|
PPP a knight in shining armor
With Vietnam facing challenges from poor infrastructure due to a dearth of capital, the Public Private Partnership investment model could be the answer. However, Vietnam has yet to grasp the concept. Ngoc Linh finds out why.
The lack of infrastructure has left some foreign investors feeling they are on the road to nowhere
The economy’s rapid growth in recent years and booming foreign direct and domestic investment require better infrastructure systems in Vietnam, now considered a big obstacle to the country’s development. But, a better infrastructure system needs huge investment capital, out of the reach of the government or even official development assistance (ODA) from other countries.
In this case, the Public Private Partnership (PPP) model could prove a salvation. PPP implies collaboration between the government and the private sector in carrying out projects with social benefits, under an agreement to share the responsibility and risk. According to this agreement, the government determines criteria for the delivery of services and offers incentives for the private sector by setting up payments based on their quality.
PPP contracts offer great benefits especially in projects that require large amounts of capital because of their lower costs and the value created by commercialising projects. PPP is common in countries like Japan, Singapore, United States and United Kingdom. In Japan, even prisons were built with PPP contracts. However, PPP projects are as rare as hen’s teeth in Vietnam.
Needs of the PPP model
In the past years, Vietnam mainly used the state budget for financing transport infrastructure. Funds include monies from the state budget, ODA and government bonds. These limited funds have slowed the pace of infrastructure development and held back overall economic growth rates.
According to the World Bank’s Vietnam Development Report 2007, annual investment in infrastructure of Vietnam is about 9 to 10 per cent of the gross domestic product (GDP). This percentage is high in comparison to international standards. The World Bank and Asia Development Bank suggest that in order to sustain the current level of growth, infrastructure investment in Vietnam needed to increase to around 11 to 12 per cent of GDP.
“We still do not have expressways, express railways, deep water ports and international hubs. Apart from that, the transportation costs are rather high, as infrastructure has not been invested adequately, with modern loading and unloading equipment and facilities not available. All these factors lead to a low competitiveness and a small share in the international market for transportation,” said Tong Quoc Dat, deputy director of the Ministry of Planning and Investment’s Infrastructure and Urban Department.
For the purpose of meeting the development needs of an industrialised modernised country by 2020, Prime Minister Nguyen Tan Dung announced a list of important projects that need to be completed during 2003-2020. Ministry of Transport (MoT) statistics show that Vietnam needs $10 billion for developing infrastructure projects till 2010.
The central ministries and agencies have publicised lists of potential foreign direct investment, build-operate-transfer (BOT) and build-transfer (BT) projects for attracting investment. Investors have positively responded by making important proposals about their capability of sharing finance for large scale projects.
“There will be a need for huge resources apart from what can be provided from the state budget. Such resources are expected to come from potential foreign and domestic private investments, as well as the PPP, which should be extensively and intensively established for developing the national infrastructure in general and the transport infrastructure in particular,” said Cao Viet Sinh, vice Planning and Investment minister.
Toru Mihara, general manager of Mitsui Global Strategic Studies Institute’s Project Engineering Department, said Vietnam had large potential to use the PPP model. The potential comes from the lack of core infrastructure systems, potential difficulties for the government alone to secure a long-term, low cost funding for projects. Meanwhile, the private sector can contribute, but faces difficulties in balancing affordability and project viability.
“PPP, which combines full funding resources of public and private sectors, should be the only option available to solve the above fundamental problem,” Mihara said. So why is the PPP model, which is supposed to increase effectiveness and efficiency and create a pool of resources for large projects, rare in Vietnam?
“It is simply not viable,” said Mihara.
Which factors hinder PPP implementation?
“Vietnam does not have experience and clear regulations on PPP in infrastructure development so it is difficult to moblilise investors,” said Truong Tan Vien, director of the MoT’s Planning and Investment Department. The biggest hurdle for Vietnam maybe a viability gap. PPP projects usually require huge investment, but the government is just concerned about keeping prices at affordable levels to the public. In contrast, private investors need a reasonable cost recovery and they see too much risks in PPP projects.
“In order to successfully boost PPP projects, the key factor is the efficient cooperation between government and private firms, the balance between profit investors gained and social benefits achieved. Infrastructure projects require long-term investment with enormous capital thus investors must have the right to know the specific benefits and preferential treatment from investing their money in these projects,” said Nguyen Khac Than, deputy general director of Bank for Investment and Development of Vietnam.
Than’s bank last year joined hands with domestic firms to establish a joint venture which to mainly invest in infrastructure projects. Than said it was necessary to be able to evaluate revenue from investments like water usage fees and have an appropriate pricing policy. “If no profit is shown, it is difficult to call for their participation,” said Than.
The other obstacle is the lack of favourable conditions, including a competitive environment, complete legal framework and stable economy.
Until now, Vietnam has not had any specific PPP model regulations. Last year, the government issued a BOT model framework. Tran Xuan Sanh, general director of Vietnam Expressway Corporation, said a PPP project usually lasted for 20-30 years, thus required a transparent legal framework and policies that assigned specific rights and obligations in every interval of the project.
What options for the gap filling?
Mihara said that the most important thing was how to combine and integrate resources available in the public and private sectors. Thus, a complete PPP framework was the most important thing at present. “It is necessary to finalise a comprehensive legal framework for PPP and apply appropriate planning for individual prioritised projects, taking into account the possibility of state budget contribution,” said Vien.
Meanwhile, Than said that the government should grant incentives and support to enterprises that have infrastructure investments to help them recollect invested capital since these projects are long-term and low return rates.
He said incentives may include tax exemptions for feasible infrastructure projects, especially for projects directly affecting people such as road and bridge toll-fees, electricity and water charges as well as pricing policy and a general incentive mechanism for investors.
Realising the demand for the PPP model in the country as well as viability gap, the Vietnamese government recently held international seminars for collecting lessons and experiences from other countries.
“During the pilot stage, studies will also be conducted to propose and finalise project selection criteria for PPP model. Hopefully, we will be able to select and implement PPP pilot projects to make an important contribution to the infrastructure development in Vietnam,” Dat said.
VNN
|
