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Dutch Investment in the Water

Supply Sector of Vietnam

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Dutch Investment in the Water

Supply Sector of Vietnam

Insight in public-private partnerships

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MANAGEMENT SUMMARY

The Consulate-General (CG) of the Netherlands has the challenging task to enhance trade between the Netherlands and Vietnam. Together with the Royal Netherlands Embassy of Hanoi, with support of the EVD, they have identified the water supply sector as a potential promising sector. The task for this research was to fill in the information gap between Dutch companies, the CG and the Vietnamese water supply sector. The following research question was posed in order to advise Dutch companies as well as the CG for business opportunities.

“What can the private sector contribute to the water supply sector and what are the possibilities for Dutch companies to enter the market?”

The research is divided in three parts. The first part focuses on private sector participation in general. It revealed that private companies can bring efficiency to the market and are able to help publicly owned water supply companies to become more self-sufficient. Also, the complete dichotomy of public provision versus private provision was analyzed. Between these two extremes, five types of public-private-partnerships are possible. These are; commercial contracts, management partnerships, lease/affermage schemes, concessions and divestitures. The second part uses Porters’ Diamond as an analyzing tool for the urban Vietnamese water supply sector. All actors were described, as well as their relations with each other. The outcome of the analytical framework showed that the Vietnamese water supply market is uncompetitive. Core problems for the sector are little available funds from the government, obsolete infrastructure, shortage of skilled high and middle management and absence of clear cut long term strategies. An increasing demand, through processes of urbanization, increasing welfare levels and a growing population puts even more pressure on the system. Vietnam however has the advantage that ‘water’ is a hot topic nowadays (triggered by the Millennium Development goals in 2001). This attracts the attention to the sector and will increase ODA as well as private sector support.

The low competitiveness of the water supply sector creates possibilities for Dutch companies. With their expertise in implementing innovative, high tech, fully integrated and sustainable solutions in other (developing) countries the assumption is that they have potential to be valuable players in that market. However, since the market is almost fully publicly owned, puplic-private partnerships have to be set up in order to ‘win’ projects in the sector.

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PPPs, where a lot of power is transferred from publicly owned WSCs to international private actors, are not common and difficult to set up in Vietnam. This is mainly due to previous failure of BOT schemes and the tariff setting of water prices.

The research also provided Dutch success stories in Vietnam. The PPPs between Vitens-Evides and SAWACO and DHV’s cooperation with BIWASE are good examples of the possibilities in the Vietnamese water supply sector. However, almost all companies gathered ODA assistance in order to make projects profitable. Besides ODA, physical presence, a strong network, understanding of cultural differences, hiring Vietnamese personal and a high patience level are factors that an international enterprise must possess when seeking business opportunities in Vietnam.

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PREFACE

Groningen and Ho Chi Minh City. Two cities almost 10.000 kilometers apart from each other. Two cities with totally different cultural and economical backgrounds. West versus East. Small and quiet versus massive and hectic. There is however a connection, and a very special one. I was lucky to be part of this exceptional band.

Halfway March 2007, flight SQ323 landed on Ho Chi Minh Airport. I was picked up by the best driver of Southern Vietnam, Mr. Phuoc. He drove me straight to the Consulate-General of the Netherlands. That day, I started a 5 month internship. The 5th student from Groningen

University working for the Consulate-General was a fact.

I enjoyed working at the Consulate very much. My gratitude goes out to all the colleagues at the consulate. They all overwhelmed me with their hospitality. I owe special thanks to my supervisor Mr. Ton van Zeeland and Mr. Le Son. They guided and supported me in many ways, whether I ran into troubles with my research, or could not find a suitable place to buy a proper suite. During my stay we all managed to promote The Netherlands and the Consulate in a good way. The trip we organized for country manager Shakila Puttmann was an example of outstanding teamwork.

The process of this research was not flawless. It did cost a lot of blood, sweat and tears. I have to thank Bartjan Pennink for his patience, understanding and advice. Last but not least I show my gratitude to my parents, their support is truly never-ending. The result made possible by all, is a report where I am proud of.

Cam on! Bram Willems

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TABLE OF CONTENTS

Management Summary 2 Preface 4 Table of Contents 5 CHAPTER 1 INTRODUCTION 7 1.1. Management Question 7 1.2.1 Developing Vietnam 9 1.2.2 Context: Water Supply development in Vietnam 9

CHAPTER 2 RESEARCH DESIGN 11

2.1 Problem Statement 11 2.2 Definitions 13 2.3 Data Collection 13 2.4 Boundaries 2.5 Theoretical Framework 14 2.5.1 Porters’ Diamond 15 2.5.2 Porters’ Diamond in the water supply sector 16

2.6 Report Outline 16

2.7 Structure of the Research 17

2.8 Research Type 18

2.9 Label 18

CHAPTER 3 PRIVATE SECTOR PARTICIPATION 19

3.1 The product Water 19

3.1.1 Water as a Public Good

3.1.2 Water as an Economical Good 20 3.2 Arguments for Public Provision 21 3.3 Arguments for Private Provision 23 3.4 A short history of water provision 24 3.5 Evidence for what is best 26 3.6 Public-Private Partnerships 27 3.6.1. Possibilities for private sector participation 27 3.7 Conclusion and Expectations 29 CHAPTER 4 THE URBAN WATER SUPPLY SECTOR OF VIETNAM 30

4.1 Macro Vietnam 30

4.2 Government 31

4.3 Factor Conditions 34

4.4 Demand 37

4.5 Firm Strategy, Structure and Rivalry 37 4.6 Related and Supporting Industries and Institutions 39 4.6.1 Supplier Industries 40 4.6.2 Official Development Assistance (ODA) 40

4.7 Chance 41

4.8 The Diamond of the Vietnamese Water Supply Sector 42

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CHAPTER 5 OPPORTUNITIES FOR THE DUTCH 46

5.1 Dutch Expertise 46

5.2 Role of the International Private Sector of Vietnam 49 5.3 Commercial Contracts 49 5.3.1 Tender Tactics 50 5.4 Management Partnerships 54 5.5 Heavy types of Public-Private Partnerships in Vietnam 55

5.6 Word of Advice 57

5.7 Support from the Consulate 61

5.8 Conclusion 61

CHAPTER 6 CONCLUSION AND FUTURE RESEARCH 63

6.1 Conclusion 63

6.2 Limitations and Recommendations for Future Research 65

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CHAPTER 1

INTRODUCTION

1.1 Management Question

The Consulate-General of the Netherlands has the challenging task to enhance trade between the Netherlands and Vietnam. Its main focus is to support Dutch entrepreneurs in their path to invest in the vast growing economy of Vietnam. Together with the economic section of the Royal Netherlands Embassy (RNE) and with support of the EVD, which is the Dutch Trade Promotion Centre of the Ministry of Economical Affairs, they identify promising sectors and provide Dutch companies with useful information as much as they can.

To identify, mapping out, analyze and interpret specific knowledge of the external environment of a targeted market, is considered the first step in the internationalizing process of companies. The external environment consists of many subsystems like for example, the legal environment, the macro economical environment and the social environment (Jagersma, 2001). The Consulate-General is willing to provide this for promising markets.

One of the sectors pointed out by the EVD as an interesting sector for Dutch companies to focus on, is the drinking water sector in Vietnam. Then, the logical question arises: which factors are used to determine whether a sector is promising or not? Roughly stated it is a question of demand (Vietnamese) and supply (Netherlands). More specifically, the Vietnamese market has to consist of the following:

 High demand for foreign investors

 Dutch companies have an expertise in this sector

 Pointed out as a priority sector by the Vietnamese Government  Strategically important

 Commercially attractive

Source: EVD, Consulate-General HCMC Up front one can say that there is indeed a growing demand for foreign investors, since the publicly owned companies alone can not deliver the proper service in this sector. The government recognizes its shortcomings and is increasingly reaching out to foreign investors who have the knowledge and resources to improve the drinking water sector (Salter, 2003 and U.S. Commercial Service, 2006).

The drinking water sector is obviously a strategically important product since clean water is one of the bare necessities of life. This is the reason why this sector is considered delicate and extremely important for the health of the country as a whole.

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water, the Dutch have an advantage since their home water supply, measured in water quality, is stated as one of the best in Europe (NWP, 2006).

To conclude, there seem to be possibilities for Dutch water companies to use their knowledge and expertise to help improve the underdeveloped drinking water sector in Vietnam. However specific and in depth knowledge about the market is missing. Furthermore, the drinking water sector contains a lot of different niches of which not all are likely to be promising for Dutch companies. Now the task at hand, as stated by the Consulate-General, is to fill in the information gap, which is the lack of specific knowledge of the drinking water sector in Vietnam. Accordingly, the management question arises:

“What are the characteristics of the drinking water sector of Vietnam and what are the opportunities and threats within that drinking water sector for Dutch companies?”

Answering this question will help Dutch companies to make better tactical and strategic decisions regarding their entrance in the drinking water sector of Vietnam. The information flow is explained in the following scheme:

Figure 1.1: Information needs (adopted from Smidts, 2006)

Dutch companies interested in the Vietnamese drinking water sector Information needs Consulate General Ho Chi Minh City

Vietnam

Recommendations provided by the

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1.2.1 Developing Vietnam

Since the early 90s Vietnam has shown a tremendous increase of GDP. The growth rate was on average 7.4% per annum from 1990 forward (General Statistics Office, 2006). Although this growth rate is of course relative, it still highlights the direction in which the country is heading, which is up.

This economical growth stems from a strong shift in governmental policy in 1986, known as Doi Moi. From this year on, accompanied by a boost in 1994 when the U.S. trade embargo was ended (Duc, 2003), the country has left its isolated and centrally planned economy behind and is opening up to the capitalistic world. This development, which is still very much in progress, has resulted in a reduction of state interventions in business areas and governmental encouragement of foreign and domestic private investment (Smidts, 2006). The progress is very much alike of its big brother China. As China, Vietnam also adopted the so-called social-orientated market economy.

The new, more open economy has not been undetected by foreign investors. Foreign direct investment (FDI) inflows increased dramatically since 1986 from USD 0.32 billion in 1988 to 4 billion in 2005, with an average growth rate of 28 percent per annum. Nguen Pi Lan (2006) pointed out in his study that this FDI is heavily influencing total economic growth in Vietnam. In other words, FDI is helping Vietnam to improve and develop.

Despite these promising figures and ongoing international interest, Vietnam can not be considered a full developed country with overall high welfare levels, since its productivity as well as the well-being of the population remain below their potential (Staykova, 2006).

1.2.2 Context: Water Supply development in Vietnam

The problem often the case with rapidly developing countries is that it faces difficult challenges in adapting the infrastructure policies and institutions. In many of these countries the growing demand puts pressure on ageing physical assets in various infrastructure sectors and could jeopardize sustainable growth (OECD, p.7). Vietnam, and its drinking water sector, is an outstanding example of such a problematic process.

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Not only external researchers, but also the Vietnamese government itself acknowledges that the water supply sector requires extra attention. They have adapted the so-called Millennium Development Goals (MDGs) to set the bar to focus on. These goals have been put op by 189 heads of state in 2000, where they declared full commitment to achieving these goals. Especially MDG 7 is particularly relevant for this report. This MDG aims to reduce by half the proportion of people without access to save drinking water (www.un.org/millenniumgoals) To be able to meet these MDGs it is acknowledged by the government that this traditionally publicly owned sector needs support from the private sector to improve coverage, efficiency and quality of the drinking water supply, both in rural and urban areas (van der Helm, 2006). The levels of investment cannot be financed by the public purse alone. To meet these needs, encouraging the private sector to step in is an option that governments can not afford to ignore (OECD, 2007).

The government is implementing two strategies to strengthen private sector involvement. First of all, they aim to privatize (equitize) several urban WSC companies who used to be fully owned by the government. Secondly, they opened up the market for foreign aid and private investors to make improvements sustainable (Staykova, 2006).

Privatization and foreign private sector involvement in the water supply sector in Vietnam is still in an early stage. Although the government recognizes its necessity, co-operation between public and private companies seems to work very difficult (Van der Helm, 2006). It is a complicated matter with many stakeholders involved, such as donors, international private companies and the Vietnamese government.

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CHAPTER 2

RESEARCH DESIGN

2.1 Problem Statement

The problem statement has to be in line with the management question. The results of the research should therefore consist of recommendations to the Consul-General which can be passed on to Dutch companies with interest in the Vietnamese water supply sector.

The objective of this research is threefold. First, the research aims to describe the actual contribution of private sector participation in the drinking water sector in developing countries. The second part will take a closer look at the Vietnamese drinking water sector in particular. The final part focuses on the opportunities for Dutch investors and will explore the possibilities for market entry. This part elaborates on the fist two sections and simultaneously contributes to an answer to the management question. The goal of the research is stated as follows: Research Objective

“To explore the role of private sector participation in the Vietnamese Drinking Water sector and analyze the possibilities for market entry in the Vietnamese drinking water sector as a foreign private investor in order to improve the CG’s information services for Dutch companies”

The essentials of a research design are contained in the questions asked (Gill & Johnson, 2002). The main question will guide the research to fulfill the objective. The main question is supported by sub questions with a more narrow focus.

Main question

“What can the private sector contribute to the water supply sector and what are the possibilities for Dutch companies to enter the market?”

Sub questions

Private sector participation

- What are the possible mechanisms and effects of private participation in the water supply sector of developing countries?

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Although it is clear that the international private sector is increasingly involved in the water supply of many developing countries such as Vietnam, it is not always clear why they are involved (Budds, 2003). It is therefore important to describe what exactly these international, more developed companies offer, what the local water supply systems can not do themselves. Furthermore, if private companies are involved in this highly regulated sector, they have to co-operate with governmental organizations. A business cooperation with the government is called a private-public partnership. In the water supply sector this cooperation is a difficult issue since governments sometimes pursue other goals than private companies (social versus economical). The possibilities in the water supply sector have to be researched in order to give complete recommendations to the Dutch private sector.

The Vietnamese Water supply sector

- What is the institutional structure of the sector?

- What is the structure of the WSCs and what are their strategies? - What is the demand for drinking water in Vietnam?

- What are the factor conditions in Vietnam? - Which institutions support the sector?

These questions will describe the specific situation in Vietnam considering their water supply sector. The questions contribute to a description of the Vietnamese water supply sector, using Porters Diamond (Porter, 1990) as the analytical framework. The answers are necessary to inform Dutch companies of the specific features in Vietnam. Although the water supply system is in essence everywhere the same (intake pumping, purifying, distributing), the national and institutional differences can never be neglected and have to be thoroughly explained.

Possibilities for Dutch companies

- What is the Dutch expertise in the water supply sector?

- What is the best strategy to engage stakeholders and to set up public-private partnerships?

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chapter will also advise the Consulate how to support these Dutch companies in an efficient way.

2.2 Definitions

Drinking Water supply

The water supply in this research is defined as water which is purified and distributed through pipes to the households. This research will not deal with sanitation, which is the treatment of waste water of the households. In many countries these systems are related and connected, however in Vietnam this is not (yet) the case.

Private sector participation:

To look at all the possibilities of the Dutch private participation a broad definition will be used throughout this research. This will incorporate many factors ranging from commercial contracts between public and private actors to complicated public-private partnerships like concessions.

2.3 Data collection

The first part will be based on secondary data. Literature research will be conducted in order to assemble the different views on international private sector participation in the water supply sector.

The data in the second part will be collected through both secondary and primary sources. Using researches of various sources combined with field research consisting of interviews with knowledgeable people within the Vietnamese water supply sector should give a good overview of the market.

The data in the third part will for the large part consist of views from Dutch companies. Primary data, through the use of interviews with the Dutch companies, active in the Vietnamese water supply sector will be gathered. Furthermore, with information from umbrella organizations such as NWP (Netherlands Water Platform), the specific expertise of the Dutch Water Sector can be pointed out.

2.4 Boundaries

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information to the academic world. It aims to create a road map regarding foreign private sector participation in the Vietnamese drinking water sector which can also be useful in other infrastructure sectors in similar (developing) countries where the government has a very strong voice.

In order to make a research feasible within a set time frame, several demarcations have to be made.

 The research is based on the internship at the consulate-general of the Netherlands in Ho Chi Minh City, which takes place between the 1st of March till the 1st of August

 The geographical scope is Vietnam. It will focus on Vietnam as a whole.

 The scope of water supply in this research is mainly urban. Provision in rural areas is thus not the main focus, but many of the discussed issues could also be relevant in rural areas.

 The research focuses on private sector involvement with for profit intentions.  International interest will be explained from a Dutch point of view.

2.5 Theoretical Framework

In the first research executed at the Consulate General, Smidts (2006) constructed a method of analysing promising sectors. His research is very helpful for this study since the same ‘management’ is involved and it took place at the same organization, the Consulate-General of the Netherlands in Vietnam. He advises new researchers at the Consulate-General, when describing and analyzing a specific sector, to use Porters’ Diamond. He mentions two arguments in favour of Porter.

First argument is that the specific determinants of the framework make a complete overview of the characteristics and the status of a sector. This seems a strong argument since Dutch entrepreneurs need the full scope of the market and the Vietnamese business system so that they are prepared for every pitfall or opportunity in the Vietnamese water supply sector. And as explained in the introduction the expectations are that the water supply sector contains both elements (negative and positive) in various dimensions.

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Next I will briefly summarize the theory of Porter’s Diamond. The Diamond is especially useful in answering the second group of sub-questions; those concerned with the characteristics of the Vietnamese Water Supply sector and its business system (see 2.1 Problem Statement).

2.5.1 Porter’s Diamond

Porter’s Diamond is a model which helps to understand how nations develop competitive advantage in specific industries. Porter states that it is necessary for a nation to develop clusters of industries which are both competitive and linked by the elements of his Diamond. When that is the case, different industries within a nation will help and support each other in a mutually beneficiary process (Porter, 1990).

The diamond consists of four determinants of competitive advantage. These determinants are: demand, factor conditions, related and supporting industries, and firm strategy, structure and rivalry. Porter also added two residual elements; government and chance (Porter 1990, p. 127, see also fig. 2.2).

The different determinants function as a system. It is stated that all the determinants affect one and other. The advantage of an industry is dependant partially on how efficiently these interactions work within a nation (Clancy et al. 1999, p.10). Also, the model is always in motion since it tries to capture a process of competitive advantage which evolves in time. These qualities of the model (interrelated determinants, changing in time, not general but specific) point out to a systemic approach (Arbnor and Bjerke, 1997).

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2.5.2. Porters Diamond in the Water Supply Sector

The model will be applied in the water supply sector of Vietnam. It helps that it is a national model. Regardless whether the actual market has recently opened for international companies (see introduction, p.5) all the conditions are static in the sense that it is local water supply, export logically excluded. Therefore a bounded system like the original Diamond fits also for a sector such as water supply.

The result of this application will be a description of a systemic process which will describe the competitiveness of Vietnam and its water supply system. All the determinants together (1 + 1 = 3) will contribute to a certain amount of competitiveness of this specific industry. The result adds support to the answer whether Dutch companies should participate in the process since it aims to reveal its potential, now and in the future.

2.6 Report Outline

As mentioned this report contains three parts. The first part will describe the role of private sector participation. After some background information on the characteristics of the water supply industry in developing countries, several views will be mentioned which explain the value of private sector participation and public-private partnerships in the water supply sector (chapter 3). The results of the theoretical part of this report will be an overview of types of private participation that determines its possible value in Vietnam.

The second part will narrow the focus to the Vietnamese Water supply. This chapter will research empirically what the characteristics are of the Vietnamese Water supply sector. In

Factor

Conditions ConditionsDemand

Related and supporting industries Firm Strategy, Structure and rivalry Government Chance

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this chapter the Diamond of Porter will be used to analytically describe the market structure and to determine the market competitiveness (Chapter 4).

Once the competitiveness is described, the possibilities for the Dutch companies as private actors in the Vietnamese water supply sector will be explored. Dutch expertise will be described (Chapter 5) and the possible entry strategy and co-operation forms with the Vietnamese water supply companies will be put in a framework. So this chapter will research empirically whether the findings on private sector participations in chapter 3 are also applicable in Vietnam. In the end, conclusions will be drawn based on all the chapters, which will consist of recommendations to the Consulate General and Dutch water supply companies in particular (Chapter 6).

2.7 Structure of the Research

Fig. 2.1 Research Model Management Question

Research Design

Conclusion

Recommendations

PART I

Private sector participation

The Product Water Role Private Sector PPPs

PART II Vietnam Water Supply

Government Firm structure and strategy Demand Factor Conditions PART III Business opportunities Dutch Expertise Experiences and Opportunities

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2.8 Research type

In terms of Thomas (2002), this research can be described as international research.

Gill & Johnson (2004) would describe the research as both inductive and deductive. It is deductive in the sense that it makes use of a theoretical structure prior to the actual empirical research. However it does not contain actual hypotheses. The research does not test theory and hypotheses; it uses analytical frameworks.

The research is inductive in the sense that it aims to create ‘abstract concepts’. It is also reflecting experiences (of Vietnam) and from those experiences, prediction and generalizations will be made. This is the inductive nature of the report. It aims to create a new roadmap for Dutch investors and the Consulate based on empirical findings.

Arbnor and Bjerke (1997, p.44) constructed a model of various approaches. If using an approach as a research type, the systemic approach is a good way to typify the research. The research seeks relations between the different parts of the Vietnamese business system and is aware of the evolving status of an emerging country such as Vietnam so that the recommendations are longer preservable. However, it takes also in account the strong social matters such as corruption and business culture. These are ambiguous social factors which ask for a different, more flexible approach. In these matters, where the interpretation is highly based on the experiences of people in the field, the actor approach fits best (Arbnor and Bjerke, 1997).

2.9 Label

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CHAPTER 3

PRIVATE SECTOR PARTICIPATION

This chapter describes the ongoing debate of the role of private investment in the water supply sector of developing countries. It is an ambiguous field of research, where the exact advantageous and disadvantageous are not very clear and sometimes contradictory. This chapter aims to describe the different views and possibilities of private sector participation in water supply sectors. Private sector participation and privatization are the two most important factors of reform in Vietnam (see introduction), and will directly influence the potential role of a foreign investor. Therefore this research considers this debate an important issue to describe, before narrowing the focus on Vietnam directly. First however, the product itself (potable water) will be defined and explained.

3.1 The product water

The product clean water has the unique trait that it can not be replaced by other products. We need clean water to survive. Without clean water, we would not even exist. This sounds quite impressive, because it is impressive. Since it is such an important good, there are many ways to view the product. You can look at it from an economical standpoint, from a public standpoint and even from a social standpoint (Renzetti, p.10). This will be explained below.

3.1.1 Water as a public good

It is possible to describe water as a public good. A pure public good is a good which contains the following characteristics:

 Non rivalrous – i.e. consumption by one individual does not reduce the availability of the good to another. The good is not scarce.

 Non excludable – i.e. when the good is produced, the benefit (or disadvantage) is open for all. It is also technically impossible or extremely expensive to restrict others from consuming the good.

 Non rejectable – i.e. individuals cannot refuse to consume even if they wish to do so. The opportunity cost for the product is zero. (Samuelson 1954, Bannock e.a. 1987, Stålgren 2000)

An example of a pure public ‘good’ is the air that we breathe. We can not deny anyone else from using it. It is technically impossible to restrict others form using it, and if anyone refuses to use it he will die. So the air that we breathe can be considered a pure public ‘good’. Of course, air in this context is not a real product.

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developed countries such as the Netherlands one individual can consume abundantly without reducing the supply for others. Sadly, this is not the case in many other, less developed, countries like for instance Vietnam. In these countries, especially in the rural areas, the good treated water is scarce (Staykova, 2003).

Treated water is also not entirely non excludable. If a municipal water treatment plant delivers water to the households, and one household does not pay the water bill, they can shut them of from the piped network, excluding them from using the good. However, besides the example mentioned above, there is no reason to exclude people from using potable water. Even the example mentioned above seems unfair for people who cannot afford treated water.

The good is to some extend non rejectable. Treated water is healthy and very important for living standards; the only other option is to live with untreated water which is dangerous and extremely unhealthy. That is why it is to a large extend non rejectable.

Thus treated water can not be defined as a pure public good, but has some characteristics that align with the definitions of Samuelson and Bannock. Margolis (1959) adds that a pure public good does not exist in the real world.

Besides characteristics of a public good, it contains also public benefits. Everyone benefits from a clean and efficient water supply system. The benefit is health. If people get sick from ‘bad’ water supply they will affect others (Budds, 2003). This may seem far reached, but in many poor and developing countries this is a common public threat (Staykova, 2006).

3.1.2. Water as an economical good

Water can also be seen as an economical good. If looking at the definitions of a public good, we can review opposing traits which point to economical (private) characteristics.

As stated, the product potable water is scarce (especially in poor or developing countries). Since it is scarce, it is possible to put a price tag on it. Scarcity creates rivalry consumption and can therefore be managed by market forces (Budds, p.85). What the effect is of this way of dealing with treated water will be explained in the following paragraphs.

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So reflecting on both characteristics, public and private, we can conclude that it has both. It is a product with social benefits for the whole community but because of its scarcity and value, also economical benefits can be drawn from it. Potable water is being produced from a common pool, but will be distributed through rivalry consumption. Kaul et al. (1995) have clarified this subject and have created the conceptual position of public goods (see table 3.1).

Rivalry Consumption Non-Rivalry Consumption Excludable Private good Club good

Non excludable Common pool resource

TREATED WATER

Pure public good

Table 3.1. Conceptual position of treated water. Adjusted from Kaul et al. 1999b:5. Although potable water contains both private as well as public good characteristics it does not say anything about how to provide the service. We still have to ask the question, who has to provide the product (or service) to the household. Should it be provided by private companies and let market mechanisms decide? Or should it be provided by the government? Or is it possible to provide those services through a combination of the two? The next section will explain the advantageous and disadvantageous of the two ends of the dichotomy; public provision versus private provision.

3.2 Arguments for public provision

The bare necessity of drinking water makes it a very sensitive product where there is much more at stake than merely profit maximization. The question that is often posed by researchers is whether the provision of drinking water should be provided by the public sector, the private sector or through collaborative arrangements (PPPs). Firstly the arguments for public provision will be outlined. External benefits justify public provision according to Madhoo (2007). Budds (2003) also contributes to this discussion pointing to the arguments of natural monopolies and human rights. Salter (2003) draws attention to a negative outcome of economically driven water supply companies. These arguments can be explained accordingly. External benefits

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Preventing high tariffs

Public provision is considered to prevent high pricing. This can be explained as follows. Water is being supplied through piped networks. Thinking ‘free market’, the outcome of multiple networks competing for the same consumer will definitely lead to higher infrastructure cost than a single network (imagine three companies laying three different pipe lines in front of your door, all for the same purpose). Unbundling the same network, in contrary to telecommunication systems or electricity networks, has proved difficult in the water supply sector. The result is consequently “competition for the market” rather than “competition within the market”. Therefore, the market solution of competition has to lead to one network owner buying out competitors, resulting in a monopolist owning the entire network in its area. Economist suggests that these natural monopolies will generally require public regulation to prevent overpricing (Budds, 2003), especially considering the non rejectability of the good. This concern for overpricing is a strong argument for public ownership and management. Socially driven

The argument mentioned above drives on the assumption that private sector participation eventually increases price if the government does not regulate pricing schemes. Salter (2003) adds another argument in favor of regulation which does not uses this assumption. He argues that the private sector is economically driven and not socially driven. His study pointed out that in some areas in developing countries, private companies promoted greater water use by having non-social pricing schemes, i.e. the more water one uses, the less one has to pay. Especially in countries where water is a scarcity, these ‘private’ pricing schemes could lead to problems. A better solution in this case seems socially driven public water provision.

Human rights

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3.3 Arguments for private provision

According to Renzetti (2003, p.10) it is commonly argued that, ceteris paribus, privately owned firms will outperform publicly owned firms. These are general/theoretical perspectives, and will be discussed below.

PA theory

Renzetti (2003) points to the Principal-Agent (PA) theory as an important starting point in this discussion. The PA relationship is defined as a relationship where the principal (owner of the water utility) has the task to form a contract that gives the manager the incentive to maximize the owner’s wealth. The challenge for the owner is the fact that he does not have full transparency in information. The manager’s effort cannot be monitored constantly and completely. There is obvious a system with asymmetric information distribution. The issue at hand (when comparing public and private provision and ownership) is their relative efficiency in motivating managers by providing them incentives to do well. Doing well in this case is the level of aligning with the principal’s (owner’s) goals.

Theory of property rights

Property rights theory states that private sector principals, have more clearly defined incentives to push for decision making improvements of managers. The reason is that they undoubtedly own the property and are capable of claiming all what it is worth at any particular time. Contrasting, bureaucrats, politicians and the tax-payers (the so called principals in a public property) have marginal benefit to public-sector agency performance since the gains in property value is being spread over the entire community. Theory therefore states that, as a result, they also have diminished incentives to push for improvements (Renzetti, 2003, p.10). Public choice theory

This theory is very straightforward and emphasizes on the behavior of public-sector managers. It states that they act inefficiently since they show only self interest. He mentions the example of a public manager who expands the size of their own budget although it is said to be inefficient. The reason is that if they do not spend the given budget or exceed it, they will get less the next period. Furthermore, inefficiency will lead to higher cost and therefore high tariffs for the households. If this is true (and not the case in the private sector) than this seems a sound argument for private provision (Renzetti, 2003).

State Failure

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provision. This argument is shedding a light on what happened in the past. A short history of those developments will be given after this paragraph.

If you compare both groups of arguments a common pattern can be recognized. On the one side you have the social arguments of the proponents of public provision. Everybody should have access, prices should be regulated and kept low, and social benefits should always be respected and protected. The government should be responsible, since they have a social commitment to the people.

The arguments in favor of private provision are mostly based on efficiency. They state that because of the specific principal-agent characteristics of the private sector it is superior to the less efficient public provision. The public principal gains less by improving the system than his private counterpart and is therefore less motivated to monitor and steer the operations. They argue that in the end the consumer is better off with a private company since efficiency leads to lower prices. They also point the finger to public failure, which will be explained more thoroughly below.

3.4 A short history of water provision; emergence of private sector participation

Now that we gained insight in the potential (theoretical) value of the different types of water provision the next step is to take a look at the facts. What happened throughout the world and what is the common view that we have now. In this paragraph the history of public and private provision will be summarized.

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experiences in the previous century, argued for more private sector participation as the solution for water supply deficiencies (Budds, 2003, p. 91).

Gutierrez (2001) states that the shift in the mindset of these international actors towards private provision is explained as a movement from statist towards neo-liberal (free market) policies in the developed countries in the late 1970s. The neo-liberal policies argue, in contradiction to the statist doctrine, that economic development thrives best in a free market environment. They argue that the role of the state should be degraded to only facilitating and regulating, without direct engagement in water supply services. Primarily, the Worldbank and the IMF were aggressively promoting this ideology to governments in developing countries. They implemented structural policies that tried to reduce state spending and huge state investments (Gutierrez, 2001).

Multilateral organizations like Worldbank and the IMF, followed by bilateral agencies such as the USAID and several governments, approached the product water as an economical good. They acknowledged the 1992 WMO statement that:

“Water has an economic value in all its competing uses and should be recognized as an economic good…..managing water as an economic good is an important way of achieving efficient and equitable use, and of encouraging conservation and protection of water resources” (WMO report, 1992)

This statement is in line with the arguments in favor of private provision. It is focused primarily on efficiency. However, they also mention social factors, conservation and protection (in the same sentence) which point to the arguments in favor of public provision. It seems like they aim for a social system with the help of private companies who bring efficiency to the market.

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Nowadays, over 90 per cent of the water utilities are still government owned and operated (Madhoo, 2006). Even in developed countries this figure is also very high (over 75%). Only in Britain, France, Germany and the United States private utilities are dominant. Again, this is the present situation. Whether this changes significantly in the future is of course unknown.

3.5 Evidence for what is best

With the information in mind with what has happened in the past up till now, we can put the opposing two provision types on the stand and look for research to see what has worked best. The search is for empirical proof for a possible one best way. In the end we do not want to judge if the plans of the Vietnamese government to privatize the state owned enterprises (SOE’s) and internationalize the market are steps in the right direction. No, the aim is to get to know the possibilities for Dutch investors in this shifting environment.

The evidence for a superior type of provision is weak. So far, there has not yet been a clear-cut empirical answer to the question raised in this theoretical debate. Both types have proven to have some serious defects. A few empirical studies have been executed in various countries throughout the world. Both developed and developing countries were subjected to research. Budds (2003) is pessimistic about the role that privatization of SOE’s can play in the water supply sector. She explains that it does not contribute in achieving the Millennium Development Goals (MDG’s, see paragraph 1.2.2.). She empirically shows that privatization has neither increased the reach of the water supply network nor did it create efficiency improvements. She argues that both types of provision show inadequacies and therefore any active promotion for one of the two types is not grounded, at least in developing countries. From the study of Madhoo (2007), also no clear cut answer can be drawn. His study gives a comprehensive overview of country experiences of their water utility schemes. He concludes that privatization of water services, public-private arrangements and international participation seem to be a mixed blessing.

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3.6 Public-private partnerships

Up till now the two dichotomies have been put forward in this research. In this paragraph the possibilities of a combination of the two will be outlined. In most cases (and also in Vietnam) it is the government who provides the service (as mentioned before, 90% of the worlds water utilities). If they plea for more private sector participation than public-private partnerships (from here on PPPs) are the first possibilities for private companies to enter the market. The governments will decide which responsibilities to transfer to private firms. All the possible arrangements will be explained here and will form a useful base for the following chapters, since (international) private participation will have to align with at least one of the possibilities listed below.

3.6.1. Possibilities for private sector participation

The possibilities can best be placed in a particular order, moving from little participation towards a very powerful and decisive role of private operators. What must be noted is that the content of the arrangements will focus on asset ownership, corporate oversight and service provision (the operational part, the actual water supply). Regulations (the law) and policy making (long term governmental strategy) will always be in the hands of the authority (figure 3.1).

Figure 3.1 Functions within the Water Supply Sector; Adapted from Harris and Janssens

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Commercial contracts

This is the most marginal participation of private companies in the water supply sector in terms of responsibility transfer. These contracts are business contracts between public water utilities and private companies. These companies are suppliers, engineers, contractor or sub-contractors. These short term commercial contracts do not interfere with the actual operational water supply. The principal-agent relation is still a pure governmental issue between the publicly owned water utility and its authority (interview; Van Sluijs).

Management Partnerships

Management contracts give responsibility for managing a water supply utility to a private operator. These contracts vary from simple management contracts based on a fixed fee for executing managerial tasks or giving managerial advice, towards complicated contracts where the incentives for performance are linked to efficiency goals (Irwin, 2004). With such a contract little risk is being transferred. This characteristic seems appealing for governments who wish to continue to play a strong role in water supply sector but also seek for improvements via private ‘injections’. For private investors this type of PPP has the big advantage that it does not require heavy infrastructural investments (Van der Helm, 2006). Lease/Affermage

This contract type is an arrangement where the operator is responsible for the operational business, but is not held responsible for financing investment. Under a lease contract, the (private) operator collects its earnings from the households and pays the authority a fixed amount of money (i.e. the lease payment), which the authority can spend on investments. When the operator and the authority share the revenue from the household it is called an affermage contract (Irwin, 2004).

Concessions

A concession is a huge step in the direction of private provision. Here the private operator is both responsible for operations and financing investment. Assets legally still belong to the government but they technically revert only when the agreement ends which in most cases is after a very long period (20 to 25 years). This is considered a ‘challenging arrangements’ where the government must persuade the operator that the tariffs cover costs and at the same time prevent tariff related risks (high tariff argument see par. 3.2).

Divestitures

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assets belong to the private operator (Irwin, 2004). This is the type of privatization which is currently present in parts of the UK, the US, Germany and France (see par. 3.4).

3.7 Conclusion and expectations

This chapter revealed the extraordinary characteristics of potable water as a product and its provision. As stated the product has both public as well as private conditions. The product is for a large extend non-rejectable and has externalities which are the concern of the entire community. These characteristics make it a sensitive and social product where there is more at stake than only profit-maximization. The scarcity (especially in developing countries) and the value of the product make it also an economical product where market mechanisms could decide its destiny.

It has been shown that the provision of water could be placed on a dichotomy of pure public provision versus private provision. Proponents for public provision reveal mostly social arguments. The arguments state that everybody should have access to the product and this is possible when tariffs are regulated and when the reach of the networks are high. They argue that social benefits should always be protected, and that the government is the only actor which can achieve these goals since it is part of the community.

Arguments in favor of private provision are mostly based on efficiency. They state that the most healthy and efficient business system is a free market water supply system. Three theories support this view; PA theory, Property rights theory and Public choice theory. The last to theories hypothesize that in the end the consumer is better off with private provision, since competition, and strong incentives for the agent create an efficient system where quality is high and prices are kept low.

Although on both sides just arguments are being brought forward the evidence for one best way has not been found. Empirical research has not shown any clear evidence that one of the two types of provision is superior.

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CHAPTER 4 THE URBAN WATER SUPPLY SECTOR OF VIETNAM

The second part, chapter 4, unravels the determinants of Porters’ Diamond. The determinants are: chance, government, demand, factor conditions, related and supporting industries, firm strategy, structure and rivalry. The outcome of this analytical framework will show the competitiveness of the Vietnamese water supply system. Competitiveness seems a strange terminology for an industry where export of its core product, purified water, is impossible. Competitiveness in this chapter will be explained as a strength measurement. How strong and healthy is the sector. This part of the study feeds Chapter 5 with necessary country and sector specific information gathered through interviews and literature. The interviews are mostly held in Ho Chi Minh City and its surroundings. This possible local bias will be decreased since relevant country specific literature will be used as well.

Note: Usually only those factors are mentioned in the model of Porter which contribute to a competitive industry (positive factors). However, in this case negative characteristics should also be highlighted (maybe even more) since they ask for improvements. These improvements could be made possible by Dutch investors, which will be made clear in chapter 5.

The chapter starts with an overview of general facts and figures. This gives the reader a brief overview of important figures in a flash. It helps to understand where the country is and where the country as a whole is heading. After this snapshot section the determinants will be analyzed.

4.1 Macro Vietnam

General Facts

Name Socialist Republic of Vietnam Capital Hanoi

Political system Socialist Republic with single-party system Population 84.9 million

Anual Population growth 1.2% (appr. 1 million a year) GDP 61.6 Billion US$

GDP growth 8.2% GDP per capita 730 US$ Inflation 7.4%

Land area 330.363 sq. Km. (appr. 8 times the Netherlands) Currency Vietnamese Dong (VND)

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Demographics

Source EVD, Worldbank Demographic facts related to historical averages

Annual data 2006(a) Historical averages (%) 2002-06

Population (m) 84.9 Population growth 1.3 GDP (US$ bn) 60.7 Real GDP growth 7.8 GDP (US$ bn; purchasing

power parity)

280.2 Real domestic demand growth

8.7 GDP per head (US$;

market exchange rate)

710 Inflation 6.1 FDI inflows (% of GDP) 3.7

Source; EVD

4.2 Government

The kick-off determinant to start with is the government. This is not without reason. As mentioned, in water supply sectors, governments are at least responsible for policy making and regulation (see fig. 3.1). This is also the case in Vietnam. Besides policy making and regulation, the Vietnamese government is for a very large part owner of the utilities and more importantly is still responsible for the provision (Interview: WSH). These huge responsibilities indicate that the government is a crucial determinant in the model of porter. This is the reason that the government is the first factor to be analyzed.

The web of governmental institutions

The Water Resource Law in Vietnam, constructed in January 2000, dictates the responsibilities within the sector. This law states that the government is responsible for managing water resources. Both central and provincial governments take these responsibilities.

Demographic facts

Total Population

Population by age group

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The Prime Minister approves the Water Supply Strategy (WSS). The WSS sets the boarders and goals of the sector. All the decisions of the Ministries have to be in line with this long term strategy. Water supply projects with a lower investment level than VND 200 billion (USD 12.4 million) are delegated to provincial levels, where the Provincial People Committees (PPCs) have authority. In Hanoi, HCMC and Hai Phong, the three biggest cities of Vietnam, the People Committees are considered autonomous municipalities. These PCs are therefore also involved in bigger investment projects, since they operate in huge urban areas.

Table 4.1 (below) shows the responsibilities of the different governmental bodies. The institutions which are especially of importance for international private companies are the Ministry of Planning and Investment, Ministry of Construction, the local PCs and evidently the Water Supply companies since they are directly involved in water supply projects (interview: SAWACO).

Institution Responsibilities

Prime Minister Approval of WSS and orientations Ministry of Planning and

Investment Allocates state budget. All major investment projects must have approval of MPI Ministry of Finance Distributes state funds to sectors and projects, sets annual sector goals and

regulates accounting

Ministry of Health Controls drinking water and sanitation quality Ministry of Natural

Resource and Environment

Manages water resources, water use, pollution and hydrology Ministry of Science and

Technology Manages standardization and technology in water & sanitation Ministry of Education and

Training Manages integration of health, water and environmental issues into standard curricula and lessons plans Ministry of Construction Line Ministry of urban water supply, sanitation & drainage

Ministry of Agriculture

and Rural Development Line Ministry of rural water supply and sanitation Local City Government

(PCs) 3-tier system: city, urban/suburban districts and ward/communes. At each level, the people’s council elected by votes elects PCs. The PCs have departments mirroring all key Ministries

Departments of PCs Department of Construction or Department of Transportation and Public Works supervises the operations of WSCs and is in charge of planning water supply networks

Water Supply Companies 64 state owned WSCs in 61 provincies and Cities. Responsible for provistion of water supply to urban areas. Operates and controls both treatment plants and distribution networks

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Ministry of Planning and Investment

The MPI is a governmental agency which provides country level advice on economic and social strategies, policies for specific sectors, foreign investments etc. All the large investment projects acquire approval of the MPI. The Department of Planning and Investment (DPI) is the local representation of the MPI and is involved in smaller projects. This ministry is a crucial governmental body in the water supply sector. They negotiate and approve possible water supply projects and align interests of the different parties such as donors, international companies and local utilities. These proposals for water supply projects are mostly initiated by the water supply companies (WSCs) in combination with the PC and other stakeholders such as donors. These proposals, asking for investment, are being forwarded via the PPC to the MPI/DPI. These plans which have to be approved in order to start are often set up as feasibility studies constructed by consultancy firms. (Interview: ADB)

The Ministry of Construction

The Ministry of Construction is the Ministry in charge of urban water supply. They are involved in urban water supply projects and hold responsibility for the construction of networks and the urban water supply in general. Despite their important role ‘on paper’ this ministry was hardly mentioned during the interviews by various actors (donors, WSCs, and Dutch companies). Every actor pointed to the MPI as the most important ministry when it comes to water supply projects.

People Committees

The People Committees proved to be essential in the water supply sector. They have a lot of power in the provinces and in the three biggest cities, HCMC, Hanoi and Hai Phong. They have great authority (fairly decentralized) and work hard to execute the local administrative duties. In the water supply sector they also initiate or detect new project possibilities. When these projects are small, they take responsibility to approve and supervise these projects. When big, they function as a portal through which proposals are being forwarded to the MPI. This can be a bureaucratic and time consuming process (Interview: Evers, Embassy of the Netherlands) Strategies and Goals of the government

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Millennium Development Goals), to reach 100% of the people in urban areas with clean drinking water in 2020.

4.3 Factor Conditions

The factor conditions are the structural ‘inputs’ that form the base of the industry. These inputs can be categorized as infrastructure, capital, labor and the natural resources of the country (Porter, 1990). These factor conditions will be explained below.

Infrastructure: water supply network made of ‘shrimp crackers’

The infrastructure of urban water supply is the piped network through which water is being distributed to the households. WSCs throughout the country have to distribute their purified water through very old pipelines. Most of these networks were constructed in the 70s. This was the period that Vietnam was cut off from world by trade blocks after the American war. They could only import their materials from their communist allies. In the case of Vietnam, materials for the pipelines where imported from (former) Soviet Union. Still many of the existing pipelines are exactly those imported pipes. These materials are considered very old and cause many infrastructural problems during transport. Roy van de Knaap of Vitens-Evides even jokes about these pipelines as if they are made of shrimp crackers. But he also states that this is a serious threat to the infrastructure network. Especially the high leakage levels are a big concern for the sector. In urban areas this leakage level is sometimes more than 35%, which is a direct result of the old fragile pipelines. Another problem which leads to this high leakage level is that this infrastructure network in many cases is positioned above the ground. This is very old-fashioned way of structuring the network and causes the serious problem of pipes being out in the open and thus completely unprotected against illegal tapping and damaging circumstances (Interview, Mr Troung HWS).l

Unfortunately, not only the material status of the infrastructure network is under pressure. It is also the reach of the network where many improvements have to be made. Nowadays the reach in urban areas is approximately 78 percent, where in rural areas it is merely 48% of the households who have access to purified drinking water through municipal pipes (US commercial office, p. 1, 2007).

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Capital investments: Huge demand for capital investments

Dao (Interview: SAWACO) argues that the Vietnamese water supply sector requires heavy capital investments. The system itself, although improving, is not capable to operate as a self sufficient system. The revenues merely cover operational costs, so for capital investments the water supply companies are dependent on external financial resources. There is a large gap between the need for capital investments and the financial capacity of the WSCs and the government. These actors have to search for other ways to mobilize financial funds in order to raise and improve their capital resources. Dao gives examples of these funds; the private sector, donors or simply more budget from the government. If their financial resources are being increased, necessary capital investments can be made. Two of the most mentioned capital investments are new treatment plants and transmission systems from the main water source (surface or ground) to the treatment plants from where water is being treated and distributed to the households. These are two heavy types of investment and essential capital investments which have to be made in order to improve both coverage and quality. These investments will increase the safety, capacity and quality of the water supply sector (Seminar: SAWACO-VWSA).

Human resources: cheap labor abundant, import of knowledge necessary

This factor condition can be divided into two parts. The water supply sector needs both unskilled (cheap) labor and skilled (educated) labor. Vietnam has a very large workforce which is also considerately young. The workforce in Vietnam is 44 million of which 60% is under the age of 30 due to the baby-boom in the 1980s (www.evd.nl). There will be no lack of labor in the coming 40 years, especially in urban areas where the urbanization has a positive effect on the urban labor supply. Many young people move from rural areas to urban areas to seek new opportunities and jobs. The major part of this labor force is also very cheap when compared to for example Europe, but even compared to Eastern China nowadays. The minimum monthly wage is USD 30.86 for unskilled labor (EVD, country publication Vietnam, 2005) which can be considered a positive factor condition.

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Natural Resources: Abundance is not a guarantee for success

The natural resources which are important for the water supply sector is water itself. Water is used as the input for the treatment plants. This water can be obtained from two sources, either from the ground (ground water) or from rivers and/or lakes (surface water). In Vietnam the majority of treated water stems from surface water (approximately 70%). Surface water in Vietnam is abundant, especially in the wet season. There are many rivers and river deltas which in theory could supply enough water to the treatment plants and the transition stations. The availability of surface water has two big advantages compared to ground water. First of all, it is cheaper and easier to attract water from rivers and/or lakes than from the ground. It requires less effort and capital. The second advantage of surface water opposed to ground water is the fact that more water can be drawn from rivers and or lakes than water from the ground. Especially in urban areas where many people rely on the water supply systems this is vital. The water supply companies in these areas need a high capacity to deliver enough water to meet the demand of the households. The use of surface water in urban areas is therefore the most efficient solution (Interview: SAWACO).

Although the natural resources in the water supply sector of Vietnam are competitive when looking at the availability of water, shortages do exist. Take Ho Chi Minh for example. Despite the fact that Ho Chi Minh City is situated alongside the Saigon River and the Don Nai River and has abundant access to surface, ground and rain water, the city still has water shortages (Phu, 2007 p.79). The consumption is estimated over 800.000 cubic meters per day, but the full capacity of the treatment plants stops at 750.000 cubic meters. The water loss rate of nearly 30% is even excluded in this estimation. So availability of the natural resource is not a guarantee for success, much work is still to be done to turn the factor condition of natural resources into full use.

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4.4 Demand: Urbanization and increasing population puts pressure on the system

Total demand in the urban water supply sector is measured by the households who enjoy or want to enjoy the service of getting purified water from the piped networks. There is obviously no international demand for Vietnamese drinking water. So demand is based purely on domestic conditions.

These domestic demand conditions in Vietnam are changing. The population is approximately 84.9 million measured in 2006. However, the Vietnamese population is expanding with an increasing 1.3 percent a year (average growth per year 2002-2006, source www.evd.nl/vietnam). This comes down to a growth of about a million people per year (and increasing). According to the U.S. Commercial Service (www.export.gov) the expected population in 2040 will be almost doubled compared to 2006 to 155 million people. The result of this explosive growth of the Vietnamese population is an increasing demand of purified water.

Adding to this alarming growth figure of the total population is the ongoing urbanization in Vietnam. Although Vietnam is still largely an agrarian state where most people live in rural areas (approximately 75%), urbanization is set in and will draw more and more people to urban areas. The growth rate of urban areas is approximately 3.5% (www.export.gov). Dao (interview: SAWACO) states that the increasing population and the ongoing urbanization put an enormous pressure on the temporary urban water supply systems. She pleas for huge capital investment to cope with these developments.

Mister Thien (interview: BIWASE) adds another point to the discussion of growing demand. In his region (Binh Duong province, close to HCMC) he notices that since the population is becoming wealthier they also become more critical about the quality of the water supply system. He argues that if the water supply system developments are lagging behind with this economical growth, a discrepancy between the Vietnamese water supply and the expected living standard will occur. The process for improvement will therefore also be pushed from the position of the end-user. Their demand for better service will be higher in the future. He (among others) also mentions that the consumption will rise due to this welfare growth. At the moment consumption on average is 97 liters per capita per day, but the expectation is that it will rise to 125 liters a day (Truong, WSH).

4.5 Firm Strategy, structure and rivalry

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