PPP – solution for Ho Chi Minh City – Moc Bai Expressway

PPP – solution for Ho Chi Minh City – Moc Bai Expressway

Mounting traffic pressures

Currently, National Highway 22 is the only way connecting Ho Chi Minh City and Moc Bai Border Gate, the international gateway to the ASEAN, while traffic flows grow by 8-10 per cent per annum. National Highway 22 is predicted to be overloaded in the next few years, especially as the trans-Asia route connecting Vietnam, Cambodia, and Thailand is finished.

The Second Project Management Unit (PMU2) has just proposed the Ministry of Transport (MoT) to approve the pre-feasibility study for the Ho Chi Minh City-Moc Bai Expressway project. “It is time to invest and build a high transportation capacity expressway connecting Ho Chi Minh City and Moc Bai Border Gate to ease traffic flows on National Highway 22 and shorten travel time,” said Le Thang, deputy general director of PMU2.

As proposed, the 53.5km Ho Chi Minh City-Moc Bai Expressway project starts at the intersection of Provincial Road 15 and Ring Road 3 (expected) in Hoc Mon District, Ho Chi Minh City and will end by connecting to Highway 22 (about 2km to the north from Moc Bai Border Gate).

To avoid waste, the project will be divided in two phases. Accordingly, the first phase will build a complete four-lane highway with a 27m cross-section and a designed travelling speed of 120km per hour for the section with heavy traffic (Ho Chi Minh City-Trang Bang), while the second phase will build a four-lane expressway with a 17m cross-section and travelling speed of 80 km per hour.

Preliminary estimates show that the total investment of the first phase is VND10.45 trillion ($454.6 million), in which the two largest investments are construction and equipment costs (VND5.74 trillion – $249.78 million), and land clearance and resettlement costs (VND2 trillion – $87.13 million).

If the input costs are controlled well, the Ho Chi Minh City-Trang Bang section will have an investment cost of VND234.8 billion ($10.2 million) per kilometre, while the Trang Bang-Moc Bai section will cost VND145 billion ($6.3 million) per kilometre.

Previously, at a working session with leaders of Tay Ninh in early August 2018, Prime Minister Nguyen Xuan Phuc assigned the MoT to co-ordinate with Tay Ninh province to accelerate the investment preparation of the expressway project. The prime minister also ordered the MoT to submit a pre-feasibility study in the fourth quarter of 2018.

Anticipated risks

Thang said that due to budgetary restrictions, project implementation under either the PPP (Public-Private Partnership) or the BOT (Build Operate Transfer) format is the only way to mobilise capital. BOT was also proposed by the venture consultant DEEP-Korean Railroad Research Institute when researching and making the pre-feasibility study for the project.

However, due to the huge total investment of the Ho Chi Minh City-Moc Bai Expressway project, to ensure financial feasibility and based on the Korean consultant’s research, PMU2 requested the MoT to apply a mixed investment form including PPP, ODA capital (Official Development Assistance), and the state budget.

Specifically, the PPP investment capital is proposed at VND5.43 trillion ($236.09 million), with VND5.043 trillion ($219.26 million) – including VND2.177 trillion ($94.65 million) from the state budget for land clearance and project management expenses, and VND2,866 trillion ($124,61 million) ODA capital for construction and consultancy.

With this capital structure, the project payback period may be 17 years and six months, with the internal rate of return of 15.7 per cent, if the government allows the project to apply the same financial mechanism as the North-South Expressway (the investor’s rate of return was 11.7 per cent, while the starting fee was VND1,500 ($0.65) per PCU per km and the interest rate on loans for construction was 7.72 per cent per year). “These financial indicators would make sure that the project can attract foreign and domestic investors,” Thang said.

PMU2 claims that the biggest risk in the project is delayed land clearance, as the total area of the project is 342ha, which may increase when the project owner finishes the feasibility study and technical designs.

“If localities fail to hand over at least 80 per cent of the land before the commencement date and the rest within six months or one year, in accordance with international practices, the competent state agency may be penalised by the investor according to the contract,” Mai The Vinh, expert from the Centre for Transportation Public-Private Partnership Policy at George Mason University, assessed.

In the face of increasing traffic pressures, the Ho Chi Minh City-Moc Bai Expressway needs to be quickly implemented. However, choosing the most suitable investment format as well as anticipating the risks and solutions is also a prerequisite to make the project efficient and attract investors.