Speeding up PPP in Transport Infrastructure Development

Public private partnership (PPP) in infrastructure development and related services has opened the way for the private sector to assume the responsibility of designing, construction, operation, management, maintenance and financial contribution. In the current context, the public sector should focus on its core functions and give way to the private sector to perform works that help save costs and bring in better effects in order to obtain primary PPP objectives: Improving national infrastructure and supporting public services without excessive dependence on public funds and tax hikes.

 

In reality, the transportation infrastructure system in Vietnam remains very poor; its technical standards are still low, backward, inconsistent, and lack of connection. Trans-national road system is already overloaded and degraded because of rising usage but insufficient investment. The North - South railway is still a sole track which has not created web-form network and has not linked to economic zones, industrial parks, ports and other concentrations. And, the quality of rail is now considered too low and the size is too narrow to support high-speed trains.

 

Seaports are built in all three northern, central and southern regions of the country. Although Vietnam has large international ports in southern Ho Chi Minh City, northern Hai Phong City and central Da Nang City, port services fail to meet requirements. Newly built ports like Cai Lan have not operated at full capacity because of many objective and subjective reasons. The country is now in need of large ports to boost the circulation of goods. In addition, the airport system is overloaded, especially international airports, while the service quality is still low.

 

According to reports by the Government, investment for infrastructure from now to 2020 will account for 10-11 percent of the country’s gross domestic product (GDP). To be precise, Vietnam will need US$70-80 billion in the next five years to invest in this field, especially transport infrastructure development.

 

So far, the public sector normally plays an important role in financing, building and operating transportation infrastructure development while private investments in this sector are generally very humble. According to a World Bank report on the status of private infrastructure investment in Vietnam, private finance for infrastructure accounts for only about 20 percent.

 

Most funds for infrastructure development were previously sourced from the State Budget and the official development assistance (ODA). Vietnam may face grave difficulties in the future if it continues relying primarily on these sources of funds. In fact, since 2010, Vietnam was officially qualified for the status of middle-income country. And, as a rule, it will have less chance to receive preferential ODA capital from the international community.

 

In addition, with domestic and global economic difficulties, fundraising by bond issue is not easy while other forms of capital mobilisation have not been developed in Vietnam. Access to commercial loans is very narrow because most infrastructure projects need a huge amount of capital and a long time for payback while commercial lenders prefer short-term loans and security assets.

 

These are not all difficulties in investment capital for transportation infrastructure development. At the beginning of 2011, the Government of Vietnam issued the Resolution No. 11 on hosts of measures to curb inflation, stabilise macro economy and ensure social security. The resolution demands a sharp reduction in public investment. This move shows the Vietnamese Government’s dogged determinations to tighten public investment.

 

However, it is impossible to delay investment for in infrastructure development, particularly transport infrastructure, as it powers economic growth. It is high time the private sector joined in a broader scale. Private finance (specially from foreign private sector) for transportation infrastructure investment will serve an important role in covering the current shortage of capital.

 

The Government of Vietnam promulgated regulations on piloting investment in the form of public - private partnership (issued together with the Decision 71/QD-TTg dated November 9, 2010 which took effect from January 15, 2011). Accordingly, State competent agencies will make a list of annual priority PPP investment projects and host bids to select qualified, experienced domestic and foreign investors to undertake target projects.

 

Principles for piloting PPP investments are to attract foreign and domestic private capital for infrastructure development investment in order to provide public services. The public sector will make up at most 30 percent of the project’s total investment. The private capital includes investors’ owner equity, domestic and foreign commercial loans (mobilised on the basis that it will not lead to public debts). The owner equity of such private investors must equal to 30 percent of their capital in the projects.

 

Since the regulations on pilot PPP investment were drafted, many investors expressed their keen interest in PPP investment projects. Vietnam hopes to seek enough funds for transport infrastructure development from this mechanism. Many large projects are planned for PPP investment, including My Thuan - Can Tho, Dau Giay - Phan Thiet, Ben Luc - Long Thanh, Ninh Binh - Thanh Hoa and Noi Bai - Ha Long highways. Two pilot PPP projects are Lach Huyen Port (Hai Phong City) and Long Thanh International Airport (Dong Nai province).

 

PPP is a successful investment form in many countries and international donors are urging Vietnam to quickly expand and complete legal framework for the easier involvement of private sector. The Governments must have clear commitments, policies and support programmes, and improve personnel capacity to prepare, execute and manage PPP projects. Investors always need specific addresses and mechanisms for PPP projects.

 

We believe that, by applying PPP investment mode, Vietnam will see a breakthrough in infrastructure development, especially transportation infrastructure. The country will have more of highways, bridges, ports and underground traffic works where the private sector will play a better role.