Hyundai Group wants to invest in Vietnam’s high-speed rail

By Hung Le    June 1, 2019 | 07:56 pm PT
Hyundai Group wants to invest in Vietnam’s high-speed rail
Railway workers do maintenance work on rail tracks on Long Bien Bridge in Hanoi. Photo by AFP.
Hyundai Group is eyeing Vietnam’s transnational high-speed railway project, controversial for its feasibility and high costs.

The South Korean multinational conglomerate expressed its investment interest to the Ministry of Transport in a meeting this week.

For Vietnam’s North-South high-speed rail project, Hyundai can provide comprehensive solutions from planning, finance, construction, operation and maintenance, as well as technology transfer and training support, said the group's vice president Chung Jin-hae.

He also noted that to obtain capital for public-private-partnership (PPP) investments, government guarantees and minimum revenue guarantee policies (wherein government grants to a private partner a minimum level of revenues for a concession period) are important.

"The government should also play a proactive role in site clearance as well as maintaining investor-friendly policies."

Deputy Minister of Transport Le Dinh Tho informed the Hyundai executive that Vietnam is mobilizing many domestic and foreign resources to invest in the country’s transport infrastructure through many investment forms.

According to the latest draft of the project plan, construction on the high-speed rail route will start in 2024, a training academy will be established in 2026, test runs will start in 2028, and the official launch will be in 2030.

The construction will be in two phases, with two of the three sections of the route, from Hanoi to Vinh on the north-central coast and from Ho Chi Minh City to Nha Trang on the south-central coast being completed in the first phase in 2020-30.

The high-speed rail, which would run 1,559 kilometers (970 miles) between Hanoi and Ho Chi Minh City, is expected to cost $58.71 billion.

However, experts at a forum last November expressed worry that Vietnam can’t cope with the financial burden of the project. High project costs and slow returns on investment make it difficult to attract private investment, and since public debt is already very high, using state funds could break the proverbial bank, they said.

Deputy Prime Minister Trinh Dinh Dung in April said the State Appraisal Council should "carefully consider the necessity of the project, its benefit to the country in terms of economy, politics, culture, society, environment, security, and defense."

"The project is of large scale and would cost a lot and so should be carefully studied to make sure it will achieve general consensus," he was quoted as saying in a statement released by the Government Office.

Chung Jin-hae said Hyundai also wants to participate in the investment and construction of Vietnam’s North-South expressway project, which will run 654 kilometers of the 2,000-kilometer expressway, starting from Nam Dinh near Hanoi to Vinh Long Province to the southwest of Ho Chi Minh City.

Hyundai has constructed six high-speed rail routes in South Korea, nine underground metro lines, and three routes in countries outside South Korea.

Deputy Minister Tho asked Hyundai to share with Vietnam its experiences in the planning and implementation of PPP projects. 

"The ministry will use the information and insights to formulate project investment solutions in line with international standards and as well as advise the government to improve its policies and institutions related to PPP projects," he said.

Government guarantees are among the 10 points the Ministry of Planning and Investment (MPI) listed in a document it recently sent to relevant ministries and agencies to collect opinions for its PPP bill.

It said the absence of guarantees related to minimum returns and foreign exchange risks have kept investors away from large projects like the Dau Giay – Phan Thiet and Tan Van-Nhon Trach road projects.

Under the MPI bill, projects considered for minimum revenue guarantees will be those that need National Assembly and prime ministerial approval. The guarantees will be considered on a case-by-case basis.

For projects entitled to guarantees, for the first five years the guaranteed minimum revenue will equal 75 percent of revenue estimated in the contract. It will come down to 65 percent for the following five years.

However, if the revenue exceeds 125 percent of the estimated revenue in the first five years of operation and 135 percent in the following five years, the investor must hand over the excess portion to the government.

It envisages fixing a cap on exchange rate fluctuations for a certain period of time, for instance five years, and the government compensating the investor if the actual rate exceeds it. The bill also proposes a government guarantee to meet 30-50 percent of investors’ foreign currency requirements.

The PPP draft law is expected to be submitted to the legislative body for debate during its ongoing working session this month and be approved in the following session in October.

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