Legal obstacles hindering private railway investment

July 24, 2020 | 08:00
State-owned railway group Vietnam Railways is being derailed, with worse to come due to legal barriers, creating a thorny path for private investment inflows into the sector.
1501p16 legal obstacles hindering private railway investment
Legal obstacles hindering private railway investment-illustration photo

According to a source of VIR, the Committee for Management of State Capital at Enterprises is going to submit Vietnam Railways’ (VNR) new restructuring plan to the government for approval this month after several years of delay. While VNR may have to wait for several more months to get the go-ahead, it is a good signal for the giant to soon proceed with the long-awaited monopoly dump in cargo transport and with stake divestment, thus increasing operational efficiency.

Under the latest version of the restructuring plan, the corporation set to merge Haraco and Saratrans – the two largest train operators in Vietnam under VNR – into one joint-stock company. This JSC would then be separated into two, with one part specialising in passengers, and in which VNR would hold a controlling stake, and another part focusing on cargo transport, with VNR possibly divesting a stake.

Also under the plan, VNR will continue to divest stakes in tens of its units, including 15 others in which it has less than 50 per cent of stake.

In spite of the expectation, VNR will be unable to make the next steps if current and upcoming legal barriers are not addressed. Further stalling is being suffered as VNR is still trying in vain to persuade the Ministry of Transport (MoT) to include its proposal in the draft master plan in line with Decree No.46/2018/ND-CP governing the management and use of railway infrastructure assets. However, in the latest draft, the motion is not mentioned.

VNR proposes the MoT to hand over station squares, warehouses, inland container depots (ICDs) and others to the giant to own, use, and develop with the assets to be recorded as state capital contribution to the operator. The MoT instead proposes a five-year handover of the assets. However, this period is too short for VNR to make their long-term and sustainable development plans.

VNR general director Dang Sy Manh told VIR, “The proposal should be added as supporting policies to leverage private investment. We need the new mechanism to enable our partnership with private firms in hundreds of stations and ICDs, to more effectively tap into their available potential.”

Manh elaborated that many other transport segments like airports, seaports, and roads are developing under the mechanism as proposed by VNR, but railways are not.

Efficient airports, seaports, and coach stations are occurring when state assets are handed over to businesses, enabling them to call for private investments.

For instance, the railway industry now has 297 railway stations, of which only 10 are deemed efficient. With the new mechanism, investments and upgrades will follow, leading to profit, and then reinvestment in other stations.

This model is similar to the aviation sector where profits from Tan Son Nhat and Noi Bai international airports will be used to reinvest in others with less efficiency.

In addition, railway asset management mechanisms are also being developed in many countries, such as Germany, France, Russia, Japan, and Malaysia. Meanwhile, in Vietnam, the assets directly used for train operation remain owned by the state. The assets are handed over to VNR without recording them as state capital contribution.

VNR is still the manager and operator, but without the right to take initiatives in making additional investment from its funding.

While the state instead is responsible for the investment, the annual total budget allocation for the railway sector meets just one-third of its demands amid the 100-year-old downgraded infrastructure.

“Decree 46 is the thorniest problem we’re facing. If it is approved without our proposal, it would be a setback for the railway industry,” Manh noted.

In a similar view, transport experts suggested that the government should allow railways to apply the new mechanism, otherwise the sector may suffer another hitch.

VNR is now still struggling with the negative impacts of COVID-19 and stiffening competition from other means of transport. In the first half of 2020, the firm made a total revenue of VND3 trillion ($130.43 million), 80.6 per cent of the figure from last year, fulfilling 47.4 per cent of the full-year target.

While VNR has worked out a number of measures to increase revenue and cargo volume, cut costs, and ensure living conditions for labourers in the second half of the year, further legal support remains a top priority for the group.

By Bich Thuy

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