PPP Projects: Resources Focused for Infrastructure Development

9:13:42 AM | 1/9/2020

Public-Private Partnership (PPP) investment has become one of the most effective cooperation models between the government and the private sector in infrastructure development in Vietnam.

Huge demand for infrastructure development

According to the 2019 Global Infrastructure Investor Survey conducted by EDHEC Singapore Infrastructure Institute, Vietnam is among the Top 5 emerging countries for infrastructure market potential in the next five years, together with India, China, Brazil and Indonesia.

The Vietnam Infrastructure Conference 2019 reported that only 20% of the national road area is paved and that Vietnam approved a plan to build a 1,372km long North-South Highway, estimated to cost US$14 billion for construction. Population expansion in major cities has put pressure beyond the capacity of existing connections and utilities. With 50% of Vietnam's population expected to live in cities, Hanoi and Ho Chi Minh are building public transport systems worth more than US$22 billion on expectations that they will reduce private vehicle ownership and improve air quality.

In addition, various expressway projects are planned and implemented to improve connectivity between these major cities. Similarly, Vietnam also announced urban development and upgrading plans with 44 projects at a total cost of US$120 billion in the electricity and road sectors.

According to KPMG Vietnam, an experienced advisor to foreign investors on infrastructure, healthcare and public services, many international investment funds are interested and ready to invest in infrastructure development in Vietnam. For these international funds, Vietnam is an attractive destination for investment flows, thanks to a stable political environment and high levels of security.

Key areas

According to the Ministry of Planning and Investment, as of 2019, Vietnam signed and carried out 336 PPP projects with a total investment fund of VND1,609 trillion (about US$70 billion).

Most PPP projects are involved in the transport sector (220 projects), resettlement houses and dormitories (32 projects), office buildings (20 projects), energy (18 projects), water supply, drainage and environment (18 projects).

In the electric energy sector, 18 projects are carried out in the build - operate - transfer (BOT) form with a total investment fund of US$41.743 billion.

According to KPMG Vietnam, foreign investment through PPP projects in the energy sector in Vietnam is only implemented where projects have a long term and cost billions of US dollars. In addition to PPP contracts, the power sector has attracted a high rate of private investment in independent power plants (IPP), including foreign investment.

The agricultural sector is less attractive to PPP projects; there are only 23 projects. This is because agriculture is perceived to be riskier, has a lower rate of return, and is influenced by inadequate investment from the government.

In the health sector, private engagement is mainly conducted through so-called 'socialization', not through PPP contracts. According to World Bank’s health experts, Vietnam has 240 private hospitals in 50 provinces (accounting for 13% of total hospitals) and 35,000 private clinics providing services to 31.2% of outpatients and 6.3% inpatients. Most projects are proposed and built at the provincial level, especially in Ho Chi Minh City, and these projects focus mainly on infrastructure development rather than medical care services, preventive medicine and primary care. These projects are concentrated in major cities and thought to provide better patient experiences.

Considering types of contracts, BOT and build-transfer (BT) forms dominate, accounting for more than 95% of PPP projects. Build - own - operate (BOO) and Build - lease - transfer (BLT) are less common.

The PPP Investment Law, recently passed by the National Assembly, is expected to provide a strong legal basis to attract capital for PPP projects, especially under competitive pressures from other countries in foreign investment attraction. These countries have a more favorable legal and institutional environment for private investment than that of Vietnam.

By Huong Ly, Vietnam Business Forum