Privatization helps Vietnamese contractors compete with foreign players

By June 9, 2016 | 08:47 pm PT

Vietnamese companies in the infrastructure sector have more chance to win projects funded by official development assistance loans after they have been either partly or wholly privatized.

ODA has been a key source of funds for Vietnam to improve the country's infrastructure to meet rising demand as the economy expands.

When international donors like the World Bank, the Asian Development Bank and sponsors from France, South Korea and China offer ODA loans to Vietnam at low interest rates, usually ranging between one and three percent, they also set out strict funding requirements.

Due to these requirements, Vietnamese state-owned enterprises (SOEs) are usually ineligible to take part in ODA-funded projects because they already enjoy massive financial support from the government, which not only fosters growth but also insulates them from competition.

That's why foreign companies are seizing business opportunities utilizing systems like ODA to win infrastructure development contracts in emerging markets.

“Local firms have so far had to work as sub-contractors for foreign companies in ODA-funded infrastructure projects,” said Nguyen Duc Kien, chief executive of Thang Long Construction Group.

privatization-helps-vietnamese-contractors-compete-with-foreign-players

The Cat Linh-Ha Dong skytrain, funded by official development assistance from and built by a Chinese contractor, is scheduled to open by the end of this year. Photo from the Ministry of Transport.

The tide has changed

However, following privatization, companies that were once tightly controlled and backed by the government are exposed to significant corporate restructuring. They are forced to improve their financial capacity since they can no longer access cheap government loans.

These state-owned enterprises are becoming almost like private corporations and traded on the stock markets to raise funds. As private companies, they can compete head-to-head with foreign contractors for ODA-funded projects.

Vietnam is trying to accelerate share sales in SOEs that began in the 1990s as the government seeks to spur economic growth.

So far more than 90 percent of SOEs have been restructured after selling off part of their stakes.

Over the past two years, the government has divested its entire stakes in several construction companies, said Vu Anh Minh, head of the Enterprise Management Department under the Ministry of Transport.

He added that these companies are now financially capable of bidding for large ODA-funded project contracts.

The Transport Ministry is planning to divest from many large corporations this year including Cienco 5, Cienco 6 and Cienco 8.

About 140 transport companies have gone public over the past five years, 50 percent higher than the target the ministry set for the period, official data shows.

Vietnamese contractors have now succeeded in winning competitive bidding packages worth over $100 million.

Mai Tuan Anh, chief executive of the Vietnam Expressway Corporation that oversees several ODA-funded infrastructure projects, said local companies are increasingly capable of meeting strict contractor selection requirements.

He added that Vietnamese companies have won seven out of the eight bids for construction work on the national highway project, the route linking Da Nang to Quang Ngai.

On the Ben Luc – Long Thanh highway project, Vietnamese firms have formed a partnership with Japanese companies as the main contractors.

Cienco 4, a leading construction corporation, became a partly private company in 2014, and Chairman Nguyen Tuan Huynh said that privatization was a major breakthrough for its development.

Huynh said privatization has had a strong impact on the company’s management and organizational structure, enhancing operational efficiency.

Cienco 4 is now focused on improving technology, financial capacity and human resources to meet ODA project requirements, he added.

Before trying to get involved in projects that use ODA capital, Vietnamese enterprises need to understand donor procedures and international practices in order to meet technical, financing and experience requirements to compete in a fair bidding process with other international contractors, said lawyer Tran Van Thi, head of the Hanoi-based Tran Bros Law firm.

> South Korean firms warned for not meeting construction project requirements

> Road remains incomplete after four years of construction