North-South Expressway: Public investment will cut costs by $800 mln

By Doan Loan   May 16, 2020 | 12:30 am PT
North-South Expressway: Public investment will cut costs by $800 mln
A section of the La Son - Tuy Loan Expressway, connecting Thua-Thien Hue Province with Da Nang City, which will be linked to the North-South Expressway. Photo by VnExpress/Vo Thanh.
Using the state budget for building eight North-South Expressway sections could cut interest expenses alone by VND19.2 trillion ($823 million) over private investment.

The Transport Ministry further says in a proposal submitted to the National Assembly that this means the original price tag of VND118.7 trillion ($5 billion), if invested in by private companies in a public-private partnership model, will be reduced by 16 percent to VND99.5 trillion ($4.3 billion).

Explaining the proposal’s rationale, the ministry says private investors are facing difficulties in acquiring credit from banks. If they take until mid-2021 to begin construction, the completion deadline will be delayed.

As land clearance is now at 70 percent, construction could begin as soon as this year and finish in 2022 if the National Assembly greenlights the proposal, the ministry adds.

An evaluation of the State Bank of Vietnam (SBV) shows that local contractors have the capability to build the sections, but they face challenges in persuading banks to provide between VND5-10 trillion ($214-429 million) for each of these projects.

Nguyen Quoc Hung, director of the SBV's credit department, said that 59 out of 116 build-operate-transfer projects in the country are not meeting their financial goals. They are struggling to repay bank loans and some of these could turn into bad debts. The total credit provided to these projects has reached VND102 trillion ($4.4 billion).

"The North-South Expressway sections have large costs, and loans from banks could exceed credit limits. The transition of the eight projects from private to public investment is urgent and necessary," Hung said.

The transport ministry also says that the projects are set to boost the disbursement of public investment, create opportunities for local companies to build public infrastructure and generate employment.

But experts have expressed concerns over the proposed transition, saying that this could undermine competition and transparency compared to an open bidding process.

The eight sections are part of the 11 that will comprise the North-South Expressway, which is among the national top priority projects for upgrading Vietnam’s outdated infrastructure. Work on the three state-funded sections is already underway.

Last year, the ministry had tried to find foreign investors for the eight projects in the form of public-private partnership (PPP), but very few passed the qualification round, which meant low competition between bidders.

The ministry then decided that only domestic investors would be allowed in these projects to "ensure national security and expand Vietnamese firms’ capability in constructing infrastructure."

Many foreign companies, especially those from Europe, Japan and the U.S, said the absence of government guarantees related to minimum returns and foreign exchange risks have kept them away from large PPP transport infrastructure projects.

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