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Vietnam Launches New Initiative in Public-Private Partnerships for Infrastructure Financing and Development
Vietnam’s rapid growth has outpaced its infrastructure, creating major bottlenecks in ports and a major constraint to continued export-led growth and investment. An estimated $200 billion in new roads, bridges, ports, water sanitation, power, and other infrastructure is required to sustain growth. Vietnam cannot finance this investment through state budget, official development assistance, and general obligation bonds. Many foreign investors such as Nike, which employs over 200,000 Vietnamese workers and exported 94 million pair of shoes from Vietnam last year as the second ranked country (compared to 97 million pair of shoes from China, which is Nike’s top ranked sourcing country), are encouraging the Vietnamese government to accelerate planning and investment in ports and logistics infrastructure so that large investors can expand exports and create more jobs. However, if the infrastructure is not rapidly improved through integrated master planning, Public-Private Partnerships, and alternative financing such as revenue bonds, foreign investors will not be able to sustain the projected 25% export growth per annum and increased employment that is so important to this rapidly growing country of 85 million people. In an effort to accelerate the government’s infrastructure planning and development process, USAID’s Vietnam Competitiveness Initiative (VNCI) is assisting the Ministry of Planning and Investment (MPI) to improve public procurement to attract private investment through a more transparent process by learning from experiences in other countries through a study tour and expert advice. VNCI sponsored and organized a study mission led by Mr. Dang Huy Dong, Director, Procurement Department, the Ministry of Planning and Investment (MPI) from June 22 to 28, 2008, to learn about new models for PPP in ports and logistics infrastructure. In coordination with the U.S.-Vietnam Trade Council (USVTC), and multinational investor Nike, and two world class shipping companies, APL and Maersk, VNCI introduced fourteen national and provincial leaders to logistics and ports infrastructure in Vietnam compared to China and Singapore. MPI, which is responsible for developing and promoting new financing tools and public private partnerships for infrastructure, invited representatives of key agencies such as the Ministry of Finance, Ministry of Transportation, Office of Government, VinaMarine, Vietnam Road Administration, and representatives from Ho Chi Minh city, Ba Ria – Vung Tau, Hai Phong and Dong Nai. The study mission was approved by the Minister of MPI and other officials in government with responsibilities in infrastructure. The study mission visited ports around HCMC--which handles 72% of all container shipping in Vietnam for the highly concentrated export-led manufacturing region--which will increase container shipping from 3 million twenty equivalent units (TEU) in 2007 to an estimated 13 million TEU in 2013. Port congestion is already slowing the supply chain, increasing transaction costs for importers and exporters and foreign and local producers, choking economic growth and steering investment to other countries. The key infrastructure issues in Vietnam include: haphazard and irrational planning and resource allocation; too many small ports with inefficient economies of scale; potentially low investment returns limit investment in new port construction and management; and delays in delivery of master plan milestones such as dredging and road/bridge construction has exacerbated congestion. Containers often require 3 – 7 days to clear customs, with delays of up to 30 days reported. To avoid these bottlenecks, infrastructure planning must be fully integrated to include seaports, roads, and air logistics to ensure efficiency and competitiveness for investors, manufacturers and exporters. Master planning must include both inter-ministerial cooperation and integration of plans and priorities among central government and provincial authorities. Ports and logistics infrastructure must be planned for a 20 – 30 year timeframe to sustain rapid investment and growth. In order to compare the congestion and problems in Vietnam’s logistics infrastructure, the Vietnamese delegation visited the Yantian International Container Terminal in Shentzen, China, ranked #5 in the world, and the ports of Singapore, ranked #1 in the world in volume of container shipping. During the visit to Ho Chi Minh City, China and Singapore, Vietnamese government officials met with the Guangzhou Construction Bureau, Shenzhen Port Authorities, Singapore Economic Development Board, Singapore Ministry of Industry and Trade, Singapore Ministry of Finance, Singapore Marine Port Authorities, as well as stakeholders responsible for infrastructure/export development, financing, project development and project management such as Price Waterhouse Coopers, Lovells Lee & Lee, Fitch Ratings and other key exporters and logistics providers. The Yantian Terminal is a joint venture between Hutchison Ports and the People’s Committee of Guangzhou City, creating a world class port that sustains the rapid export-led growth in southern China. Integrated master planning of roads, seaports, rail and airports has created a highly efficient logistics network that attracts foreign investment and sustains high export growth rates. This PPP model can be replicated in Vietnam with the land contributed as an equity share in the port, and port operations managed by a world class private company. In Singapore, 90% of all containers are cleared within 10 minutes by state-of-the-art computer operated port management systems, equipment and technology. This success is based on visionary integrated master planning that has positioned Singapore as a world class hub for shipping in the world. Shirley Justice, General Manager, Nike Vietnam, who helped organize the study mission, hopes that “the Vietnamese officials participating in the Study Mission experienced first-hand, some of the challenges and opportunities in the flow of goods from factory to ship to better appreciate the importance and complexity of a master plan pertaining to Infrastructure.” Ms. Justice also believes “After the Study Mission, Vietnamese officials will assess what aspects are applicable and adaptable to Vietnam to assist in the formulation and implementation of the country’s integrated master plan of Infrastructure development.” The study mission highlighted three key lessons for attracting investment and sustaining economic growth in Vietnam:
1. Create A Good Economic Climate - low inflation, favorable credit, stable currency, positive balance of trade/payments, security for investors (all aspects), are among the pre-requisites for attracting investment.
2. Establish the Legal Structure and Policies that are pro-business and investor friendly, with efficient customs processes to grow trade, especially for exports.
3. Develop National Integrated Infrastructure and related services, which have to be planned in advance through:
Integrated Master Planning for Air, Sea-Ports, Rail and Roads/Bridges
National and Provincial collaboration
Use of International Expertise, and Consultation with the Business Sector and Investment Community Foreign investment, particularly for Public-Private Partnerships, through transparent procurement and fair valuation of government-owned land for all PPP projects
Constant review of demands on infrastructure for planning ahead
Larger, more integrated Ports/Infrastructure to manage large volume of goods instead of smaller parcels
After the USAID/VNCI-sponsored study mission, workshops to educate government officials, media and the private sector, and technical assistance to advise the Procurement Department, Mr. Dong has taken immediate action to implement some of the lessons learned from international experience. Mr. Dong said, “I realized from our study mission that we cannot give land for free or appoint one firm to use land—it’s bad policy. There should be competitive bidding for any concession. This study mission, workshops and technical assistance has changed the view and policy of the government.” The new circular for Decree 78 changes the policy of the government’s use of land for PPP projects to ensure that proper feasibility studies and competitive bidding is implemented in all projects, with the exception of emergency cases approved by the Prime Minister. This is a major change in approach because the government previously received unsolicited and sole source proposals from private investors and land was inappropriately allocated without any feasibility study or land valuation. VNCI is also assisting policy-makers to develop a legal framework for PPP and revenue bonds and to support a small number of pilot projects to demonstrate successful PPP and revenue bond projects that will inform and guide the necessary legal reforms and be replicable models across the country in the future. VNCI worked with the Asian Development Bank Institute to train 60 government officials in PPP methods, and will support a new PPP administrative unit that will be created in MPI for more efficient competitive procurement of PPP infrastructure projects with World Bank financing.