Public investment projects need tighter control

July 27, 2018 - 08:00

Financial experts talks to Youth Newspaper on several ways to avoid the misuse of the tax payers’ money in public projects

Financial experts talks to Youth Newspaper about several ways to avoid the misuse of tax payers’ money on public projects  

In your opinion, what are the main reasons why public projects are running over budget?  

There are five key reasons why public project are exceeding their approved investment budget.

The first is feasibility studies. During this phase, most project owners do intentionally lower the projected costs. The reason is very simple. If the estimate is low then local authorities have the right to approve the project without seeking approval from higher authorities.

Under the current Vietnamese Investment Law, there are five types of investment projects that must get approval from the central Government

First, any project requiring an investment budget of over VNĐ5 trillion (US$217 million).

Second, any project requiring additional funding because it fails to meet the deadline.

Third, if the project’s owner intentionally low-balled the cost hoping to receive additional funds to enlarge the scope of the project at a later date, rather than coming up with a new plan.

Fourth, the estimated project cost is lower than the actual cost during the project’s implementation period. As a result, the project owner has to ask the Government for more money.

And finally, many project owners change their projects’ goals. For example, the dredging project on the Sao Khê River in Ninh Bình Province. In the original document, a budget of VNĐ72 billion (US$3.1 million) was approved, but later on, the owner decided to change the objective of dredging the river to irrigating rice fields and waterway tourism and others. As a result, the project’s budget jumped to VNĐ2.6 trillion (US$113 million) – an increase of 36 times!

Do you think that we should increase the penalties for projects that fail to meet their deadlines or require more funding?

That’s a good idea. But who should pay the fines? They are all public projects. The investors are the government and the beneficiaries are the people. In these cases, only the contractors are likely to be fined if they fail to meet deadlines.

Do you think there are loopholes in our Investment Law?

I don’t really think so. But, in my opinion, some local authorities have tried to find ways to bypass the law for their own benefits. That’s why the Government should take tough measures, including the possibility of higher penalties, for project owners that fail to honour their commitments. 

So what actions should we take?

In my opinion, we should review our current policies on public investment, particularly the budget appraisal and approval. In addition, we should penalise any project owners that fail to follow the original plans.

Besides, we should not allow project owners to change any objectives.

In the case that a large amount of work has arisen during a project’s implementation, we should class it as a new project.

Dr Trần Đình Thiên, director of the Việt Nam Institute of Economics

Rising project budgets has become a “chronic disease” in our country.

Most project owners reason that due to high inflation, they have to ask for more money to complete their projects.

The other point I want to mention is that the contract should state clearly the responsibility of each party involved in the project such as land clearance, material suppliers and others

And finally, all parties should agree on the project’s total investment cost

Dr Ngô Trí Long, former director of the Market Price Research Institute under the Ministry of Finance

To avoid these things from happening, it is imperative that all localities strictly implement the Law on Public Investment every step of the way. In my opinion, a key problem here is in giving approval to project proposals. In my opinion, the blame should rest on those who give project s the green light. However,  our current Law on Public Investment does not state clearly whether an inflated budget is the responsibility of the person who ratifies that project.

Dr Huỳnh Thế Du, Academic Director, Fulbright Economic Teaching Program

Problems occur in public investment projects all over the world, not just in Việt Nam. As we all know the control of public investment depends very much on a project’s appraisal process and investment decision as well as in the course of implementation. But, in my opinion, supervision is often very poor – a key reason leading to higher costs in the process of project implementation.

The other point is that during a public investment project, the owner should have a strong voice throughout its implementation.

Dr Nguyễn Trí Hiếu, financial expert

I should say that most public investment projects have problems with running over budget.

To avoid this, we should have a independent public agency to monitor spending from the feasibility stage to implementation.

In cases where project owners claim they need more money to finish a project, we need a special mechanism to ensure all spending follows regulations._VNS