North-South Expressway faces difficulties in capital mobilization

The National Assembly Economic Committee has just released a report assessing the investment policy for the project to build some sections of the North-South expressway in the East in the 2017-2020 period.

Citing the Government's report, the National Assembly's inspection agency said that after adjusting the feasibility study steps, the North-South Expressway project adjusted some sections, increasing the length by 3 km but the total investment was reduced by more than 13,500 billion VND. Of which, the investment capital from the budget decreased by nearly 4,000 billion VND, and the investor's capital decreased by more than 9,500 billion VND.

However, the issue of interest rates on loans to implement this expressway project has worried the National Assembly's review agency, because current regulations make it difficult for investors to access loans, and potentially increase the amount of State capital poured into the project during implementation.

According to the regulations of the Ministry of Finance, the interest rate of loans for projects implemented under the public-private partnership (PPP) form must not exceed 1.5 times the average interest rate of winning bids for government bonds with terms, about 7.72% per year. This is also the interest rate used as the basis for approving feasibility study reports and preparing bidding documents.

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This interest rate has a significant difference with the actual long-term loan interest rate on the market, which is currently around 10.5-11% per year, causing difficulties in accessing capital, as well as the possibility of banks considering providing credit for the project being unfeasible.

Preliminary calculations by the Economic Committee show that if the market interest rate is updated at 10.5% per year, the amount of state investment poured into the projects will be about 55,000 billion VND as initially, not reduced by nearly 4,000 billion as reported. And the payback period for the 8 component projects under the PPP form is 24 years.

Therefore, the Economic Committee recommends "carefully considering taking market interest rates when the State capital participating in project investment is very large, accounting for about 50% of the total investment of the project".

The agency also asked the Government to clarify the increase in the proportion of state capital in the pre-feasibility study stage compared to the feasibility study stage. "Investment projects in the form of PPP with long payback periods will affect the efficiency of the project when, according to calculations, PPP projects achieve the best efficiency within a payback period of 10-15 years," the Economic Committee assessed.

In addition to interest rate issues and difficulty accessing loans, the ability to complete the entire North-South Eastern Expressway project according to the National Assembly's Resolution also worries the Economic Committee.

The North-South Expressway investment project consists of 11 component projects. Currently, 8 component projects invested under the PPP form have completed the preparation of feasibility study reports, approved environmental impact assessment reports and compensation and resettlement support policy frameworks, as well as completed the appraisal of feasibility study reports.

With 3 public investment component projects, the feasibility study reports for the 2 sections of Cao Bo - Mai Son and Cam Lo - La Son have been approved. The My Thuan 2 bridge project and the approach roads at both ends of the bridge are expected to have their feasibility study reports approved in October 2018.

Because the progress of the component projects is still "only determined to be basically completed", the possibility of completing the entire North-South expressway project according to the National Assembly's Resolution, the Economic Committee commented, is difficult.

"The Government is requested to direct the Ministry of Transport, relevant ministries, branches and People's Committees of provinces to urgently speed up progress according to assigned tasks," the National Assembly's inspection body recommended.

Regarding the 3 km increase in total route length, the Economic Committee pointed out that because the projects were implemented from 2010 - 2012 but had not been invested in or cleared, some localities had allocated land for construction or adjusted local planning to overlap with the planned land fund for the highway.

Therefore, this agency requested the Government to clarify the level of impact of the route adjustment on the entire project and to make additional assessments and impacts on the socio-economic situation when the route and length of the entire route change.