Infrastructure gap questions lurk

22:07 | 03/10/2010

A delegation of nine Italian transport, energy and environment sector companies arrived in Vietnam in early October seeking cooperation opportunities with Vietnamese partners.

infrastructure gap questions lurk
Marco Saladini

Italian trade commissioner in Vietnam, Marco Saladini, talks with VIR about the opportunities for both nations’ businesses to accelerate partnerships.

Can you explain the purpose of this mission to Vietnam?

The three sectors to which we tried to draw Italian companies’ attention are transportation, energy and environmental protection. We had a good response.

The delegation comprised four engineering and architectural companies, one provider of excavation services, two major general contractors and one company providing turn-key solutions for environmental protection.

The mission’s core purposes were to provide an overview of the infrastructure development in Vietnam and to present Italian companies with cooperation opportunities with Vietnamese partners.

Over the past five years, infrastructure investment in Vietnam has not kept pace with the country’s gross domestic product growth. According to a comprehensive research done by Italian Trade Commission, currently initiated projects which will be completed in 2015 in the three key above sectors in Vietnam are worth $85 billion, comprising $50 billion in transportation, $20 billion in energy and $15 billion in environmental protection.

In this framework, companies and institutions will need to increase their commitment and their involvement. Italian contractors and engineers are ready to play their part in a proactive and resourceful way.

Vietnam has not yet developed a real market mechanism for energy resources, particularly electricity. Is that a challenge for Italian firms?

It has been somehow difficult for Vietnam to build a market economy in this area. Foreign comapnies see this an obstacle when they think about investment, not to mention that price negotiation lasting for years.

Italian companies did not enter in such negotiations so far, but we have heard about this issue many times. Now, we have a high hope that the new regulations being passed by various state bodies will help create an energy market soon. In this area, we are some 15 years ahead of Vietnam. We have an energy authority, energy market and independent power producers.

So, it means waiting for an energy market to be built in Vietnam, will Italian firms focus merely on equipment and consulting services for Vietnamese firms?

If there is a clear offer or framework becomes clearer, I can see that some of Italian companies and investment funds could become interested in this industry. We also have a state investment bank, Simest, that specialises in supporting investment abroad.

But ig the framework remains the same, the transaction cost of setting up participation and investment in this field might be considered high. While delegates at the recent mission were mostly from companies engaged in construction and engineering services, we have a fully developed energy sector industry, with a competitive offer in all different fileds from machinery to testing and monitoring equipment.

Which models of investment will be the most suitable for Italian firms to join infrastructure projects in Vietnam?

Here, the issue is to understand whether the government would offer to investors in infrastructure, both foreign and domestic, a guarantee and some financial support to bridge the gap in the project’s cash flow, thus creating a welcoming and stable environment for their operation. In energy, you can set up a public-private partnership (PPP) or a pure project finance scheme, as for instance a build-operate-transfer.

It is pretty clear that the government does not want to impose high tariffs or user fees and this is understandable. But the result is that the cost of infrastructure and the revenues from fees do not match. That gap has to be filled by some sort of public funding. Now, there are ways of doing this through both schemes.

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