Addressing hindrances to PPP infrastructure projects

08:05 | 18/05/2020
The public-private partnership (PPP) model is expected to make capital-intensive infrastructure projects more appealing to private investors and foreign players. Legal hurdles, however, persist as the PPP Law is only scheduled for submission to policymakers for consideration in the upcoming National Assembly session.
addressing hindrances to ppp infrastructure projects
PPP regulations need to be regulated to ensure the smooth implementation of capital-intensive infrastructure projects

According to Tran Chung, chairman of the Vietnam Association of Road Traffic Investors (VARSI), capital is often a thorny issue for PPP investment.

The current law mandates the investors to have at least 20 per cent equity, with the state contributing 20 per cent of the total finances of infrastructure projects under the PPP model while the remainder will be offset by bank loans.

However, access to bank loans remains difficult for as long as banks see infrastructure projects as risky investment. This is the major bottleneck facing many component projects in building the North-South Expressway and a raft of other infrastructure projects.

Dao Viet Dung, senior expert at ADB, therefore, suggested the government and the National Assembly to set aside a separate budget for the implementation of PPP projects.

Dung pointed out that project financing should start from the stage of drawing up investment projects, whereas in light of the PPP Law, public investment capital for PPP projects is allocated in the medium-term public investment plan that is approved every five years, causing difficulties for enterprises.

He added that to promote the PPP model, project financing should not be attached to state budget plans for these projects shall not be planned liked public investment projects.

Once establishing a separate budget flow, which would also showcase the government's commitment towards pushing up the PPP model, investors and banks alike could be more secure in their investments, Dung commented.

Once establishing a separate budget flow, which would also showcase the government's commitment towards pushing up the PPP model, investors and banks alike could be more secure in their investments.

In addition, as 60 per cent of PPP projects’ financing comes from banks, the lenders have certain rights to prevent or penalise investors diverging from the plan.

Under the draft PPP Law, after detecting a potential default by the investors, the lenders must inform the authorised agencies to request the replacement of investors, but they do not have the right appointing investors.

“Banks should be allowed to appoint investors in case a problem arises between the investors and lenders to ensure the project can continue,” Doan Giang, an international expert on PPP suggested.

Experts also agreed that investors liable to receiving capital transfer should be expanded to also include outsiders, not just project members, creating a flexible scheme to attract new financially strong investors.

Another point is that as local businesses mostly have thin finance, issuing project bonds to raise capital has been recommended in a recent major online meeting between the prime minister and the business community.

The insiders insisted that this would alleviate investors’ project financing difficulties, thus inspiring them to join the state's efforts in crafting lucrative projects to woo private capital through the issuance of stocks, bonds, or investment certificates.

To make PPP projects more attractive to foreign investors and financial institutions, VARSI chairman Tran Chung proposed presenting a suitable project capital structure on a case-by-case basis with certain state capital engagement.

By Phuong Thuy

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