Project Financing for Infrastructure investment in Vietnam - Construction Management

For the last two decades, Vietnam has been the second country in Asia after only the neighbor China which has the highest significant result in poverty reduction. An average annual growth rate of 7.5% and reduction in poverty rates from 51% to 8% of the population clearly indicate that Vietnam is well on the path to achieving Middle Income Country status (WB, 2008). Satisfying the infrastructure demand which is a stemming from poverty reduction goal needs to be provided an annual infrastructure investment level to approximately 11.4% of GDP, which will increase of 2% over recent levels. Therefore, Vietnam needs approximately 7 billion USD in 2010 to fulfill investment in infrastructure system. Meanwhile, the total budget from ODA, Vietnam government and users is only about 3.9 billion million USD (55.7%), see Figure1. Accordingly, where will the rest of capital lacking come from? In order to answer this question, Vietnam Government recognized the necessary to reform financial market of infrastructure investment that belonged to public sector only in the past.

Success of many countries in Southeast Asia shows that infrastructure financing system in Vietnam needs to change from government and international loans to private financing. This is a reason that leads Vietnamese government to have many dynamic changes in respect of establishing a market-oriented infrastructure finance system, especially in encouraging private sector participants. With the realization of important role of private sector in infrastructure investment, the government has been developing Public Private Partnership (PPP) framework for many types of infrastructure facilities.

Although PPP concept has been applied to access infrastructure capital mobilization from private sector since 1990, this concept was introduced in Vietnam in early 2000s. However, the inconvenient of PPP regulatory framework is the major barrier preventing private sector to finance infrastructure projects in Vietnam. To improve this situation, the Vietnamese government issued new 108 Decree to replace the old 78 Decree in 2010. Thus, PPP development process is more efficient and transparent than before. Hopefully, this will encourage more private participation in infrastructure investment in Vietnam.

 It is important for the investment company to understand how to engage in PPP projects. Once deciding to participate in PPP projects, companies should know how to define participation scope, conduct financial feasibility study, analyze the impact of concession terms, and manage risks during different stages of projects.

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