FINANCING TRANSPORT INFRASTRUCTURES IN HO CHI MINH CITY (VIETNAM) TOOLS, INNOVATIONS AND CHALLENGES

N° - 2015 WORKING PAPER Urban Development Management Support Centre - PADDI FINANCING TRANSPORT INFRASTRUCTURES IN HO CHI MINH CITY (VIETNAM) TOOLS, INNOVATIONS AND CHALLENGES Clément MUSIL, researcher at the IPRAUS (Paris Research Institute of Architecture, Urban and Social Development) and member of the UKNA Network (Urban Knowledge Network in Asia) Contact: musil.clement@gmail.com Morgane PERSET, urban planner, project executive at PADDI - Ho Chi Minh City Urban Development Management Support Center Contact : paddi.mperset@gmail.com With the support of AFD Disclaimer Analysis and conclusions of the document are formulated under the authors’ responsibility They may not necessarily convey the viewpoint of PADDI (HCMC Urban Development Management Support Centre), nor that of its partner agencies PADDI Founded in 2006, PADDI is an innovative decentralized cooperation project between the Rhône-Alpes Region (France), the Greater Lyon metropolis (France) and Ho Chi Minh City (Vietnam) Under the Ho Chi Minh City People’s Committee supervision, its goal is to assist the city’s technical departments in various fields of urban management Website: www.paddi.vn Authors: Clément Musil, Morgane Perset Translator: Dương Thị Hoài Chân Copy editors: Fanny Quertamp, Zan-Hee Oh Printing date: 01/2016 F INANCING TRANSPORT INFRASTRUCTURES IN HO CHI MINH CITY (VIETNAM) TOOLS, INNOVATIONS AND CHALLENGES In a context of rapid urbanization, financing urban infrastructures is a major challenge for most developing cities From a sectorial approach, the transport, and based on the case of Ho Chi Minh City (Vietnam), this paper aims at stressing the limitations that conventional financial modalities (i.e mainly public funds combined with Official Development Assistance) face today when building transport facilities Yet since the late 1990s, innovative practices are experienced in Ho Chi Minh City with regards to financing and raising capital Several innovations, both institutional and financial, emerge through the use of flexible Public-Private Partnerships, land resource as financial leverage, and the involvement of key stakeholders as local investment and development funds - These reforms are generally referred to as đổi which means “renovation” in Vietnamese - HCMC is considered a “motorcycle dependent city” because traveling by motorcycle accounts for 80% of the total traffic Also, the number of personal cars registered by the city has increased by 10% each year since 2004 (Musil and Simon, 2014) The Southern metropolis of Vietnam, Ho Chi Minh City (HCMC), has a rapid urbanization rate, reflected through the continual rise in both built areas and population Since the early 2000s, almost 1,600 hectares of land have been urbanized annually (DONRE, 2013) and the population has grown 3% per year, bringing the city’s total population to nearly million (GSO, 2013) Moreover, with an average Gross Domestic Product (GDP) growth rate of nearly 10% per year since the 2000s, this metropolis has become the main driving force for the country’s economy, contributing about 20% to the national GDP (World Bank, 2014) Like other major Southeast Asian cities (e.g Bangkok, Jakarta, Kuala Lumpur and Manila), HCMC is viewed by many economic observers as an “emerging metropolis” (Hales et al., 2014) The dynamic development of the city stemmed from not only the economic reform policy launched in the 1980s, under which Vietnam abandoned the centrally planned economy and transited to the “socialist-oriented” market economy,1 but also from the adoption of policies and initiatives to develop urban infrastructures (Gainsborough, 2003) To promote economic growth, the city particularly focused on building transport facilities (Nguyen et al., 2004) In the years 1990-2000, with financial support from various donors (World Bank - WB, Asian Development Bank - ADB, Japan International Cooperation Agency - JICA, Agence Franỗaise de Développement - AFD, etc.) and the participation of private investors, the city government has prioritized the upgrading and building of new roads (Rosengard et al., 2007), while modernizing major transport hubs (e.g container ports, airports) in order to facilitate the export of goods produced in the metropolitan area Although the process of modernizing transport infrastructures has been pushed forward, the needs of the city and its inhabitants remain high The road transport network is currently under significant pressure HCMC’s city center frequently experiences congestion due to the daily commuting and the increasing number of personal vehicles.2 In the suburbs, the few major axis roads are blocked from time to time due to container trucks transporting goods from industrial zones to transport hubs (Người Lao Động, 16/01/2015) Furthermore, according to expert estimates, traffic congestion in HCMC costs USD 1.2 billion each year to the economic stakeholders (VietnamNet, 16/09/2014) To solve these problems, while enhancing the city’s attractiveness and promoting regional economic integration, in 2013, the city approved an ambitious transport development plan – the Ad- Working Paper du Centre de Prospective et d’Etudes Urbaines - PADDI justment Plan for HCMC transport infrastructure development to 2020 and vision beyond 2020 This comprehensive plan displays a significant number of projects, such as the construction of new highways, the creation of a wide public transportation network including several metro lines and dedicated bus lanes, a new airport, a deep water port, as well as the modernization of existing railway network.3 However, this ambitious plan is questionable in several respects, particularly because of the technical choices adopted, as it gives priority to road network construction without addressing any warnings about the potential harmful effects of such a development on the environment, and because of the lack of clearly identified priorities and detailed phasing Apart from the aforementioned, the main problem remains the financial feasibility of the plan Given many opinions expressing that Vietnam could tumble into the “middle income trap”4 (Tran Van Tho, 2013), would the government and city authorities have sufficient resources to carry out their ambitions plans? The questions raised above are also key issues because in general, developing cities face major common difficulties in developing infrastructure and public facilities to meet the needs of urban dwellers and facilitate economic growth (Serageldin et al., 2008) For its part, international donors recommend that countries diversify their financial sources These recommendations also have certain impacts on Vietnam, given the country’s dependence on foreign Official Development Assistance (ODA), especially in heavy infrastructure investments, and facing the risks of increased public debt.5 Since the 1990’s, Vietnam has sought new ways to invest in transport infrastructure The government has paid more attention to associate the private sector as well as private funding (Pham Phi Long, 2007) and used land resources as an investment leverage (Labbé and Musil, 2014) Considering the challenges that HCMC is facing and the unaccomplished transition from a plan- Sub-sectors Road network Railway network Public transport Sea and waterway transport Air transport Total ned to a market economy, this paper presents an insight into the methods of financing urban transport infrastructure Beyond the “traditional” instruments such as public funding and ODA, the uses of new investment practices are examined This paper emphasizes the role of specific local stakeholders and how land resource is used as an incentive to produce infrastructures The last section of this paper discusses the factors that may hinder the construction of the expected facilities - Refer to Decision 568/QD-TTg issued in 2013 for the exhaustive list of infrastructure projects planned to 2020 and beyond TrAnSPOrT DeVelOPMenT PlAn TO 2020 AnD THe PlAnneD InVeSTMenT MeTHODS - Vietnam’s public debt could rise to over USD 92 billion, or about 62% of national GDP at yearend 2015; this means that every citizen must shoulder USD 1,000 of debt (Tuổi Trẻ, 12/10/2015) With the adjustment of the Transport Development Plan in 2013, HCMC set a clear mandate to modernize the transport infrastructure in the coming decade The contents of this plan (objectives and projects) are based on the forecasts in the city’s overall Socio-Economic Development Plan (SEDP) Accordingly, in the period 20152025, the city population is to increase by million people and economic growth is estimated at 8.5-10.5%/year.6 The objectives of the transport planning are divided into three main areas: • Improving the existing transport network (i.e the road network through the construction of multiple roads, highways, ring roads and elevated expressways); • Solving the problem of traffic congestion through developing a large scale public transit system (composed by metro, monorail, tramway lines and dedicated bus lanes); • Modernizing facilities that serve as communication interfaces between HCMC and other cities in the world (e.g deep water port and new airport) Number of project 382 22 17 81% 5% 4% 428 836 VND (≈67 US$) 565 166 VND (≈26 US$) 389 566 VND (≈18 US$) 56% 22% 15% 47 10% 53 946 VND (≈3 US$) 2% 0% 469 100% 144 834 VND (≈7 US$) 582 348 VND (≈121 US$) 5% 100% % Estimate of investment needs by 2020 and beyond Table 1: HCMC transportation infrastructure projects towards 2020 and beyond Source: HCMC Transport Development Plan adjusted, 2013 (Decision 568/QD-TTg) % (in billions VND and equivalent in billions US$) Working Paper du Centre de Prospective et d’Etudes Urbaines - PADDI - Phenomenon that results from a sometimes rapid decrease of the economic growth rate of countries previously experiencing overheated growth during many consecutive years - Refer to Decision No 2631/QD-TTg issued in 2013 Hồ Key HC MV - íM Ch Ring roa Tây Ninh Province d n°4 Bình Dương Province HCM VM Bà Planned infrastructures : Motorway Ring road Flyover section of ring road Flyover speedway Urbanized area Industrial area Provincial boundaries Water system Existing infrastructures : Motorway Ring road Main road (national / provincial level) Secondary road Port Production : Clément MUSIL / Loïc BOISSEAU / Morgane PERSET, 2015 Sources : Decision 568/QD-TTg from 08/04/2013, HCMC transportation master plan amendement towards 2020 i Ring r oa d Ring road n°3 HCMC Province n° Tàu h) ut (S o To Đồng Tháp Province To Phan Thiêt and Hà Nội Đồng Nai Province g Vũn oà - í Ch Hồ n Mi d oa hr Airport H Biên Long An Province ộc Thủ Dầu Một - Chơn Thành To Cambodia border Road and motorway network development within Ho Chi Minh city metropolitan area by 2020-2030 To Bình Phước Province in hr oa d( Nor th) To Bình Long MV HC ng Lo hàn iây uG Dầ To Phan Thiêt and Hà Nội Th Long Thành (project) àn h o Bến Lức – L ng Th HC M V -T ru ng Lư ơn g Bà Rịa-Vũng Tàu Province To Vũng Tàu To Cần Thơ 5km 10km Map 1: Road network development within HCMC metropolitan area by 2020-2030 Source: HCMC Transport Development Plan adjusted, 2013 (Decision 568/QD-TTg) The ambition of this plan is reflected through the proposed list of 469 projects of which more than three-quarters fall into the road infrastructure category (see Table 1) The analysis of spatial distributions in these projects however has shown a number of inconsistencies For example metro lines and dedicated bus lanes, as well as elevated roads are planned to be developed in the central area This stresses that local authorities appear to not have been able to make a clear choice between public transportation and the use of private vehicles Also, there is a lack of coordination to implement a number of these projects, especially the highways and metro lines which stretch from HCMC to neighboring provinces (see Map 1) and therefore require an integrated planning and implementation approach, including coordination among involved provincial/city departments and central agencies Furthermore, even though the investment required to implement the proposed plan was estimated to exceed USD 120 billion, the funding and fund management of the plan remains to be clearly addressed In fact, this highlights the gap between the expected capital requirements and the city’s actual investment capability In 2014, the Department of Planning and Investment estimated that the city’s capital budget met only 5% of the total investment required to execute the projects set out for the year (PADDI, 2015a) Meanwhile, the budget allocated for the transport sector (used for building, maintaining and operating infrastructures and services) already accounted for a significant proportion, i.e 30% of total annual city budget (ibid., 2015a) In order to guide relevant departments in understanding the state of the planning and mobilizing the necessary resources, the City Transport Development Plan adjusted in 2013 proposes multi-year estimates For instance, the 2013-2015 period needs VND 38,958 billion (≈USD billion) each year, equivalent to 5% of the city’s GDP in 2013 (GSO, 2013) In the next phase, 2016-2020, the annual capital requirement is approximately VND 115,357 billion (≈USD billion), equivalent to 11% of the city’s annual GDP These forecasts are however only feasible if the city can maintain an economic growth of 10% per year If on average, cities of Middle-Income Countries invest 3-6% of GDP in transportation facilities (Foster and Briceño-Garmendia, 2010), the budget of HCMC for the coming years appears to be overestimated Working Paper du Centre de Prospective et d’Etudes Urbaines - PADDI Given such forecast, in reality, the decision to deploy a specific project depends on the choice of the relevant departments When drafting the municipal budget, the Department of Planning and Investment and the Department of Finance will compile a list of projects selected among those proposed by specialized departments, and provide funding depending on the city’s investment capacity Prioritized projects are often those capable of attracting ODA or private capital investments In 2012, the city has called for private investors to invest in key transportation infrastructure (ITPC, 2012) This is a special aspect in infrastructure development that receives increasing attention due to the need to create investment opportunities for private investors The City is expected to expand the participation of private investors, aiming for 50-55% of the total project funding from domestic private capital and 15-25% from foreign investment between now and 2020 (PADDI, 2015b) The estimated investment needs provided by the City Transport Development Plan adjusted in 2013 reveal challenges in mobilizing resources for the coming years when compared with actual budget funding for the sector Between 2010 and 2012 the city provided almost VND 16,870 billion (≈USD billion, World Bank, 2013) to the transport sector, i.e VND 5,623 billion/year (≈USD 0.3 billion), equivalent to less than 1% of the city’s GDP in 2012 This figure is significantly lower than the estimated need of about 5% or Major achievements Year of completion Bình Triệu bridge 2003 11% mentioned above Given the gap between the city’s planned capital investment and the actual funding provided, it is legitimate to question the financial viability of the current transport planning, as well as the city’s ability to provide the maintenance and operation of such projects in the future However, despite many shortcomings and incertitudes, many projects have in turn been implemented Within 15 years, the city road network has been modernized; many bridges and highways have been built (see Table 2) Among these, notable achievements include the completion of the Phu My Bridge in 2009, the first project following the public-private capital model with participation of foreign partners; and putting into operation the HCMC-Long Thanh-Dau Giay highway in 2015 funded by ODA from JICA and ADB These projects were partly completed through external funds to the public budget Thus, although the public authorities have not been realistic in setting out the ambitious transport planning, and despite a very tight budget, the gradual building up of infrastructure must be recognized To fulfill the set objectives and maintain the development pace of the city, the local government has launched several initiatives, particularly in combining various financial sources and experimenting with new tools Amount of investment (in billions VND and equivalent in millions US$) Financing mechanisms (and main creditor) 223 VND (≈61 US$) BOT (CIENCO 5) 2007 000 VND (≈100 US$) BT (Phu My Hung Corporation) Thủ Thiêm bridge 2008 100 VND (≈55 US$) Public (province/State) Phú Mỹ bridge 2009 360 VND (≈118 US$) BOT (Phu My Bridge Corporation) Section of HCMV - Trung Lương motorway (62 km) 2010 10 800 VND (≈540 US$) Public (State) / BOT (BIDV) East-west motorway (Võ Văn Kiệt urban boulevard) (14 km) and Thủ Thiêm tunnel 2012 13 400 VND (≈670 US$) Public (State) / ODA (JICA) Sài Gòn bridge 2013 500 VND (≈71 US$) Hàng Xanh intersection flyover 2013 188 VND (≈9 US$) Phạm Văn Đồng urban boulevard (13 km) and Bình Lợi bridge 2014 800 VND (≈340 US$) BT (GS E&C) Section of HCMV - Dầu Giây motorway (55 km) 2015 20 630 VND (≈932 US$) Public (State) / ODA (JICA, ADB) Section of ring road (Nguyễn Văn Linh) (18 km) Table 2: Major metropolitan road infrastructures achieved between 2000 and 2015 BT (CII) Public (province) Source: Báo Ảnh Việt Nam, 11/07/2011; Sài Gịn Giải Phóng, 13/08/204, 15/10/2013, 15/04/2012, 19/05/2009, 26/03/2009; Tiền Phong 30/12/2007; Tin Nóng 27/01/2013; Vietnam News 25/04/2006; Vietnam Plus 15/01/2015; VN Express 08/04/2004, 16/08/2003 Mentions: BOT (Build Operate Transfer) ; BT (Build Transfer) ; ODA (Official Development Aid) ; BIDV (Bank for Investment and Development of Vietnam) ; JICA (Japan International Cooperation Agency); CII (Ho Chi Minh City Infrastructure Investment); ADB (Asian Development Bank) Working Paper du Centre de Prospective et d’Etudes Urbaines - PADDI - Including central budget, land taxes, land use fees, vehicle registration fees, corporate income taxes, etc Detailed list can be found in materials of PADDI, 2013 - In 1993, with the lifting of the international embargo since 1975 for Vietnam, international development agencies (World Bank, Asian Development Bank, etc.) officially resumed relations with Vietnam These agencies provide funds to Vietnam in the form of loans and grants Photograph 1: East-west highway (section of Võ Văn Kiệt urban boulevard) Source: C.Musil, 2014 “TrADITIOnAl” FInAnCIAl InSTruMenTS AnD “exPerIMenTAl” PrACTICeS The investment in transport infrastructure in HCMC is primarily based on “traditional instruments” used in many developing cities, i.e public capital and public borrowing combined with ODA However, facing the substantial demand for capital investment, the city has tapped into other tools In the context of economic and urban transition in Vietnam, such tools are considered creative and of “experimental” nature This trend is reflected through three main practices: establishing Public-Private Partnerships in various forms, using land resources as investment leverage and establishing a local investment and development fund Public investment supplemented by ODA The City Transport Development Plan adjusted in 2013 comes along with a schedule for planning the annual investments required In order to implement this schedule, the specialized departments are charged with developing the technical aspect of each project and identifying existing financial resources It is however difficult for these units to assess the overall investment that the city has or has been able to mobilize due to the peculiarities of the budgeting process Generally in Vietnam, local budgets are divided into a few major categories; however the entire investment expenditures are grouped in one category only Therefore, it is difficult to link the expenses and revenues of a local government (see Chart 1) A number of experts have expressed that such mechanism “lumps investment expenditure together and makes it anonymous” (Albrecht et al., 2010:36) Therefore, although the sources that fill HCMC’s budget revenue are identified and detailed,7 the investment financing structure can simply be summarized by: central budget, revenues from end users and loans Furthermore, in order to avoid increases of local government debts, it is regulated that the local outstanding debt balance can only account for up to 30% of the total annual capital investment budget However, on this point, HCMC enjoys certain privileges, allowing its borrowing from the State Bank to go up to 100% per year of the total municipal capital investment budget (op.cit.) In addition, since 2003, the city has a new source of financing at its disposal through the opening market for municipal bonds (Nguyen Van Dua, 2004) Within a decade, the city has issued on average USD 75-150 million of bonds per year (VIR, 14/03/2013) Despite these financial instruments, the lack of specific allocation for capital expenditures in the budgeting process still leads to uncertainty in the city’s financial forecasts Such reason helps to explain the need to mobilize further additional funds from local governments Reviewing the budget structure of HCMC also reveals that loans provided by international donors are incorporated into the public budget.8 These loans are eventually considered as “public funds” This specificity is due to the fact that loans are extended by donors to the government and integrated into the state budget These funds are then allocated to final beneficiaries (province/city) by the Ministries (Ministry of Planning and Investment and Ministry of Finance) In the case of HCMC, the municipal authority bares the responsibility to execute projects financed Working Paper du Centre de Prospective et d’Etudes Urbaines - PADDI 2010 Revenues 2010 Expenditures Expenditures Revenues 17 % 5% 35 % Other local revenues 32 % 3% 7% Local revenues : Land revenues (taxes, duties, fees) 19 % 3% 32 % Operating expenditures (human ressources, equipment maintenance ) Investment expenditures 3% Other expenditures Shared tax revenues (shared with central level) Grants and transfers Debt service 43 % Postponements Loans Postponements Chart 1: HCMC 2010 revenues and expenditures allocation Source: According to HIDS data, Tran Anh Tuan, 2013 by donors, organize tendering, supervise the construction process and ensure remuneration for contractors This additional source of funds is extremely important, accounting for 34% of the city’s total investment capital whilst municipal funding accounts for 66%, according to the Department of Planning and Investment (DPI) in 2014 (PADDI, 2015b) dynamic companies that are occupying strategic sectors However, this tool is lacking a legal framework, since only the government has the authority to borrow in the policy framework of Official Development Assistance Although considered as public capital funding, the use of ODA always requests a considerable counterpart depending on the type of financial aid agreement.9 These ODA funds usually not finance projects entirely, but only co-finance instead For transportation projects, foreign aids can only be used to pay for the design and construction, excluding other expenses incurred, especially costs for site clearance The city shall take responsibility for the site clearances required for projects (land acquisition, compensation and resettlement of affected households) When they are involved, donors usually grant up to 85% of funding for transport projects in HCMC, the remaining amount is the city’s counterpart funds (Musil and Simon, 2014) Since the 1980’s, HCMC has been a city of reform and public policy experiments (Gainsborough, 2003) In the current process of nationwide economic and urban transition, the government has approved a number of flexible institutional and financial regulations to initiate the development of new models especially for HCMC before the ideas were widely adopted across the country The ability to experiment with new instruments is represented by means of infrastructure and public facility constructions contributing to the city’s socio economic development The next sections of this paper introduce three tools currently considered creative and innovative in the development of transport infrastructure ODA funds play an important role in building transport infrastructure in HCMC However, these funds aid may soon experience a potential decline, and at least not present the same benefits Since 2010, according to criteria of the World Bank, Vietnam left the “low income country” category and reaches the lower part of the “middle income country” group This also means that, from now on, it will be difficult for Vietnam to receive non-refundable loans (grants); and the donors will also offer less concessional financial products However, Vietnam remains a valuable client for development banks Currently, Vietnam continues to fulfill its regular repayment responsibilities, maintaining public debt below the alerting level and ensuring a stable repayment ability in the future in terms of economic growth prospects In this context, the central government and its donors have partnered to find new financial instruments New ideas begin to emerge, especially by promoting non-sovereign loans to local HCMC the cradle of experimentations The usage of flexible Public-Private Partnerships (PPP) Limited budgets and the possibility of development aid reduction are the main reasons pushing the government and local authorities to mobilize the private sector for (partly or wholly) transport infrastructure investments The government also wants to attract foreign private investments in particular in the hope of maintaining foreign investment flows and transfers of skills and technology In the late 1990s, Vietnam already had provisions in form of Public-Private Partnerships.10 This framework has paved the way for the establishment of various contracting models, mainly Build Operate Transfer (BOT), Build Transfer Operate (BTO), Build Own Operate (BOO) and Build Transfer (BT) Within the last 15 years, this framework has been adjusted, mainly aiming at becoming more aligned with international standards.11 The adjustment process has been car- Working Paper du Centre de Prospective et d’Etudes Urbaines - PADDI - Foreign aid may be “tied” or “untied” ODA is “tied” when the loans are used to finance services and goods exclusively from suppliers that are linked to the country that brought the assistance fund ODA is “untied” when the loans can be used to purchase these goods and services with any partner country In ODA projects with “untied” financial aid open tenders are often required and foreign as well as local companies can bid Some donors require to their Country partners to comply with other counterparties, particularly to conduct projects regarding ethical, social and environmental principles (Musil and Simon, 2014 10 - In 1997, the first decree (No.77/1997/ ND-CP) on the participation of the domestic private sector was issued In 1998, a second decree (No.62/1998/ ND-CP) was issued to expand this mechanism for foreign investments 11 - Three decrees issued respectively in 1999, 2007 and 2009 (No.02/1999/ND-CP; No.78/2007/NDCP; No.108/2009/ ND-CP), and a decision issued in 2010 (No.71/2010/ QD-TTg) have made important additional amendments 12 - With the exception of Vietnam, such contracts are not recognized elsewhere as PPP, because they not actually form a partnership in medium and long term, and only the private partner bears the risk of construction 13 - Details of this arrangement are provided in page 12 14 -Typically, these private companies were formerly StateOwned Enterprises that have been partially (or completely) equitized in the years 1990 to 2000, of which managers retain close ties with the City authorities 15 - According to the Vietnam’s Constitution in 1992, land is owned by the People and represented by the State for management, thus indirectly the State is the owner of land However, since 1993, land use rights were introduced Upon receiving land use right certificates from authorized authority, owners of land use rights may transfer, sell, lease, collateralize, or bequeath such rights ried out with the support of Vietnam’s donors The latter has always encouraged Vietnam to strengthen the transparency of PPP contracts and identify specific investment models for infrastructure development In particular, the adjusted contents shall meet the expectations of donors in ensuring minimum income over the long run to private investors (Albrecht et al., 2010) This adjustment process led to the existence of two parallel regulations The first one, Decree No 108 issued in 2009, was used mainly by local investors that under Vietnamese law could also sign a “negotiated agreement with a pre-selected contractor” with the public bodies The second one, Decision No 71 issued in 2010, refers to international standards aimed at attracting potential foreign investors Until now the government could take advantage of a “grey zone” between the two legal frameworks, having the flexibility to select appropriate models depending on the opportunities to raise capital and each partner involved The latter decision (from 2010) opened the field to implement pilot investment projects in form of PPP Experiences drawn from the pilot projects were also the basis for drafting a new decree Through this decision, a number of new features appeared such as open bidding, minimum investors’ equity in projects and enhanced project quality inspection before final acceptance Decision 71 appears to target and encourage foreign investors to participate in local projects, since domestic investors have never shown reluctance in contract signing, mainly in the form of BOT and BT, under the frame of Decree 108 (see Frame 1) Since the late 1990s, domestic private investors have been able to engage in Build Transfer (BT), a form of special PPP contracts in Vietnam.12 In this type of contract, that eventually is a construction contract, the investors often receive compensations in kind, especially in form of land to develop real estate projects, instead of cash.13 This model attracts primarily domestic investors due to specific arrangements and close relationships between investors and the city.14 In HCMC, it is difficult to present statistical PPP projects implemented in forms of BOT or BT, the two most common types of contract in the transport sector Since 2004, the DPI has listed 30 infrastructure projects (transportation, water supply and sewage, waste water treatment, etc.) involving the participation of private investors However, counting transport projects alone, the Department of Transportation has listed 37 projects of this kind (PADDI, 2015b) Significant difference between the two figures shows that even relevant municipal Departments had difficulty in unifying the concept of PPP While the definition of BOT is fairly consistent, that of BT remains ambiguous because some consider it a form of construction contracts, while others argue that it is essentially a form of Public-Private Partnership Although difficulties and uncertainties exist, HCMC continues to maintain the set targets and looks to increase the number of PPP projects Since 2012, the city has repeatedly called for investors to participate in strategic transport projects (DPI, 2013; ITPC, 2012), such as: renovating Cho Lon bus station, construction of 170 km of roads (divided into 26 tendering packages of which are BOT), building toll roads under BOT (including elevated roads) and building metro and tramway lines Until now, the government chooses to apply PPP based on criteria such as quick availability of funds, public debt stability and access to foreign technology These criteria suggest that a partnership was established with a short term vision, not yet being fully aware of the borrowing risks in the medium and long-term, as well as the possibility of cost increase for maintenance and operating when equipment’s are transferred For such reason, besides the benefits that PPP offers, the tool also implies potential negative impacts that some private investors in HCMC have already experienced To resolve the difficulties and constraints for both domestic and foreign investors, and to bring Vietnam’s legal framework closer to international standards, a new decree on investment in form of PPP was issued in 2015 (Decree 15/2015/NĐCP) This regulation ended the period where two parallel provisions coexisted previously The promulgation of the new decree also serves as the government’s call for foreign investments Land resources: financial leverage for projects Vietnamese provinces and cities today have two instruments at their disposal to invest partially or wholly, directly or indirectly, in transport infrastructure through their land reserves From the collection of land use/land rent fees,15 local governments can generate revenues from land and reinvest in the development of infrastructure The local governments can also adopt the “land for infrastructure” model with the participation of private investors In HCMC, both tools have been applied in practice Levied land / land lease Since the adoption of đổi policies, the authority of HCMC’s municipality has expanded in the field of urban planning and taxes With land use rights recognized in the 1993 Land Law, followed by policies to modernize the management of local taxes in 2003 and the promulgation of the new Land Law in 2013, the city has obtained new tax revenues on the basis of profits from land and land transactions Working Paper du Centre de Prospective et d’Etudes Urbaines - PADDI Frame – A Build Operate Transfer (BOT) for building the Hanoi Highway expansion in HCMC: land clearance as a source of tension In 2009, HCMC Infrastructure Investment Joint Stock Company (CII, a joint stock company with capital contribution from HCMC (indirectly) and many other shareholders, including Deutsche Bank, Goldman & Sachs, etc.) signed a BOT contract with the Department of Transport to expand 15.7km of Hanoi Highway (from Sai Gon Bridge to Dong Nai Bridge) and to operate this road for 25 years starting 2019 CII invested VND 2,516 billion (≈USD 120 million), 20% of which was equity and 80% borrowing capital Photograph 2: Expanded section of Hanoi Highway in HCMC Source: C.Musil, 2014 Regarding the shared responsibilities between the two contractual parties, the risks relating to site clearance (land acquisition and compensation) fall under the city’s responsibility Accordingly, the city committed to deliver cleared ground to CII in 2010 in order to complete the project by 2013 Further to the city’s commitment, CII made its business plan based on a projected capital recovery and repayment methods However, by the beginning of 2015, the land clearance engaged by the city was not completed In a short term, this delay directly impacts work progress and in a long term would definitively postpone generating fee revenues by installing a toll As a consequence, CII indicated that they are already suffering from this situation and a number of losses and would probably not make debt repayments on time In addition, as the city also invested in other road projects competing directly with the Hanoi Highway section that CII is operating, the company starts to face serious financial issues for this project It is now common that tensions appear between authorities and investors about delays that jeopardize the private partners’ return on investment In some cases, such as the Phu My Bridge BOT project, investors (here the Phu My Bridge Construction Investment JSC) threatened to withdraw from the operation and requested compensation from the city Sources: PADDI (2015b: 28-84); Vietnam news (01/20/2015); Nguyen Xuan Thanh, 2013; www.cii.com.vn In fact, the local government can today allocate land for collection of levy or for investors (private/public and domestic/foreign) to lease land during a certain period (50-70 years) Investors are conducting development projects (real estate or industrial) on the land allocated under the provisions of the Land Use Planning Land rent/land use fees constitute major sources of revenues for the local government, particularly in HCMC In 2010, revenues from land accounted for 17% of total city revenues (i.e approximately USD 510 million) (Tran Anh Tuan, 2013) Assigning/ leasing of land can be approved through negotiation or auction Although the land revenues can10 not be pre-designated for a specific investment area, and must be merged into the city’s budget with other revenues, they indirectly contribute to funding the development of infrastructure Currently, revenues from land are not sufficient for the city to invest to the entire planned transport infrastructure However, when opportunities open up, the city always takes the chance to experiment with new tools in making ideal investments Especially in the case of Nguyễn Hữu Thọ road which was constructed thanks to the acquisition and the selling of “development strips” along the route (see Frame 2) Working Paper du Centre de Prospective et d’Etudes Urbaines - PADDI An uncommon instrument: exchanging “land for infrastructure” The first project using this instrument in Ho Chi Minh City is Nguyễn Văn Linh road (part of Ring Road No.2) in the middle of the 1990s The Phu My Hung Corporation, a joint-venture between a local state-owned enterprise and a Taiwanese corporation, was the investor of this road in exchange for 600 hectares of land (now developed and known as Phu My Hung urban area) which is included in a broader area called Saigon South (Leaf, 2009) Specifically, this method enabled the municipal authority to pay investors (public/private - local/ foreign) in land to exchange for their construction of technical infrastructure (bridges, roads, etc.) or social infrastructure (schools, hospitals, etc.) in accordance with the city’s plans The value of land allocated to the investors is equivalent to the construction costs of the projected infrastructure This exchange model helped the city to promote economic growth and reduce burden on state budget and public debt This method is most popular in the transport sector, especially in road projects Infrastructure projects implemented under BT (Build – Transfer) contracts are governed by the PPP legal framework After the construction of part of Ring Frame – land capture value and “development strips”, the case of nguyễn Hữu Thọ road In 1999, the city decided to build a road connecting two urban districts in the central area (District and District 7) with Hiệp Phước port located in the Nhà Bé rural district in the southern part of the metropolis As the land price of the route crossing urban districts was particularly high, site clearance only covered the exact land taken in accordance with the approved planning in these districts Meanwhile, for the route crossing Nhà Bé district (7km) where the land was mostly agricultural land with a relatively cheap price, the city took additional 75 meters on each side on top of the land in order to create a land reserve (around 87 hectares) Upon completion of the road, such land reserve will be transformed into construction land and auctioned to investors With this “development strips” solution, the city expects to raise enough capital to recover the road construction costs as well as other public facilities guyễ n Hữ N km To Hiệp Phước Ring Road n°2 Phú Mỹ Hưng To City Center N ọ Rd ữu Th ễn H Nguy u Thọ Rd D D Nhà Bè Legend River / channel Urbanised area Ring Road Main road Administrative division D D Nhà Bè Urban district Rural district District boundary Phú Mỹ Hưng Name of main urban area Nguyễn Hữu Thọ "strip development" Road axis Built and occupied plot (residential and office towers / villas) Built and no occupied plot (residential towers / villas) Resettlement area (individual housing) Sold and non built plot Electric transformer Nhà Bè district development projects Future new urban area Future golf course Map design: C Musil, 2015 Data: HCMC Land Development Center, 2015 Map 2: LLot division of “development strips” along Nguyễn Hữu Thọ road Source: HCMC Land Development Center (in PADDI, 2015c) Working Paper du Centre de Prospective et d’Etudes Urbaines - PADDI 11 Between 2003 and 2007, the city conducted land acquisition for the project via the Land Development Center directly under the Department of Natural Resources and Environment which is in charge of site clearance, compensation and resettlement of affected inhabitants The project’s site clearance costs (for around 350 households) were approximately VND 105 billion (≈USD million) For some particular sectors, site clearance costs per m2 of agricultural land did not exceed VND 30,000 billion (≈USD 1.5 million) The road was constructed along with the site clearance progress and completed in 2007 with the total costs of VND 429 billion (≈USD 20 million) In 2008, the land reserve along two sides of the road which had been reclaimed previously were divided into lots and put up for auction According to the authorities, the auction of land brought a revenue of over VND 800 billion (≈USD 37 million) to the municipal budget After that, numerous property projects have been developed on these lots (Gold House, Kenton Residences, Dragon Hills, etc…) Using the above mentioned “development strips” method, the city has apparently made a profit of VND 261 billion (≈USD 12 million) This huge surplus was attributed to capital gains from land sale from 2008 to 2011 and mainly to a serious increase of land prices during this period The project’s success can be attributed to the city’s competency in forecasting land reserve and auctioning land at market price and demand In addition, the fact that the majority of land was agricultural land also helped to reduce acquisition and site clearance costs for the city Sources: PADDI (2015b and 2013) Road No.2 mentioned above, other roads were also built using this investment method, like the 14 km of Phạm Văn Đồng Road connecting Tân Sơn Nhất Airport with National Highway No.1 In exchange for constructing this road at a cost of USD 340 million, South-Korean G&S Corporation was allocated over 100 hectares of land in different areas (Tuổi Trẻ, 09/06/2008) Without such an attractive land-based exchange mechanism, especially with some plots that have high value in the central area, it would have been difficult for the city to attract private investments It is undeniable that the “land for infrastructure” model did help the city to build infrastructure in accordance with planning However, in this exchange, the city has to often give undervalued or controversial land lots to investors (Thanh Niên, 19/02/2011) This thus suggests that local governments are wasting rare and precious land resources for some gains that need to be put into perspective Piloting the establishment of a Local Investment and Development Fund HCMC is not only the cradle for piloting planning projects but also for experimenting with new institutional instruments In 1997, HCMC was the first city in Vietnam to establish a Local Investment and Development Fund (LIDF), another innovative financial instrument (Nguyen Xuan Thanh, 2003) After 20 years of establishment, this institution can be considered as the city’s “right-hand man” in infrastructure investment and also a priority and ad hoc partner for international donors (see Frame 3) 12 The success of this fund led to the adoption of a decree16 in 2007 regulating the LIDFs; this decree also gives to these organizations the status of local public financial institutions (Albrecht et al., 2010) Although directly under municipal authority, these funds have their separate accounting system, equity capital independent of the municipal budget and their own staff Such autonomy enables them to select investment projects at their discretion and advise the Line Agency on profitability of the proposed projects.17 This 2007 decree also regulates areas of investment under the funds’ mandate including: technical and industrial infrastructure, environment, housing, projects in accordance with planning Since the decree’s issuance, 36 provinces have set up their own local funds.18 The Vietnamese experience of LIDFs echoes the financing tool of urban infrastructure of Chinese local authorities, the Local Government Finance Vehicles – LGFV.19 Since Chinese provinces and cities are not allowed to borrow directly from banks, their investments are channeled through LGFV Local authorities shall ensure sufficient funding for LGFV by assigning land reserves to these financial institutions for calling needed capital for infrastructure construction However currently, LGFV’s borrowing capacity is being challenged due to vigorous real estate speculation prevailing in China and a devaluation risk of the land reserve (Peltier, 2012; Gaulard, 2013) In this context, local authorities are faced with difficulties in budget control and risks of debt buildup Although LIDFs in Vietnam not depend entirely on the local authorities’ land reserve as a financial leverage, China’s lessons also imply Working Paper du Centre de Prospective et d’Etudes Urbaines - PADDI 16 - See Decree No.138/2007/NĐ-CP 17 - These funds have adequate resources and professional capacity to appraise and conduct studies (pre-feasibility study, impact study, environment and market research, etc.) 18 - In particular, Quảng Nam - Đà Nẵng, Cần Thơ, Khánh Hòa and Lào Cai provinces established a LIDF 19 - From 1980 to date, statistics show that over 8,000 LGFVs were created in China (Artus et al., 2011:168) 20 - Before 2010, it was known as Ho Chi Minh City Urban Development Investment Fund - HIFU 21 - Regarding nonsovereign loan granting in Vietnam, AFD appears as a pioneer among international donors In 2010, AFD approved such a loan to Electricity of Vietnam (EVN) without governmental guarantee Since 2013, besides HFIC, the Coop Bank and Vietnam National Coal Mineral Industries Group (Vinacomin) are also in negotiation with AFD to benefit from non-sovereign loans a likely prospect of these funds and a warning signal regarding debt control In addition, despite funds’ autonomy from Line Agencies, local authorities are still liable for the funds’ financial risks (Albrecht et al., 2010) Since the 1990s, the Vietnamese government and HCMC authorities, who bear overall responsibility, endeavored to seek new and inno- vative instruments in order to overcome gaps in conventional investment approaches and to build needed transportation infrastructure for the metropolitan area PPP contracts, land reserve and LIDFs are effective supplements to the state budget and ODA loans Combining all these instruments helped HCMC to build a number of planned infrastructure works in accordance and Frame – HCMC investment and development fund, an instrument for calling private investments Established in 1997, the Ho Chi Minh City Finance and Investment Company (HFIC)20 appears as a “state-owned company operating efficiently in a socialist-oriented market economy” HFIC is active in the area of transport and mainly focuses on facilitating financial models for road infrastructure construction (toll roads, bridges and tunnels) HFIC’s capital is derived from several sources, it is a combination of municipal budget, borrowings from multiple counters (e.g local/international and private) and loans from international donors (see figure 2) For instance, HFIC has borrowed more than USD 100 million from AFD and the World Bank In addition, in 2013, AFD tested a non-sovereign loan of EUR 30 million directly to HFIC without governmental guarantees This can be deemed a successful pilot test as in 2014, AFD and Vietnam signed an agreement to apply this lending instrument with other local investment and development funds.21 ADB and other development agencies, notably from German and Japanese bilateral cooperation agencies, also expressed their interest in cooperating with HFIC in urban infrastructure investment Regarding investment facilities, HFIC may choose to invest directly in projects, extend loans to investors or buy shares of enterprises operating in sectors defined in the 2007 decree Since establishment, HFIC has contributed capital to 16 enterprises and joined in implementing 300 projects with a total investment mounting up to VND 8,565 billion (≈USD 400 million) SOURCES OF FINANCING INVESTMENT MECHANISMS LOCAL BUDGET DIRECT INVESTMENT Capital subscribed by HCMC Including PPP project (mainly BOT) OFFICIAL DEV AID (ODA) - Sovereign loan (via government) - Non-sovereign loan EQUITY ISSUANCE HFIC CREDIT Project maximum 15 years Bond issuance LOANS PARTICIPATION - Loan syndication with banks - Loans by local and foreign institutions IN COMPANY’S SHARE CAPITALv Investor Figure 2: HFIC sources of financing and investment mechanisms Source: HFIC (2014) ; Albrecht et al (2010) HFIC’s experience, the guarantee from the public Line Agency and investors’ confidence are testimonials to its efficiency According to HFIC’s estimates, every USD invested by HFIC can potentially attract USD 53 of private and foreign investment Despite undeniable successes, HFIC’s development prospects need further consideration One of HFIC’s limitations is the risk of conflict of interest stemming from HFIC’s capital contribution in companies which have direct contracts with the municipal authorities This contradicts the principle of international donors financing HFIC, as they always encourage the Vietnamese government to apply standardized bidding methods and enhance transparency in urban infrastructure contracting Sources: Collin (2014) ; HFIC (2014) ; Albrecht et al (2010) ; PADDI (2015c) Working Paper du Centre de Prospective et d’Etudes Urbaines - PADDI 13 structure a vast urban region However, given the huge amount of infrastructure works to be built and capital to be attracted, there are still concerns about the prospects in the long term urBAn TrAnSPOrTATIOn InFrASTruCTure DeVelOPMenT unDer COnSTrAInTS Apart from the state budget and ODA funding, satisfying no more than 30% of annual investment needs in the transportation sector, and despite additional capital from the private sector, land revenues or LIDFs, new sources of funding and efforts from the local authorities are still required to implement transportation infrastructure works in accordance with the city’s planning Nonetheless, regardless of what investment approach selected by the city, numerous constraints still pose a burden on the project’s technical-financial structuring These constraints should be resolved or avoided in a timely manner Such constraints include site clearance problems (increasingly scarce land reserve, complex land acquisition procedures), legal issues (stagnation and legal limitations regarding the private sector’s participation in public investment) and urban governance principles (necessary renewal of the stakeholders and tools while transportation networks rapidly expand) A scarce, expensive but critical land resource Currently, it is very common to stress that land access is one of the biggest obstacles to infrastructure development in Vietnamese cities During the past few years, various studies (scientific researches, donors’ studies and Line Departments’ technical reports)22 have pointed out difficulties in the site clearance process conducted by public agencies In order to build planned infrastructure for the next decade, HCMC need to gather at least 22,000 hectares of land,23 while the city’s land reserve is getting increasingly scarce It is necessary to recall that between 2000 and 2010, approximately 1,600 hectares of land have been urbanized annually (DONRE, 2013) This scarcity pressure and the rapid development of land lots, that especially takes place at the outskirts of the city where new urban and infrastructure projects are developed, have resulted in soaring land prices In such a context, how can the city conduct effective pilot programs like the “development strips” initiative as in the case of Nguyễn Hữu Thọ Road (see Frame 2) and create adequate land reserve? 14 First of all, replication of the successful model in land control requires many conditions: (i) to have available low price land (agricultural or non-built land), (ii) to operate low cost resettlement (small number of households to be resettled, chances for on-the-spot resettlement or resettlement on public land lots), (iii) to sell land lots of high economic value to investors (accessible and within attractive areas) so that the municipal authority can recover its investment capital Following the Nguyễn Hữu Thọ project, the city’s wish was to replicate this model, especially in completing Ring Road No.2, but all subsequent projects failed, mainly due to high land prices and the lack of land reserve for resettlement Meanwhile, the creation of land reserve is subject to the city’s land acquisition strategy Although the municipal authority has the implementing vehicle via the Land Development Center, this unit lacks financial resources to acquire desirable land lots To solve this issue, HCMC recently decided to establish a new tool, a Land Development Fund, aiming at supporting the Center in these activities However, difficulties in creating public land reserves not only stem from financial issues but also from social issues This is probably the most complex issue in the land acquisition procedure In their complaints related to land in infrastructure projects, people usually demand social and economic fairness during the implementation process.24 In other words, people demand to be compensated at market prices, not the city’s cost norms.25 These proceedings are not only costly but also lengthy The result is delays in site clearance which slow down construction progress and result in overrun costs for the project Lastly, one dilemma still persists in HCMC’s land issues On the one hand, the city’s land value is high, especially when this value refers to market prices On the other, tax revenues from real estates are quite low Tax instruments (land use tax, land use fee, land lease, etc.) are based on public quotation instead of market prices – even if the public prices are reviewed annually Hence tax adjustments to review local tax rates related to real estate appear to be a rational step to increase municipal revenue and create long-term effective financing instruments for transportation infrastructure construction and maintenance The slow and inadequate regulatory mechanisms framing the PPP Given the municipal authority’s call for more active participation of the private sector in urban infrastructure investment, the following section analyzes some constraints related to transportation infrastructure projects by considering the local PPP’s legal framework The evolution Working Paper du Centre de Prospective et d’Etudes Urbaines - PADDI 22 - Some references: Labbé and Musil, 2014; Gillespie et al., 2014; World Bank, 2011; MAUR, 2012 23 - See Prime Minister Decision No.568/ QĐ-TTg dated 2013 approving the adjustment for the transportation development planning of Ho Chi Minh in 2020 and the vision beyond 2020 24 - Regarding land acquisition procedures, the city only compensates households possessing legitimate land use certificates They are compensated for land and housing on land Others will only be compensated for housing whereas the most valuable asset is land 25 - In Vietnam, local authorities publish land price and make adjustment on an annual basis However, there are still gaps between public price and market price In the case of HCMC, this gap is approximately 30% to 70% depending on specific locations 26 - According to the Private Participation in Infrastructure database (http://ppi worldbank.org/) 27 - This figure is apparently low compared to Vietnam’s vibrant economic growth and investment opportunities available to the private sector (ADB and AFD, 2012) It can be inferred from this figure that some local statistics on PPP projects have not been incorporated into the national data system 28 - Service charges here are meant for transportation but it is also applicable to water and energy 29 - Observation of an international consultant during a training course on PPP jointly held by PADDI and AFD from 18 to 21 May, 2015 in HCMC 30 - HCMC adjusted regional planning to 2030 with a vision to 2050 developed by the Southern Planning and Construction Institute directly under the Ministry of Construction of the legal framework in this issue has reflected the government as well as the city’s efforts in seeking ad hoc instruments to increase private investment (both domestic and foreign) in public projects Frequent revisions to these documents have shown their pilot features and Vietnam’s efforts in venturing new PPP solutions on a “trial and error” basis (de Miras et al., 2004: 338) Within the past 20 years, what can be inferred from policies to attract private investment in transportation infrastructure development? Between 1990 and 2013, according to the World Bank, 82 projects of all sectors have been completed employing PPP approach nationwide.26 However, only 10 of them are transportation projects.27 Despite these significant discrepancies, international donors still encourage Vietnam to enhance attractiveness of the PPP model In particular, they urge the government to better promote equality between domestic and foreign investors, to enhance transparency in public project contracts and to carry out the selection of consultants based on economic-technical specifications and bank guarantee In 2015, Vietnamese policymakers endeavored to improve the legal framework on PPP by issuing a new decree (Decree 15/2015/ND-CP) Despite the directions of better aligning domestic regulations with international standards, this decree still puts an ease on the authorities’ selection of private investors via bidding or “negotiated agreement with a pre-selected contractor” (article 29) It is probably because the decree’s aim was to increase the number of PPP projects rather than to standardize this instrument As for the investors’ part, they also expect improved capital recovery and risk compensation, especially during the operation phase Yet, public and private stakeholders could not reach an agreement related to service charge collection.28 On the one hand, investors want to make a profit On the other, public authorities, with policies based on socialist-oriented principles, want to maintain low charges and fees so that they will be affordable to everyone without considering the operational expense of the private operator Apart from these concerns, the financial health of local governments in the long term also poses a substantial problem For previous PPP regulations, Vietnamese policymakers, with an intention to limit short-term public investment, put a cap on public capital contribution in PPP projects at a maximum of 49% However, this regulation appeared to increase public debt in the long term International experiences in this area show that if public capital contribution in a PPP, for instance a BOT project, is lower than 70%, public debt is likely to increase in the term Specifically, due to higher financial risk borne by private partners, they will request the local government to pay higher service charges for using the built facility.29 This financial model will put the public authority at a disadvantage The newly issued decree has made progress in this term by removing such cap on state capital contribution, thereby enabling the authority to better manage the project and their debt position Observations on the newly issued decree on PPP mainly focus on the concerns of the local governments about the financial aspects of the projects Meanwhile, partnership aspects have been underscored despite the obvious advantages of this model regarding transfer of capacity (notably technical skills) from private investors to public investors, thereby enhancing their capacity Urban governance challenged by transportation network expansion This paper highlights two specific features in HCMC’s infrastructure development process These features suggest the necessity to review current urban governance principles and reconsider or even redefine roles of concerned stakeholders as well as their tools Firstly, the transportation network expansion requires consistency and synchronization between all the concerned administrative public bodies to ensure rational construction and management of infrastructures Secondly, the increasing number of private stakeholders in the transport infrastructure sector, especially Vietnam’s large economic groups, has subtly changed the governance at the project level HCMC’s current urban planning is expected to create a considerable number of transport facilities The determination of expanding the transportation network (in particular highway and metro lines) reflects major scale transformations on the territory by connecting HCMC with its surrounding provinces and urban cores Transportation may then connect and unify local territories in the geographical term while administrative limitations still persist Therefore, during construction and subsequent operation phases such as management and maintenance, initial synchronization of urban planning is an indispensable requirement According to the current mechanism, when an inter-provincial infrastructure project is under construction, a central public agency is the owner of the project while provincial Line Departments shall be responsible for providing support However, given current challenges (numerous projects and the requirement to enhance project implementation capacity), the construction and management of infrastructure works need to be renewed Currently, a bundle of indicators seems to follow this trend For example, the HCMC Regional Plan (under revision) is to include HCMC and surrounding provinces.30 However, although existence of Working Paper du Centre de Prospective et d’Etudes Urbaines - PADDI 15 such a plan is a positive sign of an aligned and systematic regional urban planning, its implementation in reality is still below expectation since in Vietnam’s classification of administrative units, there is no such level called “region” At the provincial level, many institutional initiatives have gradually been shaped HCMC is for instance considering establishing a Public Transport Authority to be in charge of public transport administration at city level In addition, another research institution, namely the HCMC Institute for Development Studies (HIDS), has conducted a study on the organizational model for a new urban authority.31 The city’s Line Departments also seek new planning methodologies with a view to gaining a more practical approach on an effective priority and coordination basis These positive steps have shown improvements in HCMC’s urban administration directions Another factor of transformation of governance principles is the growth of the private sector, especially domestic large economic groups that enter the field of infrastructure Since the early 2000s, in the shadow of state-owned corporations, several private groups have emerged (among them Vingroup, Đại Quang Minh, Him Lam, Bitexco, etc.) Their success is mainly attributed to business diversification into real estate and finance Since then, local governments have called for their investment in public infrastructure works in the form of PPP contract or through the “land for infrastructure” approach BOften being selected on a “negotiated agreement with a pre-selected contractor” basis, the participation of the private entrepreneurs is regularly based on arrangements that lack transparency This investment approach contributes to achieving works in “piecemeal”, i.e the investor chooses to participate in an infrastructure project partly or wholly according to its potential benefits Moreover, due to high construction costs of some major infrastructure projects, private partners will tend to finance the most profitable segment of these infrastructures, especially highways, which contradicts the intention of connecting urban territories Indeed, unlike the State which is eligible to concessional loans in the international financial market, private investors not benefit from the same attractive borrowing conditions In addition, at the project level, private investors highly orient the choice of prime contractors as well as techniques and technologies chosen because of their pool of business partners which they depend on Whereas private investors are merely concerned about profits and short-term benefits, the public authorities’ aim is the long-term socio-economic development of the territories Despite numerous challenges that local authorities face like the transportation network (i.e the extension of transport networks to the outskirts 16 of HCMC and the involvement of private groups in the financing of public facilities), some institutional arrangements are found to support the project implementation As a consequence, few “makeshift institutional arrangements” facilitate consensus achievement In this way, they are signals of more fundamental changes in the planning and project implementation mindset in a city known as the cradle for piloting new initiatives in this field FrOM PrOMOTIng exISTIng InVeSTMenT FACIlITIeS TO eSTABlISHIng new OneS Funding for urbanization in general and infrastructures in particular is a major issue to any developing city with rapid urbanization While most other cities are struggling to develop basic infrastructure for socio-economic development, HCMC is a showcase in identifying new investment modalities through which the city can attract adequate and diversified sources of funding for realizing urban planning objectives Taking transportation as a case for analysis, this paper aims at showing that somehow this metropolis has succeeded in constructing planned infrastructure despite severe budget constraints Since applying economic renovation policies adopted in the mid-1980s, HCMC used to largely depend on the state budget as well as ODA funding for investment in many public infrastructure works However, with reduction in state budget allocation and pressure of ODA on public debt, HCMC started seeking new investment modalities Since the late 1990s, the city began to pilot new initiatives, including three prominent instruments which laid the foundation for current institutional and financial experiments First, HCMC implemented many PPP projects with the participation of domestic private enterprises, especially large corporations, state-owned companies but also foreign companies Despite many incentives offered to private investors for investing in public infrastructure projects, the number of PPP projects is still limited It appears that the legal framework has a shortfall in ensuring long-term profitability for private partners and unequal distribution of risks between the private and public Secondly, an institutional initiative led to the establishment of the HCMC Investment and Development Fund, now called HFIC This instrument is considered today as the major financing facility of the municipal authority Through operations under its mandate, this entity has supported the city to attract capital from domestic and international financial markets Working Paper du Centre de Prospective et d’Etudes Urbaines - PADDI 31 - Refer to PADDI’s document No.45 from training course held from to April, 2013 Lastly, the third initiative applied by the city was to use land reserve as a facilitating tool for infrastructure construction This idea of using land investment leverage is being translated into “development strips” and “land for infrastructure” modalities With the first modality, the city is putting land reserve under control, especially via public auctions, and manages to get substantial revenues Meanwhile, with the latter, arrangements are being made on a closed negotiation basis between public authorities and private investors and in which land is strictly considered as a means of exchange However, despite obvious successes, all three instruments (PPP, LIDF and land resources as investment leverage) are not efficient enough to ensure stable sources of revenues for the city In the meantime, it is necessary to improve other instruments Currently, the use of land as a financial leverage appears to be the most promising trend against the backdrop of increasing land prices, especially in HCMC However, for shaping this potential instrument, it is also crucial to study mechanisms to capture added value mainly from new estate developments But doing this requires broad reforms in both real estate tax policies and land tax policies at the national level as a prerequisite Working Paper du Centre de Prospective et d’Etudes Urbaines - PADDI 17 MAIN REFERENCES: ALBRECHT David, HOCQUARD Hervé and PAPIN Philippe, 2010, 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Dương Thị Ho? ?i Chân Copy editors: Fanny Quertamp, Zan-Hee Oh Printing date: 01/2016 F INANCING TRANSPORT INFRASTRUCTURES IN HO CHI MINH CITY (VIETNAM) TOOLS, INNOVATIONS AND CHALLENGES In a context... Hồ Chí Minh] , Report, 234 p DEPARTMENT OF PLANNING AND INVESMENT OF HO CHI MINH CITY (DPI), 2013, The list of projects calling for investment in the form of BOT, BTO and BT in Ho Chi Minh City. .. planned infrastructure works in accordance and Frame – HCMC investment and development fund, an instrument for calling private investments Established in 1997, the Ho Chi Minh City Finance and Investment