- The Vietnamese Ministry of Transport has announced a transport infrastructure plan between April 2021 and 2030, which is estimated to cost between $ 43 billion and $ 65 billion.
- An industrial research institute under the Ministry of Transport has developed three proposed implementation options.
- The promulgation of the new PPP law implemented in January 2021 should play a key role in the realization of these infrastructure projects.
The Vietnamese Ministry of Transport has announced its transport infrastructure master plan between April 2021 and 2030, which is estimated to cost between $ 43 billion and $ 65 billion.
Under the master plan, Vietnam will build thousands of kilometers of new highways, high-speed railways, deep-water ports and new international airports. The government expects Vietnam to achieve a freight transport capacity of 4.4 billion tonnes per year and road transport capacity capable of carrying 2.76 tonnes of freight and 9.43 million passengers per year.
Vietnam is catching up to provide adequate infrastructure to keep the economy growing rapidly. The Vietnamese economy is structured around investments, manufacturing and exports, where investments are directed towards specific areas with particular endowments such as a large supply of competitive labor, as a result of which the Value-added products are manufactured or processed before being exported. It is a similar development model that has propelled Singapore, Taiwan and South Korea among the high-income countries.
In addition, an important factor in the success of these three countries was their ability to transport infrastructure capable of handling increasing trade volumes. As Vietnam seeks to increase its manufacturing capacity, it is crucial that its roads, airports, seaports and rail links can facilitate this increase.
Three proposals for the implementation of the master plan
The Development and Strategy Institute – an industrial research institute under the Ministry of Transport – has developed three proposed options for the implementation of the master plan.
Under the first proposal, which is estimated to cost between ($ 39 billion and $ 43 billion, or about one percent of GDP), the government will build a total of 5,000 km of highways, as well as the completion of Long Thanh International Airport, located at Dong Nai Province. When completed, it will be Vietnam’s largest and could serve 100 million passengers per year. It will eventually replace the very congested Tan Son Nhat International Airport in Ho Chi Minh City.
The first proposal is also for the completion of the port of Lach Huyen, a deep-water port in the city of Hai Phong. The port is one of the first public-private partnership (PPP) projects between Vietnam and Japan and will accommodate container ships between 4,000 20-foot equivalents (TEUs) and 6,000 TEUs, and a potential of 8,000 TEUs. .
Finally, the first proposal includes the construction of two high speed rail lines between Hanoi and Vinh, and Ho Chi Minh City, and Nha Trang.
The second proposal will cost between US $ 43.3 billion and US $ 53.3 billion to implement and will also involve the construction of 5,000 km of highways in Vietnam, the completion of the two high-speed railways, in addition to the completion of two railway sections that link the Lach Huyen Port, and the Cai Mep container terminal.
The second proposal will also see the completion of Noi Bai Airport in Hanoi, the expansion of Tan Son Nhat Airport in Ho Chi Minh City and the completion of the second phase of Long Thanh Airport. Other airports intended for expansion include Dien Bien Airport serving Dien Bien Town and Con Dao Airport, which serves the tourist island of Con Dao.
In addition to the expansion of the airport, the second proposal focuses on the dredging of the waterways between Hai Phong city and Phu Tho province and the modernization of the Cho Gao canal that connects Ho Chi Minh City and the Mekong Delta.
The third proposal is expected to cost the most, estimated at between $ 60 billion and $ 65 billion. The proposal presents many projects of the first proposal with additional railway lines in different parts of Vietnam.
New PPP law to set the framework for these transport projects
The enactment of Vietnam’s new public-private partnerships (PPP) law, which entered into force in January 2021, will be central to the success of these complex projects.
Under the new PPP framework, investors engaged in the transport, health, education, transport network and water sectors can enjoy benefits ranging from reduced corporate taxes , credit support and reduced land rental costs, among others.
To be eligible, the value of the project must be at least 200 billion VND (6.2 million USD), except for education and health projects where the value is half of this amount. The equity contribution of private investors must be at least 15 percent of the total investment capital.
The new PPP law also implements a revenue sharing system. If the income from the PPP project is greater than 125% of the income forecast in the project’s financial model, the State will receive 50% of the income above the 125% threshold. If, however, revenues are less than 75 percent of expected revenues, the state will share 50 percent of the decline below the 75 percent threshold.
The government will provide investors with a guarantee of the availability of foreign currency to meet their needs in relation to the project for activities such as profit transfer and capital transactions. Under the new PPP law, these guarantees are limited to 30 percent (previously 100 percent) of projected income after project spending.
In addition, investors committed to using domestic content, contractors, materials and goods will also be eligible for preferential treatment during the bidding process.
Vietnam Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors across Asia from offices around the world, including Hanoi, Ho Chi Minh City and Da Nang. Readers can write to [email protected] for further assistance with doing business in Vietnam.
We also maintain offices or have alliance partners helping foreign investors in Indonesia, India, Singapore, The Philippines, Malaysia, Thailand, Italy, Germany and the United States, in addition to practices in Bangladesh and Russia.