Ho Chi Minh City needs investors to build more roads and bridges but the massive compensation bill, the paltry and slow return on investment, and the risks inherent in such projects scare them off.
Even so, the city is still hoping to attract investment capital of VND40 trillion (US$2.5 billion) by 2010 to improve its transport infrastructure, particularly roads to ease the worsening traffic congestion.
Big outlay, many risks
|The Binh Trieu Bridge|
One of the city’s major infrastructure projects of late is the construction of Phu My Bridge, which is being done in the build-operate-transfer (BOT) form.
At one stage, the VND2-trillion project looked like it would go belly up because of a lack of funds. Only a last-minute loan from the HCMC Investment and Development Fund saved the day.
Another thing is that the initial budget was VND1.8 trillion, but was later raised to VND2 trillion because of technical alterations and higher metal prices.
The project is on an even keel now and Vietnam’s largest cable-stayed bridge will open in late 2009, says Mac Dang Nop, deputy general director of the Phu My BOT Company.
A few earlier BOT projects encountered similar problems because money was in short supply. For example, Cienco 5 had to surrender the Binh Trieu 2 bridge and road project after finishing the bridge (stage one) because of the state-owned engineering corporation’s precarious financial situation.
Far worse than Phu My Bridge, the budget for Binh Trieu 2 Bridge alone, not including stage two, ballooned from VND340 billion to VND1.9 trillion because of the ever-increasing compensation bill for the affected households.
Unforeseen risks like these make would-be investors reluctant to commit themselves.
At a recent seminar on the issue, bankers said they had the money to lend but were uninterested in road and bridge construction as the loan repayments would only trickle back to them.
Mostly, they have to wait until the project owner starts collecting tolls from motorists.
Dodging compensation, afraid of procedures
Ho Chi Minh City Infrastructure Investment Joint Stock Company (CII) has bought the rights to collect tolls on Binh Trieu 2 Bridge and is waiting for the city’s approval to tackle stage two of the project, which mainly involves building approach roads.
The company estimates the roads will cost VND659 billion to build, whereas the compensation for the affected households will be VND2.8 trillion, roughly four times as much.
Nguyen Mai Bao Tram, the company’s investment director, says the compensation is so huge that it would be better to leave the compensation for phase two to the city. His company could just build the roads.
Another bridge where the company would like to be involved is Rach Chiec on the Hanoi Highway. The cost estimate for this project is VND650 billion.
However, CII would not actually build the bridge. It would merely be a silent partner and put money into the project.
“CII doesn’t want to be a direct investor in the Rach Chiec Bridge project and only wants the “safe” option of providing capital because the application for BOT investment has to be made at the central level. It is a very complicated procedure,” said a manager of the company.
“Many agencies have to assess the technical designs for a BOT project so it’s very complicated,” said the Phu My BOT Company's Mr. Nop.
Swapping infrastructure for land
Nguyen Nhu Hiep, head of the Planning and Investment Section of the HCMC Department of Transport and Public Works, admits that potential investors are shying away from transport infrastructure as the huge outlay generates little in the way of profit.
In his opinion, most infrastructure projects are a kind of public benefit, so the BOT form is difficult to use.
There is an alternative investment form, one that potential investors seem to prefer. It’s known as “swapping infrastructure for land,” which means that investors undertake city projects and get land for property development in return.
South Korea’s GS Engineering and Construction Company is building a road from Tan Son Nhat Airport to Binh Loi bridge with this understanding in mind. In return for undertaking the project with US$500 million of its own money, the company will get land in districts 2, 9 and Nha Be.
Given the lack of suitable land, however, this investment form will rarely be used, Mr. Hiep noted.
(US$1 = VND16,161)