The Ministry of Construction is seeking feedback on a draft resolution outlining special mechanisms and policies for the North-South high-speed railway project. They have submitted the proposal to the Ministry of Justice for review. The Ministry of Construction suggests that the government lend investors up to 80% of the total investment, with a minimum interest rate of 0% and a 30-year repayment period.
The remaining 20% is to be self-financed by the investors.
According to the 2017 Public Debt Management Law, there is currently no mechanism for the government to use state budget funds for loans to businesses. The Ministry of Finance has advised reporting this to the appropriate authorities for consideration and decision.
Additionally, the Ministry of Finance has expressed concerns: The proposal for the government to borrow and relend to the project at a 0% interest rate for up to 30 years would effectively mean the government covers the interest payments. This could increase the government’s direct debt service obligations relative to total state budget revenue, potentially exceeding limits and negatively impacting the national credit rating.
Furthermore, a 0% interest rate could weaken the project’s financial viability and reduce the investor’s motivation to repay the loan. With no repayment pressure (as the state budget covers interest), there is a risk that the state budget may struggle to recover the debt, which contradicts market-oriented debt management principles.
The Ministry of Finance further notes: The proposed mechanism requiring investors to repay the entire loan in one lump sum at the end of the term is highly risky. They urge the Ministry of Construction to assess the feasibility of this approach, given the substantial loan amount and the uncertainty of repayment if the project faces delays or fails to meet financial expectations.
Regarding technology, the Ministry of Construction highlights the limited state investment in railway industry development. Vietnamese companies face challenges in participating in the production and supply chain for railway equipment, particularly modern railway technology, due to their inability to compete with foreign firms that possess established technology and experience.
To gradually achieve self-reliance in the research and production of essential materials and equipment (rails, switches, signaling systems, etc.), and railway vehicles, special mechanisms are necessary. These mechanisms would enable domestic companies to receive government contracts for key railway industry development projects, fostering strategic growth in the sector.
The Ministry of Finance also recommends awarding the project to a single investor.
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