Public Project Financial Planning: The Asset-Based Approach For Vietnam Transport Infrastructure

Vietnam is integrating into the global economy with many changes. There has been an urgent need in developing its infrastructure. Investment in roads, bridges and terminals, along with measures to improve efficiency, will be essential for regional access and efficient freight movement to and from ports, industries and commercial establishment. Due to financial incapability, the country has to call for foreign investments as well as local investment.

Investment in infrastructure often has a very high return in Vietnam, as inadequate service levels and bottlenecks remain a serious constraint on development and competitiveness. Despite plentiful natural energy sources in gas, hydro and coal, per capita commercial energy consumption remains one of the lowest in the world. “It could be seen that while Vietnam could still maintain its advantage of a stable political environment and rather open policies on foreign capital ratios over the recent years, its disadvantages of poor infrastructure and administrative systems are not improved." (Source: Vietnam News Agency, 2004). The transport system – despite substantial improvements in the past five years - is still overstretched, adding to costs and preventing many upland and rural areas from sharing the benefits of Vietnam's growth. In view of the huge investment needs, high priority should be given to mobilizing private sector involvement as a ways to support for infrastructure.

Vietnam now is in urgent need to find new means to finance transportation capital investment, particularly public transit. It is very interested to find out how value capture can be applied in other developing country to achieve this goal. Walther et.al. (1991) argued that this added value, the direct result of public investment, should rightfully be returned to the public and should be recaptured to pay off the capital that was spent to build the project, rather than left for opportunistic speculators to reap private gain. Smith and Gihring (2003), from their annotated bibliography on the topic of value capture, pointed out that value capture offers a promising approach for funding future transportation development, for recovering operating and environmental costs. Since Vietnam is moving toward, it is the time to invest the current transport infrastrucutre financing and try to find a mean, by which the windfall gains felling to private landowners are recaptured, to finance a portion of the transportation infrastructure system.

Miss Nguyen Thi Cam Tu made a study which general goal is to study the applicability of public-private finacial approach, known as value capture method in form of financing infrastructure projects in Vietnam. Her specific objectives were as follows:

1. Analyze current financing approach for transport infrastructure projects in Hochiminh city in order to identify the need of improvement.
2. Examine applicability of the Value Capture Approach to finance Transportation Infrastructure in order to indicate its critical aspect in term of degree of suitability and acceptability.
3. Propose the practical direction and constrains if Value Capture Approach is applied for Transportation Infrastructure financing based on the analysis of finding.

Conclusion
To support Vietnam’s high level of economic growth, greater levels of investment are needed in the coming years to overcome a variety of real and looming infrastructure bottlenecks, such as in transport, capital construction. This will require massive new investment, which will need to come from the government, donors, multilateral development banks and private sources. In fact, it is likely that the private sector will have to play a role in funding new infrastructure investment in Vietnam.

1. Current Transport Infrastructure Financing
Most problems of current financing sources are “inadequacy in capital budgeting allocation”, “limited options for borrowing by contractors to bridge their expenditures and receipts” and “corporate financing problem”, consequently. These problems may be come from weakness of Vietnamese economic as well as political. Resources of various spending options are not allocated efficiently because these options are not compared impartially. In lower level, contractor meet difficulties facing with finding working capital financing from the only source interested-commercial banks due to complex loan structure and collateral requirements.

In order to overcome the current problems, there is an urgent need to develop Public-Private Partnership (PPPs). Both COs and GOs proposed that there must have been “the sufficient political and popular support for using PPPs”, need to “involve the appropriate private sector actors early in the process and discuss the following options with them, especially in sharing of risks and responsibilities” and “set up projects with clear ownership and management structures and division of responsibilities”. In addition, NGOs can be considered as glue for PPPs work. They are essential because of their knowledge of the local environment, both the public and private sectors, and because NGOs can continue to implement the outcome of the partnership work long after the partnership.

2. Value Capture approach
Value capture, being the new concept introduced, is just knowed by the Vietnamese proffesionals for recent 5 years. In the model of VC, Public sector-Government is considered as the key role for the success. If VC is successfully applied, not only the urban sprawl is reserved, but also land speculation is reduced. In addition, the success of VC can help procedural and technical efficiencies become possible within the existing land use right regime. An example is that market valuation formulas can be improved to more closely replicate shadow markets.

In the current financing situation like in Vietnam, respondents suggest that VC should be applied partly for specific appropriate infrastructure projects. Timeframe for applying VC are unclear for local professional officer, showing on different opinion. Taking majorities’ ideas, the research suggests 11 years for its application from firstly perception to final end. However, more studies and experiments are required to confirm this proposed timeframe. It is also need for drawing formal procedures to guide people how to apply it on local condition.

Recommendation
Vietnamese professional officers in general needed to be educated and trained smoothly for financing methods in order to qualify enough for applying and handling new financing methods effectively and efficiently. Moreover, the Government and the companies should consider properly people’s back ground, professional skill, experiences, ect. prior appointing candidates for positions related to financing.

1. Current Transport Infrastructure Financing
It is recommended that Government and local companies maintaining their focus on “BOT schemes”, “Traditional Public Contracting” and “Joint Ventures”. In addition, other methods such as “Service Contracts”, “Management Contracts”, “Concession or Franchisee Agreements” and “Lease Contracts” need also pay much attention on to satisfy the huge demand of capital investment for transport infrastructure development. On the whole, in order to be successful in attracting the private sector investment for infrastructure projects in different levels of involvement, Government has to improve the quality of the concession contract and of subsequent regulatory supervision.

In order o overcome the problems in financing, it is necessary for public finance amendment. This including efficiently reallocating the budget both for capital and recurrent expenditures with clear links between these. Programs proposed or defended as investments should be evaluated against the criterion of improving long-term economic capacity. For a successful banking relationship and adequate working capital support, the government contractor should seek a banking institution that has the expertise, experience, and a proven track record in the industry in providing the services and flexibility in financing that matches the company's specific needs. Such these things are difficult, but they are not impossible.

2. Value Capture approach
In summary, the demand for research on tax policies is critical in Vietnam. In order to accomplish that goal, it is neccessary to spend more time and commitment for training local proffesional. The training should be hold in the form of seminars, which offered an educational environment where instructors and participants could share basic principles on the taxation of real property and learn from each others' experiences.

In order to implement VC into Vietnam, it is critical that the land tax policies are implemented. The research proposes a land value increment tax to capture the capital gains from land transactions. To capture land value increments and avoid speculation, Vietnam instead implemented a capital gains tax system that covers both real property and other asset transactions. To discourage land speculation, the tax rate should be fixed at about 50 percent for property sales within two years of purchase, but owners who hold properties for more than two years will have a lower capital gains tax rate (based on the experiment of Korea).

Consisting with the constitutional principles of “People’s ownership” and “state management”, the principal amendment in land administration is in the need of execution with the interventions of some donors in some points represent areas, including shifting from treating “land use rights” as concessionary privileges to inalienable and universal rights-based land leases. Ideally, amendment should move gradually to absorb the informal land system into the formal system. This process should involve a careful study of informal practices and wherever possible use them as the template for the formal system. As land reforms elsewhere have demonstrated, where the informal system is treated as sub optimal and inappropriate, it has proved extremely resistant to change.

Her thesis abstract is copied and posted.

Abstract

In recent years, transportation and infrastructure needs in Vietnam have grown more rapidly than the available funding. This lead to the need for the government to design the legislation to encourage private-sector participation in the development, financing, operation and ownership of facilities. Therefore, the research focus on main issue of current financing methods applying for Vietnamese infrastructure in order to find the inefficiencies and shortcoming. In addition, the research also explore a new financing method, Value Capture approach, a device to recover for the public the increase in land value associated with public actions that otherwise would be captured by private entities. Through the survey made on 33 Company Officers and 23 Government Officers, who are expert on the field related to infrastructure financing, viewpoints of toward current transport infrastructure financing in Vietnam context were revealed. The descriptive statistic and hypothesis tests are used to analyze the collected data. The finding shows higher knowledge and application of traditional financing methods over new financing methods. The implication from that is the need of applying nontraditional approaches to finance infrastructure investment for Vietnam infrastructure development, especially transportation. This study also mentioned some problems and weaknesses in current financing and then discussed in detail some critical keys as motives for Public-Private Partnership- the solution for financing problems. Additionally, Value Capture is found very far from Vietnamese infrastructure financing as its knowledge and application very low even it may generate more benefit than current financing methods. In order to apply Value Capture in the current Vietnamese context, it is critical that the Vietnamese property tax policies and land law should be analyze and amended. Vietnamese Government needs to address this issue with big effort to set up the environment suitable for the development of new financing methods. Especially coordination with foreign partners is more over suggested to gain mutual benefits for both sides.