Solutions for Investment Implementation Phase

Economic access to SNP ports by water, avoiding congested roads.

- Diversify ownership and capital mobilization forms : SNP enters into joint ventures with foreign shipping lines in port construction such as MOL (Japan), Hanjin (Korea)... Joint ventures and associations with shipping lines not only ensure output for SNP's port projects but also help reduce pressure on equity capital for investment and development.

- Closely manage the construction process of seaport projects and related works : with the starting point of naval units specializing in the construction and exploitation of military ports, SNP always closely monitors the construction process of seaports.

* Lessons learned from loss-making ports

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When studying some ports in the Central region and in the Cai Mep - Thi Vai port cluster that are temporarily losing money (for example, in 2010, SP-PSA International Port lost 313.6 billion VND, Cai Mep International Port lost 123 billion VND...), it shows that the causes of loss include both subjective and objective causes as follows:

- Investment according to planning but not in order of priority has caused short-term excess capacity.

- Poor control of investment process

- Lack of goods : due to the massive influx of port operators into these areas, while the factors to attract goods to the port and shipping lines to handle goods are not sufficient, so despite hundreds of millions of USD in investment, the port is still empty of ships and incurring losses.

- Freight rates are too low : There is a huge gap between the forecast in the dossier and reality. For example, the business assumptions when deciding to invest in a port in the Cai Mep - Thi Vai area are based on the quoted freight rate of about 50 - 60 USD/20-foot container. However, the actual freight rate is only about 32 USD/20-foot container and 40 - 50 USD/40-foot container. With this freight rate, the investment is high, so the depreciation is high, the cost of paying bank interest is high, but the revenue is much lower than expected, so losses are inevitable.

- Little difference in service : If in countries with developed seaport industries, ports compete with each other by providing better and better services to customers, in Vietnam, there is little difference in service between ports so customers mainly

Consider geographic location and compare prices when choosing a port. This makes competition based on price strategy even more fierce.

- Unsynchronized investment : many ports have finished construction but the roads to the ports have not been completed, leading to cargo owners turning their backs on the ports, creating a shortage of goods in these areas.

In fact, it is normal for port projects to suffer losses in the first years of operation due to large investments and high depreciation. Moreover, ports are important infrastructures that have long-term impacts on the entire national economy, so it is not advisable to simply compare revenue from port fees with total investment capital for the port. However, ports can only accept losses in the first few years, but if losses last for decades, they can lead to bankruptcy. Finding suitable solutions so that investors can recover capital and make profits when investing hundreds of millions of USD in a seaport is very necessary.

* Orientation for investment activities at Vietnamese seaports

Lessons learned from seaports show that effective investment requires the right direction from the beginning (including the type of port to be built and the location of the port). It is essential to invest synchronously, to strictly control the investment process, and if there is cooperation from shipping lines participating in seaport investment and development, it can ensure the source of goods for the ports in the future. A seaport with a good location, abundant source of goods, effective traffic infrastructure (both the port access channel and the road and waterway railway system connecting the port), a modern loading and unloading equipment system, a professional workforce, quality accompanying services, quick procedures and maximum convenience for customers will certainly be highly competitive and thereby improve investment efficiency.

3.2.5.2. Solutions for investment implementation phase

a. Basis for proposed solution

A seaport investment project is only effective when the project implementation phase achieves three goals: time, quality, and cost as initially planned, and the operation phase has high efficiency. However, in reality, the implementation of seaport projects still has many limitations:

* Most of the seaport projects and supporting projects are behind schedule.with the plan for the following reasons:

- The appraisal time of seaport projects is often longer than the state regulations , partly because the procedures go through many steps, partly because seaport projects are very complicated in terms of construction techniques and technology, so it is necessary to consult many units and many experts. In many cases, there are conflicting opinions, so it is necessary to exchange and organize domestic and international seminars to adjust the project in the most feasible direction.

- Some seaport projects have to be adjusted many times for many reasons: due to subjectivity in the research process, not anticipating all the work items that need to be done; because the geology in the seaport construction area is very complicated, with many changes, especially in recent years, Vietnam has been affected by climate change and rising sea levels.

- Most of the seaport projects have encountered difficulties in site clearance , typically the My Xuan international project, the Hong Quang general port project (Ba Ria - Vung Tau)... The reason is that the compensation unit price is low, inconsistent and inappropriate. Consulting organizations that prepare site clearance plans and the Site Clearance Boards still lack professionalism.

- Some projects have to be bid multiple times : because seaport projects are special projects, requiring high technology, the bidding process to select contractors must be careful to choose good contractors, leading to prolonged time.

- Lack of coordination between relevant agencies in connecting technical infrastructure (electricity, water, traffic...) for seaport projects .

- Many seaport projects are behind schedule due to objective factors such as natural disasters and storms and floods : because seaport projects must be constructed in complex terrain and harsh weather conditions, they are prone to incidents leading to delays in construction progress.

* The quality of seaport constructions is not always guaranteed . There are also ports that cost the state hundreds of billions of dong but are of poor quality, requiring many repairs, causing waste. The quality is not guaranteed for many reasons:

- Careless survey and design: Survey and design consultants miscalculate volume and apply incorrect construction standards. For example, the work

Dung Quat breakwater project, due to incomplete design survey, encountered a mud pocket 500m into the construction, had to stop for quite a long time to handle.

- Supervision consultants have not fully performed their duties . At times and in some places, there is a phenomenon of supervision consultants compromising with contractors on many economic and technical issues; not resolutely handling quality violations during project implementation; not following the scene closely to promptly handle unreasonable problems or being rigid in handling situations.

- Construction contractors (both domestic and foreign) have not paid attention to quality control . Some contractors have even changed approved construction methods; changed the origin and type of construction materials used in the project; and have been negligent in quality control. With some projects using state capital, there are still cases of "wrongly choosing" contractors with poor capacity due to the complicated and tempting bidding process, or choosing good contractors but only for their brand, but the real ones are not because after winning the bid, there are adjustments to bring in subcontractors, leading to poor quality of the project. Domestic contractors are still too unfamiliar with the construction and installation of large and complex seaport projects. For example, in breakwater projects, up to 2/5 of the projects constructed by Vietnamese contractors encountered problems: landslides during storms, unevenly arranged covering blocks, shifting covering blocks, cracks in submerged tanks such as Phu Quy, Bach Long Vi... [39].

* Construction investment costs exceed predetermined limitsThis is a common occurrence in many port projects, due to limitations in cost control:

- Untimely capital arrangement : Capital arrangement for the project does not meet the approved project schedule, leading to the situation where many project items are under construction, waiting for capital disbursement. Slow disbursement leads to many consequences, slowing down the construction progress of seaport projects, increasing project management costs and making the financial capacity of Vietnamese contractors, which is already difficult, even more difficult...

- The cost of construction investment has increased for many reasons, causing difficulties in the payment process : The cost has increased due to the continuous increase in input material prices during the construction process, leading to most seaport projects being stuck in the process.

The issue of price compensation. Furthermore, for seaport projects using ODA capital, the approval procedure goes through many levels, leading to a lengthy contractor selection process. Therefore, when the bidding results are approved, the bid price is no longer suitable due to price slippage. The arising costs will make the investor passive and confused in finding additional capital sources and make it very difficult for future payments.

- The payment acceptance procedure has too many steps and is too complicated . Some payment agencies even have their own management regulations, leading to a long payment time.

- In cost management, the cost of construction maintenance is not fully calculated : When the construction is handed over for management and operation, capital is not allocated or insufficient capital is allocated for the approved work items in the operating manual, affecting the operation and life of the construction, because seaport construction must always be maintained to prevent seawater erosion, and maritime channel construction is always silted up over time, so it needs to be dredged regularly...

- There is still a lack of individuals and departments within the investor's organization to fully undertake cost control work : In the work of organizing cost management, the management process involves the participation of many departments such as the establishment, appraisal, and examination of the total investment level, which is often controlled by the project preparation department; the preparation, appraisal, and assessment of the budget is controlled by the financial engineering department; the bidding stage and contract signing price are controlled by the bidding expert team, and the final payment and settlement are handled by the Finance - Accounting department. In fact, the above departments all operate separately, so there is no department responsible for being a bridge for information on project costs and fully responsible for cost control. Moreover, cost control has only stopped at implementing the regulations on cost management prescribed by the state, and there are not many professional measures to control costs. Particularly for seaport projects using state capital, due to sanctions for projects exceeding capital and the ease of adjusting and supplementing investment capital, as well as the mentality of only implementing cost control when there are regulations and instructions from the state, investors do not take cost control seriously.

For all the reasons mentioned above, to improve the efficiency of seaport investment, it is necessary to have solutions to speed up investment progress and control costs.

cost and quality assurance of the project.

b. Solutions to speed up investment progress, control costs and ensure the quality of seaport projects

- Simplify investment procedures and shorten appraisal time . State management agencies need to publicize the process, content, appraisal time, and approval of seaport investment projects according to regulations, clearly stating the stages of the work and specifying who (or which agency) is responsible for handling them.

- Rectify compensation and site clearance work : Regarding the mechanism and policies for compensation and site clearance work, it is necessary to be clear and stable within a certain period of time, avoid causing disruption and be suitable to the reality of each locality and region. There should be reasonable compensation prices. At the same time, only allow the implementation of construction of seaport projects, port-connecting traffic... when the construction clearance volume reaches 60 - 80% to avoid the situation of construction waiting for clearance.

- Ensure capital arrangement to meet project progress : To ensure timely disbursement for contractors, immediately after signing and entering the contract implementation phase, it is necessary to establish a detailed payment plan for each bid package based on the contract terms and implementation progress, from which to plan for capital mobilization, reserve payment capital and control payment. Prioritize capital for projects with sufficient construction site and that can be completed.

- Anti-closed investment : Port projects, especially projects using state capital, in many cases, are organized and implemented in a "closed" line within a Ministry or an organization from the planning, design, bidding, construction, construction supervision, equipment procurement to project acceptance, which has caused a waste of investment capital and the quality of the project is not guaranteed because of "condescension". Design consultants and supervision consultants are all hired by the investor, so everything is decided by the investor. It is difficult for the consultant to think independently, difficult to propose or recommend changes that are different from the investor's intentions. Therefore, the proposed solution is that the consultant and the investor must be independent . For example, the process of selecting a consulting contractor must have the participation of the state management agency with the authority to decide on investment.

- Complete the bidding information management system to quickly select

Contractors with real capacity . To ensure good bidding quality, it is necessary to organize and manage price information and update it regularly; information about domestic and international contractors. When bidding, it is necessary to immediately eliminate contractors whose bid prices are below the estimated cost (ie the estimated cost does not include contractor profit and tax). Because no contractor can cover continuous losses, if they bid low, they will cover losses by changing the quality of materials, changing the technological process and hiring cheap labor, resulting in poor quality of the project. For contractors who deliberately violate the schedule and do not meet the required quality, it is necessary to widely inform for the purpose of deterrence.

- The design survey work needs to be done well from the beginning to avoid having to make many adjustments and ensure the quality of the project. The survey data must be inherited to avoid wasting time. The survey task plans need to be established scientifically and accurately, fully surveying all locations that need to calculate the load-bearing structure to avoid the situation where the design documents need to be adjusted many times. Moreover, seaport projects have the participation of many domestic and foreign consulting companies, responsible for the design of each project item. However, if there is a consulting company that takes responsibility for the entire design survey work of the project through all stages, the synchronization will be more guaranteed, avoiding waste due to duplicate surveys. The survey data will be inherited for all stages of the project. In addition, it is necessary to build strong enough sanctions for organizations and individuals operating in the field of seaport design survey to increase their responsibility. Because up to now, these units have taken almost no responsibility for missing surveys or miscalculations, except in cases of serious incidents such as building collapses.

- Strengthen the cooperation and coordination of units directly and related to construction to speed up the construction progress and ensure the quality of the project . Firstly , the supply source must be met according to the schedule. If there is no source, the schedule plan is just a piece of paper. These sources must be committed to by the parties: consulting contractors must provide construction drawings and technical requirements; investors must meet financial requirements; suppliers must meet material requirements; contractors must commit to providing enough labor and construction machinery; local authorities must meet traffic, electricity, water requirements, etc.

Second , projects are constructed in a highly volatile marine environment, so design consultants should establish a design team at the construction site, closely following the construction speed to promptly adjust design drawings. This will limit the time to resolve arising tasks.

- Proactively control and contain costs, avoid cost increases : Investors need to closely monitor the process of establishing total investment, total estimate, preparing bidding documents, signing contracts with contractors... to review all contents and items to avoid missing work, control the possibility of cost increases due to volume increases during implementation. Forecast the possibility of cost increases due to price fluctuations and anticipate solutions. To strictly control costs, it is necessary to have a qualified person with experience directly monitoring the contract to control the payment value before transferring it to the investor's payment department. The cost controller must have a certain degree of independence and defined authority. At the same time, it is necessary to avoid too deep intervention by financial management agencies in the process of advance payment and settlement of construction costs. In the capital payment process, it is necessary to avoid the situation of having many doors, many signatures but not being decisive, being afraid of taking personal responsibility leading to slow decision making affecting the payment speed. In addition, seaport projects are projects that are heavily affected by natural conditions during the construction process, so investors need to seriously implement comprehensive insurance programs to preserve investment capital.

- Ensure construction maintenance costs . To overcome the situation of unprofessional construction maintenance and lack of funding leading to rapid deterioration of seaport constructions, right from the project establishment, it is necessary to mention the costs of management, exploitation and maintenance of seaport constructions after completion. The operation and exploitation process needs to ensure capital sources to meet the demand.

- Perfecting the cost control organization model : Not all investors in the port sector can meet the requirements of cost control, which is a specialized field and requires experience. Therefore, cost control can apply one of the following two models: The model of the investor directly implementing cost control, in which a professional "Construction Valuation Engineer" should be hired to support

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