Initial PPP results signify national blueprint

Big successes in Quang Ninh

The northern province of Quang Ninh made the headlines this week when construction started on the Van Don – Mong Cai expressway, a high profile public-private partnership (PPP) project.

Totaling over VND11 trillion (US$478 million) in value, the 80km long expressway has received investment from domestic real estate developer Sun Group.

As counterpart capital to the investor, more than VND1.4 trillion (US$60.9 million) has reportedly been granted by Quang Ninh to make compensation and site clearance for the project.

The expressway is scheduled to come into use by 2021 and will be transferred to the State for management after 19 years of operation.

Quang Ninh has emerged as one of the pioneers in carrying out infrastructure projects under the PPP format.

In fact, the province has attached great importance to luring private investment in the implementation of infrastructure projects under the PPP model since 2014.

Some small-scale PPP projects had been executed successfully in Quang Ninh before the province moved onto million-USD projects in a bid to further foster local socio-economic development.

The Quang Ninh Portal highlighted a number of PPP projects as additional momentum to the province’s economic growth. Most notably, as a key part of the Ha Long – Hai Phong expressway, Bach Dang bridge worth VND7.38 trillion (US$317 million) in total, opened to traffic last September.

Another key PPP project is Van Don International Airport. This airport, the first one invested by a private firm in Vietnam, came into official operation last December. The work, with total investment of VND7.7 trillion (US$334 million), was built under build-operate-transfer contract.

The initial results of realizing the PPP model in Quang Ninh were attributed to support from central authorities and the province’s efforts and initiatives to mobilize resources, especially those from private firms, said Nguyen Van Doc, Secretary of the Provincial Party Committee.

PPP enables Quang Ninh to build key infrastructure projects with the hope of creating breakthroughs for future development in the province whilst not spending trillions of VND in the process, Doc stressed this as the most valuable benefit from the PPP implementation.

According to Vu Tien Loc, Chairman of the Vietnam Chamber of Commerce and Industry (VCCI), PPP is a significant channel to mobilize capital and for accelerating mutual development, as the state budget remains limited while difficulties increasingly persist in accessing official development assistance (ODA) from overseas providers.

In a recent interview granted to Vietnam Economic Times, the VCCI chairman highlighted the success of Quang Ninh and Hanoi in deploying many PPP infrastructure projects.

He elaborated that PPPs have proved fruitful in foreign countries, most notably in the United States, with an efficient PPP model applied for infrastructure projects and industrial production.

Vietnam is well placed to make the most of PPP models by potentially bringing together four stakeholders, including the Vietnamese Government, foreign governments, domestic firms, and overseas investors, he suggested.

He noted that proper models are needed to make the PPP implementation fruitful, which he said should be based on an appropriate, transparent legal framework for the sake of the benefits of stakeholders.

PPP key to infrastructure development

Stating in its annual Whitebook 2019 released last month, the European Chamber of Commerce in Vietnam (EuroCham) said that local infrastructure development needs are estimated at US$480 billion in the period from 2016 to 2030, while the mid-term State budget for the 2016-20 period reportedly allocated only US$6.6 billion for the sector.

Although there has been significant spending on infrastructure projects nationwide over the past 20 years, the vast majority of the funding has been supported by ODA partners, the State budget, and State guarantees of external debt provided by the Ministry of Finance (MoF).

This is recognized as not being sustainable in the mid- to long-term, particularly as the country achieves middle-income status with the subsequent reduction of available ODA funding, the EuroCham emphasized.

In addition, the Government appears to be intent on reducing its exposure to foreign creditors under the MoF guarantees, which results in a further tightening of amounts of external credit available for financing infrastructure.

Another hindrance to infrastructure projects is bankability and costs. Though local banks are increasingly funding infrastructure, the liquidity in the domestic market is not sufficient to cover massive finance requirements of the sector.

The costs of funding are also extremely high, reducing the attractiveness of infrastructure investment to both foreign and local private developers. The balance of funding for these requirements therefore needs to be accessed from external sources, willing to offer attractive terms and eager to participate in the Vietnamese market, the EuroCham analyzed.

These funding sources, however, require more structured solutions in terms of risk allocation such as those that can be derived from private investments in the PPP form.

Streamlining legislation to tackle risks

In recent years, the Government has conducted a process of continuous legal reforms aimed at attracting additional inflows of foreign and private investment.

In November 2017, the Ministry of Planning and Investment (MPI) announced a proposal for a new Law on PPP. Until the end of 2018, no draft text of the proposed law has been released for the public to comment and the proposal is in its early stages, meaning that there is currently little visibility of the issues that the law might eventually address.

The proposed law is expected to be submitted to the National Assembly for approval during 2019.

According to the EuroCham, a comprehensive Law on PPP, in principle, is to be welcomed as an opportunity to consolidate and clarify, and, where necessary, complete the existing regulations in a cohesive framework.

Providing a balanced and practical legal framework around bigger issues relating to financial viability of infrastructure projects to be assisted through the public part of the “public-private partnership” should also be a focus of the legislative exercise.

The EuroCham called for continued efforts to streamline policies and guidelines related to PPPs in order to attract foreign investors in search of infrastructure investments in Vietnam, with a focus on certain key elements such as the availability, disbursement of viability gap funding, and minimum revenue guarantees.

It also stressed the need to test relevant regulations with actual projects so that investors can get comfortable with how they will be interpreted in the context of developing a PPP project.

Meanwhile, Ousmane Dione, the World Bank (WB) Country Director for Vietnam, said at a PPP workshop held in Ho Chi Minh City in late March that PPPs have proven to be a very successful framework to help governments provide the much-needed infrastructure to underpin future economic growth, as well as offer broader social benefits.

He noted that many regional countries have already successfully delivered PPPs in these sectors including the ITE College West in Singapore, the Umbulan Water Supply PPP project in Indonesia, and an upcoming 1,000 ton per day solid waste project in Malaysia.

However, it does not mean PPPs are always successful in these countries nor in all sectors.

“Failures have happened, and we have learnt that for PPPs to be a success, there MUST be a recognition that this is a long-term partnership, where both the public and private sectors need to share not only rewards but also risks”, Dione further said.

PPPs must be a win-win exercise for all stakeholders. The legal, regulatory, and institutional frameworks also need to be clear and robust to enable investors to accept risks over the longer term with some certainty of the frameworks in which these risks are being taken.

The WB official underscored the need to identify concrete areas that require attention of the government at national and sub-national levels to enhance the enabling environment for PPPs. If Ho Chi Minh City succeeds, it will set the path for the overall development of cities in Vietnam, he noted.