Case study: Lessons from Vietnam

After years of treading cautiously and failed attempts at PPP, Vietnam finally seems determined to push the envelope. To fund its first ever PPP project that will connect two major cities along an industrial corridor on the east coast, the 60 per cent domestic partner and infrastructure giant Bitexco is undertaking a three-city road show in Asia to attract investors-starting with Mumbai. Shashidhar Nanjundaiah was there.

It may be difficult for some stakeholders of our infrastructure sectors to fathom, but there is something to learn from Vietnam. For example, in the slowdown in investor excitement for projects, can the Indian government be flexible in its viability gap funding?

After nearly five years of struggling to get off the ground, public-private partnerships (PPPs) in Vietnam may finally see the light of day. As one of Asia’s faster developing economies, the country enjoys the support of World Bank and Asian Development Bank, who have been working with the government on kicking off PPP projects. Last year, Vietnam had to respond to the global slowdown and cut public spending. In footsteps of countries like India, it decided to fortify its earlier plans to go the PPP route. But with a smaller economy, it will rely heavily on foreign investment-including that from Indian companies.

While the planning ministry recently reiterated its commitment to PPP with the participation of foreign businesses as "the most important form in Vietnam’s infrastructure investment", the government wants to be certain about viability in its PPP projects and seems to have take World Bank’s feasibility reports and advice more seriously and less politically. (So be surprised if you witness less crowded roads or smaller airports on PPP in Vietnam!)

The government, determined to shake off the uncertainty, has finally found a feasible, viable project in an expressway. Vietnam’s first PPP project and first expressway, the 98.7 km long, $757 million Dau Giay-Phan Thiet Expressway (DPEP) between Ho Chi Minh City and Phan Thiet City, will be priced at the upper end of the market and may be assumed within an overall maximum ceiling of 7.5 cents per PCU per km (in 2012 prices). The feasibility study of the project is made by Bitexco and international consultants hired by the World Bank, which is closely monitoring and advising the Ministry of Transport.

To be built with World Bank assistance and to its standards, the expressway is expected to be thrown open to the public in 2019 on a 30-year concession. Bitexco, a large infrastructure group in Vietnam, owns 60 per cent of the project, and is now seeking Indian partners in that share. After kicking off their road show in Mumbai, Vietnam’s government, Bitexco and World Bank representatives travelled to Seoul and Singapore.

The Mumbai event was attended by a handful of potential investors like Afcons, ICICI and Tata Finance, but the Vietnamese delegation was confident of roping in others offline to meet the desired target. Crisil, the Indian advisor to the project, is optimistic that the project will find partners in India. Because of the size and, presumably first-time nature of the project and specialised nature of investment sought, participation in the road show for investors was by invitation. "We were not expecting every type of investor to participate in the process," says Senior Director for Crisil’s Infrastructure Advisory Pratyush Prashant. "Our efforts were targeted at a certain investor class who are global investors in the infrastructure space." What should be considered a good response, though? Crisil’s Prashant says the overall response from investors from the three road shows in Mumbai, Seoul and Singapore has been encouraging. "From the interactions, we have seen a good and serious interest from select Indian investors. I expect 3-4 Indian firms to participate in the RFQ process; that will be a good response from the Indian side … and 10-12 overall. Collectively, we had over 175 participants in the three investor road shows. Investors appreciated the project preparation, the financial support and the role of the World Bank and the transaction advisors."

Choosing India as one of only three critical destinations for investments may not be a bad idea.

"This project is radical for development of the economy in the coastline provinces in the southern part of Vietnam," Bitexco’s VP and Deputy General Director Nguyen Tien Dzung told this publication. "There is no doubt about the commercial viability of this project."

Dzung says lack of PPP experience should not go against the company, given its project experience in roads: "As you know, PPP happens when the government does not have enough money for the infrastructure investment; we will maximise our opportunity with the financial, technical and management expertise of our international business partners." He says the project has been receiving positive market information from investors from key markets including India.

In March this year, the Vietnamese government had broadened the scope of PPP and extended the viability gap funding from the extant 30 per cent. This means that the government can chip in more (as in the case of DPEP) if bids do not match up.

Deputy Minister for Transport Nguyen Ngoc Dong told us that land is already being acquired-the commitment being 100 per cent of land will be acquired before the project kicks off. He said, "We have agitations in Vietnam too, but normally, in the end they agree to move for the right price."