Over the past few years, most of the fast developing countries in Southeast Asia have experienced economic boom that outpaced the development of infrastructure, and this has threatened a continuing high rate of economic growth. Traditionally in the region, the public sector has financed the construction of infrastructure (Tam, 1998). Faced with pressure to reduce public sector debt and, at the same time, expand and improve public facilities, governments have looked to private sector finance, and have invited private sector entities to enter into long-term contractual agreements which may take the form of construction or management of public sector infrastructure facilities by the private sector entity, or the provision of services (using infrastructure facilities) by the private sector entity to the community on behalf of a public sector body (Grimsey and Lewis, 2002).
Public private partnerships (PPP) are intended to harness the incentives of private markets to the public interest criteria of the state. Private capital and private sector companies finance and operate infrastructure that previously was publicly funded and managed. In recent years, PPP have become popular in a number of countries. Governments keen to reduce government spending and borrowing and aware that private enterprise can provide services at lower cost, have introduced PPP programmers in place of or to supplement direct state investment (Parker and Hartley, 2002).
Since the early 1980s, there has been a remarkable reawakening of interest in a PPP mechanism such as the Build Operate Transfer (BOT) scheme. The BOT projects include very complex technical, financial, political, and legal transactions originating from the diverse objectives of the various project participants.
Generally, it is very risky to implement a BOT project because of the uncertainty inherent in a long project period and the complexity of the project scheme. Particularly, from the viewpoint of private participants, it is much more risky than traditional project schemes, because governments tend to transfer more risk to private parties. Therefore, careful project selection and a clear identification and assessment of the risks are important in order to guarantee that willing buyers are prepared to pay sufficiently to induce willing suppliers to provide it (Yang and Meng, 2000).
Countries with limited infrastructure and low GDP per capita, such as Vietnam and other developing countries are commonly classified as 'Third World Countries'. The Vietnamese governments are very much aware that if economic growth outstrips infrastructure development, a choke is applied to that growth. With more than 80 million hard-working and large literate people, land rich in natural resources, and a country located in the center of a dynamic economic growth region, Vietnam is an attractive investment environment from the standpoint of foreign investors. The Socialist Republic of Vietnam has promulgated the Law on Foreign Investment in Vietnam with the view to expand its foreign economic cooperation, develop the national economy with a GDP growth rate of 7-9% between 1990 and 2004. Vietnam is now a new potential market for construction activities, especially BOT projects. This is especially for infrastructure development such as: transportation roads and bridges; power plants; offices and buildings; seaports, river ports, and airports, etc.
The Government of Vietnam has recently introduced a scheme for issuing bonds for nationally important transport and irrigation projects, but there still remains a substantial gap between what the Government can raise from the issue of bonds, budget funds and official development assistant (ODA) and the amount it needs to spend annually on infrastructure. One source of funding is the private sector, including foreign investment (Freehills, 2003).
Private participation in infrastructure can:
a) Provide increased efficiency in investment and operations;
b) Provide access to private finance and increase Government revenues;
c) Allow the Government to divert money away from spending on infrastructure into much needed social programs such as health and education.
Privatization of infrastructure development in the Asian developing countries offers plenty of investment opportunities to private developers. The use of BOT can profit the host government in a way that they do not need to pay to get the required infrastructure. Meanwhile BOT can generate potential profits for private investors. The growing economy in the region can tender a potential long-term profitability of the projects. If BOT projects can be properly managed, both parties can benefit and this results in a win-win scenario. However, a failing BOT project will bring about loss and deter investors from investing in similar projects and ultimately, the host government will suffer (Tam, 1998).
Infrastructure privatization involves social, political, economic, legal, and environmental dimensions with long-term uncertainties and wide risk portfolios (Zang, 2005a) Various problems have been encountered in international BOT due to the short history and lack of BOT experience and expertise in many countries, for example, the failure of two BOT transportation projects in Thailand (Ogunlana, 1997) and the privatized national sewerage project in Malaysia (Abdul-Aziz 2001).
From 1990 up to now Vietnam has had over one hundred BOT projects in infrastructure. Some of them could not be finished on time and overrun budget right after the construction stage. Significant reasons affecting BOT projects are lack of procurement knowledge and improper risk assessment when developing them. In addition, the misunderstanding of stakeholders on construction, financial and legal perspectives in BOT projects create disputes among them.
Mr. Nguyen Duy Ninh made a case study which main objective was to study concept, characteristics, and risk perception of the build Operate Transfer (BOT) projects. His sub-objectives were to: (1) determine and analysis major risks in BOT infrastructure project in Vietnam; (2) analysis stakeholders’ perspective on risk and opportunities of BOT infrastructure project in Vietnam; and (3) understand and analysis practical risk management in case of Yen Lenh Bridge BOT project.
Conclusions
This Study Deals With Risks And Stakeholders’ Perspectives On Risk And Opportunities Of Bot Projects In Vietnam. The Case Study Of Yen Lenh Bridge Project Was Studied To Demonstrate Risk Management In Bot Infrastructure Projects In Vietnam.
Major risks of BOT infrastructure projects in Vietnam
With assistance of a practical survey and proper methodology, major risks were determined by calculating total risk weighting scores which were the results of frequency of occurrence and degree of impact. The risks were then ranked according to the total risk average weighting score.
The top-ten important risks identified are: (1) Land acquisition delay; (2) Delay in approval from government agencies; (3) Risk of transportation network in region influencing to BOT project; (4) Cost overrun risks; (5) Unrealistic forecast future economic development and demand of the society; (6) Inflation rate increasing; (7) Incorrect analysis of duration of ownership; (8) Interest rates fluctuation; (9) General corruption and untrustworthiness of public official; (10) Actual traffic revenue lower than estimated.
The most important risks of 63 risk factors were developed on the basis of previous research related to BOT project and pilot test for interviewees in Yen Lenh BOT project. The 63 risk factors were ranked in accordance with the development process of the project and nature of risk such as the feasibility study risks, political and legal risks, financial risks, design and construction risks, operation risks, transfer risks of BOT infrastructure projects.
Stakeholders’ perspective on risks and opportunities of BOT infrastructure projects in Vietnam
Perceptions of project risks will relate to how particular stakeholders are engaged in project decision making at levels concerned with achieving particular project objectives and most respondents have bad attitude toward risks. They consider risks as barriers rather than challenges that they have to overcome.
Furthermore, fifty four point three percent of respondents have conflicts of risk perception with other participant, and fifty one point four percent of respondents think that risks arise out of individual or organizational decision making in BOT infrastructure projects. According to Whitfield, (1994), real causes of conflicts are broad ranging and varied. These can come from misunderstanding, values, interests, and people.
The top-ten important risks in government’s perspective are: (1) Focus on the benefits of the construction rather than the profit of whole life cycle of the project; (2) Poor financial, plant resources of invertors and contractors; (3) Unrealistic forecast future economic development and demand of the society; (4) Poor quality of construction; (5) Not follow the regular facilities maintenance; (6) Incorrect analysis of duration of ownership; (7) Land acquisition delay; (8) Delay transfer due to a desire to collect more profit; (9) The concession consortium convince Gov to agree on converting BOT type into Build-Transfer type after project operate for a short time; (10) Cash flow inadequacy to meet debt servicing due to traffic revenue decline.
The top-ten important risks in investor’s perspective are: (1) Lack of appropriate toll adjustment mechanism; (2) Risk of transportation network in region influencing to BOT project; (3) Incorrect analysis of duration of ownership; (4) Delay in approval from government agencies; (5) Land acquisition delay; (6) Uncertainties in the traffic volume during the long contract period; (7) Poor prospect for economic growth of the local economy; (8) The Gov don’t upgrade/ maintain infrastructure facilities linking to project; (9) Inflation rate increasing; (10) Unsuitable payment structure.
The top-ten important risks in contractor’s perspective are: (1) Delay in approval from government agencies; (2) General corruption and untrustworthiness of public official; (3) Uncertain price of critical raw material; (4) Delay in financial closure; (5) Land acquisition delay; (6) Inflation rate increasing; (7) Unforeseen ground, bad weather condition; (8) Cost overrun risks; (9) Interest rates fluctuation; (10) Actual traffic revenue lower than estimate.
Practical risk management in case of Yen Lenh Bridge BOT project
Risk management needs to be implemented in a systematically process which is risk identification, analysis, and allocation. A risk management system must be practical, realistic and must be cost effective.
The risk management perceivers are the project stakeholders, and a stakeholder is any entity which has the power to influence project decision making directly. Related to experience, 62.85% of respondent affirmed that they have experience of risk management. Most of them are manager and have more than ten years experience. It proofs that the relationship between risk perception and experience of stakeholders. And 88.5% of interviewees answered that systematic risk management is very important, almost everyone is aware of the importance of risk management in decision-making. They suppose that it would help managers clearly identify the potential risks to be prepared with appropriate responses. Thus, systematic risk management helps mitigate all kinds damage of caused by risks.
The process of risk management is broken down into the risk management system which can deal efficient with risks. Naturally the risk management system must be applied to each option under consideration. It is suitable to consider risk in construction, finance, legal and political perspective in BOT infrastructure projects.
Risk identification
There are different tools and techniques which are useful in risk identification in the construction phase such as (1) Check list; (2); Experience; (3) Intuition; (4) Site visit; (5) Diagramming techniques; (6) Database; (7) Case study; (8) Brainstorming; (9) Workshops; (10) External consultants.
Construction risks impact on time and require money to be re-addressed. Construction risk identification is very useful and important. It relates to construction contractor, sub-contractor more than other stakeholders.
In financial risk identification, most of the respondents reported that their financial organization had a standard format or scheme for the identification of relevant risks. This scheme is typically based on knowledge from previous projects (experience, 91.4%) and includes a checklist (85.7%) for the main risk categories such as construction risks, operational risks. External consultant (65.7%) only employed when they faced difficult project or dilemma problems.
Most respondents agree that it is very difficult for them to identify relevant political and legal risks. Process of identification requires respondents to have knowledge of law system and overview trend of politic movement as well as relationship between legal, political and economic.
Risk analysis
Risk analysis composes of qualitative analysis and quantitative analysis. Qualitative analysis is often used theory of probability and impact base on experience, knowledge, history documents, and Gov publications. Quantitative analysis is a process involving mathematical models and analytical techniques, often using computers, to evaluate and quantify the impact of risks.
In terms of construction risk qualitative analysis practice, the most used tool is probability/impact analysis with 80% of respondent agreement. And the followings the most popular tools and techniques are technique experience, intuition (71.43%), and influence diagram (57.14%) often used. In quantitative analysis, 79.29% and 62.86% of respondents ranked the expected monetary value and sensitivity analysis as the most used technique.
In terms of financial qualitative analysis, external consultant (60%) and experience, intuition (54.29%) tools were applied. In quantitative analysis, sensitivity analysis (91.43%) and expected monetary value (80%) were the most effective tools to analyze financial risk.
The first most tool and technique used to analysis legal and political risk is checklist (85.71%) and influence diagram (71.43%). Quantitative analysis can not be applied in legal and political risk. Because it demands availability, accuracy of information, data and the cost, time are constraint.
Risk allocation
The objective of BOT project risk allocation is to allocate risks to the parties best able to manage them (Ogunlana, 2005). There are four general risk allocation strategies, namely: risk elimination, risk reduction, risk transference, risk retention. In managing risks through one of the above strategies, a number of tools applied are (1) Guarantees; (2) Insurance; (3) Contract.
Design and construction risks should always be transferred to the BOT contractors through (1) Fixed price contract; (2) Design risks; (3) Fund operations. Contractors can reduce construction and design risks by risk premium and buy premium insurance.
Lenders seek to be fairly certain that most relevant risks have been passed on to other parties. They allocated the risks to other parties, financiers transfer all major construction risks to the construction companies; e.g. construction time and cost overruns, design. All operational risks such as escalating life cycle costs or technological changes are usually transferred to the operational companies, while the political and some legislation risks are transferred to the public sector.
Legal and political risks should be retained by Government. Stakeholders, the reason is that investment fund cover the method of BOT project are tight, so if change in law, regulation, political will be strongly affected BOT project that other stakeholders can not resist. In addition, the risk of land acquisition delay is better retained by the Government, because the Government. has the experience and resources to deal with this risk.
Other risk as demand risk, transfer risk should be share between Government, users, investors and operators.
His thesis abstract is copied and posted.
ABSTRACT
The Build- Operate- Transfer (BOT) approach for developing infrastructure projects provided effective routes to mobilize private sector funds, innovative technologies, management skills, and operational efficiencies. This process is full of risks, mainly due to the complexity and level of the discipline, different interest and conflict on risk perception of stakeholders involved. This study deals with major risks, stakeholders’ perspective on risks and opportunities, and possibility of applying practical risk management in BOT projects in Vietnam. This is achieved through properly analyzing the case study of Yen Lenh Bridge BOT project based on questionnaires and interview questions. The finding of this research would facilitate the overview of understanding mutual objectives of each type of stakeholders and best solutions for risk management which will reveal good opportunities for private sector to invest in infrastructure
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