Transport Sector Opts For A Breakthrough

CA - Although attracting private investment in infrastructure is not new, it remains a hot topic as infrastructure development is always an urgent demand

Minister of Transport Dinh La Thang is shouldering a heavy duty: finding out private capital to improve Vietnam’s infrastructure quality, which posts the lowest competitive index compared to regional countries, according to the World Economic Forum. Within the next decade, the mission will be equivalent to around US$160 billion according to calculations of Tony Foster, head of the Infrastructure Group at the Vietnam Business Forum, or US$70 billion in line with expectation of minister Thang himself. No matter which number will be, the State will never be able to meet the demand, especially after the National Assembly has exerted pressure on national budget overspending reduction by cutting bond issue.

However, the minister still proves his confidence. Thang convinced the National Assembly with reliable commitments, saying that the transport sector has built up a strategic breakthrough plan to develop infrastructure. To realize his agenda, Thang suggested three solutions, including a breakthrough in manpower mobilization, a breakthrough in site clearance mechanism and a breakthrough in construction expansion. With the solutions, the minister hopes to mobilize capital sources from the private economic sector to compensate for the 60% capital shortage within the next decade.

Things, nevertheless, do not come easy. Early this month, the minister has to re-take over the Trung

Luong-My Thuan Expressway from the investor consortium led by the Bank for Investment and Development of Vietnam (BIDV) due to lackluster performances. Investors of Phu My Bridge have also returned it to the authorities for the same reason. Many similar big problems have happened since Thang took office nearly four months ago, proving that attracting private investment in infrastructure is not as easy as he thought.

Opening new mobilization channels

After Vietnam allowed private investors to participate in infrastructure sector under BOT (build-operate-transfer), BTO (build-transfer-operate) and BT (build-transfer) forms two decades ago, there have been only 90 projects of these kinds with total capital of US$7.1 billion up to now, according to the Ministry of Planning and Investment. The number shows that the investment forms are not attractive enough to private investors although the Government has released the legal framework, decrees 108 and 24, for it. According to the Infrastructure Group at the Vietnam Business Forum, it is hard to see the decrees as a tool to speed up infrastructure projects because they are unspecific and delegate high authority to bureaucratic agencies despite the complicated situation of projects. Besides, the State always rejects a demand of private investors that enterprises developing the projects can mortgage land ownership rights and properties attached to land to foreign credit institutions to borrow money, making the investment form less and less attractive to investors.

Considering the situation, all eyes are turning to Decree 71, a legal framework allowing pilot projects under the PPP (public private partnership) form. Dang Xuan Quang, head of PPP Task Force and deputy head of the Foreign Investment Agency, says: “Within the next 10 years, the PPP model will be one of the most important policies in luring private capital in and outside the country into the infrastructure industry.” Some bilateral and multilateral international donors are taking interest in the model.

However, one year has elapsed since the Government signed a decision to release the decree, there have been only four PPP projects gaining approval so far, according to the PPP Task Force. They are belt road No. 4 in Hanoi (the section from National Highway 3 to National Highway 32), elevated highway No. 1 in HCMC, Song Hau 1 clean water supply plant and a road linking Ha Long and Haiphong. Meanwhile, 27 PPP projects have been submitted to the Ministry of Planning and Investment.

Last week, a delegation of Japanese enterprises had a busy itinerary, including fact-finding trip, and meetings with enterprises, local and central authorities in Hanoi, HCMC and Haiphong City, to seek investment opportunities in the infrastructure sector. They received warm welcome everywhere even at the Ministry of Transport. However, no member of the delegation pledged to invest in a PPP project at last. “The trip is just the first step,” Hiroaki Taniguchi, head of the delegation and former vice minister of Land, Infrastructures and Transport of Japan, explained.

In a suggestion sent to the Government recently, the Infrastructure Group at the Vietnam Business Forum expressed concerns about inadequate legal framework in Vietnam that would hinder foreign credit institutions from disbursing big loans for infrastructure projects. To make international credit institutions feel secured at the Government’s commitment for using international arbitrary in solving disputes arising from project contracts, it is impossible to rule out foreign laws, the group said. Besides, it is necessary to concretize risk distribution mechanism between State managing agencies and investors. The burden of administrative procedures should also be lifted if Vietnam wants to lure investment for the infrastructure industry, they add.

Minister Thang has replaced many “commanders” of public projects. This is an urgent action. Nevertheless, the public place bigger hopes on him, especially in designing a legal framework to protect capital of private investors. Once the suggestions of business community for the new PPP practice, BOT or BT forms mentioned above have not yet been reviewed and solved,” Thang’s breakthroughs will face formidable challenges.