Unprecedented financial scheme proposed for building Dong Dang-Tra Linh Expressway

August 10, 2021 | 13:11
Cao Bang People’s Committee has proposed an extraordinary financial mechanism to build one of the most difficult of the 15 priority highway projects during 2021-2025.
Unprecedented financial scheme proposed for building Dong Dang-Tra Linh Expressway
Dong Dang-Tra Linh Expressway was proposed mechanisms that only exist in a draft planning to 2025

The Ministry of Transport (MoT) was the sole state management agency to issue comments about the proposal on applying several specific mechanisms for implementing the public-private partnership (PPP) investment project on building Dong Dang-Tra Linh Expressway by the People’s Committee of Cao Bang, a province in Vietnam’s northern highland region.

In a dispatch to the Government Office late last month, the MoT stated that as the national highway planning for 2021-2025with orientation to 2030 is still being considered by relevant bodies, Cao Bang's proposal (which is based on the draft planning) is legally unfounded for now.

"In principle, Dong Dang-Tra Linh Expressway and other highway projects that are in the preparation phase need to follow existing regulations," said Deputy Minister of Transport Nguyen Ngoc Dong.

In the draft national highway planning, the MoT proposed allowing local governments to issue bonds to mobilise capital for handling clearance work at highway projects, with the outstanding loan balance not counting towards the loan balance limit of local governments pursuant to Article 7 of the Law on State Budget.

Additionally, the draft proposed establishing a separate sub-project for site clearance and assigning local governments to allocate the budget and oversee the implementation of sub-projects. It also suggested setting up a preferential credit package (with coupon rates similar to 10-year government bonds) to lend for highway projects prioritised in 2021-2025.

In June 2021, Cao Bang People’s Committee sent Dispatch 1510/UBND-GT proposing the prime minister to approve a specific scheme for the implementation of Dong Dang-Tra Linh Expressway. The province asked for approval to split the VND1 trillion($43.4 million) site clearance work into a separate project using the local budget that would not be calculated as state capital.

In addition, to mobilise credit sources for the project, Cao Bang People’s Committee requested authorising the project's investor to borrow from the government's preferential credit package for transport infrastructure.

In addition, to mobilise credit sources for the project, Cao Bang People’s Committee requested authorising the project's investor to borrow from the government's preferential credit package for transport infrastructure.

Additionally, to ensure the project will stay on schedule, attract investors, and boost investment efficiency, the People’s Committee also proposed adjusting forest land and agricultural land in areas where the highway passes through.

According to Cao Bang Party Secretary Lai Xuan Mon, the investment proposal of Dong Dang-Tra Linh Expressway was approved by the prime minister in 2020 and was included by the MoT among the 15 priority highway projects for investment in 2021-2025.

“Dong Dang-Tra Linh Expressway would require significant investment due to the difficult terrain and the forecast low traffic volume in the initial period would make it hard to attract investors. It would then be extremely hard to deploy the project in a conventional way,” said Mon.

Phase 1 of the expressway project will have a total investment value of around VND10.642 trillion ($462.7 million). The section connecting to Cao Bang city will form a separate sub-project and use infrastructure items like mountain tunnels and bridges/flyovers to pass valleys will help drive down the project’s total investment value to VND23 trillion ($1 billion) from VND47 trillion ($2.04 billion).

Cao Bang People’s Committee also proposed allowing the project investor to raise capital through business cooperation contracts (BCCs), issuing bonds or stocks, instead of just taking up loans from commercial banks. The coupon rate for these bonds would be around 13 per cent a year.

“13 per cent is a fair coupon rate, helping the project to raise capital other than bank loans. For successful bond issuance, support from relevant ministries, sectors and Cao Bang People’s Committee is important,” said Tran Tho Dat, a member of the Economic Advisory Group to the prime minister.

Dong Dang-Tra Linh Expressway would be 115km in length, with a 52km section crossing Lang Son province, and a 63km section crossing Cao Bang province. It will accommodate average speeds of 80kmh, and 60kmh over difficult terrain.

By Minh Thuy

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