Finalizing the bidding price to select investors for the North-South expressway project

Determining the price and toll increase roadmap is a prerequisite for conducting bidding to select investors for 8 segments of the North-South Expressway under the PPP form, to be implemented from now until 2020.

Service price characteristics

Road service prices are a mechanism and policy under the authority of the National Assembly that the Government wants National Assembly deputies to approve in the Report on investment policy for the construction of some expressway sections on the North-South Eastern route, phase 2017-2020, presented by Minister of Transport Nguyen Van The, authorized by the Prime Minister, this weekend.

Specifically, to bid to select investors for the 8 North-South expressway segments selected for investment under the BOT form, it is necessary to determine the price right from the time of approving the Feasibility Study Report and preparing the bidding documents.

Finalize bidding price to select investor for North-South expressway project.

The reason the Government has to request this special mechanism for PPP projects with a payback period of about 24 years is because according to the law on prices, road service prices are managed by the State.

Specifically, the principle of price determination is stipulated in Clause 1, Article 20 of the Law on Prices: "Ensure compensation for actual reasonable production and business costs, with profits consistent with market prices; consistent with the State's socio-economic development policies and guidelines in each period".

According to Minister Nguyen Van The, with the principle of "Ensuring compensation for actual production and business costs, reasonable profits in line with market prices", the necessary service price is about 2,500 VND/PCU/km, unchanged throughout the project's operation (PCU is a vehicle converted to a 5-seat vehicle as the standard).

However, the price of 2,500 VND/PCU/km at the time of starting commercial exploitation is quite high, beyond the people's ability to pay, does not attract vehicles, so it does not ensure investment efficiency. In case of applying the current average price of 1,500 VND/PCU/km and not changing during the project's commercial exploitation, it will be suitable for the people's ability to pay, but the State's support for projects implemented in the period of 2017 - 2020 will increase by about 25,380 billion VND.

Need predictive basis for bidding

According to the head of the transport sector, with the principle that service prices must be “consistent with the State’s socio-economic development policies and guidelines in each period”, the bid price framework may have to be adjusted when the State’s policies change. This cannot be foreseen, so it is impossible to calculate the financial plan for bidding to select investors.

“In order to have a reasonable initial price, suitable for people's ability to pay and increase the attractiveness of vehicles using the route, and at the same time serve as a basis for calculating financial plans and organizing bidding to select investors, we recommend that the National Assembly allow the decision on the service price framework from the beginning and the price is not adjusted according to the State's socio-economic development policy in each period,” the Government's submission stated.

It should be added that, in the examination of the Investment Project for the construction of a number of expressway sections on the North-South Eastern route, phase 2017-2020, the National Assembly's Economic Committee proposed 2 options to seek opinions from National Assembly deputies,

Accordingly, option 1 - agree in principle to determine the specific starting price and price for each period as the basis for bidding to select investors according to the provisions of law, in accordance with the people's ability to pay and the investor's ability to recover capital. Option 2 - determine the price according to the market based on the construction price index in each period.

According to Chairman of the Economic Committee Vu Hong Thanh, the general opinion in the Committee proposed to choose the option of accepting in principle the specific determination of the starting price and the price for each period as the basis for bidding to select investors according to the provisions of the bidding law, in accordance with the people's ability to pay and the investor's ability to recover capital.

“The Government’s proposal and the general opinion of the Economic Committee regarding the initial price are in line with international practice and are the basis for conducting competitive bidding to select investors,” commented Mr. Tong Tran Tung, Vice President of the Vietnam Bridge and Road Science and Technology Association.

According to Investment Newspaper