Private sector must be involved in infrastructure development

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VietNam News English - 29 month(s) ago 6 readings

Dr Nguyen Xuan Thanh, manager of the Fulbright Economics Teaching Programme, tells Tuoi Tre (Youth) newspaper that public-private partnerships must be utilised in infrastructure development.

A number of built-operate-transfer (BOT) infrastructure projects have been unsuccessful from a funding standpoint. Why was that?

The BOT model is often applied to projects that offer an attractive return of assets (ROA) for private investors.

Of course when it comes to BOT projects, the Government should support investors in various ways, including capital mobilisation, as guarantors, when it comes to distributing Official Development Assistance (ODA).

However, when it comes in Viet Nam, both the private sector and the State enterprises are involved in BOT infrastructure projects.

There are a number of reasons why BOT projects in our country have failed.

The first factor that should be mentioned is incorrect project appraisal and design. They often come up with a nice forecast of the traffic volume while failing to identify all the project's risks.

During the project's implementation, many unexpected things happen, particularly the escalation in costs. For example, the Ho Chi Minh City-Trung Luong expressway (four lanes and a total length of 61.9 km, of which 40 km is expressway) was initially estimated to cost VND6.5 trillion ($319.7 million) on December 6, 2006. Yet, by 2008, just before the expressway opened, the figure was VND9,884 billion ($ 482.1 million) – an additional VND 3,329 billion ($162.4 million).

When the HCM City-Trung Luong Expressway opened, the transport volume ended up being much lower than predicted. For example it was forecast that huge volumes of container lorries would use Phu My bridge, a major source of revenue for the project owner. Yet, in reality the number of container lorries or passenger coaches using the bridge was far smaller than expected.

What other models should be applied when it comes to infrastructure development?

No doubt, when it comes to infrastructure development the private sector must participate. But when it comes to our country, it is not easy to find infrastructure projects that are lucrative enough to attract the private sector. Even the HCM City-Long Thanh-Dau Giay expressway, which was forecast to attract a high traffic volume, turned out to be a disappointment.

That's why in my opinion we should apply the Public-Private Partnership (PPP) model.

The other factor I would like to mention is that a better mechanism should be applied when it comes to spending. The cost estimate in our country is higher than that of other regional countries and even in developed countries.

In addition, it is imperative to regulate the entire transport system to ensure a balance in the transport volume.

When it comes to PPP, how much support the Government gives is another challenge. It's not enough just for the Government to mobilise ODA.

All in all, there must be a process of negotiation between the private and public sectors, with the involvement of society.

Besides the PPP model, are there any other mechanisms that could raise money for megaprojects?

PPP is trendy at the moment. It is widely applied in other countries. Of course, the amount of support given by the government varies from country to country, depending on the attractiveness of the project. Whatever the case, transparency is crucial. — VNS

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