WB Extends Credit, Grant of US$330Mln for Vietnam

Governor of the State Bank of Vietnam Le Duc Thuy and the World Bank’s Country Director for Vietnam Klaus Rohland on June 17 signed credit and grant agreements totaling US$330 million, aimed at bringing electricity to rural villages and modernizing banks.

Under the agreements, US$105 million will be poured into the second Payment System and Bank Modernization Project (PSBM), and US$225 million will go to the second Rural Energy Project, US$5.25 million of which is in the form of a grant provided by the Global Environment Facility (GEF).

The PSBM’s second phase is organized around two main components: IBPS expansion, and Core Banking Solutions (CBS) development, with the latter accounting for about three-quarters of the project’s total funding.

IBPS expansion is expected to achieve a 10 per cent increase in the volume and value of transactions by the second year of implementation, while CBS development should also produce fast results, with an anticipated 20  per cent increase in the number of bank branches using the new systems and a 15  per cent increase in the volume of transactions handled by the new systems.

The project should be completed by 2009, by which time the IBPS and CBS components are expected to occupy a position within an appropriate banking network, and strengthen commercial bank operations.

Meanwhile, the phase 2 of the Rural Energy project, aims to improve rural electricity networks in over 1,200 communes, and introduce more effective management systems.

In the next seven years, the project aims to complete upgrading and expansion of rural power networks, convert current ad-hoc local electricity management systems to local distribution utilities (LDUs), improve the management of power distribution and increase financial sustainability.

The project is also expected to support capacity-building assistance for the LDUs, provincial authorities, participating regional power companies, and national authorities involved in the planning and regulation of rural electricity supply.

About 2.5 million households should receive power under the project, representing more than 50  per cent of those currently without electricity.

The project will also allow large increases in power supplies for industrial use, alleviating a major constraint to rural economic growth.

Access to electricity has increased rapidly in Vietnam, from around 51  per cent of households in 1996 to over 80  per cent in 2003, but there are still around 16 million people in 3.5 million households without access to electricity.

Since reengaging in Vietnam in 1993, the World Bank has supported 35 projects to help fight poverty in Vietnam with US$5.3 billion committed and over US$2.7 billion disbursed, through finance for agriculture, infrastructure, health programs, schools, and other essential needs. This makes Vietnam the largest IDA-only borrower in the world.

• VNS