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Removing the "bottleneck" of ground clearance for investors in the North-South expressway project

14:14 | 03/06/2019

VCN- The North-South expressway project is currently in the process of opening pre-qualification records and there are many domestic and foreign investors are interested in this project. Reporters of the Customs Newspaper talked with Nguyen Viet Huy, Deputy Director of the Public Private Partnership (PPP), Ministry of Transport about support for investors as well as special conditions of the project.

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Nguyen Viet Huy, Deputy Director of the Public Private Partnership (PPP), Ministry of Transport

The issue of risk guarantee is important investors, so what has the State had to do with this problem?

The guarantee issue has been long established but in this context, the problem of public debt in Vietnam is very big, besides risk sharing from the Government is almost not available so guarantees such as guarantee on revenue, guarantee on third party risks, and guarantee of foreign currency conversion are not provided for this project.

However, in addition to the above guarantees, in this project, there is risk sharing for investors' peace of mind. The first is that the capital has been clear because the National Assembly has passed the project, the second is full support for clearance work. Up to now, land clearance has been a big risk in the implementation of projects, including public or private, but now the site clearance has been arranged by the State's capital, implemented by the locality and we built the PPP contract which clearly defined the construction implementation when the clearance work has reached 70-80%, so that when the investor begins construction, the site is clean. Thus the risk for investors has been shared.

In addition, if there are actual risks, in Resolution 20 / NQ-CP in 2018, on the project of building expressway sections on the North-South route in the East in 2017-2020, it is stated very Clearly that investors can change construction methods and promote new technologies of foreign countries to save costs. With the above support, I think it will attract domestic and foreign investors to join even if there is no guarantee.

How do you assess the capacity of current domestic investors?

I think we have a lot of domestic investors who can afford to do it or investors who don't have the capacity, so they will enter into joint ventures with other investors who can be domestic or foreign to make sure they are qualified. Up to this point, there are projects being sold 17 sets of records such as Highway 45 - Nghi Son, Cao Bo - Mai Son, the total of prequalified records is more than 80 sets.

Many of our completed or in progress projects are facing issues in quality and progress, so what experience can the North-South highway project draw from these projects to avoid these same issues?

As far as I know, most of the problems are related to the progress of site clearance, not the construction progress because most investors have machines and human resources already and have enough capacity to guarantee of progress. Therefore, as I said above, the work of ground clearance will be supported by the State and only handed over to construction investors when it is 70-80% cleared and the rest will be handled during project implementation. So basically, the project will be completed on schedule if we all agree on the implementation of the North-South expressway project.

Currently, the Ministry of Transport has almost handed over all land clearance landmarks to the locality. To be able to hand over 70-80% of the premises before signing a contract with the investor (which is expected by April next year), we will have to free about 70-80% of the clean ground.

In the 13 localities the project goes through, the implementation of site clearance is quite smooth, there are no problems and localities are also very active in site clearance because this project is also confirmed to be a national key project that is paid attention to by the government.

Investors do not have to be worried about road tolls, though many investors are concerned about the change in fees but that is only in the previous stage. For the North-South expressway project, the National Assembly has approved a fee framework for the project (the lowest starting fee is 1,500 VND / km and a maximum of 3,400 VND / km - PV), in the revenue contract. This fee will be fixed during the project life. We affirmed that the North-South expressway has overcome the shortcomings of the recent toll collection by the North-South expressway, which will make the toll collection, how much it will pay, and ensure equality for people to use the road. In particular, the North - South expressway project will use automatic toll collection service from the beginning and investors will be required to use this when deploying fee collection.

In addition to overcoming concerns about exceeding the total investment for this project, the Government has directed bidding at the technical design and cost estimation step, which means that after the total investment, a technical designer will produce a more accurate estimate and we will bid based on this estimate. This will ensure the accuracy of the total investment than the BOT projects, proceeding in accordance with international practice, not being able to complete the bidding and how much to pay for construction, thus bidding will not be effective. Investors can reduce the maximum price to win bids and during the construction process they can completely change construction methods.

The investment form will still be PPP and BOT, according to the provisions of Decree 63/2018 / ND-CP, making the investor's binding obligation to the winning project higher. Investors will have to have a higher equity ratio, which is enough to choose investors with proper capacity?

As stated in Decree 63, equity required is only 10-15% depending on the total investment of the project. However, with the opinion that this equity is low, the Ministry of Transport has reported to the Government to raise the equity level of eight PPP projects of the North-South expressway project in the East in 2017-2020 to 20% of the total.

According to preliminary calculations, this level of 20% will be something quite a lot of domestic investors can meet. For example, with a project of VND 10,000 billion, 20% of owners' equity is VND 2,000 billion, quite a lot of businesses can meet this. Therefore, in my opinion, the issue of equity is not the ability of investors to meet or not, but it is sure that many investors will meet this condition.

In terms of investor selection criteria, how is the review of investors with sufficient financial capacity conducted?

All criteria for evaluating investors are clearly stated in the prequalification profile, of which two criteria are very important to me: financial capacity and experience. In terms of financial capacity, investors must meet 20% of owners' equity, while the criterion of experience capacity is that investors must have similar projects. Specifically, each project has to implement PPP infrastructure with half of the total investment by the project under consideration. For example, with a transportation project of VND 10,000 billion, investors must have done a project of transport infrastructure PPP worth VND 5,000 billion. These are very important criteria to identify investors when bidding for these eight PPP projects.

Nguyen Van The, Minister of Transport:

Up to this point, the Government of Vietnam has balanced VND 55,000 billion of State budget capital to participate in the project implementation, including investment costs to build three segments using State capital as well as capital to participate in eight projects calling for investment in the form of PPP.

The Ministry of Transport is directing representatives of State agencies to work with 11 provinces and cities to route through to speed up the site clearance. We are also striving to hand over all clean ground to investors before starting construction. At the same time, relevant units are studying regulations and proposing solutions to create the best conditions for domestic investors to participate in bidding for the North-South expressway project in the East.

The Government of Vietnam wishes to select qualified and experienced investors to award eight North-South expressway PPP projects through competitive, fair and transparent bidding. This is the first step of the plan set by the Ministry of Transport to be able to "choose the golden sending face" with eight North - South expressway segments expected to be implemented in the form of public - private partners.
Vu Quynh Le, Deputy Director of Procurement Department (Ministry of Planning and Investment):

Regarding the guarantee of minimum project revenue, when issuing prequalification documents, guaranteeing revenue is a difficult target, this mechanism has been applied in South Korea since 1999 but in 2009 in South Korea stopped. As a unit to help the Ministry of Planning and Investment as the focal point to help the Government submit to the National Assembly draft PPP law, the Bidding Administration is also studying this.

Ngo Truong Nam, representative of Deo Ca Group Joint Stock Company:

The biggest concern that domestic investors want to solve when participating in the North-South expressway project is the requirement of the investor's experience capacity, the issue of access to domestic capital, interest rates and credit limits.

With the requirement of financial capacity, domestic investors can work together, accumulating financial capacity to meet this requirement. However, with the requirement of experience capacity investors have to implement projects of similar scale or have equity and have contributed equivalent to the current project, so opportunities for domestic investors are very difficult.

Another problem is making it difficult for domestic enterprises to access capital. Current domestic investors who want to implement projects will have to mobilise domestic credit. However, the mobilisation of domestic credit is very difficult because the banks consider the BOT investment sector a potential risk area. The State Bank is also tightening the rate of mobilising short-term capital for medium and long-term loans.

In addition, the application now applies an interest rate of about 7% per year, while the market interest rate is 11-12%. This is a big gap that the Ministry of Transport has not yet handled and this makes it difficult for domestic investors to accept this interest rate.

By Bui Diep/ Tuan Phong