Local groups forced to figure out expressway finances

Cienco4 Group, one of the companies named in the list of pre-winning partnerships for the North-South Expressway in the public-private partnership (PPP) form, has raised public concerns over its possible financial risks, as although the company has not announced its second-quarter financial statement, first quarter results have been deemed worrying.

As shown in its January-March financial statement, Cienco4, which is interested in the Nghi Son-Dien Chau and Dien Chau-Bai Vot sections, has incurred debts of nearly VND6 trillion ($260.8 million), rising from VND5.73 trillion ($249.13 million) in January, while its equity reached VND1.34 trillion ($58.26 million).

During the period, this construction firm made revenues of VND237.35 billion ($10.3 million), down from VND543.07 billion ($23.6 million) in the same span last year. It also reported a 50 per cent on-year fall in after-tax profits.

Le Duc Khanh, director of the market strategy department at PetroVietnam Securities, told VIR, “The figures prove somewhat financial risks. If Cienco4 wins contract to join PPP sections, it needs financial support and lending incentives to ensure bankability.” According to KB Securities Vietnam, Cienco4 is likely to be favoured because the construction of some North-South Expressway projects will affect the contractors’ investment returns of National Highway 1 expansion build-operate-transfer (BOT) projects.

Learning valuable lessons

Together with Cienco4, within the five North-South Expressway sections in the form of PPP (National Highway 45 - Nghi Son, Nghi Son - Dien Chau, Dien Chau - Bai Vot, Nha Trang - Cam Lam, and Cam Lam - Vinh Hao), the government will select the winning partnerships of prequalified contractors including Hoa Binh Construction Group, Licogi 16, FECON, and Vinaconex Corporation.

Like Cienco4, Licogi 16 and FECON incurred big falls in profit and revenue in the first quarter. FECON’s debt at the end of March was over VND9.84 trillion ($427.8 million), much higher than its equity of VND7.56 trillion ($328.69 million).

With the situation, they may have to pick up loans for the new works if they win a ticket for the North-South Expressway. However, until now, the nightmare of bad debts at loss-making BOT transport projects has made banks cautious, with some lenders saying they have no plans to offer loans to BOT or build-transfer projects this year.

Senior financial expert Nguyen Tri Hieu told VIR, “Banks are cautioned because of their high credit risks.”

Hieu added that, like other countries, Vietnam is speeding up infrastructure projects and public investment ventures as an effort to recover the economy after the coronavirus. He, however, warned that some problems should be taken into consideration to ensure successful development, especially direct contracting.

Some signs of direct appointment of contractors (DAC) have been seen in recent months, with the claim that this is a better way to fast-track the project despite a series of lessons in the past. Recently, the Ministry of Defence proposed DAC for its Truong Son Construction Corporation as contractor of three PPP sections.

The Ministry of Construction also made similar moves for Song Da Corporation, which is facing financial difficulties and is incapable of paying its debts. As ruled in such urgent situations, DAC can be made but contractors must be financially capable.

“The Ministry of Transport (MoT) should be more selective. The Danang-Quang Ngai and Hanoi-Thai Nguyen expressways which ended up inefficient and substandard quality were costly lessons that should be taken to heart when giving DAC priority to state-owned companies,” said senior economist Vu Dinh Anh.

Sluggishness concerns

The prime minister at an early July meeting asked the MoT to start construction on the three sections next month. However, much work is only half-done as resettlement areas are affected by the eastern cluster of the expressway, although the deadline for completion of this work has already passed last month.

According to a recent report by the MoT, among the 110 resettlement areas, 66 are under development and 35 others are approving designs and selecting contractors. The majority of localities with resettlement areas have proposed extension of the completion schedule until September.

The North-South Expressway, which is set to cover 2,100km, costs VND118.5 trillion ($5.15 billion) and has 11 sub-projects (six of which will be state-funded), is expected to create a driving force for the social-economic development of 23 cities and provinces once finished. Ensuring bankability of the project now depends on how the MoT disburses the investment and selects contractors.