Fears of financial overreach rise over Vietnam’s first high speed railway

High project costs and slow returns on investment make it difficult to attract investment, and since public debt is already very high, using state funds could break the proverbial bank, they said at a recent forum.

The consortium of consultants tasked with carrying out a pre-feasibility study for the project said in its final report presented at the forum that the project would cost $58.71 billion.

The consortium, comprising three Vietnamese construction firms TEDI, TRICC and TEDISOUTH, proposed three funding options.

In the first option, the state budget would pay for the whole project. In the second, the funding would be split between state coffers and official development assistance (ODA) loans. The third option would be for the state to pay 80 percent of the project cost and the investors to raise the remaining 20 percent.

Deputy Minister of Transport Nguyen Ngoc Dong said at the forum that apart from the $58.71-billion price tag, the project will need funds to operate the route for the first 10 years.

No local investor is capable of covering the infrastructure cost, while foreign investors are reluctant as it will be a long time before they can recover their investments, he said.

Foreign investors are also concerned about how the state will assist if there is a decline in number of passengers, exchange rate fluctuation and construction delays, Dong added.

Therefore, just as other countries and territories have done, the state would have to fund the project, the deputy minister said, citing examples of China, France, Japan and Taiwan.

Too costly

Experts at the forum expressed concern that the project costs were too high for Vietnam, a developing country.

They said that the price tag means each kilometer of the railway will cost $38 million, about 1.5 times higher than that of Beijing and Shanghai in China ($27 million) and Spain ($26 million). This would add to the country’s public debt, which has now reaches 61.4 percent of GDP, they said.

Dr. Vu Hoai Nam with the University of Transport said that Vietnam should carefully consider the project as it would have to borrow money for it, pushing public debt to break the current cap of 65 percent of the GDP.

"Consultancy fees alone would be $3 billion, which is enough to upgrade the existing railway network," he pointed out.

Deputy Minister Dong said that China and other European countries already had the technology to build high speed railways, as well as professional construction companies with well-trained staff.

Vietnam, meanwhile, has just started the process of researching and training people, he said.

Vietnam will also have to purchase locomotives, cars, operation systems and technology from other countries, which will further increase project costs, Dong said.

Pricey ticket

The pre-feasibility report for the north-south high speed railway is scheduled to be presented for approval to the National Assembly in October next year.

If approved, project construction will start in 2024, the consortium said at the forum. A training academy will be established in 2026, test runs would start in 2028 and the official launch would happen in 2030.

The project will have two phases. In the first phase, from 2020-2030, two of three sections of the 1,545-kilometer long route would be completed: from Hanoi to the central city of Vinh and from Ho Chi Minh City to the central city of Nha Trang.

Vinh and Nha Trang will be connected in the second and final phase implemented from 2030 to 2045.

One operational, trains will run on standard gauge track (1.435-meter wide) with speeds up to 320 kilometers (199 miles) per hour.

The consultancy consortium estimated that a train ticket will cost 50-75 percent of an airplane ticket for the same distance.

But experts felt this might be too pricey.

Nguyen Thanh Binh, deputy head of the Investment Faculty at the Academy of Policy and Development, said he was worried that the railway route would be less competitive than aviation.

Vietnam currently has over 3,000 kilometers of railway tracks, none of them high-speed. The railway accounts for just 1.9 percent of the transportation sector in the country, according to the Vietnam Railway Authority.