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VietNamNews

Road projects prepping for sale to investors

Update: November, 17/2014 - 09:43
Viet Nam needs to invest in infrastructure while sustaining economic growth. So far, the State budget and official development assistance have contributed most of the funding for infrastructure development.

However, a recent proposal to sell big highway projects to investors would change that. Viet Nam News spoke to experts and officials about how to make roadway ownership attractive to investors, and how public-private partnerships would work with infrastructure development.

The public is quite interested in the transport sector's new plan to sell highway projects to investors, which could lead to a new market developing in Viet Nam – transport infrastructure. How do they plan to do this?

Mai Tuan Anh, general director of the Viet Nam Expressway Corporation (VEC)

Mai Tuan Anh

The five highway projects in our plan span 540km and cost an investment of nearly US$6 billion, with 57 per cent coming from the State budget. The roads projects we proposed are: Cau Gie-Ninh Binh, Noi Bai-Lao Cai, HCM City-Long Thanh-Dau Giay, Da Nang-Quang Ngai and Ben Luc-Long Thanh.

Three of the projects have been started, and the others are expected to be completed in 2018. The proposal is part of VEC's restructuring plan as instructed by the Transport Ministry.

It will not be easy to lease out these mega-projects, but if we don't, there would be huge pressure for us to mobilise funds for future projects. I want to stress that this is a step in the right direction. This will ease pressure on public debt and the State budget. And it will allow us to mobilise more resources for upcoming projects.

In terms of implementation, VEC is working on two plans. Under one, investors can set up a company to exploit, operate and maintain the highway during a certain period of time, for instance 20 to 30 years. After that, it would be returned to the State. The company must operate under the law, which means they cannot do whatever they wish with the highway. In the other plan, similar to the current case of the Sai Gon-Trung Luong highway, we would sell the rights to collect fees on the roads.

We are leaning toward the first plan, which means investors must set up a business to operate and maintain the highway, not just collect fees. This will make investors more responsible for the highways.

Truong Van Phuoc, vice chairman of the National Financial Supervisory Commission

Truong Van Phuoc

It's quite clear that no company or individual can have enough resources to single-handedly develop Viet Nam's road infrastructure, and the Government is no exception. It's imperative for us to diversify our funding sources, and I personally strongly support this proposal.

However, to implement this, we need to be clear and transparent. We must clearly identify the rights and responsibilities of the sellers and buyers. We need to know that anything that brings in profit also contains risks. Investors can calculate all the business factors: investment amounts, profit levels and maintenance costs, among other things. But the Government can devise a mechanism that allows investors to maximise each project's potential benefits.

How can we balance the rights of investors with those of the public, which has to pay tolls, and still ensure that these highway projects are attractive commodities?

Dang Duc Cuong, senior urban specialist at World Bank Viet Nam

Dang Duc Cuong

There has been discussion about issuing concessions, or leases, for the operation and management of completed highways. Tolls can only be increased with Government approval, but the mechanism by which the toll increases are calculated is included in the concession agreement.

For large-scale public-private partnership projects, it is harder to attract foreign funds while Government policies are in place that reduce risks but cannot be managed by project investors or lenders.

Phuoc: Some people might be concerned that the investors will increase the toll fees. I agree that there must be a mechanism to ensure that tolls can only be increased with Government approval.

All of the factors that relate to the effectiveness of operating the highway must be calculated by the investors, but this does not mean they could increase tolls arbitrarily. All of these things must be negotiated before the rights to the highways are sold.

Infrastructure products can be quantitative and qualitative. An airport terminal, a sea port or a highway – there is nothing abstract about infrastructure. The attractiveness of infrastructure projects is that everyone, in one way or another, must use them. However, these projects require huge initial investments, and it can take years to get a return on the investment.

We also cannot guarantee that everything will go smoothly. However, it's vital that we do this to boost economic growth and take our country's development to the next level.

Tuan Anh: Obviously, we need to prove the highway projects are attractive. For example, the Long Thanh-Dau Giay project shortens time traveling from HCM City to Vung Tau to slightly over an hour. It handles an average of 5 million vehicles a year, charging VND14,000-15,000 depending on the time today (about 60 US cents). The potential is there.

Take the Noi Bai-Lao Cai project. Even though it just started in September, the tolls collected on an average day amounted to VND1.5 billion ($70,425). The Cau Gie-Ninh Binh project, with more than VND8 trillion invested, now serves about 5 million vehicles a year.

So it's mostly about the effectiveness of the project itself, but we also need stable policies to attract investors. The investors might buy a highway with huge sum of money but the time to collect the money can take many years. Therefore, having stable policies is vital.

We are planning to do a pilot sale of the Cau Gie-Ninh Binh highway first.

Overall, what challenges must we overcome to ensure Viet Nam can increase infrastructure investment?

Cuong: A fundamental challenge for Viet Nam is to improve the affordability and efficiency of infrastructure investment. Improving the financing of municipal infrastructure requires a comprehensive approach that addresses issues of governance and execution. Making it sustainable requires using more market-based principles, and involving the banking sector, capital markets and the private sector.

Tuan Anh: The goal of the transport ministry is to have 2,500km of highway by 2020. We will use the money made selling these highways to fund future projects. Investors care about us having transparent policies, because infrastructure projects are huge properties and are vital to economic development. — VNS

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