Is Vietnam Ready to Build Mega-Airport Projects? – The Diplomat

Pacific Cash | Financial system | Southeast Asia

Vietnam is among the quickest rising economies in Southeast Asia, with GDP rising 8 p.c final yr after averaging over 7 p.c from 2016 to 2019. Internet international direct funding has averaged round $14 billion a yr over the previous few years, a lot of it in export-oriented manufacturing for giant worldwide manufacturers like Samsung and LG. It’s clear that issues are taking place within the Vietnamese financial system. And but, the nation has struggled relating to constructing main home infrastructure like airports and rail.

The long-awaited Ho Chi Minh Metropolis metro continues to be lumbering towards completion, years delayed because of protracted land acquisition and different delays. One other undertaking that has been gradual to assemble steam is the Lengthy Thanh Worldwide Airport. Lengthy Thanh, a mega-project price billions of {dollars}, will serve the HCMC space and assist alleviate strain on the over-capacity Tan Son Nhat Worldwide Airport. It’s not anticipated to be operational till at the very least 2025.

One explanation for delays has been land acquisition. Buying land to construct public infrastructure is sophisticated, particularly in rising markets the place eminent area legal guidelines could also be murky and other people occupying land could not have formal authorized titles. Points associated to land use and possession have delayed a few of these huge ticket initiatives.

However one other difficulty is that the Vietnamese state continues to be refining its imaginative and prescient for how one can pursue developmental aims. Quite a lot of Vietnam’s current progress has been pushed by international funding in factories that produce items for export. Now the state is popping its consideration towards items and providers for the home market, resembling transportation infrastructure. That may be a extra complicated proposition, particularly relating to deciding who will run these initiatives and the way they are going to be paid for.

The Lengthy Thanh airport undertaking presents an instructive instance. It’s being developed by Airports Company of Vietnam (ACV) which is a joint inventory firm 95 p.c owned by the federal government and tasked with managing Vietnam’s nationwide community of airports. As an airport administration agency, ACV has been run in a fairly conservative means. In 2022, the corporate recorded $292 million in after-tax earnings. It had $2.5 billion in property on the books, half of which have been within the type of short-term investments.

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ACV at the moment has a lot of fairness ($1.8 billion) and few liabilities ($665 million), nearly all of which include low-interest loans from Japanese improvement banks that have been used to finance a pair of airport enlargement initiatives a number of years in the past. Till now, ACV has been managed in such a means as to protect fairness, restrict publicity to long-term debt (particularly international debt), and never lose cash.

It has not been managed to optimize large-scale progress and enlargement. The corporate has not tapped capital markets to construct new airports or broaden current ones, and is reluctant to tackle debt. In 2022, ACV had $1.25 billion merely sitting in short-term investments incomes curiosity, slightly than being deployed for enlargement. That will have been positive 5 or ten years in the past, however the tempo of financial progress in Vietnam goes to demand scaled up funding in infrastructure, together with mega-projects just like the Lengthy Thanh Airport.

On condition that actuality, ACV seems to be re-orienting itself towards enlargement. For the Lengthy Thanh Worldwide Airport, the federal government initially thought of utilizing extra concessional loans from Japanese or South Korean improvement banks. However in the end, ACV was given the nod as undertaking coordinator and most important investor and in 2022 sunk over $200 million into land acquisition and building, together with at Lengthy Thanh. That is exactly what we might count on to see of a state-owned agency making ready to mobilize capital and sources for large-scale funding in home infrastructure.

There have been rising pains. If the undertaking was being financed by Japanese improvement banks, then skilled Japanese engineering and building corporations would additionally do a lot of the work, which might be a comparatively simple course of. With ACV operating the present, and with restricted expertise in a undertaking of this scale and complexity, even securing bids from certified contractors has concerned a steep studying curve. As an example, the primary bid package deal supplied for setting up the brand new terminal constructing was cancelled final yr after failing to draw any certified bidders.

All of this implies an attention-grabbing shift is underway. Somewhat than counting on international improvement help, ACV will leverage their very own stability sheet to finance the Lengthy Thanh mega-airport undertaking and kind of run the present. Re-orienting the state-owned airport operator away from passive administration and towards energetic enlargement is one thing Vietnam will want extra of because it appears to be like to maintain speedy financial progress. Whether or not the nation’s state-owned firms are as much as the duty is one thing to maintain an in depth eye on within the years to come back.