Opportunities for Infrastructure Development Cooperation

Vietnam’s infrastructure development demand is on the rise, meanwhile, local government budgets and donor funding is limited. However, this is an opportunity for the private sector to develop infrastructure projects through the model of Public Private Partnership (PPP). According to Japanese and Vietnamese enterprises at a recent seminar in Hanoi on PPP model, Vietnam needs make more efforts to complete legal framework to attract more private firms in the area of infrastructure development.

 

Vice President of the Vietnam Chamber of Commerce and Industry (VCCI) Doan Duy Khuong, said within the next 10 years, Vietnam will need around US$70-80 billion for infrastructure development, a quite significant amount of capital that would be out of the state’s budget. Japan is one of Vietnam’s strategic business partners and is a country which has made great successes in applying PPP model with big names such Mitsui Sumitomo, Chodai, SE and Komai Haltec. This is a potential to enhance the two-country cooperation.

 

A statistic report by the World Bank showed that, 32 projects in Vietnam were carried out under PPP form between 1994 and 2009 with a total investment of US$6.7 billion. Most of them are in the power and telecom sectors. Besides, many other projects have been implemented under this method since the 1990s, including BOT Co May Bridge and BOT Phu My project, Phu My thermal power plant and many other small and medium-sized power plants. Under the state’s management and support, PPP has started proving more efficient compared to other investment forms.

 

Particularly, Decision 71/2010/QD-TTg on pilot regulations on PPP investment which took effect from January 15, 2011 has drawn great attention from both local and foreign investors.

 

The Government has instructed the Ministry of Transport to pilot PPP model at Dau Giay-Phan Thiet highway project. The ministry has set up an inter-disciplinary taskforce with the participation of representatives from the Ministry of Planning and Investment, the Ministry of Finance and the WB for the implementation under the assistance of the WB. Vietnam’s Bitexco Group is selected to be the investor of the project which has a total investment capital of VND14 trillion and is built for three years. This a key project in the north-south highway system with a total length of 100km. Dau Giay-Phan Thiet highway allows vehicles to run at maximal speed of 120km/h and has six lanes. The first investment stage will build four lanes. Leaders from the Ministry of Transport said that, the PPP model will bring long-term efficiency for infrastructure projects in Vietnam.

 

Despite appearing in Vietnam for a long time, the country does not have a comprehensive legal framework for it. Many private firms still wonder about regulations to receive the Government guarantee for loans and the capital contribution rate of 30-70 percent for a PPP project.

 

At the seminar, Japanese companies exchanged their experience in this sector with Vietnamese ones, including Vinaconex and N&G. According to them, no government can wholly ensure investment for infrastructure system but no investor can do this because this sector often brings low economic efficiency and also faces many risks. Japan is among countries with strongest development of PPP form in Asia. At least two sectors which shows high efficiency in PPP implementation is projects for which it is difficult or impossible to apply privatisation measures. They are also projects in which the state cannot participate in directly. They include projects related to power production and distribution, highway construction, urban transport development as well as water supply and public services. For these projects, PPP model will help save costs, reduce risks and create a highly competitive environment.

 

According a representative from the Hanoi Department of Natural Resources and Environment, with the current mechanism, both local and foreign firms are not very interested in socialisation projects, therefore, it is necessary to simplify administrative procedures to form an open business environment.

 

Many businesses at the seminar said that potential for PPP cooperation between Vietnam and Japan is very large. However, Japanese investors need a transparent legal environment to ensure both sides’ interest. The most important factor to bring success for PPP investment model in general and in infrastructure in particular is “effective contracts” and “favourable investment environment.” This will help to reduce transaction costs and raise transparency for PPP projects and also encourage private investors’ participation. It also encourages local private investors to join hands with other partners under the form of joint stock companies to mitigate financial risks in PPP projects. The Government’s support is very essential for PPP project implementation.