Ho Chi Minh City metro projects short on capital

Metro line 1 in trouble

A shortage of capital is the key problem of both Line 1 (Ben Thanh – Suoi Tien) and Line 2 (Ben Thanh – Tham Luong) urban railway projects. The Ho Chi Minh City People’s Committee is the developer responsible for the two projects.

At the Metro Ben Thanh-Suoi Tien project, the developer has been slow to pay contractors and may have to pay interest on late payment.

According to a report submitted to the Ministry of Transport at the beginning of March 2017 by Le Van Khoa, deputy chairman of the Ho Chi Minh City People’s Committee, the payments for four construction packages have been delayed since September 2016. The reason is that the ODA capital provided for Ho Chi Minh City was only VND592.693 trillion ($26 million), a much lower amount compared to the VND1.95 trillion ($85.17 million) payable for the contractors. To deal with the current shortage, Ho Chi Minh City had to withdraw VND600 billion ($26.3 million) from the city budget to pay in advance for the consulting companies and contractors.

With the current progress, although package No. 1a was started in November 17, 2016, the authority cannot pay the contractors as promised. Accordingly, by February 15, 2017, Ho Chi Minh City’s Urban Railway Management Boardwould have to pay in advance the amount of VND571 billion ($25 million). In case the developer fails to pay, the contract will be extended, which will result in numerous incurred additional expenses.

Khoa said that the estimated ODA capital for Metro Line 1 is VND2.119 trillion ($93 million) in 2017. However, the project’s capital has not been added to the country’s plan on using ODA, which significantly affected the construction progress.

By the end of February 2017, package No. 1b, used for the constructions of the stations between Saigon Opera House and Ben Thanh, was 41 per cent completed, while package No. 2 toconstruct the 17.1-kilometre stretch plus depots between Ba Son and Binh Duong was 65 per cent completed. Package No. 3 for the purchase of electromechanical equipment, locomotives, carriages, and railway tracks was 12 per cent completed. In general, the total disbursement of the project is VND10.9 trillion ($477 million), of which VND9.712 trillion ($425 million) is sourced from ODA.

If the Japanese and Vietnamese contractors progress as scheduled, the total value of the completed parts in 2017 may reach VND5.320 trillion ($233 million).

“The project should receive more ODA. It is essential to ensure the project’s progress as committed, as well as to avoid other incurred expenses, late payment penalties, and lawsuits from foreign contractors,” said the report.

The 19.7-kilometre Ben Thanh-Suoi Tien Line goes through District 1 (Binh Thanh), District 2 (Thu Duc), District 9, and ends in Binh Duong Province (Di An District). Of the total, the underground parts are 2.6 kilometres, and the overhead parts are 17.1 kilometres long. The total investment after three adjustments has increased from VND14.415 trillion ($631 million) to VND47.325 trillion ($2.07 billion).

The construction of the overhead part has been on-going since August 2012. The maximum speed along the line will be 80 kilometres per hour on the underground sections and 110 kilometres per hour on the bridge. It is forecasted to begin test runs in 2019 and be officially put into operation in 2020.

Metro Line 2 in a worse spot

Although Metro Line 1 is in slow progress, at least it has a forecasted launching period, while Line 2, which is also managed by Ho Chi Minh City’s Urban Railway Management Board, is struggling with investment adjustments and updating bid documents.

Accordingly, the total investment of Metro Ben Thanh-Tham Luong is proposed to be VND47.605 trillion ($2.152,36 million), an increase of 56.6 per cent compared to the initial planned investment in 2010. The three biggest increases derive from land clearance, which rose from $119.38 million to $197.88 million; installation and purchase, which went from VND748.11 billion ($33 million) to VND1.198 trillion ($52 million); and reserves, which increased from $263 million to $368 million.

By the end of February 2017, after six years of construction works, the disbursement was only VND700 billion ($31 million), including VND572 billion ($25 million) of ODA capital, which is equivalent to three per cent of the expected sum total.

A representative of the Ho Chi Minh City Urban Railway Management Board admitted that implementation was slow compared to the promised schedule because the design has been adjusted. Additionally, the different instructions issued by the sponsors and the Vietnamese government on picking contractors and the elongated time for collecting feedback from sponsors also contributed to the slow going.

As the most important Metro line in Ho Chi Minh City, the Ben Thanh-Tham Luong line will go from the new urban area Thu Thiem (District 2) and end in An Suong (District 12). It is forecasted that by 2025, it will handle 481,700 passengers a day.

Besides the sharp increase in capitalisation, the launch will be delayed to 2024, despite initial promises to complete works by the end of 2016, as specified in Decision No 4474/QD – UBND approved by the Ho Chi Minh City People’s Committee.

“The Ho Chi Minh City People’s Committee should review the implementation progress of each package used in these projects and have appropriate solutions to avoid the extension of process, which may lead to an increase in total investment, administration, and interest expenses, exchange rate risks, and fluctuations in construction material prices,” an expert said.

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