INTEGRATED SAFEGUARDS DATA SHEET CONCEPT STAGE€¦ · The development objective of this project is to facilitate and support the emergence of an SME sector in upstream activities

INTEGRATED SAFEGUARDS DATA SHEETCONCEPT STAGE

Report No.: ISDSC6055

Date ISDS Prepared/Updated: 15-Jan-2015

Date ISDS Approved/Disclosed: 15-Jan-2015

I. BASIC INFORMATION

A. Basic Project Data

Country: Vietnam Project ID: P144825

Project Name: Vietnam Regional Industry Competitiveness (P 144825)

Task Team Andres F. GarciaLeader(s):

Estimated 22-Jan-2015 Estimated 29-May-2015Appraisal Date: Board Date:

Managing Unit: GTCDR Lending Specific Investment LoanInstrument:

Sector(s): SME Finance (40%), General industry and trade sector (60%)

Theme(s): Other Private Sector Development (50%), Micro, Small and Medium Enterprisesupport (50%)

Financing (In USD Million)

Total Project Cost: 151.00 Total Bank Financing: 96.00

Financing Gap: 0.00

Financing Source Amount

BORROWER/RECIPIENT 0.00

International Bank for Reconstruction and Development 0.00

International Development Association (IDA) 96.00

Local Sources of Borrowing Country 55.00

Total 151.00

Environmental F - Financial Intermediary Assessment

Category:

Is this a NoRepeaterproject?

B. Project Objectives

The development objective of this project is to facilitate and support the emergence of an SME sectorin upstream activities and supporting value chains of the large anchor investments in the economiczones in Thanh Hoa Province. The project is also expected to help develop a platform to catalyze

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clusters development, job creation and investments in Thanh Hoa province (TH) in the medium-and-long-term.

C. Project Description

The project would consist of three components to facilitate economic development in Thanh Hoaprovince, particularly the development of MSMEs across the value chains of large anchorinvestments in the NSEZ and elsewhere in the province. The project aims to build capacity directlyto the private sector and to public sector agencies with a mandate to promote and enhance investment

, and SMEs (eg. the Thanh Hoa Investment, Trade, and Tourism Promotion Agency -ITTPA, the NghiSon Economic Zone Management Authority - EZA, and the SME support organizations). Theproject also provides a line of credit to SMEs through commercial banks. Each component will takecare to include the following cross-cutting priorities: i) Participation and economic empowerment ofwomen; ii) Care for the natural environment, and mitigation of harmful effects; and iii) Care forsocial welfare and mitigation of adverse effects on the livelihoods of the people in project areas.

Component 1 - Technical Assistance to Government Agencies for the Purpose of EnhancingIndustrial Investment in Thanh Hoa Province - Tentatively $6 million*

This component is designed to enhance the capacity of public institutions crucial to attractinginvestment to Thanh Hoa province, including the Nghi Son Economic Zone Management Authority(EZAEZA) and the Thanh Hoa Investment, Trade, and Tourism Promotion Agency (ITTPA).

1.1 Nghi Son Economic Zone Development Authority Capacity Building. This sub-componentwould enhance the capacity of the EZAEZA to: i) Plan, design, and execute development in theNSEZ and other zones in Thanh Hoa province consistent with market demand and which protect thenatural and social environment; ii) Promote the NSEZ and other industrial zones in Thanh Hoaprovince to domestic and international investors, and provide streamlined services to them; and iii)Provide outreach to MSMEs to better incorporate them into industrial zone design, operation, andpromotion. This would include the following activities designed to strengthen the capacity of theEZAEZA:

* Enhancement of the NSEZ Masterplan based on market-based demand for land,infrastructure, and services. This could include review of the master plan for the overall NSEZ,creation of feasibility studies for new industrial zones within the NSEZ or throughout Thanh Hoaprovince, exploration of options to mitigate effects on the natural and social environment, and low-carbon and green special economic zone application opportunities.* Explore public-private partnership (PPP) opportunities to attract private primary investors(zone developer/operators) to the NSEZ and other industrial zones in Thanh Hoa province. Expandthe marketing of the NSEZ and other industrial zones to private developers.* Expand the EZAEZA's services to cater to MSME development inside the NSEZ and otherindustrial zones in Thanh Hoa province.* Provide capacity building for the analysis and enhancement of EZAEZA's institutionalarchitecture, policy and legal framework, and planning capacity.* Enrich the investment promotion and marketing capacity of the EZAEZA, and developlinkages to the marketing efforts of EDA, Thanh Hoa ITTPA, and marketing efforts of private zonedevelopers.* Generate a demand analysis for investments in NSEZ to identify target sectors forinvestment generation, including those linked to downstream investment opportunities and priorityvalue chains of large anchor tenants such as the Nghi Son Petrochemical. This includes widening the

business opportunities for SMEs in Thanh Hoa province that can benefit from large anchor investors.

1.2 Thanh Hoa ITTPA Capacity Building-This sub-component would enhance the capacity of theITTPA to better promote investment in Thanh Hoa province, including investment by SMEs. This

Owould include the following activities designed to strengthen the ITTPA:

* Create marketing linkages between EDA, Thanh Hoa ITTPA, EZAEZA, and individualindustrial zone developer/operators to more efficiently attract investment to Thanh Hoa province.

Develop marketing plans for Thanh Hoa province based on market-based forecasts andanalyses.* Enhance ITTPA's outreach to SMEs to increase their investment in industrial value chains.* Boost the market research capacity of the ITTPA to better analyze and track market trends inThanh Hoa province, particularly for the benefit of SME development.

1.3 Assistance to other government agencies, as needed.-This sub-component will strengthenthe capacity of other national or provincial institutions that support private sector development. Thiswill complement the ongoing projects and programs (by the World Bank and donors) focusing onstrengthening institutional capacity of key government agencies in the area of SME development andability to deliver adequate services to investors aiming at investing in Thanh Hoa province andindustrial zones in particular (eg. SME policy implementation support, Public and Private PartnershipStrategy and implementation)

1.4 Project Management, Monitoring and Evaluation Support: The project will be implementedby a Project management Unit (PMU) under the Ministry of Planning and Investment (MPI). Theproject will provide support to the Project Management Unit (PMU), Provincial Project ManagementUnit (PPMU) in Thanh Hoa, and the PFIs, for project management, coordination, capacity building,oversight, monitoring and evaluation, reporting and audits to enable them to perform theirresponsibility for project coordination, management and implementation.

Component 2 - Financial support to SMEs consisting of a line of credit (LoC)- tentatively $84million*

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This component aims to provide long-term credits (more than 3 years) to Household Business anda SMEs in Thanh Hoa. A Line of Credit will be provided to the Government for on-lending to

qualified participating financial intermediaries (PFIs) for financing new SME loans in Thanh Hoa. Atthis stage several local banks have expressed interest in participating in the LoC facility (BIDV, VPBank, VIB Bank, Vietinbank and Vietcom Bank). The assessment of capacity of potential PFIs willbe carried out together with the government during appraisal. PFI selection criteria and subloancriteria have been drafted and will be agreed and finalized with the government before projectappraisal. It is expected that the PFIs will provide long-term loans at market rates to privately-ownedSMEs and Household Business in Thanh Hoa for expanding business or improving productivity andcompetitiveness of the borrowers, such as equipment purchase or leasing, service, civil works (exceptfor housing), raw materials and operating expenses, technical assistance, and incremental workingcapital. PFIs are expected to carry out the credit risks assessment of the borrowers in accordance withtheir established credit and operational policies and procedures, but are also encouraged to co-financeeligible sub-projects.

Component 3: Linkage Formation - Tentatively $10 million*

This component is designed to enhance the capacity of SMEs and banks to participate in the growingopportunities for the development of value chains and clusters in Thanh Hoa province (as support byComponent 1 and 2), and to support the development of a business center to facilitate linkagesbetween large investments and SMEs.

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3.1 Technical Assistance for SMEs - This sub-component aims to provide targeted technicalassistance to enhance SME capability to benefit from business opportunities in the value chain ofanchor investments in Thanh Hoa. It will be designed based on an assessment of binding constraintsfaced by prospective firms and sectors in relevant value chains and clusters.

3.2 Technical assistance to the develo pment of a "business center" through which technicalassistance to SMEs would be offered. This sub-component is designed to provide training andmentoring to SMEs, strengthen linkages between large investments and SMEs, and be the vehiclethrough which all support to SMEs is given. Efforts will be made to ensure that the activities underthis component are sustainable after the project ends. Whether developed as a virtual or a physical"center", potential activities might include:

(a) Formation of cluster working groups and associated training and mentoring activities-forcarefully targeted sectors;

(b) General SME development services, including fee-for-service diagnostic, training,mentoring, marketing, business, and financial support, for MSMEs;

(c) Advanced SME accelerator services for selected SMEs ready to enter into contracts withlarge anchor investors (eg. through an Accelerator Fund). The Accelerator Fund would be in the formof a matching grant scheme which would finance 50 percent of the cost of business and technicalservices needed by these SMEs. The remaining 50 percent will come from SMEs themselves. Thegrant would consist of the following windows: i) costs associated with services such as packaging,business planning, extension, quality and standards, etc. and as such support SMEs in their efforts toaccess markets and link to pre-identified value chains and to enhance technical capacity; and ii) costsfor service providers to enhance capacity for technical assistance to SMEs, including twinningarrangements with foreign business service providers, professional training business development,and marketing services.

(d) Integrated local procurement strategies-Working with large anchor tenants/investors tounderstand their procurement needs during both construction and operations stages of investmentsand thereby, match this against the capacity of SMEs as in (b) or (c) and support the latter to increasetheir linkages and sales to anchor investors in Thanh Hoa province;

3.3 Enhance the Capacity of Commercial Banks on SME lending-This sub-component wouldprovide technical assistance and PFIs in the form of performance-based grants (PBG), to enhancebanks' capacity to develop the required systems, procedures, products and human resources toservice the SME sector. The Grant funds shall be used exclusively [to reimburse the participatingfinancial intermediary up to sixty-five percent (65 %) of cost incurred for agreed advisory services,training, and technical assistance to build capacity for the PFI's SME financial service operations inThanh Hoa. The Recipient shall determine the specific use of the funds in accordance with theparameters detailed in the PBG. At the same time, the component would provide assistance aimed atbuilding the capacity of target SMEs (through subcomponent 3.1), who would be potential clients ofPFIs, to present credible loan application packages with adequate supporting documentation.

(*Tentative allocation and subject to changes at Appraisal)

D. Project location and salient physical characteristics relevant to the safeguardanalysis (if known)

Under Component 2, subloans would be provided by PFIs to SMEs in Thanh Hoa province who are

on the value chains of the large anchor investment projects in Thanh Hoa.

Many large anchor investments are located in the Nghi Son Economic Zone (NSEZ), which is thelargest economic zone in the province, and other industrial zones in Thanh Hoa province. NSEZ issituated in Thanh Hoa Province roughly located in central Vietnam. NSEZ has a total area of 18,612ha. It is 40 km away from Thanh Hoa City and borders Nghe An Province and the East Sea. It hasadvantages on road, river and railway traffic. The infrastructure in the NSEZ (electricity, water,traffic, and other services) is gradually built. The deep water port which is designed with 10 quaysand a passing capacity of 10 million tons/year will be suitable for 100,000-ton vessels (there have 2quays completed for 30,000-ton vessels). It will also be hub for domestic, regional and internationaleconomic exchange. The road and railway system connects economic zones in the region with theNorthern, Central and Southern Key Economic Regions. This is a dynamic economic zone that willpromote the economy of Thanh Hoa, the South Thanh Hoa-North Nghe An and the North Centralregions of Vietnam.

In NSEZ, there are non-tariff and tariff areas. In the tariff area there are functional areas: centralurban area, industrial parks, port and logistic service area, tourist-service area and residential area.The non-tariff area includes main production-trade types of production and doing outwork,recycling, assembling; goods trade, service trade and trade promotion.

The projects in NSEZ also includes the development of heavy industries such as oil refineries,petrochemicals production, steel and manufacturing mechanics, construction materials production (e.g. cement), thermal power production, consumer goods (e.g. shoes/sneakers), agro-forestry-fisheryproducts processing, etc.

The Nigh Son Special Economic Zone (NSSEZ) Masterplan seems to fall short of best practices forseveral reasons related to the environment:

* Location of tourist areas that are adjacent to heavy industries: access to tourism-designatedisland through a container port, tourist beach adjacent to proposed refinery expansion area; proposedcement clinker conveyor adjacent to proposed golf course; and a marine tourism development area isproposed in the vicinity of channel dredging and port construction.

* A number of proposed industrial sites are located in wet areas with possible drainageproblems.

E. Borrowers Institutional Capacity for Safeguard Policies

On the private sector side, Nigh Son refinery and Petroleum Company (NSRP) has adoptedmanagement plans to develop social and environmental plans and monitoring systems, includinglocal content and resettlement initiatives. The project team aims to work in close collaboration withNSRP's advisory team to strengthen and inform these initiatives.

The Participating Financial Intermediaries (PFIs) will be selected against a set of criteria agreed with

the government. PFIs with good track record in compliance with relevant banking regulations, strongfinancial performance and financial management capacity, commitment to SME lending, soundcredit risk management procedures, adequate delivery capacity and previous experience in managingthe ODA on-lending programs will be given priority.

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A capacity assessment of PFIs for the management of subloan safeguard aspects that will be includedunder Component 2 will be conducted during the pre-appraisal mission.

F. Environmental and Social Safeguards Specialists on the Team

Bernard Baratz (GENDR)

Roxanne Hakim (GSURR)

II. SAFEGUARD POLICIES THAT MIGHT APPLY

Safeguard Policies Triggered? Explanation (Optional)Environmental Assessment Yes The project will provide matching grants andOP/BP 4.01 medium and long-term credits to the SMEs

registered in Thanh Hoa province. Sub-loans mayfinance the cost of goods including equipmentpurchase or leasing, services, civil works (except forhousing), raw materials,operating expenses, technicalassistance, and incremental permanent workingcapital for expansion of production or improvementof services. It is anticipated that SMEs are likely tobe engaged in business (but not limited to) such asfood preparation and catering services, foodprocessing, transportation, warehouses, construction,machine repair and metal working operations,materials processing or assembly, carpentry, smallscale manufacturing, wholesale or retail, import-export and possibly cleaning services. Based uponinformation provided to RSS, an Environment andSocial Management Framework (ESMF) should beprepared during project preparation laying out theprocess of environment and social screening, reviewand approval, and any associated consultation anddisclosure of specific safeguard instruments forsubprojects and/or activities based upon the results ofthe screening process supported under Component 2.

Any subproject would have to meet governmentenvironmental standards and the World Bank GroupEnvironmental, Health and Safety Guidelines wouldapply.

Component 3 will support civil works constructionof a Business Linkage Center (BLC). For this projectcomponent, an environmental management plan

(EMP) incorporating best codes of practice forbuilding construction as well as management of anysite specific issues will be prepared by the Borrower.

WBG EHS apply.

Natural Habitats OP/BP 4.04 TBD Natural habitats are not expected to be adverselyaffected or degraded by the project as EconomicZones (EZs) are located in developed and built upareas. This will be confirmed during project

preparation.

Nevertheless, the ESMF will include screening forsubproject impacts on natural habitats, and ifpotential impacts are expected measures will beadopted as part of the EA process. In addition,Category A subprojects will not be supported underthe project because of the limited safeguard capacity(and associated risk) for potential PFIs in managingsuch risky subprojects.

Forests OP/BP 4.36 No Natural forests or critical forest areas will not befound in any area for a proposed SME subproject forseveral reasons: (1) SMEs located near or in areasthat have or will be designated by the government aseconomic zones for large scale industry will be sitesin accordance with the governments' approvedmaster plan, so it is unlikely that these plans wouldallow major industrial development that wouldinvolve significant conversion or degradation ofcritical forest areas, (2) regardless of subprojectlocation, the ESMF will include "Due Diligence" forany proposed subproject which includes arequirement that all environmental permits,approvals, licenses, etc. be obtained before asubproject can be considered for financing, and it isunlikely government authorities would offer anapproval for a subproject site at or near a naturalforest or critical forest area, and finally (3) in theextremely unlikely event that a proposed subprojectdoes have all government approvals for a subprojectlocated at or near a natural forest or critical forestarea, the "Screening" procedures in the ESMFrequires a subproject of this nature to be assignedCategory A, and the ESMF further specifies thatCategory A subprojects will not be supported underthe project because of the limited safeguard capacity(and associated risk) for potential PFIs in managingsuch risky subprojects.

Pest Management OP 4.09 No Land clearance may be required for subprojectsunder Component 2. The ESMF will specify all landclearance will be performed mechanically and/ormanually, pesticides will be forbidden from use. Noprocurement of pesticides will be financed throughthe project. Moreover, project activities are not likelyto result in increased used of pesticides.

Physical Cultural Resources TBD Physical cultural resources are not expected to beOP/BP 4.11 adversely affected or degraded by the project as

Economic Zones (EZs) are located in developed andbuilt up areas. This will be confirmed during projectpreparation.

The ESMF will include screening for subprojectimpacts on PCRs, and if potential impacts areexpected measures will be adopted as part of the EAprocess. The BLC site is not in proximity to anyphysical cultural resources. In addition, the ESMFwill include requirements for proper chance findprocedures.

Indigenous Peoples OP/BP TBD An evaluation of the status (presence or absence) IP4.10 communities in the project areas will be confirmed

by the social development specialist in the TT basedon site visit and discussions with local officialsresponsible for protecting the rights and welfare ofindigenous peoples. The status will be confirmedduring project appraisal.

Involuntary Resettlement OP/ Yes Land will be acquired for the construction of theBP 4.12 business linkage center under Component 3. A

Resettlement Plan will hence be prepared by theBorrower prior to appraisal.

For potential SME subprojects under Component 2,there are three possibilities for subproject sitelocations involving land acquisition: (a) withinNSEZ, (b) within another economic zone (EZ) oreconomic center (EC), and (c) outside any NSEZ/EZ/EC.

For subprojects involving land acquisition in theNSEZ, during pre-appraisal the Task Team willcheck with the NSEZ to determine if proceduresfollowed for land acquisition and resettlement werein compliance with laws, regulations and proceduresrequired by the Vietnamese national, provincial andlocal authorities (due diligence) and would not have

any further requirements.

For subprojects involving land acquisition in the anyother EZ/EC due diligence of the EZ/EC would berequired by the PMU during project implementation.The due diligence procedures would be described inthe ESMF

For subprojects not located in the NSEZ or any otherEZ the ESMF will indicate that the sub-borrower/client would have to prepare a Resettlement ActionPlan (RAP).

Safety of Dams OP/BP 4.37 No No activities will impact the safety of dams.

Projects on International No No SME/subprojects will affect any internationalWaterways OP/BP 7.50 waterway.

Projects in Disputed Areas OP/ NoBP 7.60

III. SAFEGUARD PREPARATION PLAN

A. Tentative target date for preparing the PAD Stage ISDS: 03-Apr-2015

B. Time frame for launching and completing the safeguard-related studies that may be needed.

The specific studies and their timingi should be specified in the PAD-stage ISDS:

A. Target date for the Quality Enhancement Review (QER), at which time the PAD-stageISDS would be prepared: April 2015.

B. For simple projects that will not require a QER, the target date for preparing the PAD-stage ISDS: N/A

C. Time frame for launching and completing the safeguard-related studies that may be needed.The specific studies and their timing should be specified in the PAD-stage ISDS

The ESMF would be prepared prior to appraisal and disclosed at the Infoshop in Hanoi and aVietnamese language version would be disclosed in Thanh Hoa Province at publicly accessiblelocation(s).

IV. APPROVALS

Task Team Leader(s): Name: Andres F. Garcia

Approved By:

Regional Safeguards Name: Peter Leonard (RSA) Date: 13-Jan-2015

Coordinator:

Practice Manager/ Name: Mona E. Haddad (PMGR) Date: 15-Jan-2015

Manager:

1 Reminder: The Bank's Disclosure Policy requires that safeguard-related documents be disclosed before appraisal (i) at the InfoShop and (ii) in country, at publicly accessible locations and in aform and language that are accessible to potentially affected persons.