Policymakers and private investors are not seeing eye to eye where terms of investment for infrastructure projects are concerned. With State coffers and official development assistance limited in the contribution they can make to such projects, a key sector remains underfunded, hampering the country’s economic development.

Construction of the Co May Bridge on National Highway No 51 linking HCM City with the coastal city of Vung Tau is typical of disagreements between policymakers and the private sector.

Soon after the bridge became operational in 1999, negotiators from the Ministry of Transport regretted they had offered the investor (of the bridge project) a ‘fat’ BOT (Build-Operate-Transfer) contract. An official from the Ministry of Planning and Investment, who declined to be named, said the investor, Hai Chau Co Ltd, had won a project which brought them "super" profits.

Dang Huy Dong, head of MPI’s Bidding Management Department, said the contract Hai Chau won for the Co May Bridge Project allowed them to collect a toll of VND15,000 per vehicle for 15 years. This was a "huge" profit, Dong said.

"The investor’s capital was recouped in the first five years," Dong was quoted by Sai Gon Tiep Thi (Sai Gon Marketing) newspaper as saying. He added that after that period, all the tolls collected went to the investors’ pockets.

Co May Bridge is just one of some BOT (Build-Operate-Transfer), BT (Build-Transfer) and BTO (Build-Transfer-Operate) projects carried out in the country in the past 15 years.

Dong said management incapacity and lack of a legal framework (in relevant areas) were to blame for the ‘fat’ contracts given to some private investors in infrastructure development while making access to infrastructure projects difficult for others.

He said concerned Government officials did not have sufficient knowledge to negotiate with private investors over such projects, adding they did not have the ability to recognise whether the toll was low or high, or the toll-collection period too long.

Last year the Government issued a decree on investments in BOT, BTO and BT contracts, but it is "insufficient," according to an MPI official. As a result, only a small number of private investors are involved in infrastructure projects.

According to MPI figures, local private investors have registered for 80 BOT projects, capitalised at VND90 trillion (US$5.4 billion), 95 per cent of which is slated for transportation infrastructure projects. Foreign investors have registered for only eight projects with a total investment of $1.8 billion, of which only $700 million has been disbursed.

The foreign investor in the international port project in Vung Tau withdrew in 1998, citing "unattractive terms" of the BOT contract.

A year ago, two deputy prime ministers took great efforts to outline the terms of a huge BOT project worth $1.5 billion to build a speedway linking Ha Noi with Hai Phong. The Government offered several incentives to investors in this project, allowing them to develop industrial parks and residential areas along the speedway.

However, the investors said the toll (set by the Government) was too low. They proposed that it be doubled to make the project profitable.

Real estate woes

For many of the 81,000 expatriates residing in HCM City, finding suitable accommodation remains a struggle, with less than 3000 serviced apartments available in the market. Of these, less than 25 per cent are Grade A, and the number of Grade B apartments is only slightly higher. The facts are clear – the market is underserved.

CB Richard Ellis, a leading realtor, finds that in HCM City, Grade A units between 60 – 80sq.m can fetch monthly rentals of $49 per sq.m. Over the past five years, rents have been increasing between 5-10 per cent annually, reflecting the high demand for serviced apartments. In the second quarter of 2008 alone, rents increased by 5-8 per cent despite the economic slow down.

Meanwhile recent news reports have highlighted empty office spaces in major cities nationwide, with the economic downturn dashing hopes of a major investor influx. Landlords are in a fix, having to offer highly preferential terms to find tenants. With residential apartments expected to rake in over $50 per sq.m in coming years, real investors are set to re-think their plans.

While the long queues to purchase residential homes such as the Vista, Estella, Hoang Anh-Gia Lai and Sky Garden 3 seem to have disappeared, new launches a rare sighting, and a fall in resale prices, serviced apartments appear to be a more viable option for developers.

Beer guzzlers

Breweries across the country have reported higher production figures for the first half of 2008 when Viet Nam was struck particularly hard by the inflation.

Ha Noi Brewery and Beverage Corp (Habeco) reported revenues of VND1.2 trillion (US$72.7 million) in the first half of 2008, a year-on-year increase of 10.6 per cent, and pre-tax profits of VND247.2 billion. The company targets total production of 250 million litres of beer and revenues of VND2.8 trillion for the whole year.

The management board of Sai Gon Brewery and Beverage Co (Sabeco) said they expect a 38 per cent increase in production and revenues of more than VND10 trillion ($600 million) for 2008, a year-on-year increase of 46 per cent. It is expected to produce more than 933 million litres of beer this year, up by 11 per cent compared over last year’s figure.

Other breweries including Viet Nam Brewery, Ha Tay Brewery, Ha Noi-based Halida and Huda of Thua Thien Hue have also reported high growth rates for 2008.

According to the Viet Nam Alcohol, Beer and Beverage Association, despite hikes in input prices for beer production and the tighter monetary policies taken by the Government to fight inflation, beer production rose by 14 per cent in the first half of the year.

Beer prices had gone up by 10 to 20 per cent in the first six months, but the number of visitors to restaurants and pubs for beer is still on the rise. The association predicts Viet Nam’s average annual beer consumption will rise from the current 18 litres per person to 28 litres per person by 2010.

For a bigger slice of the market pie, breweries have invested in new production lines across the country.

In 2007, Sabeco invested VND6.5 trillion (nearly $400 million) to expand production lines in the provinces of Phu Tho, Ha Nam, Vinh Long, Nghe An and Quang Ngai, aiming to produce 1.2 billion litres of beer by 2010.

Habeco has invested in breweries in Vinh Phuc, Hai Phong, Ha Tay and Vung Tau, targeting 650 million litres of beer by 2010.

To compete with "giants" Sabeco and Habeco, other local and foreign-invested breweries have been licensed to either open new plants or expand existing facilities. In the first eight months of 2008, these breweries poured out an additional 400 million litres of beer into the market.

Construction of the foreign-invested Kronenbourg brewery, which can produce 150 million litres of beer per year, has started in Long An Province while Filipino brewery San Miguel has announced a further investment of $8 million to expand its facilities in Viet Nam.

"Why are you pouring more money into brewery projects when the country is hard hit by high rate of inflation?" asked Viet Nam News of number of brewery managers.

A month later, there have been no answers, apart from one manager of a HCM City-based brewery (who declined to be named). He believed that the new brewery facilities target middle, rather than low-income earners, who are the most severely struck by the inflation.
Source: Vietnamnews