BOT mode not always “luscious fruit” for infrastructure investors

The fact that the investor of the Phu My Bridge project has proposed to “give back” the project to the HCM City People’s Committee, shows that BOT (build – operation – transfer) mode does not always bring fat profits to investors as previously thought.

Big difficulties

The Phu My bridge has been built by the Phu My Investment and Construction Corporation (PMC) under the mode of BOT. The construction was kicked off in 2004 and it has been in operation since 2009.

In principle, after the bridge construction was wrapped up, the investors will exploit the bridge to take back the investment capital before it turns the bridge back to the local authorities. However, after one year of operation, PMC has found out that the overly low fees would not allow it to take back the investment capital and pay bank debts.

Besides the set overly low fees which makes the investor unable to collect enough money to cover the investment capital, many other reasons have also been cited to explain the decision by PMC. The total investment capital of the project was double the initially planned capital, at 3402 billion dong instead of 1805 billion dong.

The dong/dollar exchange rate increased so sharply in comparison with the rate referred to by investors when drawing up the investment project. Also, the rapid loan interest rate increases have made the project’s costs increase sharply.

The difficulties faced by PMC are not new and they are understandable. A report by the Ministry of Transport shows that most of other transport projects implemented under the mode of BOT are facing the same problems.

The ministry is running 26 projects on transport infrastructure development under the mode of BOT which have the total investment capital of 128 trillion dong. However, the ministry has admitted that only the projects capitalized at less than 1500 billion dong have been successful. Meanwhile, the projects which require big investment capital, still cannot take back the investment capital if the investors only rely on the income brought by the projects.

With most projects, the difficulties in site clearance have led to the higher-than-expected project costs. Meanwhile, the low ratio of vehicles per capita and the low transport fees which have existed for the last many years, make the income of investors modest.

The Ministry of Transport has proposed the Ministry of Finance to soon issue a legal document guiding the financial indexes for BOT projects, and set up new fees that fit the new circumstances.

Phu My will be followed by other projects?

PMC has proposed the HCM City People’s Committee to delay the debt payment to the state owned HCM City Financial Investment Corporation HFIC, requesting to pay debts within 15-20 years with the grace period of five years, or to give the preferential loan of one trillion dong.

If the proposal is not accepted, the investor would transfer the Phu My Bridge to the HCM City’s authorities ahead of the schedule.

Also according to PMC, a lot of provisions signed in the contract between PMC and the city’s authorities have not been followed by the city’s authorities. The city, for example, committed to complete the construction of the belt road in the east that links with Phu My bridge. However, as the belt road has not been completed, the volume of vehicles going through the bridge has been limited.

Experts have warned that the story of Phu My may make other investors to rethink their investment plans. And many foreign investors, who have been eyeing BOT projects in Vietnam now have one more typical example to consider.

Lawyer Tony Foster, a leading expert in investment in Vietnam, said on some forums held recently that the procedures applied to BOT investment remain too complicated, which makes investors hesitant.

He said that many investors are ready to spend hundreds of millions of dollars on BOT projects in Vietnam. However, in many cases, investors need the approval from up to 11 different agencies, which has discouraged them. Now, with Phu My story, the discouragement may even be higher. – TBKTVN

Tags: Vietnam Infrastructure