Infrastructure Development. Infrastructure Development in Vietnam

Transcription

1 Infrastructure Development Infrastructure Development in Vietnam 1

2 Infrastructure - Background Infrastructure investments in Vietnam over the past five years have not kept pace with: Average annual GDP growth of 7.3%, Trade volumes that have increased by 16% per year, Foreign direct investment that increased from an average of $2.2 billion per year from to $7.4 billion per year from Businesses consistently cite inadequate infrastructure, particularly poor road and port infrastructure, as one of the main constraints to doing business in Vietnam In a 2009 survey of businesses in Vietnam: Poor infrastructure was cited as the largest bottleneck for conducting business. Nearly 88% of foreign enterprises and 83% of domestic enterprises described Vietnam s infrastructure as either Bad or Very Bad. 96% of foreign companies involved with imports / exports rated Vietnam s infrastructure quality as Bad or Very Bad. 2

3 Infrastructure Where needed Main infrastructure needs are in: Energy: Demand growth of 13-16% per year. Over-reliance on hydropower, electricity shortages in dry season. Results in power cuts and need to import power from China Transport: Until last year, no ports deep enough to trans-ocean container ships. Results in higher costs transshipping through Singapore, Hong Kong (estimated $1.7 billion per year). Existing ports in region with largest trade volumes ( HCMC) at capacity, impacting major exporters. Transport: Road and bridge infrastructure linking manufacturing centers to ports insufficient, delays. Transport: Vehicle fleet increasing by 19-21% per year. Motorbikes: 12.5 million in 2005, million in 2010 Other Vehicles: 800,000 in 2005, 1.5 million in 2010 Environment: Water supply, wastewater treatment 3

4 Infrastructure Investment Needs From , Ministry of Planning and Investment estimates some $140 billion of new investment is necessary in Transport, Energy, and Environment to meet expected demand Actually feasible investment -- projects that have been approved, under construction, or have confirmed project developers -- closer to $85 billion Estimated $17 billion per year over next five years significantly higher than historical trends of $4 - $5 billion per year (including telecoms) 4

5 Infrastructure Investment Needs Estimated value of infrastructure projects with construction commencing during includes: Transport: $52 billion, of which; - Ports: $8 billion - Roads and Bridges: $14.4 billion - Rail and Urban Metro: $20 billion - Airports: $9.6 billion Environment: $13 billion - Water Supply: $6 billion - Wastewater and Solid Waste: $7 billion Energy: $20 billion 5

6 Infrastructure Transport Key Projects - Ports: Vung Tau (Cai Mep Thi Vai): Seven container and general ports, including first deep water ports. Participation by foreign port operators such as Hutchison Port Holdings, Maersk, PSA Singapore Terminals. Lach Huyen Port: Funded by ODA from Japan, Vinalines, Itochu, MOL,NYK shipping lines Van Phong Port: Deep water trans shipment port planned - Roads and Bridges $1.52 billion to build a north south highway along Vietnam s coastline. 3,041 km, upgrading of existing road and construction of new road section. 264 km highway linking Hanoi to Lao Cai. $1.25 billion, with $1 billion financed by the ADB. First of eight construction packages awarded to Korea s POSCO World Bank assisting with $1.4 billion road project connecting Danang to Quang Ngai. 140 km. PPP model. Saigon Bridge II Vietnam Expressway Corporation (VEC) 6

7 Infrastructure Transport Key Projects - Rail and Urban Metro: Nhon Hanoi Metro km. 783 million Euro (ODA: France 283 million Euro; European Investment Bank 503 million Euro) HCMC Metro Rail Line 1. $1.1 billion project funded primarily by Japanese ODA ($900 million). The 19.7 km route linking district 1 to suburb of Thu Duc includes subway and above ground tracks. - Airports: Long Thanh Airport. $8 billion. New international airport for HCMC. Government exploring BOT or BOO investment models with foreign participation. 7

8 Infrastructure Energy Peak demand - EVN and the MoIT foresee total generation requirements increasing by 140% over the next ten years, from 15,800 MW in 2010 to 38,000 MW by Government envisions coal fired plants to account for nearly 32% of generating capacity by 2020, up from the current 12%, and hydropower s share of total capacity dropping from 35% to 28%. Main developers include EVN, PetroVietnam, Vinacomin,Song Da Corporation, with smaller plants developed by private and semi-private enterprises. (Bitexco, Tan Tao, Vinh Son,) - Coal Fired Plants: The Son My power complex, Binh Thuan province. Three plants, generating capacity 3,600 MW. Vinh Tan power complex, 4,400 MW, construction of a dedicated port to receive coal ships with capacity of 150,000 DWT. Vinacomin, EVN and foreign project developers. Mong Duong power complex, Quang Ninh. Two plants with total output of 2,200 MW. First plant is under construction by EVN with $900 million in financing by the ADB. Negotiations ongoing for, a planned BOT by U.S. firm AES. Mekong Delta: Duyen Hai power complex, Tra Vinh. Three plants, generation capacity of 4,400 MW. EVN and Malaysia s Janakuasa. Soc Trang four plants. 4,400 MW. Japan Bank for International Cooperation (JBIC) financing one of the plants, ADB evaluating loan for another. 8

9 Infrastructure Energy - Gas Fired Plants: O Mon power complex near the Mekong Delta city of Cantho. Four power plants, generating capacity of 2,800 MW. PetroVietnam Power Co is expected to be developer of three of the plants, with possible financing by the ADB. Consortium of PetroVietnam Gas Corporation, America s Chevron, Japanese Mitsui Oil Exploration Company and Thai PTT Exploration and Production Company for construction of a $1 billion gas pipeline to supply power plants at O Mon. Nhon Trach II plant, developed by PetroVietnam Power Co.. Commercial financing in place from Citibank, other foreign lenders. - Hydro Plants: Trung Son Hydropower plant. 260 MW. Thanh Hoa province. $380 million. EVN project developer, financial and technical support from World Bank (first WB involvement in hydro plant in Vietnam.) Song Bung 2 hydropower project. 100 MW. EVN project developer. $225 million. $180 million in commercial financing from intl banks, including Japan s Sumitomo Mitsui Banking Corp, France s Societe Generale and BNP Paribas. Song Bung 4 power plant. Quang Nam Province. 156 MW. EVN project developer. First hydro plant financed by ADB in Vietnam. $267 million, of which $196 financed by ADB loan. 9

10 Infrastructure Environment July 2009, Ministry of Natural Resources and Environment issued Circular requiring that an industrial zone must have at least one module of waste water treatment before any manufacturing operation that discharges waste water can take up a lease in the zone. Opportunities to target Major industrial zones near Hanoi, HCMC, Dong Nai, Vung Tau, Binh Duong ADB Water Supply project for HCMC/Da Nang/Hue/Hai Phong. $127 million from ADB, plus host country contribution World Bank Red River Delta Rural Water Supply and Sanitation Project Phase 2. Total project cost $ million for both phases. Additional funding of $65.7 million is in pipeline ADB Central Region Rural Water Supply and Sanitation Sector Project. Improve water supply and sanitation in six provinces of the central coastal region. ADB loan $45 million Opportunities in solid waste management / landfills. Foreign investor participation in landfill operations in HCMC. 10

11 Infrastructure Equipment Opportunities Transport - Roads/Bridges: Bulldozers, road levelers, backhoes, cranes, bore pile machines/drilling equipment, bitumen/asphalt plants, mobile generators, trucks, - Ports: Cranes, container stacking equipment, dredging equipment - Airports: Air traffic control equipment, baggage handling equipment, runway lighting - Rail: Rolling stock, signalling equipment Environment - Composting equipment, complete plants - Complete wastewater treatment plants - Biological and chemical treatment agents - Leachate prevention and treatment technologies - Pumps Energy - Typically EPC contractor installs or sources equipment for entire plants - Wide range of imported equipment, including - boilers - turbines - steam generators - cooling equipment - scrubbers for coal fired plants 11

12 Infrastructure Equipment Opportunities Japan, Korea primary suppliers Second hand equipment still frequently purchased China competes on price and increasing awareness among Vietnamese buyers that quality of Chinese machinery improving Government regulations issued in 2010 requiring projects using State funds to source equipment and services from local suppliers. Imported equipment / services only permitted when not locally available, or if ODA lenders mandate Equipment Imports unit ( $USD) Product HS 8406: Various kinds of Turbines $23 million $131 million HS 8410: Hydraulic Turbines $1 million $100 million HS 8413: Various kinds of pumps $63 million $171 million HS 8426: Various kinds of cranes $63 million $264 million HS 8429: General construction machinery $136 million $320 million HS 8430: Boring and drilling machines $35 million $80 million HS 8431: Other construction machinery $120 million $376 million 12

13 Infrastructure Project Development Vietnam unable to meet financing needs for required infrastructure investments alone Existing national and SOE debt loads cannot increase indefinitely Contributing to debt loads -- Service fees (electricity, water supply, road tolls) fixed at prices below operating costs to control inflation and ensure population has reasonably affordable access to basic services. Result has been under investment in infrastructure, losses by SOE investors. Official Development Assistance (ODA) funding by multilateral donors (World Bank, ADB) and bilateral donors (especially Japan) started at modest levels in early 1990s. ODA now a major source of financing (accounting for some 35-40% of total infrastructure financing) Vietnam s GDP per capita has risen above $1,000. At this level, ODA loan terms become less favorable, shorter durations, higher interest rates 13

14 Infrastructure Project Development Government gradually liberalizing infrastructure sector to other domestic and foreign project sponsors to ensure needs in transport and energy are met Allowing companies other than SOE monopolies to participate in infrastructure investment (foreign investors, domestic private sector, new SOE participants) Most BOT projects currently under development / operations are Vietnamese companies. SOEs (PetroVietnam, Vietnam National Coal Corporation entering power market, replacing complete monopoly by EVN)Private, semi-private firms (where govt retains shares) Legislation for Build Operate Transfer (BOT), Build Transfer (BT), Build Own Operate (BOO) investment structures Introduction of Public Private Partnership (PPP) legislation combining government funding (up to 30% of project costs) with other financing sources 14

15 Infrastructure Project Development Main hurdles to foreign / private sector involvement include: Long lead time to obtain government approval to develop projects (if given at all). Prime Minister usually must approve all large scale private / foreign sector infrastructure investments Pricing - The private sector cannot develop projects without an adequate return; yet the government places price ceilings on electricity, water supply, sanitation. Negotiations with suppliers (e.g. coal supplies from SOE Vinacomin, gas supplies from SOE PetroVietnam) Negotiations with offtaker, e.g power purchase agreements (EVN holds monopoly on power distribution), solid waste handling fees (city People s Committees), road tolls (Ministry of Transport, People s Committees) Obtaining sufficient government guarantees that SOEs will fulfill contract obligations. Without government guarantees, commercial financing, particularly international project finance, not possible 15

16 Infrastructure Project Development More success in the ports sector with participation of global port operators (Hutchison, HK), (Singapore Port Authority), (SSA Marine, U.S.) Projects combined private sector investment by foreign port companies, with government commitment to build land-side infrastructure, dredging In some cases combination of private sector, government, ODA financing Energy projects under development involving foreign project investors particularly for coal-fired and gas-fired power plants / pipelines. Introduction of PPP models for road projects (e.g. World Bank-funded Danang to Quang Ngai expressway) Environment particularly solid waste landfills and treatment. Several foreign invested projects in this sector have been approved, with one project already operating near HCMC. 16

17 Infrastructure Project Development Phu My Bridge Corporation Cable stayed bridge over Saigon River and access roads $150 million investment 30-year concession to operate tolls Consortium led by private Vietnamese company, but with four state-owned companies, including one partially owned by HCMC government 17

18 Infrastructure Project Development Participation of state-owned firms enabled project to obtain concession and government guarantees from the HCMC People s Committee Govt guarantees in turn facilitated: Export credit financing from Germany, France and Australia $50 million loan from Societe Generale Contracts with international leaders in cable stayed bridge construction from Germany, France, Australia Project completed on schedule, on budget, and to specifications However, following construction delays in getting govt approval to install and charge tolls Due to success of project Phu My Bridge Corp Obtained concessions for additional bridge projects in region (Saigon Bridge II, Nhon Trach Bridge.) In discussions with Goldman Sachs for $700 million international bond; first ever international bond issue for domestic company 18

19 Infrastructure Project Development Korean environmental services company developing waste to energy plant at landfills in HCMC The project is designed to collect about 4 million tons of gas from the two sites per year, with gas used as feedstock for 9 MW power plant. Project structure unique: HCMC authorities enabled KMDK to sell electricity directly to surrounding neighborhoods and industries. Eliminates the need to form a power purchase agreement with EVN, the most challenging aspect of any independent power project Enables KMDK to sell electricity at higher price (to industrial customers) than if they sold to EVN. KMDK responsible for investment in transmission and distribution infrastructure Project qualifies for Carbon Emission Reduction (CER) credits as potential additional source of income 19

20 Infrastructure Conclusions Transport and energy are the two sectors providing the best opportunities for project developers and suppliers of equipment and services. Within the transport sector, the best opportunities are in port development or in supplies of related equipment and services and road construction equipment. In the energy sector, the best opportunities are construction or equipment supply for coal-fired power plants. Projects with foreign-investor or ODA financing are the easiest to access for foreign suppliers due to international bidding practices, reduced bureaucracy, and shorter delivery times. 20

21 Infrastructure Conclusions Projects funded by state budget and SOE invested projects account for 45% - 50% of total infrastructure investment remains a key market. For projects funded by the state budget, suppliers and contractors should establish relationships and demonstrate international expertise / quality to relevant ministries, particularly the Ministry of Transport, Ministry of Construction, and Ministry of Industry and Trade. Similar steps should be taken with relevant state-owned enterprises developing key infrastructure projects, for example Vinacomin, PetroVietnam and EVN in the power sector, Vinalines and Saigon Port in the port sector, Vietnam Expressway Corporation in the roads sector. Establish contacts and relationships with leading state-owned and semi-private construction firms including Lilama, CIENCO, Construction Co. # 1, Cotecons, among others. 21

22 Infrastructure End End 22