BOT difficulties at North-South Expressway

16:50 | 09/02/2018
In 2017-2020 Vietnam will construct the eastern section of the North-South Expressway. According to PhD Bui Duc Thu, member of the Standing Committee of the National Assembly, the country needs a mechanism or policy to mobilize VND63.7 trillion ($2.8 billion) of private capital for this VND118.7-trillion ($5.23-billion) project.
bot difficulties at north south expressway
PhD Bui Duc Thu, member the Standing Committee of the National Assembly

Why do firms seem less interested in BOT projects in the transport sector recently?

Vietnam’s transport infrastructure in general and road infrastructure in particular are not developed enough to meet the demands of socioeconomic development, while the state budget could only cover a small part of the projects needed. Thus, private sector capital has been mobilised to invest in BOT projects.

BOT is the right solution, but it was implemented before the mechanisms and policies could be perfected and there were not many qualified enterprises to start such a project. Thus, almost all BOT projects were handed out through bidding appointments. As BOT offers very high profit, all firms wanted to invest into road infrastructure.

Later, state management agencies (State Audit Office, Government Inspectorate) started to review the projects and detected numerous serious violations. A series of BOT projects have been penalised and their financial plans have been ruined. Thereby, the credit institutions that provide capital for BOT projects began to tighten lending policies.

As a result, BOT investment is no longer a fertile channel and investors cannot do without bank loans. There are not many enterprises paying attention to BOT at the moment.

If it is easy to gain profit from BOT transportation investment projects, why do foreign businesses not take part in this segment?

BOT investment requires the investor to spend a huge amount but earn only increments in the next 20-30 years, so foreign investors usually ask for a lot of preferential conditions related to the right to charge fees as well as the timeline and conditions of increasing the fees. They also ask for exchange rate guarantees because they spend in dollar and earn money in dong.

I know some foreign investors looked into BOT projects but they decided not to invest after taking a closer look at regulations and arrangements. Moreover, there are very few opportunities for them because almost all BOT transportation projects are awarded through bidding. This bidding is usually seen negatively, as not transparent and too difficult for foreign investors to join in.

In this context, do you think that it is difficult to attract foreign and domestic enterprises to join the construction of eastern section of the North-South Expressway?

In 2017-2021, 654-kilometres of road need to be constructed. The job is divided into 10 sub-projects plus My Thuan Bridge. The total expense is estimated at VND118.716 trillion ($5.23 billion), including only VND55 trillion ($2.4 billion) from the state budget, while the remainder needs to be mobilised in the form of BOT projects.

In order to do this, it is necessary to perfect the legal framework in line with the principles of publicity and transparency, as well as to develop mechanisms and incentive policies and reduce tax.

As we know, the government is formulating the draft law on investment on public-private partnerships (PPP) to submit to the National Assembly. It is expected to ensure satisfactory benefits for investors, facilitate attraction across all economic sectors, and encourage foreign investors to take part in infrastructure development.

In order to construct the 654 km eastern section of the North-South Expressway, 3,736 ha of land needs to be cleared. How does the government plan to set to this task?

According to the Land Law 2013, the land needs to be returned to state management in order to develop transportation infrastructure projects and contribute to socioeconomic development. The state budget could be used for clearance, compensation, and resettlement.

If the state budget is not enough for clearance at some segments, businesses will be mobilised to pay for compensation and clearance. These amounts are calculated in the total investment capital of the project, which is the foundation to define tolls and the time period of charging them.

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