Proposal to use over 10.6 trillion to ‘rescue’ loss-making toll booths

The Ministry of Transport (MoT) has submitted a proposal to the Government suggesting solutions for addressing difficulties and obstacles in 8 infrastructure investment projects in the form of build-operate-transfer (BOT). In addition to diagnosing the issues, the ministry has also come up with a treatment plan involving "financial injection".

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Dividing into 3 “illness” groups

According to information from the Ministry of Transport, the current difficulties and obstacles are mainly focused on projects implemented before 2015. These are projects that have been completed and put into operation but have not collected tolls, or cannot collect tolls due to opposition from local residents or projects that have collected tolls but actual revenue is less than 30% of the financial plan stated in the contract…

Having broken the financial plan, Thai Ha BOT investors want to return the project.

In addition, some BOT projects face challenges in credit mobilization (such as the BOT Marine Road Construction Project in Hai Phong); difficulties in arranging state capital participation, land clearance work, high and fluctuating borrowing interest rates; the state budget’s participation capital ratio faces difficulties in attracting investors; no specific instructions for PPP projects being implemented must be stopped to switch to investment using the state budget…

To solve long-standing difficulties, the Ministry of Transport proposes that the Government provide solutions to remove obstacles for 8 BOT projects in 3 groups. Accordingly, the first group is to amend the contract, supplement the budget to support 2 projects with reduced revenue and no recovery prospects with a total capital needs of VND 1,557 billion.

” spending the state budget to repurchase the BOT project will create a bad precedent for investors to continue implementing ineffective projects by transferring responsibilities to the State. The government needs to carefully consider this proposal, and even if necessary, it also needs to accept that it will hurt once. In the event that the repurchase decision is made, the Ministry of Transport needs to explain and ensure that the projects will be effectively managed and operated to avoid further losses in the future.”

Mr. Le Thanh Van – Standing member of the National Assembly’s Finance and Budget Committee.

Specifically, the Ministry of Transport proposes to supplement VND 522 billion for the BOT Construction of Viet Tri – Ba Vi Bridge project (Lang Lang Bridge). This project has a total investment amount that has been audited and settled at VND 1,088 billion. The expected payback period is about 22 years and the investor has agreed to reduce 50% of profit on equity.

With the BOT Investment project in the construction of the Thai Ha Bridge over the Hong River (connecting Thai Binh, Ha Nam with the Cau Gie – Ninh Binh expressway), the Ministry of Transport proposes to supplement VND 1,024 billion for support, the expected payback period is about 25 years.

The second group proposed by the Ministry of Transport is to adjust the state support mechanism. This solution is applied to the BOT Construction of the road tunnel across the Cả Pass. Accordingly, the Ministry of Transport proposes to allocate about VND 2,280 billion from the toll collection on the Ho Chi Minh Road section La Son – Tuy Loan to support the project. The expected payback period is about 28 years and 4 months. The La Son – Tuy Loan expressway will consider a toll collection plan to submit to the state budget.

The third group includes 5 projects: BOT Upgrading and Renovating National Highway 91, Can Tho City (not allowed to toll at T2 toll station), BOT project in construction and upgrading Thai Nguyen – Cho Moi road and upgrading, renovating National Highway 3 section Km75 – Km100 (not allowed to toll at National Highway 3 toll station); BOT project Upgrading and Expanding Ho Chi Minh Road section Km1738+148 – Km1763+610 (Dak Lak province), Project BOT Building Binh Loi railway bridge and renovating Sai Gon river channel; Western Thanh Hoa City Belt Road project section Km0 – Km6. For these projects, the Ministry of Transport proposes that the Government allocate more than VND 6,810 billion to terminate contracts before the term.

Ensuring no additional losses

Mr.Le Thanh Van – Standing member of the National Assembly’s Finance and Budget Committee believes that the state budget should not be used to repurchase BOT projects. According to Mr. Van, when a BOT project is loss-making, the first thing to consider is the responsibility of individuals and organizations that have established, appraised, and decided to implement the project. In addition, there is no budget in the state budget for buying back BOT projects in both the public investment budget and the regular expenditure for socio-economic development.

“spending the state budget to repurchase the BOT project will create a bad precedent for investors to continue implementing ineffective projects by shifting responsibilities to the State,” said Van, while also saying that the Government needs to carefully consider this proposal, even if necessary, it needs a “painful solution once.” In the event that the repurchase decision is made, the Ministry of Transport needs to explain and ensure that the projects will be effectively managed and operated to avoid further losses in the future.

According to TS Nguyen Huu Duc, a transport expert, when a BOT project fails, the solution is often that the parties involved in the project including the State, investors, and banks must share risks. However, the bank does not sign agreements with the State but stands behind the investor, so only the State and the investor remain to implement the project.

Duc said that the difficulties of the proposed BOT projects are attributed to the State, such as adjusting the plan. For example, over 5km of the Hong River, through the provinces of Ha Nam, Hung Yen, and Thai Binh, the functional agencies have approved BOT Thai Ha Bridge investment but continue to approve Hùng Bridge investment by ODA loans leading to people choosing to travel freely on Hùng Bridge instead of paying to pass through BOT Thai Ha Bridge. Therefore, according to Duc, the State should find solutions to help investors reduce damages. In addition to the solution of repurchasing the project as proposed by the Ministry of Transport, it is possible to apply solutions such as extending the toll collection period, reducing taxes, credit incentives, or using other financial tools, etc.