Vietnam’s North-South Expressway project gets fresh air
Vietnam is stimulating key transport projects and other infrastructure ones to support development and economic recovery in post-Covid-19. And this is a good opportunity for investors.
Despite recent concerns over financial feasibility, the Vietnamese government’s latest strong commitment to accelerate public investment will increase bankability for the Eastern Cluster of the North-South Expressway, enabling its construction to begin in August.
| Vietnam is trying to expand its expressway network to stimulate investment and economic growth.
The National Assembly (NA) will start its May session on May 20, with one of the focuses to be the vote on the conversion of financing mechanism of eight sections of the Eastern Cluster of the North-South Expressway from public-private partnership (PPP) into public investment which is attracting attention among the public and investors over its feasibility amid the state budget constraints.
The vote will take place in the context that the country is taking a number of bold measures to recover economic activity, in which acceleration of public investment will be one of the five key focuses, thus it is expected to make the project more ebullient and desirable.
At the online dialogue on May 9 between Prime Minister Nguyen Xuan Phuc and thousands of businesses, the government leader showed his strong determination to step up disbursement of a huge amount of public investment in key projects, especially the labor-intensive ones to cut unemployment and underemployment and stimulate economic growth.
“This hefty commitment is timely as not only Vietnam but also other countries worldwide are advancing infrastructure projects and public investment to create jobs for the locals and for the economy to recover,” senior economist Nguyen Tri Hieu said, citing the US as an outstanding example. The Trump administration plans a huge allocation of billions of US dollars for infrastructure projects in a move to generate jobs and deal with unemployment which has amounted to over 30 million people over recent weeks.
Echoing Hieu’s view, many experts agreed that Vietnam is not an exception of this aggressive public spending. The country is stimulating key transport projects and other infrastructure ones to support development and economic recovery in post-Covid-19. This is a good opportunity for investors.
This belief is reinforced when the Ministry of Transport (MoT) said that, “When the NA approves the financing mechanism conversion, it will ratify budget for these projects. The government will then take steps to secure its financing, part of which comes from the state budget and the other perhaps from loans from local and international credit institutions."
Definitely, the government’s new undertaking will create a fresh air for the Eastern Cluster of the North-South Expressway, thus hopefully easing recent concerns over its bankability because of state budget constraints, and enabling the construction to begin in August 2020 as planned by the MoT.
Earlier, the Ministry of Finance (MoF) raised concerns over the limited state funding for the development of the key national transport project after the proposal of the MoT to transform funding mechanism from PPP to public investment for infrastructure projects. The MoF proved that in case the proposal is okayed , the number of wholly state-funded sections will rise from three to six, thus increasing total public investment and site clearance costs to VND54.36 trillion (US$2.36 billion).
Meanwhile, the mid-term public investment fund approved by the NA is VND55 trillion (US$2.39 billion). This means that there would be almost no funding left for converting the financing mechanism of other road sections from PPP to public funding in the 2016-2020 period.
According to economists, as the pandemic has caused a plunge of 6% in tax revenue in January-April, arranging enough funding for public investment projects would be a serious headache.
The construction of the Eastern Cluster of the North-South Expressway, which is 2,109km long, implies a cost VND118.71 trillion (US$5.16 billion). It comprises 11 sub-projects (three of which will be state-funded) and has so far attracted big interest among domestic and international investors. Despite strong attention, the project is tied down to difficulties in mobilizing private investment due to high risk of losses and the lack of supporting legal framework. Both investors and lenders want a guarantee mechanism, minimum return commitments, and foreign exchange conversion guarantees – all of which are missing from current rules.
In fact, the Eastern Cluster of the North-South Expressway is not the only PPP transport project that gets stuck. A series of Buil-Operate-Transfer (BOT) transport schemes with better financial plans than the eight PPP sections are being at a standstill for falling short of credit, such as Huu Nghi-Chi Lang, Van Don-Mong Cai, and Trung Luong- My Thuan.
Investors hope that with the government’s giving top priority to increase disbursement of public investment, and hasten key transport and infrastructure projects, these projects’ credit problems will be solved soon, while opening new opportunities for investors.
Until then, they have to wait for the outcome from the NA voting. Possibly, a new scenario may happen.
According to the MoT, it will make available a list of expressway projects calling for private investment in the near future, and is preparing sufficient state funding to join private investors in these projects.
This year, the MoT plans to kick off 18 transport projects with the total investment capital of around VND92.38 trillion (US$4 billion). They will include the aforementioned expressway project, and railway schemes with planned funding of up to VND15 trillion (US$652 million), as well as Terminal 3 of Tan Son Nhat International Airport.
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