Q2 2010www.businessmonitor.com
infrastructure report
issn 1750-5593published by Business Monitor international Ltd.
VietnaMINCLUDES 5-YEAR FORECASTS TO 2014
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Vietnam Infrastructure Report Q2 2010 Including 5-year industry forecasts by BMI
Part of BMI's Industry Report & Forecasts Series
Published by: Business Monitor International
Publication Date: February 2010
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CONTENTS
Executive Summary .........................................................................................................................................5
SWOT Analysis.................................................................................................................................................6
Vietnam Infrastructure SWOT ............................................................................................................................................................................... 6 Vietnam Infrastructure Project Finance SWOT ..................................................................................................................................................... 7 Vietnam Economic SWOT...................................................................................................................................................................................... 8 Vietnam Political SWOT........................................................................................................................................................................................ 9
Market Overview.............................................................................................................................................10
Vietnam..................................................................................................................................................................................................................... 10
Industry Forecast Scenario...........................................................................................................................13
Table: Construction and Infrastructure Industry Data ........................................................................................................................................ 13 Construction and Infrastructure Forecast Scenario.................................................................................................................................................. 14
Transport Infrastructure ................................................................................................................................15
Table: Transport Infrastructure Industry Data .................................................................................................................................................... 15 Transport Infrastructure Forecast Scenario ............................................................................................................................................................. 17 Transport Infrastructure Overview ........................................................................................................................................................................... 18
Table: Ports Are The Weakest Link: Quality Of Infrastructure Global Ranking Out Of 134 Countries............................................................... 19 Table: Vietnam Railway Corporation’s Main Targets ......................................................................................................................................... 20
Major Projects – New and Ongoing Projects ........................................................................................................................................................... 20 Airports................................................................................................................................................................................................................ 20 Ports .................................................................................................................................................................................................................... 21 Roads................................................................................................................................................................................................................... 23 Railways .............................................................................................................................................................................................................. 25 Major Projects Table - Transport ........................................................................................................................................................................ 27 Table: Vietnam – Major Transport Infrastructure Projects ................................................................................................................................. 27
Energy and Utilities Infrastructure ...............................................................................................................30
Table: Energy & Utilities Infrastructure Industry Data....................................................................................................................................... 30 Energy and Utilities Infrastructure Forecast Scenario ............................................................................................................................................. 31 Energy and Utilities Infrastructure Overview ........................................................................................................................................................... 32
Table: The Three Levels Of Liberalising Vietnam’s Electricity Market ............................................................................................................... 34 Major Projects – New and Ongoing Projects ........................................................................................................................................................... 35
Power Plants........................................................................................................................................................................................................ 35 Pipelines .............................................................................................................................................................................................................. 39 Water ................................................................................................................................................................................................................... 39 Major Projects Table – Energy and Utilities ....................................................................................................................................................... 40 Table: Vietnam – Major Energy and Utilities Infrastructure Projects................................................................................................................. 40
Business Environment ..................................................................................................................................42
Vietnam Business Environment................................................................................................................................................................................. 42 Limits Of Potential Returns.................................................................................................................................................................................. 42 Risk To Realisation Of Potential Returns............................................................................................................................................................. 42
Regional Overview.................................................................................................................................................................................................... 43 Asia Pacific Infrastructure Business Environment Ratings.................................................................................................................................. 43 Table: Asia Pacific Infrastructure Business Environment Ratings....................................................................................................................... 46
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Project Finance Ratings ................................................................................................................................47
Vietnam Project Finance Ratings ............................................................................................................................................................................. 47 Design and Construction ..................................................................................................................................................................................... 47 Commissioning and Operating ............................................................................................................................................................................ 47 Overall Project Finance Rating ........................................................................................................................................................................... 47
Regional Overview.................................................................................................................................................................................................... 47 Project Finance Ratings: Outlook For Asia Pacific............................................................................................................................................. 47 Table: Design and Construction Rating............................................................................................................................................................... 51 Table: Commissioning and Operating Rating...................................................................................................................................................... 52 Table: Overall Project Finance Rating, Asia Pacific........................................................................................................................................... 53
Macroeconomic Outlook ...............................................................................................................................54
Table: Vietnam - Economic Activity..................................................................................................................................................................... 56
Political Outlook .............................................................................................................................................57
Company Monitor...........................................................................................................................................60
Cavico Corporation ............................................................................................................................................................................................. 60 Song Da Construction Corporation ..................................................................................................................................................................... 63 Vietnam Construction and Machinery Installation, Corporation (Lilama) ......................................................................................................... 65
Global Overview .............................................................................................................................................67
Global Infrastructure Forecasts Revisited ........................................................................................................................................................... 67
Methodology ...................................................................................................................................................71
New Infrastructure Data Sub-sectors: Methodology................................................................................................................................................. 71 Infrastructure Forecasts: Methodology ............................................................................................................................................................... 72 Sources ................................................................................................................................................................................................................ 74
Industry Forecasts .................................................................................................................................................................................................... 74 Construction Industry .......................................................................................................................................................................................... 75
Data Methodology .................................................................................................................................................................................................... 75 Construction ........................................................................................................................................................................................................ 75 Capital Investment ............................................................................................................................................................................................... 76 Construction Sector Employment......................................................................................................................................................................... 76
Infrastructure Business Environment Ratings........................................................................................................................................................... 77 Ratings Overview................................................................................................................................................................................................. 77 Table: Infrastructure Business Environment Indicators ...................................................................................................................................... 78
Project Finance Ratings ........................................................................................................................................................................................... 79 Table: Design And Construction Phase ............................................................................................................................................................... 80 Table: Commissioning And Operating Phase – Commercial Construction ......................................................................................................... 81 Table: Commissioning And Operating Phase – Energy And Utilities .................................................................................................................. 82 Table: Commissioning And Operating Phase – Transport................................................................................................................................... 83 Sources ................................................................................................................................................................................................................ 85
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Executive Summary
Vietnam’s infrastructure sector shows strong signs of recovery for 2010 after a disappointing 2009 where
construction industry value fell by 8% to US$5.3 bn from US$5.84bn in 2008. This was almost
exclusively due to world market conditions throughout 2009, as underlying growth is forecast to be high
over the remainder of the forecast period. Growth is expected to peak in 2010 with a year on year
increase of 23.9% and continue till the end of the period when the industry is estimated to be worth
VND260bn (US$15.12bn) in 2014.
Infrastructure projects covered a wide variety of projects in the past quarter. Road and bridge building
was especially strong. One of the major investments was from the Bidv Expressway Development
Company (BEDC) which will invest US$1.8bn in constructing the 82km-long Trung Luong-My Thuan-
Can Tho expressway project. In the power sector a variety of power plant projects were announced
including hydro, thermal and coal power stations. The largest of these was a multi-billion-dollar coal-
fired power plant to be completed by Sumitomo Corp. The plant will have a capacity of 1,320 megawatts
(MW) and the estimated cost is JPY200bn (US$2.5bn).
In terms of BMI’s Business Environment Ratings, Vietnam tied with the Philippines and Pakistan in the
penultimate place for market risks, with a score of 35 out of 100. The country suffers from issues
regarding the tendering process, which has come under much scrutiny. Vietnam has been keen to revamp
its image and refine the tendering process, and is increasingly attracting large international companies.
Overall Vietnam scored 50.7 for its Business Environment placing it in 7th place within the region.
For BMI’s Overall Project Finance Ratings Vietnam also scored poorly. Along with other weak public
private partnership (PPP) regulatory regimes it faced issues such as corruption and overtaxing
government intervention in some industries. Vietnam's rating presents some upside risk because of
declining levels of inflation, but the risk rating also encompasses some deep structural problems in the
country's overall business environment. Overall the country scored 46.4.
Despite poor scores for the country in terms of market risk, Vietnam is forecast to be one of the strongest
performers in the Asian market over the coming years. A combination of cheap labour and ambitious
government projects mean that there are numerous opportunities for international construction in the
country. The government’s commitment to improving the business environment also weighs well for
investors.
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SWOT Analysis
Vietnam Infrastructure SWOT
Strengths There are several projects in the pipeline, particularly in the energy and transport infrastructure sectors. The current poor state of infrastructure in the country provides easy wins for foreign investors and construction companies.
Government is keen to boost macroeconomic growth through demand-side policies that include infrastructure spending initiatives.
Rapid growth has attracted investment from many of the world’s largest infrastructure companies.
Weaknesses State-owned companies dominate the infrastructure market. This is especially so in the utilities sector, where Electricity of Vietnam (EVN)’s dominant position has deterred investments in the sector.
The EU does not predict Vietnam will become a true market economy until 2018.
Vietnam relies heavily on foreign imports: it is estimated that Vietnam needs to import 2mn tonnes of steel billets per year, adding up to 80% of the country’s annual demand.
Low scores in BMI’s new Project Finance Ratings indicate a risky environment for major infrastructure projects and conducting project finance operations.
Opportunities Strong growth forecast for 2010 will attract further investors.
Demand for urban infrastructure projects in transport and sanitation will rise in tandem with urbanisation in coming years.
Threats Global macroeconomic downturn and limited availability of finance could threaten capital expenditure plans for infrastructure projects, in both the public and the private sectors.
Uncertainty and downside risks in business environment could have negative impact should any significant events occur to highlight Vietnam’s structural difficulties.
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Vietnam Infrastructure Project Finance SWOT
Strengths Strong fundamentals in Vietnam will sustain the long-term growth of the infrastructure sector, reducing long term demand risk.
Large scale road building projects backed by government commitments, have created a thriving infrastructure sector.
Location offers upside as transport hub with strong port sector as well as extensive demand for road and rail.
Weaknesses High corruption and poor legal and regulatory frameworks limit project development.
Poor existing infrastructure can hamper completion of projects.
Opportunities As one of the fast growing countries in the region, Vietnam offers attractive return on investment for foreign firms.
The government has a commitment to improving market risks promises to reduce negative effects of corruption.
Threats The instability of business environment presents downside risk over the long term.
Continued financial uncertainty may convince funding to move towards safer investments.
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Vietnam Economic SWOT
Strengths Vietnam has been one of the fastest-growing economies in Asia in recent years, with GDP growth averaging 7.6% annually between 2000 and 2007.
The economic boom has lifted many Vietnamese out of poverty, with the official poverty rate in the country falling from 58% in 1993 to 20% in 2004.
Weaknesses Vietnam still suffers from substantial trade, current account and fiscal deficits, leaving the economy vulnerable as the global economy continues to suffer in 2010. The fiscal picture is clouded by considerable 'off-the-books' spending.
The heavily-managed and weak dong currency reduces incentives to improve quality of exports, and also serves to keep import costs high, thus contributing to inflationary pressures.
Opportunities WTO membership has given Vietnam access to both foreign markets and capital, while making Vietnamese enterprises stronger through increased competition.
The government will, in spite of the current macroeconomic woes, continue to move forward with market reforms, including privatisation of state-owned enterprises, and liberalising the banking sector.
Urbanisation will continue to be a long-term growth driver. The UN forecasts the urban population to rise from 29% of the population to more than 50% by the early 2040s.
Threats Inflation and deficit concerns have caused some investors to re-assess their hitherto upbeat view of Vietnam. If the government focuses too much on stimulating growth and fails to root out inflationary pressure, it risks prolonging macroeconomic instability, which could lead to a potential crisis.
Prolonged macroeconomic instability could prompt the authorities to put reforms on hold, as they struggle to stabilise the economy.
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Vietnam Political SWOT
Strengths The Communist Party government appears committed to market-oriented reforms, although specific economic policies will undoubtedly be discussed at the 2011 National Congress. The one-party system is generally conducive to short-term political stability.
Relations with the US are generally improving, and Washington sees Hanoi as a potential geopolitical ally in South East Asia.
Weaknesses Corruption among government officials poses a major threat to the legitimacy of the ruling Communist Party.
There is increasing (albeit still limited) public dissatisfaction with the leadership's tight control over political dissent.
Opportunities The government recognises the threat that corruption poses to its legitimacy, and has acted to clamp down on graft among party officials.
Vietnam has allowed legislators to become more vocal in criticising government policies. This is opening up opportunities for more checks and balances within the one-party system.
Threats The slowdown in growth in 2009 and 2010 is likely to weigh on public acceptance of the one-party system, and street demonstrations to protest economic conditions could develop into a full-on challenge of undemocractic rule.
Although strong domestic control will ensure little change to Vietnam's political scene in the next few years, over the longer term, the one-party-state will probably be unsustainable.
Relations with China have deteriorated over the past year due to Beijing's more assertive stance over disputed islands in the South China Sea and domestic criticism of a large Chinese investment into a bauxite mining project in the central highlands, which could potentially cause widescale environmental damage.
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Market Overview
Vietnam
Vietnam's emergence as one of the most promising economies in Asia, if not the world, stems largely
from the Communist Party of Vietnam's (CPV) adoption of the Doi Moi market reform policies in 1986.
The gradual but steady shift from a largely agrarian country with a high degree of state ownership and
government intervention to a market economy has stimulated the flow of foreign investment and domestic
entrepreneurship, which are now the prime drivers of growth. Foreign direct investment (FDI) reached
US$6.7bn in 2007, of which a quarter went towards fixed capital formation, according to data from
UNCTAD.
Vietnam’s poor infrastructure is putting a damper on the country’s growth as the industry is highly
dependent on sound infrastructure (especially power and road) to operate. Vietnam’s planning and
investment deputy minister, Cao Viet Sinh, said in August 2008 that weaknesses in infrastructure are
slowing down the absorption rate of FDI in the country.
PricewaterhouseCoopers (PWC)’s executive director for south east Asian infrastructure is quoted in the
Saigon Times saying, 'Vietnam will need to increase the levels of infrastructure investment at twice the
growth rate of GDP to increase its overall national competitiveness'.
According to VietNamNet, citing the Japan Bank for International Co-operation's (JBIC) survey in 2008,
Japanese investors continue to be concerned about undersized infrastructure in Vietnam, especially its
roads, ports and power systems. A total of 78% of Japanese businesses responded with the opinion that
roads in Vietnam needed to be upgraded, 60% cited power supply and 45% cited seaports.
This message appears to be heeded as 2010 has seen a stream of road building projects boost the
infrastructure market. Foreign investment pledges for the port sector, also increased over the third quarter
of 2009. Taiwan's Formosa Plastics Group – which is rapidly emerging as one of the largest, if not the
largest, foreign investors in Vietnam – confirmed its commitment to the government to build a deep-sea
port in Son Duong, next to the Vung Ang Economic Zone, where it is investing US$19.2bn in
petrochemical, steel and oil refinery projects.
According to the latest figures announced by Vietnam’s Foreign Investment Agency, it is anticipating
US$50bn in newly pledged funds for 2008, while US$45bn were already pledged from January to July of
that year. Of those, US$6bn was disbursed for investments. It is to be expected that in any market the
majority of the pledged funds may not materialise into investments as projects get cancelled or investors
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change their plans. The weakness in infrastructure that has impeded the process poses a key constraint,
but it is a matter that the government of Vietnam can tackle.
Vietnam, however, has been making noteworthy efforts to attract investments, and the government has
made infrastructure a priority investment area. The urbanisation pressures and the population figures,
however, indicate that the pressure on urban infrastructure will increase in the coming years. According to
BMI forecasts, between 2009 and 2016, Vietnam’s population will increase by 10%.
Vietnam’s Ministry of Planning and Investments has released a list of 60 urban infrastructure projects to
be implemented between 2009 and 2016. The total estimated investment required for the projects is
US$12bn. The projects range from new water and sanitation infrastructure to new roads and traffic
systems, and will take place in 15 provinces around the country. Around 18 of the proposed projects on
the list will be funded by official development assistance (ODA) from Europe, Japan and the Asian
Development Bank, while the ministry said that the rest will come from the private sector, through public
private partnerships (PPPs). Infrastructure bonds are another option, but this idea has not gained much
support from the government thus far. However, as the capital requirements for projects in energy,
utilities and transport increase, infrastructure-specific bonds may become more popular.
Investors are showing keen interest in acquiring concessions in Vietnam’s transport sector, and thus
establishing a long-term presence in the country. However, we also warn against the obstacles and
challenges that still characterise Vietnam’s business environment, including corruption (the country ranks
121 in the ‘2008 Corruption Perception Index’ of Transparency International) and the fact that in spite of
the commendable strides the government has been taking in opening up, the EU stresses that the country
will not be considered a market economy until 2018. A regulatory and legal framework to nurture the
development of concessions is also largely absent, though there are regulatory frameworks under
construction.
In a conference organised by the Asian Development Bank in February 2009 called Strengthening Public
Private Partnerships For Infrastructure Investments In Vietnam, a core theme among the participants was
the absence of an enabling institutional and regulatory/legal environment, which hinders the proliferation
of PPPs. Law firm Duane Morris identified four main obstacles for the limited participation of the
private sector in infrastructure in Vietnam. These are: the weak governance structures of the state-owned
companies that dominate the construction and utilities sectors, difficulty in accessing domestic capital,
projects can experience delays due to the weak regulatory environment that can prove to be costly, and
finally the support of the government is often uncertain.
In the long run, these problems could become a major obstacle for economic growth. Duane Morris noted
in their presentation at the ADB conference that the government is able to meet a quarter of financing
needs for infrastructure, and official development assistance (mainly from the JBIC) another quarter. This
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leaves 50% of financing needs unmet by public finances, which at the moment make up the main source
of financing.
The challenges in the investment climate for Vietnam are reflected in the country’s weak standing on the
Project Finance table. Risks appear to be slightly higher during the initial stages of a project’s lifecycle,
though the difference compared with the second stage is negligible in the face of overall risks, which
appear to be quite formidable, giving the country an overall score of 49.5 out of 100.
Although Vietnam's rating presents some upside risk due to the declining levels of inflation, the risk
rating also encompasses some deep structural problems in the country's overall business environment,
such as corruption and overtaxing government control and intervention in some industries, one of which
is the energy and utilities sector.
Taisei Corp. and Kajima Corp. have been banned from participating in road and bridge construction
projects in Vietnam for one year because of their involvement with the Can Tho Bridge, which collapsed
in September 2007, killing 52 people. Bloomberg quotes Tran Quoc Viet, the director of quality control at
the Ministry of Transport, who said that 'this is punishment for the Japanese companies'. According to
Bloomberg, the bridge collapsed owing to 'unforeseen weaknesses of the two concrete supports on either
side that collapsed causing the bridge to fall'. Taisei and Kajima spokespeople have confirmed that they
received notice of their temporary suspension on June 20 2009.
In a related development, Vietnam's Ministry of Transport also announced that it has banned 34 local
contractors from participating in World Bank-funded projects for three years, and from Ministry of
Transport projects for a year, citing violations in bidding regulations, Thanhnien News reported. The
newspaper notes that 16 of the contractors are from Quang Ngai Province, eight from Lao Cai, four from
Hanoi, four from Nam Dinh, and two from Ha Giang.
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Industry Forecast Scenario
Table: Construction and Infrastructure Industry Data
2007 2008 2009f 2010f 2011f 2012f 2013f 2014f
Construction Industry Value, VNDbn 79,617 95,969 94,877 126,115 157,745 189,959 224,542 260,829
Construction industry value, US$bn 4.95 5.84 5.34 6.73 8.41 10.41 12.7 15.1
Construction industry, real growth, % y-o-y 12.01 0.37 -8.14 23.93 18.58 14.42 12.2 10.7
Construction industry, % of GDP 6.96 6.49 5.77 6.84 7.60 8.22 8.7 9.0
Total capital investment, VNDbn 437,702 531,987 564,432 624,392 696,406 776,326 863,210 954,133
Total capital investment, US$bn 27.2 32.4 31.7 33.3 37.1 42.5 49 55
Total capital investment, % of GDP 38.3 36.0 34.3 33.9 33.6 33.6 33.3 33.1
Capital investment per capita, US$ 318.1 373.0 360.8 373.7 410.8 464.3 524 588
Real capital investment growth, % y-o-y 24.2 3.8 1.0 3.0 4.5 6.0 6.0 6.0
Construction sector employment, '000 2,268 2,378 2,408 2,499 2,639 2,834 3,040 3,259
Construction industry employment, % y-o-y 6.14 4.87 1.26 3.76 5.60 7.39 7.29 7.21
Total workforce, '000 45,462.8 46,563.1 47,690.0 48,844.1 50,026.2 51,236.9 52,476.9 53,746.9
Construction industry employees, as % of total labour force 4.99 5.11 5.05 5.12 5.27 5.53 5.79 6.06
Infrastructure industry value, as % of total construction 42.48 45.71 44.87 47.26 48.89 49.98 50.81 51.45
Infrastructure industry value, VNDbn 33825 43865 42574 59604 77115 94951 114100 134193
Infrastructure industry value, US$bn 2.10 2.67 2.39 3.18 4.11 5.20 6.43 7.78
Infrastructure industry value real growth (%) 15.40 6.68 -9.94 31.00 22.88 17.13 14.17 12.11
Infrastructure industry value, as % of GDP 2.96 2.97 2.59 3.23 3.72 4.11 4.41 4.65
f=forecast. Source: Vietnam General Statistics Office, IMF, ILO, BMI
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Construction and Infrastructure Forecast Scenario
According to our forecasts, infrastructure
will make up on average 49.7% of total
construction industry on average between
2010 and 2014, indicating that
investments in infrastructure in Vietnam
will continue to dominate the
construction sector. This is above the
global average of 36.4%, which
highlights that Vietnam is indeed one of
the most dynamic infrastructure markets
globally.
In terms of value, however, Vietnam is
found wanting. According to the national
statistics database, industry value added in 2008 was almost VND96trn (US$5.8bn). New preliminary
estimates from the national statistics agency further indicate that construction industry value real growth
for 2008 was a mere 0.4%. According to our forecasts, the construction industry will see real growth of
23.1% in 2010 taking the industry value to US$6.73bn. Of that, infrastructure will contribute 47.3%, or
VND59trn (US$3.8bn). By the end of our forecast period, the infrastructure industry value is forecast to
reachUS$7.8bn.
Recovery will be swift and robust according to our forecasts, both for the construction and infrastructure
sector. The annual average construction sector real growth between 2010 and 2014 is forecast to be 8.1%.
For infrastructure, the figure is even higher, at 19.5%.
There are several projects in the pipeline for Vietnam’s infrastructure, especially in the transport sector,
that we believe will sustain the momentum for the country’s construction sector, even though private
investments may subside. The strength of Vietnam’s infrastructure sector is evident by the fact that while
the overall construction industry value is projected to show a very healthy real growth of 24% in 2010.
The infrastructure sector is expected to far exceed it with growth of 31%.
Robust Rebound Construction Industry Value, VNDbn
0
50,000
100,000
150,000
200,000
250,000
300,000
2008
e
2009
f
2010
f
2011
f
2012
f
2013
f
2014
f
40
42
44
46
48
50
52
Construction Industry Value, VNDbn(LHS)Inf rastructure Industry Value As % ofTotal Construction (RHS)
e=estimate, f=forecast. Source:Vietnam General Statistics Office, BMI
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Transport Infrastructure
Table: Transport Infrastructure Industry Data
2007 2008 2009f 2010f 2011f 2012f 2013f 2014f
Transport Infrastructure Industry Value As % Of Total Infrastructure 59.50 63.64 62.78 67.12 69.66 71.28 72.46 73.34
Transport Infrastructure Industry Value, VND bn 20,126.0 27,916.0 26729.4 40006.2 53718.2 67684.2 82678.5 98412.3
Transport Infrastructure Industry Value, US$bn 1.25 1.70 1.50 2.14 2.86 3.71 4.66 5.71
Transport Infrastructure Industry Value Real Growth (%) 24.72 15.71 -11.25 40.67 27.77 20.00 16.15 13.53
Transport Infrastructure Industry Value As Percent Of Total Construction (%) 25.28 29.09 28.17 31.72 34.05 35.63 36.82 37.73
Roads and Bridges Infrastructure Industry Value, As % Of Transport Infrastructure 29.90 21.21 19.86 12.55 9.31 7.36 6.00 5.02
Roads and Bridges Infrastructure Industry Value, VNDbn 6017.66 5921.43 5307.64 5021.69 5001.12 4980.55 4959.98 4939.41
Roads and Bridges Infrastructure Industry Value, US$bn 0.37 0.36 0.30 0.27 0.27 0.27 0.28 0.29
Roads and Bridges Infrastructure Industry Value Real Growth (%) -17.70 -24.60 -17.37 -14.39 -6.91 -6.41 -6.41 -5.91
Roads and Bridges Infrastructure Industry, As % Of Total Infrastructure 17.79 13.50 12.47 8.43 6.49 5.25 4.35 3.68
Roads and Bridges Infrastructure Industry, As % Of Total Construction 7.56 6.17 5.59 3.98 3.17 2.62 2.21 1.89
Railways Infrastructure Industry Value, As % Of Transport Infrastructure 37.99 42.80 43.38 48.33 50.58 51.93 52.88 53.56
Railways Infrastructure Industry Value, VND bn 7645.85 11948.6 11596.3 19334.5 27169.6 35149.7 43716.4 52705.1
Railways Infrastructure 0.48 0.73 0.65 1.03 1.45 1.93 2.46 3.06
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Table: Transport Infrastructure Industry Data
2007 2008 2009f 2010f 2011f 2012f 2013f 2014f
Industry Value, US$bn
Railways Infrastructure Industry Value Real Growth (%) 75.46 33.28 -9.95 57.73 34.02 23.37 18.37 15.06
Railways Infrastructure Industry, As % Of Total Infrastructure 22.60 27.24 27.24 32.44 35.23 37.02 38.31 39.28
Railways Infrastructure Industry, As % Of Total Construction 9.60 12.45 12.22 15.33 17.22 18.50 19.47 20.21
Airports Infrastructure Industry Value, As % Of Transport Infrastructure 26.30 25.96 26.63 25.92 25.43 25.14 24.94 24.79
Airports Infrastructure Industry Value, VNDbn 5293.13 7246.03 7117.20 10369.7 13662.8 17016.9 20617.6 24395.7
Airports Infrastructure Industry Value, US$bn 0.33 0.44 0.40 0.55 0.73 0.93 1.16 1.41
Airports Infrastructure Industry Value Real Growth (%) 23.72 13.90 -8.78 36.70 25.26 18.55 15.16 12.82
Airports Infrastructure Industry, As % Of Total Infrastructure 15.65 16.52 16.72 17.40 17.72 17.92 18.07 18.18
Airports Infrastructure Industry, As % Of Total Construction 6.65 7.55 7.50 8.22 8.66 8.96 9.18 9.35
Ports Harbours and Waterways Infrastructure Industry Value, As % Of Transport Infrastructure 5.81 10.03 10.13 13.20 14.68 15.57 16.19 16.64
Ports Harbours and Waterways Infrastructure Industry Value, VND bn 1168.31 2799.92 2708.26 5280.32 7884.58 10537.0 13384.4 16372.1
Ports Harbours and Waterways Infrastructure Industry Value, US$bn 0.07 0.17 0.15 0.28 0.42 0.58 0.75 0.95
Ports Harbours and Waterways Infrastructure Industry Value Real Growth (%) 259.41 116.66 -10.27 85.97 42.82 27.64 21.02 16.82
Ports Harbours and Waterways Infrastructure Industry As % Of Total 3.45 6.38 6.36 8.86 10.22 11.10 11.73 12.20
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Table: Transport Infrastructure Industry Data
2007 2008 2009f 2010f 2011f 2012f 2013f 2014f
Infrastructure
Ports Harbours and Waterways Infrastructure Industry As % Of Total Construction 1.47 2.92 2.85 4.19 5.00 5.55 5.96 6.28
e/f= BMI estimate/forecast. Source: BMI Calculation
Transport Infrastructure Forecast Scenario
Transport infrastructure remains the
predominant sector accounting for
67.1% of total infrastructure value in
2010. This is set to rise to 73.3% by
2014. Within this sector, railway
infrastructure is the clear winner
accounting for 48.3% of transport
infrastructure value in 2010. This equates
to a massive year on year real growth rate
of 57.7% for 2010. Over the course of the
forecast period, railway infrastructure
value will more than quadruple from
US$0.65bn in 2009 to US$3.1bn by
2014.
According to our new data series, the ports sector will increase the most in terms of percentage of total
transport infrastructure value. Its contribution to the total transport infrastructure value will climb from an
estimated 10.03% in 2008 to 16.6% in 2014. The contribution that roads make to the total transport
industry value will steadily decline over the forecast period, mainly because investments in other
underdeveloped transport modes (railways, ports, airports) are expected to be of larger value in the years
to come.
Airports will steadily contribute around a quarter of transport infrastructure’s industry value throughout
the forecast period. Airports will be the second largest contributor to transport infrastructure industry
value after railways.
Transport Infrastructure Industry Value By Sub-Sector, VNDbn
0
20,000
40,000
60,000
80,000
100,000
120,000
2008e 2009f 2010f 2011f 2012f 2013f 2014f
PortsAirportsRailw aysRoads and Bridges
e=estimate, f=forecast. Source: BMI Research
Vietnam Infrastructure Report Q2 2010
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Transport Infrastructure Overview
Road and bridge building has stepped up a gear moving into 2010 with several high profile projects
already underway.
The Hanoi-Hai Phong highway construction project received approval from the Vietnam Development
Bank (VDB) for a project involving construction of a 105.5km-long expressway, six lanes and road
surfacing. Along the highway, two sudden-stop lanes, six intersections, nine large bridges, 21 medium
bridges and 22 overhead bridges will also be built. The Bidv Expressway Development Company
(BEDC) separately received approval for the construction of the Trung Luong-My Thuan section of the
expressway. BEDC will invest US$1.8bn in constructing the 82km-long Trung Luong-My Thuan-Can
Tho expressway project.
The increased traffic levels in Vietnam’s urban areas and the country’s general fast-paced economic
development have increased the volume of exports and imports to and from the country, thus creating a
pressing need for better infrastructure between ports and inland. Vietnam has a total road network of
222,000km – the 20th largest globally – although only 19% of it is paved, indicating the poor condition of
road infrastructure in the country. It should be noted the 10 years preceding 2010, large-scale projects
have been implemented and more are under way or in the pipeline; therefore, the ratio of paved to
unpaved is improving. Vietnam’s Ministry of Transport and Communications has disclosed estimates that
it will require close to US$60bn in the period up to 2020, to fund road infrastructure projects.
The ports sector is also seeing a good deal of activity in transport infrastructure. A.P Moller-Maersk
Terminals (APM Terminals), a global port operator, signed a new joint venture (JV) agreement in late-
September 2009 with Vinalines, a unit of Vietnam's shipping line and terminal operator Vietnamese
National Shipping Lines, to develop ports in the country. The JV will work on the development of
general cargo, container terminals and transhipment hubs in Vietnam.
The government has ambitious plans to modernise and expand the country’s airport infrastructure, though
some, like the Long Thanh international airport, have been in the pipeline for years with little progress
being made. However, the government’s willingness to get projects off the ground provides grounds for
optimism. The Ministry of Transport announced in early May 2009 that it will upgrade and expand
Vietnam’s main airports. Plans include a new international airport in Phu Quoc, Long Thanh, Cam Ranh,
Chu Lai, Danang, and Hue. The Noi Bai airport in Hanoi will be expanded, as will the Cat Bi airport in
Haiphong.
In the maritime sector, activity has mainly been concentrated on boosting the capacity of the southern
economic zone, especially in the Thi Vai River area. Major global port operators with interests in the
region include Hutchison Port Holdings, Singapore’s PSA International, Saigon Port, Denmark’s
Vietnam Infrastructure Report Q2 2010
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Maersk and France’s Compagnie Maritime d'Affrètement-Compagnie Générale Maritime (CMA
CGM), all of which have been involved in the operations and development of major Vietnamese ports in
the Thi Vai River, in an effort to enter one of Asia’s most promising markets. Americanshipper.com
estimates that the amount invested in Vietnamese ports is close to US$4.5bn, and that up to eight new
terminals are under development at Vung Tau along an 'S-shaped channel', most of which are expected to
open in 2011. The river ports near Ho Chi Minh City, handle more than 70% of Vietnam's total maritime
container volume.
These investments are essential. The rankings of the ‘Global Competitiveness Report’ published by the
World Economic Forum annually highlight the weakness of the port sector infrastructure in Vietnam.
Though the country has 266 ports, the majority of maritime infrastructure is outdated and has barely any
support infrastructure to transport goods from the port to the rest of the country.
The Vietnam Japan Consulting joint venture (VJC), the company responsible for conducting the
feasibility studies for Vietnam's high-speed railway, has said that final estimated costs for the project are
US$55.8bn. This is an astronomical amount for one project and for the government’s coffers. The Saigon
Times cited estimates from the VJC that of the total required funding, US$35bn would come directly
from the state budget and government loans for the construction of the infrastructure, while the remainder
would come from the VJC and other developers and would pertain to costs relating to the acquisition of
land and setting up of facilities. The final plan will be submitted to the annual National Assembly meeting
in December 2009.
Table: Ports Are The Weakest Link: Quality Of Infrastructure Global Ranking Out Of 134 Countries
Overall Infrastructure Rank 97
Quality of roads 102
Quality of railroads 66
Quality of port infrastructure 112
Quality of air transport infrastructure 92
Quality of electricity supply 104
Source: The Global Competitiveness Report 2008-2009. Rank above 90 denotes disadvantage for the country
Vietnam Infrastructure Report Q2 2010
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Table: Vietnam Railway Corporation’s Main Targets
Upgrading north-south railway route and improving the running speed of passenger trains and freight trains to 100-120kph and 100kph respectively.
Upgrading west-east railway corridor so that the maximum speed of passenger trains and freight trains is 80-100kph and 60-80kph respectively.
Paying more attention to the development of new routes between Ho Chi Minh city-Vung Tau, H Chi Minh city-Can Tho, Thap Cham-DaLat, Yen Bai-Tuyen Quang-Bac Thai, Lien Chieu-Dung Quat, etc.
Carrying out surveys and preparing to link the railway network to Singapore-Kunming route aimed at fulfilling missing links such as Ho Chi Minh city-Phnompenh city and Cambodia-Vietnam
Source: Vietnam Railways
The two major urban centres, Hanoi and Ho Chi Minh (HCM) City are also seeking increased
investments in their infrastructure sectors. HCM City officials estimate that the city will need a massive
US$15bn of investments in the transport infrastructure sector to 2020. Construction of the urban railway
project in Hanoi is due to start in early 2009. At the same time, HCM City has announced plans for a
US$2bn injection into transport projects in the same year in order to stimulate the construction industry
and in turn boost economic growth.
Major Projects – New and Ongoing Projects
Airports
In December 2010, US-based Rockingham Asset Management submitted construction plans for the Van Don
international airport. The US$1.2bn project will be carried out on a build-operate-transfer (BOT) basis, and the
airport is expected to become operational in 2014. Its control will be transferred to Vietnamese authorities in
2048.
In November 2010, the Quang Nam province in Vietnam sought a new investor for its delayed Chu Lai
international airport project. Spanish project management and consulting firm Garuda Group had signed a
memorandum of understanding (MoU) in April 2009, for carrying out a feasibility study for the airport, which
it has failed to complete. US-based Airis International Holdings (Airis) has expressed its interest in
developing the airport. Airis has also recently submitted a new investment plan for the development of Chu Lai
airport.
Airports
Q1 2010 In September 2009, the deputy prime minister of Vietnam, Hoang Trung Hai, instructed Southern
Airports Corporation to come up with a plan for constructing the Long Thanh international airport, in
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Airports
Dong Nai Province, according to a report in Intellasia. The airport will be built on a 50km2 area. The
airport will have the capacity to handle nearly 100mn passengers annually. According to previous
estimates, cost could reach US$6bn.
In July 2009, the Prime Minister of Vietnam, Nguyễn Tấn Dũng, gave the go-ahead for the planned
VND10.52trn (US$590mn) upgrade for Cam Ranh International Airport, reported Intellasia. The
upgrade will enable the airport to handle 27 aircraft during peak hours, and to receive 5.5mn
passengers and nearly 100,000 tonnes of cargo per year by 2020.
Q2 2009 Following the opening of a new regional office in Vietnam in early April 2009, the Spanish project
management and consulting firm Garuda Asea Co. signed a memorandum of understanding with US-
based Airis International Holdings and the regional government of the Quang Nam Province, to
conduct a feasibility study for the construction of the Chu Lai International Airport. Estimated costs
are US$1bn.
Ports
In January 2010, the Vietnam Seaport Development Master Plan was approved. The project will require a total
investment of VND360-440trn (US$19.5-23.8bn) by 2020. The plan aims to increase the transportation
capacity of the country by 500-600mn tonnes of goods by 2015, 900-1,000mn tonnes by 2020 and 2,100mn
tonnes by 2030. The primary focus of the plan will be the international transit port Van Phong in Khanh Hoa
Province, development of a Lach Huyen seaport complex in Hai Phong, and a seaport at the Nghi Son oil
refinery from now to 2015.
In November 2009, Vietnam started building the Van Phong port in the province of Khanh Hoa. The
international container port, costing US$3.6bn, is intended to accelerate economic development in the region.
The port, which will have 42 wharves, will have an annual capacity to handle up to 200mn tonnes of cargo.
The port is expected to be operational in 2020.
In November 2009, Vietnam National Shipping Lines (Vinalines) started work on the development of an
international transhipment port complex in Van Phong Bay in the Khanh Hoa Province in Vietnam. Vinalines
has started the construction of the first two wharves as part of the first phase of construction, involving an
investment of VND4trn (US$250mn). The wharves, with a total length of 650m are scheduled to be completed
by 2013. The first phase will be carried out from 2010 to 2015.
In October 2009, Japan's largest shipping company, Mitsui OSK Line (MOL) announced it would set up a
terminal operation company to build and manage a new container terminal at Cai Mep in Vietnam's Vung Tau
Province.
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In October 2009, Indian developer and operator of Mundra Port, Mundra Port and Special Economic Zone,
was in discussions with the Vietnamese government to construct a port in Vietnam. The port will cater for iron
ore and coal shipments. Mundra Port director, Rajeeva Sinha, has said that the company is planning to set up at
least one port in the region in the next three to four years.
Ports
Q1 2010 In September 2009, Taiwan's Formosa Plastics Group said it is hoping the port of Son Duong will
become the largest deep-sea port in Southeast Asia. The company is planning the construction of the
port, which has an estimated cost of US$1.2bn, and it is designed to accommodate vessels with a
capacity of between 200,000 and 400,000 deadweight tonnes (DWT).
In August 2009, the general director of Vietnam-based company Gemadept Joint Stock (GMD) said
that the company will start work on two port projects – Cai Mep deep-water port and Le Loi Plaza – in
Q110, reported Intellasia. In line with its plans, GMD has established Gemadept-Terminal Link Joint
Stock Company – a joint venture between GMD and its Egypt-based partner Terminal Link, a unit of
shipping group CMA CGM – to carry out the work on the projects. GMD has contributed US$39.5mn
in the form of land for the Cai Mep port project. The project will be funded by local banks.
In August 2009, the Japanese International Cooperation Agency and Vietnam's Ministry of
Transportation decided to apply the PPP model to the Hai Phong International gateway port. The first
phase of the project will be financed by official development assistance (ODA) loans of US$260mn
from the Japanese government. US$165mn will be invested by Vietnam-based shipping company
Vietnam National Shipping Lines (Vinalines) in the construction of two container harbours.
The second phase of the Cai Cui seaport project in Can Tho city in Vietnam started on July 11 2009.
The second stage construction will include 500m-long wharves, modern handling facilities and a
logistic area worth VND600bn (US$34.3mn), and is scheduled to be complete by 2015. The Prime
Minister, Nguyen Tan Dung, stated that the port will help in reducing transportation costs in the
Mekong delta and ease overloading at Saigon port.
Q2 2009 Phase one of Tan Cang Cai Mep deep water port commenced operations on June 3 2009 in
Vietnam's Ba Ria-Vung Tau province. This is Vietnam’s first deep-water port, and is being developed
in a joint venture between Saigon Port and PSA International. The port has the capacity to handle
1.1mn twenty-foot equivalent units (TEUs) annually and can accommodate vessels of up to
80,000dwt. The first phase of the project cost a total of US$240mn.
In May 2009, construction started on the Saigon-Hiep Phuoc port, in HCM City. The total estimated
cost of the new port is US$337mn. It should be noted that according to local press sources, there is
still not a road leading to the port.
In April 2009, HCM City-based company Trai Thien Sea Transport Investment and Development
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Ports
Joint Stock Company acquired a licence to construct a deep-water international transhipment port in
Con Dao island, situated in Ba Ria Vung Tau province. The total cost for the port project is estimated
at US$300mn. The new Con Dao port will be extended to 300 hectares (ha) to expand its capacity to
handle heavy tonnage ships. The total load capacity will be 10mn tonnes every year.
In April 2009, Deputy Director Duong Van Hoa announced that Vietnam National Coal-Mineral
Industries Group (Vinacomin) will build a US$250mn deepwater port at Khe Ga Cape, in Binh Thuan
province. Khe Ga Seaport will be utilised to import coal and export aluminium and minerals. The port
will be able to handle ships up to 80,000DWT.
Roads
In December 2009, bidding began for the A7 section of the Noi Bai-Lao Cai expressway project. The first
phase of the bidding package includes construction work on a road with total length of 26.7km. The winning
bidder for the package was China-based Guangxi Road and Bridge Construction, with a contract price of
VND1.6trn (US$86.6mn). Construction is expected to take 38 months.
In December 2009 Netherlands-based engineering firm DHV was awarded a US$100mn contract for work on a
250km stretch of Vietnam's Mekong River. The project will involve deepening and widening the river as well
as constructing 18 bridges and a new lock to ease transport.
In December 2009, Czech Republic-based Komerční Banka (KB Bank) moved forward with loans for the
Hanoi-Hai Phong highway construction project in Vietnam and approval for Vietnam Development Bank
(VDB) to secure 10-year loans from KB Bank for the project. The highway project involves construction of a
105.5km-long expressway, six lanes and road surfacing. Along the highway, two sudden-stop lanes, six
intersections, nine large bridges, 21 medium bridges and 22 overhead bridges will also be built.
In November 2009, the Vietnamese Transport Ministry started work on a 61.3km-long four-lane expressway
that will connect Thai Nguyen, Bac Ninh and Hanoi,. The expressway is expected to ease the traffic on
National Highway 3 and facilitate the growth of trade between Hanoi and other northern parts of the country.
The project also includes construction of six junctions, 29 bridges and other facilities. The Japan
International Cooperation Agency (JICA) will provide a VND6.1trn (US$338.89mn) loan for the VND8.1trn
(US$450mn) project, which is scheduled to be completed by 2013.
In November 2009, Vietnamese expressway development company Bidv Expressway Development
Company (BEDC) received approval from the Tine Giang provincial People's Committee for the construction
of an expressway in the country. This will enable BEDC to begin construction of the Trung Luong-My Thuan
Vietnam Infrastructure Report Q2 2010
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section of the expressway. BEDC will invest US$1.8bn in constructing the 82km-long Trung Luong-My
Thuan-Can Tho expressway project.
In November 2009, the Vietnamese road authority signed a build-operate-transfer (BOT) contract with local
company Bien Hoa-Vung Tau Expressway Development (BVEC) for the expansion of National Highway
51. The national highway, linking the provinces of Dong Nai and Ba Ria-Vung Tau, will be expanded to 32.9m
in width. The project also includes expansion of 10 bridges and construction of 12 new bridges. The project
will require an investment of VND3.31trn (US$185.36mn), out of which 10% will be provided by investors,
with the rest to be contributed by commercial loans.
In November 2009, Thang Long project management unit (PMU) launched a tender inviting bids for the
second phase of the Hanoi Ringroad 3 project. The project, which will require an estimated investment of
VND5.6trn (US$313.64mn), involves construction of the first double-decker road in Vietnam. The winner of
the tender will be responsible for construction of an 8.9km urban expressway from Thanh Xuan to northern
Linh Dam Lake.
Roads
Q1 2010 In October 2009, construction started on the first 55km stretch of the North South Highway. This
section will begin in HCMC, and go via the still-in-planning Long Thanh international airport to Dau
Giay. The section will be completed in 2013.
In August 2009, the vice-chairman of the southern Vietnamese province of Ba Ria-Vung approved a
plan for the construction of a major road artery that will link the ports and industrial zones in the area.
According to the plan, the road will be built in two phases. The first phase pertains to the construction
of an 8.3km road and five bridges, but no specific route has been announced. Construction will start
during the fourth quarter of 2009 and be completed by 2012. The second phase will start construction
in 2012 and be completed in 2015 and pertains to the construction of a 3.2km road and a bridge. The
total estimated cost of the project is VND6.3trn (US$350mn). The Department of Transport will own
the new road. Initial plans called for the construction of an inter-port road system to begin from the
lower Cai Mep container port, pass through the Tan Thanh District and finish at the Phuoc An Port,
the Saigon Times reports.
In August 2009, Danish construction firm MT Højgaard was awarded a contract to construct a road
bridge in Haiphong city, in Vietnam. The 240m long cable-suspended bridge will have six lanes. The
construction of the bridge is expected to start in September 2009 and is likely to be completed in the
next 21 months. The project will be funded by the Finnish government.
In August 2009, Japanese construction companies Ishikawajima-Harima Heavy Industries (IHI) and
Mitsubishi Construction jointly won an order for the construction of a bridge worth JPY40bn
(US$423mn) from the government of Vietnam, reports Nikkei English News. The two companies will
Vietnam Infrastructure Report Q2 2010
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Roads
be responsible for the construction of a section of the Nhat Tan bridge in Hanoi, Vietnam.
In August 2009, Vietnamese joint stock company Becamex IDC Corporation started construction
work on the My Phuoc-Tan Van Expressway project in Binh Duong province in partnership with the
provincial government. The cost of the project is VND3.5trn (US$196.6mn), out of which VND1.7trn
(US$95.5mn) was contributed by the provincial government. The work includes construction of a
30km expressway with six lanes and 18 bridges. The expressway will link industrial areas in Ben Cat,
Thuan An and Di An communes; Thu Dau Mot town; Dong Nai and Binh Duong to HCM City
container port and Long Thanh international port. The project is scheduled to be completed in 2013.
Q3 2009 In early July 2009, the Ministry of Transport disclosed that the second phase of the ring road number
three project in Hanoi will be launched by the end of 2009. Total cost for the second phase, that will
see the ring road extend for 9km, will be VND5trn (US$280mn).
Construction is due to commence in July on a 21km highway linking Hanoi to Van Giang, in
neighbouring Hung Yen province. The total estimated cost of the project is VND380bn (US$22.5mn).
The contract is a build and transfer contract and was awarded to Construction Machinery Corp. and
Thanh Nam Construction and Investment Joint Stock Company. Once the project is completed in two
years’ time, the companies will transfer ownership to Hanoi’s government.
Q2 2009 Vietnam's Ministry of Transport began work on a 121km-long expressway connecting Ninh Binh
province to Nghi Son on June 16. The construction of the expressway is part of a programme to
upgrade the north-south national road. Total investment in the project is forecast to be VND32trn
(US$1.9bn).
In June 2009, the Hanoi city People's Committee announced plans to invest VND881.6bn
(US$50.9mn) in a project to upgrade the 1A National Highway, from Ngoc Hoi to Cau Gie, in Thuong
Tin district and Phu Xuyen district. The Hanoi Department of Transportation has been given the
responsibility to carry out the project as part of its mandate to develop the transportation network, and
upgrade the route capacity.
In April, the Asian Development Bank (ADB) and the French Development Agency (AFD) offered a
financial grant of almost US$7mn to assist Vietnam in upgrading infrastructure facilities in three
districts. The fund will be utilised to construct 41km of rural road and for irrigation projects. The
projects are anticipated to commence in Q409.
Railways
In November 2009, a consortium formed from French construction company VINCI Construction Grands
Projets and French manufacturer LOHR Industrie signed an agreement for the construction of the first light
Vietnam Infrastructure Report Q2 2010
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railway line in Ho Chi Minh city in Vietnam. The project, with an estimated cost of EUR200mn (US$297.77),
involves design and construction of 12km railway line that will have a total of 23 stations.
In October 2009, the Ministry of Traffic and Transportation of Vietnam announced that seven Korean
investors, in association with the Transport Investment & Construction Consultant Joint Stock Company
(TRICC), will invest in and construct the 33.5km Hanoi urban metro line 5 and Nha Trang-Saigon section of
North-South high speed railway in Vietnam. The companies selected include Samsung, Daewoo, Ska, Kumho
and Kangnam.
Railways
Q1 2010 In October 2009, the Ministry of Traffic and Transportation of Vietnam announced that seven Korean
investors, in association Vietnam Railways, have been awarded a build, operate and transfer contract
for the construct of the 33.5km Hanoi urban metro line five and Nha Trang-Saigon section of North-
South high-speed railway in Vietnam. The contract is valued at US$1.2bn. The companies have
agreed to invest US$574mn for the first phase and US$653mn for the second phase. The companies
selected include Samsung, Daewoo, Ska, Kumho and Kangnam.
Q2 2009 The Railroad Management Board Region 2 in Vietnam announced in late June 2009 that the project
for upgrading the railroad between Vinh-Nha and Trang will be officially launched in Q309. The
upgrade on the railroad, with a total length of 700km, is expected to cost VND4trn (US$231.8mn).
In May 2009, the Vietnam Railways Administration and a Chinese railway corporation signed a
contract for an urban railway project in Hanoi worth more than US$350mn. Under the terms of the
agreement, the Chinese company will be responsible for the survey and design of the project as well
as providing equipment. The total investment in the project will be US$552.86mn, with China lending
85% of the amount, and the rest being contributed by the project owner, Vietnam Railways. The Cat
Linh-Ha Dong urban rail project in Hanoi is expected to be operational in 2014. The 13.5km route will
have a capacity of 28,500 passengers per hour in each direction. Construction was due to begin in
2009, but this has been pushed back.
In April 2009, the Vietnamese finance ministry approved VND499bn (US$30mn) to Vietnam Railway
Corp. to accelerate work on five of its vital projects, valued at VND11.6trn (US$670mn), in 2009. The
corporation plans to invest in the Hanoi-Lao Cai railway, the signal information system of Hanoi-Vinh
railway phase two, Vinh-Nha Trang railway line, Thong Nhat railway, and 44 bridges along with
Thong Nhat railway.
Vietnam Infrastructure Report Q2 2010
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Major Projects Table - Transport
Table: Vietnam – Major Transport Infrastructure Projects
Project Project Value
(US$mn) Company name(s) Timeframe Status
Airports
Cam Ranh International Airport 590 na na Project approved
Chu Lai International Airport 1000 Garuda Asea, Airis
International na MoU for feasibilty
study app
Phu Quoc Airport 970 Southern Airports
Corporation 2009-2012 Under Construction
Gio Linh District Airport 21.5 na 2009-2015 Approved in
February 2009
Noi Bai International Airport extension 852 (initial stage) na 2009-2020 At planning stage
Danang Airport passenger terminal 160
Louis Berger Group, Airport Consultants
B.V.and National Construction Consultants 2006-2010 Under Construction
New international airport in Long Thanh, Dong Nai province 6,000
Southern Airports Corporation 2009-2020
Geological survey underway
Ports
Con Dao transhipment port 300
Trai Thien Sea Transport Investment and
Development Joint Stock Company na Licence awarded
Cai Cui port project na na 2009-2015
Construciton of the second phase
underway
Hai Phong International port 425 Vinalines na At planning stage
Son Duong deep water port 1200 Formosa Plastics Group na At planning stage
Saigon- Hiep Phuoc port 337 na 2009- Under Construction
Dedicated box facility in Ba Ria-Vung Tau, in Cai Mep Port na
Mitsui OSK Lines (MOL), Hanjin and Wan Hai 2009-2011
SPV pending creation
Deep water Port at Khe Ga Cape, Binh Thuan Province 250 Vinacomin 2009- At planning stage
Saigon International Terminal, Phu My 1 Industrial Park 163
China Harbour Engineering Company 2009-2011 Under Construction
My Thuy deep water port 1,100 Marine Consultant Co. and
Quang Tri province na Approved in
October 2008
Cai Mep-Thi Vai International Port 700
Civil Engineering Construction Joint Stock
Co. No.6 and Truong Son na Phase I in operation/
Vietnam Infrastructure Report Q2 2010
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Table: Vietnam – Major Transport Infrastructure Projects
Project Project Value
(US$mn) Company name(s) Timeframe Status
Corp
Van Phong International Entreport 550 Vinalines na Seeking investors
Roads
My Phuoc- Tan Van Expressway 196.6 Becamex IDC Corporation 2009-2013 Under Construction
Ring Road No.3, Hanoi, Phase II 280 na 2009-
Construction due to begin by the end of
2009
Highway to link Cai Mep and Phuoc An ports 350 na 2009-2015
Construction of the first phase due to
commence in Q409
Ninh Binh- Nghi Son Highway na na 2009- Under construction
Hanoi- Van Ginag Highway 22.5
Construction Machinery Corp., Thanh Nam
Construction 2009-
2011/12
Construction due to commence in July
2009
Da Nang- Quanf Ngai exressway 2,480 na na
Government seeking finance
Nhat Tan Bridge, package No.3 423
IHI, Mitsubishi Construction na
Contract awarded in August 2009
Tran Thi Ly- Nguyen Van Troi bridge 86 na na
Approved in January 2009
New Highway (unspecified) 174.3 GS Engineering &
Construction na Contract awarded in
December 2008
Bypass of National Road No.1A extension 3.19
Vietnam Road Department and BOT Ninh
Thuan na
BOT contract agreed in
December
Ho Chi Minh City- National Highway 1 Expressway 932 na 2009-2014
ADB loan approved in March 2009
1A National Highway (Ngoc Hoi - Cau Gie section) 50.9 na At planning stage
Hanoi- Hai Phong 420 (Czech
Republic loan)
PSJ Holdings, Cienco 1 Company and Infrastructure
Development and Finance Investment Company na
Partnership agreement finalised in November 2008
Noi Bai- Lao Cai highway 1,100
VN Express, POSCo Engineering and
Construction (for part of it) na ADB loan approved
in October 2008
Mu Loi Bridge 88 na 2009-
2011/2012 Project approved in
September
Song Bung 4 access road 1.15 Cavico Corp. 2009- 2010 Construction due to
begin in 2009
Vietnam Infrastructure Report Q2 2010
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Table: Vietnam – Major Transport Infrastructure Projects
Project Project Value
(US$mn) Company name(s) Timeframe Status
Hanoi-Haiphong Highway 1,450 Transport Consultation and Design Company 2006-2010
First phase by 2009-10
Construction of a road connecting Tan Son Nhat International Airport with the Trans-Asia Highway 300
GS Engineering and Construction corp na At planning stage
Norht South Highway ( Ho Chi Minh City, Long Thanh and Dau Giay section) 1,180
Vietnam Express Highway Corporation (VEC) 2009-2013 Under Construction
Railways
Vinh-Nha Trang railway revamp 232
Railroad Management Board Region 2 2009-
Project to begin in Q309
Hanoi Metro Line 5 1200
Cat Linh-Ha Dong urban rail, Hanoi 552.8 Vietnam Railways 2009-2014
Start of construction delayed
Core projects of VRC 670 Vietnam Railway
Corporation (VRC) 2009
Finance Ministry approved US$30mn loan in March 2009
HCM- Na Trang railway
7,800 (total cross-country
express railway ) Chungsuk Engineering na At planning stage
Cat Linh-Ha Dong urban rail project in Hanoi 552 na 2009-2020
North South High Speed Railway 55,800 na -2035
final plan to be submitted in
December 2009
Lao Bao-Dong Ha railway na Giant Group na Approval pending
Construction of a double track rail line between Hanoi and the Ha Tinh province 9,200-10,100
Korean International Cooperation Agency
(Koica) na Feasibility studies being carried out
Construction of railway links with Cambodia and Laos 527.5
Vietnam Railway Department, China
Mechanical Equipment Import Export Corporation
and China Railway Construction Corporation na At planning stage
Saigon My Tho Railway 444.7 Vietnam Railway
Corporation (VRC) 2010-2015 At design stage
Note: Some of the projects in the table are from BMI's 2008 Vietnam quarterly reports, where they can be also be found analytically. na= not available. Source: BMI
Vietnam Infrastructure Report Q2 2010
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Energy and Utilities Infrastructure
Table: Energy & Utilities Infrastructure Industry Data
2007 2008 2009f 2010f 2011f 2012f 2013f 2014f
Energy and Utilties Infrastructure Industry Value, As % Of Total Infrastructure 40.50 36.40 37.22 32.88 30.34 28.72 27.54 26.66
Energy And Utilities Infrastructure Industry Value, VNDbn 13699.2 15966.7 15844.8 19597.4 23397.0 27267.0 31421.4 35780.4
Energy and Utilities Infrastructure Industry Value, US$bn 0.85 0.97 0.89 1.05 1.25 1.49 1.77 2.07
Energy and Utilties Infrastructure Industry Value Real Growth (%) 3.85 -6.45 -7.76 14.68 12.89 10.54 9.24 8.37
Energy and Utilties Infrastructure Industry Value, As % Of Total Construction (%) 17.21 16.64 16.70 15.54 14.83 14.35 13.99 13.72
Power Plants and Transmission Grids Infrastructure Industry Value, As % Of Total Energy and Utilities 95.00 95.00 95.03 94.17 93.57 93.14 92.79 92.51
Power Plants and Transmission Grids Infrastructure Industry Value, VNDbn 13013.8 15168.3 15057.6 18454.1 21893.1 25395.7 29155.8 33101.0
Power Plants and Transmission Grids Infrastructure Industry Value, US$bn 0.81 0.92 0.85 0.99 1.17 1.39 1.64 1.92
Power Plants And Transmission Grids Infrastructure Industry Value Real Growth (%) 2.10 -6.44 -7.73 13.56 12.14 10.00 8.81 8.03
Power Plants and Transmission Grids Infrastructure Industry, As % Of Total Infrastructure 38.47 34.58 35.37 30.96 28.39 26.75 25.55 24.67
Power Plants And Transmission Grids Infrastructure Industry, As % Of Total Construction 16.35 15.81 15.87 14.63 13.88 13.37 12.98 12.69
Vietnam Infrastructure Report Q2 2010
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Table: Energy & Utilities Infrastructure Industry Data
2007 2008 2009f 2010f 2011f 2012f 2013f 2014f
Water Infrastructure Industry Value As % Of Total Energy and Utilities 5.00 5.00 4.97 5.83 6.43 6.86 7.21 7.49
Water Infrastructure Industry Value, VNDbn 685.34 798.78 787.16 1143.34 1503.98 1871.30 2265.62 2679.36
Water Infrastructure Industry Value, US$bn 0.04 0.05 0.04 0.06 0.08 0.10 0.13 0.16
Water Infrastructure Industry Value Real Growth (%) 52.27 -6.45 -8.46 36.25 25.04 18.42 15.07 12.76
Water Infrastructure Industry, As % of Total Infrastructure 2.03 1.82 1.85 1.92 1.95 1.97 1.99 2.00
Water Infrastructure Industry, As % of Total Construction 0.86 0.83 0.83 0.91 0.95 0.99 1.01 1.03
e/f= BMI estimate/forecast. Source: BMI Calculation
Energy and Utilities Infrastructure Forecast Scenario
According to our forecasts, the energy
and utilities sector will witness a steady
decline in its share of total infrastructure
industry value. Though the value of the
energy and utilities sector will increase in
the coming years and real growth will
average 11.1% annually between 2010
and 2014, the investments in the transport
sector will increasingly overshadow those
in energy and utilities. This is mainly due
to the fact that while investments in
energy remain on a stable rate over the
coming years, we anticipate investments
in transport infrastructure to accelerate
quite significantly particularly in the rail and port sectors.
Energy And Utilities Infrastructure Industry Value, VNDbn
0.0
1.0
2.0
3.0
4.0
5.0
2008e 2009f 2010f 2011f 2012f 2013f 2014f
05
101520
2530
3540
Energy And Utilities Inf rastructure Industry Value,VNDbn LHSEnergy and Utilties Inf rastructure Industry Value As% Of Total Inf rastructure RHS
e=estimate, f=forecast. Source:EIA, BMI
Vietnam Infrastructure Report Q2 2010
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Energy and Utilities Infrastructure Overview
Hydropower provides a quarter of Vietnam’s electricity needs and although it is an important source, coal
has also gained popularity as a power generation source. There is a stable stream of investments into
increasing hydropower capacity, particularly as the Asian coal market is becoming strained and Chinese
demand is pushing up prices.
Vietnamese Prime Minister Nguyen Tan Dung announced in early March 2009 that Electricity of
Vietnam (EVN) will not be permitted to spend money in non-core fields. According to the prime
minister, EVN has to focus its attention on ensuring the power supply in the country. The utility needs to
take steps to avoid an electricity shortage in 2009 as well as subsequent years.
Nevertheless, in a statement contradicting earlier cited concerns regarding financing, Electricity of
Vietnam disclosed in January 2009 that it is planning to spend VND49.99trn (US$3.03bn) on power
projects in 2009. Of the total, VND42.45trn (US$2.42bn) has been earmarked for net investments in the
projects, VND6.50trn (US$.37bn) will be used for payment of debts, while VND1.04trn (US$0.06bn) is
expected to be used towards development and investment in joint stock companies. In late January 2009,
Vietnamese media reported that EVN had managed to raise US$28.6mn from a corporate bond offer.
EVN is aiming to run nine power projects comprising hydropower and thermo power plants in 2009. The
total capacity of the projects is expected to be 2,696 megawatts (MW).
Keen to see the power generation sector grow, Vietnam's ministry of industry and trade said that plans for
the development of the 13 power projects that were rejected by the state-owned utilities company EVN
have been finalised – the plans will now be submitted to the government for consideration. Under the
latest plans, EVN will instead invest in two projects with an overall capacity of 2,000MW, and the rest of
the projects will be financed by investors. It should be noted that the challenges faced by EVN in the
domestic credit market will be similar, if not greater, for the private sector. The private sector will need to
face the additional challenge of red tape and negotiate pricing and distribution contracts with EVN (since
EVN has a monopoly over distribution), a process that itself is reportedly strenuous for investors.
Vietnam Infrastructure Report Q2 2010
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The government strictly regulates
electricity retail prices, with adjustments
recommended by the ministry of the
interior and requiring approval by the
prime minister. A unified tariff is
applicable across the country and is
considered rather low in comparison with
other regional countries. That is a further
reason why investors may decide against
major investments in Vietnam’s power
sector, a factor that has also filtered
through to our new project finance
ratings when assessing price risks to the
energy and utilities sector.
There may be a silver lining, even as the situation deteriorates. The plea by EVN to increase private
participation or risk a chronic structural problem in the power market may induce the government to
speed up its liberalisation programme of the electricity sector. This would break the monopoly of EVN in
the distribution side of the market earlier than the planned 2022 date, therefore allowing electricity tariffs
to fluctuate. We believe that investor demand is indeed high for the utilities market in Vietnam, as the
rapid economic growth of the economy has created very high demand. However, private investments
have been limited due to the bureaucratic obstacles and rigidity of the internal market. Addressing those
two issues is clearly within the government’s reach. If addressed, this could boost activity in the market
and help mitigate some of the risks that the overreliance on EVN’s investment programme places on
future growth.
Indeed, the first ever public private partnership (PPP) in Vietnam's power generation sector gained
momentum in May 2009. Malaysia's JAKS Resources reportedly signed a memorandum of
understanding (MoU) with the Vietnamese government for the construction and operation of the Hai
Duong thermal power station. This is a significant milestone for Vietnam. It further indicates that
opportunities to fill the investment gap left by state-owned EVN are proliferating for independent power
producers (IPPs).
The regulatory framework for establishing PPPs in Vietnam, however, remains opaque. According to the
Hai Duong's planning and investment department head, the BOO contract was pursued under the
regulations of Decree 78, passed in 2005. Decree 78 is perhaps the only bit of legislation at the moment
governing PPPs in Vietnam. The thin legal framework is an obstacle to the development of PPPs in the
country as investors feel more exposed to an uncertain business environment. The Hai Duong project will
be a litmus test for the IPPs in Vietnam's utilities sector.
Fuel As % Of Electricity Generation
2009f
Coal16%
Oil1%
Hydro44%
Natural Gas39%
f=forecast. Source: EIA, BMI
Vietnam Infrastructure Report Q2 2010
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Vietnam has also taken the first step towards ratifying a decision to build two nuclear power plants in the
country. The National Assembly has approved the resolution calling for the construction of the plants and
now, pending further clarification, the resolution will be submitted to Prime Minister, Nguyen Tan Dung,
for final approval.
The resolution estimates that the cost of construction of the plants will be approximately VND200trn
(US$10.8bn). The plants could be located in the province of Ninh Thuan and each will have capacity of
2gigawatts (GW). Despite concerns over Vietnam’s readiness to adopt nuclear power, the country is at a
more advanced stage than other developing countries in its preparations. The country already has
cooperation agreements in place with South Korea, Japan, US, Canada, China and France.
China Guangdong Nuclear Power Group (CGNPC), the second largest nuclear power plant
construction company in China, has agreed to help Vietnam develop its first nuclear reactor. The
proposed plans include the construction of a 2,000 megawatts (MW) power plant in Ninh Thuan
Province. A report on developing nuclear power in the country will be submitted to the National
Assembly for approval in April 2009.
Vietnam's nuclear ambitions stretch back to the 1980s when the country first studied developing the
technology. In 2006, the government announced plans to develop 2,000MW of nuclear generating
capacity, with construction due to start in 2014, and expected to take around five years.
Table: The Three Levels Of Liberalising Vietnam’s Electricity Market
Level one (2005-2014): A competitive generation power market will replace the current monopoly and subsidised power situation.
Level two (2015-2022): The establishment of a competitive wholesale power market.
Level three (after 2022): The realisation of a competitive electricity retail market.
Power shortages are never far off in Vietnam, and the government has repeatedly stressed its plans to
mitigate the county’s power problems through investments and the liberalisation of the market. According
to the Power Development Master Plan for Vietnam, over the period 2006 to 2025 the electricity sector
needs total investment of approximately US$79.9bn. Around US$52bn of this amount will be invested in
power generation, and the rest in the electricity transmission and distribution network. The government
has plans to increase Vietnam’s total installed generating capacity to 81GW by 2020.
In November 2008, the World Bank approved a loan of US$150mn for rural electrification expansion
projects. According to statements, 1,800 households have been connecting to the grid every year over the
last decade, a figure that highlights the proliferation of demand for electricity beyond the urban areas and
into the country side. This project will target the expansion of distribution systems.
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The industry and trade ministry forecast that electricity demand would increase by 15% in 2009 if the
economy grows by 7%. However, the expected slowdown in economic activity will curb demand for
2009, thus providing some much needed breathing space for power generation sector.
Major Projects – New and Ongoing Projects
Power Plants
In January 2010, Toyo Ink, announced that it is considering a rights issue to raise money for the proposed
coal-fired thermo-electric plant in Vietnam. The company is also studying other options to finance the
construction of the power plant, which is pending approval from the Vietnamese prime minister's office. The
power plant, costing of US$2.5bn, will be located at Duyen Hai 3 in Tra Vinh Province.
In November 2009, Japanese trading house Sumitomo Corporation signed a memorandum of understanding
(MoU) with the government of Vietnam for the construction and operation of a multi-billion-dollar coal-fired
power plant. According to the terms of the MoU, Sumitomo will hire local contractor Hanoi Investment
Industrial Construction Joint Stock Co. (Hanoinco) to build the power plant, which will be fitted with next-
generation technology to minimise emissions. The plant will have a capacity of 1,320MW and the estimated
cost is JPY200bn (US$2.5bn.
In October 2009, Chinese equipment manufacturer Shanghai Electric Corporation (SEC) was awarded a
US$1.38bn contract by the Vietnamese state-owned utility Electricity Group of Vietnam (EVN) to construct
a thermal power plant in Binh Thuan province of Vietnam. Under the terms of the contract, SEC will provide
engineering, procurement and construction services for the 1,244MW coal-fired Vinh Tan 2 plant. The power
plant, scheduled to come online in 2013, will supply electricity to the country's southern region.
In October, Vietnam-based utility Vinh Son-Song Hinh Hydropower JSC (VSH) started construction work
on the 220MW Thuong Kon Tum hydropower plant in the Kon Tum region of the country, reports the Saigon
Times. The plant will have a reservoir, an 18km-long water tunnel and two turbines. The plant, with a capital
investment exceeding VND5.7trn (US$322mn), is expected to generate 1.1bn kWh of electricity annually by
2014.
Power Plants and Transmission Grids
Q1 2010 In October 2009, Vietnam-based utility Vinh Son-Song Hinh Hydropower JSC (VSH) started
construction work on the 220MW Thuong Kon Tum hydropower plant in the Kon Tum region of the
country. The plant will have a reservoir, an 18km-long water tunnel and two turbines. The plant, with
a capital investment exceeding VND5.7trn (US$322mn), is expected to generate 1.1bn KWh of
electricity annually by 2014.
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Power Plants and Transmission Grids
In September 2009, the Development Bank of Vietnam (BDV), the Bank for Investment and
Development of Vietnam (Bidv) and the Vietnam-Russia joint venture Bank (VRB) agreed to a loan of
VND1.37trn (US$76.57mn) to fund the construction of the Dong Nai 2 hydropower plant project in
Lam Dong province in Vietnam. The total cost of the 70MW plant is VND1.95trn (US$109.19mn), and
Trung Nam hydropower Joint Stock is the main investor in the project.
In September 2009, the Asian Development Bank (ADB) approved a loan of US$151mn to Vietnam
to support the construction of hydropower plants in rural areas. The loan will be used for the
construction of five to 10 grid-connected mini-hydropower plants, with a combined capacity of
100MW. The hydropower plants are expected to be completed by 2015. The loan will cover 76% of
the cost of the US$197.6mn project, while the remainder will be contributed by the government.
In August 2009, the Bank for Investment and Development of Vietnam (Bidv) signed a credit contract
with Nam Muc Hydropower Joint Stock Company for VND1tn (US$58.5mn) for the construction of the
44MW Nam Muc hydropower plant, in Muong Mun. The plant is expected to generate 176mn KWh of
electricity annually and is scheduled to become operational by 2011.
In August 2009, Japanese companies Sojitz and Toshiba were jointly awarded a JPY11bn
(US$115mn) order by Vietnamese state-owned company Vietnam Construction and Machinery
Installation (LILAMA) to supply two 600MW steam-turbine generators for the Vung Ang 1 coal-fired
thermal plant, located in Ha Tinh Province of Vietnam. The turbine generators are expected to be
delivered in phases by November 2011 and the power plant is expected to become operational in
2012.
Q3 2009 In July, the Vietnam National Coal and Mineral Industries Group (Vinacomin) commenced
construction of the Mao Khe thermoelectric plant in northern Quang Ninh province, in Vietnam. The
cost of the plant is US$577mn and it is scheduled to become operational in 2012, two years behind
schedule. Vinacomin has signed an engineering project management construction contract worth
US$429.5mn with China's Wuhan Kaidi Electric Power.
Q2 2009 In late-June 2009, construction started on the 750MW Nhon Trach Power Plant No. 2 in Dong Nai
Province. The project’s estimated cost is US$700mn. Viet Nam National Oil and Gas Group
(PetroVietnam) is investing 51% in this project and the rest will be funded by Electricity of Viet Nam
(EVN), Viet Nam Post and Telecommunications Group, Viet Nam National Coal and Mineral
Industries Group, Bank for Investment and Development, and Technology Development Co. The
plant is expected to be finished in 30 months and will generate 4.5bn KWh of electricity annually.
Also in late June, the Prime Minister Nguyen Tan Dung gave preliminary approval to Tan Tao
Investment and Industry to be the main investor for two power plants in the Kine Luong district in
southern Vietnam. The Kien Luong 1 and the Kien Luong 2 will have capacity of 1,200MW and 1,200
Vietnam Infrastructure Report Q2 2010
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Power Plants and Transmission Grids
to 2,000MW respectively, and are planned to be operational by 2014. No cost estimates have been
released.
In June 2009, the World Bank and the State Bank of Vietnam singed a concessional credit
agreement for projects in the renewable energy sector in Vietnam. The total credit facility is for
US$202mn, and will come from the International Development Association (IDA). The total estimated
cost for the entire venture is US$316mn and in addition to the loan, the government, local banks and
project sponsors will also contribute towards financing. The funds will be disbursed over four years
and, according to one report, will be used to finance approximately 25 projects. According to the
credit facility's mandate three local banks, the Bank for Investment and Development of Vietnam,
Sacombank and Vietcombank, will have access to the credit facility and will arrange loans for projects
up to 30MW, which will be developed by private sponsors.
The Bank for Investment and Development of Vietnam (Bidv), in partnership with the Vietnam-Russia
Bank agreed to provide a loan of VND1trn (US$58.7mn) for the Van Chan hydroelectric power project
in Yen Bai. Under the contract, which was signed on June 11, Bidv will provide VND850bn
(US$49.9mn) while the Vietnam-Russia Bank will provide the remaining VND150bn (US$8.8mn). The
57MW power plant will be operational by 2011.
In May 2009, Malaysia's JAKS Resources singed an agreement with the government to build, own
and operate (BOO) the Hai Duong thermal power station. It will have capacity to produce 1200MW of
coal-generated electricity, with the coal supplied locally from Vinacomin, the state-owned coal
producer. Construction is due to commence in October 2010 and the plant will be operational in the
beginning of 2014. The plant will be located in the northern province of Hai Duong, in the Kinh Mon
district. The press reports cite the total estimated cost for the power plant at US$2bn. Regarding
financing, JAKS CEO, Chee Seong Heng, said in November 2008 that they were considering
fundraising through a rights issue and long-term financing arrangements.
In May 2009, the Hanoi-based infrastructure company Cavico Corp. announced that it had received
final authorisation by the Lam Dong provincial government for the development of an onshore wind
farm. The plant will be developed under a build, own and operate (BOO) basis. The total estimated
cost is US$56mn and Cavico will contribute 20% equity and raise the remainder in debt. Construction
is due to begin in the end of 2010 and be completed by 2012. Initial capacity will be 30MW. Given the
new World Bank facility for renewable projects (see bullet point above), we anticipate that this will be
one of the first projects to use the available funding.
In May 2009, PetroVietnam announced the beginning of construction of the Long Phu power complex
in Soc Trang province. The designed capacity of the Long Phu complex is expected to be 4,400MW.
The US$1.4bn Long Phu 1 power plant project includes construction of three coal-fired power plants
and other related infrastructure. PetroVietnam expects to start the operation of the first turbine with
Vietnam Infrastructure Report Q2 2010
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Power Plants and Transmission Grids
targeted capacity of 600MW at the end of 2013.
In May 2009, the government authorised plans to develop the A Luoi hydro-electric power plant,
which will be the largest hydroelectric power project in the Thua Thien-Hue province. The two-turbine
power plant is planned to have a capacity of 170MW, to generate 686.5mn KWh annually. The
overall investment estimated for the project is in excess of VND3.2trn (US$180mn). The project is
expected to become operational by the end of 2011.
EVN secured a syndicated loan from four domestic banks for the construction of the Huoi Quang
hydropower plant. The estimated cost of the project is VND11trn (US$617mn), and the loan is for
VND4trn (US$225mn). The banks that arranged the loan are Vietncombank (VND300bn), Agribank
(VND200bn), PVFCCo (VND450bn) and EVN (VND100bn). The hydropower plant will have capacity
of 520MW.
In late April 2009, a representative of Czech's KV Venti Group said in press conference in Hanoi that
the firm is seeking to establish a 100% foreign-owned enterprise for investments in Vietnam's wind
power sector. Initially, it will inject capital in south central and southern provinces of Ninh Thuan and
Binh Thuan.
In late April 2009, Intellasia reported that four commercial banks – Argibank, Bidv, Vietcombank and
PG Bank – have promised to jointly offer a syndicated credit of VND2.6trn (US$150mn) to Electricity
of Vietnam (EVN) for its Ban Chat hydropower project. Agribank will fund VND1.5trn (US$90mn) in a
loan term of 13 years. The 220MW Ban Chat power plant is one of EVN's vital projects in 2009 with
total cost estimated to be VND8.6trn (US$490mn).
In April 2009, Cavico secured a US$4.9mn construction contract from the Vietnamese state-owned
engineering firm Lilama. Under the contract, Cavico will construct a diversion tunnel and coffer dam
at the Hua Na hydropower plant. Once the plant is operational, it will generate 180MW of power and
will supply 706mn KWh of power annually. The construction of the plant will need a total investment
of about US$250mn.
In April 2009, the Asian Development Bank (ADB) approved US$151mn in loans to assist Vietnam
with the development of five to 10 mini-hydropower plants around the country.
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Pipelines
Oil and Gas Pipelines
Q1 2010 In October 2009, state-owned PetroVietnam reportedly decided to construct a second gas pipeline in
the Nam Côn Sơn Basin. The report quoted PetroVietnam's CEO Phùng Đình Thực, as saying, that
the second Nam Côn Sơn pipeline would supply power plants in Phu My.
Q2 2009 In mid-May 2009, PetroVietnam said it was preparing to launch the construction of the US$1bn block
B-O Mon gas pipeline in southern Can Tho City in Q409. The 406km gas pipeline comprises a 246km
offshore pipeline and a 160km onshore pipeline. The pipeline will link more than five Mekong Delta
localities, including Can Tho City, Hau Giang, Kien Giang, Bac Lieu and Ca Mau provinces. The
pipeline project is expected to be operational in July 2011. It will have a capacity of 5.8-6.6bcm and
would be constructed by Russo-Vietnamese joint venture (JV) Vietsovpetro.
Water
Water
Q1 2010 Engineering, consulting and construction company Black & Veatch has started work on the Central
Region Small and Medium Towns Development Project in Vietnam. The government of Vietnam and
Black & Veatch signed a contract wherein Black & Veatch will provide consulting services to the
government on the project. The project includes investments in water supply, wastewater and
drainage and solid waste infrastructure. The project is financed by the Asian Development Bank and
the government of Vietnam. It will be implemented over a period of five years.
Vietnam Infrastructure Report Q2 2010
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Major Projects Table – Energy and Utilities
Table: Vietnam – Major Energy and Utilities Infrastructure Projects
Project Project Value
(US$mn) Company name(s) Timeframe Status
Power Plants and Transmission Systems
Tunnel and coffer dam at the Hua Na hydropower plant 4.9
Cavico (EPC contractor) na
Contract awarded in April 2009
Nam Muc hydropower plant 58.5
Nam Muc Hydropower Joint
Stock Company 2009-2011
Credit agreement singed in August
2009
Dong Nai 2 hydropower plant 109
Trung Nam hydropower Joint
Stock na Loan agreement in
September 2009
Thuong Kon Tum hydropower plant 322
Vinh Son-Song Hinh Hydropower JSC 2009-2014
Mao Khe 577 Vinacomin/Wuhan
Kaidi Electric Power 2009-2012 Under Construction
Kien Luong 1&2 na
Tan Tao Investment and Industry (main
investor) -2014
Power plants due to be operational by
2014
Van Chan hydropower plant na na na
Loans for the project arranged in
May 2009
Hai Duong coal fired power plant 2,000 JAKS Resources 2010-2014
First utilities BOO contract in Vietnam
Lam Dong wind farm 56 Cavico 2010-2012
Official approval granted in May
2009
Long Phu power complex 1,400 PetroVietnam 2009-2013
First turbine expected online in
2013
A Luoi hydropower plant 180 na -2011
Official approval granted in May
2009
Huoi Quang hydropower plant 617 EVN na
Financing arranged in May 2009
Hua Na Hydropower plant 250 Lilama na na
Nhon Trach 2 power plant 524
Lilama, PetroVietnam Construction Joint
Stock Corporation(EPC contractors) and
Nhon Trach 2 Power Joint Stock Company na Under Construction
Vung Ang 1 power plant 1170
Petro Vietnam, Lilama (EPC
contractor) 2009 Construction due to begin in April 2009
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Table: Vietnam – Major Energy and Utilities Infrastructure Projects
Project Project Value
(US$mn) Company name(s) Timeframe Status
Ban Chat hydropower plant 490 EVN na
Argibank, Bidv, Vietcombank and
PG Bank syndicated loan of US$150mn, April
2009
the Song Giang 2 Hydropower project works 9.8 Cavico hydropower 2009-2010 Due for construction
Duyen Hai 2 coal-fired power plant 1,500 Janakuasa 2011-2015
Contract awarded in January
Mong Duong 2 1,400 AES Copr. na Contract expected
in 2009
Song Bung 4 hydropower 268 EVN na At planning stage
Binh Thuan coal-fired IPP na OneEnergy na
JV OneEnergy established in October 2008
Binh Thusan coal-fired power plants (Hai Phong 3) 3,000 Vinacomin na At planning stage
Dak Di 1&2 36
Cuu Long Power Engineering and
Consulting Co. 2009- Construction due to begin in early 2009
Construction of a 3,600MW thermal power plant in southern Vietnam 4,000 Ensham Resources 2008-2012 At planning stage
Construction of a 3,000MW coal fired power plant in the Tra Vinh province 3,000 Skoda Praha na Deal signed
Construction of the 1,000MW coal fired Mong Duong power plant in Quang Ninh 1,100
Electricity of Vietnam (EVN) 2008-2012 Loan approved
Oil and Gas Pipelines
B-O Mon natural gas pipeline 1,000 PetroVietnam 2009-2011
Construction likely to begin in Q309
Nam Côn Sơn 2 pipeline na PetroVietnam na At planning stage
Note: Some of the projects in the table are from BMI's 2008 Vietnam report, where they can be also be found analytically. na= not available. Source: BMI
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Business Environment
Vietnam Business Environment
In the BMI Business Environment Rating matrix, Vietnam receives an infrastructure rating of 50.7 out of
100, slightly below the regional average of 55.9, placing it seventh out of 14 in the Asia Pacific region.
This represents significant downside risk considering the scale of growth in the country. Corruption and
lack of necessary legal and regulatory frameworks both present issues. The components of its score are:
Limits Of Potential Returns
Vietnam’s score in this category is slightly higher than many than the regional avarage. This is indicative
of a dynamic market and reflects our view that Vietnam will continue to be one of the most active and
attractive infrastructure markets in the region. Construction expenditure rated poorly however scoring
only 2 out of 10. The risks to the market are to the upside, as gross fixed investments needed in road and
power infrastructure are estimated at US$140bn to 2020, and the number rises further when investments
in urban infrastructure systems, railways, ports and bridges are taken into account.
Country Structure
In terms of country structure components, which include financial market infrastructure and labour
market infrastructure, Vietnam’s rating well below the regional average. The predominant cause is a lack
of sufficient financial infrastructure. Lending in Vietnam is characterised by poor lending standards and
dominated by the four state-owned banks while access of foreign capital can be difficult. There are some
risks to the upside as the banking sectors enters a phase of privatisations.
Risk To Realisation Of Potential Returns
Market Risks
In terms of market risks, Vietnam again achieves among the lowest score in the region. This is indicative
of structural weaknesses in the infrastructure sector, which in turn pose long-term risks to investors. The
transparency of the tendering process is rated very poorly scoring only 3 out of 10. The competitiveness
in the infrastructure and construction sector remains limited and road building as well as the energy and
utilities sector is dominated by state owned firms. The ports and urban railways sector is where there is
the greatest level of foreign investor penetration in the infrastructure sector.
Country Risk
Corruption is prevalent in Vietnam resulting in poor scores within the country risk ratings. Investors see
official corruption as one of the biggest hindrances to running a business in Vietnam. Joint ventures with
state-owned enterprises are particularly prone to corruption and graft, though surveys indicate that while
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corruption affecting businesses is quite prevalent, the amounts involved are usually quite small. Rapid
economic growth provides opportunities for graft to grow more quickly than government systems evolve.
Vietnam scored 2.9 out of 10 BMI’s rating for corruption and also ranks poorly for its external risks and
legal framework.
Regional Overview
Asia Pacific Infrastructure Business Environment Ratings
There has been little change in the Asia Pacific infrastructure Business Environment Ratings this quarter.
China still retains the top spot, and Pakistan remains at the bottom, with its business environment leaving
much to be desired.
In Q210, we have introduced a new group of countries in BMI's infrastructure Business Environment
Ratings, encompassing all developed states for which we have ratings. This has been done in an attempt
to compare 'like-for-like' in terms of the business environment facing investors, specifically in terms of
the limits to potential returns and the risks to realisation of returns. We have used the definition of
developed states used by BMI's Country Risk team. Therefore the new Developed States group is made
up of Australia, the United States, Germany, the United Kingdom, France, Japan and Greece.
Consequently, from now on our Asia Pacific infrastructure Business Environment Ratings will no longer
include Japan and Australia.
BMI's Business Environment Ratings are compiled by looking at indicators that fall into two main
groups. First, limits to potential returns, which includes factors that show the potential of the market, for
example government investment and growth forecasts for the infrastructure market. Second is risk to
realisation of returns, which includes risks to investors, including corruption, policy continuing and
transparency.
Limits Of Potential Returns
Limits of potential returns takes into account the opportunities available for investing in infrastructure
through the infrastructure market indicator. Countries with large stimulus packages from which we have
already seen evidence of investment filtering though, such as China, score well here. For the more
developed countries with a high class of existing infrastructure, such as Singapore, the opposite is true.
The country structure sub-rating takes into account factors such as the availability and sophistication of
the labour market, the maturity of the financial services sector, and the levels of access to electricity.
In the Asia Pacific region, China presents the fewest limits to potential returns, with the highest score of
75.3 out of 100. The country scores in the 70s for both infrastructure market and country structure.
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Pakistan, on the other hand, has by far the weakest score, 27 out of 100, posing the most limits to
investors. The country also has the poorest score for country structure, and only manages to score 20 out
of 100 for infrastructure market, due to a small existing infrastructure market with limited potential for
growth over the mid term.
Notable scores in the infrastructure market also include Hong Kong and Malaysia, which both score just
27.5 out of 100, joint second lowest. Hong Kong's infrastructure market has been declining for some time,
undermining the positives of its country structure, which conversely scores the highest in the region.
Malaysia's infrastructure market has been stagnant for some time, and this is unlikely to change in the
near future, keeping the small market from getting any bigger.
India has the highest potential in terms of infrastructure market (85 out of 100), making up considerably
for its far below average country structure (48.9). This score is one of the few that has notably changed
from Q110, rising by 20 points, reflecting the country's continued commitment to infrastructure
development, the limited impact that the financial crisis has had on the sector, and future growth
potential. Because of these factors, India is fast catching up with China in terms of its overall limits to
potential returns for investors, with the second highest score in the region in Q210 of 72.4.
Risks To Realisation Of Returns
The risk to realisation of returns indicator assesses the level of risks inherent in countries' infrastructure
markets. The reverse is generally true when looking at which countries perform well here compared with
the limits of potential returns stage. More developed countries generally have more sophisticated financial
and legal frameworks and a higher level of transparency and policy continuity.
The highest score for risks to realisation of returns – therefore the country presenting the fewest risks to
an investor – is Singapore, with a near-perfect score of 92 out of 100. Once again, the lowest score
belongs to Pakistan, with 34.2, making it BMI's riskiest country in which to invest in Asia Pacific.
With a near-perfect score of 95 out of 100, Singapore posts the highest score for market risks in Asia
Pacific, and indeed the highest score of all the countries in BMI's infrastructure ratings. Singapore offers
infrastructure investors a highly transparent and competitive environment in which to do business. This is
matched by the highest score in the region for country risk, 89.9, due to exceptional scores for policy
continuity and external risk as well as no perceived corruption.
The spread of scores in this section is quite considerable. Only one country scores in the 90s (Singapore)
and only one in the 80s (Hong Kong). Indeed, the most popular group is scores below 50.
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Indonesia's score is the second lowest in the region, 41.8 out of 100; this is due to the region's lowest
score for market risks, making its infrastructure market the riskiest in which to be involved. There are few
companies active in the country, and the level of transparency in the tendering process leaves much to be
desired, with allegations of corruption at this stage common.
Three countries tie for second-last place in terms of market risks, with scores of 35 out of 100, bringing
the regional average for this indicator down to 55.8 out of 100. Philippines, Pakistan and Vietnam all
suffer from similar issues regarding the tendering process, which has come under much scrutiny in all
three. While Philippines and Vietnam have been keen to revamp their image and refine the tendering
process, a process that has perhaps been most successful in Vietnam, limited progress in this area is
expected anytime soon in Pakistan. The same can be said of the presence of competition in the market,
with Vietnam increasingly attracting large international companies, and Pakistan making no progress in
the right direction.
Infrastructure Business Environment Ratings - January 2010
Little has changed with the scores in Q210, with a few notable exceptions, and the rankings remain
largely unchanged bar some shuffling around in the middle section. The emerging economies of Asia are
still fraught with different levels of risks, whether political, operational or institutional, making the
development of effective public private partnerships (a necessary component to bridge the infrastructure
deficit) or broader private sector participation still somewhat challenging. Widespread corruption and
bureaucracy, as well as cumbersome tendering procedures, continue to act as deterrents for potential
investors.
China maintains its position at the top of the table with an overall score of 70.9 out of 100. Strong
potential in the infrastructure market due to the government's public works focused stimulus plan means
the country has one of the fastest growing infrastructure sectors globally. While the potential in China is
evident, the level of risk is higher than average (although only marginally). The dominant position of
large state-owned infrastructure firms is something to be aware of, especially as contracts from the
stimulus plans have favoured state-owned enterprises, which in turn enhances their dominant position in
the market.
With the absence of (previous second and third ranked) Japan and Australia, Singapore moves up to take
the second spot. With few risk for investors, the country offers a sound and stable investment destination;
however, its stagnant infrastructure sector means few opportunities to invest materialise. However, there
have been some signs of progress, with large projects in the pipeline. As these become more concrete, we
expect Singapore to cement its high-ranking position.
India has been the biggest mover this quarter, with its overall score growing by almost 10 points to 67.9
out of 100. India is fast catching up with China, especially in terms of market potential. Indeed, the gap in
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terms of both potential and risks is closing, indicating India's presence as one of the most dynamic
infrastructure markets in the region.
Pakistan remains at the bottom of the table, although with a marginally improved score of 29.2. However,
the significant risks facing an investor for little potential growth in return mean it remains unattractive as
an infrastructure investment destination.
Table: Asia Pacific Infrastructure Business Environment Ratings
Limits of Potential Returns Risks to realisation of returns
Infrastructure
Market Country
Structure Limits Market
Risks Country
Risk Risks Infrastructure
BE Rating Regional Ranking
China 77.5 71.3 75.3 50.0 67.7 60.6 70.9 1
Singapore 45.0 84.4 58.8 95.0 89.9 92.0 68.7 2
South Korea 57.5 80.3 65.5 75.0 75.2 75.1 68.4 3
India 85.0 48.9 72.4 50.0 62.3 57.4 67.9 4
Hong Kong 27.5 84.8 47.6 85.0 77.2 80.3 57.4 5
Taiwan 32.5 71.2 46.1 75.0 74.5 74.7 54.6 6
Vietnam 60.0 42.3 53.8 35.0 49.2 43.5 50.7 7
Thailand 30.0 75.7 46.0 55.0 62.5 59.5 50.1 8
Indonesia 57.5 45.9 53.4 24.0 53.7 41.8 49.9 9
Malaysia 27.5 71.5 42.9 55.0 73.5 66.1 49.9 10
Philippines 35.0 52.3 41.1 35.0 51.4 44.8 42.2 11
Pakistan 20.0 40.1 27.0 35.0 33.6 34.2 29.2 12
Regional Average 46.3 64.1 52.5 55.8 64.2 60.8 55.0
Source: BMI. Scores out of 100, with 100 highest. The Infrastructure BE Rating is the principal rating. It is comprised of two sub-ratings 'Limits of Potential Returns' and 'Risks to realisation of returns', which have a 70% and 30% weighting respectively. In turn, the 'Limits' Rating is comprised of Infrastructure Market and Country Structure, which have a 65% and 35% weighting respectively and are based upon growth/size of the Infrastructure industry (Market) and the broader economic/socio-demographic environment (Country). The 'Risks' rating is comprised of Market Risks and Country Risk which have a 40% and 60% weighting respectively and are based on a subjective evaluation of industry regulatory and competitive issues (Market) and the industry's broader Country Risk exposure (Country), which is based on BMI's proprietary Country Risk Ratings. The ratings structure is aligned across the 14 Industries for which BMI provides Business Environment Ratings methodology, and is designed to enable clients to consider each rating individually or as a composite, which the choice depending on their exposure to the industry in each particular state. For a list of the data/indicators used, please consult the appendix at the back of the report.
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Project Finance Ratings
Vietnam Project Finance Ratings
Design and Construction
Legal and regulatory risks were the most significant issues for Vietnam at the design and construction
phase. Scoring only 33.1 it was the third lowest country within the region. It ranked alongside
Philippines, India for its poor legal system and common place corruption. The country did marginally
better on economic risks and political environment where it scored 50.6 and 59.4 respectively.
Commissioning and Operating
Vietnam also struggled to compete at the commissioning and operating phase scoring around 50 out of
100 for most sections. Energy and utilities scores were affected by the rising price of oil and BMI's
upward revisions for oil price forecasts in the coming years. With an increase in cost of operating power
generation assets the projected long-term revenue stream are reduced. As a result Vietnam scored only
46.1 overall for Commissioning and operating placing it 8th in the region.
Overall Project Finance Rating
The weak PPP regulatory regime in Vietnam helped to reduce the country’s overall score. Along with
China it scored only five out of 10 indicating significant room for improvement. Widespread corruption
also impacted on project finance ratings dragging the country’s ranking down due to the inherent risks to
investment. In total the country managed a score of only 46.4 placing it third from last in the Asia Pacific
region
Regional Overview
Project Finance Ratings: Outlook For Asia Pacific
For Q210, we have introduced a new group of countries in BMI's Project Finance Ratings (PFR)
encompassing all developed states for which we have ratings. This has been done in an attempt to
compare 'like-for-like' in terms of the maturity and sophistication of public-private partnerships (PPPs)
and project finance markets. We have used the definition of developed states used by BMI's Country Risk
team. Therefore the new developed states group is made up of: Australia, the United States, Germany, the
United Kingdom, France, Japan and Greece.
Developed states are characterised by strong financial, legal and regulatory infrastructure frameworks,
which are reflected in the high scores the countries achieve for the legal and regulatory risks group of
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indicators. In addition, political stability safeguards a certain level of policy continuity, which in turn
provides stability for the operating environment of an asset.
BMI's PFR provide a globally comparative, numerically based assessment of the risks facing major
infrastructure projects in the energy and utilities, transport, and commercial construction sectors.
Specifically, it evaluates the degree of uncertainty facing projects that are generally characterised by the
following: long construction period, high construction costs, difficulty in redeploying project assets (eg
power station) to other uses, earnings generated only after construction completed.
The PFR is best used for evaluating the breadth and depth of risks facing major infrastructure projects,
which will in turn affect the source, availability and cost of finance. Thus, in the current environment of
limited global finance for such projects, it provides a leading indicator for the cost of financing major
projects and the pace at which infrastructure development will occur in each state.
We have created two different tables aiming to better identify, analyse and assess broad categories of
risks that sponsors and/or companies may encounter during the project's lifecycle. The two tables are
composed – very broadly – first of the design, engineering and construction phase and second of the
commissioning and operation phase. The two final scores for each country are then combined to yield the
overall project finance rating.
The weightings of each indicator and each group of indicators (inputs, regulatory, market risks, etc) are
adjusted to reflect the relative importance, and thus relative risk level, they pose for sponsors and equity
holders.
State Of Play In The Asia Pacific Region, January 2010
The volatility that characterised the global economy over 2009 has subsided. This is indicated by the
Volatility Index (VIX) published by the Chicago Board Options Exchange (CBOE), which in the height
of the financial crisis (November 20 2008) reached 80.86, while in the first days of 2010 hovered at
around 19, indicating a return to normal market conditions. VIX is part of our PFR matrix, and the
indicator's return to normal levels will buttress our ratings of economic and financial stability.
Consequently, volatility has also subsided for the economies of the Asia Pacific region, giving way to
rising confidence regarding the resilience of Asian demand for infrastructure assets, the fundamental
driver behind rising investor demand. Once again, we point to the proliferation of infrastructure funds
targeting the Asia Pacific infrastructure markets, emerging both in Asia and the developed states, as
evidence of a cautious, yet sustained recovery in infrastructure financing in the region.
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The key point to note in Q210 is that across the board the scores of countries in the commissioning and
operating phase have decreased. This decrease indicates more pertinent risks in the later phases of a
project's lifecycle. Consequently, this has dragged down the entire project finance score of each country
and the region as a whole.
Because the change in scores affected all countries, the rankings have not altered significantly. The top
places in the Asia Pacific table are still occupied by Hong Kong and Singapore. The overall project
finance scores on the top of the table are low compared with previous scores of 83 (Hong Kong) and 78
(Singapore), in end-2008. It is also worth noting that countries in the Asia Pacific region exhibit the
largest disparities between the top and the bottom of the table, a difference of almost 46 points between
the top (Hong Kong) and the bottom (Pakistan).
China's score has witnessed the largest increase this quarter, climbing from 59.8 to 63.2. The country has
even managed to escape the reduction in score in the operating phases of energy projects as a result of
higher expected oil prices. While most countries have lost points mainly as a result of this one indicator,
China's low inflation expectations mute the effect of higher oil prices over the next four years.
India is the only other country that has witnessed an increase in its score this quarter. India's score has
been bolstered by an increase in its political risk rating, which indicates greater long-term stability.
Therefore its operating risks rating has become more favourable.
Some of the most severe risks according to our ratings (where the score is below five out of 10) are: weak
PPP regulatory regimes in China, Indonesia and Vietnam; heightened demand risk for transport
infrastructure in Hong Kong and Singapore; contract enforceability weakness in India and Indonesia;
currency volatility in Pakistan and Indonesia (both of which score zero out of 10); demand and price risks
in Indonesia's energy and transport sectors; security risks in Pakistan; and corruption in the Philippines
and Vietnam.
Design And Construction Phase
The design and construction table encompasses factors such as inflation and long-term currency volatility
(henceforth referred to as inputs), which at this stage primarily affect the cost of equity and debt, but also
the cost of raw materials if they are sourced locally and hence the total cost of the project, as well as legal
and regulatory risks that the company or sponsors may encounter and which can delay commencement of
construction and pose regulatory (red tape) issues. Closely related to the legal and regulatory risks are the
risk factors within the wider political framework, encompassing political risk factors such as the level to
which the rule of law is enforced and respected, and the long-term policy continuity and consistency of
government policies over the years. Last but not least is the financial risk component, comprising
domestic economic stability and the international availability of finance.
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Broadly speaking, we can distinguish four bands/groups within the table. There are no real surprises in
our ratings for the Asia Pacific region with Singapore and Hong Kong at the top of the table with scores
above 70 out of 100 on the merit of their sound institutional, regulatory and banking environment, as well
as proficiency in project finance operations. Singapore's 90-page 'Public Private Partnership Handbook',
published initially in 2004 by the ministry of finance, is perhaps the most comprehensive guide to PPP
regulations and procedures any country has issued in the world, highlighting the willingness of the
government to create the most conducive environment possible for the successful implementation of
PPPs; a goal they have achieved, as Singapore represents one of the most stable environments in the
region and globally. Their high scores in the 'PPP Legal Framework' indicator reinforce their position on
the top of the Design and Construction regional table.
Taiwan, Malaysia, South Korea and China follow the first group closely, but fall within the second group
(scores in the 60s). China's score in this category has seen the largest increase on account of better
inflation expectations. Malaysia's legal and regulatory environment leaves room for improvement, a fact
that lowers the country's score, since a weak institutional and legal framework, especially a poor track
record in contract enforceability in Malaysia, is one of the risks facing sponsors and contractors in the
initial stages of a project's lifecycle.
In the third and fourth groups (scores in the 50s and 49 and below) we find four of the most dynamic
infrastructure markets in Asia: India, Philippines, Vietnam and Indonesia. In spite of the impressive
infrastructure development course these four countries have embarked on the past half decade, they still
present formidable risks, which extend to project finance operations as well.
It is worth noting that the common weakness shared by all four is the legal and regulatory environment,
where the scores of all four countries show the closest convergence. Corruption, PPP/concessions legal
framework and contract enforceability are the three indicators that make up the group. In almost all three
of these indicators Vietnam, Philippines, India and Indonesia have scores below five out of 10.
Pakistan remains at the bottom of the table owing to low scores in terms of inputs and the
political/security environment.
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Table: Design and Construction Rating
Inputs
Legal/ Regulatory
Risks Political
Environment
Economic/ Financial
Risks Total
Singapore 84.0 84.3 88.0 58.4 76.1
Hong Kong 82.0 86.7 83.6 57.4 74.7
Taiwan 84.0 61.7 77.7 57.2 68.6
Malaysia 80.0 60.4 73.5 53.4 65.1
South Korea 54.0 74.0 81.5 52.7 64.4
China 92.0 49.0 60.7 56.5 63.2
Thailand 74.0 56.3 58.7 51.5 58.8
India 70.0 33.4 65.2 53.1 55.6
Philippines 58.0 39.2 58.9 50.4 51.8
Vietnam 32.0 33.1 59.4 50.6 45.6
Indonesia 12.0 23.1 60.5 51.5 40.2
Pakistan 12.0 19.9 43.8 44.9 33.1
Source: BMI
Commissioning And Operating Phase
The table that identifies potential factors that influence the levels of risk during the commissioning and
operation of a project has been broken down into three categories: transport, energy and utilities, and
commercial construction. The aim is to reflect the different levels of risk a power plant has from a toll
road or a stadium for instance during the operational phase of the project's lifecycle. The aim was to add a
degree of separation between sub-sectors in infrastructure, and although the sub-categories in the table are
similar for all three sectors, the scores are different for each country in each sector, which allows us to
gauge the different levels of potential risk and potential breadth of the financial impact they may have.
The rising price of oil and BMI’s upward revisions for oil price forecasts in the coming years has eroded
the score of many countries. This is because a core determinant of the inputs score for energy and utilities
is the price of oil. Higher price expectations mean that the cost of operating power generation assets will
also increase, therefore jeopardising the projected long-term revenue stream of assets. For this reason, in
Q210 we find that for many countries the inputs score for energy and utilities has in fact decreased,
dragging down the entire score of countries.
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Table: Commissioning and Operating Rating
Commercial/Business
Construction Energy And Utilities Transport
Inputs Outputs Total Inputs Outputs Total Inputs Outputs Total
Hong Kong 68.5 72.4 71.2 83.5 71.2 74.9 88.0 68.4 74.3
Singapore 69.5 67.3 68.0 79.5 67.3 71.0 76.0 65.0 68.3
China 88.5 57.5 66.8 76.0 56.4 62.2 88.0 56.9 66.2
Taiwan 82.0 54.3 62.6 67.0 54.3 58.1 76.0 52.1 59.2
Malaysia 62.5 51.2 54.6 75.0 51.7 58.7 70.0 51.7 57.2
India 55.0 54.1 54.4 70.0 55.2 59.7 70.0 54.7 59.3
South Korea 42.0 53.3 49.9 49.5 52.7 51.8 36.0 53.3 48.1
Vietnam 48.5 49.5 49.2 38.5 49.5 46.2 38.0 49.5 46.1
Thailand 57.0 45.3 48.8 72.0 45.3 53.3 66.0 43.1 49.9
Philippines 56.5 42.3 46.5 61.5 44.0 49.2 52.0 44.0 46.4
Indonesia 8.5 38.0 29.1 21.0 38.6 33.3 8.0 38.6 29.4
Pakistan 11.0 25.1 20.9 28.5 25.6 26.5 8.0 25.1 20.0
Source: BMI
Overall Project Finance Rating For The Asia Pacific Region
Combining the scores of the two tables we have distilled the overall project finance rating, which thus
takes into account all of the above sectors and sub-categories. Here we can also categorise the results into
four groups or bands of countries, with each group presenting a similar level of risk that may affect the
source, availability and cost of finance. In the first group (score of 70 and above) we find Singapore and
Hong Kong, whose overall characteristics and market components create the safest environment in the
region for project finance operations. Based on both countries' overall scores, Singapore presents fewer
risks in the initial development phases, but more uncertainty in the longer term, while Hong Kong has the
highest score for the commissioning and operation phase.
Vietnam, the Philippines, Indonesia and Pakistan are at the bottom of our table again this quarter.
Although Vietnam's rating presents some upside risk because of declining levels of inflation, the risk
rating also encompasses some deep structural problems in the country's overall business environment,
such as corruption, overtaxing government intervention in some industries, one of them being the energy
and utilities sector. Indonesia's legal and regulatory scores also present an upside in light of recent
changes in the PPP regulations along with the introduction of a state-guarantee agency specifically for the
infrastructure sector (January 2010). Pakistan presents a plethora of other structural problems, which
combine to give the country the lowest score in the region and consequently the riskiest profile, which
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indicates significant risks to any project in infrastructure, both in the construction phase and the potential
returns on investments over the long term.
Table: Overall Project Finance Rating, Asia Pacific
Design and Construction Commissioning and
Operating Overall
Hong Kong 74.7 73.5 74.1
Singapore 76.1 69.1 72.6
Taiwan 68.6 60.0 64.3
China 63.2 65.1 64.1
Malaysia 65.1 56.8 61.0
South Korea 64.4 49.9 57.2
India 55.6 57.8 56.7
Thailand 58.8 50.7 54.7
Philippines 51.8 47.4 49.6
Vietnam 45.6 47.2 46.4
Indonesia 40.2 30.6 35.4
Pakistan 33.1 22.4 27.7
Source: BMI
Risks and Limitations To BMI's Project Finance Ratings
It should be noted that although we believe that the resultant scores are a reliable guide to project finance
risks, PFR assesses broad industry risks, rather than individual projects. This has several implications.
First, there will be instances where the risk profile – for example, the supply of inputs – of a particular
project is markedly different from the general risk prevailing in the industry. Second, the PFR will not
take into account measures by private sector project participants to mitigate risk when structuring finance
– for example, by securing a substantial equity involvement from the sponsoring agency or government.
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Macroeconomic Outlook
Double Dip Now Our Core Scenario
BMI View: With Vietnam's balance of payments yet again approaching breaking point, we expect a sharp
tightening of fiscal and monetary policy in 2010, which will see real GDP growth dip to 4.4% from an
expected 5.1% in 2009. This will raise criticism of economic policy at the 11th National Congress in
January 2011, but we expect the market reform agenda to be maintained.
We have shifted our Vietnam growth outlook from expecting a gradual economic recovery in 2010 to a
double-dip scenario with real GDP expansion dipping from an expected 5.1% in 2009 to 4.4% in 2010.
This is based on our expectations that fiscal and monetary policy will have to be tightened sharply in
early 2010 in order to rein in the widening trade deficit and halt inflationary pressures. Our outlook for
Vietnam has much in common with our outlook for China. However, while the policy aims of the
respective governments are similar, we view the macroeconomic concerns in Vietnam as more alarming,
at least in the short term, as Hanoi's fiscal and monetary resources are considerably more limited.
As a consequence, we find it likely that the inevitable shift towards tighter monetary and fiscal policy will
come earlier in Vietnam than in China. Hanoi's fiscal and monetary stimulus has helped economic growth
recover from a low of 3.1% year-on-year (y-o-y) in Q109 to 5.2% in Q309, but it has also been a key
factor, in our view, to a considerable widening of the trade deficit over the same period to US$1.9bn in
October. While the return to positive growth in G3 markets in H209 and 2010 should give some support
to Vietnamese exports, we believe a continuation of the current accommodative policy would lead to a
further widening of the trade deficit.
With Vietnam's foreign exchange reserves in Q409 estimated to be below the three months of imports
seen as a minimum, we believe drastic policy action will be needed to avoid a balance-of-payments crisis.
This will include:
A downward adjustment of the dong towards our VND19,000/US$ end-2009 forecast, from
VND17,862/US$ on November 6 2009, to stem the outflow of US dollars through the trade
channel.
A hiking of policy rates to uphold public confidence in the dong, stem capital outflows, and
contain upward pressure on inflation through higher import prices. We are now expecting
500bps of hikes in 2010, bringing the Vietnam base rate from 7.00% in November 2009 to
12.00%.
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A reduction of the fiscal deficit from VND118trn (US$6.6bn), or 7.2% of GDP, to VND105trn
(US$5.9bn), or 5.7% of GDP, in 2010 on the back of reductions in both current and capital
expenditure growth.
Implications For Growth
We expect the fiscal and monetary tightening to lead to a double dip in growth after the tentative rebound
seen in the last three quarters of 2009. We are expecting real GDP growth to come in at 4.4% in 2010, as
weak growth in G3 markets will weigh on exports and prevent a marked improvement in net exports in
spite of the devaluation of the dong.
This will mean that the slowdown in domestic demand will be harder felt. With inflation expected to
average roughly 9.0% in 2010, we expect government consumption to decrease by 3.5% in real terms,
which will shave 0.3 percentage points (pp) off headline growth. A more marked effect will be coming
from a slowdown in private consumption growth as credit conditions are tightened. We expect private
consumption growth (in real terms) to slow to 2.3% from an expected 4.9% in 2009 and 9.2% in 2008.
This should see the contribution to growth from private consumption decrease to 1.6pp in 2010 from
3.3pp in 2009 and a massive 6.0pp in 2008.
We are, on the other hand, expecting an increase in the contribution from gross fixed capital formation
from 0.4pp to 1.1pp as FDI disbursements, down 12.1% y-o-y to US$8bn in January-October 2009,
recover and state-and aid-financed projects gather pace. However, the precarious state of the property
market, where activity and prices have been supported by the loan-subsidy programme, is a risk to this
forecast. While only a minority of property purchases are financed through bank lending, higher interest
rates should still have an impact on the market and on commercial and residential construction.
Policy Rebalancing Needed At 2011 Party Congress
We expect the slowdown in growth in 2009 and 2010 to make economic policy the main matter of debate
during the Communist Party of Vietnam (CPV)'s 11th National Congress scheduled for January 2011.
The macroeconomic rollercoaster ride experienced in recent years has raised criticism against Prime
Minister, Nguyen Tan Dung, the most important proponent of economic reform, from more conservative
members in the Politburo. We believe the mainstay of the CPV is still behind Nguyen's reform agenda,
meaning that there will be no drastic shift in the socio-economic development strategy for 2011-2016.
However, we expect measures to be taken to achieve greater macroeconomic stability, including a
reduction of official growth targets, a shift in monetary policy towards inflation targeting and increased
exchange rate flexibility. This is likely to come at a cost to economic growth in the short term, and we are
consequently forecasting real GDP growth of 5.5% and 6.0% in 2011 and 2012, respectively, as the
global economic environment is expected to be less conducive than in the 2003-2007 boom years. A
failure to take a decision on rebalancing economic policy would, on the other hand, mean a high risk of a
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continuation of macroeconomic volatility as expressed in Vietnam's score of 43.8 out of 100 in our short-
term economic risk ratings.
Table: Vietnam - Economic Activity
2005 2006 2007 2008 2009f 2010f 2011f 2012f 2013f 2014f
Nominal GDP, VNDbn 2 83,9211 974,266 1144015 1478695 1628770 1825075 2053255 2288455 2562686 2855653
Nominal GDP, US$bn 2 52.9 60.9 71.1 89.8 85.7 96.1 108.1 123.7 138.5 154.4
Real GDP growth, % change y-o-y 2 8.4 8.2 8.5 6.2 5.1 4.4 5.5 6 6.8 6.9
GDP per capita, US$ 2 637 724 835 1,035 974 1,077 1,195 1,350 1,492 1,640
Population, mn 3 83.2 84.4 85.6 86.8e 88 89.2 90.4 91.6 92.8 94.1
Industrial production index, % y-o-y, ave 1,4 17.7 16.8 16.7 14.9 6.8 10 12 14 14 14
Unemployment, % of labour force, eop 4 5.3 4.8 4.6 5 5.5 5.5 5 4.5 4 4
Notes: e BMI estimates. f BMI forecasts. 1 at 1994 prices; Sources: 2 IMF (General Statistics Office); 3 IMF; 4 General Statistics Office
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Political Outlook
Relations With China At Forefront Of Internal Power Struggle
BMI View: Vietnam's relations with China have come to the forefront of an internal power struggle
within the Communist Party of Vietnam, pitting economic reformers, centred around Prime Minister
Nguyen Tan Dung, against more conservative Politburo members with links to China. With the two
factions seeking to strengthen their positions ahead of the 2011 National Congress, we believe the
reformists will maintain the upper hand.
Faced with ever-increasing internet penetration and an army of bloggers, the Communist Party of
Vietnam (CPV) has in recent years sought to improve its means of monitoring and controlling public
opinion. Nonetheless, hardliners within the Politburo are now arguing that increasingly unruly
expressions of dissent against public policy on the internet is evidence of Prime Minister Nguyen Tan
Dung's reformist agenda getting out of control, thus necessitating a policy redirection. Indeed, this is
becoming a key theme ahead of the CPV's next National Congress, scheduled for early 2011, which
threatens to pit economic reformers against more conservative hardliners in the quest for political
nominations.
The rapid economic growth seen in recent years has undermined the base for political dissidents in
Vietnam as the general public has seen little reason to oust a regime that has delivered tangible material
gains for the majority of the population. Nonetheless, the CPV has become notably unnerved by an
increasing mass of political opinion driven by the easy access to internet and online forums that a
majority of the Vietnamese population now enjoys. Vietnamese authorities have estimated that 21mn
Vietnamese people use the internet, and there are reportedly between one and four million blogs, covering
a wide area of topics. To police this immense body of content, the government regulates internet content
and usage through a variety of technical and legal means, but users are constantly seeking and finding
means to circumvent these measures, in spite of the heavy penalties handed down by the authorities.
China Dominating Internet Discussion
The most inflammatory subject on Vietnamese blogs over the past year has been Hanoi's relationship with
China, which has been tested by ongoing disputes over the Paracel and Spratly islands in the South China
Sea, a controversial Chinese-financed bauxite mining project in the central highlands and a severely
skewed trade relationship. A number of journalists and bloggers have criticised Beijing's – and the
Vietnamese government's – conduct in the disputes between the two countries, a criticism that has fallen
on fertile ground, as the Vietnamese public is highly sensitive to any perceived encroachment of
Vietnam's sovereignty by its northern neighbour.
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With the regime in Hanoi fearful of China's sensitivity to any criticism and aware of the need to maintain
a working relationship with Beijing, the authorities have stepped in to stem any perceived instigation of
anti-Chinese public opinion. This has seen the arrest of journalists and bloggers who have published
articles and blogs critical of China, on the basis that the criticism threatens efforts by the two
governments to reform the economic relationship between the two countries. This has so far been
characterised by a heavily skewed trade flow with an avalanche of cheap Chinese goods flooding the
Vietnamese market, driving local competitors out of business, with little but commodities such as coal
and rubber going the other way. The massive trade deficit with China – which amounted to US$11.1bn in
2008, roughly 12% of GDP – has been a subject of dispute between the Chinese and Vietnamese leaders
in recent years, and thus also a point of discussion during Prime Minister Nguyen Tan Dung's visit to
China in April 2009.
The perceived solution to achieve a more mutually beneficial economic relationship has been to promote
increased Chinese investment in Vietnam. This does indeed make economic sense as investment from
Vietnam's traditional sources of foreign direct investment – Malaysia, Singapore, South Korea and
Taiwan – is likely to be less forthcoming over the next few years as foreign investment partners rebuild
their balance sheets and pare back their expansion plans. Indeed, foreign direct investment pledges
dropped 85.7% y-o-y in the first three quarters of 2009 to US$7.6bn. One difficulty is that China’s
manufacturing sector is equally, if not more, competitive than Vietnam's, meaning the Chinese investment
interest in Vietnam has been mainly directed towards the extractive industry, with the aim of securing
resources to fuel the Chinese industrial behemoth.
This has fuelled allegations in the case of the bauxite mining project in Lam Dong province that China is
merely exploiting Vietnam's natural resources, while causing considerable environmental damage in the
central highlands, which are both scenic and the centre of Vietnam's coffee industry. Add to this the
propensity of Chinese investors to bring their own workers rather than to employ locals, and the severe
public backlash against the investment plans comes as no surprise. With technical solutions failing
adequately to prevent the posting of inflammatory content on the internet, the government has turned to
incarcerating a number of bloggers and journalists to deter the voicing of critical opinion.
Political Jockeying Ahead Of 2011 Congress
The ability to control domestic dissent has become a key issue ahead of the Communist Party of Vietnam
(CPV)'s 11th National Congress, scheduled for early 2011, where key appointments and policy decisions
are to be made. The increasing leeway afforded to new media has reportedly become a sticking point for
the more conservative forces within the CPV, who argue that Prime Minister Dung has gone too far in his
policy of economic liberalisation. That he has increased openness towards the US and North East Asian
countries such as Japan and South Korea at the expense of Hanoi's relationship with its ideological
brethren in Beijing. This could mean a serious confrontation at, or before, the 11th National Congress.
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We expect Nguyen to maintain his authority within the Politburo as a younger, less ideological generation
of CPV members is strongly supportive of continued economic reform. However, he is likely to face
continued opposition from a more conservative faction within the Politburo, who believe that his agenda
of increased economic liberalisation is putting the CPV's monopoly on public opinion – and, by
extension, political power – at risk. Members of this faction are said to be at the forefront of the reaction
against bloggers. The General Department II (GDII), an intelligence unit led by Vice Defence Minister
Nguyen Chi Vinh, has been instrumental in tracking and punishing political dissent on the internet. It has
been alleged that hardliners have also used technology, at the command of GDII, to monitor ideological
opponents within the CPV, thus gaining an upper hand in the behind-the-scenes jostling for promotions
that characterises the CPV and other power structures. While there is a risk that the internal power
struggle could intensify ahead of the National Congress, we see no major risks to policy direction. Hence,
we maintain our 90 out of 100 rating for Vietnam in the policy continuity sub-category of our short-term
political risk ratings. With inflation currently in low single digits and the conflict with China over the
Paracel and Spratly islands contained, Vietnam scores a high 80 out of 100 in our short-term political risk
rating. A low characteristics of polity rating (27.6 out of 100) brings Vietnam's long-term political risk
rating down to 52.8, reflecting our view that one-party rule is unsustainable in the longer term.
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Company Monitor
Cavico Corporation
Strengths It is diversified across a number of interrelated sectors.
A portfolio of projects completed, creates precedence for the company in the construction
and infrastructure sectors in Vietnam.
Weaknesses According to the company, ‘Cavico’s business growth is highly correlated to Vietnam’s
economic and infrastructural development’; this endangers the company’s operations and
revenue streams in the current downturn.
The small-size of the company means that competition from domestic state-owned
companies and foreign majors could erode its market share.
The value of contracts is very small for a construction and infrastructure company, typically
below US$10mn.
Opportunities Vietnam is one of the best-placed Asian economies to weather the global financial crisis.
The government’s willingness to improving infrastructure seems undiminished.
The energy and utilities sector in Vietnam has picked up a lot of pace since Q309, creating
plenty of opportunities.
Threats There are slow procedures in Vietnam for a project to get started (administrative burdens
and inefficiency).
Regional contraction in the Asian markets poses threats to Cavico’s planned expansions in
the region.
Company Overview
Cavico Corp. is the largest private infrastructure and mining company based in Vietnam*. Through
its various subsidiaries, Cavico operates in the power, transport and urban development sectors.
In the power generation sector, Cavico mainly focuses on hydropower and dam construction,
although lately it has also made its first venture in wind power generation. Transport is the largest,
or most active, segment of the company, with operations in tunnels, bridges and highways. The
company also has a presence in commercial and residential construction in Hanoi, and other
regional centres with large-scale mixed-use projects under way.
Financial Highlights
In Q209, revenues were US$13.9mn, a decrease of 28.9% year-on-year (y-o-y), but an increase
of 13.2% compared with the first quarter of 2009. Net profit declined by 45% y-o-y in the second
quarter of 2009 reaching US$0.6mn.
The company’s largest customer is EVN, whose contracts generated 65% of revenue in 2008.
For 2009, the company expects revenues to reach US$80mn and net profit to increase by
255.6%. However, in H109 the company’s revenues were less than a third of the US$80mn target
indicating that the company has a significant amount of ground to cover in the second half of the
year if it is to reach its target.
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Order backlog at the end of 2008 was US$252mn.
Strategy and
Evaluation
According to the company’s declared business strategy, the key points that will guide investment
decisions are: prioritising the key businesses of industrial engineering, infrastructure construction
and mining; investing in strategic industries for the economy of Vietnam (infrastructure, energy,
mining, tourism); diversifying further; widening the company’s portfolio abroad; and increasing
joint ventures and partnerships with international majors.
Hitherto, Cavico has kept to its strategic guidance and has managed to expand the company’s
portfolio in new sectors ( such as wind power generation) and abroad, most recently in
neighbouring Laos.
The company’s aim is to increase its current backlog of projects (US$335mn, June 2008) within
Vietnam and so cement its presence in the infrastructure sector in the country. BMI believes that
Cavico is well placed in its operations in Vietnam. Its presence in the country for nine years has
created a precedent for the company and it has a history of partnerships with local state-owned
contractors. Vietnam’s planned infrastructure investments in the power and transport sectors
present significant opportunities for Cavico to indeed achieve its aim of increasing its order
backlog.
In a guidance note dated February 12 2009, Cavico said that it does not foresee any negative
impact to the government’s planned infrastructure spending as a result of the financial crisis.
Cavico cited forecasts by the World Bank that forecast 2009 growth at 6.5%, on strong FDI
inflows and exports. Our medium to long-term outlook, remains unchanged, and we anticipate the
infrastructure sector will witness much activity in the coming years. Construction industry value
real growth will rebound alongside overall macroeconomic performance in 2010.
Nevertheless, by implication, our short-term view raises concerns regarding Cavico’s 2009
expectations from the infrastructure sector. In December 2008, the company said that it expects
2009 revenues to reach US$80mn and net profit to increase by 255.6%. The company said that
‘anticipated growth will be driven by existing and new operations, including its entry in the wind
energy market’. Although we agree with the company’s expectations that new opportunities will
appear in 2009, we caution that the pace of investments and new developments may be slower
than hoped for.
Recent Activity and
Projects
In September 2009, Cavico Traffic Joint Stock (Cavico TC) started work on a wind farm in
the country by signing a consulting agreement with German consulting firm Altus AG, reports
Intellasia.
In September 2009, subsidiary company, Cavico Transport Construction, signed a
construction package with Dakdrinh Hydropower Company Joint Stock Company (Dakdrinh)
for a 7.5km water tunnel at they hydropower plant. Cavico’s portion of this project is
US$16mn with the construction expected to be completed within 60 months.
Also in September, Vinh Son-Song Hinh Hydropower Joint Stock Company awarded Cavico
a contract to construct a service access tunnel and road leading to Thuong Kon Tum
hydropower plant. The project’s Phase I and II contracts have an estimated revenue value of
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US$7mn and US$5mn, respectively.
In May 2009, Cavico Corporation announced that it had received final authorisation by the
Lam Dong provincial government for the development of an onshore wind farm. The plant
will be developed on a build, own and operate (BOO) basis. The total estimated cost is
US$56mn and Cavico will contribute 20% equity and raise the remainder in debt.
In April 2009, Cavico secured a US$4.9mn construction contract from the Vietnamese state-
owned engineering firm Lilama. Under the contract, Cavico will construct a diversion tunnel
and coffer dam at the Hua Na hydropower plant.
hydropower project.
* While we appreciate that mining activities are at the heart of the company’s operations, for the purpose of
this report we will only focus on the infrastructure aspect of the company.
Key Statistics Financial Data
Revenue H12009: US$26.1mn
Net income Q209: US$0.6mn
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Song Da Construction Corporation
Company Overview
The Song Da Construction Corporation is a state-owned company founded in 1960 that
undertakes a multitude of construction activities. Its areas of expertise include building
hydropower plants, transport engineering, civil and industrial works, installing power transmission
lines and substations, producing construction materials such as steel and cement, providing
consultancy services in construction, importing and exporting of materials such as steel and
cement, and construction technology.
The corporation has a number of power projects under way, including the Tuyen Quang
Hydropower plant in Na Hang district. This plant has a 342 megawatt (MW) capacity. It is likely
that the first generator will be operational by August 2007 with the plant to be completed during
2008, as stated in September 2006. The total value of the investment is in the region of
US$500mn. The project necessitates the resettling of up to 3,500 households, but benefits should
come with the development of new urban areas in the district.
Across the border in Laos, Song Da is heading up the Viet-Lao Power Investment and
Development Joint Stock Company consortium to build the XE Kaman Power Plant. The plant will
have a capacity of 250MW, and is being developed under the BOT model with a 30-year lifespan,
including construction time. More than 4,000 Vietnamese workers will be moved to Laos to
execute this project, bringing it to completion by July 2008.
Other ongoing projects include civil works on the south tunnel section of the Haivan Pass Tunnel
project. The tunnel, which is more than 6km in length, is part of a project costing more than
US$130mn, with a number of contractors involved in various works.
The Ngang Pass Tunnel in central Quang Binh Province, which was designed and built by Song
Da Construction Corporation, opened to traffic in August 2004, nearly one year ahead of
schedule. The use of Austrian construction technology and modern technical equipment enabled
heightened labour productivity.
The Song Da Corporation has set up a financial company to manage and enlarge its finances.
The financial company will also be responsible for listing the corporation’s shares and for issuing
corporate bonds.
The company has been involved in the construction of the 2,400MW Son La power plant costing
USD2.5b. However cracks were discovered on the dam supplying the plant. After government
inspection it was decided that the work met the technical requirements of the job.
Key Statistics Annual Revenue 2009: 17 trillion dong
Pre-tax profit (2009): 900 billion dong
No. of employees: 20,000
Key Personnel Chairman: Le Van Que
Director: Nguyen Van Binh
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Director: Pham Cuong
Address Song Da Construction Corporation
G10 Thanh Xuan Nam Quarter
Thanh Xuan District
Hanoi
Vietnam
Tel: +84 (4) 854 1164
Fax: +84 (4) 854 1161
Website: www.songda.com.vn
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Vietnam Construction and Machinery Installation, Corporation (Lilama)
Company Overview
The Lilama Corporation is an expansive Vietnamese construction company that undertakes a
wide range of activities and has more than 60 affiliates. Lilama provides consultancy, design and
manufacture of technological equipment; installation of pressure pipe systems, electrical
equipment and machines; shipbuilding and general power generation; and infrastructure works in
its portfolio of activities.
A state-owned company under the management of the Vietnamese Ministry of Construction,
Lilama has 16 subsidiaries.
In August 2007, Lilama, in consortium with other local companies, invested US$199.2mn to
develop a thermal power plant in central Ha Tinh province. The coal-powered plant will have a
capacity of 1,200 megawatts (MW).
Lilama has been involved in 150 projects throughout Vietnam, including work for the expansion of
Quang Ninh province’s Uong Bi thermoelectric plant, the Ca Mau power project, the third phase of
the Hoang Thach cement project and the Dung Quat refinery in central Vietnam. A Lilama affiliate
has also won a US$600,000 contract from Japan’s Sumitomo Electric Industries to produce two
air-drying systems used in thermoelectric plants.
Ongoing projects include work on three hydroelectric power plants that are being built in
Vietnam’s central highlands. Lilama is working alongside other big Vietnamese players such as
Song Da Construction Corporation, Vinaconex and the Corporation for Infrastructure Construction
and Development to develop these plants, which are designed to produce 2.675bn KWh of power
annually. These plants are estimated to cost in the region of US$570mn, and will become
operational between 2008 and 2010.
Lilama also won a US$305.05mn bid to expand the Uong Bi power plant. It is now planning a
stake in eight joint-stock projects worth more than US$37mn, in order to spread its investments in
the near future. Lilama’s largest investment of VND140bn (US$8.75mn) will go into Quang Ninh
Electricity, followed by VND54bn (US$3.5mn) in a Laos-based electricity company, VND30bn
(US$1.9mn) in Ha Long Cement, and VND8.6bn (US$537,000) in Thang Long Cement. Lilama
will also spend VND15bn (US$974,000) on a share of Hung Vuong Cement, VND9bn
(US$584,000) on Cam Pha Electricity and VND750mn (US$48,700) on Hai Phong Electricity.
Key Statistics Annual sales volume (2003): US$150mn
No. of employees: 20,000
Year established: 1975
Key Personnel President and CEO: Pham Hung
Address Lilama Corporation
124 Minh Khai
Hai Ba Trung
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Hanoi
Vietnam
Tel: +84 (4) 8633067
Fax: +84 (4) 638104
Web: www.lilama.com
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Global Overview
Global Infrastructure Forecasts Revisited
In Q110 BMI introduced new data series
for infrastructure and its subsectors
(transport and energy & utilities) in an
effort to quantify trends and growth
patterns in the infrastructure sectors of
the key emerging and developed markets
in 35 out of the 62 main markets from
BMI's Infrastructure service. A quarter
on and several updates later, we revisit
our initial conclusions and highlight how
the changes in the global macroeconomic
outlook have impacted our initial
findings.
Key Findings…In A Nutshell
The key finding from the creation of the new data series was that infrastructure's share in the total
construction industry value will continue to climb among the fastest growing emerging markets to the end
of our forecast period in 2014. On the contrary, in developed markets, infrastructure as a percentage of
total construction industry value will either remain along the same levels, or will see a steady decline.
A new conclusion from revisions in our
core forecasts for China indicates that
2010 will be the first year when China's
infrastructure industry value overtakes
that of the United States, thus becoming
the largest infrastructure market globally.
This is the result of two factors. Firstly,
China's overall robust economic
performance over 2009 has propelled the
industry. Secondly and related to the
latter point, though both the United States
and China have had multibillion dollar
infrastructure-geared stimulus plans in
place, China's implementation of projects
BRIC's To Dominate The Global Infrastructure Market
Infrastructure Industry Value, US$bn, 2010f- 2014f
0
50
100
150
200
250
300
China India Russia Brazil
2010f
2012f
2014f
f=forecast. Source: BMI Research, National Statistics Agencies
US And Japan Maintain A Clear Lead Infrastructure Industry Value Added, US$bn, 2010f
0
20
40
60
80
100
120
140
US
Japa
n
Fra
nce
Ger
man
y
Aus
tral
ia
Sou
th K
orea
Mex
ico
Tur
key
Indo
nesi
a
UK
f=forecast. Source: National Statistics Agencies, BMI Research
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seems to have been much more immediate than in the United States.
China dominates global infrastructure industry value, followed by US and Japan. The three other BRIC
countries (Brazil, Russia and India), then follow. France follows Russia by a small margin, but according
to our forecasts, India Brazil and Russia will only keep increasing the margin between them and non-
BRIC countries (with the exception of US and Japan) by the end of our forecast period.
Methodology And Core Assumptions
BMI's methodology rests on the core assumption that groups of countries along a similar trajectory of
economic development, will also exhibit similar patterns in terms of infrastructure investment. This
assumption allows the extrapolation of infrastructure/construction ratios for a broader group of countries
than was previously possible.
Furthermore, the availability of BMI's Major Projects Databases has enabled us to detect country-
specific, historical sub-sector to sub-sector ratios (for instance airports as part of overall transport
infrastructure) spanning a period of at least three years. The backbone of BMI's new Infrastructure data
series is the combination of: a) BMI's macroeconomic and industry value forecasts and b) the
infrastructure and sub-sector ratios extrapolated from the top down and bottom up approaches outlined
above. Thus for the first time, it has been possible to provide globally comparable, numerically based
historical data series for the global infrastructure industry and its sub-sectors in transport and energy &
utilities, which in turn has enabled the calculation of five-year forecasts.
Infrastructure Tiers Of Countries
Each Tier comprises a group of countries that are on a similar economic development trajectory and have
similar patterns in terms of infrastructure spending, levels of infrastructure development and sector
maturity. This methodology enables us to confirm and overcome any deficiencies of infrastructure-
specific data, by applying an average group ratio (calculated from the countries for which official data
exists) to the countries for which data is limited.
Tier I- Developed States
Common characteristic: mature infrastructure markets, where investments typically target maintenance of
existing assets or highly advanced projects at the top of the value chain. According to BMI data
infrastructure as a percentage of total construction is found to be on average around 30%. Countries in
Tier I: Germany, Greece, UK, US, France, Hong Kong, Taiwan, Singapore, Israel, Japan, Australia.
Tier II - Core Emerging Markets
Common characteristic: the most rapidly growing of emerging markets, where infrastructure investments
are a strategic priority for the governments. There is significant scope for new infrastructure facilities
from very basic levels (highways, heavy rail for instance) to more high value projects (renewables, urban
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transport). According to BMI data infrastructure as a percentage of total construction is found to be, on
average, around 45% and above. Countries in Tier II: Mexico, South Korea, Peru, Turkey, Vietnam,
Poland, Hungary, South Africa, Nigeria, Russia, China, India Brazil, Indonesia.
Tier III- Emerging Europe
Common characteristic: regional socioeconomic synergies of economic development, which has been
defined by the recent or pending accession to European structures such as the European Union.
Infrastructure development is to a large degree dictated by EU development goals and financed through
instruments such as the expanded, Poland and Hungary: Assistance for Restructuring their Economies
(PHARE) programme and Instrument for Structural Policies for Pre-Accession (ISPA) programme; and
through institutions such as the European Bank for Reconstruction and Development (EBRD) and
European Investment Bank (EIB). According to BMI data, infrastructure as a percentage of total
construction is found to be on average between 30% and 40%. Countries in Tier III: Czech Republic,
Romania, Bulgaria, Slovakia, Slovenia, Estonia, Latvia, Lithuania, Croatia, Ukraine.
BRICs Dominate
The numbers verify the trends BMI's infrastructure analysts have been observing in the global
infrastructure industry. China dominates the global infrastructure sector in terms of industry value. Brazil,
Russia and India in 2010 are still forecast to lag behind the US and Japan in 2010, but while Japan's
infrastructure industry value is forecasted to stagnate, the three other countries will power ahead,
increasing their margins between them and the other non-BRIC economies.
Interestingly however, it is not China that has the highest infrastructure-to-construction ratio. In fact,
historical data from the Chinese central statistics bureau indicate that infrastructure's share of the total
construction industry value has traditionally been less than a third, below the trend established by other
emerging markets peers (Tier II). However, following China's announcement and implementation of the
infrastructure-geared stimulus plan, we estimate that infrastructure's share will make a significant leap
and for 2009 onwards will represent closer to 40% of the total construction industry value.
A major change this quarter has been the revision in our infrastructure-to-construction ratios. New data
for Mexico meant that it no longer occupies first place in the table. Instead, Brazil is now the market we
expect will show, on average, the largest infrastructure-to-overall construction ratio. The possibility of a
second Growth and Acceleration Programme (PAC) in Brazil and the preparations in the major cities for
the World Cup and the 2016 Olympics in Rio de Janeiro, validate the country's position at the top spot.
Another country that has been preparing for a global sporting event, South Africa is in second place. We
anticipate that post-World Cup 2010 the investments in infrastructure will continue, especially in the
power sector where the state owned utility Eskom is implementing one of the largest capital expansion
programmes globally.
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Singapore and the UK are the countries that have to lowest infrastructure-to-construction ratios. Both are
Tier I countries, thus it is to be expected that infrastructure as a percentage of total construction would be
the lowest. According to data by the Singapore department of statistics, infrastructure as a percent of total
construction peaked in 2004, when it reached 27%, after which point it started to decline. The UK
exhibits the typical characteristics of Tier I countries: mature infrastructure market, where maintenance
surpasses new investments and typically infrastructure has a lower share of the total construction
compared to residential and commercial construction.
Brazil Leads The Way Infrastructure Industry Value As % of Total Construction, 2007-2014f Average
f=forecast. Source: BMI Research, National Statistics Agencies
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Methodology
New Infrastructure Data Sub-sectors: Methodology
BMI’s new Infrastructure Data examines the industry both from the top down and the bottom up in order
to calculate the industry value of infrastructure and its sub-sectors.
For the bottom up - a country-specific - approach, we have made full use of BMI’s Infrastructure Major
Projects Databases for each country, in most cases dating back to 2005. This has allowed us to calculate
historical ratios between general infrastructure industry value and its sub-sectors, which we then use for
forecasting. Our Major Projects Tables are not exhaustive, but they are sufficiently comprehensive to
provide a solid starting point for our calculations.
The top down approach uses deduction to form the main hypothesis. We have separated the 35 countries
into three Tiers. Each Tier comprises a group of countries that are on a similar economic development
trajectory and have similar patterns in terms of infrastructure spending, levels of infrastructure
development and sector maturity. This methodology enables us to confirm and overcome any deficiencies
of infrastructure-specific data, by applying an average group ratio (calculated from the countries for
which official data exists) to the countries for which data is limited.
Tier I- Developed States; common characteristic: mature infrastructure markets, investments typically
target maintenance of existing assets or highly advanced projects at the top of the value chain.
Infrastructure as percent of total construction on average around 30%.
Countries in Tier I: Germany, Greece, UK, US, France, Hong Kong, Taiwan, Singapore, Israel, Japan,
Australia.
Tier II – Core Emerging Markets; common characteristic: the most rapidly growing of emerging markets,
where infrastructure investments are a strategic priority for the government. There is significant scope for
new infrastructure facilities from very basic levels (highways, heavy rail for instance) to more high value
projects (renewables, urban transport). Infrastructure as percent of total construction on average around
45% and above.
Countries in Tier II: Mexico, South Korea, Peru, Turkey, Vietnam, Poland, Hungary, South Africa,
Nigeria, Russia, China, India Brazil, Indonesia.
Tier III- Emerging Europe; common characteristic: regional socioeconomic trajectories, development has
been defined by the recent or pending accession to European structures such as the European Union.
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Infrastructure development to a large degree dictated by EU development goals and financed through
vehicles such as the PHARE and ISPA programmes, and institutions such as the EBRD and EIB.
Infrastructure as percent of total construction on average between 30% and 40%.
Countries in Tier III: Czech Republic, Romania, Bulgaria, Slovakia, Slovenia, Estonia, Latvia, Lithuania,
Croatia, Ukraine.
This methodology has enabled us to calculate infrastructure industry values for states where this was not
previously possibly. Furthermore, it has enabled us to create comparable indicators.
The top down hypothesis-led approach has been used solely to calculate the Infrastructure Industry Value
as a Percentage of Total Construction. For all sub-sector calculations we have applied the bottom-up
approach, i.e. calculated the ratios from our Major Projects Tables where data was not otherwise
available.
Infrastructure Forecasts: Methodology
BMI’s industry forecasts are generated using the best-practice techniques of time-series modelling and
causal/econometric regression modelling. The precise form of model we use varies from industry to
industry, in each case being determined, as per standard practice, by the prevailing features of the industry
data being examined. BMI mainly uses OLS estimators and in order to avoid relying on subjective views
and encourage the use of objective views, uses a ‘general-to-specific’ method. BMI mainly uses a linear
model, but simple non-linear models, such as the log-linear model, are used when necessary. During
periods of ‘industry shock’, for example a deep industry recession, dummy variables are used to
determine the level of impact.
Effective forecasting depends on appropriately selected regression models. BMI selects the best model
according to various different criteria and tests, including, but not exclusive to:
R2 tests explanatory power; Adjusted R2 takes degree of freedom into account
Testing the directional movement and magnitude of coefficients
Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value)
It must be remembered that human intervention plays a necessary and desirable role in all of BMI’s
industry forecasting. Experience, expertise and knowledge of industry data and trends ensures that
analysts spot structural breaks, anomalous data, turning points and seasonal features where a purely
mechanical forecasting process would not.
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Within the infrastructure industry, this intervention might include, but is not exclusive to, new
investments across sectors, or projects getting cancelled; general investment climate and business
environment changes; domestic or regional trends changing; macroeconomic indicators; and regulatory
changes.
Forecasting figures of construction and infrastructure value mainly depend on past and future fixed
capital investment formation as a strong expected investment in a nation drives the construction growth
rate. BMI uses top down approach to forecast infrastructure and its sub-sectors. Generally speaking, a fast
construction growth means a strong increase in most parts of infrastructure.
Infrastructure and Construction Added Value
Figures for construction and infrastructure value added to GDP are based, where possible, on national
accounts as published by the relevant statistics agencies and central banks, as well as primary
government/ministry sources and official data. Where these are unavailable, construction GDP estimates
are based on a range of variables including:
Stated infrastructure and development programmes
Likely increases owing to related urban or industrial sector developments
Political factors (such as an electorally motivated public works programmes)
Infrastructure and Construction Real Growth and as a percentage of GDP is calculated using BMI’s own
macroeconomic forecasts.
Employment Within The Construction Industry
These figures are forecast based on:
The growth or otherwise of real gross fixed capital formation
Company results and expansion plans
Example of Construction Value Model:
(Construction Value)t = β0 + β1*(Gross Fixed Capital Formation)t + εt
Example of Infrastructure Value Model:
(Infrastructure Value)t = β0 + β1*(Construction Value)t + εt
Note: Infrastructure sub-sector values are forecast using a similar regression model.
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Sources
BMI uses publicly available information to compile the country reports and collate historical data.
Sources used in Infrastructure reports include UN statistics; national accounts; infrastructure, public
works, transport, energy and economy ministries; officially released company results and figures; trade
bodies and associations and international and national news agencies.
Industry Forecasts
BMI’s industry forecasts are generated using the best-practice techniques of time-series modelling and
causal/econometric modelling. The precise form of model we use varies from industry to industry, in each
case being determined, as per standard practice, by the prevailing features of the industry data being
examined. BMI mainly uses ordinary least squares (OLS) estimators and in order to avoid relying on
subjective views and encourage the use of objective views, uses a ‘general-to-specific’ method. BMI
mainly uses a linear model, but simple non-linear models, such as the log-linear model, are used when
necessary. During periods of ‘industry shock’, for example a deep industry recession, dummy variables
are used to determine the level of impact. Effective forecasting depends on appropriately selected
regression models. BMI selects the best model according to various different criteria and tests, including,
but not exclusive to:
R2 tests explanatory power; Adjusted R2 takes degree of freedom into account;
Testing the directional movement and magnitude of coefficients;
Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value);
All results are assessed to alleviate issues related to auto-correlation and multi-collinearity.
BMI uses the selected best model to perform forecasting.
It must be remembered that human intervention plays a necessary and desirable role in all of BMI’s
industry forecasting. Experience, expertise and knowledge of industry data and trends ensures that
analysts spot structural breaks, anomalous data, turning points and seasonal features where a purely
mechanical forecasting process would not. Within the infrastructure industry, this intervention might
include, but is not exclusive to, new investments across sectors or cancelled projects; general investment
climate and business environment changes; changing domestic or regional trends; macroeconomic
indicators; and regulatory changes.
Example Of Construction Value Model
(Construction value)t = β0 + β1*(Gross Fixed Capital Formation)t + β2*(inflation)t + β3*(lending rate)t +
β4* (population)t + β5*(government expenditure)t + β6*(construction value)t-1 + εt
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Construction Industry
A number of principal criteria drive our forecasts for each construction and engineering variable:
Construction GDP And Infrastructure Spending
Figures for construction GDP and infrastructure spending are based, where possible, on national accounts
as published by relevant central banks, as well as primary government/ministry sources and official data.
Where these are unavailable, construction GDP forecasts are based on a range of variables including:
Stated infrastructure and development programmes;
Likely increases owing to related urban or industrial sector developments;
Political factors (such as an electorally motivated public works programmes).
Construction as a percentage of GDP is calculated using BMI’s own macroeconomic and demographic
forecasts.
Employment Within The Construction Industry
These figures are forecast based on:
The growth or otherwise of the construction industry;
Company results and expansion plans.
Data Methodology
Construction
Construction Value
Our data is derived from GDP by output figures from each country’s national statistics office (or
equivalent). Specifically, it measures the output of the construction industry over the reported 12 month
period in nominal values (i.e. domestic currency terms). As it is derived from GDP data, it is a measure of
value added within the industry (i.e. the additional contribution of the construction industry over other
industries, such as cement production). Consequently, it does not measure the nominal value of all inputs
used in the construction industry, which, for most states would increase the overall figure by 50-60%.
Furthermore, it is important to note that the data does not provide an indication of the total value of a
country’s buildings, only the construction sector’s output in a given year.
This data is used because it is reported by virtually all countries and can therefore be used for
comparative purposes. However, it is important to note that, where we are able to locate them, data
released by national statistical offices or industry groups or associations for the overall value of the
construction sector also taken into account and published by us.
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Growth
Our data and forecasts for real construction measures the real increase in output (rather than nominal
growth, which would also incorporate inflationary increases). In short, it is an inflation adjusted value of
the output of the construction industry year-on-year. Consequently, real growth will – in virtually all
instances – be lower than the nominal growth of our ‘construction value’ indicator.
Construction Industry, % Of GDP/Construction Value (US$)
These are derived indicators. We use BMI’s Country Risk team’s GDP and exchange rate forecasts to
calculate these indicators.
Capital Investment
Total Capital Investment
Our data is derived from GDP by expenditure data from each country’s national statistics office (or
equivalent). It is a measure of total capital formation (excluding stock build) over the reported 12 month
period. Total capital formation is a measure of the net additions to a country’s capital stock, so takes into
account depreciation as well as new capital. In this context, capital refers to structures, equipment,
vehicles etc. As such, it is a broader definition than construction or infrastructure, but is used by BMI as a
proxy for a country’s commitment to development.
Capital Investment (US$), % Of GDP, Per Capita
These are derived indicators. We use our Country Risk team’s population, GDP and exchange rate
forecasts to calculate them. As a rule of thumb, we believe an appropriate level of capital expenditure is
20% of GDP, although in rapidly developing emerging markets it may, and arguably should, account for
up to 30%.
Government Capital Expenditure
This is obtained from government budgetary data and covers all non-current spending (i.e. spending on
transfers, salaries to government employees, etc.). Due to the absence of global standards for reporting
budgetary expenditure, this measure is not as comparable as construction/capital investment.
Government Capital Expenditure, US$bn, % Of Total Spending
These are derived indicators.
Construction Sector Employment
Total Construction Employment
This data is sourced from either the national statistics office or the International Labour Organization
(ILO). It includes all those employed within the sector.
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Construction Employment, % y-o-y; % Of Total Labour Force
These are derived indicators.
Average Wage In Construction Sector
This data is sourced from either the national statistics office or the ILO.
Infrastructure Business Environment Ratings
BMI’s Infrastructure Business Environment Ratings (IBER) provide a numerically based evaluation of
prospects for the infrastructure sector in each state that we cover. Our approach is threefold. Firstly, the
risks rated capture the operational dangers to companies operating in this industry globally. Secondly, we
attempt, where possible, to identify objective indicators that may serve as proxies for indicators that were
previously evaluated on a subjective basis. Finally, we use BMI’s proprietary Country Risk Ratings
(CRR). Overall, the ratings system – which is integrated with those of all the industries covered by BMI –
offers an industry-leading insight into the prospects and risks for companies across the globe.
Ratings Overview
Conceptually, the ratings system is divided into two distinct areas:
Limits Of Potential Returns
An evaluation of sector’s size and growth potential in each state and also broader industry/state
characteristics that may inhibit its development.
Risks To Realisation Of Returns
An evaluation of industry-specific dangers and those emanating from the state’s political/economic
profile that call into question the likelihood of anticipated returns being realised over the assessed time
period.
For each category and sub-category, each state is scored out of 100 (100 being the best), with the overall
IBER a weighted average of the total score. Importantly, as most of the countries and territories
evaluated are considered by BMI to be ‘emerging markets’, our IBER is revised on a quarterly basis. This
will ensure that the IBER draws on the latest information and data from across our broad range of
sources, and the expertise of our analysts.
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Table: Infrastructure Business Environment Indicators
Indicator Rationale
Limits to potential returns
Market structure
Construction expenditure, US$bn
Objective measure of size of sector – the larger the sector, the greater the opportunities available
Sector growth, % y-o-y Objective measure of growth potential – rapid growth results in increased opportunities
Capital investment, % of GDP Proxy for the extent the economy is already oriented towards the sector
Government spending, % of GDP
Proxy for extent to which structure of economy is favourable to infrastructure/ construction sector
Country structure
Labour market infrastructure From BMI’s Country Risk Ratings (CRR). Denotes availability/cost of labour. High costs/low quality will hinder company operations
Financial infrastructure From BMI’s CRR. Denotes ease of obtaining investment finance. Poor availability of finance will hinder company operations across the economy
Access to electricity From BMI’s CRR. Low electricity coverage is proxy for pre-existing limits to infrastructure coverage
Risks to potential returns
Market risk
No. of companies Subjective evaluation against BMI-defined criteria. This indicator evaluates barriers to entry
Transparency of tendering process
Subjective evaluation against BMI-defined criteria. This indicator evaluates predictability of operating environment
Country risk
Structure of economy
From BMI’s CRR. Denotes health of underlying economic structure, including seven indicators such as volatility of growth; reliance on commodity imports, reliance on single sector for exports
External risk From BMI’s CRR. Denotes vulnerability to external shock – principal cause of economic crises
Policy continuity Subjective rating from BMI’s CRR. Denote predictability of policy over successive governments
Legal framework From BMI’s CRR. Denotes strength of legal institutions in each state – security of investment can be a key risk in some emerging markets
Corruption From BMI’s CRR. Denotes risk of additional illegal costs/possibility of opacity in tendering/business operations affecting companies’ ability to compete
Source: BMI
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Project Finance Ratings
BMI’s Project Finance Ratings (PFR) provide a globally comparative, numerically based assessment of
the risks facing major infrastructure projects in the power, transport, and commercial construction sectors.
It evaluates the degree of uncertainty facing projects that are generally characterised by the following:
long construction period; high construction costs; difficulty in redeploying project assets (e.g. power
stations) to other uses; earnings generated only after construction completed. The PFR draws on BMI’s
broad analytical expertise. The methodology incorporates our industry-leading Country Risk Ratings
(CRR), drawing on our 25-year expertise in assessing political, economic and business operational risk, as
well as our in-depth knowledge of the global infrastructure industry.
While we believe the resulting scores are a reliable guide to project finance risks, it should be emphasised
that the PFR assesses broad industry risks, not individual projects. This has several implications. First,
there will be instances where the risk profile, for example the supply of inputs, of particular projects is
markedly different from general risks in the industry. Second, the PFR will not take into account
measures by private sector project participants to mitigate risk when structuring finance – for example, by
securing a substantial equity involvement from the sponsoring agency or government. The PFR is best
used to evaluate the breadth and depth of risks facing major infrastructure projects, which will in turn
affect the source, availability and cost of finance. Thus, in an environment of limited global finance for
such projects, it provides a leading indicator for the cost of financing major projects and the pace at which
infrastructure development will occur in each state.
Ratings Overview
To reflect the life-cycle of infrastructure projects, the PFR is divided into two distinct sub-ratings:
Design And Construction Risks
This evaluates risks in the broad assumptions underpinning construction cost projections. Specifically, it
assesses uncertainty in the political, economic and regulatory environment, and input cost volatility.
Sector Operational Risk
This evaluates risks in revenue projections during the operational period of a project. It assesses
uncertainty regarding supply and cost of inputs, and sale of outputs, including the regulatory, market and
political environment.
Ratings Components
The rating uses 10 subjectively measured indicators and around 40 separate indicators/datasets. The
weighting of each indicator and group of indicators (inputs, regulatory, market risks, etc) reflects their
relative importance, and the relative risk level that they pose for sponsors and equity holders. The relative
influence of each indicator and group of ratings on the final score can be found below. The score next to
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the segment sub-heading indicates the weighting of the segment in the final rating, and the score next to
each indicator shows each indicator’s influence within the segment.
Table: Design And Construction Phase
Indicator Definition Rationale Weighting
Inputs 20% (segment)
Domestic: inflation
Average consumer inflation 2002-2009, adjusted for standard deviation
High and uncertain inflation raises risks to input cost projections 60%
International: long-term currency volatility
Standard deviation of monthly average of past 12 months of data, plus
standard deviation of moving average Currency volatility increases risks to
cost projections of imported goods 40%
Political environment 25% (segment)
Market orientation
Measure of government intervention in economy, using data for government expenditure and revenue from state-
owned enterprises; average trade tariff rates; tax levels; trade bureaucracy;
and history of FDI inflows
Governments with strong commitment to free markets are unlikely to make
sudden changes to the investment/trade regime 20%
Security risk Measure of level of security threat
(external and internal) facing a country
The higher the security risk, the higher the risks to infrastructure assets in
terms of physical security (as they tend to become targets) and insurance premiums, which rise with security risks, increasing costs to sponsors 20%
Long-term policy continuity
BMI’s evaluation of level of broad governmental policy consistency over
past decade
Strong policy continuity between elites (within or across parties) minimises
risks that new legislation will alter the business environment 20%
Characteristics of polity
BMI’s evaluation of system of government and constitutional
framework against ideal type
Democratic governments with strong, independent institutions are less prone
to sudden policy shifts 20%
Rule of law
Evaluation of breadth and depth of government’s ability to protect
individuals and property Strong rule of law reduces direct threats
to assets during construction 20%
Legal/regulatory risks 20% (segment)
Corruption Subjective measure of level of
corruption
Transparency is essential to planning of predictable input delivery and cost and the predictability of officials’ decisions 50%
Contract enforceability
World Bank Index of cost, procedures and time taken to recover a bad debt
Confidence in the legally binding nature of contracts is essential to minimise
domestic counterparty risk 50%
Economic/financial risks 35% (segment)
Domestic: economic stability
BMI’s long-term economic rating, which incorporates 20 indicators to assess
risk of an economic crisis
Economic stability reduces risks to project activity (e.g. due to financial
problems at suppliers) 30%
International: availability of
US and eurozone average interest rates, adjusted for Chicago BOE VIX
Project finance is mainly raised internationally. Price and availability 70%
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Table: Design And Construction Phase
Indicator Definition Rationale Weighting
finance index depend on US and eurozone interest rates and investor risk appetite (VIX is a
proxy). A global, rather than country-specific, indicator
Source: BMI
Table: Commissioning And Operating Phase – Commercial Construction
Indicator Definition Rationale Weighting
Inputs 30% (segment)
Domestic: inflation
Average consumer inflation 2002-2009, adjusted for standard deviation
High and uncertain inflation raises risks to input cost projections 30%
Domestic: power, imports as % of consumption
As stated. Power is used as proxy for all utilities
Supply of utilities is essential to functioning of asset and revenue
generation 25%
International: long-term currency volatility
Standard deviation of monthly moving average of past 12 months of data, plus
standard deviation of moving average Currency volatility increases risks to
cost projections of imported goods 45%
Sale of outputs
Regulatory 20% (segment)
Supply risk BMI’s subjective view of transparency
of government planning policy Clarity regarding future market supply essential to forecast demand for asset 20%
Price risk
BMI’s subjective view of transparency of government policy regarding price of
service related to asset Clarity over policy/regulations covering price are essential to projecting income 20%
Contract enforceability
World Bank Index of cost, procedures and time taken to recover a bad debt
Confidence in legally binding nature of contracts is essential for minimising
domestic counterparty risk 60%
Market risks 30% (segment)
Economic stability
BMI’s long-term economic rating, which incorporates 20 indicators to assess
risk of economic crisis An economic crisis would cut projected
demand, potentially greatly
Long-term currency stability
Standard deviation of monthly moving average of the past 12 months of data,
plus standard deviation of moving average
Sharp currency movements introduces risks to value of income in international
currency 50%
Political risks 20% (segment)
Market orientation
Measure of government intervention in economy, using data for government expenditure and revenue from state-
owned enterprises; average trade tariff rates; tax levels; trade bureaucracy;
Governments with strong commitment to free markets unlikely to make sudden
changes to investment/trade regime 10%
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Table: Commissioning And Operating Phase – Commercial Construction
Indicator Definition Rationale Weighting
and history of FDI inflows
Security risk Measure of the security threat (external
and internal) facing a country
The higher the security risk, the higher the risks to infrastructure assets in
terms of physical security (as they tend to become targets) and insurance premiums, which rise with security risks, increasing costs to sponsors 40%
Policy continuity BMI’s evaluation of level of policy
consistency over past decade
Strong policy continuity between elites (within or across parties) minimises
risks that new legislation will alter the business environment 10%
Rule of law
Evaluation of breadth and depth of government’s ability to protect
individuals and property Strong rule of law reduces direct threats
to assets 40%
Source: BMI
Table: Commissioning And Operating Phase – Energy And Utilities
Indicator Definition Rationale Weighting
Inputs* 30% (segment)
Inflation Average inflation, 2002-2009, and its
standard deviation
Volatile inflation risks unanticipated cost increases that may be impossible to
pass on to asset users 30%
Crude price costs
BMI’s Brent Crude forecasts for next five years, adjusted for standard
deviation of prices over past three years
Gas and other fuel prices correlate closely with oil. Price stability is
desirable, as are anticipated future trends. This is a global, rather than
country-specific, risk 25%
Long-term currency volatility
Standard deviation of monthly moving average of the past 12 months of data,
plus standard deviation of moving average
Currency volatility increases risks to cost projections of imported goods or goods bought in US dollars (i.e. fuel
feedstock) 45%
Sale of outputs
Regulatory 20% (segment)
Demand risk
BMI’s subjective view of government energy policies and implications for
industry demand
Transparency regarding government energy policies is essential for
evaluating demand 20%
Price risk
BMI’s subjective view of transparency of government policy regarding power
prices Clarity over policy/regulations covering
price essential to projecting income 20%
Contract enforceability
World Bank Index of cost, procedures and time taken to recover a bad debt
Confidence in legally binding nature of contracts is essential to minimising 60%
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Table: Commissioning And Operating Phase – Energy And Utilities
Indicator Definition Rationale Weighting
domestic counterparty risk
Market risks 30% (segment)
Economic stability
BMI’s long-term economic rating, which incorporates 20 indicators to assess
risk of economic crisis An economic crisis would cut projected
demand, potentially greatly 50%
Long-term currency stability
Standard deviation of monthly moving average of the past 12 months of data,
plus standard deviation of moving average
Sharp currency movements introduces risks to value of income in international
currency 50%
Political risks 20% (segment)
Market orientation
Measure of government intervention in economy, using data for government expenditure and revenue from state-
owned enterprises; average trade tariff rates; tax levels; trade bureaucracy;
and history of FDI inflows
Governments with strong commitment to free markets internally and
internationally unlikely to make sudden changes to investment/trade regime 10%
Security risk Measure of the security threat (external
and internal) facing a country
The higher the security risk, the higher the risks to infrastructure assets in
terms of physical security (as they tend to become targets) and insurance premiums, which rise with security risks, increasing costs to sponsors 40%
Policy continuity
BMI’s evaluation of level of broad governmental policy consistency over
past decade
Strong policy continuity between elites (within or across parties) minimises
risks that new legislation will alter the business environment 10%
Rule of law
Evaluation of breadth and depth of government’s ability to protect
individuals and property Strong rule of law reduces direct threats
to assets 40%
* No distinction between internal and domestic risks. This reflects BMI’s view that all projects would have fuel feedstock contracts in place prior to construction. Source: BMI
Table: Commissioning And Operating Phase – Transport
Indicator Definition Rationale Weighting
Inputs 30% (segment)
Domestic: inflation
Average inflation, 2002-2009, and its standard deviation
Volatile inflation risks unanticipated cost increases that may be impossible to
pass on to asset users 40%
International: long-term currency Volatility
Standard deviation of monthly moving average of the past 12 months of data,
plus standard deviation of moving average
Currency volatility increases risks to cost projections of imported goods 60%
Sale of outputs
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Table: Commissioning And Operating Phase – Transport
Indicator Definition Rationale Weighting
Regulatory 20% (segment)
Demand risk
BMI’s subjective view of government regulation and its record in supporting
substitutes etc Transparency regarding government
policy essential for evaluating demand 20%
Price risk
BMI’s subjective view of transparency of government policy regarding price of
service related to asset Clarity over policy/regulations covering
price essential to projecting income 20%
Contract enforcibility
World Bank Index of cost, procedures and time taken to recover a bad debt
Confidence in legally binding nature of contracts essential to minimising
domestic counterparty risk 60%
Market risks 30% (segment)
Economic stability
BMI’s long-term economic rating, which incorporates 20 indicators to assess
risk of economic crisis An economic crisis would cut projected
demand, potentially greatly 50%
Long-term currency stability
Standard deviation of monthly moving average of the past 12 months of data,
plus standard deviation of moving average
Sharp currency movements introduces risks to value of income in international
currency 50%
Political risks 20% (segment)
Market orientation
Measure of government intervention in economy, using data for government expenditure and revenue from state-
owned enterprises; average trade tariff rates; tax levels; trade bureaucracy;
and history of FDI inflows
Governments with strong commitment to free markets are likely to refrain from
sudden changes to the investment/trade regime 10%
Security risk Measure of the security threat (external
and internal) facing a country
The higher the security risk, the higher the risks to infrastructure assets in
terms of physical security (as they tend to become targets) and insurance premiums, which rise with security risks, increasing costs to sponsors 40%
Policy continuity
BMI’s evaluation of level of broad governmental policy consistency over
past decade
Strong policy continuity between elites (within or across parties) minimises
risks that new legislation will alter the business environment 10%
Rule of law
Evaluation of breadth and depth of government’s ability to protect
individuals and property Strong rule of law reduces direct threats
to assets 40%
Source: BMI
Vietnam Infrastructure Report Q2 2010
© Business Monitor International Ltd Page 85
Sources
BMI uses publicly available information to compile the country reports and collate historical data.
Sources used in Infrastructure reports include UN statistics; national accounts; infrastructure, public
works, transport, energy and economy ministries; officially released company results and figures; trade
bodies and associations and international and national news agencies.
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
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