What do JICA experts say about ODA reduction in preferential rates?

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Over the past years, Japan has been the largest bilateral ODA provider to Vietnam with large scale and long-term projects. However, over time, many problems related to loan appraisal, expert’s income, slow disbursement of Japanese ODA projects have been raised. Therefore, JICA representatives, the Japan International Cooperation Agency, the unique agency providing ODA of the Japanese government, have provided information on these issues to the press.

Accordingly, as of October 1st, 2017, the new terms and conditions of Japanese ODA loans have been applied to projects in Vietnam with decreasing incentives. Mr. Konaka Tetsuo, Chief Representative of JICA Office in Vietnam, said that the terms and conditions of Japanese ODA loans were set on the basis of income of receiving countries.

Development assistance (levels, subject and conditions of assistance...) will change along with the development (increase of income) of the receiving country. Thus, the preferential rates of terms and conditions of Japanese ODA have changed when Vietnam's income level is ranked in the group of "low average income".

However, the JICA representative said that the increase of interest rate is not significant, from 1.4% to 1.45% for non-binding loans, and non-refundable factors in Japanese ODA loans are still at high rate according to the calculation of the Organization for Economic Co-operation and Development. Moreover, the preferential rates of Japanese ODA can be seen through comparison with other multilateral and bilateral donors.

According to Konaka Tetsuo, since July 2017, multilateral donors have begun stopping to provide ODA loans to Vietnam.

In contrast, JICA, with the establishment of its terms and conditions for lending based on ODA definition by OECD – DAC, may continue to provide ODA loans to Vietnam until Vietnam graduates to the group of “above average income“ and consider the current economic growth of Vietnam, Vietnam may continue to use Japanese ODA loans for several coming decades.

Regarding the issue that during the loan appraisal, Japan set regulations to increase project costs and loan scale, such as the salary for domestic and international consultants, provisional amount for price spiraling, the JICA representative said that concerning the project establishment, JICA issued the Guidelines for Project Evaluation in each fiscal year.

Accordingly, the items set out in the General Guidance are global applicable rules and are for the purpose of cost estimation. JICA thoroughly discussed with the Vietnamese side, including the Ministry of Finance, on the items in the Guidelines before conducting the appraisal and finalization of the cost estimation.

In order to avoid a shortage of capital during the implementation of the project, the Guidelines set out the general provisions on exchange rates, cost norms, provisional amount and price spiraling in order to make cost estimates.

Based on the estimated cost for projects, JICA will decide on the amount of loans provided by JICA fund. Therefore, the items included in the Guidelines are used to evaluate the appropriate financing volume for the project.

"In principle, procurement will be organized in the form of competitive bidding (or limited competitive bidding, if the loan is binding loan) and the actual cost of each bidding package will be determined after evaluating the bidding results / signing contract between the project owner and the contractor or consultant in the implementation stage. Actual price is determined through competitive bidding, and are often lower than estimated cost in the appraisal process.

In recent years, public opinion concerns about the issue that wages and salaries for Japanese partners when estimating budget for projects using Japanese loans in fiscal year 2018 is about US$ 30,000 per month per person (+/- 10%), excluding allowances.

This salary level is about 20-25% higher than the average salary of foreign consultants in projects using other ODA loans.

In this regard, Mr. Konaka Tetsuo said that the salary for the consultant in the "Guidelines for Project Evaluation" is determined based on the global qualification and experiences, thus it is not a fixed price.

"Moreover, during the consultancy, JICA also thoroughly discussed with Vietnam on the appropriateness of this price with Vietnam's cost norms, so the price we applied is mostly the same with similar projects by other donors in Vietnam," said Konaka Tetsuo.

Konaka Tetsuo confirmed that the information of the average monthly salary of 700 million VND for Japanese experts working on projects is inaccurate.

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Accordingly, the actual monthly salary will be determined based on the result of contractor selection through competitive bidding. "We offer price guidance on price for cost estimation, but this price must be within the permitted level. Vietnam as well JICA always consider this price carefully during the appraisal process.", the JICA representative added.

In addition, JICA agrees with the idea that the Vietnamese Government will promote the involvement of local consultants in ODA projects in Vietnam.