PPP in Transportation: Completing Model, Creating Motivation for Economic Development

26-Apr-2019 Intellasia | VCCI News | 6:00 AM Print This Post

Transport infrastructure plays a foundational role in socio-economic development. However, this is an area that needs huge economic resources. Therefore, for many years, the government of Vietnam has had a policy to expand the attraction of capital into this sector through public private partnership (PPP). This is considered a useful financial investment mechanism, which can help mobilise private capital, increase investment in infrastructure systems, solve bottlenecks and bring economic benefits.

Right policy

The demand for domestic and regional transport of passengers and goods is growing day by day, a situation which poses many challenges to the development of transport infrastructure. Currently, the infrastructure system in Vietnam has not kept pace with the demand of transport development, which is a bottleneck for the economy.

In the field of transportation, although capital from the budget still increases annually by about 15 percent, the situation of capital shortage continues. Many projects in progress must be postponed to invest in transport infrastructure. From now to 2020 each year, an average of nearly VND118 trillion is needed, equivalent to $7.4 billion. Meanwhile, the available capital resources from the budget, ODA and government bonds is only about $2-3 billion. The Ministry of Transport advocates that in addition to the existing capital sources, it will attract other capital from the private sector, domestic and foreign financial institutions. Thus, the demand for investment in transport infrastructure development is very large, while the ability of the State’s financial resources do not meet the demand, the encouragement of PPP is an effective model to optimise cooperation. and provide high quality public services.

According to deputy minister of Transport, Nguyen Ngoc Dong, Vietnam has been making efforts to reform policies to mobilise capital for investment in transport infrastructure development. Up to now, there have been 68 investment projects on road transport infrastructure implemented under the model of PPP (mainly BOT models) with a total investment of VND209,732 billion. Accordingly, there have been 61 projects completed and put into operation. In the period of 2017-2020, Vietnam will focus on implementing the North-South expressway project with a total length of 1978 km with a total investment of VND 118,716 billion under BOT form.

The mobilisation of social resources as well as of foreign investors to develop transport infrastructure is a policy that has been included in the Party and government Resolution to promote the construction and development of road infrastructure, contributing to help Vietnam attain basic modern industrialised country status by 2020.

Socialisation of investment in transport projects in the BOT form has achieved positive results in the past time, the capacity and quality of Vietnam’s transport system has been significantly improved. Through BOT investment, many domestic enterprises have the opportunity to participate in large projects, consuming a large amount of domestic raw materials and fuel, and creating tens of thousands of jobs. In addition, hundreds of trillions of dong of bank credit has been put into the economy. Enterprises participating in investment and construction have improved their competitiveness, and met the increasing requirements in the context of integration.

From the practical implementation of transport projects in the form of BOT, it has affirmed the right direction of PPP investment model, thereby continuing to develop and expand to other economic sectors. This is also the basis for the State to complete the legal policy, improve efficiency and attract more and more investors to participate, especially foreign investors.

Restrictions need to be overcome

The result is quite positive. However, in the implementation process, there are still shortcomings and limitations: The effectiveness of investment and exploitation of projects is still low, the connection between transport means is still poor; the cost of investment and use of infrastructure is still high. Most BOT investment projects in the past time have been designated for bidding, so the competitiveness is not high; most investors are construction contractors, so they lack experience, and are only interested in construction investment stage, not paying adequate attention to the stages of management, operation and post-investment exploitation. Some quality projects have not met the requirements, the settlement is still difficult and prolonged, many completed projects have not completed the settlement work as a basis for determining the time to payback and determining the repayment schedule of bank loans. Propaganda on BOT investment is still fragmented and inconsistent, leading to misunderstandings in the exploitation and operation of investment transport projects in the BOT form, as well as the lack of consensus, causing pressing public opinion.

According to economic experts, the main reason for the afore mentioned problems is that the system of legal documents regulating this form of investment is incomplete, inconsistent and not suitable to reality and international rules. Legal documents regulating investment in the form of new PPP are at the level of the government Decree, so the legal framework for PPP still depends heavily on specialised law, while these documents are mainly built to regulate public investment projects. Therefore, although Decree 63/2018/ND-CP on investment in the form of PPP was issued, there are still many difficulties in the process, procedures and contents needed to carry out the BOT project investment decision, and the work of supervision, acceptance and payment of works, particularly the management of the State’s contributed capital portions, supervision and quality management in the process of investment and operation, and preferential mechanisms and investment guarantee.

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Category: Economy, Vietnam

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