Apr 28, 2019 / 10:16

Vietnam asked to speed up payment for Japanese-funded metro line in HCM City

The majority of Japanese official development assistance (ODA) to Vietnam goes to infrastructure projects.

Japanese Ambassador to Vietnam Umeda Kunio has proposed the Vietnamese government speed up the payment for the first metro project in Ho Chi Minh City, which is funded with Japanese official development assistance (ODA).
 
Japanese Ambassador to Vietnam Umeda Kunio and Vietnamese Deputy Prime Minister Vuong Dinh Hue. Photo: VGP
Japanese Ambassador to Vietnam Umeda Kunio and Vietnamese Deputy Prime Minister Vuong Dinh Hue. Photo: VGP
The proposal was made at a meeting between the ambassador and Vietnamese Deputy Prime Minister Vuong Dinh Hue at the “Meet Japan" conference held in the northern central province of Nghe An this weekend. "Meet Japan" is a platform to promote trade and investment between Vietnamese and Japanese businesses.

Deputy PM Hue said that the Vietnamese government continues tackling problems to make payment as soon as possible. 

He affirmed that Vietnam treasures the protection of investors and ensures the fairness for all related parties in projects in the country. 

The Ben Thanh-Suoi Tien metro line, the largest of its kind in Vietnam, was approved in 2007 and kicked off in August 2012 with finance from Japan’s ODA.  

The project’s initial cost was around VND17.4 trillion ($740 million). But in 2009, consultants recalculated the investment at VND47.3 trillion ($2 billion).

Due to its large scale, the metro line is considered a key national project that requires the National Assembly (NA)’review and needs to get the NA’s approval for any financial decisions.  

HCM City pledged to use its own budget to make advance payment for the contractor but they failed to pay within deadlines as the NA has yet to approve the cost overrun. 

In early 2019, the Japanese side made the same request at a meeting with HCM City’s Mayor Truong Thanh Phong and he pledged to pay in advance more than VND2 trillion (US$86 million) for contractors for the works made in 2018 while waiting for the NA's approval. 

A consortium of Vietnam’s Civil Engineering Construction Corporation No. 6 (Cienco 6) and Japan’s Sumitomo Corporation is the contractor and is required to put the line into operation by 2021. Up to now, more than 80% of the workload has been completed. 

Other proposals 
 
Ambassador Umeda Kunio also made several proposals to the Vietnamese government, namely lowering private income tax for Japanese investors in economic zones. 

Under the Vietnamese law, the government may offer a 50% cut to the income tax for both domestic and foreign taxpayers working in economic zones. 

He suggested the Vietnamese government amend diplomatic dispatch on the funding of ODA, and to resume Vung Ang 2 Thermal Power Project in the central province of Ha Tinh. 

The ambassador highlighted Vietnam’s fast economic growth and warned of both opportunities and challenges ahead for one of the world’s fastest-growing economies. 

Notably, he said the government of Japan has called for its small- and medium-sized enterprises to invest in Vietnam after great successes which Japanese firms have obtained over the past years. 
 
Strict ODA terms 
 
Japan’s ODA to Vietnam by priority area in 1991-2001. Photo: Grips.ac.jp
Japan’s ODA to Vietnam by priority area in 1991-2001. Photo: Grips.ac.jp
So far, Japan is the biggest ODA donor to Vietnam with a pledged amount of US$30 billion between 1992 and 2017, VnEconomy reported, citing statistics from the Japan International Cooperation Agency (JICA). 

Since October 2017, the Japanese government cut preferential loans and raised interest rates on loans to Vietnam from 0.3% to 1% per annum for projects focused on human resources, education, health, vocation, environment, and climate resilience, while imposing an interest rate of 1.5%/year on common loans instead of 1.2%/year before, according to the Vietnamese Ministry of Finance. 

Lending conditions remain strict with regulations on the origin of contractors, the method of procurement, and on taxes for contractors, and those facilitating the participation of Japanese companies in ODA projects and Japanese experts. 

VnEconomy quoted economist Le Dang Doanh as saying that Vietnam should accept lending conditions on the frank and fair basis to avoid unfavorable terms that may hurt the country in the long-term development.