Introduction 1-4 (a)

DECENTRALIZING INCENTIVES AND COMPLIANCE PROMOTION IN VIETNAM

Bali, Indonesia, 25 November, 2008

GENENRAL INFORMATION

AT A GLANCE: VIET NAM• Capital: Hanoi• Total Area: 337,114 km2

• Population: 83 million (urban: 25%, rural: 75%).

• Density: 240 habitant/km2

• Humid tropical climate area• Coastal strip with Red river delta (North)

and Mekong delta (South)• Almost its entire area is a patchwork of

rice paddies.

.Geographical location: it is situated in the South of VN, at downstream section of the Dong Nai-Sai Gon river system..Main economic activities: industry, commerce, services.24 districts (4 outer districts, 5 suburban districts (with very much rural characteristics of a farming & fishing land) occupy 78.97% of the total area . 1.7 million people living in these districts ,accounting to 32% of the City populationTotal length of canals and rivers: 795.5 km.

HO CHI MINH CITY PROFILE

HO CHI MINH CITY PROFILE

VỊ THẾ CHIẾN LƯỢC

Cửa ngỏ quốc tế lớn nhất của Việt NamĐầu mối giao thông cho toàn khu vực phía Nam

Tp Ho Chi Minh

Area: 2.093,7 km2

Population: 6.239.938 (2005) 70% under 35 year old

Coastal zone length 11.3km, with over 33,000ha mangrove forest in Can Gio district, which was certified as Biosphere areas by

UNESCO in 2000.

MAJOR POLLUTION

SOURCESIN HO CHI

MINH CITY

Transportation of 2,200,000 motocycles and 230,000 4-wheel vehicles (2.300 buses only)

Residential areas without adequate environmental infrastructure

28,753 medium/small scale industries within residential zones

14 IPs and EPZs

Construction activities

Key steps in development of environmental institutions in Vietnam

1970s State Committee for Science and Technology with Department of baseline survey and studies.

1983 Ministry of Science and Technology (MOSTE) with Dept. of environmental baseline & studies.

1984 MOST Dept. of Natural and Environment (in English) – 12 staff

1985 DNRE Five year national research program for environmental studies (20 projects).

1990 National Sustainable Development Conference – Proposal to establish MONRE

(Ministry of Natural Resources and Environment)

1993 Proposal to establish a Ministry of Environment and national environment council submitted to government

1994 MOSTE and National Environment Protection Agency (NEPA) established.

1995-8 DOSTEs established at provincial level

2002 MONRE established at (NEPA divided into three organization with MONRE)

2003-5 64 DONREs established – 90% with environment divisions.

2003-5 333 District NRE divisions established, and 10,000 communal NRE staff.

(NRE: Natural Resources and Environment)

Legal instruments of Vietnam

•“Laws” and “Codes” are passed by the National Assembly;

•“Resolutions” and “Ordinances” are passed by the Standing Committee of the National Assembly;

•“Government Decrees” are passed by the Prime Minister or the Vice Prime Minister;

•“Resolutions”, “Circulars”, “Directives” and “Ordinances” are passed by the relevant Minister; and

•“Regulations” are passed by local/provincial governments.

Institutional framework of environmental management of Vietnam

Institutional arrangement

• In August 2002, the Government established a new Ministry in charge of environmental issues - Ministry of Natural Resources and Environment (MONRE);

• People’s Committees (at city/provincial levels) implementing environmental management activities under the direction of MONRE and other relating ministries, with the support of Department of Natural Resources and Environment (DONRE);

• Ho Chi Minh city DONRE has Environmental Management Division, Solid Waste Management Division are in charged for environmental protection activities; Environmental Protection Agency (HEPA- WW Fee collection Division (8 staffs) is in charge for wastewater fee collection duty.

Institutional framework of environmental management of Vietnam

Institutional framework of environmental management of Vietnam – DONRE of Ho Chi Minh city

Roles of DONRE • Are agencies of the provincial PCs; Work with the MONRE.

•Support the provincial PCs in state management for issues related to land, water resources, minerals, environment, hydrometeorology, and mapping in the province, and reporting administrative to the national government;

•The establishment of functional divisions within DONRE is decided by the provincial PCs in consultation with MONRE.

•Submit to PCs any grants, extensions, and revocations of environmental certificates.

Roles of DONRE • Evaluate environmental impact assessment submitted by regulated establishment.

•Collect fees for environmental protection including those for wastewater.

•Conduct environmental compliance inspections, setting environmental related disputes, compliance and violations within its provincial jurisdiction.

•DONRE Environmental Inspectorate may conduct both announced and unannounced inspections by itself or in cooperation with the MONRE Environmental Inspectorate.

•Chief Environmental Inspectorate of DONRE is empowered to revoke the environmental certificate in case of detected violation.

•The DONREs have no direct authority for pollution regulation with industrial parks.

Legal and Institutional framework of environmental policy in Vietnam

•Law on Environmental Protection 2005.

(1993: first general Law on Environmental Protection)

•National Strategy for environmental protection until 2010 with vision toward 2020 – signed by Prime Minister on 02/12/2003.

•Directive 41/CT-TW of the Politburo of Vietnam Communist Party 2005.

•Decree 67/2003/ND-CP on wastewater charge.

• Law of Water Resources 1999.

• Enforcement policies.

Legal and Institutional framework of environmental policy in Vietnam

National Strategy on Environmental Protection (NSEP) to 2010 with vision toward 2020

The strategy has emphasized the significance of development of an appropriate legislation on water resources management and management of river basins.

Other technical measures such as rehabilitation and embankment of rivers have also been indicated by the Strategy to improve water environment.

NSEP promotes the use of economic instruments (EI) to environmental management as an explicit mean to implement the various objectives stated in the Strategy: EI are solutions to macro level-environmental management in a market economy, typically used along with administrative and educational and propaganda measures for the same purpose of improving legislative enforcement in the environment sector

Legal and Institutional framework of environmental policy in Vietnam

Directive 41/CT-TW of the Politburo of Vietnam Communist Party 2005.

From 2006 to allocate at least 1% of the state budget expenditure (~3,500 billion VND) for environmental protection. This directive has been applied with the Decision No. 34/2005/QD-TTg by the Prime Minister.

Decentralization to provincial and city level

Provincial People’s Committees (PPCs)

The government commitment to decentralization:

•Changes in central government to focus on macro economic management and broad policy.

•Delegated management responsibilities to agencies, provincial department and SOEs.

•More discretion over local budgets and planning by the local Peoples Committees.

•Clearer distinction between government and enterprise responsibilities.

Decentralization to provincial and city level

Provincial People’s Committees (PPCs)’s roles and responsibilities:

•Issuing document within their legal powers on environmental protection in their locality.

•Directing and inspecting the implementation of the environmental effects of protection regulations of the State and their locality;

•Checking evaluation reports on the environmental effects of projects and establishments;

•Granting certificates of environmental standards to production establishments and businesses, or withdrawing them;

•Cooperating with institutions as the central level in supervising, inspecting and handling violations of the Law of Environmental Protection (LEP) in the locality;

•Urging all organizations and individuals to observe the LEP;

•Receiving and setting disputes, complaints, denunciations on environmental protection within their powers, or submitting them to the authorized institutions for settlement.

Legal and Institutional framework of environmental policy in Vietnam

Policy enforcement

Decree 81/2006/ND-CP on fines on administrative violations

Maximum fine imposed on breaches of environmental regulations could reach to 70 million VND (4,500 USD)

With regards to WW and pollutants discharge into water resources are fixed from 100 to 70 million VND ( ~ 7 – 4,500 USD) depending on the pollution level or whether containing hazardous and radioactive substances.

(Decree 81 is under revised at this present to increase the fine up to 500 mill.)

Environmental protection charges for wastewater Decree No. 67/2003/ND-CP

With the adoption of Decree No. 67/2003/ND-CP on environmental Protection charges for wastewater (henceforth Decree 67) on June 13, 2003.

And the accompanying Inter-Ministerial Joint Circular No. 125/2003/TTLT-BTC-BTNMT (hence Circular 125) providing guidelines for the implementation of Decree 67, the Government went for legislated principles to action: as of Jan 2004, both domestic and industrial sectors must pay a fee for discharging wastewater in the environment;

Environmental protection charges for wastewater Decree No. 67/2003/ND-CP

Domestic WW fee is collected by the clean water supply company

For industrial WW, enterprises will do self-declaration to DONRE; DONRE will appraise and announce the fee amount, then the enterprises to pay fee to the provincial State Treasury.

The decree also assigns the Ministry of Finance (MOF) in cooperation with MONRE to stipulate the fees rates in order to be suitable for each kind of receiving environment.

MONRE and MOF are responsible to specify objects that pay this charge.

Environmental protection charges for industrial WW Decree No. 67/2003/ND-CP

Industrial WW charge

This fee applies directly to the discharge (load) of 7 pollutants: BOD, COD, TSS, Mercury, Lead, Arsenic, and Cadmium.

The pollution level, from its side depends on the quantity and toxicity of pollutants contained in the WW.

Replaced Decree 67 later on by Decree 04 from Jan 8th, 2007 with 3 minor changes: (1) remove BOD parameter, (2) change the use of fee collected, and (3) establish emission coefficients for different industrial sectors.

Environmental protection charges for wastewater Decree No. 67/2003/ND-CP

The main goal

(1) To limit the environmental pollution cause by wastewater

(2) To use economically clean water

(3) To create fund for environmental activities

The calculation

Total fee paid (VND) = Volume of discharged wastewater (m3) x amount of pollutants in wastewater (mg/L) x charge rate for industrial wastewater discharged into respective receiving environment (VND/kg)/1000

Environmental protection charges for wastewater The circular No. 125/2003/TTLT-BTC-BTNMT

In order to timely guide implementation of the Decree 67, the MONRE in cooperation with MOF have drafted and issued the joint circular. The guiding circular makes clear the objects:

•Who bear the fees or pay fees;

•The specific rate for industrial WW applied to each type of receiving environment;

•Give specific introductions about the way to calculate and declare fee, process of appraisement, announcement of paying fees and perform of paying fees to State Treasury.

Environmental protection charges for wastewater Decree No. 67/2003/ND-CP

The target groups

Environmental protection charges for wastewater Decree No. 67/2003/ND-CP

The rates of wastewater fee:

Industrial Wastewater Fee Collection Process in HCMC

HEPA, HEPZADISTRICT PC’S

HTP

Enterprises

HEPA

Enterprises Inventory

Fee Self-Declaration

(quarter/year)

Inspection, Analysis, Fee Appraisal

Fee Notice

Fee Payment(quarter)

Fee Colleciton

Final Balance-sheet

(year)

HEPA District PC’s

HEPZA

Enterprises

State Treasury/ HEPZA

District PC’s,

HEPZA

State Treasury/

HEPA/DoF/Tax Bureau

Environmental protection charges for wastewater Decree No. 67/2003/ND-CP

Results:

+ The whole country

2004: 80 billion VND

+ Ho Chi Minh city:

- Fee collected in 2007: 6 billion (VND); 1,116 registered enterprises.

-From Jan up to Oct 2008: 5.8 billion (plan: 5 billion)

- Expected fee collected in 2008: >7 billion (sending fee notices to 1,780 enterprises with the fee calculated is 8.3 billion).

Advantages and disadvantages of WW charge collection

ADVANTAGES•Create a greater awareness in individuals, households, enterprises and other institution as to their responsibilities for environmental protection.

•Reduce wastewater generation.

•Provide a straightforward incentive to process industrial effluent and reduce its pollutant charge.

•Yield considerable additional funds for local budgets earmarked for environmental protection activities, new investments, drainage,…

Advantages and disadvantages WW charge collection

Partly funded with the revenue from the WW charge, the Vietnamese Environmental Protection Fund (VEPF) has provided loans at concessional interest rates and sponsored investment projects in environmental protection.

Up to now: > 200 billion VND has been collected, transferred to VEF and allocate for DONREs for WW improvement projects in provinces.

2004-2006: VEPF provided concessional loans to 13 projects with an approved capital in excess of 35 million VND disbursed to a variety of activities

Advantages and disadvantages of WW charge collection

DISADVANTAGESGovernment implementation• Delay the application of the WW charge of some localities.• Capacity challenges in WW collection: limited technical and administrative capacities; weak cooperation among the stakeholders.•The amount of fees collected lower than estimated.

Enterprises perception• Low awareness of enterprises • Not sufficiently clear and detailed.• Not fair among the business (why some should pay but others not?)• WW charge calculation is not accurate.

Strategies to meet obligations and objectives for incentives and compliance promotion

•Take into consideration the total amount of pollutants, or else we may create a perverse incentive to dilute emissions and thus waste resources (the WW charge for industrial effluents avoids this perverse incentive);

•Where environmental pricing instruments are to be imposed on the discharge of pollutants, the instrument should not only apply to emission in excess of certain threshold values or environmental standards, as this counteracts the economic incentive and partly renders the instrument a measure of command-and-control regulation (the current WW charge for industrial effluents avoids this shortcoming);

•In a situation of high inflation, the environmental incentives arising from price-based instruments can be significantly compromised. While this may be counteracted to a limited extent only, indexing the instrument to inflation rates can help reduce the said effect.

Benefits and challenges of decentralization in environmental compliance and enforcement

BENEFITS

•The basic framework for compliance, enforcement, pollution control, national monitoring and reporting are set in place.

• Raise a sense of initiative of the local authorities (it depends on the qualifications, experiences, capacity, technical instruments of district Natural resources and environment division); ( differentiate between inner districts & rural districts…);

•Better in pollution control at local level.

• Save time in setting environmental disputes, complaints.

Benefits and challenges of decentralization in environmental compliance and enforcement

CHALLENGES

• Lack of clear distinction in responsibilities and difficulties in coordination (no cooperative mechanism among state agencies working at all levels has been created --> create overlap, limit the outcomes);

• The policy, legislative and institutional expansion and innovation moved well beyond the capacities of staff, budgets and structures to manage effectively (fixed rate of budget for state administrative agencies!).

• The environmental background and capacity of staff is limited; Natural Resources and Environment divisions in districts are set up; but overall districts have found the task difficult given the low level of existing capacity and budgets.(Ex: HCMC DONRE send letter to Dept. of Finance => DoF submit letter to HCMC’s PC to get instruction to district PCs allocate budget for district NRE division 2009!

Strategies to decentralized use of incentives

•Adjust fees rate to be suitable. Industrial WW charge now is too low, not enough for expenses of solving environmental standard.

•Continue the awareness raising activities.

Thank you for your attention !