63909 No. 130 / June 2010 GOOD-PRACTICE NOTE: Governance and Anti-Corruption Innovations in the Da Nang Priority Infrastructure Investment Project, Vietnam As Vietnam’s fourth largest urban area, Da Nang is expected to grow exponentially in the next two decades. The Da Nang Priority Infrastructure Investment Project which operates in a challenging governance environment has introduced a number of innovative Governance and Anti-Corruption (GAC) interventions through a Governance and Transparency Action Plan (GTAP). The key features and challenges of the Project GTAP assessed along three dimensions - governance and political economy, fraud and corruption risks in procurement and financial management, and demand side governance (transparency, participation and third party monitoring) are discussed in this learning note. Country Background Vietnam is a rapidly developing low-income country with a population of 86 million but for now, with a low per capita income of around US$1,000 per annum. Despite incremental improvements, devising ways to promote accountability and enhance transparency have historically been a major challenge for Bank- supported projects in Vietnam. Indeed, citizens and other stakeholders often do not have the information they need to hold government accountable for delivering results. In recent years the implementing environment has improved slightly as the Government of Vietnam (GOV) has started to dramatically. As the fourth largest urban area in focus more on fighting corruption and the country, Da Nang is a city of vital strategic improving governance. For example, the GOV importance to the GoV, and set to expand has included good governance as one of the four significantly over the next two decades. main pillars in the Socio-Economic Development The Da Nang Priority Urban Plan, a five-year plan with specific reforms and Infrastructure Investment project aims to improve implementation deadlines. the efficiency, effectiveness and sustainability of urban services under the control of Da Nang City Project Background & GAC Innovations through a package of priority investments Vietnam’s urban population is currently low as including urban upgrading, environmental a percentage of its total population (23%). improvement and strategic road access, as well as However, as the country continues to develop, measures for institutional strengthening for the urban population is expected to grow management of urban services. In the aftermath of a World Bank designing the GTAP. Since anti-corruption and Departmental of Institutional Integrity (INT) good governance are high government priorities, investigation affecting other transport both the GOV and the donor community have infrastructure projects in Vietnam, and a host of placed significant emphasis on developing a good other scandals involving other donors, the analytical understanding of the facts on the ground Country Management Unit (CMU) decided that and commissioned several studies. As well as all projects with high governance risks should drawing off of these resources, the task team has include a good governance framework. The Da also incorporated insights from the Bank’s 2006 Nang Priority Urban Infrastructure Investment annual Vietnam Development Report (which is Project adopted a Governance and Transparency devoted entirely to governance issues) and the 2008 Action Plan (GTAP) in order to reduce Vietnam Development Report (which contains a corruption, promote accountability and enhance chapter on good governance and anti-corruption). transparency. The key elements of the GTAP In addition to drawing on a wide variety of along three GAC dimensions1, namely - existing studies, the project also conducted its governance and political economy; fraud and own analyses of political economy factors in the corruption risks in procurement and financial process of designing the project. The risk management; and demand side governance mapping done for the Da Nang project covered (transparency, participation and third party all parts of the project cycle (design, monitoring) are enumerated below (Box 1). procurement, financial management, implementation and operation). The stakeholder Dimension 1: Governance and Political analysis included project beneficiaries as well as Economy adversely affected persons, policymakers, staff One of this project’s major strengths is the excellent from implementing agencies (to assess both use of existing political economy analyses in capacity and incentive structures in place) and Box 1: GAC Measures at a Glance, Da Nang Priority Infrastructure Investment Project, Vietnam I. Governance and Political Economy x Extensive use of analytical material in project design. x Extensive stakeholder identification and incentive analysis. x Good GPE analysis had a cascading positive effect on all later project stages. x GAC framework was kept as simple as possible to ensure ease of implementation, promote future scalability, and minimize delays. II. Fiduciary Management x Ex-post review adapted to country context, with combined FM and technical audits for enhanced red flag detection. x ICB process to partially mitigate collusion risks. x Serious efforts to ensure capacity building. x GAC monitoring reports effect project decisions and funds allocation. x GAC measures are monitored to ensure they are actually effective. III. Transparency and Accountability x Transparency and information disclosure are maximized. x Grievance redress mechanisms are available for both bidders and other stakeholders. x Third party monitors independently assess project processes and outcomes. x Beneficiaries and the implementing agency are involved in extensive consultations. 1 These three dimensions were part of “Governance and Anti-Corruption (GAC) Assessment Framework: which was designed by the Bank’s Quality Assurance Group collaboratively with other departments as part of the GAC in Lending Operations: A Benchmarking and Learning Review, 2009. 2 civil society organizations (who were later These measures are discussed at length in the recruited to informally help with project following section. supervision). The analyses identified a variety Significantly under this project, GAC of key risks in the areas of procurement, measures have not only been put in place, but implementation, financial management and there are clear institutional arrangements for resettlement compensation. monitoring and evaluating the effectiveness of Since it provided an assessment of potential the GAC measures themselves. risks, the GPE analysis had a cascading positive effect in later stages of the project. Instead of Dimension 3: Transparency and Accountability being a hindrance (or just another Bank- (Transparency, Participation and Third Party imposed safeguard), the plan that the team Monitoring) devised to integrate clear, simple and adequate Vietnam has relatively strict limits on civil and downstream measures into the project actually political associations. The main CSOs involved sped up project implementation. This example are often connected to the Party and the local suggests that keeping the GAC framework as government, which limits their independence, simple as possible while still adequately but at times can be an asset as well. Nonetheless, addressing governance concerns is vital, there is a high commitment to transparency, especially when working with PMUs with little both as a tool for addressing GAC concerns and experience in GAC. as a way to maximize benefits accruing to disadvantaged people. The project has Dimension 2: Combating Fraud and Corruption incorporated lessons learnt from earlier urban in Procurement and Financial Management upgrading projects on the importance of The GPE analysis indicated that collusion community participation. Consequently, among firms was one of the key procurement transparency and information disclosures, a risks in Vietnam. The team responded to this grievance redress system and third party risk by subjecting a large percent of the contracts monitoring are also important facets of the to International Competitive Bidding (ICB). The project’s good governance strategy. assumption was that collusion is more difficult x Transparency and information disclosure: when at least some of the bidders are All procurement/bidding documents, international firms. The Bank also responded to contract awards and other relevant project the risks by adopting a higher ex-post review documents are to be made available online. rate (20% instead of the usual 10%). There is a clear communication mechanism In order to further operationalize this in place to transmit results, and explicit strategy, the project provided implementing indicators to measure the effectiveness of agency staff with additional training on ways to transparency mechanisms. identify potential indications of corrupt, x Grievance redress system: Unlike other collusive, fraudulent or coercive practices in projects, the grievance redress mechanisms are procurement. For example, the trainings clearly laid out and integrated into the project highlighted that requests for extensions of bid process. This means that formal mechanisms validity and disbursement delays are red flags for grievance are in place, the grievance that should be investigated further. Moreover, redress agency actually has the authority to by combining the results of financial audits and take or demand remedial action, there is an technical audits, the project was able to more obligation to act on complaints within a set effectively detect potential red flags before they timeframe, and a requirement that authorities become problematic. provide written feedback to the petitioner on Demand-side good governance the outcome of the complaint. measures also played a major role in ensuring x Third party monitoring: The project good practice in financial management and includes a number of third party monitoring procurement. Indeed, the project includes a activities. First, the project plans to measure variety of transparency-enhancing measures improvements in service delivery by using aimed at reducing the potential for corruption. satisfaction surveys and report cards. 3 Second, the project has allocated funds for being used more as a tool to inform project an Independent Technical Performance beneficiaries about updates related to the audit that will complement citizen and project rather than a mechanism by which beneficiary reports. The PMU has to take authorities can consult beneficiaries about account of and respond to third party their specific and localized demands. monitoring reports during implementation. x Redressing grievances: At present, the main Given the lack of citizens’ access to information in focus of the mechanism is on disgruntled Vietnam, the impact of the above interventions are bidders. More emphasis could be placed on likely to extend beyond the project. organizing CSOs and formalizing ways through which the CSOs can provide feedback. Challenges Ahead In the current framework, the extent to which the beneficiary grievance process is formalized While the project has made large strides to is unclear, leaving beneficiaries/interested improve governance and reduce corruption, parties to act as individual citizens rather than several governance challenges remain. Some of as a coherent group. the key ones are discussed below. x Donor harmonization: Although all the x Ring-fencing of GAC: The project’s GTAP major donors in Vietnam meet several times appears to be ring-fencing Bank supported a year at specific governance-related project components without making a direct conferences, it is clear that the numerous contribution (though it probably has an donor organizations’ good governance goals indirect impact) on governance in Da Nang are not always fully harmonized. For some City. As Vietnam grows richer, a larger the agenda is limited to anti-corruption percentage of the development budget will be while for others it is mainly related to wholly funded by the government. If the freedom of the press or human rights. The scope of Bank-funded projects were to include Bank could take a leadership role by good governance frameworks at the local level engaging other donors and the GoV with a as a specific development objective, even clear and encompassing framework at both relatively small projects could be leveraged the national and sector levels. into large capacity gains for the client. x Linking projects to national approaches: Conclusion Although good governance is a key pillar in the country’s Socio-Economic Development With the continued implementation of Plan, there is no requirement to link project- transparency-enhancing measures and the level work with national-level approaches. involvement of third party organizations, the Da Furthermore, GAC implementation is limited Nang Priority Urban Infrastructure Investment to sectors that were previously subjected to an Project has the potential to demonstrate how INT investigation. While this will help protect demand-side governance can work as an the Bank’s reputation, it may be perceived as effective tool for social change. Though the unfairly singling out a particular sector when project continues to face a variety of challenges, the same structural problems are present its governance initiatives represent a step in the throughout the country. right direction towards enhanced transparency x Communicating to disseminate information: and accountability. At present, the communication strategy is This note was prepared by Amnon Golan as part of the Quality Assurance Group led GAC in Lending Operations: A Benchmarking and Learning Review, 2009. The author would like to express his deep gratitude to James Anderson, Alain Barbu, Cuong Duc Dang and Van Anh Thi Tran in the Vietnam Country Office for providing insights and timely information. He would also like to specially thank TTL Cuong Duc Dang and Van Anh Thi Tran for their invaluable support and feedback without which this note would not have been possible. The author is grateful to Anis Dani who task led the Review for his invaluable insights and to Sanjay Agarwal, Shilpa Banerji and David Post for their comments and editorial support. The findings, interpretations, and conclusions expressed in this note are entirely those of the authors and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent 4