July 14, 2020 13:26

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Clearing difficulties for BOT investors

13:26 | 27/09/2019

VCN - While the policy mechanism is frequently changed, BOT projects often have a huge investment, a long loan period, and a lot of risks that make banks cautious about lending money to investors, or appraising project proposals, banks and investors implement work together. However, when facing difficulties and disadvantages, the banks entrust them to investors. These are difficulties that transport project investors are facing.

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According to calculations by the Ministry of Transport, the total investment capital demand for transport infrastructure in the 2016-2020 period is about VND952,731 billion. Photo: S.T.

“A variety of difficulties on leaders”

Chairman of Deo Ca Group, Ho Minh Hoang, pointed out many inadequacies in BOT investment – the commitments being carried out by State management agencies, the Ministry of Transport and localities are not always true to the initial invitation. Investors are not currently treated equally in the spirit of public - private partnerships as well as a party to the project contract. For example, the Deo Ca Tunnel project was supported by the government to allocate VND5,048 billion from the Government bond capital but disbursed slowly for nearly two years. The National Assembly recovered VND1,180 billion because the disbursement was prolonged compared to the initial plans. The Ministry of Transport proposed to abolish the toll station of La Son - Tuy Loan without clarifying the compensation plan with the investor. In some cases, state agencies have made the project and investors unstable.

For the inspection and supervision agencies, when a number of projects are run by investors, enterprises or former investors who violate the law but the violations are not related to the project, the investigators expand the scope to collect information and documents with both new employees and transactions that are not related to the case being investigated and processed. This makes the investment environment insecure, causing parties to actively avoid difficulties in fear and avoid projects.

According to Ho Minh Hoang, in some cases when the project is facing difficulties, the inspections take place more often and "mistakes" are accumulated to provide information to the public, adding pressure on the project without assessing all errors about mechanisms and legal policies and not quantifying the value of the State's errors, but primarily assessing the disadvantages for a side affecting the rights of investors, making people’s perception of BOT projects biased. The main disadvantage belongs to investors.

Entrusting investors

According to Asian Development Bank's calculations, to maintain the current growth rate, Vietnam needs to increase its investment in infrastructure about 11-12 percent of GDP. The demand for credit capital for infrastructure construction to maintain a high growth rate in the next 5-10 years in Vietnam is huge, estimated at US$100 billion. The demand of investment capital for transport infrastructure estimated in the 2016-2020 period by the Ministry of Transport is about VND952,731 billion (including ODA capital, budget capital and non-budget mobilization).

As of June 30, 2019, the total commitment of granting credit to commercial banks for transport infrastructure investment is VND293,500 billion, of which commitments include providing credit for BOT and BT projects. The revenue was VND182,619 billion, an increase of 1.24 percent compared to 2018.

However, the credit extension of credit institutions and foreign bank branches in the field of transport infrastructure investment, especially BOT and BT projects, still has some shortcomings, while risks haven't been assessed comprehensively. BOT transport projects often have a large investment, a long loan period, low required capital (10-15 percent), and most investors have limited financial capacity. In the case of the investment increasing, the investor will have difficulty in adding capital. In addition, long-term loans for transport infrastructure projects also face risks related to the quality of work, objections by vehicle owners and road service users. If the fee is not increased as expected in BOT contracts, the project's revenue source may have to prolong the payback period, leading to the bank having to extend the repayment period, affecting credit quality and business results of the bank.

Ho Minh Hoang, Chairman of Deo Ca Group, said that the bank is now "turning its back" on investors. When appraising a project proposal, the bank and the investor will study. When facing difficulties and disadvantages, they are left to the investor. The bank is a fund sponsor considered a money trading investor – although they benefit from the interest rate, when the project encounters difficulties and problems, they remain silent. The capital demand for transport infrastructure projects is increasing, however, in fact, many commercial banks are "turning away" from traffic projects because of the existing risks in the process of toll collection for these projects. The bank only cares about getting enough and the right collection; they are ready to voice risk and blame this risk on the state and investors who do not fully implement their commitments.

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Therefore, according to Assoc. Dr. Tran Dinh Thien, former Director of the Vietnam Economic Institute, for BOT transport projects, if the unit commits to quality and responsibility, the state must support it, including standing for capital guarantee for investors to borrow from the bank. In addition, the risks of policies and the legal environment need to be acknowledged because at present, the policy environment and the legal system have many problems that causes the old platforms to conflict with each other.

By Xuan Thao/Bui Diep