Luận văn thạc sĩ Quản lý công: Public-private partnership in infrastructure investment in Vietnam

The official definition in legal regulations of Vietnam on PPP model is established by relation: * Investment in PPP model means that the state and private investors combine to implement

Q27 UPPSALA UNIVERSITÉT côiUPPSALA UNIVERSITY OF ECONOMICS & BUSINESSVNUH `”

Authors; NGUYEN TRI DZUNG

TRAN DIEM LANNGUYEN THI THANH TAM

Supervisor: Prof Dr SVEN JUNGERHERN

Dr HO SY HUNG

Class: MPPM INTAKE I - Group II

Hanoi, May - 2011

ABSTRACT MODEL FOR MPPM

THESIS SUMMARY

1 Title: Public - Private Partnership in Investment in Infrastructure

2 Level: Final assignment for Master Program in Public Management

3 Authors: Mr Nguyen Tri Dzung, Ms Tran Diem Lan, Ms Nguyen Thi

Thanh Tam

4 Instructors: Mr Sven Jungerhern, PhD., Lecturer at Government

Department Uppsala University, Sweden; and Mr Ho Sy Hung, PhD.,

General Director of Enterprise Management Department, Ministry of

Planning and Investment, Vietnam

5 Date of submission: 18" May, 201

6 Objective: To implement the effective applications of Public- Private

Partnership (PPP) model in the technical infrastructure sectors in Vietnam.

- Research Issue: To study and obtain the optimal aspects of the PPP model for

technical infrastructure sectors in Vietnam, for the context that the C ountry's

economic development phase requires a great demand for scope, and quality in

the technical infrastructure systems

- Motivation of the work: The research conducted with the aim of studying the

issues involved in PPP investment, and hereinafter analyzing the reasonable

solution for building technica! infrastructure system, the related conditions,

cpabilities level, applied in Vietnam

With the aim at continuing complete the research, we were ambitious to gain

comments from Supervisor Council and Opponent Groups at the Defense

Seminar on 18" May, 2011 Those possitive comments assisted our group to

expand clarified and transparency acknowledge on the research issue.

7 Research approach:

7.1 Sources of data are obtained selectively from:

¢ Professional reports, survey, - basic research, and also based on fact and

figures generated about the statement management of public technicalinfrastructure in Vietnam

¢ Creditable references from “The Development Strategy for multiple of

sectors in Vietnam”, the documents abstracted from PPP related Workshops,

the researches of the Asian Development Bank, etc

7.2 Analysis methodology:

The methodology is combined by theoretical analysis as well as practical

research about application of PPP in the real case study, so that could lead to

evaluation, generation of recommendations for the issues stated in the thesis

The considered and revised contents of the thesis concentrated to PPPapplication, assestment on applied ability analysis on PPP’s core issues Ourgroup implemented addition of data in the thesis’s Chapters Analysis ofcontentions were implemented under the principles on assestment, multicipleview

The structure and ranking of annexes in the thesis is an important thing, theannexes are presented scientifically and focussed on discribing PPP model in

Vietnam Questionairs on water supply, sewage and waste treatment are

attached in the annexes Translation (Vietnamese into English) requests much

effort to clarify ideas and contents of the thesis, it is not much easy due to many

technical words

Our group were active to get comments and recommendations from Vietnamese

supervisors — Dr Ho Si Hung as well as specialists, managers of Ministry of Construction, Ministry of Planning and Investment and Ministry of Agriculture

and Rural Development of S.R Vietnam in order to complete the thesis We are

promoting to write an article on this research topic for the Construction

Magazine under the Ministry of Construction.

8 Results & conclusions:

- Result: the thesis was conducted with attempts to illuminate the necessity of applying the PPP model, to describe and analyze the basic factors which have

influence on the issue After studying carefully, and evaluating, the authors

would like to propose several approaches in order to reach to the more

effectively implemented PPP model in the field of technical infrastructure in

Vietnam

- Conclusion: clarify the key points which relate to and might affect the

application of PPP model in investment projects of building technical

infrastructure in Vietnam

9 Proposal for further research:

We have plan to research further this issue, may be at the Doctor Degree on

PPP model application in infratructure construction to improve theoretically and practically The advantages of research are systems of assesment database,

study conditions which might be supported by daily works and functions at

offices `.

There should have the more specific and in-depth studies on PPP model which

apply to variety forms of technical infrastructure, especially for the fields

requiring clear and direct role of the State , and might affect to their people’s

life quality (e.g large- scale waste treatment, clean water supply for

concentrated industrial zones, and so on)

10 Contributions of the thesis.

1 Group members are working at Ministries relating to making policies on infrastructure systems

The study would like to contribute and enrich theoretical and practical aspects

in economic relations between the Government and the private sector This

would hereinafter raise a more adaptable perspective on public expenditure in construction investment, and the role of government in the market economy

together with development trends in public-private partnerships.

11 Keywords: Harmonization of benefits.

Once again, with best efforts and strict working spirit, we would like to

express sincere thanks to the Government Faculity — Uppsala University,

Professor Dr Sven Jegerhem, coordinator and staff of Economic University —

Hanoi National University who assist our group duration of approaching and

researching the valuable knowledge on PPP model in infratructure construction

investment in Vietnam

CHAPTER 1 NATURE OF PUBLIC —- PRIVATE PARTNERSHIP MODEL

AND POLICE ON PPP IN VIETNAM 2 Seo |1.1 Nature of PPP and policies to PPP model 1c |

eee OF PPP MOGE! 0 1.00.00.00sscecsscacsssssssccesercsesssssseseceesecesseconsees 21.1.3 Benefit from applying PPP model: cccccccccccccccsseseesesecscsevseseseeseses 3

1.2.1 Overview of Vietnam ’s regulations to PPP 2s S325 22 22552 6

CHAPTER 2 NECESSITY OF APPLYING PPP MODEL AND CURRENTSTATUS OF APPLYING PPP IN INFRASTRUCTURE INVESTMENT IN

ME Naha ^^ 10

2.1 Necessity of PPP application and current status of applying PPP model in

infrastructure investment in Vietmam ccccccccceccsceesseseessesseeseeseeseeseeeees 10

2.1.1 Necessity of applying PPP model in Vietnam: 55-55 <s<+ 10

2.2.1 Example of solid waste treatment plan apply technology on solid

a 5 ââs 13

CHAPTER 3 INTERNATIONAL EXPERIENCES ON PPP IN

INFRASTRUCTURE CONSTRUCTION INVESTMENT 19

3.1 Experience on cooperation between the State and private sector of

infrastructure construction invesment in €OunitrI€S + <<-++5: 19

CHAPTER 4 EXPERIENCE LESSON AND RECOMMENDATIONS TO

APPLYING PPP MODEL IN INFRASTRUCTURE INVESTMENT IN

7?

X ,.((s«ss sss›$› - -“ 2

4.1.1 Recognize risks in PPP project implementation in Vietnam 2 2

To be able to do the study, we would like to express our special gratitude to

the Government Department, University of Uppsala, Sweden to suggest

research directions related to this subject Dr Sven.Jungerhem, Lecturer inGovernment Department, University of Uppsala Sweden, should be prompted

by a honor name for his esteemed contribution during our research thesis In the true sense, we would like to thank to the kind and consistent support from specialists in Training International Cooperation Center, University of Economics , Hanoi National University Our colleagues from the Ministry of Construction, Ministry of Planning and Investment, Ministry of Agriculture and Rural Development, of the Socialist Republic of Vietnam, have helped us with the distinctive spirit of cooperation on providing data and proper figures.

In particular, we would be pleased to show our gratefulness to Dr Ho Si

Hung, Director of Corporate Management, Ministry of Planning and Investment of Viet Nam, for his great advices on our research As a manager,

an expertise researcher, Dr Hung has navigated us to approach the topic in regards of more complete and deeper issues From this thesis, we wish to

continue to gain strength for the research field works, its development and

application for the relevant issues in Vietnam.

Sincerely yours,

Team members Agency

Nguyen Tri Dzung Ministry of Construction

Tran Diem Lan Ministry of Agriculture and Rural Development

Nguyen Thi Thanh Tam = Ministry of Planning and Investment

With the aim at sharing knowledge and experience on issues relating to investment and development, especially the State’s role in implementing

development target, we have been active/ forcible in selection of this issue to

research In past years, Vietnam has been considered a typical example that

shows how important significance of infrastructure investment to rising and improvement of living standard with the sustainable development goal.

While Vietnam is implementing actively progress of changing into further

industrial economy, urbanization and globalization that remain economic growth at 7-8%/year, infrastructure investment needs increasing to 12% GDP Financial demand shows great investment distance, it is necessary to

have involvement of private sector together with traditional public resources.

On the other hand, better respond possibility on service quality, experience

and management skill will create greater role of private investors in

encouraged environment on right and duty Integration of strong factors of public and private sectors will require cognition and collection on attractive

measures and risk limitation in advance implementing a specific PPP project.

Our research express efforts to contribute to finding out effective measures to PPP model for infrastructure investment in Vietnam Several case study have

been presented to explain main issues in PPP model which is benefit

harmonization.

This thesis raises and discusses contents regarding main issues on successful implementation of PPP model in Vietnam that is benefit

harmonization The issue has been proved by analyzed evidences relevant to factors on PPP implementation as well as practical examples on water drainage and waste treatment Case study is presented appropriate with

current situation in Vietnam The research objectives and recommendations

aim to provide reasonable measures to carry out a Public Private Partnership

CHAPTER 1 NATURE OF PUBLIC - PRIVATE PARTNERSHIP

MODEL AND POLICE ON PPP IN VIETNAM

1.1 Nature of PPP and policies to PPP model 1.1.1 Definition on PPP

PPP is not a new definition in the world and has been established inVietnam for many years Current acknowledge on PPP is assessed ratherunique and approached by relationship between the State and private.According to international experience, thanks to PPP model application,

pressing issues of big cities have been addressed such as traffic jam, clean water supply and job creation.

According to definition of ADB, PPP presents relations between theState and private organizations relating to infrastructure and other services.The Government’s contribution to this relation can be investment capital,

property transfer or committeemen Private sector provides strength on

qualification, technique, management and operation skill to construct and

exploit projects effectively.

An expert from the World Bank defines "PPP is a contract signed

between the State agencies and private investors to build the project,

providing services with some specific criteria Annually, State authorized agencies make a list of priority PPP investment projects and conduct

competitive bidding for selection of most experience qualified foreign and

domestic investors”.

The official definition in legal regulations of Vietnam on PPP model is

established by relation: * Investment in PPP model means that the state and

private investors combine to implement project on infrastructure development

and public service based on project contract,

Contracts under the PPP include: contracts of service, management,

renting or bidding transfer, BOT, BT, right transaction, business ect These

forms are implementing in Asia in which each method has different approach

and risk level

1.1.2 Nature of PPP model

In PPP relation, risk will transfer to which side could manage best The

Sate usually looks for to capital, capacity and experience of investors andprivate sector’s vanguard of technology and technique However, PPP is only

a rather new approach in the world ( about 50 years), there are a fewexperience lessons on this issue in developing countries in which there is

Vietnam

Nature of PPP is combination between public and private sectors based

on contract of proving possession and service PPP model requires suitable

classification on roles and fair sharing, responsibility, cost and risks between

public and private sectors

We think that PPP approach method is not a multipower medicine The

main cause of PPP application in infrastructure services aim to gain better

infrastructure effectiveness and higher currency value comparing with

traditional method of public sector

Table 1 The advantages and limitations of trading methods based on the

PPP model

Main advantages Main challenges

Using skills, technology and Public sector can be difficult to

management experiences of the control if there is no information or detail

private sector appraising for the project

Public sector must focus on output | Capacity and skills of the public sector can

and benefits instead of focusing on | not meet requirements or can be skeptical

inputs as traditional investment about the experience and expertise of the

Control payment tightly, limit losses | Flexibility in solving problems

and negation

Proposed measures for attracting private’s participation are relating to the

State’s financial support and commitments (policy, land, tax )

Table 2 Prerequisite conditions in applying PPP model

Political PPP mode

commitment refund frame basis

High High High

Source: Heather Schilling and Kathleen Booth 2007.

1.1.3 Benefit from applying PPP model:

PPP model is essential to use effectively financial resources from

private sector to provide public services is charged by the State while people

community could receive the best service In order to ensure those

requirements of PPP model, simultaneously attract private investors, UK's

experience is to emphasize important roles in formulating project documents

and contract’s contents between the State Authority and the Bidder with

consultation from professional specialists on PPP.

According to specialist’s assessment show that PPP is a rather effective

model It is not only to make favorable conditions for domestic and foreign

private investors, to take the initiative to apply modern technologies in

construction, but also to mobilize big capital of private in public construction

works From those benefits, PPP model is proposed as feasible investment

form to infrastructure projects in Vietnam .

In case of correct implementation of PPP model that will reduce risk,

especially in the elementary period due to PPP frame regulates strict selection

progress to PPP project according to fundamental standards and pre-feasible

research

Beside that, PPP frame also regulates calculation measure on budgetallocation, it is necessary to require assistance from Government and

project’s dependence on the Government as well as Government’s guarantee.

Better preparation progress for projects will reduce negotiation timing and

bidding cost for private investors

According to economic view, PPP model is not an unique and

immediate measure which is a method to balance the lacked capital betweeninvestment demand and available capital resource Following to specialist in

investment field, in many countries in the world PPP is considered as a

normal investment form similar to other ones Some countries are successful

in PPP implementation and mobilization to infrastructure investment, beside that many countries are fallen and could not attract much resources from PPP

model

In the fact, investment in PPP model is only proved successfully insome developed countries in which the State Authority’s management

capacity is developed and transparency such as: UK, Japan, Korea, South

Africa, Australia ect Most of South East Asia countries have just

implemented this model such as Singapore which is only developed PPP since

recent 2-5 years and is facing difficulties Thailand, Laos and Cambodia have

been approaching implementation of PPP, but it is necessary to have time for

strengthening assessment’.

PPP application in Vietnam has been analized with trends of

developing countries in situation to need huge investment amount in

sustainable infrastructue development A tight partnership is necessary for the

' This issue is analyzed clearly in '* Chapter 3, International experience in PPP in infrastructure

investment”

State to create success in proving infrastructure for development while private sector is not be able to meet this demand themselves.

Policy scheme on attracting private sector to involve in infrastructure

investment, models of investment, priority and supportive measures for investment, operation methods, These issues are described as general

picture on current policies for PPP scheme in Vietnam

Specific legal frame on PPP will create infrastructure projects to be

more attractive for private investors, especially foreign investors Pre-feasible

and feasible research progress implemented by the Government will createbelief to private investors that the Government analyzed comprehensivelyrisks for researched projects Many projects are carried out ineffectively or

unattractively Through in advanced identification of amplitude of capitalcontribution and acknowledge on the Government’s suitable support ( pre-

subside, pre-payment, land ect) that projects will be attractive to foreign

investors.

Comparison between selection of PPP measure and conventional modelallows to confirm that it is necessary to have PPP model and decision andapplication ability to relevant issues During implementation phase of

infrastructure project, private investors have to cope with many risks from

bidding, negotiation, construction and Government

In summary, benefit from PPP model iinks with contract’s agreements

that identify roles and responsibilities of stakeholders The focal issue of PPP

is toward to benefit harmonization Participation level of private sector in PPP

is showed at the below chart:

1.2 Policies to PPP model in Vietnam’

1.2.1 Overview of Vietnam’s regulations to PPP Infrastructure is considered as background for sustainable development

goal as well as improvement of living standard, especially in urban area For economic field, infrastructure is one of wire hoods of Vietnam’s economy.

Harmonized evolvement of relationship between quality and growth depends

on useful of proposed infrastructure investment projects Other economic

sectors of Vietnam will be able to develop if infrastructure system is basically

adequate Infrastructure investment demand is great while limited finance resources that requires feasible calculations on policy to attract involvement

of private sector

In Vietnam, the PPP is known newly as a method to share the cost

burden of the State in infrastructure investments as well as to achieve the

objective of improving the quality of infrastructure services Therefore, policy system on PPP model is rather new This requires appropriate steps

and roadmap, which consists of a pilot model Currently, the areas selected

——————

2 Find further at Annex | of this Thesis

for the application of this model include: water supply, management and solid waste disposal, urban transport (urban roads, parking stations and

pedestrian bridge ), airports, ports, major bridges and roads, power plants,

medical facilities, shopping centers, administrative centers,

Currently, the Prime Minister of Vietnam issued Decision No.71/2010/QD-TTg November 9, 2010 together with Regulation on pilotinvestment in the form of public - private partnership (PPP) Accordingly,investment in the form of public-private partnership is understood as the stateand investors together to implement projects of infrastructure development,

provide public services on the basis of the project contract The selected

investors will be conducted through public bidding held domestically or

internationally

Specifically, this regulation prescribes the principles, conditions and

procedures applicable to the nine pilot areas, including roads, bridges,tunnels, ferry, rail, railway bridges , rail tunnel, urban transport, airports,

seaports, river ports, water supply systems, power plants, healthcare(hospital), environment (waste treatment plants); and infrastructuredevelopment projects, provide other public services as decided by the PrimeMinister

Principles of pilot investment in the form of PPP are to ensure the

attraction of private capital domestically and internationally, without result inpublic debt Regulations also stipulated that equity investors must be at least30% of private capital participating in the project and is mobilized (without

government guarantee) maximum 70% of private sector capital participated

in the project The selection of investor that implement the project will be

done on the basis of competition, fairness, transparency, economic efficiency,

in accordance with the law of Vietnam and international and general rules.

Conditions for the projects located in areas considered pilot must meet

the criteria such as: important projects, large scale, there is an pressing need

for economic development, the ability of capital recovery to investors from collecting reasonable fee of the users, projects are likely to exploit the advantages of technology, management experience, efficiently operate and

use financial capacity of private sector; other criteria as decided by the Prime

Minister State’s contribution in the PPP pilot project will be decided the

Prime Minister on the basis of recommendations of state agencies with the

competence and the evaluation opinions of the Ministry of Planning and

Investment However, the total value of the State's budget contribution willnot exceed 30% of the total investment of the project (except ion by the

Prime Minister's decision)

It is worth noting that the Government of Vietnam has decided to

implement pilot public private partnership mechanism before issuing a

comprehensive policy on this issue It is understood as a deliberate test

although 71/2010/QD-TTg decision implies official statement of policy

mechanisms for cooperation under PPP model

The legal regulations in Vietnam allow approaching PPP in terms ofrelations, under which: "Investing in the form of public-private partnership is

the state and investors together to implement infrastructure development

projects, provide public services on the basis of the project contract.” Based

on this definition, it can see the form of PPP is not new in Vietnam Several

infrastructure projects have been implemented based on the legal framework

of the Decree 108/2009/NDCP, regulations on the form of Build Operate

Transfer (BOT), Build Transfer Affairs Operations (BTO) and Build

-Transfer (BT) The investment forms are contained expression of the PPP

model

The above investment forms contain PPP model’s performance, beside

that, in regulations of Investment Law, Construction Law, Bidding Law ect are relevant to PPP model However, during of implementation progress, PPP

models are not usually to bring best results, especially for coordination of the

State’s resources and use of national payment balance Thus, policy’s main factor on PPP is to expand other abilities to formulate infrastructure projects

in current situation, Vietnam needs to mobilize hundred of billion USD for

infrastructure in coming years while the Government’s resource and development support is limited.

1.2.2 Assessment of policy scheme system on infrastructure investment

under PPP model in Vietnam

Planning infrastructure systematic and orientation to PPP model are

policy of the State, however it is necessary to make a sudden attack onpolicy The State is implementing policies on encouraging private investor to

involve (pilot period) including: road, road bridge, highway tunnel, road fear,

railway, railway bridge, railway tunnel, urban transportation, airport, sea port,

water supply system, electricity plants, hospital, solid waste treatment These

are essential fields to citizen which require big investment capital, have lessprofit, therefore the State have to attractive, suitable preferential measures foreach type of projects as well as issue transparency and unique regulation

Finding attractive measures for private investors to participate ininfrastructure investment which should not separate with investment forms,

project preparation and investor selection, content on contract negotiation, as

well as measures for supporting investment and operation exploitation Lack

of unification and overlap of official letter on construction investment is

considered carefully when issuing comments on policy to PPP model’.

Features of construction investment and exploitation, utilization of

infrastructure system show that complication of construction investment

activity in economic, technical and social factors, this issue impacts

significantly to select PPP model.

Scheme on contraction investment management of infrastructure

projects needs overview of capital features such big capital amount, large

> According to research of Vietnam Construction Association, at present Vietnam have existing

300 legal regulations/documents relating to construction investment activity.

site, great impact to urban citizen community, duplicability and other

factors Thus, encouragement and mobilization of non-public sector’s

resources will require practical assessment Cause of failures in contraction investment projects under PPP model can be explained scientifically based on

the above factors.

Cause of failure in construction investment projects under PPP model can be presented scientifically, on the other hand, in both of theory and practice, focal issue relates to policy or experience on PPP begin from inadequate knowledge of above features

CHAPTER 2 NECESSITY OF APPLYING PPP MODEL AND CURRENT

STATUS OF APPLYING PPP IN INFRASTRUCTURE INVESTMENT IN

VIETNAM

2.1 Necessity of PPP application and current status of applying

PPP model in infrastructure investment in Vietnam

2.1.1 Necessity of applying PPP model in Vietnam:

Point for researching PPP model in infrastructure sector begins from

assessed issue as certain trend, specially the condition is lack of resources for

development Necessity of promoting private’s involvement in infrastructure

construction projects proceed the below reasons

- Demand on infrastructure services are higher, budget and sponsored

resources are less that require to seek more diversified resources than

traditional measures.

- Better results and potentials bring many benefit due to use of

motivation will maintain implementation responsibility for private sector

more easily than for public sector.

- Reduce requirement on investment capital to the State, the State will

have condition to take care social targets Therefore, the State’s role will be

much greater.

- Involvement of private sector in infrastructure will contribute to transfer payment liability from ratepayers to consumers.

In Vietnam, focal issues on policy and reality of implementing PPP model in infrastructure contruction investment are assessed under the view of

the State, enterprises and beneficiaries to service

2.1.2 Investment demand on infrastructure construction:

In Vietnam, the period from 2006-2010, capital demand for the nation

is 140 billion USD, average per year is 28 billion USD At present, capital demand for infrastructure investment is about 16 billion USD/year while provided capital of the State is 7-8 billion USD From this year to 2020,

capital for infrastructure investment occupies from 10-11% of GDP In current financial condition, ability of balancing the state budget for development investment is still limited.

Particularly, in Ho Chi Minh city, from now to 2015, capital demand

for infrastructure investment is 15 billion USD This city is able to apply PPP

model effectively due to the city has a lot of experience with investment and development Fund for recent 10 years in which many construction works

have been provided by private investor’s finance resources and assisted by

the State’ s interests that are similar to the PPP model However, it is

necessary to have clear, stable policies, good human resources and favorable

administration procedures for investors.

Following the report on investment status of private sector in infrastructure in Vietnam issued by WB: the private’s capital resources invest

in infrastructure to be only 20%, the rest capital resource is from the State

budget and State Enterprises.

Up to date, there are over 90 on-going projects under the PPP model in

the nation with the registed capital is 7.1 billion USD in which 95% capital

belongs to transportation projects

The above data and forecast show that conventional method in

infrastructure investment integrated with the State requests to have another

view on this issue

2.1.3 Private’s investment involvement to infrastructure is still limited

In fact, Vietnam’s promotion to private sector’s involvement in

infrastructure investment is still limited due to reasons as: infrastructure

investment links with the State enterprises’ role, preparation cost is high, the

State’s readiness on policy, technology, human resources and informatino is unedequate for meeting demand, finance system supporting to projects is not

ready.

Factors lead to limited participation of private sector in infrastructure

investment under PPP model in Vietnam that exist 3 main phases including: project development and preparation (construction site, legal frame, land

clearance); construction phase (design and select technology, revise cost and

time, unstable policy on construction investment ), operation phase ( trade

and action, replacement, operation and maintenance ) Beside that,

un-circumstance risk, environment and society conditions also impact greatly to

ability and desire to participate in private sector of infrastructure projects

At present, Vietnamese Government usually transfer BOT or BT

contract to state- owned enterprises/ companies based on negotiation, no competitive bidding In many cases, these enterprises have not formulated

specifically feasible research yet and are trying their best to mobilze necessary capital resource There are possitive sumary on this issue to

establish a policy system to attract private sector’ involvement.

In fact, enterprises implement PPP project in Vietnam to depend on

Government’s guarantee to mobilize capital although policy declaration on

reducing or limiting guarantee scope to BOT projects.

For BT projects, assignment of investor is implemented, PPP model in

this case is often to link with negotiation of counterpart project to refund

capital most rapidly and feasibly.

2.2 Some analized examples on projects apply PPP model

2.2.1 Example of solid waste treatment plan apply technology on solid

waste treatment into fuel

- Investment form: Investor directly invest in contruction, exploitation,

business The State support investment progress on contruction, exploitation

and business by preferential mechanism

- Main information of the project:

+ Capacity: treatment is 100tons/day, calculated based on wastestandard and equivalent population scale;

+ Treatment technology and product: handle solid waste into fuel

pieces, burried waste after treatment is approximately 3% Technology chain

is researched and manufactured in Vietnam

+ Site scope: 3ha;

+ Construction investment timing: about | year

+ Construction works: Treatment area, re-production area,

administration area, shift — rest houses Out-light system, flowed raining water tank, internal routines, gates, barriers, trees

* The project is indicated appropriately with practical situation in small

and medium urban area in Vietnam.

- Effectiveness of project:

+ Output indicator:

* Investment amount: investment amount of project is identified based

on data treatment, price level in 2010 in Vietnam Investment amount of the

project is estimated as 45, 780 million VND

* Preferential, encouraged mechanism: clearance land, without

expenditure for land clearance, no fee for land use, exemption of import tax, VAT is 5% Income tax is exempted for first 5 years and decreased by 50%

in following 3 years; amortization timing is faster than 1.5 times compared

with regulation; supporting input expenditure 100% cost for transporting

waste from draining area to plan will be provided, burried cost will becovered 3% for un-treated waste and 50% of electric price will be supported

for direct production

* Support and preferential loan are considered for 2 methods::

Method 1: The State provides 50% construction investment capital,

enterprises provide 10% of capital and the rest will be preferential loan with3.0%/year interest;

Method 2: the enterprise will borrow with the rate of 85% of

investment amount with preferential interest is 3%/year for 15 years,duration of construction ; The own capital of enterprise will be 10%, the rest

of 5% will be commercial loan

* Output indicators: The timing for effective analysis of project will

be 15 years, consumption amount of product is zero; output product is

500,000 VND/ton, un-burnt brick is 200,000 VND/ton, rate of profit is reasonable; capital support for the method | is 4.07%; method 2 is 3.91%.

* Calculation results:

For method 7, based on the above indicators, calcultation result show

that dependence of NPV in treatment support from the State will be as below

chart:

60 S5 70000; ' g0

-2.000 aie alge 000 kị 7 85.000 90.000

ON Ce ! : bi ka i cee Lo

Support cost (VND)

The calculation results show that, in order to be effective for the project

(considered in terms both of the payback period, NPV and risk discount); the State should support the processing/treatment costs of 85,000 VND/ton.

Meanwhile the project indicators as follow:

— IRR: 7,28 % (>4,07%)

— NPV: 6.337 million VND

— Time of capital recovery 9,9 years

— The amount money of State’s support:

+ Interest compensation for the credit agency: 1.044 million VND

+ Annual cost of treatment: 3.103 million VND

— Preferential loan of 3%/year:18.312 million VND

For the measure 2, the Net present value (NPV) of project depends on

handling support fee of the State which is showed in the below chart:

The calculation results show that, in order to be effective for the project

(considered in terms both of the payback period, NPV and risk discount); the

State should support the processing/treatment costs of 160,000 VND/ton.

Meanwhile the project indicators as follow:

— IRR: 5,41 % (>3,91%)

— NPV: 5.378 million VND

— Time of capital recovery 12,5 years

— The amount money of State’s support:

+Interest compensation for the credit agency: 2.218 million VND

+ Annual cost of treatment: 5.840 million VND

— Preferential loan of 3%/year: 38.913 million VND

The above calculation results show that, for investment project

applying the treatment technology of domestic/household solid waste into fuel with the above scale, in order to be effective for the project, the State

should support additional cost for treatment In the first case, for household

solid waste treatment cost is 85,000 VND/ton, in the second case, State has to

support 160,000 VND/ton.

* Conclusion

Based on the above and the other calculation results, it shows that,

without support and incentives from the State, the investment project on

household solid waste treatment applying waste treatment technology into

fuels are inefficient, and difficult to attract other economic sectors to invest

in.

According to the above calculation, in the case the State supports 50%

of contraction investment capital, credit agency supports 40% loan with preferential interest rates of 3% per year, in addition with support for

treatment fee of solid waste disposal around 85.000 VND/ton or in the other

case, credit agency lends 85% total investment cost with preferential interest

rate of 3% per year, combined with State’s support cost for household solidwaste treatment fee around 160,000 VND/ton is to ensure the feasibility forinvestors However, to do experimental application, the case that the State

supports 50% of construction investment capital, the Vietnam Development

Bank lends 40% investment capital with interest rate of 3% per year,combining with support for household solid waste treatment fee around85,000 VND/ton is more feasible

2.2.2 Example on unsuccessful project of PPP model in construction investment in water supply

Construction investment project on Dong Tam water supply plant (

Tien Giang province) was approved with aims at supplying water for urban

areas including many districts, towns, cities and industrial zones in Tien

Giang province

- Investment owner and investor:Tien Giang Provincial People Committee (PPC), signed contract, Joint stock BOO — Dong Tam water supply company with 5 main stockholders

- Project scale and investment capital: Capacity of Phase 1

(2007-2010) is 50.000m*/whole day, phase 2 (2010-2012) is 90.000m*/whole day;

capital overall is 1,412 billion VND

- The State’s commitments: water amount and water purchase price

under appropriate period of forecasted consumption demand

- Troubles: water consumption is lower comparison with calculation (5 industrial zones) that is not attractive to enterprises’ consumption; pipeline

system of level 2, 3 has not been invested

( initiative plan is a contraction — transfer project); water price propose in

project to be higher than current price in this area

- The above issues lead troubles between Tien Giang PPC and investor

At present, the State is implementing to purchase the plant and transfer to

Tien Giang water supply and drainage company (state - owned company) for

business and exploitation This measure required to calculate, negotiate

purchase value and consumption issues

2.3 Causes of existing on applying PPP in Vietnam

For research, existing on implementing PPP project in Vietnam aremain causes as follows:

Firstly, the State’s role in infrastructure investment is big, does notcreate trend to private sector Mechanization of public’s role is able to make

less selection opportunities on service quality for consumers In the otherhand, development demand require to raise issues on financial resources forimplementing objectives

Secondly, attraction of infrastructure projects is not so high due to big

capital, long time for investment and operation, complicated and unforeseen

issues

Thirdly, encouragement and attraction scheme to private sector '

involvement in infrastructure investment is not To make common interest for all PPP projects will be unfeasible if not to establish specific

measures for each type of projects For technique, this issue depends on project preparation period and PPP contract negotiation

Fourthly, lack of qualification and technique guidance due to middle

system between the State and private is weak Qualified consultant, financial

support designers, project implementation experience are found easily when

analyzing this issue

Fifthly, evolvement scheme on troubles during establishment progress

on PPP relationship as well as inflexible, slow implementation of agreements

and complicated procedures New policy scheme on PPP is being completed

CHAPTER 3 INTERNATIONAL EXPERIENCES ON PPP IN

INFRASTRUCTURE CONSTRUCTION INVESTMENT

3.1 Experience on cooperation between the State and private sector ofinfrastructure construction invesment in countries

At present, PPP model in urban infrastructure investment is applied in

many countries This model is the State and private sector to provide finance

or service based on signed contract Modes of PPP are variety ininfrastructure technique such as: the state directly invests and operates or the

private invest and transfer to the state operating or the private invests and

exploits, operates.

Experience of some countries in application of PPP model in urban

infrastructure construction as follows:

- In investment projects for urban infratructure contruction mainly use

the State budget, especially in the fields of low capital recoverage anddisattractive such as water drainage and waste treatment, In some fields of

clean water supply are attractive to the private sector

- In UK: PPP is assessed to change infrastructure systment for 15 pastyears, accounts for 1⁄4 public spending in infrastructure UK has 950 signed

projects in which private sector contributes about 100 billion USD PPPprojects in UK have been implemented successfully in fields: road, railway,

hospital, school, bridge, library and water supply

- Thailand issued Act on private sector’s involvement in State

construction works (1982) However, this Act is assessted lack of definition

on fields to be applied PPP model, and is not clear for bidding process and

support measures from the Government In fact, Thailand carried out some

PPP projects relating to rapid public transportation means, water supply and distribution, agriculture and irrigation Main existing concentrate on

sponsoring capital for project which are different from fields, finance

mobilization and private sector’s concern

- Laos Government emphasize in calling for foreign investors in

infrastructure construction investment, agriculture business and processing,

tourism service PPP model in Laos has been implementing well in hydraulic,exploration, electricity and rural water supply, however the Government doesnot implement project development, only pays attention to negotiation Themain existing for PPP model in Laos are lack of legal frame as well aslimitation on project development and capital sponsor

- Different from Laos, Cambodia issueed Law on PPP contract and

Law on transfer which is basis for PPP Similar to Laos, the Government and

state agencies do not implement project development, only focus on PPPapplication in airport construction investment, transportation for fee

collection, energy, water supply, collection and treatment of waste in urban.

The focal limitation is lack of legal frame for PPP as well as finance resource

for PPP projects

Experience of some countries in application of PPP model in urban infrastructure construction as follows:

- In investment projects for urban infratructure contruction mainly use

the State budget, especially in the fields of low capital recoverage and

disattractive such as water drainage and waste treatment, In some fields of

clean water supply are attractive to the private sector.

- The private sector involves in the fields of classification, collection and transport and treatment of solid waste

- Policies on encouragement and support through reducing income tax for enterprises to ensure implementing authorities’s commitments on budget

support ( for water drainage and waste ) In some countries, city’s regimes

are responsible for management, operation of water drainage system or invest

in water drainage systems, then signing contract to private companies for

renting in order to produce, provide service and business Investment in water

supply or waste drainage is implemented by the State or both of the State andprivate investor carry out together The city’s regime has responsibility toidentify scale and development orientation of water supply or drainage

services in the area

3.2 Comments and assesment on application ability

- The State plays a main role in investment, management and

exploitation of urban technique infrastructure, especially in fields of requesting high capital resource and low ability of capital recoverage

- System of policy mechanism in urban technique infratructure in some

countries are variety and different which depend on political system.,

economic and nature conditions of each country However, some countries

have similar political system, socio-economic condition, policies on

operation and support are different

Through PPP model research on investment in urban infrastructure system of some countries, it is made comments as follows:

- Model on investment and managment of urban technique

infratructure is established in specific fields In each model, role of the State

in management, support encouragment are at different levels.

- In many countries, technique infratructure field attracts involvement

of private sector such as water supply, collection, classification, treatment of solid waste For the fields of urban transportation, water drainage and

treatment have difference due to features of economic system and social

managment model

- For preferential and supported policies: the State usually use

preferential, encouragement measures combined with strengthen involvement

of the State agencies to ensure stability, create belief for private investors.

Event, in some countries, many major fields of urban technique infratructure(water supply and drainage) are responsible by the private sector and theState strictly monitors

- Policy system on infrastructure field in the world’s countries isvariety and diversified that depends on politic scheme, economic and natural

conditions in each nation However, many countries have similar politic,

socio-economic condition, policies on operation, preferential and support aredifferent from each other

- Focal issues link with sharing risk under the principle ,, risks transfer

to the best management side” Transparency emphasization in selectinginvestor with the State is background for a successful PPP contract Data on

PPP contract samples under each field is referenced Vietnam condition

CHAPTER 4 EXPERIENCE LESSON AND RECOMMENDATIONS

TO APPLYING PPP MODEL IN INFRASTRUCTURE INVESTMENT

IN VIETNAM

The research group selected method on analizing this issue to use data,

practical example to consider focal factor which impact to ability of the State and private relationship in infrastructure investment However, it is necessary

to concern to theory comprehensively, this method shows nature of investor’s concerns as well as feasibility of the State’ operation in involvement in

prepared projects

4.1 Learnt lessons:

Practical example integrated with theory canalization allow to get some

lessons to implement PPP projects effectively as follows:

4.1.1 Recognize risks in PPP project implementation in Vietnam

Nature of PPP integrated with sharing risk among public and private

sectors under the principle ,, risks transfer to the best management side”.

Duration of project preparation as well as construction investment

management and operation exploitation, this is considered as focal point to

implement sucessful PPP project.

- Finance risk: PPP projects usually last long time while state budget is

not able to meet in time due to dependences on plan and formulation of

budget estimate and project implementation expenses It is private investors’

wonder due to they usually desire clear committeemen from the State

- Land risk: Implementation level on land ownership is different among

localities, areas, especially, transfer to land utilization right, it will have bind

on legality and complicated procedurec This issue leads slow land clearancewhich makes investor suffer indirectly high loss

- Bidding risk: Bidding procedure of PPP projects will take more timethan implemented project under normally designed process Besides, PPPcontracts are complicated which need clearly legal frame, Vietnam does not

have available trade insurance for project’s requirements such as failure construction material, construction time delay, social risk insurance

Therefore, PPP project is more lasting, risk is higher PPP projects are only

considered designing and formulation as normal infrastructure (average about

2 to 3 years or some years), it is assessed whole period of project (20-30

years event 50 years)

- Acknowledge and information risk: Due to PPP is a rather new issue so

that experience in Vietnam is not much Readiness level of State’s and

private’s consultants is a big question due to existing of traditional

investment link with the State’s role Useful information system is not so

much which is based on understandings from external system through

workshops, conference, technical support This make limitation of approach

ability and exchange in both field of legality and methodology.

At present, contribution of Vietnam government (by State agencies) in

PPP is investment capital ( by tax), property transfer or committeemen on

support contribution The Government play an important role in maintain and

ensure social responsibility, environmental consciousness’, culture, politic.

Role of private sector in PPP is to use qualification on trade, management, coordination and creation to do business and provide service effectively

4.1.2 Prepare list of initiative projects applying highly feasible PPP

transparency competent agencies

The above factors in Vietnam have been assessted as expriment period.

Vietnam government issued ,, Regulation on investment pilot under Public —

Private Partnership model” shows that desire on policy for infrastructure investment demand to meet development However, it is necessary to

continue revising, reviewing dependently to establish convinced trend in approaching and implementing PPP in infrastructure in Vietnam

4.1.3 Assure adequate knowledge on PPP's nature

State agencies ( select investors) need to have organization, human

resource who understand clearly PPP’s nature in order to prepare PPP

projects most effectively as well as assest management progress of contract

implementation Construction and consultantation companies should have mutual support on design capacity, capital and project management, especially PPP projects relate to new field or long period

In addtion, because of a large demand for infrastructure investment, it

is extremely important to improve the capacities of implementing

organizations Anti-corruption ensure transparency implementation of PPP

project is also a key factor, because private investors always wish all figures

be accounted That the commitment of all investments are really used for

projects, not for individuals ’pocket to be very difficult, but it is required to

be the top rank objective in management of PPP projects.

It is also important to attract international investments However, the simultaneous improvement of competitiveness of state-owned

enterprises/companies to take part in bidding for PPP projects transparentlywill help promote the national investments and find out potential partners for

When formulating project contracts, investors have to consider market

factors, and regulate clearly role and point of investors in risk situtaions that

is concerned practically.

Investment in PPP model, market will inspect tightly bidding process

and counterpart selection The contract needs recording clearly project belong

to which field and how price of input Then, price adjustment is agreed ( both subjective and objective factors), therefore, private investor and Government

have to adjust bidding contract value that is an article for balancing

stakeholders’ benefit by getting not much profit or suffering much loss after

completing project Private investor will not participate in PPP when they

feel or assess great risk level causing the market factors.

4.1.5 Special concern on focal benefit of subjects

Reality of implementation of PPP projects in Vietnam shows that

concerns of the State and private investor are often to link with

hamornization resolvement on public’s and investor’s benefit This issue is

presented in the below sumary contents:

Table 3 Concerns of private investors and the State to

infrastructure projects in Vietnam

Issues should be paid

attentions by the State

Investors’ concerns

1 Responsibilities and 1 Propose investment

compensation cost, land clearance cost of investors

2 Preferential for credit 2 Equipment and Project on |3 water supply price managed by

the State

technology of plant

water 3 The State’s support :

4 Equipment price and construction | tax, cost, electricity,

supply plant

investment progress information

5 Network to consumers 4 Other issues

6 Conflict evolvement scheme

1 The State’s support to outside 1 Concern on plant

hence of plants construction site

2 waste treatment

2 Preferential to tax, credit, energy

3 Collection and classification of technology material 3 Cost for waste

4 The State’s support :

tax, cost, electricity, information

1 Fund recovery scheme from other | 1 Issues on planning,

investment cost in

projects ( investors usually propose

counterpart fund from estate counterpart projects

Project on :

: projects) 2 Revise plan, scale of

urban road ; f ma

2 Progress of land transfer and project, change objectives

Is :

Investors’ concerns sues should be paid

attentions by the State

1.Sewage collection to the plant 1 Plan and forecast on 2.the State ‘s support to land sprinted

Project on pp printed sewage to select

construction : development bank 2 Treatment technology

4 Conflict address

scheme

At present, the above mentioned projects in Vietnam are lack of linkage with responsibilities of the State and private investors in specific

issues Normally, investors propose projects — the State gathers and considers

— Relevant agencies make comments — Assign investors based on required

files and proposed files — Manage project implementation based on project

contract The weakest point is how manage well implementation of project

contracts, especially assessment of investor’s commitments on process.

Investors usually concern to the State’s responsibilities for land clearance,

policy stability, output price and support condition Conversely, the State

often requests the investors to present clearly project proposals, especially

technology, economic calculation Those are main issues to impact to

successful project implementation in PPP model in Vietnam

4.2 Recommendations on feasible measures:

4.2.1 Measures on policy, legality

Nature of PPP is the Government to be able to ensure fundamental

benefit for people, enterprise and society However, demand of people

society is great while resources are limited, it is the most difficult to find out

common idea between the state and private sector in PPP model In addition,

in order that PPP model is successful, it is necessary to have adequately

covered legal frame for private investors due to these investors will have to

scope with a lot of risks in duration of project implementation such as: risk of

bidding; negotiation; contraction; operation and risk from the Government The legal frame for PPP will resolve these main issues Vietnam is necessary

to seek an appropriate model compliance with conditions of the country, it is

impossible to copy a model from any nations PPP is not as an the unique

measure for Vietnam to address immediately projects in Vietnam At present,

the State has role of issuing legal documents to adjust private sector’s participation in infrastructure investment projects, it is necessary to

emphasize in the below factors:

Firstly, Select appropriate investment models to PPP: public owershipand private operation, private ownership and operation (BOT), bilateralownership and operation, ownership and operation community based At

present, in Vietnam according to legal regulations on construction investment, traditional implementation of project ( owner provides capital,

uses resources in order to implement project management based on investment objective) linked with definition ,, investors” under the criteria ,,

manager and user of construction work” Private investor in PPP is dependent

to the State

Secondly, identify fields, feasible cooperation projects in PPP based on criteria such as necessity, approach ability of investors, readiness level on

capital plan, technology, site .Analysis of fields concentrates in the below

issues: technique, policy and legality, institution and capacity status, trade,

finance and economics.

Thirdly, regulation system need to reafirm and recoganize issues on

market regulation such as: construction cost and inputs ( material, labors ),

price of service products that are background to create equality in PPP

contract negotiation The State control price of input material and output

service that makes careleness from investors.

Forthly, procedures on, investor selection and cooperation scheme, project implementation, management model and operation that need to have clearer and more qualified regulations than legal regulations Therefore, it is

necessary to formulate support scheme to project with the State’s role as

guanrantor and promotor include preferential on land, tax and labour

Fifthly, Establish frame on control, assessment and report linked with

the Government’s capacity in order to ensure implementing right objective ofPPP contract

4.2.2 Recommendations on Economic issues

- Profit is the decisive factor for investor participating in the project;

therefore, the net profit calculation is the core issue, whether or not a budget

mechanism arranged, the long debate between State agencies and investors

about the risks of the project, or the commitment of the State assistance

through various supply forms (eg Raw materials) and outputs of productsthat will continue to discourage investors

- In addition, any consideration of the Government on how to

undertake the risk of currency swap would make investor welcome.

- The State should do effectively design, calculation of financial

feasibility, the citizen’s tolerance of the service charges in order to identify the profit level before calling for investment If not, there will be no investor

participating in, or if they participate, the negotiation of the contract will last for a long time and if it is failed, the Government is lost the support cost for