Lesson 1: State capital still plays a leading role

(Baonghean) - In the context of increasing demand for transport infrastructure construction, but investment from the state budget is stuck at the threshold of public debt, preferential ODA sources tend to decrease because Vietnam has become a middle-income country, requiring the participation of the private sector in this area has become urgent. How to turn the situation around, what difficulties and challenges must be overcome to be able to mobilize the participation of the private sector in this field?

Vinh Airport - Photo archive.

Over the past decade of development, Vietnam has diversified its sources of capital for transport infrastructure development. In addition to state budget capital, including official development assistance (ODA), Vietnam has mobilized capital from issuing government bonds (G-bonds) and non-state budget sources to meet the needs of transport infrastructure development.

The proportion of investment capital changes slowly.

Thus, the state budget capital still tends to increase, although the proportion of the state budget capital in the total capital has decreased. Similarly, ODA capital also increased, but the proportion of ODA capital in the total investment capital for transport infrastructure decreased by 18.7%. The proportion of capital from government bonds tended to increase sharply from 23.2% in the period 2001-2005 to 28.7% in the period 2006-2010. In addition, a large amount of capital from the non-state sector has been poured into the construction of seaports and roads. It can be said that in the recent period, investment in transport infrastructure has mainly come from the budget and foreign aid, and the mobilization of non-state budget capital has changed slowly in terms of its proportion in the total investment capital.

Not attractive to foreign investors

However, for the private sector, participation in the road transport sector is mainly from domestic investors, the participation of the FDI sector is still limited. BOT toll roads are not really attractive to foreign investors because the transport projects do not have enough traffic volume to make the project financially feasible if only relying on toll collection, while facing many risk factors affecting the investor's profits.

Innovation in organizational model of activities

Recently, Vietnam has made some new moves related to equitization, privatization of ownership and exploitation of seaports, airports and highways. These moves have attracted the attention of some investors in terms of exploitation concessions. Therefore, the fundamental issue is to reform and innovate institutions through innovation of organizational models and promote the equitization and exploitation concession process to attract investment capital from the private sector.

Roads in many places need upgrading. Photo by Huyen Trang.

In reality, regarding payment and capital recovery for investors, implementing the policy of innovation, opening up and integration, the adjustment documents were issued relatively early, and have been the legal basis for private sector investment activities in the infrastructure sector. However, in reality, the implementation of this mechanism can easily lead to loss of revenue for the State budget and distort the market. Land prices for payment to investors are often lower than market prices and land is priced before infrastructure is built, the value of transport infrastructure works is not priced in accordance with actual quality and volume. Despite great expectations, capital mobilization under the PPP form of cooperation still faces many difficulties.

Red River