Transport infrastructure developers “give themselves trouble in tight shoes”

The Vietnam Expressway Corporation VEC has called for a special financial mechanism for expressway projects, saying that the current mechanism does not allow investors to take the initiative in capital mobilization.

Infrastructure developers complain that their wings have been clipped because of the current capital mobilization mechanism. Most of the developers have low chartered capital, while the current mechanism does not allow them to mobilize capital in large quantities from different sources.

With the total investment capital of 106,256 billion dong, or five billion dollars, VEC remains the biggest investor in the field of transport infrastructure.

Besides the one trillion dong worth of chartered capital, VEC has been relying on the loans it borrows from domestic sources and international institutions with the government’s guarantee to develop transport infrastructure projects.

However, if the construction of the expressways of Cau Gie – Ninh Binh, Hanoi – Lao Cai, HCM City – Long Thanh – Dau Giay, Ben Luc – Long Thanh and Da Nang – Quang Ngai completes as scheduled, VEC would become the biggest public debtor in Vietnam.

According to Luong Quoc Viet, Chief Accountant of VEC, in general, expressway projects all have low financial efficiency, while it takes a long time to cover the investment capital. Therefore, if referring to the current laws on public debt management, VEC and other investors are making three serious violations.

First of all, with the above said capital structure, the ratio of debt on chartered capital of VEC is very high (100x), much higher than the ceiling capital it can mobilize as stipulated in the Decree No 09, which shows the financial management mechanism of state owned enterprises.

Due to the short state budget, the capital allocation of the State as the owners of the expressway corporations has been going slowly, while the chartered capital comes from different sources, including the state budget and the road fee collection. VEC only got its sufficient chartered capital three years after it began operation.

Meanwhile, the Cuu Long CIPM, the second biggest transport infrastructure developer, which is under the management of the Ministry of Transport, was established in August 2011, but it still has not got enough 1500 billion dong in chartered capital.

“If the developers are assigned to develop an expressway with the medium scale, capitalized at 15 trillion dong, they will be “in an offside position”, said Do Van Quoc, Director of the Finance Department under the Ministry of Transport.

With the chartered capital too small if comparing with the projects’ scales, expressway developers cannot meet the requirement of having 20 percent of stockholder equity to be able to get the government’s guarantee, as stipulated in the public debt management law.

“If the regulation cannot be amended, it will be impossible to mobilize capital for expressway projects through bond issuance,” Viet commented.

Most of the expressway projects which use the capital mobilized through bond issuance can ensure the solvency if investors can issue bonds for capital rollover (borrowing new loans to pay old debts). Meanwhile, under the Decree No 01 on the bond issuance with government’s guarantee and local authorities’ bond issuance; this is prohibited.

Experts have pointed out that if the current strict regulations continue to be applied, the model, in which state owned enterprises make investment in expressway projects like VEC’s, will get broken because it is impossible to structure the capital.

In a document sent to the Prime Minister in mid August 2011, VEC suggested specific mechanisms on bond issuance and the re-lending of foreign sourced capital.

According to the newly appointed Minister of Transport, Dinh La Thang, developing transport infrastructure, especially expressways is one of the three most important strategic parts for the time to come. VEC and Cuu Long CIPM are the specific models, which never before appeared in Vietnam. Therefore, it is necessary to apply specific mechanisms to the special enterprises. – Vietnamnet

Tags: Vietnam Infrastructure