VIETNAM+INFRASTRUCTURE+ 31052011 BM

Vietnam Infrastructure Report Q3 2011 SWOT Analysis Vietnam Infrastructure SWOT Strengths Strong project pipeline will still sustain growth in the sector and add capabilities for furt

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VIETNAM INFRASTRUCTURE REPORT Q3 2011

INCLUDING 10-YEAR INDUSTRY FORECASTS BY BMI

Part of BMI's Industry Report & Forecasts Series

Published by: Business Monitor International

Copy Deadline: May 2011

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Vietnam Infrastructure Report Q3 2011

CONTENTS

Executive Summary 5

SWOT Analysis 7

Vietnam Infrastructure SWOT 7

Market Overview 8

Vietnam 8

Building Materials 11

Global Overview 11

Asia Overview 17

Industry Forecast Scenario 21

Table: Vietnam Construction And Infrastructure Industry Data 21

Table: Vietnam Construction And Infrastructure Industry Data 23

Construction And Infrastructure Forecast Scenario 25

Transport Infrastructure 27

Table: Vietnam Transport Infrastructure Industry Data 27

Table: Vietnam Transport Infrastructure Industry Data 29

Transport Infrastructure Forecast Scenario 32

Transport Infrastructure Overview 33

Table: Ports Are The Weakest Link: Quality Of Infrastructure Global Ranking Out Of 134 Countries 35

Table: Vietnam Railway Corporation’s Main Targets 36

Key Projects – Transport 37

Table: Major Infrastructure Projects – Transport 37

Energy And Utilities Infrastructure 44

Table: Vietnam Energy and Utilities Infrastructure Industry Data 44

Table: Vietnam Energy and Utilities Infrastructure Industry Data 46

Energy And Utilities Infrastructure Forecast Scenario 48

Energy And Utilities Infrastructure Overview 49

Table: The Three Levels Of Liberalising Vietnam’s Electricity Market 51

Key Projects – Energy And Utilities 52

Table: Major Infrastructure Projects – Energy & Utilities 52

Residential/Non- Residential Construction and Social Infrastructure 57

Table: Vietnam Residential and Non-residential Building Industry Data 57

Residential/Non-Residential Construction Forecast Scenario 58

Residential/Non-Residential Construction And Social Infrastructure Overview 59

Key Projects Table – Residential/Non- Residential Construction And Social Infrastructure 62

Table: Major Infrastructure Projects – Residential/Non- Residential Construction and Social Infrastructure 62

Business Environment 63

Vietnam Business Environment 63

Rewards 63

Risks 63

Regional Overview 64

Asia Pacific Infrastructure Business Environment Ratings 64

Table: Regional Infrastructure Business Environment Ratings 65

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Company Monitor 70

Cavico Corporation 70

Electricity of Vietnam Group (EVN) 73

Global Overview 76

Methodology 81

Industry Forecasts 81

Construction Industry 82

Data Methodology 82

New Infrastructure Data Sub-sectors 82

Construction 83

Capital Investment 84

Construction Sector Employment 85

Infrastructure Business Environment Rating 86

Table: Infrastructure Business Environment Indicators 87

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Executive Summary

BMI View: The views presented by BMI last quarter have fully played out in Vietnam, and we expect that

the attempts of both the Vietnamese government and the State Bank of Vietnam (SBV) to cool the economy will lead to a further moderation on construction activity In spite of this, Vietnam’s construction sector still holds significant value, as the country is in dire need of both new transport and energy

infrastructure We anticipate that growth for the sector will remain positive over the forecast period (2011-2015), and industry value will reach US$13.9bn by 2015

Major developments over the past quarter include:

A hike in electricity price approved in March 2011 by the Vietnamese government Artificially capped prices have long made it unprofitable for foreign infrastructure companies to invest in the Vietnamese power sector because most of the equipment for power stations needs to be

purchased from other countries at global market prices The price increase represents therefore a noteworthy improvement

Japan's Overseas Development Assistance (ODA) coordinator Japan International Cooperation Agency (JICA) is set to team up with Japanese companies to construct the JPY140bn (US$1.7bn) Lach Hyuen port project in northern Vietnam BMI believes that this

project highlights the attractiveness of this sector in the country as well as the importance of foreign investment in Vietnam's port infrastructure

Plans to improve Vietnam's urban transport system have moved forward significantly over the past six months, with funding secured and construction companies selected for many of the country's metro railway projects For instance, in March 2011, the Asian Development Bank (ADB) agreed to provide US$293mn to support the construction of Hanoi's US$1bn metro railway line 3

A new recent draft housing development plan, which includes spending for US$19.7bn between

2015 and 2020, with an emphasis on low-income housing provision This is an encouraging sign,

as it shows that the government is taking the necessary steps to deal with the country's expanding housing deficit

We also stress that Vietnam’s business environment continues to be an issue for the country, as Vietnam’s score has slipped to 53.72 from the already low 54.9 of last quarter Although the country’s infrastructure market continue to score quite well, downside risks from market volatility and country risk have further dragged down the overall score Corruption still remains a problem for Vietnam and is likely to continue

to impede infrastructure development until government reforms can change the landscape Yet, with increased foreign investment on the back of attractive growth rates there have been signs that the country

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is moving in the right direction in invoking structures to improve the business environment such as PPP regimes

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SWOT Analysis

Vietnam Infrastructure SWOT

Strengths Strong project pipeline will still sustain growth in the sector and add capabilities for

further development, particularly as transport structure improves

Rapid growth has attracted investment from many of the world’s largest infrastructure companies

The current poor state of infrastructure in the country provides easy wins for foreign investors and construction companies

Hike in electricity prices should stimulate investments in the energy sector

Weaknesses State-owned companies dominate the infrastructure market This is especially so in

the utilities sector, where Electricity of Vietnam (EVN)’s dominant position has deterred investments

Vietnam relies heavily on foreign imports: it is estimated that Vietnam needs to import 2mn tonnes of steel billets per year, adding up to 80% of the country’s annual demand

The country presents a relatively risky environment for major infrastructure projects, especially with regard to project finance operations

Power outages are occurring daily in Vietnam, highlighting the severe electricity problems in the country

Opportunities Demand for urban infrastructure projects in transport and sanitation will rise in

tandem with urbanisation in coming years

Severe droughts is driving demand in other electricity generation sources besides hydropower; i.e gas-fired and wind power plants

If the government’s attempts to cool the overheating economy are successful, Vietnam will see a more stable growth trajectory for over the longer term

Threats The Vietnamese government's shift in focus from driving economic growth towards

fighting inflation and addressing macroeconomic imbalances is expected to have a cooling effect on the economy

Public spending cuts, tighter credit conditions and aggressive monetary tightening are likely to keep economic activity depressed over the coming months

Lack of energy infrastructure holds downside risk to nearly all projects and presents significant bottleneck to development

Uncertainty and downside risks in business environment could have negative impact should any significant events occur to highlight Vietnam’s structural difficulties

The EU does not predict Vietnam will become a true market economy until 2018

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Market Overview

Vietnam

Vietnam's emergence as one of the most promising economies in Asia, if not in the world, stems largely from the Communist Party of Vietnam's (CPV) adoption of the Doi Moi market reform policies in 1986 The gradual but steady shift from a largely agrarian country with a high degree of state ownership and government intervention to a market economy has stimulated the flow of foreign investment and domestic entrepreneurship, which are now the prime drivers of growth For instance, foreign direct investment (FDI) reached US$6.7bn in 2007, of which a quarter went towards fixed capital formation, according to data from UNCTAD

However, Vietnam’s poor infrastructure has long been putting a damper on the country’s growth as its developing industry is highly dependent on sound infrastructure (especially power and road) to operate In August 2008, even Vietnam’s planning and investment deputy minister, Cao Viet Sinh admitted that the weaknesses of the country’s infrastructure are slowing down the absorption rate of FDI In addition, the urbanisation process and the growing population figures, also indicate that the pressure on urban

infrastructure will increase in the coming years According to BMI forecasts, between 2011 and 2015,

Vietnam’s population will increase by 3,98%

Vietnam’s Ministry of Planning and Investments has released a list of 60 urban infrastructure projects to

be implemented between 2009 and 2016 The total estimated investment required for the projects is US$12bn The projects range from new water and sanitation infrastructure to new roads and traffic systems, and will take place in 15 provinces around the country Around 18 of the proposed projects on the list will be funded by official development assistance (ODA) from Europe, Japan and the Asian Development Bank, while the ministry said that the rest will come from the private sector, through PPPs Infrastructure bonds are another option, but this idea has not gained much support from the government thus far However, as the capital requirements for projects in energy, utilities and transport increase, infrastructure-specific bonds may become more popular

Vietnam has indeed been making noteworthy efforts to attract investments, and the government has made infrastructure a priority investment area The country is undeniably in need of significant infrastructure

investments, and PricewaterhouseCoopers (PWC)’s executive director for South East Asian

infrastructure (quoted in the Saigon Times) affirmed that 'Vietnam will need to increase the levels of infrastructure investment at twice the growth rate of GDP to increase its overall national competitiveness.'

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been pushing for faster implementation and development of public-private partnerships (PPPs) for

upcoming infrastructure projects The move was announced at a conference held in Ho Chi Minh City in

July 2010, by Vietnam's deputy minister of planning and investment, Dang Huy Dong BMI believes that

this is a step in the right direction towards addressing the structural weaknesses of the infrastructure sector, though wholly predicated upon the approval of the draft regulatory PPP framework to govern the sector

Foreign investments have also been playing a growing role BMI notes that while poor infrastructure still

inhibits foreign investment in the country, we expect this effect to diminish over the next few years The country's infrastructure deficit combined with an improving business environment provides growing opportunities for foreign infrastructure and construction companies in the country For instance, in March

2010, Japan's government announced plans to increase its participation in co-financing infrastructure projects in Vietnam, as part of a wider venture to spearhead the involvement of Japanese companies in the development of infrastructure in the region This is part of a wider trend for foreign involvement in the

sector Improved contract agreements between the Export-Import Bank of the United States (US

Ex-Im Bank) and the Vietnam Development Bank (VDB) are also helping to change the outlook for the infrastructure sector

A stream of road building projects is set to boost the infrastructure market Foreign investment pledges

for the port sector, also increased over the third quarter of 2009 Taiwan's Formosa Plastics Group –

which is rapidly emerging as one of the largest, if not the largest, foreign investors in Vietnam –

confirmed its commitment to the government to build a deep-sea port in Son Duong, next to the Vung Ang Economic Zone, where it is investing US$19.2bn in petrochemical, steel and oil refinery projects

Investors are showing keen interest in acquiring concessions in Vietnam’s transport sector, and thus establishing a long-term presence in the country However, we also warn against the obstacles and

challenges that still characterise Vietnam’s business environment, including corruption (the country ranks

116 in the ‘2010 Corruption Perception Index’ of Transparency International) and the fact that in spite of the commendable strides the government has been taking in opening up, the EU stresses that the country will not be considered a market economy until 2018

A regulatory and legal framework to nurture the development of concessions is also largely absent, though there are regulatory frameworks under construction From this perspective, the absence of an enabling institutional and regulatory/legal environment, which hinders the proliferation of PPPs, was a core theme among the participant of a conference organised by the Asian Development Bank (ADB) in February 2009, called Strengthening Public Private Partnerships For Infrastructure Investments In

Vietnam., Law firm Duane Morris identified four main obstacles for the limited participation of the

private sector in infrastructure in Vietnam These are:

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the weak governance structures of the state-owned companies that dominate the construction and utilities sectors;

difficulty in accessing domestic capital;

costly delays in projects due to the weak regulatory environment; and

the often uncertain support of the government

In the long run, these problems could become a major obstacle for economic growth Duane Morris noted

in their presentation at the ADB conference that the government is able to meet a quarter of financing needs for infrastructure, and official development assistance (mainly from the JBIC) another quarter This leaves 50% of financing needs unmet by public finances, which at the moment make up the main source

of financing

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Building Materials

Global Overview

Building Materials: Global Demand To Hit New Highs In 2011

Demand for key building materials (namely cement and steel) experienced a mixed recovery in 2010 Surging demand in Asia and particularly China was the key growth driver globally, offsetting a muted recovery in the consumption of building materials in Europe and North America Moreover we expect this story to continue over the next two years as Asia's booming economies drive global demand for cement and steel to new heights in 2011 and 2012

Key views for 2011:

China to remain key growth driver of cement and steel demand

Asia and Latin America - regions to outperform globally

Europe - cement prices/volumes to remain subdued (economic headwinds, austerity cuts etc.)

Steel prices to trend higher; but Chinese overcapacity to alleviate some upside pressure

Risks:

Rising costs of raw materials to pose risks to margins and consumers

Inflationary pressures a key concern for prices/costs across much of Asia

China's slew of cooling measures may impact cement/steel consumption

Short-term supply-side issues in steel sector arising from floods in Australia

Asia to accelerate in 2011

Continued efforts to cool China's economy and the persistent economic headwinds facing many

developed countries will see the overall consumption of building materials moderate in 2011 However, across much of Asia and other key emerging markets, notably Latin America, the rate of cement and steel consumption will accelerate, buoyed by robust economic growth Indeed, having accounted for the lion's share of growth in global cement sales and two thirds of global steel production in 2010, we expect key Asian markets such as China, India, Indonesia and Philippines to further increase the region's share of the total in 2011

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a 9% to 10% rise (according to the Ministry of Industry and Trade) Similarly in Thailand, cement

consumption is anticipated to increase by nearly 10% in 2011, according to Siam City Cement

Steel consumption in India will grow by 13.6% in 2011, according to World Steel Association (WSA) estimates, as the country's insatiable demand for infrastructure projects and housing drives demand for the metal While cement consumption in the country is also likely to see double-digit growth, manufacturers expect margins to remain under pressure in the short-term at least as significant overcapacity in the sector will keep prices depressed

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Middle East And Asia Stay Positive In 2009

Global Cement Production (2008 - 2009)

Source: Lafarge, JP Morgan Report 2008, 2009

Rising input costs and inflation to squeeze margins

High and rising costs of production will continue to be a threat for construction companies in 2011 A booming demand for raw materials in recent months is resulting in rising input costs for energy and raw material-intensive industries, such as steel production and cement manufacturing The costs of key inputs such as iron ore, coking coal and scrap steel have all surged of late, placing strong pressure on firms' margins Moreover, with input costs likely to remain high over the coming months, margins will be squeezed further as well as the possibility of these costs being passed on to the consumer through price rises

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Costs Increase Pressure On Margins

Global Cement Majors Vs Global Construction Majors (basket of share pricest)

Source: BMI Research, Bloomberg

In South East Asia in particular, such issues are accentuated by the constant threat of inflation, which will

be a key concern for a number of countries in the region in 2011, particularly Indonesia and Vietnam Although local supply-demand dynamics can drive up prices on a short-term basis in a particular market; factors such as transport and distribution costs as well as uncertain electricity supply also remain notable constraints for the region's building materials sector

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Treading Higher

Relative Performance Of Iron Ore & LME Steel Billet Prices*

Source: BMI / *Rebased (January 2009 = 100)

Developed economies to lag

While the key challenges are firmly on the supply-side in the developing markets, the issues facing the building materials sector in developed markets, particularly Europe, continue to be on the demand-side Cement production in the region slowed in the second half of 2010 and in fact shrank in the third quarter, keeping prices depressed, though largely stable In a number of countries, an increase in the production of building materials, notably steel, belied a far weaker domestic demand picture, with exports accounting for a significant portion of the total

Steel: demand to grow, with moderate price rises expected

Following a contraction of 6.6% in 2009, apparent steel use (i.e steel demand) increased by 13.1% in

2010 to 1,272 million metric tones (mmt), according to WSA estimates It is forecast by the WSA that growth will moderate in 2011, but still rising by 5.3% to reach an all time high of 1,340mmt This

moderation in growth is due to factors such as base effects as well as China's raft of measures aimed at curbing its rampant property and construction sectors Moreover, much of the growth seen in developed markets in H110 reflected inventory restocking and stimulus measures that are now unwound Indeed, the WSA estimates that steel consumption in developed markets will remain well below the pre-crisis peak levels in 2011 Having said that, positive macroeconomic data emerging from the US and Germany in recent months highlights the upside potential to this view

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Although 2011 will likely see a relative slowdown in Chinese demand for the metal, global steel

consumption will continue to be driven by the Asian giant Indeed, China's construction and automobiles industries - two major steel consuming sectors - are forecast to expand by 9% and 15.8% respectively

Over the next two years we expect steel prices to rise steadily Three-month LME steel billet prices will

average US$580/tonne in 2011 and US$620/tonne in 2012, according to BMI's commodities team;

though still a long way off pre-crisis peak levels Over the coming quarter we expect the metal to trade between US$500/tonne and US$600/tonnne, with a number of factors combining to prevent any potential price surge One notable issue is that of significant overcapacity in China, which along with the Chinese government's concerted efforts to cool industrial production, reduce the likelihood of any supply-side constraints

While we believe that overcapacity will play a key role in curbing potential gains in steel prices there are

a number of dynamics that could precipitate upward price pressure over the coming months Over the short-term, the effect of flooding in Australia could result in supply-side issues, resulting in further rises

in the cost of coking coal and iron ore In addition, with the potential for the cost of raw materials to remain high over the coming months, there is the possibility that this will be passed on to consumers

Table: World's Top Steel Producing Countries (Million Metric Tonnes - Mmt)

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Asia Overview

Building Materials: Asia Will Be Key Global Growth Driver In 2011

BMI View: Robust economic growth across key Asian markets will drive demand for building materials

to new heights in 2011 and 2012, significantly outperforming the still muted outlook in developed

countries BMI notes that while many countries are expanding their production capacities to cope with

rising demand for cement and steel, inflationary pressures will be the key cause for concern in terms of price rises across much of the region in 2011 In addition to local supply-demand dynamics, the rising costs of raw materials and fuel will also play a key role in dictating cement and steel price movements

Key trends:

Wider inflationary pressures to be a key concern in 2011, particularly in Indonesia and Vietnam

Resurgent economic growth in 2011 to increase demand for building materials across the region

Increasing costs of raw materials and fuel will make further upward price movements likely as input costs are passed to consumers

Continuing slowdown in China presents potential for downward price pressure over the short to medium term

Economic Fundamentals To Drive Growth In 2011

We expect demand for cement and steel in countries such as India, Indonesia and Philippines to rebound strongly from the seasonal slowdown caused by heavy flooding in South and South East Asia between July 2010 and September 2010 In spite of this, steel production in the region grew by 11.8% in 2010 compared to 2009, increasing its proportion of the global total from 63.5% to 65.5% Driven by

favourable economic conditions and strong domestic demand for housing and infrastructure, these

dynamic markets should experience robust growth over the medium term This should see the growth in consumption of building materials in a number of countries pick up speed in 2011 Meanwhile continued efforts to cool China's economy will see consumption of building materials slow in 2011, although potential declines in price may be offset by rising costs and growth elsewhere

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As China slows, India, Asia's other giant, will see the demand for building materials accelerate in 2011 Indeed, according to the World Steel Association, demand for steel in the country is expected to grow by 13.6% year-on-year (y-o-y) in 2011 as the country's insatiable demand for infrastructure projects drives consumption of the metal

There are risks to this outlook, however, notably those arising from the well-publicised shortcomings within India's business environment Costly delays continue to hit planned steel and mining projects in the

country This is inhibiting production levels and resulting in Indian steel producers such as Tata Steel and Jinda Steel and Power increasingly seeking to tap new markets, notably Africa, in order to secure

sufficient supplies for its booming economy

While risks remain, it is nonetheless expected that India will become the world's third largest consumer of steel in 2011 Moreover, South Korean firm POSCO's planned US$12bn steel mill, which has been

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A Widening Slice

Share of Global Crude Steel Production 2010

Source: WSA

Indonesia, the continent's third most populous country, the Philippines, Thailand and Vietnam continue to

be key growth markets for the consumption of building materials in the region Residential construction,

in particular, is helping place strong upward pressure on cement prices Indonesia's cement consumption

is likely to increase considerably, with sales expected to grow by between 6 % and 8% in 2011, according

to Reuters, while Vietnam is expected to see a 9 to 10% rise (according to Ministry of Industry and Trade) Similarly in Thailand, cement consumption is anticipated to increase by nearly 10% in 2011,

according to Siam City Cement, in spite of an expected slowdown in residential construction

Rising Costs A Continual Threat

High and rising costs of production will continue to be a threat for construction companies In South East Asia in particular, the threat of inflation will be a constant one in 2011, with rising costs sapping profits as margins are reduced Indeed, rising cement prices in the Philippines will continue to take their toll on companies' costs bases, with high energy costs also a significant factor given the energy-intensive nature

of the industry Cement prices in Indonesia and the Philippines are two of the highest in the region Although local supply-demand dynamics can drive up prices on a short-term basis in a particular area, key obstacles such as transport and distribution costs (due to poor infrastructure), as well as an uncertain electricity supply, continue to drive up prices and limit supply in many parts of the region

Vietnam is a case in point, where, despite the fact there are 12 new cement plants due to come into operation to satisfy domestic demand, upward price pressure is a constant threat Indeed, the threat of inflation, the country's inadequate infrastructure and creaking power sector will put prices under strong

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upward pressure BMI notes that the government's recent proposal for tighter regulations on the building

materials sector is a welcome one, given the rapid growth that Vietnam's construction industry is

currently experiencing

China Cools Regional Steel Outlook

China's introduction of measures to prevent economic overheating has precipitated a slowdown in China's steel production, falling from a high of 56.1 million metric tonnes (mmt) in May 2010 to 51.6mmt in August 2010, according to the World Steel Association (WSA) Energy conservation measures as well as efforts to cool the property market have resulted in a construction slowdown in the latter half of 2010 which has seen global steel prices weaken over this period

Given that China accounts for around half of global steel consumption, a continued slowdown in

construction activity through 2011 certainly creates the potential for a softening in global steel prices Indeed, following expected growth of 6.7% in China's apparent steel use in 2010, compared to 2009, Chinese steel consumption is expected to slow to 3.5%, according to WSA forecasts To what extent this creates downward pressure on steel prices remains to be seen and will depend on the strength of demand growth across the rest of Asia in the first half of 2011 However, signs so far in 2011 suggest that steel prices will be well supported, not least due because of the recent large rises in raw material costs,

particularly fuel and iron ore, with the latter recently reaching an all-time high in mid-January 2011 as well as a surge in the price of coking coal

Holcim Cement Price/Volume Variance - Asia Pacific

Domestic Cement Prices / Domestic Cement Volumes (9M 2009/09M 2010 (+/-))

*based on local currencies, (1) Weighted average like-for-like, (2) Not published yet Source: Holcim

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Industry Forecast Scenario

Table: Vietnam Construction And Infrastructure Industry Data

Construction

industry value,

VNDbn 79,712.0 95,696.0 110,255.0 139,162.0 161,427.9 182,067.8 204,410.1 228,437.5 254,103.5 Construction

investment,

US$bn 27.2 31.1 32.0 34.9 40.4 45.6 52.6 60.4 69.0 Total capital

investment, %

of GDP 38.3 34.6 34.5 34.2 34.3 34.1 33.9 33.7 33.5 Capital

investment per

capita, US$ 319.7 360.4 367.1 394.8 452.7 505.9 577.4 656.6 743.7 Real capital

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Non-residential

Building

Industry Value,

TRYbn 45,847.1 51,937.7 59,659.9 75,004.6 88,515.3 101,194.0 114,724.4 129,090.0 144,344.6 Residential and

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Construction

industry value,

VNDbn 182,067.8 204,410.1 228,437.5 254,103.5 282,669.7 314,464.0 349,850.9 389,236.7 433,073.0 Construction

industry value,

US$bn 9.2 10.6 12.2 13.9 15.9 18.2 20.9 24.0 27.1 Construction

industry, real

growth, % y-o-y 6.3 6.3 6.3 6.2 6.2 6.2 6.3 6.3 6.3 Construction

investment,

US$bn 45.6 52.6 60.4 69.0 79.0 90.5 103.7 119.0 134.5 Total capital

investment, %

of GDP 34.1 33.9 33.7 33.5 33.3 33.1 32.9 32.6 32.4 Capital

investment per

capita, US$ 505.9 577.4 656.6 743.7 843.1 956.7 1,086.7 1,235.9 1,385.1 Real capital

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Infrastructure

Industry Value,

VNDbn 80,873.8 89,685.7 99,347.5 109,758.9 121,312.7 134,042.8 148,209.6 163,927.9 181,328.6 Infrastructure

Non-residential

Building

Industry Value,

TRYbn 101,194.0 114,724.4 129,090.0 144,344.6 161,357.0 180,421.1 201,641.3 225,308.8 251,744.4 Residential and

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2011-2012, we believe that the large number of projects already in the pipeline for Vietnam’s

infrastructure – especially in the transport sector – will sustain growth in the infrastructure industry in

2011

Transport Sector To Maintain Dominance Despite Growing Attention To Power

The transport sector continues to form the majority of infrastructure investment in Vietnam throughout our forecast period, accounting for 70.4% in 2015 Vietnam still suffers from a significant deficit in transportation infrastructure, and we see reason for the Vietnamese government to continue to develop this sub-sector over the medium term This is reflected in our forecast for the value of the transport infrastructure industry, which is now expected to grow by an average of 4,2% y-o-y between 2011 and

2015 The value is notably lower than previously anticipated (5.5%), as we have priced in the high volatility caused by high inflation as well as by fiscal and monetary tightening

The energy and utilities sector is seeing moderate but rising levels of growth, as the government attempts

to favour improvements in the country’s energy infrastructure; the country must indeed increase its power

supply adequately if it wants to stop serious and prolonged power outages In particular, BMI believes

that a hike in the electricity price approved in March 2011 by the Vietnamese government was a step in the right direction and we are now forecasting the industry’s value to grow by 5.1% y-o-y on average between 2011 and 2015

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Infrastructure Industry

Value, VNDbn 20,149.0 27,836.6 35,029.9 45,677.4 51,498.8 57,075.4 63,251.4 70,001.9 77,251.8 Transport

Value, US$bn 1.3 1.7 2.0 2.4 2.6 2.9 3.3 3.7 4.2 Transport

Value, VNDbn 6,024.8 5,904.6 10,883.4 15,621.7 16,871.4 18,052.4 19,298.0 20,533.1 21,806.2 Roads and Bridges

Value, US$bn 0.4 0.4 0.6 0.8 0.9 0.9 1.0 1.1 1.2 Roads and Bridges

Value Real Growth

(%) -29.5 -5.6 84.3 34.3 -3.5 0.5 0.9 0.9 1.2 Roads and Bridges

As % of Total

Infrastructure 17.8 13.5 21.5 24.3 23.1 22.3 21.5 20.7 19.9 Roads and Bridges

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Table: Vietnam Transport Infrastructure Industry Data

Railways

Value, VNDbn 7,655.0 11,914.6 10,568.5 14,205.7 16,194.5 17,652.0 19,170.0 20,780.3 22,338.9 Railways

Value, US$bn 0.5 0.7 0.6 0.7 0.8 0.9 1.0 1.1 1.2 Railways

Value Real Growth

(%) 63.8 52.1 -11.3 25.2 2.5 2.5 2.6 2.9 2.5 Railways

As % of Total

Infrastructure 22.6 27.2 20.9 22.1 22.2 21.8 21.4 20.9 20.4 Railways

Industry Value,

VNDbn 5,299.4 7,225.4 9,098.7 8,176.3 9,402.7 10,625.0 11,995.7 13,471.1 15,074.2 Airports Infrastructure

Industry As % of Total

Infrastructure 15.6 16.5 18.0 12.7 12.9 13.1 13.4 13.6 13.7 Airports Infrastructure

Waterways

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Ports Harbours and

Waterways

Value Real Growth

(%) 248.0 135.1 60.4 62.1 6.2 12.5 13.0 13.5 13.5 Ports Harbours and

Waterways

As % of Total

Infrastructure 3.5 6.4 8.9 12.0 12.4 13.3 14.3 15.3 16.4 Ports Harbours and

Waterways

As % of Total

Construction 1.5 2.9 4.1 5.5 5.6 5.9 6.3 6.7 7.1

e/f = BMI estimate/forecast, Source: BMI Research

Value, VNDbn 57,075.4 63,251.4 70,001.9 77,251.8 85,303.8 94,122.6 103,918 114,745 126,670 Transport

Value, US$bn 2.9 3.3 3.7 4.2 4.8 5.5 6.2 7.1 7.9 Transport

Value, VNDbn 18,052.4 19,298.0 20,533.1 21,806.2 23,158.1 24,593.9 26,168.0 27,842.7 29,624.6 Roads and Bridges

Value, US$bn 0.9 1.0 1.1 1.2 1.3 1.4 1.6 1.7 1.9

Trang 31

Value, VNDbn 17,652.0 19,170.0 20,780.3 22,338.9 24,014.3 25,791.3 27,699.9 29,749.7 31,951.1 Railways

Value, US$bn 0.9 1.0 1.1 1.2 1.4 1.5 1.7 1.8 2.0 Railways

Industry Value,

VNDbn 10,625.0 11,995.7 13,471.1 15,074.2 16,853.0 18,841.6 21,046.1 23,508.5 26,235.5

Trang 32

Airports Infrastructure

Industry As % of Total

Infrastructure 13.1 13.4 13.6 13.7 13.9 14.1 14.2 14.3 14.5 Airports Infrastructure

Waterways

Value, VNDbn 10,745.9 12,787.7 15,217.3 18,032.5 21,278.4 24,895.7 29,003.5 33,644.1 38,858.9 Ports Harbours and

Waterways

Value, US$bn 0.5 0.7 0.8 1.0 1.2 1.4 1.7 2.1 2.4 Ports Harbours and

Waterways

Value Real Growth

(%) 12.5 13.0 13.5 13.5 13.0 12.0 11.5 11.0 10.5 Ports Harbours and

Waterways

As % of Total

Infrastructure 13.3 14.3 15.3 16.4 17.5 18.6 19.6 20.5 21.4 Ports Harbours and

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Transport Infrastructure Fo

The transport sector continues

majority of infrastructure inve

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lustrated by BMI’s Key Project Database, in Vietnam ther

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road and bridges here are currently road ual to about 32.8% of

inant

y Industry, VNDbn

Trang 34

of 139 countries in the 2010/11 competitiveness report published by the World Economic Forum

Secondly, Vietnam is becoming increasingly important, not just to growing Intra-Asian trade, but also on the global stage An increasing number of shipping companies are choosing Vietnam

as their port of call as they ply the East-West trade route Meanwhile Vietnam's ports are gradually graduating from feeder stop-offs on the major routes to boasting direct services on both the Asia-US and Asia-Europe services

We believe, however, that the Vietnamese government does not have the fiscal strength to finance the level of investment needed to support its growing trade volumes, thus PPPs will be vitally important in attracting foreign investors to provide financing

Transport Infrastructure Overview

Road and bridge building has stepped up a gear moving into 2010 with several high profile projects already under way

In March 2010, Vietnam's Prime Minister Nguyen Tan Dung approved VND350trn (US$18.09bn) for the construction and development of the road system in the country The funds were approved under the development scheme of 2020 and long-term plan until 2030 The plans include development of a North-South road with a total length of 3,262km, construction of seven roads in the north with a total length of 1,099km, construction of three routes with total length of 264km in central and highland areas, and development of seven routes with a total length of 984km in south area

Vietnam is also seeking further loans from the World Bank (WB) to finance the construction of an

expressway costing US$1.5bn The 140km-long expressway will connect Danang City to Quang Ngai Province The WB has already committed to invest US$580mn in the construction of the expressway, but

the project developer Vietnam Expressway is completing the necessary environmental reports in the

hope of securing further credit from the World Bank The Japan International Cooperation Agency (JICA) is also considering investing US$725mn in the project, and the remaining 13% of the total

investment capital will come from Vietnam's state budget

The Hanoi-Hai Phong highway construction project received approval from the Vietnam Development

Bank (VDB) for a project involving construction of a 105.5km-long expressway, six lanes and road

surfacing Along the highway, two sudden-stop lanes, six intersections, nine large bridges, 21 medium

bridges and 22 overhead bridges will also be built The Bidv Expressway Development Company

(BEDC) separately received approval for the construction of the Trung Luong-My Thuan section of the expressway BEDC will invest US$1.8bn to construct the 82km-long Trung Luong-My Thuan-Can Tho expressway project

Trang 35

The increased traffic levels in Vietnam’s urban areas and the country’s generally fast-paced economic development have increased the volume of exports and imports to and from the country, thus creating a pressing need for better infrastructure between ports and inland Vietnam has a total road network of 171,392km – the 29th largest globally, of which 73% are paved However, Vietnam’s Ministry of

Transport and Communications has estimated that the country will require close to US$60bn in the period

up to 2020 to fund new road infrastructure projects

The ports sector is also seeing a good deal of activity in transport infrastructure, since the majority of maritime infrastructure is outdated and has barely any support infrastructure to transport goods from the

port to the rest of the country A.P Moller-Maersk Terminals (APM Terminals), a global port operator, signed a new joint venture (JV) agreement in late-September 2009 with Vinalines, a unit of Vietnam's shipping line and terminal operator Vietnamese National Shipping Lines, to develop ports in the

country The JV will work on the development of general cargo, container terminals and transhipment hubs in Vietnam A potential commitment by the Vietnamese government to use public-private

partnerships (PPPs) to develop the country’s infrastructure bodes further good news for Vietnam’s port sector Vietnam’s Ministry of Planning and Investment has been tasked by the government to submit draft regulations on PPP-infrastructure projects Currently, there are 23 proposed PPP projects relating to seaport development and services, involving a total investment of US$3.3bn Twelve of the proposed projects involve seaport construction PPPs could make Vietnam's master plan for port development, which calls for total cargo volume throughput to increase to 500-600mn tonnes a year by 2015 and 800-1,100mn tonnes by 2020, more achievable

Under the plan, Vietnam needs about US$4bn to build an additional 15-20km of wharves by 2020 According to Nguyen Chi Hung of the Vietnam Maritime Administration, priority for development projects would be given to ports that can handle larger vessels These include Van Phong Port, which can handle 9,000-15,000 20-foot equivalent unit (TEU) container ships, and Ba Ria-Vung Tau Port, which can handle 4,000-8,000TEU ships Building international-standard wharves is also a priority In

particular, the US$1.7bn Lach Hyuen port project in northern Vietnam highlights our growing confidence that Vietnam's port infrastructure will see a significant growth over the medium-long term The Lach Hyuen port, which is located just 100km east of Vietnam's capital Hanoi, is expected to eventually

replace the nearby Hai Phong port, currently the largest port in the northern region of Vietnam and the Japan's Overseas Development Assistance (ODA) coordinator Japan International Cooperation Agency (JICA) is set to team up with Japanese companies to construct it

At present, activity in the maritime sector has mainly been concentrated on boosting the capacity of the

Trang 36

Americanshipper.com estimates that the amount invested in Vietnamese ports is close to US$4.5bn, and that up to eight new terminals are under development at Vung Tau along an 'S-shaped channel', most of which are expected to open in 2011 The river ports near Ho Chi Minh City, handle more than 70% of Vietnam's total maritime container volume

These investments are essential in addressing the deficiencies in its port sector that could prevent the country from taking full advantage of its growing importance as an international container shipping destination

The rankings of the ‘Global Competitiveness Report’ published by the World Economic Forum annually highlight the weakness of the port sector infrastructure in Vietnam

Table: Ports Are The Weakest Link: Quality Of Infrastructure Global Ranking Out Of 134 Countries

Overall Infrastructure Rank 123

Source: The Global Competitiveness Report 2010-2011 Rank above 90 denotes disadvantage for the country

The government also has ambitious plans to modernise and expand the country’s airport infrastructure, though some, like the Long Thanh international airport, have been in the pipeline for years with little progress being made Pre-feasibility studies have just been completed for the Long Thanh international airport, with construction only expected to start in 2018 However, the government’s willingness to get projects off the ground provides grounds for optimism The Ministry of Transport announced in early May 2009 that it will upgrade and expand Vietnam’s main airports Plans include a new international airport in Phu Quoc, Long Thanh, Cam Ranh, Chu Lai, Danang, and Hue The Noi Bai airport in Hanoi will be expanded, as will the Cat Bi airport in Haiphong

In June 2010, the Vietnamese National Assembly voted to reject the plan to build a north-south

high-speed railway BMI views this as a positive and encouraging move in light of the serious concerns

regarding the prohibitive price tag Concerns about the possible knock-on effects, on the entire

infrastructure sector, from the misallocation of resources of this project have also been removed

The US$56bn project was rejected by the National Assembly, following weeks of debate, which divided the ruling party According to a report by the Financial Times (FT), of the 493 members of the National

Trang 37

Assembly, only 209 voted for the project, highlighting the opposition to it The hefty cost and potential to inflate Vietnam's foreign debt in the coming years were the main grounds for opposition

Table: Vietnam Railway Corporation’s Main Targets

Upgrading north-south railway route and improving the running speed of passenger trains and freight trains to 120kph and 100kph respectively

100-Upgrading west-east railway corridor so that the maximum speed of passenger trains and freight trains is 80-100kph and 60-80kph respectively

Paying more attention to the development of new routes between Ho Chi Minh city-Vung Tau, H Chi Minh city-Can Tho, Thap Cham-DaLat, Yen Bai-Tuyen Quang-Bac Thai, Lien Chieu-Dung Quat, etc

Carrying out surveys and preparing to link the railway network to Singapore-Kunming route aimed at fulfilling missing links such as Ho Chi Minh city-Phnompenh city and Cambodia-Vietnam

Source: Vietnam Railways

The two major urban centres, Hanoi and Ho Chi Minh (HCM) City are also seeking increased

investments in their infrastructure sectors HCM City officials estimate that the city will need a massive US$15bn of investments in the transport infrastructure sector to 2020 At present, some investment has come from overseas sources, with the European Investment Bank (EIB) and the Vietnamese government signing a EUR150mn (US$199mn) agreement in December 2010 to build a 11.3km metro line in Ho Chi Minh City

Trang 38

Key Projects – Transport

Table: Major Infrastructure Projects – Transport

Project Name Value (US$mn) Companies Timeframe Status Airports

Gio Linh District Airport 21.5 na 2009-2015

Approved in February 2009

Danang Airport

passenger terminal 160

Louis Berger Group, Airport Consultants B.V.and National Construction

Consultants 2006-2010 Under Construction Cam Ranh International

Noi Bai International

Airport extension 852 na 2009-2020 At planning stage

Phu Quoc Airport 970

Southern Airports Corporation 2009-2012 Under Construction Chu Lai International

airport (Passengr

terminal, runway, parking

place), Dong Nai

province 6700 Japan Airport Consulting 2015-2020

Transport ministry awaiting approval Phu Bai International

Tien Lang International

Airport, Hai Phong na na 2010- At planning stage Pleiku Airport (two-phase

2011-2020 (first phase) At planning stage

2011

Ports

Construciton of the second phase underway Saigon International

Terminal, Phu My 1

China Harbour Engineering

Company 2009-2011 Under Construction Deep water Port at Khe

Ga Cape, Binh Thuan

Con Dao transhipment

Trai Thien Sea Transport

Investment and Development Joint Stock

Company na Licence awarded

Trang 39

Project Name Value (US$mn) Companies Timeframe Status

Saigon-Hiep Phuoc port 337 na 2009- Under Construction

Hai Phong International

Japanese-Vietnam agreement for the port's development due in November

2010 Van Phong International

Cai Mep-Thi Vai

International Port 700

Civil Engineering Construction Joint Stock Co

No.6 and Truong Son Corp na

Phase I in operation/ project and Japan ODA under review

My Thuy deep water port 1100

Marine Consultant Co and Quang Tri province na

Approved in October 2008 Son Duong deep water

port 1200 Formosa Plastics Group na At planning stage Dedicated container

facility in Ba Ria-Vung

Tau, in Cai Mep Port na

Mitsui OSK Lines (MOL), Hanjin and Wan Hai 2009-2011

SPV pending creation Gemalink Cai Mep

Container Terminal 300 Gemalink, Dealim-SAMWHA

2010-2013 (first phase)

Contract signed (July 2010)

Lach Huyen deepwater

port (four container

wharves), east of Hanoi 1700

Vietnam National Shipping Lines (Vinalines), Mitsui O.S.K Lines (MOL), Nippon Yussen Kaisha (NYK),

Itochu 1400

Preliminary agreement signed; US$1.7bn loan by JICA to be signed in April 2011; First PPP port proje

Cai Lan International

Container Terminal na

Cai Lan Port Investment Joint Stock Company, Carrix, Cordiant Capital 2010-2011

US$127mn funding

secured

Dong Lam cement port 63.6

International Transport Development And Investment Joint Stock 2010-2017

Licence granted; first phase to be completed by 2013

Cua Lo port expansion,

International Transportation

Development and

Ongoing development, Phase II and III to

be completed in

Trang 40

Project Name Value (US$mn) Companies Timeframe Status

Port facility, Nghe An 365 Kobe Steel 2011-2013 Plans announced

Construction of railway

links with Cambodia and

Vietnam Railway Department, China Mechanical Equipment Import Export Corporation and China Railway Construction Corporation na At planning stage Cat Linh-Ha Dong urban

Core projects of VRC 670

Vietnam Railway Corporation (VRC) 2009

Finance Ministry approved US$30mn loan in March 2009 HCM- Na Trang railway 7800 Chungsuk Engineering na At planning stage North South High Speed

Lao Bao-Dong Ha railway na Giant Group na Approval pending Hanoi Urban Railway 1070 na 2010- Under construction

Mass Rapid Transit

(MRT) line 1, Ho Chi

Under construction;

received US$200mn loan from European Investment Bank

Mass Rapid Transit

(MRT) line 2 (11.3km

between Ben Thanh and

Tham Luong), Ho Chi

railway line, Ha Tinh 6.1

Vietnam Railway Corporation

October

2011 Project launched

Subway project no 5

(First phase running from

the Bay Hien crossroads

to the Saigon bridge), Ho

Chi Minh City

1850 (first phase US$978mn)

GEV, HCMC's Urban Railway Management Board 2011-

EPC contract signed; First phase

to start in April 2011; Spain to provide preferential ODA US$698.7m Monorail line 2 (14km

Tiêu đề	Vietnam Infrastructure Report Q3 2011
Trường học	Business Monitor International
Chuyên ngành	Infrastructure
Thể loại	Báo cáo
Năm xuất bản	2011
Thành phố	London

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