Attracting private investment capital

(Baonghean) - According to forecasts, in the next 10 years, the demand for investment capital to develop essential infrastructure systems in Vietnam in the fields of transportation, electricity, water supply, and healthcare will be around 400 billion USD. Meanwhile, the ability to mobilize state capital can only meet 40-50% of the demand. In order to effectively mobilize investment capital for infrastructure development, the solution to promote socialized investment is proposed.

According to the Ministry of Planning and Investment, in order to encourage and facilitate economic sectors, including foreign investment, to participate in infrastructure development, promoting the implementation of effective investment forms in this field, especially the public-private partnership (PPP) form, is highly focused on, especially in the context of investment capital from the State budget only meeting a very limited part.

Need up to 300 trillion VND

Currently, the Ministry of Transport is managing 53 PPP projects, mainly in the form of build-operate-manage (BOT), build-transfer (BT) with a total investment of about 132 trillion VND, including 17 completed projects put into operation with a total investment of about 16 trillion VND, 36 projects in the investment phase with a total investment of about 116 trillion VND. In addition, many other projects are preparing to be deployed.

In addition, localities also proposed capital for about 171 PPP projects expected to be implemented in 2016 - 2020, with a capital demand of about 300 trillion VND for the whole country. Thus, PPP is considered the most effective and reliable mechanism to attract private resources (finance, capacity, experience). In essence, PPP is a cooperation between the state and the private sector in investing in infrastructure construction and providing public services. This is an investment method in which the public and private sectors become partners, participating in investing in implementing projects to provide public services. Although PPP is not a panacea to solve existing problems in infrastructure investment, it is considered an effective tool to mobilize more resources for development investment and a solution to increase investment efficiency.

Need for state resources readiness

According to the Ministry of Planning and Investment, in order to implement PPP, the participating parties must comply with a number of basic principles. Accordingly, ensuring harmonious obligations and interests between the parties is a top priority. It should be emphasized that PPP is a partnership, long-term commitment, with equality between the parties participating in the contract.

Rights and obligations are allocated in proportion to the participation of each party and the risks that each party must bear, promoting the strengths of both the private and public sectors. PPP is based on the strengths of state organizations and private investors to minimize risks and appropriately encourage different parties to participate in the process of capital mobilization, construction and operation of infrastructure projects - said economist, former Director of the Bidding Management Department (Ministry of Planning and Investment) Le Van Tang.

Construction of the road section through Hamlet 6, Quynh Nghia Commune (Quynh Luu) down to Lach Quen fishing port. Photo: Huu Hon

The second important principle is that there must be a ready arrangement of state resources for participation. It is obvious that PPP projects need the participation of resources or commitment of support policies from the state for the project to become feasible. State participation is the obligation that the public sector contributes to project implementation. There are many forms of state participation in PPP projects such as: investing part of the construction investment capital, paying annual payments, exempting land use tax, corporate income tax for private investors, investment incentives, etc.

In addition, it is necessary to clearly define the financial mechanism of the PPP project before making the investment. The project must be approved for a loan. In other words, it must satisfy the requirements and standards of financial institutions and banks - the main source of loan capital for the project. The financial mechanism of the PPP project also has another advantage: loans to invest in the project do not increase the state's debt repayment obligations as with ODA projects, while the state still ensures the implementation of the function of providing public works and services.

PPP is not privatization

According to Mr. Le Van Tang, if privatization is considered as the state divesting capital or giving up ownership and management rights, the state transfers these rights to private investors, the state only manages through legal regulations and specialized standards, then in implementing investment in the form of PPP, the state still retains the right to manage, control and even sets standards and binding requirements on quality and service commitments for private suppliers. The ownership of works and projects is essentially still on the state side, because after a period of handing over to the private sector for operation and exploitation, the works will be transferred back to the state - Mr. Le Van Tang affirmed.

Mr. Le Van Tang, in PPP, there are many types of contracts, and investors need to clearly understand the characteristics of each type. For BT, BOT, BOO (build - own - operate) contracts, they are often applied to transportation projects with good revenue from users. For BTL (build - transfer - lease) and BLT (build - lease - transfer) contracts, investors will be responsible for arranging finance to invest in the construction of works/infrastructure and operate and exploit the project. The State is responsible for collecting fees from users and making periodic payments to investors. Thus, this type of contract will be suitable for projects where investors find it difficult to collect fees from users or the collected value is low, not enough to recover capital and create profits such as: railway infrastructure systems (railways, underground roads for Metro lines), airport runway systems, dredging systems for waterway ports, some toll-free roads).

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However, in some cases, the state will make periodic payments to investors based on service quality. It is expected that in the near future, this type of O&M contract will be applied to projects such as: operating highways, some airports and seaports built by the state, operating railway systems, traffic signal systems, automatic non-stop road toll collection systems...

Finally, the BT contract will only be paid by the Government with land funds, no longer in cash as before, and is often applied to locally managed transportation projects.

With some of those characteristics and principles, according to Minister of Planning and Investment Nguyen Quang Vinh, each type of PPP contract, if it wants to be implemented successfully and sustainably, needs to be carefully studied to select and use the appropriate type of contract. In addition, the application must be considered on the overall problem of the whole industry and the whole country to have support between projects as well as have a plan to balance overall and long-term public investment resources. The application of PPP contracts is also one of the important steps in Vietnam's TPP integration process.

Red River