FINANCING TRANSPORT INFRASTRUCTURES IN HO CHI MINH CITY (VIETNAM) TOOLS, INNOVATIONS AND CHALLENGES

WORKING PAPER Urban Development Management Support Centre - PADDI FINANCING TRANSPORT INFRASTRUCTURES IN HO CHI MINH CITY VIETNAM TOOLS, INNOVATIONS AND CHALLENGES Clément MUSIL , resea

WORKING PAPER Urban Development Management Support Centre - PADDI

FINANCING TRANSPORT INFRASTRUCTURES

IN HO CHI MINH CITY (VIETNAM)

TOOLS, INNOVATIONS AND CHALLENGES

Clément MUSIL , researcher at the IPRAUS (Paris Research Institute of Architecture, Urban and Social Development) and member of the UKNA Network (Urban Knowledge Network in Asia) Contact: musil.clement@gmail.com

Morgane PERSET , urban planner, project executive at PADDI - Ho Chi Minh City Urban Development Management Support Center.

Contact : paddi.mperset@gmail.com

With the support of AFD

N° 2 - 2015

Analysis and conclusions of the document are formulated under the authors’ responsi-bility They may not necessarily convey the viewpoint of PADDI (HCMC Urban Develop-ment ManageDevelop-ment Support Centre), nor that of its partner agencies

PADDI

Founded in 2006, PADDI is an innovative decentralized cooperation project between the Rhône-Alpes Region (France), the Greater Lyon metropolis (France) and Ho Chi Minh City (Vietnam) Under the Ho Chi Minh City People’s Committee supervision, its goal is

to assist the city’s technical departments in various fields of urban management Website: www.paddi.vn

Authors: Clément Musil, Morgane Perset

Translator: Dương Thị Hoài Chân

Copy editors: Fanny Quertamp, Zan-Hee Oh

Printing date: 01/2016

F INANCING TRANSPORT INFRASTRUCTURES

IN HO CHI MINH CITY (VIETNAM)

TOOLS, INNOVATIONS AND CHALLENGES

The Southern metropolis of Vietnam, Ho Chi Minh City (HCMC), has a rapid urbanization rate, reflected through the continual rise in both built areas and population Since the early 2000s, almost 1,600 hectares of land have been urba-nized annually (DONRE, 2013) and the popula-tion has grown 3% per year, bringing the city’s total population to nearly 8 million (GSO, 2013)

Moreover, with an average Gross Domestic Pro-duct (GDP) growth rate of nearly 10% per year since the 2000s, this metropolis has become the main driving force for the country’s economy, contributing about 20% to the national GDP (World Bank, 2014) Like other major Southeast Asian cities (e.g Bangkok, Jakarta, Kuala Lumpur and Manila), HCMC is viewed by many economic

observers as an “emerging metropolis” (Hales et

al., 2014)

The dynamic development of the city stem-med from not only the economic reform policy launched in the 1980s, under which Vietnam abandoned the centrally planned economy and transited to the “socialist-oriented” market eco-nomy,1 but also from the adoption of policies and initiatives to develop urban infrastructures (Gainsborough, 2003) To promote economic growth, the city particularly focused on

buil-ding transport facilities (Nguyen et al., 2004)

In the years 1990-2000, with financial support

from various donors (World Bank - WB, Asian Development Bank - ADB, Japan International Cooperation Agency - JICA, Agence Française de Développement - AFD, etc.) and the participa-tion of private investors, the city government has prioritized the upgrading and building of new

roads (Rosengard et al., 2007), while

moderni-zing major transport hubs (e.g container ports, airports) in order to facilitate the export of goods produced in the metropolitan area

Although the process of modernizing trans-port infrastructures has been pushed forward, the needs of the city and its inhabitants remain high The road transport network is currently under significant pressure HCMC’s city center frequently experiences congestion due to the daily commuting and the increasing number of personal vehicles.2 In the suburbs, the few major axis roads are blocked from time to time due to container trucks transporting goods from indus-trial zones to transport hubs (Người Lao Động, 16/01/2015) Furthermore, according to expert estimates, traffic congestion in HCMC costs USD 1.2 billion each year to the economic stakehol-ders (VietnamNet, 16/09/2014)

To solve these problems, while enhancing the city’s attractiveness and promoting regional eco-nomic integration, in 2013, the city approved an ambitious transport development plan – the

Ad-In a context of rapid urbanization, financing urban infrastructures is a major challenge for most developing cities From a sectorial approach, the transport, and based on the case of Ho Chi Minh City (Vietnam), this paper aims at stressing the limitations that conventional financial modalities (i.e mainly public funds combined with Official Development Assistance) face today when building transport facilities.

Yet since the late 1990s, innovative practices are experienced in Ho Chi Minh City with regards to financing and rai-sing capital Several innovations, both institutional and financial, emerge through the use of flexible Public-Private Partnerships, land resource as financial leverage, and the involvement of key stakeholders as local investment and development funds.

1 - These reforms are

generally referred

to as đổi mới which

means “renovation”

in Vietnamese.

2 - HCMC is

consi-dered a “motorcycle

dependent city”

because traveling by

motorcycle accounts

for 80% of the total

traffic Also, the

num-ber of personal cars

registered by the city

has increased by 10%

each year since 2004

(Musil and Simon,

2014).

justment Plan for HCMC transport infrastructure

development to 2020 and vision beyond 2020

This comprehensive plan displays a significant

number of projects, such as the construction

of new highways, the creation of a wide public

transportation network including several metro

lines and dedicated bus lanes, a new airport, a

deep water port, as well as the modernization of

existing railway network.3

However, this ambitious plan is questionable

in several respects, particularly because of the

technical choices adopted, as it gives priority to

road network construction without addressing

any warnings about the potential harmful effects

of such a development on the environment, and

because of the lack of clearly identified priorities

and detailed phasing Apart from the

aforemen-tioned, the main problem remains the

finan-cial feasibility of the plan Given many opinions

expressing that Vietnam could tumble into the

“middle income trap”4 (Tran Van Tho, 2013),

would the government and city authorities have

sufficient resources to carry out their ambitions

plans?

The questions raised above are also key issues

because in general, developing cities face major

common difficulties in developing

infrastruc-ture and public facilities to meet the needs of

urban dwellers and facilitate economic growth

(Serageldin et al., 2008) For its part,

internatio-nal donors recommend that countries diversify

their financial sources These recommendations

also have certain impacts on Vietnam, given the

country’s dependence on foreign Official

Deve-lopment Assistance (ODA), especially in heavy

infrastructure investments, and facing the risks

of increased public debt.5 Since the 1990’s,

Viet-nam has sought new ways to invest in transport

infrastructure The government has paid more

attention to associate the private sector as well

as private funding (Pham Phi Long, 2007) and

used land resources as an investment leverage

(Labbé and Musil, 2014)

Considering the challenges that HCMC is facing

and the unaccomplished transition from a

plan-ned to a market economy, this paper presents

an insight into the methods of financing urban transport infrastructure Beyond the “traditio-nal” instruments such as public funding and ODA, the uses of new investment practices are exami-ned This paper emphasizes the role of specific local stakeholders and how land resource is used

as an incentive to produce infrastructures The last section of this paper discusses the factors that may hinder the construction of the expected facilities

TrAnSPOrT DeVelOPMenT PlAn

TO 2020 AnD THe PlAnneD InVeSTMenT MeTHODS

With the adjustment of the Transport Develop-ment Plan in 2013, HCMC set a clear mandate

to modernize the transport infrastructure in the coming decade The contents of this plan (objec-tives and projects) are based on the forecasts in the city’s overall Socio-Economic Development Plan (SEDP) Accordingly, in the period

2015-2025, the city population is to increase by 5 mil-lion people and economic growth is estimated at 8.5-10.5%/year.6 The objectives of the transport planning are divided into three main areas:

• Improving the existing transport network (i.e the road network through the construc-tion of multiple roads, highways, ring roads and elevated expressways);

• Solving the problem of traffic congestion through developing a large scale public tran-sit system (composed by metro, monorail, tramway lines and dedicated bus lanes);

• Modernizing facilities that serve as commu-nication interfaces between HCMC and other cities in the world (e.g deep water port and new airport)

3 - Refer to Decision 568/QD-TTg issued in

2013 for the exhaus-tive list of infrastruc-ture projects planned

to 2020 and beyond

4 - Phenomenon that results from a sometimes rapid decrease of the eco-nomic growth rate

of countries pre-viously experiencing overheated growth during many conse-cutive years

5 - Vietnam’s public debt could rise to over USD 92 billion,

or about 62% of national GDP at year-end 2015; this means that every citizen must shoulder USD 1,000 of debt (Tuổi Trẻ, 12/10/2015).

6 - Refer to Decision

No 2631/QD-TTg issued in 2013.

Sub-sectors

Number of project

Sea and waterway

Estimate of investment needs by 2020

and beyond

(in billions VND and equivalent in billions US$)

1 428 836 VND (≈67 US$)

2 582 348 VND (≈121 US$)

Table 1: HCMC transportation infrastructure projects towards 2020 and beyond

Source: HCMC Transport Development Plan adjusted, 2013 (Decision 568/QD-TTg)

The ambition of this plan is reflected through the proposed list of 469 projects of which more than three-quarters fall into the road infrastructure category (see Table 1) The analysis of spatial dis-tributions in these projects however has shown

a number of inconsistencies For example metro lines and dedicated bus lanes, as well as elevated roads are planned to be developed in the central area This stresses that local authorities appear

to not have been able to make a clear choice between public transportation and the use of pri-vate vehicles Also, there is a lack of coordination

to implement a number of these projects, espe-cially the highways and metro lines which stretch from HCMC to neighboring provinces (see Map 1) and therefore require an integrated planning and implementation approach, including coor-dination among involved provincial/city depart-ments and central agencies Furthermore, even though the investment required to implement the proposed plan was estimated to exceed USD

120 billion, the funding and fund management of the plan remains to be clearly addressed

In fact, this highlights the gap between the ex-pected capital requirements and the city’s actual investment capability In 2014, the Department

of Planning and Investment estimated that the

city’s capital budget met only 5% of the total investment required to execute the projects set out for the year (PADDI, 2015a) Meanwhile, the budget allocated for the transport sector (used for building, maintaining and operating infras-tructures and services) already accounted for a significant proportion, i.e 30% of total annual city budget (ibid., 2015a).

In order to guide relevant departments in unders-tanding the state of the planning and mobilizing the necessary resources, the City Transport De-velopment Plan adjusted in 2013 proposes mul-ti-year estimates For instance, the 2013-2015 period needs VND 38,958 billion (≈USD 2 billion) each year, equivalent to 5% of the city’s GDP in

2013 (GSO, 2013) In the next phase, 2016-2020, the annual capital requirement is approximately VND 115,357 billion (≈USD 5 billion), equivalent

to 11% of the city’s annual GDP These forecasts are however only feasible if the city can maintain

an economic growth of 10% per year If on ave-rage, cities of Middle-Income Countries invest 3-6% of GDP in transportation facilities (Foster and Briceđo-Garmendia, 2010), the budget of HCMC for the coming years appears to be overes-timated

Ring road n°4

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road (

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Cambodia

border

Bình Long To

Bình Phước Province

To Phan Thiêt and Hà Nội

To Vũng Tàu

To

Đồng Tháp

Province

To

Cần Thơ

To Phan Thiêt and Hà Nội

Long Thành (project)

Bình Dương Province

Tây Ninh

Province

Long An Province

Đồng Nai Province HCMC Province

Bà Rịa-Vũng Tàu Province

Road and motorway network development within

Ho Chi Minh city metropolitan area by 2020-2030

Motorway Ring road Flyover section of ring road Flyover speedway

Key

Planned infrastructures : Urbanized area

Industrial area Provincial boundaries Water system Airport Port Motorway

Ring road Main road (national / provincial level) Secondary road

Production : Clément MUSIL / Lọc BOISSEAU / Morgane PERSET, 2015 Sources : Decision 568/QD-TTg from 08/04/2013, HCMC transportation master plan amendement towards 2020.

0 5km 10km

Existing infrastructures :

Map 1: Road network development within HCMC metropolitan area by 2020-2030

Source: HCMC Transport Development Plan adjusted, 2013 (Decision 568/QD-TTg)

Given such forecast, in reality, the decision to

deploy a specific project depends on the choice

of the relevant departments When drafting the

municipal budget, the Department of Planning

and Investment and the Department of Finance

will compile a list of projects selected among

those proposed by specialized departments, and

provide funding depending on the city’s

invest-ment capacity Prioritized projects are often

those capable of attracting ODA or private

capi-tal investments In 2012, the city has called for

private investors to invest in key transportation

infrastructure (ITPC, 2012) This is a special

as-pect in infrastructure development that receives

increasing attention due to the need to create

investment opportunities for private investors

The City is expected to expand the participation

of private investors, aiming for 50-55% of the

to-tal project funding from domestic private capito-tal

and 15-25% from foreign investment between

now and 2020 (PADDI, 2015b)

The estimated investment needs provided by

the City Transport Development Plan adjusted in

2013 reveal challenges in mobilizing resources

for the coming years when compared with actual

budget funding for the sector Between 2010

and 2012 the city provided almost VND 16,870

billion (≈USD 1 billion, World Bank, 2013) to

the transport sector, i.e VND 5,623 billion/year

(≈USD 0.3 billion), equivalent to less than 1% of

the city’s GDP in 2012 This figure is significantly

lower than the estimated need of about 5% or

11% mentioned above Given the gap between the city’s planned capital investment and the ac-tual funding provided, it is legitimate to question the financial viability of the current transport planning, as well as the city’s ability to provide the maintenance and operation of such projects

in the future

However, despite many shortcomings and incer-titudes, many projects have in turn been imple-mented Within 15 years, the city road network has been modernized; many bridges and highways have been built (see Table 2) Among these, notable achievements include the comple-tion of the Phu My Bridge in 2009, the first pro-ject following the public-private capital model with participation of foreign partners; and put-ting into operation the HCMC-Long Thanh-Dau Giay highway in 2015 funded by ODA from JICA and ADB These projects were partly completed through external funds to the public budget Thus, although the public authorities have not been realistic in setting out the ambitious trans-port planning, and despite a very tight budget, the gradual building up of infrastructure must be recognized To fulfill the set objectives and main-tain the development pace of the city, the local government has launched several initiatives, par-ticularly in combining various financial sources and experimenting with new tools

comple-tion

mechanisms

Section of ring road 2

East-west motorway

Public (State) / ODA (JICA)

ODA (JICA, ADB)

(in billions VND and

1 223 VND (≈61 US$)

2 000 VND (≈100 US$)

1 100 VND (≈55 US$)

2 360 VND (≈118 US$)

10 800 VND (≈540 US$)

13 400 VND (≈670 US$)

1 500 VND ( ≈71 US$)

188 VND ( ≈9 US$)

6 800 VND ( ≈340 US$)

20 630 VND ( ≈932 US$)

Table 2: Major metropolitan road infrastructures achieved between 2000 and 2015

Source: Báo Ảnh Việt Nam, 11/07/2011; Sài Gòn Giải Phóng, 13/08/204, 15/10/2013, 15/04/2012, 19/05/2009, 26/03/2009; Tiền Phong 30/12/2007; Tin Nóng 27/01/2013; Vietnam News 25/04/2006; Vietnam Plus 15/01/2015; VN Express

08/04/2004, 16/08/2003

Mentions: BOT (Build Operate Transfer) ; BT (Build Transfer) ; ODA (Official Development Aid) ; BIDV (Bank for Investment and Development of Vietnam) ; JICA (Japan International Cooperation Agency); CII (Ho Chi Minh City Infrastructure Investment); ADB (Asian Development Bank)

“TrADITIOnAl” FInAnCIAl InSTruMenTS AnD “exPerIMenTAl”

PrACTICeS

The investment in transport infrastructure in HCMC is primarily based on “traditional instru-ments” used in many developing cities, i.e public capital and public borrowing combined with ODA However, facing the substantial demand for capital investment, the city has tapped into other tools In the context of economic and urban transition in Vietnam, such tools are considered creative and of “experimental” nature This trend

is reflected through three main practices: esta-blishing Public-Private Partnerships in various forms, using land resources as investment leve-rage and establishing a local investment and de-velopment fund

Public investment supplemented by ODA

The City Transport Development Plan adjusted

in 2013 comes along with a schedule for plan-ning the annual investments required In order to implement this schedule, the specialized depart-ments are charged with developing the technical aspect of each project and identifying existing fi-nancial resources It is however difficult for these units to assess the overall investment that the city has or has been able to mobilize due to the peculiarities of the budgeting process

Generally in Vietnam, local budgets are divided into a few major categories; however the entire investment expenditures are grouped in one ca-tegory only Therefore, it is difficult to link the ex-penses and revenues of a local government (see Chart 1) A number of experts have expressed that

such mechanism “lumps investment expenditure

together and makes it anonymous” (Albrecht et

al., 2010:36) Therefore, although the sources that fill HCMC’s budget revenue are identified and detailed,7 the investment financing structure can simply be summarized by: central budget, revenues from end users and loans

Furthermore, in order to avoid increases of local government debts, it is regulated that the local outstanding debt balance can only account for

up to 30% of the total annual capital investment budget However, on this point, HCMC enjoys cer-tain privileges, allowing its borrowing from the State Bank to go up to 100% per year of the total municipal capital investment budget (op.cit.) In

addition, since 2003, the city has a new source

of financing at its disposal through the opening market for municipal bonds (Nguyen Van Dua, 2004) Within a decade, the city has issued on average USD 75-150 million of bonds per year (VIR, 14/03/2013) Despite these financial ins-truments, the lack of specific allocation for capital expenditures in the budgeting process still leads

to uncertainty in the city’s financial forecasts Such reason helps to explain the need to mobilize further additional funds from local governments Reviewing the budget structure of HCMC also reveals that loans provided by international do-nors are incorporated into the public budget.8

These loans are eventually considered as “public funds” This specificity is due to the fact that loans are extended by donors to the government and integrated into the state budget These funds are then allocated to final beneficiaries (pro-vince/city) by the Ministries (Ministry of Plan-ning and Investment and Ministry of Finance) In the case of HCMC, the municipal authority bares the responsibility to execute projects financed

7 - Including central

budget, land taxes,

land use fees, vehicle

registration fees,

cor-porate income taxes,

etc Detailed list can

be found in materials

of PADDI, 2013.

8 - In 1993, with the

lifting of the

interna-tional embargo since

1975 for Vietnam,

international

deve-lopment agencies

(World Bank, Asian

Development Bank,

etc.) officially

resu-med relations with

Vietnam These

agen-cies provide funds to

Vietnam in the form

of loans and grants.

Photograph 1: East-west highway (section of Võ Văn Kiệt urban boulevard)

Source: C.Musil, 2014

by donors, organize tendering, supervise the

construction process and ensure remuneration

for contractors This additional source of funds

is extremely important, accounting for 34% of

the city’s total investment capital whilst

munici-pal funding accounts for 66%, according to the

Department of Planning and Investment (DPI) in

2014 (PADDI, 2015b)

Although considered as public capital funding,

the use of ODA always requests a considerable

counterpart depending on the type of financial

aid agreement.9 These ODA funds usually do

not finance projects entirely, but only co-finance

instead For transportation projects, foreign

aids can only be used to pay for the design and

construction, excluding other expenses incurred,

especially costs for site clearance The city shall

take responsibility for the site clearances

requi-red for projects (land acquisition, compensation

and resettlement of affected households) When

they are involved, donors usually grant up to

85% of funding for transport projects in HCMC,

the remaining amount is the city’s counterpart

funds (Musil and Simon, 2014)

ODA funds play an important role in building

transport infrastructure in HCMC However,

these funds aid may soon experience a potential

decline, and at least not present the same

bene-fits Since 2010, according to criteria of the World

Bank, Vietnam left the “low income country”

ca-tegory and reaches the lower part of the “middle

income country” group This also means that,

from now on, it will be difficult for Vietnam to

receive non-refundable loans (grants); and the

donors will also offer less concessional financial

products However, Vietnam remains a valuable

client for development banks Currently, Vietnam

continues to fulfill its regular repayment

res-ponsibilities, maintaining public debt below the

alerting level and ensuring a stable repayment

ability in the future in terms of economic growth

prospects

In this context, the central government and its

donors have partnered to find new financial

instruments New ideas begin to emerge,

espe-cially by promoting non-sovereign loans to local

dynamic companies that are occupying strate-gic sectors However, this tool is lacking a legal framework, since only the government has the authority to borrow in the policy framework of Official Development Assistance

HCMC the cradle of experimentations

Since the 1980’s, HCMC has been a city of reform and public policy experiments (Gainsborough, 2003) In the current process of nationwide eco-nomic and urban transition, the government has approved a number of flexible institutional and financial regulations to initiate the development

of new models especially for HCMC before the ideas were widely adopted across the country

The ability to experiment with new instruments

is represented by means of infrastructure and public facility constructions contributing to the city’s socio economic development The next sections of this paper introduce three tools cur-rently considered creative and innovative in the development of transport infrastructure

The usage of flexible Public-Private Par-tnerships (PPP)

Limited budgets and the possibility of develop-ment aid reduction are the main reasons pushing the government and local authorities to mobilize the private sector for (partly or wholly) transport infrastructure investments The government also wants to attract foreign private investments in particular in the hope of maintaining foreign investment flows and transfers of skills and tech-nology

In the late 1990s, Vietnam already had provi-sions in form of Public-Private Partnerships.10

This framework has paved the way for the esta-blishment of various contracting models, mainly

Build Operate Transfer (BOT), Build Transfer

Operate (BTO), Build Own Operate (BOO) and Build Transfer (BT) Within the last 15 years, this framework has been adjusted, mainly aiming at becoming more aligned with international stan-dards.11 The adjustment process has been

car-9 - Foreign aid may

be “tied” or “untied” ODA is “tied” when the loans are used

to finance services and goods exclusi-vely from suppliers that are linked to the country that brought the assistance fund ODA is “untied” when the loans can be used

to purchase these goods and services with any partner country In ODA pro-jects with “untied” financial aid open tenders are often required and foreign

as well as local companies can bid Some donors require

to their Country partners to comply with other counter-parties, particularly

to conduct projects regarding ethical, social and environ-mental principles (Musil and Simon, 2014.

10 - In 1997, the first decree (No.77/1997/ ND-CP) on the participation of the domestic private sector was issued

In 1998, a second decree (No.62/1998/ ND-CP) was issued to expand this mecha-nism for foreign investments.

11 - Three decrees issued respectively in

1999, 2007 and 2009 (No.02/1999/ND-CP; No.78/2007/ND-CP; No.108/2009/ ND-CP), and a decision issued in

2010 (No.71/2010/ QD-TTg) have made important additional amendments.

17 %

5 %

32 %

7 %

3 %

43 %

3 %

3 %

19 %

17 %

5 %

32 %

7 %

3 %

43 %

3 %

3 %

19 % Land revenues

(taxes, duties, fees) Local revenues :

Other local revenues Shared tax revenues (shared with central level) Grants and transfers Loans

Postponements

Revenues

Operating expenditures (human ressources, equipment maintenance ) Expenditures

Investment expenditures Other expenditures Debt service Postponements

Chart 1: HCMC 2010 revenues and expenditures allocation

Source: According to HIDS data, Tran Anh Tuan, 2013

ried out with the support of Vietnam’s donors

The latter has always encouraged Vietnam to strengthen the transparency of PPP contracts and identify specific investment models for infras-tructure development In particular, the adjusted contents shall meet the expectations of donors in ensuring minimum income over the long run to

private investors (Albrecht et al., 2010).

This adjustment process led to the existence of two parallel regulations The first one, Decree

No 108 issued in 2009, was used mainly by local investors that under Vietnamese law could also sign a “negotiated agreement with a pre-selected contractor” with the public bodies The second one, Decision No 71 issued in 2010, refers to in-ternational standards aimed at attracting poten-tial foreign investors Until now the government could take advantage of a “grey zone” between the two legal frameworks, having the flexibility

to select appropriate models depending on the opportunities to raise capital and each partner involved

The latter decision (from 2010) opened the field

to implement pilot investment projects in form of PPP Experiences drawn from the pilot projects were also the basis for drafting a new decree

Through this decision, a number of new features appeared such as open bidding, minimum inves-tors’ equity in projects and enhanced project quality inspection before final acceptance Deci-sion 71 appears to target and encourage foreign investors to participate in local projects, since domestic investors have never shown reluctance

in contract signing, mainly in the form of BOT and

BT, under the frame of Decree 108 (see Frame 1)

Since the late 1990s, domestic private investors have been able to engage in Build Transfer (BT), a form of special PPP contracts in Vietnam.12 In this type of contract, that eventually is a construction contract, the investors often receive compensa-tions in kind, especially in form of land to deve-lop real estate projects, instead of cash.13 This model attracts primarily domestic investors due

to specific arrangements and close relationships between investors and the city.14

In HCMC, it is difficult to present statistical PPP projects implemented in forms of BOT or BT, the two most common types of contract in the transport sector Since 2004, the DPI has listed

30 infrastructure projects (transportation, water supply and sewage, waste water treatment, etc.) involving the participation of private investors

However, counting transport projects alone, the Department of Transportation has listed 37 pro-jects of this kind (PADDI, 2015b) Significant dif-ference between the two figures shows that even relevant municipal Departments had difficulty in unifying the concept of PPP While the definition

of BOT is fairly consistent, that of BT remains ambiguous because some consider it a form of

construction contracts, while others argue that

it is essentially a form of Public-Private Par-tnership

Although difficulties and uncertainties exist, HCMC continues to maintain the set targets and looks to increase the number of PPP projects Since 2012, the city has repeatedly called for investors to participate in strategic transport projects (DPI, 2013; ITPC, 2012), such as: reno-vating Cho Lon bus station, construction of 170

km of roads (divided into 26 tendering packages

of which 7 are BOT), building 4 toll roads under BOT (including 3 elevated roads) and building 3 metro and 1 tramway lines

Until now, the government chooses to apply PPP based on criteria such as quick availabi-lity of funds, public debt stabiavailabi-lity and access to foreign technology These criteria suggest that a partnership was established with a short term vision, not yet being fully aware of the borrowing risks in the medium and long-term, as well as the possibility of cost increase for maintenance and operating when equipment’s are transferred For such reason, besides the benefits that PPP offers, the tool also implies potential negative impacts that some private investors in HCMC have already experienced

To resolve the difficulties and constraints for both domestic and foreign investors, and to bring Viet-nam’s legal framework closer to international standards, a new decree on investment in form

of PPP was issued in 2015 (Decree 15/2015/NĐ-CP) This regulation ended the period where two parallel provisions coexisted previously The pro-mulgation of the new decree also serves as the government’s call for foreign investments

Land resources: financial leverage for projects Vietnamese provinces and cities today have two instruments at their disposal to invest partially

or wholly, directly or indirectly, in transport in-frastructure through their land reserves From the collection of land use/land rent fees,15 local governments can generate revenues from land and reinvest in the development of infrastruc-ture The local governments can also adopt the

“land for infrastructure” model with the partici-pation of private investors In HCMC, both tools have been applied in practice

Levied land / land lease

Since the adoption of đổi mới policies, the

autho-rity of HCMC’s municipality has expanded in the field of urban planning and taxes With land use rights recognized in the 1993 Land Law, followed

by policies to modernize the management of local taxes in 2003 and the promulgation of the new Land Law in 2013, the city has obtained new tax revenues on the basis of profits from land and land transactions

12 - With the

excep-tion of Vietnam, such

contracts are not

recognized elsewhere

as PPP, because they

do not actually form

a partnership in

me-dium and long term,

and only the private

partner bears the risk

of construction.

13 - Details of this

arrangement are

pro-vided in page 12.

14 -Typically, these

private companies

were formerly

State-Owned Enterprises

that have been

partially (or

comple-tely) equitized in the

years 1990 to 2000,

of which managers

retain close ties with

the City authorities.

15 - According to the

Vietnam’s

Constitu-tion in 1992, land is

owned by the People

and represented

by the State for

management, thus

indirectly the State

is the owner of land

However, since 1993,

land use rights were

introduced Upon

receiving land use

right certificates from

authorized authority,

owners of land use

rights may transfer,

sell, lease,

collatera-lize, or bequeath such

rights

In fact, the local government can today allocate

land for collection of levy or for investors

(pri-vate/public and domestic/foreign) to lease land

during a certain period (50-70 years) Investors

are conducting development projects (real estate

or industrial) on the land allocated under the

pro-visions of the Land Use Planning Land rent/land

use fees constitute major sources of revenues

for the local government, particularly in HCMC

In 2010, revenues from land accounted for 17%

of total city revenues (i.e approximately USD

510 million) (Tran Anh Tuan, 2013) Assigning/

leasing of land can be approved through

negotia-tion or aucnegotia-tion Although the land revenues

can-not be pre-designated for a specific investment area, and must be merged into the city’s budget with other revenues, they indirectly contribute

to funding the development of infrastructure Currently, revenues from land are not sufficient for the city to invest to the entire planned trans-port infrastructure However, when optrans-portuni- opportuni-ties open up, the city always takes the chance

to experiment with new tools in making ideal investments Especially in the case of Nguyễn Hữu Thọ road which was constructed thanks to the acquisition and the selling of “development strips” along the route (see Frame 2)

Frame 1 – A Build Operate Transfer (BOT) for building the Hanoi Highway expansion in

HCMC: land clearance as a source of tension

In 2009, HCMC Infrastructure Investment Joint Stock Company (CII, a joint stock company with capital contribution from HCMC (indirectly) and many other shareholders, including Deutsche Bank, Goldman & Sachs, etc.) signed a BOT contract with the Department of Transport to expand 15.7km of Hanoi Highway (from Sai Gon Bridge to Dong Nai Bridge) and to operate this road for

25 years starting 2019 CII invested VND 2,516 billion (≈USD 120 million), 20% of which was equity and 80% borrowing capital

Photograph 2: Expanded section of Hanoi Highway in HCMC

Source: C.Musil, 2014.

Regarding the shared responsibilities between the two contractual parties, the risks relating to site clearance (land acquisition and compensation) fall under the city’s responsibility Accordin-gly, the city committed to deliver cleared ground to CII in 2010 in order to complete the project by

2013 Further to the city’s commitment, CII made its business plan based on a projected capital recovery and repayment methods

However, by the beginning of 2015, the land clearance engaged by the city was not completed

In a short term, this delay directly impacts work progress and in a long term would definitively postpone generating fee revenues by installing a toll As a consequence, CII indicated that they are already suffering from this situation and a number of losses and would probably not make debt repayments on time In addition, as the city also invested in other road projects competing directly with the Hanoi Highway section that CII is operating, the company starts to face serious financial issues for this project

It is now common that tensions appear between authorities and investors about delays that jeo-pardize the private partners’ return on investment In some cases, such as the Phu My Bridge BOT project, investors (here the Phu My Bridge Construction Investment JSC) threatened to withdraw from the operation and requested compensation from the city

Sources: PADDI (2015b: 28-84); Vietnam news (01/20/2015); Nguyen Xuan Thanh, 2013; www.cii.com.vn