency of the project. - At present, there has been no method to calculate a consolidated indicator to assess the investment efficiency (financial, economic, social) which can be a foundation for assessing the feasibility of projects.

10/27/ PUBLIC INVESTMENT PROJECT APPRAISAL IN VN CAPACITY BUILDING PROGRAM TO IMPROVE PUBLIC INVESTMENT APPRAISALS IN VN Method to assess the general feasibility of projects:  Selecting indicators and method to assess the general socio-economic efficiency of projects  Selecting assessment criteria (in the phase of feasibility study)  Measuring assessment indicators  Generally analysing and assessing Should above-mentioned issues be studied in order to make appropriate instructions for public investment projects?

10/27/ PUBLIC INVESTMENT PROJECT APPRAISAL IN VN CAPACITY BUILDING PROGRAM TO IMPROVE PUBLIC INVESTMENT APPRAISALS IN VN 3.3. Organization of appraisal Requirements on capacity of organizations, individuals implementing evaluation on public investment projects:  Professional: Experts should have professional skills conformable to the content of the project, including ability to analyse and appraise public investment projects (econometric, analyzing and assessing socio- economic aspects of projects, etc)  Experiences: Experts should have skills, working experiences and information related to the appraised sector  Understanding of laws and regulations: having knowledge on domestic laws and international practices and norms related to the appraised sector Capacity conditions of organizations and individuals  Sufficient human resource capacity  Sufficient capacity and conditions for professional operations (should be institutionally regulated)

10/27/ PUBLIC INVESTMENT PROJECT APPRAISAL IN VN CAPACITY BUILDING PROGRAM TO IMPROVE PUBLIC INVESTMENT APPRAISALS IN VN Conditions to ensure the quality of appraisal Cost Time Capacity Quality of appraisal

10/27/ PUBLIC INVESTMENT PROJECT APPRAISAL IN VN CAPACITY BUILDING PROGRAM TO IMPROVE PUBLIC INVESTMENT APPRAISALS IN VN 3.4. Institution a) Criteria for assessing the feasibility: There should be standard regulations on criteria for assessing the feasibility of projects (5 criteria of OECD) b) Standards and norms of feasibility: The State should issue instructions on standards and norms used for analysing the feasibility and assessing projects c) Socializing appraisal works: - Mobilize and use qualified organizations and individuals in evaluating projects - Clear regulations on determining the responsibilites of organizations and individuals taking part in evaluating projects; specific sanctions d) Propagating instructional materials (Manual) to ensure the unification of State management

10/27/ PUBLIC INVESTMENT PROJECT APPRAISAL IN VN CAPACITY BUILDING PROGRAM TO IMPROVE PUBLIC INVESTMENT APPRAISALS IN VN Ex post monitoring and evaluation It is necessary to determine requirements and contents of ex post monitoring and evaluation right from the period of feasibility study: - Contents need to be monitored and evaluated during the periods of project implementation and operation - Determine indicators for monitoring and evaluation - Establish a logic framework for project monitoring and evaluation in the feasibility study report Above-mentioned contents should be institutionalized