VIETNAM: Performance Based Contracts for Waterways’ Operations and Maintenance

Much of Vietnam's growth had been driven by increased participation in trade and investment in infrastructure, including transport, and initially buoyed by low manufacturing costs and cuts in international trade tariffs. As Vietnam's tariff reductions are almost exhausted, and with the emergence of other low-cost manufacturing countries, it has become increasingly important for export cost competitiveness to be driven by other factors such as efficient supply chains and lower transport and logistics costs. Addressing the issue of competitiveness of its international trade tariff, which is indirectly linked with its cost of maintenance of rehabilitation and maintenance of key transportation infrastructures, such as waterways, had become a key priority for Vietnam. This is all the more so relevant as Vietnam's international trade highly depends on Inland Waterways Transport (IWT) as the country uses more waterways for freight. Modal share is almost 19 percent in terms of ton-km, second highest globally. Meanwhile, the IWT sector only receives a small portion (about 1-2 percent) of the total transport budget annually due to insufficient funds. Vietnam's waterways have experienced serious shortfalls in improving and maintaining its infrastructure compared to its needs and compared to investment in other modes.

Faced which such financing challenges, the Ministry of Transport through the Vietnam Inland Waterway Administration (VIWA), the agency in charge of waterways in Vietnam, requested PPIAF support to enhance private sector participation in waterways to improve value for money outcomes for maintenance. 

The objective of this activity was to enable VIWA to promote private sector participation in Vietnam Waterways' Operations and Maintenance via Performance-Based Contracts (PBCs) and Performance-Based Indicators. It provided:

1. Recommendations on regulatory revisions that could be undertaken to introduce PBCs in waterways;
2. Knowledge sharing to VIWA to implement PBCs;
3. Analysis of gaps in the private sector for their active participation in PBCs;
4. Developed PBC indicators for VIWA's future use and recommendations on implementing waterways maintenance via PBC.

The activity also developed a Value for Money assessment methodology, which can be used to assess PBCs against conventional contracting, which the government of Vietnam can adopt for potential use and identification of waterways for PBC pilots. The study revealed that the best way to develop a PBC would be as a DBFM – Design, Build, Finance, and Maintain and, therefore, a combination of capital and maintenance dredging.

The study improved VIWA's understanding of PBCs and performance-based indicators. The capacity of the government was enhanced to apply Value for Money methods and identify the waterways sub-sectors that would work best for PBC. This led to enabling private sector participation in waterways.