Domestic investors face capital challenge for North-South Expressway project

The government last week decided that only domestic companies will be entitled to construct eight sections of the expressway under the public private partnership (PPP) model. But they would need to take part in a qualifying round next month before they can bid for the work.

While domestic firms have enough capability to handle the construction of the expressway, they would have to borrow about 60-70 percent of total investment needed for the projects, but it is very difficult to raise such capital, said Vu Minh Hoang, vice chairman of construction firm Deo Ca.

The government should, if needed, facilitate commercial banks in lending capital for the North-South Expressway projects, he said.

Domestic banks typically prioritize loans for financial and real estate projects, not for those building traffic infrastructure, Hoang added.

Vu Duc Nhan, a representative of Phuong Thanh Company, another construction firm, said the losses incurred by several BOT projects of late makes it more difficult for banks to have confidence in loan replayments.

Domestic firms also have to contend with the possibility of lower than expected traffic density on the expressway in the future when other major roads like the National Highway 1 stop collecting toll fees, he noted.

Nhan said he felt the Ministry of Transport was being "a bit too optimistic regarding traffic density on the North-South Expressway."

Another challenge for investors is slow disbursement, even if the government provides part of the funds for the project. This in turn, would also slow down loans from banks, said Tran Anh Tu, director of construction firm Vidifi.

The transport ministry is aware of several challenges facing domestic investors and is garnering opinions towards lower certain requirements to be a project investor, said Nguyen Viet Huy, deputy head of the ministry's Public-Private Partnership Department.

The expressway project's success depends on finding capable investors with both technological skills and financial capabilities, and resolving issues related to sourcing credit, Huy added.

Eleven North-South Expressway sections have been listed as a priority for the year by the transport ministry as a rapidly growing economy places strains on the country's outdated infrastructure.

Three sections will be publicly funded and the rest are to be built under the PPP model. Work on the first of the state-funded sections began earlier this month, while work on the eight PPP sections could begin next April, the ministry has said.

The 11 sections will together cost over VND100 trillion ($4.3 billion), with the government providing VND40.3 trillion ($1.74 billion).