Solutions for Applying and Expanding Project Financing Methods at Credit Institutions in Vietnam

In order to improve the financial efficiency of investment projects as it is now, complete the content and process of assessing the financial efficiency of investment projects in a complete and strict manner. In cases where the staff is not capable of assessing the technical feasibility of the project (especially projects using complex techniques or new technologies), credit institutions need to have clear regulations on allowing the use of domestic and foreign technical consulting services.

3.2.3. For state management agencies

To encourage credit institutions to apply and expand the TTDA method in Vietnam, first of all, on the part of the State Bank of Vietnam, there should be clear regulations on the TTDA method in the "Regulations on lending by credit institutions to customers" and "Regulations on syndicated credit granting by credit institutions to customers", to create the necessary legal basis for credit institutions to implement. On the other hand, the government also needs to promptly submit to the National Assembly a draft law amending a number of articles of the Enterprise Law (2005) in the direction of allowing investors to establish trust lending companies to encourage the development of TTDA. Along with the proposal to amend the Enterprise Law, the government also needs to promptly propose to the National Assembly to amend the Bidding Law in order to limit the situation of incompetent contractors bidding low bids that do not ensure the quality of construction works and supplied equipment, causing risks for credit institutions and investors. Finally, the government should soon submit to the National Assembly a consulting law to force consultants to be responsible for ensuring the quality of consulting activities in general and consulting in TTDA activities in particular, because TTDA activities cannot be successful without the participation of legal, accounting, financial and technical consultants.

3.3. SOLUTIONS TO APPLY AND EXPAND PROJECT FINANCE METHODS AT CREDIT INSTITUTIONS IN VIETNAM

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In order to apply and expand the TTDA method to take advantage of the benefits and potentials that this funding method brings to the participants as well as to the Vietnamese economy, it is necessary to synchronously implement the following groups of solutions:

3.3.1. Group of solutions for borrowers

3.3.1.1. Research and draft a feasible project and seriously assess the feasibility of the project

Currently, to research, draft and appraise investment projects, investors can use their own professional departments/divisions if they are qualified, or hire consulting agencies in case the investor is not capable of researching and preparing investment projects. However, the project research results must also be re-evaluated by the investor as a reviewer to detect errors, inadequacies or unreasonableness or unfeasibility of the feasibility study reports. Such investment projects or feasibility study reports, when sent to credit institutions, can convince credit institutions to accept funding under the TTDA method. The solution to ensure that investment projects are seriously researched and appraised, in case the investor is not qualified to research, draft and appraise, is that the investor should hire professional consulting companies to prepare and appraise the project. Even when necessary, investors can hire other professional project appraisal consulting companies to re-evaluate the research results of the independent consulting company hired to prepare the investment project for the investor. Although this solution requires additional costs, it is necessary and reasonable to help investors eliminate infeasible investment projects and thereby avoid future losses. On the other hand, it also helps clarify the feasibility of the investment project to convince credit institutions to boldly finance the project.

Currently, the establishment and appraisal of investment projects using state capital are clearly regulated in legal documents on investment and construction issued by the government. Specifically, in Clause 11, Article 1 of Decree 07/2003/ND-CP dated January 30, 2003 of the government on amending and supplementing a number of articles of the Regulations on investment and construction management issued together with Decree 52/1999/ND-CP dated July 8, 1999 of the government: " The investor must hire a consulting organization with legal status and sufficient capacity to meet the requirements of the project to prepare a report

pre-feasibility study, feasibility study report or investment report and be responsible for the required contents in the pre-feasibility study report, feasibility study report or investment report ”.

In addition, Clause 2, Article 1 of Decree 83/2009/ND-CP dated October 15, 2009 on amending and supplementing a number of articles of Decree No. 12/2009/ND-CP dated February 12, 2009 of the Government on management of construction investment projects stipulates the authority to appraise construction investment projects as follows: “ The person deciding on investment is responsible for organizing project appraisal before approval. The focal point for project appraisal is a specialized unit under the investment decision-making level. The focal point for project appraisal is responsible for sending the project dossier to get opinions from the industry management agency; the state management agency on construction and other agencies related to the project to appraise the project. The person deciding on investment may hire a consultant to appraise part or all of the content specified in Clause 1, Clause 2, Clause 3, Article 11 of this Decree” .

On the other hand, Clause 2, Article 36 of Decree 12/2009/ND-CP of the Government stipulates that organizations and individuals participating in the establishment and appraisal of construction investment projects must have sufficient capacity and are divided into two categories:

- Grade 1: allowed to establish important national projects, group A, B, C projects of the same type;

- Grade 2: allowed to establish group B, C projects of the same type;

- For organizations that do not meet the conditions for ranking, they can only prepare economic and technical reports for projects of the same type.

3.3.1.2. Hire professional project management and operation consultants

Currently, to choose the form of project management for projects using state capital, investors must comply with the provisions of Clause 2, Article 61 of Decree 12/2009/ND-CP as follows:

- In case the investor directly manages the project, the investor shall establish a Project Management Board to help the investor take the lead in managing the project. Board

Project managers must have the capacity to organize and carry out project management tasks as required by the investor. The Project Management Board may hire consultants to manage and supervise some tasks that the Project Management Board does not have the qualifications or capacity to perform, but must have the investor's consent;

- In case the investor hires a consulting organization to manage and operate the project, that consulting organization must have sufficient organizational and management capacity suitable to the scale and nature of the project. The responsibilities and powers of the project management consultant are implemented according to the contract agreed upon by both parties. The project management consultant may hire consulting organizations or individuals to participate in management, but must be approved by the investor and in accordance with the contract signed with the investor;

- When applying the form of hiring project management consultants, investors must still use specialized units under their own apparatus or designate a focal point to inspect and monitor the contract implementation of project management consultants.

On the other hand, Article 61 of Decree 52/1999/ND-CP of the Government and Clauses 20, 21, 22, Article 1 of Decree 07/2003/ND-CP stipulate that in case the investor does not have sufficient conditions to directly manage the project implementation, the investor can implement the form of project manager by hiring a consulting organization with legal status and registered for investment and construction consulting to be responsible for supervising and managing the entire project implementation process on behalf of the investor. In addition, the investor can also implement project management in the form of turnkey by selecting a contractor and assigning the contractor to perform the general contract from design survey, procurement of materials, equipment, construction and installation until the completion of the handover of the project to the investor. The investor is responsible for hiring consultants to supervise the project implementation process and establishing a Project Management Board for projects using state budget capital.

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In addition, to be able to accurately calculate the construction volume, select the right capable contractor, prevent the situation where design survey consultants, construction supervision consultants and contractors collude with each other in incorrectly or incompletely implementing the volume according to the construction contract, the investor needs to hire consultants to operate in an independent capacity. According to experience in implementing projects with foreign investment capital, investors often hire volume consultants. This consultant is present throughout the project implementation period, starting from when the design drawing documents are available, helping the investor calculate the volume, advise on market prices, prepare bidding documents and bid evaluation, participate in the payment and settlement process. This consultant works in parallel and independently with the design survey and construction supervision consultants. When the project moves to the operation phase, if the investor does not have enough capacity and expertise, the investor can hire experts to take on the role of operating the project professionally. However, the best solution to hire consultants and professional project management and operation experts in such cases is for the investor to organize a selection bidding.

3.3.1.3. Comply with environmental protection regulations when implementing investment projects

Currently, according to the provisions of Clause 2, Article 12 of Decree 29/2011/ND-CP dated April 18, 2011 of the Government on strategic environmental assessment, environmental impact assessment, and environmental protection commitment, for subjects required to prepare an environmental impact assessment report (EIA), project owners must prepare or hire qualified consulting organizations to prepare an EIA report for their investment project, and must submit the results of the EIA assessment to the competent authority for approval. On the other hand, also according to the provisions of Clause 2, Article 23 of Decree 29/2011/ND-CP mentioned above, before putting the project into official operation, the project owner must be responsible for designing and constructing environmental protection works; testing the operation of waste treatment works;

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project waste; acceptance of environmental protection works according to the provisions of law.

Reality in Vietnam in recent times shows that many investors only established BCĐGTĐTMT to complete the procedures and during the official operation phase, the investors did not operate environmental treatment equipment and were fined by the environmental police for administrative violations, with sanctions such as suspension of operations or recommendations to competent authorities to withdraw operating licenses if the enterprises deliberately violated many times.

Therefore, to minimize the possibility of having to bear environmental legal liability, investors must establish a complete environmental management plan and at the same time, must synchronously invest in a waste collection and treatment equipment system according to the procedures approved by competent authorities. During the official operation process, investors must also regularly operate the installed equipment system. This will help investors avoid environmental damage such as administrative fines, suspension of operations, consumer boycotts or even bankruptcy due to revocation of operating licenses.

3.3.2. Solutions for credit institutions

3.3.2.1. Capital mobilization solutions

As we know, TTDA mostly takes place in the field of infrastructure, which often requires a very large amount of funding. Therefore, in order to be able to implement TTDA or participate in co-financing with other credit institutions, it is required that the credit institutions implementing the financing or participating in the co-financing must have effective solutions to mobilize large capital sources to be able to fully meet the borrowing needs of the enterprises. On the other hand, credit institutions should not abuse too much short-term mobilized capital to finance medium and long-term investment projects, because this will increase liquidity risks for credit institutions. According to the provisions of Clause 2, Article 5 of Circular 15/2009/TT-NHNN dated August 10, 2009 of the State Bank of Vietnam on the maximum ratio of short-term capital used for medium and long-term loans, the

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Commercial banks are not allowed to use more than 30% of their short-term mobilized capital for medium and long-term lending. However, according to the Governor of the State Bank of Vietnam, Nguyen Van Binh, in reality, credit institutions have exceeded this figure for a long time. “ Some organizations use up to 60-70%, some even up to 100%. The capital is short-term, for medium and long-term lending, and when monetary policy is tightened to fight inflation like last year, these organizations immediately face liquidity difficulties ” [72].

Therefore, in order to have a stable source of capital to finance or co-finance large investment projects, credit institutions must increase the mobilization of long-term capital. One of the tools that credit institutions can use to mobilize long-term capital in the current period is to issue bonds to institutional investors, including investment funds, insurance companies, and savings funds. Bond buyers are not only limited to domestic investors but also include foreign investors, such as Vietinbank, which has just been approved by the State Bank of Vietnam to issue 500 million USD in bonds to the international market.

In addition to raising capital in the form of bond issuance, credit institutions can also proactively issue other debt instruments such as promissory notes and deposit certificates with large denominations and long maturities with attractive interest rates while still ensuring the expected profit margin for credit institutions.

In addition to the form of capital mobilization through the issuance of debt instruments mentioned above, credit institutions can also consider the solution of capital mobilization through the issuance of additional equity capital. This solution, on the one hand, helps credit institutions increase their medium and long-term capital sources, on the other hand, it also helps credit institutions increase their charter capital to increase their financial potential and enhance their competitiveness. However, credit institutions need to pay attention to choosing a favorable issuance time and an issuance price that is beneficial to the credit institution. In addition, credit institutions also need to evaluate the advantages and disadvantages of each form of mobilization in order to mobilize capital without causing damage to the interests of current shareholders, because

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Issuing additional equity capital may reduce earnings per share (EPS), thereby affecting the market price of credit institutions' shares. On the other hand, issuing additional equity capital may also lead to disruptions in the ownership structure and governance structure of credit institutions, such as the case of Saigon Thuong Tin Commercial Joint Stock Bank, which is said to have been acquired by a group of major shareholders who secretly collected 51% of shares and requested an extraordinary shareholders' meeting to re-elect the board of directors.

3.3.2.2. Solutions on organization and training

First: Establish a project funding department or division and hire professional experts and engineers.

Depending on their field of expertise, credit institutions can consider choosing a suitable TTDA organization model in the form of establishing a TTDA department or unit, and hiring professional experts and engineers. For credit institutions that do not specialize in medium and long-term lending, they can initially use officers from the credit department or corporate customer department, risk management department with a lot of experience and good professional qualifications to do the appraisal and TTDA work. If necessary, credit institutions can hire experts and technical engineers to advise and support the appraisal process of the technical feasibility of the project, an aspect considered quite important for many grants for investment projects with technical resources or requirements for the use of new and modern technology. For credit institutions specializing in medium and long-term lending, it is necessary to initially establish a specialized department for TTDA activities. When the scale of this method of operation develops to a large enough level, it is possible to consider establishing an additional TTDA department to specialize in this activity. The staff for this department should be selected from among credit officers and appraisers who are good at professional skills and have many years of experience in the field of appraisal and medium and long-term lending. On the other hand, it is necessary to recruit more engineers and technical experts from many different fields to take charge of the work.

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