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North-South Expressway: Public investment to reduce cost by USD 800 million

10:32 | 18/05/2020

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.

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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: VnExpress)

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.

According to the Ministry of Transport, when the 8 North-South Expressway projects are transformed into public investment, it will accelerate the implementation and disbursement of public investment capital, supporting economic growth.

north south expressway public investment to reduce cost by usd 800 million
The conversion of 8 North-South expressway into public investment is urgent and suitable (Photo: CafeF)

The conversion of 8 North-South express investment PPP projects into public investment using the entire State budget is urgent and suitable to reality as it will accelerate the progress, reduce the total investment and solve the problems to mobilize loans from investors from banks when investing in the PPP form.

This is the information explained by the Ministry of Transport about the need to change the form of investment in 8 PPP projects under the project of building some high-speed road sections on the North-South East route in the 2017-2020 period, according to CafeF.

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.

north south expressway public investment to reduce cost by usd 800 million
(Photo: Vietnam Law)

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 Ministry of Transport calculated that, while continuing to implement in the PPP form, with difficulties in mobilizing credit capital as well as selecting investors, the Ministry of Transport admitted that it would not guarantee the progress.

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, according to VnExpress.

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Candy Lee