Benefit Sharing Mechanisms for People Adversely Affected by Power Generation Projects in Viet ...

391 Pages·2007·4.08 MB·English

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Asian Development Bank TA-4689 (VIE)
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Prepared for the
Electricity Regulatory Authority of Vietnam (ERAV)
As the Implementing Agency for TA-4689 (VIE)
Prepared in cooperation with:
The TA Working Group in ERAV
By:
Lawrence J.M. Haas, UK
Dr. Dang Vu Tung, Viet Nam
And:
The Institute for Energy Studies, IES
December 2007
PREFACE
TA-4689 (VIE) supports the preparation and pilot testing of guidelines to introduce
benefit sharing mechanisms on hydropower projects in Viet Nam.
The approach proposed is consistent with the power market reforms that are
identified in the Electricity Law (2004), as well as Viet Nam’s broader policies for
sustainable development of the power sector and government priorities reflected in
the Comprehensive Poverty Reduction and Growth Strategy (CPRGS).
Previous reports issued for this TA include:
Inception Report: September 2006
Interim Report 1: May 2007 - Review of Viet Nam’s legislation and enabling
policy environment for benefit sharing
Interim Report 2: September 2007 - Guidelines to introduce benefit-sharing
mechanisms on hydropower projects in Viet Nam.
This Final Report is presented in 3 Volumes that incorporate the main TA outputs.
The final version of the guidelines (prepared in the form of a draft decree-law) and
the work plan to pilot test the guidelines are Appendices A and B of this volume.
A special thanks is extended to the inter-agency Steering Committee members who
gave their valuable time and expertise to guide the TA work; to ERAV for its
leadership of the collaborative process; and to the many participants of the three
National Consultation workshops from different agencies, non-government
organizations and civil society including international NGOs. Their collaboration
helped to generate consensus not only on the TA outputs, but also on the
appropriateness of benefit sharing as a policy tool to advance sustainable
hydropower development in the Vietnamese context.
The next step in the journey, “from guidelines to pilot testing to legislation to practice”
is to secure partnership financing to field test the guidelines on the 210 MW A’Vuong
hydropower project located in Quang Nam Province. This pilot test will take place
over the 2008-2009 timeframe. There is some urgency in moving forward with Stage
1 of the Pilot in order to provide timely inputs to prepare legislation.
Moving from legislation to practice also requires capacity building tools to
systematically scale-up benefit sharing mechanisms on existing and new
hydropower projects across the country, once the regulations are in place. These
capacity building needs are addressed in Stage 2 of the Pilot Project.
ADB TA 4689: Final Report - Volume 1 of 3 2
CONTENTS OF THE FINAL TA REPORT
ROAD MAP TO VOLUMES 1 TO 3
Volume 1: Main Report and Recommendations
Describes the TA Process, consultation arrangements, the main outputs and provides
recommendations on the way forward.
Appendix A: The draft guidelines on benefit sharing (in the form of a draft Decree)
Appendix B: Work Plan to pilot test the guidelines on the A’Vuong hydropower project
Volume 2:
Compiles selected sections from the TA reports (i.e. the Inception Report and two Interim
Reports), plus minutes and presentations from the four main TA workshops
Appendix C: The rationale for benefit sharing - from the TA Inception Report
Appendix D: Summary section from the policy review - from Interim Report 1
Appendix E: SWOT analysis of Viet Nam’s policy environment - from Interim Report 1
Appendix F: Three national workshop minutes and overhead presentations
Appendix G: Quang Nam Province workshop minutes on the guidelines and pilot project
Appendix H: Stakeholder analysis and consultation plan
Appendix I: Terms of reference for the TA Steering Committee
Volume 3: Appendix of Rapid Appraisals and Field Consultations
Compiles field reports describing socio-economic baseline conditions on hydropower
projects, local views on the draft guidelines and preferences for the pilot project design.
Based on a mix of desk study, structured interviews, surveys and focus group sessions.
Appendix J: Rapid appraisal report on the Song-Bung 4 project – from TA Component 2
Appendix K: Rapid appraisal report on the Song Hinh project. – from TA Component 2
Appendix L: Rapid appraisal report on the A’Vuong project – from TA Component 2
Appendix M: Generalized findings across the 3 rapid appraisals
Appendix N: Field report on the A’Vuong project - input to pilot work plan
ADB TA 4689: Final Report - Volume 1 of 3 3
TABLE OF CONTENTS
Volume 1
PREFACE..................................................................................................................2
TABLE OF CONTENTS.............................................................................................4
ABBREVIATIONS AND ACRONYMS.......................................................................5
OVERVIEW................................................................................................................6
1. THE TA PROCESS....................................................................................12
1.1 Inception Stage....................................................................................................12
1.2 Component 1 – The Policy Review.....................................................................12
1.3 Component 2 – Preparing the guidelines..........................................................13
1.4 Component 3 - Agreeing on the Pilot Work Plan..............................................14
1.5 The TA consultation framework.........................................................................15
2 THE POLICY REVIEW...............................................................................21
2.1 Main conclusions................................................................................................21
2.2 The SWOT analysis..............................................................................................23
2.3 Looking ahead to the future policy framework.................................................25
3. THE GUIDELINES......................................................................................29
3.1 Chapter contents..................................................................................................29
Chapter 1: General provisions.........................................................................30
Chapter 2: Process to introduce benefit sharing on hydropower projects.32
Chapter 3: Equitable sharing of electricity access and services.................33
Chapter 4: Entitlements for enhancing resource access..............................34
Chapter 5: Revenue sharing............................................................................35
Chapter 6: General Implementation provisions..............................................39
4.2 Inter-ministry circular..........................................................................................39
4. PILOT PROJECT WORK PLAN................................................................40
4.1 Objectives and design considerations..............................................................40
4.2 Implementation approach: .................................................................................40
5. RECOMMENDATIONS ON NEXT STEPS.................................................44
2.1 General..................................................................................................................44
4.3 Other recommendations......................................................................................44
Appendix A: Guidelines Part 1 - Draft provisions for a Decree Law on Benefit Sharing
Appendix B: Work Plan to Pilot test the Guidelines on the A’ Vuong hydropower project
ADB TA 4689: Final Report - Volume 1 of 3 4
ABBREVIATIONS AND ACRONYMS
ADB Asian Development Bank
BSM / ESM Benefit sharing mechanisms / environment (ecological) services mechanisms
CDD Community-driven development approaches
CPRGS Comprehensive Poverty Reduction and Growth Strategy for Viet Nam
CSPU ADB Country Strategy and Program Update
CSO / NGO Civil society (and social organizations) and non-government organizations
ERAV Electricity Regulatory Authority of Viet Nam
ERPA Emission Reduction Purchase Agreements
EVN Electricity Authority of Viet Nam
IHA International Hydropower Association
IWRM Integrated Water Resource Management
MARD Ministry of Agriculture and Rural Development
MoC Ministry of Construction
MoF Ministry of Finance
MoFI Ministry of Fisheries
MoH Ministry of Health
MOIT Ministry of Industry and Trade (formerly MOI when the TA started in 2006)
MoNRE Ministry of Natural Resources and Environment
MoST Ministry of Science and Technology
MoT Ministry of Transportation
MPI Ministry of Planning and Investment
NEA National Environmental Agency (under MONRE)
NWRC National Water Resources Council (under MARD)
NWRS National Water Resources Strategy
PPC Provincial People’s Committee
RBO River Basin Organization
SC Interagency Steering Committee for the TA
TA Technical Assistance
TA-WG Technical Assistance Working Group within ERAV
WCD World Commission on Dams
ADB TA 4689: Final Report - Volume 1 of 3 5
OVERVIEW
The activities supported by this Technical Assistance project are an integral part of
Viet Nam’s step-wise approach to introduce mechanisms for benefit sharing on
hydropower projects. They reinforce the Government’s stated aims to place
development of the power sector on a sustainable and stable footing.
The TA aims support of government policy
The three principle components and outputs of the TA process that started in mid-
2006 were: (i) a review of current legislation and policies in Viet Nam;1 (ii)
collaborative preparation of guidelines to introduce benefit sharing principles into the
planning, implementation and operation stages of hydropower projects, reflecting the
Vietnamese context and relevant experience from other countries; and lastly, (iii)
collaborative preparation of a work plan to field test the guidelines on a pilot basis.
The 210 MW A’Vuong hydropower project located in the Vu Gia-Thu Bon river basin
in the central highland area of Quang Nam Province was selected for the field test.
The Electricity Regulatory Agency of Viet Nam (ERAV) that operates under the
Ministry of Industry of Trade (MOIT) is proposed as executing agency for the pilot.
Quang Nam Province is proposed as the implementing agency and has
enthusiastically accepted this responsibility.
Similar to the general approach adopted in other developed and developing
countries, the guidelines in essence call for:
(cid:131)(cid:3)A formula and standard procedures to remit a share of the revenue
generated by a hydropower project into a project-specific revenue sharing
Fund, and to internalize this cost in the retail electricity tariff; 2
(cid:131)(cid:3)Appointment of a benefit sharing council with appropriate local representation
to manage the Fund and to make other recommendations on non-monetary
forms of benefit sharing to extend to the project’s “host” community;
(cid:131)(cid:3)Within a framework provided by regulations, collaborative development of a
Fund charter to transparently set out the eligibility criteria, grant selection and
award procedures and all the local administrative arrangements for the Fund;
(cid:131)(cid:3)Use of the Fund to offer a menu of local development measures preferred by
beneficiaries, administered through a grant application program; and, 3
(cid:131)(cid:3)Ensuring that appropriate mechanisms for transparency, accountability and
monitoring are incorporated so as not to undermine public confidence.
It is proposed the arrangements will be flexible and continue over the economic life
of the hydropower asset. Benefit sharing would apply to all hydropower projects in
Vietnam (existing and new) meeting specified requirements. Presently this includes

1 To establish the legal basis to introduce regulations for benefit sharing on hydropower projects looking at
legislation and policies across all resource management sectors.
2The cost is a pass-through as far as the hydropower entity is concerned.
3 Measures can include increments to existing targeted provincial or State programs
ADB TA 4689: Final Report - Volume 1 of 3 6
over 30 large hydropower projects plus a fairly large number of small hydropower
projects, which in the Vietnamese definition can be up to 30 MW.
The timing of the pilot is important. Viet Nam is in the process of power sector
reform, moving from a state monopoly to an open industry structure with competitive
electricity generation markets and eventually competitive wholesale and retail
markets. The date of effectiveness of the new regulations on benefit sharing, in
particular revenue sharing aspects, would ideally coincide with the introduction of the
rules for the competitive generation market, scheduled in 2009-2010.
Once regulations on benefit sharing are in place, a well-coordinated program is
needed to systematically apply the mechanisms to existing hydropower projects
across the country and to new projects in the pipeline. Preparation for that “rollout”,
likely to be coordinated by ERAV, is a key recommendation of this TA. Specifically,
the work plan proposes to start the preparation of capacity building tools (e.g.
training courses, operational and guidance manuals) to facilitate a smooth national
rollout of the mechanisms, in parallel with preparation of the legal instruments.
The development policy context
Viet Nam depends on fossil fuels for the bulk of its electricity generation needs
today. The country of over 80 million people is rapidly modernizing and experiencing
year-on-year electricity load growth of well over 10%, moving from a small base.
At the same time Viet Nam has become one of the most active countries in the world
in hydropower development. Nationally there are over 30 large hydropower projects
in operation providing nearly 40% of total installed capacity on the interconnected
power system, close to 11,200 MW. Current projections based on the National
Hydropower strategy suggest that 13,000 MW of new hydropower will be added to
the grid system by 2020. 4
The financing implications are significant. Viet Nam needs to mobilize between $1.5
billion to $2 billion per year from domestic and international sources to finance new
hydropower development for the balance of this decade, and beyond. 5
Benefit sharing is relevant to mobilizing financing for hydropower development. For
instance, it is recognized by Vietnamese authorities that sustainable forms of
hydropower development are consistent with international criteria for project lending,
not only from traditional ODA sources, but also from Export Credit Agencies and the
commercial banking sector. These aspects are discussed in the TA reports
incorporated Appendix C, Volume 2 of this Final Report. 6

4 The National Hydropower Plan (NHP) and Master Plan set out Viet Nam’s strategy to meet the long-term
power demand in the country.
5 World Bank, Second Transmission and Distribution Project in Vietnam, Project Appraisal Document, 2005. In
total, upwards of 60 now hydropower sites have been identified at various stages of study.
6See Appendix C in Volume 3 of the Final Report. This includes OECD export credit agencies (ECAs) and
private international banks that are members of the Equator Principles. These banks currently account for over
80% of project lending for all types of infrastructure internationally.
ADB TA 4689: Final Report - Volume 1 of 3 7
Introduction of benefit sharing mechanisms in the power sector is equally relevant to
Viet Nam's socio-economic development goals. Despite the impressive strides
made with overall economic growth and poverty reduction in the last decade, people
and communities most adversely affected by hydropower projects remain among the
poorest groups in Vietnamese society.
The field surveys conducted for this TA, for instance, show that poverty rates in the
remote, highland areas, where most hydropower sites are located can approach
70% - even several years after the projects are completed. This compares to
national average poverty rates of less than 30%. 7
As the TA documents show, benefit sharing offers a uniquely powerful policy tool to
promote sustainable development of hydropower, as embodied in Viet Nam’s
Electricity Law (2004) and Environment Protection Law (2005).
“Development that meets the needs of the present generation without
compromising the ability of future generations to meet their own needs, on the basis
of a close and harmonized combination of economic growth, assurance of social
advancement and environmental protection”.8
Principles of benefit sharing
The notion of benefit sharing goes beyond one-time compensation payment and
short-term resettlement support for displaced people. It treats both displaced people
and communities that host the hydropower project in their locality as legitimate
partners in the project and first among its beneficiaries.
Benefit sharing recognizes the irreversible, long-term nature of adverse impacts, as
well as synergy between local development and the steps needed to improve the
management of ecosystems services permanently transformed by hydropower
operations - that link to impoverishment and livelihood risks for local people and their
children. These steps contribute to sustainably manage hydropower assets over the
longer-term, in the interest of electricity consumers and hydropower operators.
The TA Achievements
Key achievements of the TA include improved understanding of the underlying
principles of benefit sharing, awareness of experience that exists elsewhere in
introducing benefit sharing in the power sector, and a degree of consensus on what
benefit sharing mechanisms are appropriate for Viet Nam’s circumstances.

7This widening gap between income in rural areas and urban centers of Viet Nam is a major concern. National
legislation, starting with the 1992 Constitution stipulates that people living in such impoverished conditions, in
particular national ethnic minorities that represent the largest portion of people adversely affected by
hydropower projects must receive priority development assistance for their social advancement.
8Article 4 of the Electricity Law (2004) that calls to, “… develop sustainable power sector based on optimal
development of all sources…” and Article 1 of the revised Law on Environment Protection (2005) that came
into effect in July, 2006 – which defines sustainable development for all sectors of the economy.
ADB TA 4689: Final Report - Volume 1 of 3 8
This consensus was not only shown in the three national workshops, but also in the
provincial level workshop held to discuss the contents of the draft guidelines and the
approach to test them in the field. The Provincial People's Committee
representatives of Quang Province, for example, strongly endorsed the principles of
benefit sharing and gave unreserved support to be the host province for the pilot
(see the minutes of the provincial workshop in Volume 2 of this Final Report). At the
same time, communities living in the area of the pilot test were given the opportunity
to indicate their views about the proposed arrangements for benefit sharing in the
guidelines (views were strongly supportive as indicated in the field surveys and
questionnaires provided in Volume 3 of this Final Report) and to indicate preference
for measures to incorporate into the design of the pilot.
As with all new policy interventions there remain some detractors. Some people
argued that benefit sharing, in particular revenue sharing, is unaffordable for power
companies and would slow the rate of hydropower development in Vietnam. This is
not correct. It is therefore important to repeat and reinforce the key messages
developed during the TA (see key messages in the Communication Plan in Volume
2, Appendix H).
For example, it is important to ensure (and to ensure that all stakeholders
understand) that revenue sharing is pass-through as far as hydropower entities are
concerned (i.e. investors and owners / operators). As stated in Article 1 of the
guidelines, revenue sharing provides for the equitable share of benefits and cost
arising from the sustainable development of the nation’s hydropower resources as a
long-term revenue sharing arrangement between the main consumers of electricity
services in towns, cities and industry and the local communities hosting hydropower
projects adversely affected by the project in their locality. 9 Ultimately the cost of
revenue sharing is internalized in the retail electricity price.
The real question is what is the appropriate balance between the level of revenue
sharing (as a percentage of revenue generated by the hydropower project) and the
impact of revenue sharing on retail tariffs. There are many examples on how this
balance is stuck in other countries for ERAV to consider. Among the most recent
example is India has announced that its new hydropower policy will incorporate a
provision where 2% of the revenue from hydropower projects will be allocated to
local area development funds in addition to the 10% allocated to the province. This is
to pay for long-term local development and welfare improvement schemes in the
project impact zone.
Next Steps in Viet Nam
The work plan in Appendix B proposes a two-stage Pilot project.
Stage 1 is proposed for 14 months, commencing in April 2008. Primarily this work
would feed into the legislative process to put legal instruments for benefit sharing in

9 It does not adversely impact on the financial affairs of hydropower developments. Quite the opposite - benefit
sharing is a policy tool designed to enhance and promote mobilization of investment in sustainable hydropower
development, which has become one of the major lending criteria of international financial institutions in both
the public and private sectors. Moreover it is strongly advocated by industry groups such as the International
Hydropower Association in their hydropower sustainability guidelines and protocols.
ADB TA 4689: Final Report - Volume 1 of 3 9
place in the 2009-2010 timeframe. The challenge is to find financing partners to
meet this schedule. Stage 1 is thus proposed as a “fast track” option (in terms of
securing donor contributions and government counterpart funds). It aims to provide
the minimum activity, on a least-cost basis maximizing use of Vietnamese
professional capacities to:
i). Establish a benefit sharing council and temporary revenue sharing account;
ii). Prepare a model fund Charter and other key instruments needed to
implement revenue sharing grants according to the guidelines, introducing
and evaluating modifications as appropriate;
iii). Undertake activities consistent with the guidelines to assess and recommend
measures for equitable sharing of electricity access and enhanced
entitlements for natural resource access - which also respond to the
expressed desires of the A’Vuong community that were revealed when they
reviewed the draft guidelines;
iv). Provide at least one-cycle of grant application and award using a nominal
budget to test the delivery and monitoring mechanisms for measures that are
typically to be supported by revenue sharing grants; and
v). Prepare a systematic article-by-article review of the guidelines in order to
make amendments and provide recommendations on finalizing the legal
instruments needed to successfully introduce benefit-sharing mechanisms
nationally.
Stage 2 would extend the timeframe of the pilot from 12 to 24 months in total (at
least). It will support more substantial efforts to prepare the capacity building tools
alongside and informed by the pilot testing of implementation mechanisms.
Stage 2 could start by January 2009 and be fully integrated with Stage-1 of the pilot,
providing the resources to:
i). Test a wider range of grant awards, in perhaps two or more cycles;
ii). Assess in more detail the development effectiveness of benefit sharing
measures adopted in the pilot and the linkages to poverty reduction targets;
iii). Develop a more comprehensive set of capacity building tools based on the
pilot, as well as relevant international experience to facilitate rapid and smooth
startup of benefit sharing on other hydropower projects in Viet Nam;
iv). Enable ERAV to draw in regional and international expertise in preparing
legislation, capacity building tools and a scaling-up program; and
v). Concretely enhance the environment and management components of the
A’Vuong hydropower project by virtue of the larger revenue sharing grants.
Apart from the guidelines and work plan for the pilot some other recommendations
are provided in Section 5 of this report. These concern the need for a tariff impact
study and the need to assess what is needed to strengthen the institutional capacity
of ERAV to rollout the national program. The tariff impact study specifically is
needed to evaluate the implications of revenue sharing combined with the financial
ADB TA 4689: Final Report - Volume 1 of 3 10