PPP mechanism keeps doors open for private infrastructure investors

Over the last two decades, only about 100 infrastructure projects have been invested under the mode of BOT (build – operation – transfer) with the presence of private investors. Will the situation change when the public-private partnership (PPP) is promulgated?

State remains the biggest infrastructure investor

The modest number of 100 infrastructure projects which got the involvement of private investors has been explained by the lack of a legal framework. The figure shows that the State has “not succeeded” in encouraging private investors to make investments in infrastructure projects as admitted by the Ministry of Planning and Investment.

Nguyen Ngoc Long, Deputy Chair of the Vietnam Science and Civil Engineering Association, said that up to 80 percent of BOT or BT projects in the transport sector have “changed their initial characteristics”. Citing the BOT project on Binh Trieu bridge in HCM City which has been purchased by the city’s authorities, Long has pointed out a worrying thing that a lot of important projects have been transferred to the state’s shoulders.

Lacking investment from the private sector, the State has to become the biggest infrastructure investor, while it alone cannot upgrade the current poor infrastructure status. The systems of roads, railways, airways, waterway and seaports have become overloaded which cannot meet the requirements of the development.

According to the Minister of Planning and Investment, Vo Hong Phuc, the government’s total public debts (ODA – official development assistance, bonds and guaranteed loans) must not be higher than 50 percent of GDP – the safety line set up by the National Assembly. The ODA with preferential loans has been decreasing gradually, while the state budget is limited. This means that Vietnam is facing growing challenges in building infrastructure items which needs 150-160 billion dollars in the next decade.

“Traditional investment sources just can meet 50 percent of the demand,” he said

Phuc said that bilateral and multilateral donors, as well as domestic and foreign investors have put a high hope on a legal framework for PPP. A lot of consultation meetings with foreign partners including the World Bank, Asian Development Bank, Japan, UK, the US, China and South Korea have been organized in the last three years.

“This is the golden opportunity to mobilize resources for developing the infrastructure in Vietnam,” said Phuc, who successfully persuaded the government to approve the PPP regulations in the trial basis.

PPP brings hopes

The international investors’ community has shown active response to the regulations. Eurocham’s Chair, Alain Cany said the business community applauds the issue of the regulations. He said investors and lenders need to see a clear legal framework in order to give support to the investment deals worth more than one billion dollars to be injected in infrastructure.

The representative from Eurocham has proposed the government to make commitments that the turnover from the projects can be converted into foreign currencies and transferred abroad.

The requirement which is considered one of the most important has been satisfied by the government. Foreign investors in PPP projects have the right to purchase foreign currencies in Vietnam and transfer capital, profits and other legal incomes abroad.

However, disagreements still exist. Foreign financial institutions want the State of Vietnam to act as a guarantee for the loans of private enterprises when the enterprises implement PPP projects. However, Phuc has suggested that the government would refuse the proposal, because this may spoil the plan to reduce public debts. The refusal would cause a headache to Bitexco, the investor of the first PPP project – the Dau Giay – Phan Thiet highway, because the foreign partner asked the State to act as a guarantee for the loan.- TBKTSG

Tags: public private partnership, Vietnam PPP