Problems in the parity-price principle have emerged in the latest decree on payment for build-transfer projects, with solutions to the matter remaining in wait.
Build-transfer initiatives have stood as a strong model for investment in areas such as transport infrastructure
The Ministry of Planning and Investment (MPI) this month announced that a solution to the complex issue of the principle that appeared in Decree No.69/2019/ND-CP enacted in August, governing the use of state assets to pay for build-transfer (BT) projects, is being worked on in the draft Law on Public-Private Partnerships (PPP), to ensure the feasibility of the mechanism.
In a recent document sent to the Government Office regarding difficulties in payment for BT projects in the new decree, the MPI said that it has carefully considered two schemes. In the first plan, when bidding to join BT projects, financiers pay site clearance costs in advance. When the site clearance is finished, land areas will be auctioned to pay for BT developments.
In the second scheme, BT investors offer bid at the same time for the land funds to be used to pay for BT projects, and for the value of BT projects. The value of land funds is determined in the contracts signed between the state and investors. In this case, at the time of land allocation, land use fees or land leasing fees for investors will be not defined again.
An MPI official, however, said that the second scheme can be applied only when regulation on the time of defining land use fee and land lease fee in the Law on Land is revised. “At present, the government is considering amending this regulation and report to the National Assembly (NA),” the official said.
This means that BT backers and cities and provinces where such projects are developed will have to wait until the draft law on PPP is approved. This is scheduled to take place in May 2020 at the next NA session, with no other solution forthcoming in the meantime.
Currently, Vingroup, Sun Group, FLC Group, Ho Chi Minh City Infrastructure Investment JSC, Geleximco, Phat Dat Realty Development JSC, and Hoa Phat Urban Development and Construction JSC are major BT developers in Vietnam.
According to the MPI, cash payment for BT projects from the state budget ceased as requested by the government in 2014. Thus, Decree No.15/2015/ND-CP from 2015 and Decree No.63/2018/ND-CP from 2018 on PPP investment do not regulate cash payment for such projects.
Instead, the state budget is only used to pay for build-transfer-lease and build-lease-transfer projects.
Moreover, other prevailing laws regulating BT projects, including the Law on Management and Use of Public Property, do not allow the use of state funds as payment for such ventures.
Payment for BT schemes has been a controversial issue for years. Members of the Ho Chi Minh City Real Estate Association (HoREA), many other developers, and local authorities pinned high hopes on a new bankable legal framework in the new decree to facilitate next steps. However, it has once again not been dealt with.
This is where Decree 69, which was compiled by the Ministry of Finance, and took effect on October 1, stalls. Under Article 3, using state assets to pay for BT projects is carried out in the parity-price principle. The value of a project is equal to the value of the state asset used to pay for it.
“However, the parity-price principle cannot be carried out in reality due to the difference between the time it takes to determine a BT project’s value with that to define the value of land funds,” said an HoREA document recently sent to the Government Office.
In recent years, BT has proved to be one of the most effective PPP investment models and has contributed greatly to infrastructure development and public works in cities and provinces amid state budget constraints, with Hanoi and Ho Chi Minh City among the localities developing the most projects.
According to experts, to make BT more applicable, it is necessary to increase transparency in land revocation, site clearance, and land bidding. VIR
Bank loans for build-operate-transfer (BOT) and build-transfer (BT) infrastructure projects by the end of September this year reached nearly VND110 trillion (US$4.72 billion), up 1.85 per cent against the end of 2018.
All public debt indicators were under strict control and fell within the permissible limits set by the National Assembly’s Resolutions as of the end of 2018, according to the Finance Ministry.