Vietnam considers borrowing $300 million from China to build border highway

The Van Don - Mong Cai expressway, with its end point being the Bac Luan II bridge approach road, connecting to Dongxing city (China), is being considered for a construction loan from China Eximbank.

The Ministry of Planning and Investment has just sent a report to the Prime Minister after being assigned to clarify the conditions for a preferential loan worth 300 million USD from China.

Specifically, the Van Don - Mong Cai expressway project has a length of over 91km, the starting point connects with the Ha Long - Van Don expressway, the end point intersects with the Bac Luan II bridge approach road (connecting to Dong Hung city, Guangxi province, China). The project passes through 5 localities of Quang Ninh province including Van Don, Tien Yen, Dam Ha, Hai Ha and Mong Cai. The scale of the expressway is 4 lanes, the design speed is 100km/h. The completion time is 48 months.

Agencies believe that investment efficiency and loan options need to be carefully considered. Photo: Giang Huy

The project has a total investment capital of about 382 million USD. According to the capital plan, China Eximbank proposed to finance 304.9 million USD (6,800 billion VND), while Vietnam's counterpart capital is 77.33 million USD (1,700 billion VND).

In consultation with the Ministry of Planning and Investment, the Ministry of Transport said that the Van Don - Mong Cai expressway construction project is important and urgent, and has an impact on socio-economic development. Therefore, the Ministry proposed that the People's Committee of Quang Ninh province transfer the authority to decide on project investment to the Ministry for implementation.

Meanwhile, the Ministry of Finance said that China's preferential loans are all tied to the use of Chinese contractors, technology and machinery. Meanwhile, highway construction investment is a development investment project with direct revenue. Therefore, it is necessary to calculate and compare with the ability to mobilize capital from other sources with lower costs or better quality and technology to avoid risks during the project construction process.

According to this agency, the three most recent preferential credit loans that China is applying to Vietnam have an interest rate of 3-4% per year, a management fee of 0.25-1%, a commitment fee of 0.25-0.5%, and a loan term of 15 years.Previously, the Ministry of Finance had negotiated with China Eximbank on preferential credit conditions for the Hanoi - Lang Son expressway project. At that time, this bank proposed loan conditions of a fixed interest rate of 2% per year and a loan term of 20 years, a management fee of 0.25% and a commitment fee of 0.25%.

Therefore, the Ministry of Finance recommends considering the policy of using preferential credit capital from China for this project, while giving priority to urgent projects with the ability to recover capital. In case this capital source is still used, it is necessary to clearly determine whether the investor is suitable for the mechanism of using project loan capital.

"The project has not yet been decided by the Government on investment authority, so the Ministry of Transport's submission of an outline to register for loan capital use does not have a legal basis in accordance with current regulations. The Ministry of Finance recommends that the investor fully analyze the economic efficiency and have a financial plan in accordance with regulations before proposing capital sources and financial mechanisms for the project," the Ministry of Finance emphasized.

After the Ministry of Finance stated the above viewpoint, the Ministry of Transport responded that if the project was invested in the form of BOT (build - operate - transfer), it would be difficult to attract investors due to the large cost. In addition, this is an area with difficult economic conditions, requiring investment support mechanisms, especially through investment in toll-free transport infrastructure.

Accordingly, apart from China, there is currently no other sponsor interested in this project. Therefore, the Ministry of Transport believes that using this loan source is reasonable and necessary."The Van Don - Mong Cai Expressway is designed to ensure smooth traffic, contributing to the economic development of the North, creating conditions for Vietnam to be a gateway for trade exchanges with China and the ASEAN region," the Ministry of Transport stated.

Regarding scale, the Ministry previously estimated the capital level to be 810 million USD, but to reduce the pressure of foreign debt and the ability to meet the loan capital for the project, the Ministry has adjusted it to divide it into 2 phases, phase I invests in 4 lanes with a capital of 8,600 billion VND and a credit loan with China Eximbank is enough.

In the report, the Ministry of Planning and Investment also identified the construction of the expressway as necessary to promote trade and traffic connection between Vietnam and China.Mobilizing ODA capital and preferential loans is appropriate in the current conditions, but the conditions of the above-mentioned 300 million USD credit loan are not preferential enough to be used for the project under the State budget financial mechanism as proposed by the Ministry of Transport. Therefore, it needs to be considered more carefully.

The Ministry of Planning and Investment emphasized the need to continue negotiating with China to determine the specific conditions of the loan in the direction of "requesting the Chinese side to apply more preferential loan conditions than the latest loan conditions proposed by the Chinese side, not applying the conditions for project implementation in the form of EPC contract (design - installation of equipment and construction of works) by Chinese investors. In addition, it is possible to consider the possibility of using this loan for projects in the form of PPP (public and private investment)".

Meanwhile, the Ministry of Foreign Affairs believes that the use of China Eximbank's loan for the project is necessary and has a positive meaning in the common perception of the two countries' senior leaders, contributing to strengthening traffic connectivity and trade of goods between the two countries. However, the proposal of the Ministry of Transport that the State budget allocates all foreign loans is not suitable for the construction of the highway, for a project with the ability to recover capital and the Ministry of Transport is not a borrower according to the provisions of the Law on Public Debt Management.

Recently, the People's Committee of Quang Ninh province also said that it will continue to report to the Government and ministries on the project's financial plan. The investor of the Van Don - Mong Cai expressway is the Cai Mep - Thai Son - Vinaconex E&C joint venture.

According to VNE