The Government Should Create a Fair and Healthy Competitive Environment

+ On institutions and policies

Private investment in highway construction will contribute to overcoming problems such as corruption and waste, because private sector capital is always strictly managed, bringing higher efficiency than the public sector. The assessment of representatives of WB, ADB and JBIC banks all said that if the legal mechanism is good and the preferential policies are appropriate, private service providers will perform better than public service providers. Therefore, it is necessary to encourage private investment in highway construction through the PPP model. This investment requires specific and long-term planning by the State as well as by each locality, along with the need to establish a solid link between the State and the private sector.

+ Solutions to improve investment efficiency

 Synchronously combine solutions to accelerate investment progress in highway construction and development projects, continue to strongly reform administrative procedures in the investment sector such as procedures for establishing enterprises, procedures for granting investment certificates and licenses related to project investment. Specify the assignment and decentralization between sectors and localities. Policy mechanisms need to be flexible and adaptable but also very clear and transparent to create conditions for investors to develop and attach to the locality, such as: tax policies, land rental prices, site clearance, resettlement, hiring local workers, etc.

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 Invest in training local staff, establish and publish a list of projects, clear and public plans. For large, complex projects, it is necessary to hire experienced foreign consultants to establish plans to ensure sustainable development. Research and establish policies on a scientific basis and with the participation and contributions of relevant sectors and localities before promulgation and application, to avoid having to adjust and guide many times, overlap or cause difficulties in implementation.

 Improve project investment efficiency through careful appraisal and selection of projects before investment, strictly control project investment costs, and avoid loss.

in investment, especially for investors who are state-owned enterprises, to improve project investment efficiency, improve capital use efficiency to increase attractiveness to capital sponsors. Only units with sufficient capacity and experience are allowed to carry out project investment.

 Create mechanisms, policies and conditions for domestic and foreign investors to focus on implementing projects in the form of PPP: BOT, BT, BTO... in addition to ODA capital and state budget capital. There should be open policies and mechanisms for private enterprises to be able to participate through public bidding for projects.

+ The government needs to support investors participating in the project.

To institutionalize the cooperation between the State and the private sector, encourage the private sector to participate in public-private partnerships in the implementation of highway construction and development projects, following the experience of previous countries, the Government needs to promulgate laws, establish organizations and set out procedures for implementing transactions. These laws and organizations form the premise for PPP in infrastructure, including highways. For the private sector, the construction and implementation of highway projects is an investment opportunity that competes with all other investment opportunities in the economy.

Therefore, unless a highway project offers a return that is commensurate with the risk and more attractive than other investment opportunities, a private investor will not participate in the project. Therefore, the Government needs to ensure that highway projects that are currently calling for private investors have an attractive enough return and are commercially viable, and many governments have issued policies to provide interventions. Most of these interventions are to reduce the real costs that a private investor has to bear when implementing a highway project. Reducing real costs will help the private investor increase the return on the investment, thereby making the investment a more attractive investment opportunity. There are various forms of government support that enhance the viability of the project, such as administrative procedure reform and improving the legal framework to support PPP projects.

+ Government support tools

- Construction subsidies or capital support

According to the World Bank, this is the simplest form of government support for PPP projects, aimed at improving the commercial profitability of the project for private investors. It is provided in the form of support funds, usually divided over the construction period, thus contributing to reducing the capital cost that private investors need to implement the project. Construction subsidies are established with the aim of encouraging the private sector to participate in PPP projects. Therefore, most countries that have built or plan to build PPP markets for infrastructure, especially highways, have a construction subsidy model. Also according to the World Bank's analysis, ideally, construction subsidies are not a one-time payment but are disbursed pending results throughout the construction period. Construction subsidy disbursement is usually linked to project progress. In India, construction subsidy disbursement is considered a proxy for actual implementation progress. Construction subsidies should be determined on a competitive basis to maximize value for money provided by the Government. Therefore, some countries such as India, Korea and Chile have used construction subsidies as the sole bidding parameter or one of the bidding parameters, in project bidding.

- Operating subsidy

Operating subsidies are a form of government support to offset part of the operating costs of a project. The effect of this support is to reduce the actual operating costs that private investors have to bear. Operating subsidies are often provided when there is a maintenance of lower toll rates than required due to social circumstances. In addition, operating subsidies are also provided for infrastructure projects that are unlikely to fully recover capital. The need for operating subsidies is difficult to determine and difficult to forecast at the time of project preparation. Therefore, it is difficult to determine operating subsidies on a competitive basis. In countries with a strong PPP market, operating subsidies are of little interest in PPP projects. However, in Vietnam, to encourage investors to participate in project construction, the Government should consider using technology.

This tool, especially in the current stage, the initial stage of applying the PPP form to highway construction.

- Minimum revenue guarantee

Minimum revenue guarantees are a mechanism through which the Government finances and shares the risk of traffic volume, especially for highway construction projects, or the risk of service demand in a PPP project. Through minimum revenue guarantees, the Government finances and compensates the private partner participating in the project to build an infrastructure asset, with actual tolls lower than the forecasted tolls by a certain margin. Minimum revenue guarantees are often provided for projects with a significant level of risk, such as highway construction projects. Traffic volumes in these projects depend on a number of external factors and therefore pose risks to the profitability of the private partners. Governments sponsor minimum revenue guarantees to share part of the risk, ensure the rights of the private partners when participating in PPP projects, and at the same time, governments also want to make PPP projects an attractive investment option. The minimum revenue guarantee model specifies the minimum reduction in traffic volume beyond which the guarantee will be paid. Typically, for projects with a minimum revenue guarantee, the government sponsors require the private partners to share any surplus revenue, if any, above the forecasted revenue. Typical forms of minimum revenue payments for infrastructure projects, including highways, are in the form of additional funding, extended delivery periods, or increased user fees.

Minimum revenue guarantees are linked to the potential liabilities of the sponsoring Government. Therefore, a prerequisite for any Government to provide a revenue guarantee is that the Government has the capacity to draft a budget and forecast potential liabilities. Since minimum revenue guarantees may be spread over several years, the planning mechanism needs to have a medium or long-term planning framework to ensure that funds are available when the Government needs them.

4.4. Recommendations for all levels

4.4.1. Policy recommendations to the Government

4.4.1.1. Need to have appropriate development strategy

To meet the above development goals and strategies, the transport sector's strategy needs to have a comprehensive approach with a close combination of technical and non-technical measures, specifically:

 Clearly identify growth corridors and strategic investments for these corridors. Currently, in the master plan for expressways in Vietnam, key economic corridors have been formed, so the development strategy needs to be specific about prioritizing the development of key economic corridors.

 Identify socio-economic centers and ensure effective flexibility. Socio-economic centers need to be ensured to spread by being given priority for development, and at the same time have obligations in performing their roles.

 Strengthening the connection between centers and economic growth corridors. This is shown in the planning, but in reality, close direction from the Government through a focal agency is needed to supervise the implementation of connectivity projects.

 Maximize the participation of the private sector, which has been analyzed in detail in Chapter 2, the expected source of capital to solve the problem of capital shortage in investment in highway construction in Vietnam now and in the future. The Government needs to have a specific strategy in mobilizing this source of capital.

 Maximize the unity between transport development and regional development. If the Government cannot unify the development of road transport, especially highways, with regional development, the vital role of road transport and the main artery of highways will not be demonstrated. Furthermore, one of the goals of road transport development is to connect regions and enhance regional development, so the Government's development strategy needs to maximize the unity between transport development and regional development.

 Strengthening institutional capacity, it is clear that the current institutional capacity of policy makers is limited, the Government needs to pay attention to improving institutional capacity not only for policy makers, but also for policy implementers.

 In order to meet the increasing participation of heavy vehicles, increasing industrial activities and concerns about inter-provincial traffic, safety, comfort and saving travel time, in planning, expressways will be considered in the following aspects:

 The role of highways in regional development, socio-economic development, the Government needs to strengthen propaganda and education of citizens' awareness, the participation of all people will minimize unfortunate violations that may occur, Highway 5A is an example, after Highway 5A was put into operation, people moved to live along both sides of the road, turning Highway 5A into City 5A, cases of breaking through road fences to travel are one of the causes of many unfortunate traffic accidents that have occurred.

 The role of highways in the overall transport network, in the Government's development strategy, needs to demonstrate the driving role of highways, connecting traffic with the national and international transport network.

 Develop a highway network with good connectivity and sustainable exploitation and management, otherwise it is very likely that after the construction of the highway project, it will be too late to train the workforce to exploit and use the product.

 Coordinate and unify with existing plans and projects; connect the urban transport network into a complete transport system.

 The Government has directed relevant Departments, Branches and localities to develop a system of synchronous legal documents, transparent mechanisms and policies, creating favorable conditions for the development of the expressway system. The policy mechanism needs to be adjusted appropriately, transparently and conveniently to encourage and attract domestic and foreign investors for the construction and development of expressways.

 The Government needs to specify policy mechanisms related to the creation and attraction of capital sources for investment in developing the expressway system. Specifically, such as:

The method of generating capital through exchanging land for infrastructure (BT) has been implemented quite successfully and has built many large highway projects such as the Lang - Hoa Lac highway project.

 Propose to develop a number of policy mechanisms to support enterprises that are investors in projects in the list of national key projects in the form of PPP: BOT, BT, BTO... to create conditions for enterprises to access and use investment capital sources including ODA capital to support enterprises to effectively implement projects.

 Continue to direct local authorities to have specific solutions, preside over and coordinate with investors to quickly resolve difficulties and obstacles in site clearance, resettlement, and early handover to contractors to implement the project to ensure progress. Allow investors to use the existing traffic system of localities to carry out construction, creating favorable conditions in handling procedures for granting investment licenses.

 The Government and ministries need to have priority policies to support long-term capital sources and foreign loans for commercial banks to lend for investment in highway development. There needs to be incentive and support policies for businesses investing in highway construction, supporting businesses to recover investment capital, because these are investment projects with long capital recovery periods (tax exemption and reduction policies for feasible projects, building pricing policies, creating favorable conditions, incentives... for investors).

4.4.1.2. The government should create a fair and healthy competitive environment.

To ensure fair competition in the transportation sector, economic sectors participating in transportation must strictly comply with the following requirements:

 Fully perform the obligation to contribute to the State (taxes and fees) at a reasonable level.

 Vehicles participating in transportation business of all economic sectors must ensure technical standards on transportation safety and environmental protection.

 Eliminate monopoly in transportation business: Transport modes compete with their own advantages, with transport quality, ensuring: Speed, convenience, safety, and price. Ending monopoly in transportation business will attract the participation of the private sector in this business activity.

4.4.1.3. The government needs to have an environmental protection policy.

Socio-economic policies and other regulations:

 Pollution tax policy : Pollution tax policy is an effective economic control measure based on the principle that polluters must pay for cleaning up the environment.

 Material incentive policy : The content of this policy includes provisions on tax reduction or subsidies for less polluting vehicles, with the aim of encouraging the use of vehicles with minimal pollution levels when participating on highways.

 Fuel use policy : In order to gradually replace the fuel used for cars with other forms of energy that cause less pollution, many countries have regulations on fuel supply networks. Gas stations must have pumps that sell unleaded gasoline (or the largest amount of lead is 0.013 grams/liter).

 Policy on responsibilities for car manufacturers, dealers and users: Car manufacturers and dealers must be responsible for providing free warranty for their cars regarding exhaust quality for a certain period of time (usually the first 5 years from the date of sale).

 Solutions to ensure standards and air quality in high-density traffic areas: in areas with high traffic density, pollution from exhaust emissions exceeds the permitted standards, so environmental protection solutions are needed in these areas, especially highway sections in the inner city of large cities.

4.4.1.4. Highway traffic safety policy

To ensure highway traffic safety in terms of laws and policies, it is necessary to focus on the following factors:

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