supportive rather than regulatory, and the UK's financial market is well developed, which really facilitates attracting investment from the private sector.
The UK is currently applying the DOBFO model (Design - Build - Fund - Operate). In the structure of the Ministry of Transport, there is the Highways Department, the Highways Department and the DBFO Investment Company, which issue bonds on the basis of future toll revenues as commitments. This financial debt is repaid by the Government in the form of user fees, the amount of money collected depends on the traffic volume on the highway. Therefore, there is no direct burden imposed on users, which is the reason for the difference compared to other toll roads. In addition, the UK also has a very developed bond market, so funding investment through the bond market is very effective. Therefore, the development of highways is not hindered by the pressure of lack of capital.
2.3.2. Experience of some ASEAN countries
2.3.2.1. Indonesia's experience
To carry out the construction and development of the expressway system, the Indonesian Government has established a BOT company, but the BOT form in Indonesia only enjoys minimal protection from the Government in construction subsidies. The BOT company must take full financial responsibility for the project. However, due to the many risks of BOT projects, especially after the Asian financial crisis in the 1990s, the Indonesian Government is now reviewing the importance of providing more guarantees in BOT projects and prioritizing the development of each project item from financial loans.
Indonesia has been mobilizing private sector investment for infrastructure development since the 1990s. In the early stages, the selection of investors was mainly through the form of bidding. Due to the impact of the 1997 financial crisis, the Indonesian government had to take measures to terminate or renegotiate contracts, which affected the confidence of both investors and contractors.
and government agencies in implementing the PPP program. Therefore, in 2005, the Indonesian Government restarted the PPP program with the promulgation of the PPP law, but there are still reasons why the PPP program in Indonesia has not been as successful as expected, the main reasons are:
- Lack of commitment and strong political support:
Although Indonesia has an Infrastructure Promotion Committee, unlike the Philippines where the President is the Chairman of the Committee, Indonesia’s Infrastructure Promotion Committee has two co-chairs, the Minister of Economy and the Minister of Planning. This type of management structure is known as a “two-headed snake” structure and has not been very effective in making the decisions necessary for PPP project implementation.
- Lack of coordination between agencies:
The Secretariat of the Infrastructure Promotion Committee is a member of the Ministry of Economy and the Ministry of Planning, but this Committee does not have the right to decide on the financial mechanism of the participants, especially the State, in PPP projects, but depends on the Ministry of Finance. As a result, the PPP projects proposed by the Secretariat can only be actually operated when there is a decision on the financial mechanism for the project from the Ministry of Finance.
2.3.2.2. Experience of the Philippines
The Philippine model has both success and failure. As early as 1991, the Philippine government enacted the BOT law, which was amended in 1994. The Philippines has the Investment and Co-ordination Committee (ICC) as the highest decision-making body for PPP projects. This is an inter-agency committee, consisting of ministers and chaired by the President of the Philippines. Assisting the ICC is the National Economic Development Authority (NEDA), which is responsible for economic development planning. NEDA is the agency that drafts and submits for promulgation PPP policies, including the investor selection process, and NEDA is also the coordinating agency between ministries and agencies related to specific PPP projects, coordinating with the Ministry of Finance to ensure the State's participation in feasible PPP projects.
in terms of finance. The Philippine government also established the BOT Center under the Ministry of Industry and Trade, which has the function of advising agencies implementing PPP projects. However, because it is only a purely advisory unit, without a mechanism to give actual power to the BOT Center, this agency does not really play a major role in investment, construction and development of highways in the Philippines.
The Philippines also has the Department of Public Works and Highways, which oversees all transportation PPP projects. However, this agency only has a development plan every six years, and thus does not have long-term planning, which is essential for the development of PPP projects, especially road traffic projects. PPP projects for highway construction seem to be interrupted with different implementation schedules and different toll rates, which is not really convenient for users and not attractive to investors for highway construction.
The Philippine BOT scheme allows for projects to be implemented in the form of private investors proposing their own projects, which are then tested through market mechanisms by inviting other interested investors to submit new proposals. The BOT scheme allows the initial investor to compare and adjust its proposal to be as competitive or more competitive than the proposals of other interested investors. This is indeed competitive, but it does not seem to be effective for PPPs.
2.3.3. China's experience
The Chinese government's investment capital for road infrastructure mainly comes from the following sources: Central budget: 15%, local budget; 40%, loan capital: 30% (from domestic banks), other sources including foreign capital: 15%. The State Council has issued policies on borrowing money to build roads, collecting repayment fees, collecting additional fees for vehicle purchases, and establishing a separate road construction fund. The People's Republic of China has implemented a policy of opening up the market, reforming institutions, and attracting investment capital for transport development, especially highways. Investment capital for highway construction has taken many forms.
such as: borrowing capital from banks, issuing bonds, issuing stocks, collecting money from transferring business rights for toll roads, which is selling business rights to enterprises, and using foreign capital... From 1998 to now, China has implemented an active financial policy, the construction of highways has attracted an unprecedented amount of investment capital. In 1997, it was 120 billion yuan, which increased to more than 360 billion yuan in 2004. In addition, to mobilize investment capital sources outside the state budget, China has implemented a policy allowing investment - toll collection in the following 2 forms:
- Toll roads: Roads built by the management sector, local authorities at district level or higher using loans and contributed capital from enterprises and individuals.
- Toll road: Road invested by domestic and foreign economic organizations in the form of BOT.
Thanks to the application of the above policy, over the past 10 years, China has built 45,000km of highways, and by 2010, it had built 80,000km of highways, ranking second after the US.
2.3.4. Lessons for Vietnam
Regarding the structure of non-budgetary capital mobilization for highway investment in the period 1995 - 2005 of some countries and regions as follows: Hong Kong 80%; Malaysia 25%; Thailand 75%; the average of Asia is 57% of total investment.
Through studying the lessons learned in the construction and development of highways of some of the above countries, from the actual situation of Vietnam, Vietnam can apply some successful lessons from some countries with similar circumstances. Also from drawing experience from the unsuccessful lessons of some countries in the construction and development of highways, build policies and implementation plans to minimize the risks that some countries have encountered. So that Vietnam can save time as well as mobilize capital sources in the process of implementing highway construction and development projects in Vietnam. Some lessons learned that need and can be applied in Vietnam are:
2.3.4.1. Lessons learned from the promulgation of relevant legal policies
The condition for a successful public-private partnership project is that the Government needs to develop a related set of rules, a specific, clear, transparent financial mechanism. Especially for Vietnam, which has just begun to apply the model, if the role of the State and the private sector in specific projects is not determined, it will be very difficult to implement. Currently, Vietnam has a number of regulations and pilot regulations, which are considered part of the policy of the public-private partnership model. However, compared to practical requirements, these regulations still lack consistency and motivation to attract (many requirements for private investors in Decision 71 of the Government are stricter than in Decrees 108 and 24) and also lack implementation guidance documents, factors that can hinder the success of public-private partnership projects.
* Lessons from developed countries show that to implement PPP projects:
- First of all, there must be a relevant legal framework at the highest level, such as public-private law, relatively comprehensive institutions, and no imposition from the State.
- Public and transparent investment capital structure,
- Developed financial market,
- There is a competent and capable unit to manage and resolve all issues that arise during project implementation. The failure of the PPP investment model in Indonesia shows that the main reason is: there is no focal agency, lack of coordination between agencies. The failure lesson from the Philippines, although the Government of this country has established a BOT Center under the Ministry of Industry and Trade, this agency is not really empowered, it is only a consulting agency, so the issues arising from project implementation cannot be resolved. Thus, even if there is a focal agency, if the agency does not have real power, it can still fail.
* Lessons from China:
- Regarding the capital structure for PPP projects (100%) of China, specifically as follows:
+ Capital from central budget: 15%
+ Capital from local budget: 40%
+ Domestic loan: 30%
+ Foreign loans: 15%
- Regarding policy mechanisms, the Government and the State Council have issued policies on borrowing money to build roads, collecting fees to repay; collecting additional fees for vehicle purchases; establishing a separate road construction fund. The State has also implemented a policy of opening the market; reforming institutions, attracting investment capital for transport development. Since 1998, China has implemented active policies, especially in highway construction.
Vietnam also needs to identify the unsuccessful lessons of the Philippines (although legally, the Philippines has a BOT law; there is a Commission (UB) to coordinate investment in construction and development of expressways headed by the President). However, the activities of the UB are periodic, so there cannot be a long-term plan, and expressway development cannot be interrupted in the short term, which makes it difficult to implement expressway projects. And because the policy for competition is difficult to control, it also does not bring efficiency to the PPP model in expressway construction.
* Lessons from Japan
Table 2.7. Comparison of financial resources for infrastructure between Japan and Vietnam
Grant
Financial resources | ||
Japan | Vietnam | |
Central | Joint account | Have |
Private account | Limited | |
Government bonds | Yes, but not yet popular private | |
Loan and investment capital program main.main (FILP) | Not yet | |
State stocks | Not yet | |
Local & private or public financial institutions | Central | Have |
Municipal Bonds through FILP Program | There are currently 2 pilot projects for urban transport in Hanoi and Ho Chi Minh City. | |
Local taxes, separate taxes | Not yet, usually invested directly from the state budget | |
Public Works Development Corporation | Joint account | VEC |
Bonds | Not yet | |
FILP Program | Not yet | |
Bonds and loans from private financial institutions | not yet | |
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Source: Promoting the role of the private sector in sustainable infrastructure development, http://vnep.org.vn
In the case of Japan, Vietnam can learn from its experience such as defining the development stages of expressways, establishing an expressway fund, and issuing bonds to raise capital for expressways. In Vietnam, the government should study how to open joint and separate accounts for expressway construction.
* General lessons from other countries:
Through research and analysis of the implementation of PPP programs from the above mentioned countries, it is possible to draw lessons on the promulgation of legal policies that can be applied to Vietnam as follows:
- The first:
A prerequisite for successful implementation of PPP programs in most of the countries studied is political support from the highest level, especially in developing countries with limited management capacity. In addition, the ability to coordinate across sectors is also an important factor because PPP programs always involve many sectors and fields. If inter-sectoral coordination is not achieved, the combined strength to successfully implement PPP projects will not be created.
- Monday:
The important condition is to have a consistent and effective policy framework. Vietnam can choose one of two approaches to implement this condition, which are:
+ Issue policies first and then implement specific PPP projects. This approach is also very suitable for development with a relatively high level of management. However, it is not suitable for developing countries, for example, the cases of the Philippines and Indonesia mentioned above, although they have full regulations, they are not really suitable, which can be a barrier to the development of PPP programs.
+ Or it is possible to go from piloting to issuing policies for the PPP program, and then deploying it on a large scale. This method has been proven by the success of implementing the PPP program in British Columbia. In the current situation of Vietnam, because there is no real PPP model, applying this approach is more feasible, Vietnam can allow pilot implementation, draw conclusions
Experience, issuing policies and then implementing them widely, will avoid possible errors.
- Third: The experience of most countries successfully implementing PPP in the highway sector, the necessary condition is to establish a focal agency on PPP, this agency needs to have enough authority to resolve all issues related to PPP.
- Fourth: The success of a country's PPP projects is to build a portfolio of PPP projects, or in other words, it is necessary to determine the market size of this field. That makes investors pay continuous attention and willing to spend reasonable costs to access the market when the market itself creates trust for investors and is attractive enough for investors. In some cases, the cost of accessing the market such as marketing and participating in bidding is not small for investors, there have been projects where these costs are up to 2-3% of the total cost of the project.
The experiences of some countries also show the role of the Ministry of Finance in controlling debt obligations from mobilizing huge amounts of capital to implement large-scale infrastructure projects, avoiding debt crises that some countries have encountered such as: Brazil in 1985-1994, Iceland in 2008...
In Vietnam, before 1994, there was no PPP model in infrastructure investment activities. Later, there was the participation of private investors in implementing projects in the Energy and Telecommunications sectors. The WB PPI database shows that PPP investment in the transport sector accounted for only 3% of the total 4 billion USD by the end of 2005, but there were no road projects.
Vietnam's PPP investment (million USD)
Source: PPI Database, WB
Water supply and drainage, 213.5%
Transportation, 115.3%
Telecommunications, 946,
24%
Energy, 2715,
68%
The data on the chart below shows that only 115 million USD, accounting for 3% of investment in transport infrastructure under the PPP form. However, these projects are for seaports and airports, but there are no projects for roads.
Source: http://ppi.worldbank.org