Applied research on public private partnerships in construction investment management for urban transportation

MINISTRY OF EDUCATION AND TRAINING MINISTRY OF CONSTRUCTIONHANOI ARCHITECTUAL UNIVERSITY NGO THE VINH APPLIED RESEARCH ON PUBLIC PRIVATE PARTNERSHIP IN CONSTRUCTION INVESTMENT MANAGEMEN

MINISTRY OF EDUCATION

AND TRAINING

MINISTRY OF CONSTRUCTIONHANOI ARCHITECTUAL UNIVERSITY

NGO THE VINH

APPLIED RESEARCH ON PUBLIC PRIVATE

PARTNERSHIP IN CONSTRUCTION INVESTMENT MANAGEMENT OF URBAN TRANSPORTATION

FIELD OF URBAN MANAGEMENT AND BUILDING

CODE 62.58.01.06

ABSTRACT OF DOCTORAL THESIS

Hanoi - 2015

Academic Supervisors:

Assoc Prof Dr Nguyen To Lang

Dr Nguyen Thi Binh Minh

Reviewer 1: Assoc Prof Nguyen Hong Tien

Reviewer 2: Assoc Prof Nguyen The Chinh

Reviewer 3: Dr Pham Van Bo

Doctoral thesis will be defended at the examination Committee in the Hanoi Architectural University

A t d a te m o nth year 2015

The thesis could be found at:

- National Library o f Vietnam

- Library o f Hanoi Architectural University

1 The necessity of dissertation

The demand for constructing urban transport infrastructure serving economic development in Hanoi capital is very large while state resources are quite limited Thus cooperation with private partners in the form of public private partnership (PPP) is the common trend that many countries in the world have applied Besides, the management of construction investment in traditional form still exist many shortcomings, not only lack of funds but also human resources, management skills, technology and budgets for maintain and operating are limited

Hanoi is the capital o f Vietnam which needs a large investment in development modern urban transport system However, capital investment from the State budget, ODA only meet about 50% o f the demand Thus attracting capital from the private sector is one o f the effective solutions to get city’s tasks Therefore, the dissertation

“Applied research on public private partnerships in construction investment management for urban transportation” is necessary and makes sense in theory and practice

2 The purpose of research

Based on the theoretical and practical basis, the dissertation studies the application of the PPP form in construction investment management for urban transportation to attracting and efficiently using o f investment resources from private partners, improving quality uban transportation project in the Hanoi capital in accordance with development in the future

3 Object and Scope of dissertation

a Objects: public private partnerships in management o f construction

investment

b Scope: the application o f the PPP form in management of

construction investment for urban transport in Hanoi capital that is suitable with development o f the overall planning of the Capital 2030 and vision to 2050

- Dessertation research has focused pedestrian bridge (one o f the six types o f building urban transport: roads, railways, bridges, tunnels, waterways and airports) in order to clarify the feasibility study and research content

4 Research methodology: The dessertation used 6 research methods: 1) statistical method; 2) Method o f surveys and interviews; 3) The general analysis method; 4) SWOT method; 5) Method o f comparison and contrast; and 6) inherited method

5 Research content: public private partnerships in in management of construction investment

6 Contributions in academic and theoretical issues

Supplementary methodology in applying PPPs in management of investment construction o f urban transport in order to rationally exploit and optimize the role o f stakeholders, contribute to enhancing the efficiency of investment Contents o f research associated with the current urgent needs to attract investment resources, improve the quality and efficiency of construction investment in Hanoi capital Research results are useful references for managers, investors, advisors and teaching materials for educational institutions

7 The new contribution of the dessertation

+ By researching on characteristics o f the cooperation between the Public and Private Partners, the dissertation has systematized and clarified the general concepts including main contents o f public private partnerships (PPP)

+ Base on research experiences (success and failure) in applying the PPP in management o f construction investment in the urban

transportation over the world, especially countries, whose social and economic conditions are similar to Vietnam; the dissertation has analyzed the causes of the successful PPP applications.

+ Moreover, by conducting researches, surveys, and assessment in applying the PPP in management of construction investment for urban transportation o f Hanoi capital’s conditions, this research proposes specific practical recommendations to remedy shortcomings in terms

o f the application

+ Furthermore, solutions have been proposed by the dissertation on applying the public private partnership in management o f construction investment for urban transportation based on the scientific basis associated with the actual condition o f Hanoi capital The dissertation has proposed detailed solutions and application synchronization for PPP application

+ In addition, this dissertation has solved problems in attracting and efficiently using of investment resources o f private investors in management of construction investment in urban transportation Thereby improving the quality of management o f construction investment in urban transportation of Hanoi capital that has harmonized the interest between the Public, Private Partner and social community

8 Concepts, term s of public private partnerships

The desseration has analysed 14 different concepts of public private partnership from educational institutions, scholars in the world Thereby the dessertation propose a new concept o f PPP in management o f investment construction for urban transport is a form which state agencies and the private investors are undertaking construction investment projects or provision o f social services through commitments, constraint by a project contract In particular

the parties are considered partners, have an equal role, and contribution the advantages/its strengths to fulfill common objectives with the highest efficiency.

9 Dissertation structure

The dessertation consists o f three major research chapters, and section Introduction, Conclusion, Recommendations and Annexes research

CHAPTER 1: OVERVIEW OF PUBLIC PRIVATE PARTNERSHIP IN MANAGEMENT OF CONSTRUCTION INVESTMENT

1.1 Introduction of public private partnerships

1.1.1 The origin o f public private partnerships

In 63 BC, the Caesar Augustus, a emperor o f the Roman Empire has partnered with Salassi tribe manage Saint Bernhard Pass route PPP [67] The first term "PPP" appeared in the United States since the 1950s in the field of education [75, 80] Then "PPP" is gradually popularity in many countries in the field o f urban infrastructure

1.1.2 The difference between traditional investment and PPP

The basic difference

between traditional

investment form and PPPs

is the transfer of

responsibility to

implement a part or all of

work from the state to

private partner, while the

State still holds ownership

right, ensuring quality, Figure 1.2: The difference between

traditional investment and PPP

efficient performance in building and services (Fingure 1.2).

1.2 The situation of applying PPP in the world

The dessertation has studied the application o f the PPP form in 8 countries: USA, Canada, UK, Netherlands, China, India, Malaysia, and South Africa The dessertation has analyzed and evaluated the state management systems, legal documents, PPP’s field, In each country, dessertation has research successful and failure reasons in application of PPPs and comparison with conditions of Hanoi capital, Vietnam

1.3 The situations of H anoi’s m anagement in investment construction for u rban tran sp o rt

1.3.1 Overview o f Hanoi: Dessertation has introduced the

geographic location, characteristics and situation of economic development - social, situation and investment needs in infrastructure construction of urban transport in Hanoi capital

1.3.2 Situation o f management in construction investment

1.3.2.1, construction investment form

In Hanoi, there were 61 projects with the participation o f private investors under the form BOT, BT These projects have been implemented with a total investment approximately 155,806 billion VND, o f which 32 were selected investors (51,318 billion, using 6641 hectare o f land for the project implementation other capital reimbursement); 29 projects were approved investment guidelines and ongoing selecting investors (104 488 billion) [1]

In the 61 projects listed above, there are 9 projects in urban roads, the majority o f them implemented under BT with the "land for infrastructure changing", only 01 projects under BOT However, projects were implemented under BOT, BTO and BT which is not the PPP project by not accurately reflect the nature of cooperation between the State and the Private [18]

1.3.2.2, Capital o f the construction in urban transport

In recent years, Hanoi has focused on the use o f different sources

o f capital to invest in the construction of urban transportation projects, such as ODA, city budget In the period 2008 ^ 2013, the city has invested 41,677 billion for urban transport sector, accounting for 36%

o f total investment in developing and 11.5% of total city budget expenditure [14] Expecting 2015 ^ 2030 period, investment demand

o f construction in city transportation is expected to be 918,224 billion,

o f which areas roads will be 442,171 billion (48.1%), Railways will be 433,580 billion (47.2%) [4], [5]

Meanwhile, key reasons o f 41 projects in Hanoi was delayed due to lack of funds proposed The total capital needs for these projects in 2011-2015 period approximately 164,000 billion, but in 2012, the center government and Hanoi has supported 2,000 billion, representing approximately 2% o f the demand for capital construction investment [87] This shows that the pressure on capital construction

in Hanoi very large, while the government has been applying policies

to reducing public investments

1.3.2.3 Regarding management o f investment construction o f urban transport

Management o f investment construction of urban transport in Hanoi is decentralized by size, characteristics and nature of projects, the state funds managed by entities (MOT, Hanoi’s Government, People's Committee o f Districts, .) Projects is divided into two phases: the construction and operation management Content management of construction investment is stipulated in Decree No 12/2009/ND-CP on management o f construction investment projects Content management and operation stipulated in Decree No 130/2013/ND-CP on supplying public services For example, when the projects (urban road construction) is finished contruction phase,

the investors would hand over the project to the Department of Transport has responbility on road and bridge parts; Department of Construction has responbility on drainage, tree; Hanoi’s Power Corporation will manage streetlights, lighting One shortcomings in management o f construction investment for urban transport is decentralization and division to seperate part/work that leads to poor investment performance, lack o f uniformity in the capital, manpower and management apparatus.

1.3.3 Assessment o f conditions’s application PPPs

1.3.3.1 Investigate, examine reality

Dessertation establish questionnaire form including 20 questions relating to the application of PPP and conduct investigations, interviews directly with 120 subjects, divided into 04 groups: (i) state management agencies , (ii) investors (unit represents state investment

in construction projects, provide public services), (iii) private investors (private enterprise) and (iv) Other subjects

1.3.3.2 The survey, fieldwork

- Quality o f respondents: 86.9% respondents have professional jobs related directly to a PPP with the level o f interest to 89% PPPs

- The environment application of PPP in Hanoi capital is evaluated according 5 contenst:

+ The legal framework: there were legal documents on the PPP (since September 2014), that caused psychological apprehension in applying PPP, 82.6% thought that it should be have a Decree on PPP, 17.4% of respondents (including 80% o f respondents are private partners) has opinion that it should be have separate Law on PPP In 14th February 2015 the Government has approved Decree No 15/2015/ND-CP on investment in the public private partnerships form, but this policy also has been existing some shortcomings

+ State management apparatus: Hanoi has not specialized agency

of PPP (since March 2013) The capital has established PPP Committee (operational as part-time organization), but the survey shows that 87% o f respondents do not know or know very little about this PPP Committee, only 13% of respondents has information about the PPP Steering Committee

+ In terms of investor capacity: evaluation on two criteria manpower and finances: 92% of companies surveyed do not have inadequate staffs, experts who have knowledge and experience in applying PPP projects About financial capacity: 83% of companies surveyed are now medium-sized and small These businesses operate primarily based on loans from bank or trade institutions

+ Awareness for PPPs: results of the survey show that the majority

o f respondents understood "not right" about PPP, they said that this is

a form of "socialization" or "privatization" There is 83.69% respondents said that BOT, BT and BTO is not PPP Even in some legal documents of government has same mistake on PPP (eg Decree

No 37/2015/ND-CP of Government, Circular No.10/2013/ TT-BXD

o f the Ministry o f Construction, Decision No.9/2012/QD-UBND of Hanoi People's Committee, Document No.135/QD-MPI o f Hanoi Department o f Planning and Investment, .)

+ On the time o f applying PPP: there is 29% o f respondents said that PPP can be apply at this time; 59% suggested that only can be applied in the future in conditons o f complete additional state legislation, guidelines on PPP; 12% suggested that it is difficult to applying PPP in practice because of balance costs and benefits between investors and the state Besides, 60% o f private enterprises are not willing to participate in the implementation of PPP projects,

they said that they are interested and will only participate in PPP form

in the near future

1.4 The scientific researches in public-private partnerships

Dessertation has analysied on 16 studies from an indigenous and foreign authors related to applying PPP in the field o f urban transport These studies contribute to the theoretical and practical basis for the proposed solutions about PPPs in management o f construction investment for urban transport which matching the conditions of the Hanoi, Vietnam

1.5 Problems exist to study

- Systemize and clarify the concept of PPPs;

- To study theoretical and practical basis for applying PPP form in management of construction investment for urban transport;

- Research, analyze and evaluate public-private partnership models consistent with the investment objectives, construction management in urban transportation projects associated with the conditions of economic - society in Hanoi

CHAPTER 2: SCIENTIFIC BASIS OF THE APPLYING PPP IN MANAGEMENT OF CONSTRUCTION INVESTMENT

FORRURBAN TRANSPORT2.1 Theoretical foundations on PPP

2.1.1 Features o f PPP

Features of PPP are parties (State

and Private) work together in project to

providing public services to serve

people (beneficiaries) with the aim of

achieving the highest investment

effectiveness (Figure 2.1) PPPs assign

Picture 2.1 : Features o f PPP

appropriate responsibilities and obligations o f the partners involved in the project must be implemented base on capacity and resources at their disposal The involvement and support of the state to help improve more efficiency o f the project that will not increasing investment spending is a key factor to compare PPP with other forms

o f investment

PPPs has four main characteristics [36]: (i) the relationship between partners is equality, (ii) the contribution o f resources, (iii) risk sharing, and (iv) contract PPPs PPPs have the advantage: Speeding up project implementation, progress raise capital; Improving the efficiency o f investments; Risk Management; Improving the quality of service; Capacity management of public services; PPPs have drawbacks: increased costs of investment preparation;Investment Benefits difficult to determine; Difficulties in contract negotiations; Environmental risk investment [34, 36, 50, 71]

2.1.2 The form s o f cooperation in public-private partnership

Some scholars in the world, as Idelovitch (1995), Faulkner (1997)has classified the cooperation between public and Private partners in PPPs under 4 forms: Form o f service; Forms o f management and operation; Concession Form; and franchise form [26]

2.1.3 PPP contract

Contract PPPs ensure the long-term cooperation relationship in which the responsibilities and obligations of the parties shall be determined in proportion to the contributions, shared resources project Within the PPP’s project, contract has high legitimacy to bind the parties, especially the private partner on the right and the duty to fulfill the commitments to the state [51]

2.1.4 The management apparatus in charge o f PPP

Many countries have successfully used PPPs established by the agencies in charge of PPP The agency helps guide the procedures, consultation, monitoring the implementation process or having the authority to approve, license for PPP projects According to their

functions, PPP agencies have different roles in the project implementation process.

2.1.5.R isk Management

Some scholars in the world have research related risk management in PPP, such as Nguyen T.B.M (2002), ADB (2003) PPP projects often have 6 main risk categories: business risks; legal risks/contracts; political risk; technical risks; environmental risks; risks are not accepted by the community [57] To minimize the negative impact on PPP projects, partners conduct process o f risk management in PPP under 5 basic steps, namely: Identifying risks; Assessment and Risk Analysis; Allocation o f risk; Mitigate and overcome risks and Monitoring, adjusting risk [76]

2.2 Common issues on m anagem ent of construction investment for u rban tran sp o rt

2.2.1 Features o f management o f construction investment

Management of construction investment o f urban trafficmanagement entities (state agency authorized) can make to guest (MOET project) or among entities related to each objective to ensure effective implementation o f the project in terms o f constraints on resources invested These relationships are reviewed on the following aspects: the scale and nature of construction investment (static traffic, mobile traffic); purpose (outbound traffic and inbound traffic); funds for construction investment or type o f works (roads, waterways, railways, )

2.2.2 M anagement o f investment construction fo r urban transport

PPPs include many models o f cooperation between public andprivate partners depending on the purpose and content of cooperation PPP model represents the characteristics of co-operation between the partners, whereby one part or the whole of the work is transferred to private partners which is conducted with the support from public partners [24] Table 2.1 represents 5 characteristics o f the PPP model