Applied research on public private partnerships in construction investment management for urban transportation

p MINISTRY OF EDUCATION AND TRAINING MINISTRY OF CONSTRUCTION HANOI ARCHITECTUAL UNIVERSITY NGO THE VINH APPLIED RESEARCH ON PUBLIC PRIVATE PARTNERSHIP IN CONSTRUCTION INVESTMENT MANAGEMENT OF URBAN TRANSPORTATION FIELD OF URBAN MANAGEMENT AND BUILDING CODE 62.58.01.06 ABSTRACT OF DOCTORAL THESIS Hanoi - 2015 m m The doctoral thesis is completed at Hanoi Architectural University Academic Supervisors: Assoc. Prof. Dr. Nguyen To Lang Dr. Nguyen Thi Binh Minh Reviewer 1: Assoc. Prof. Nguyen Hong Tien Reviewer 2: Assoc. Prof. Nguyen The Chinh Reviewer 3: Dr. Pham Van Bo Doctoral thesis will be defended at the examination Committee in the Hanoi Architectural University A t date month year 2015 The thesis could be found at: - National Library of Vietnam - Library of Hanoi Architectural University 1 INTRODUCTION 1. The necessity of dissertation The demand for constructing urban transport infrastructure serving economic development in Hanoi capital is very large while state resources are quite limited. Thus cooperation with private partners in the form of public private partnership (PPP) is the common trend that many countries in the world have applied. Besides, the management of construction investment in traditional form still exist many shortcomings, not only lack of funds but also human resources, management skills, technology and budgets for maintain and operating are limited. Hanoi is the capital of Vietnam which needs a large investment in development modern urban transport system. However, capital investment from the State budget, ODA only meet about 50% of the demand. Thus attracting capital from the private sector is one of the effective solutions to get city’s tasks. Therefore, the dissertation “Applied research on public private partnerships in construction investment management for urban transportation” is necessary and makes sense in theory and practice. 2. The purpose of research Based on the theoretical and practical basis, the dissertation studies the application of the PPP form in construction investment management for urban transportation to attracting and efficiently using of investment resources from private partners, improving quality uban transportation project in the Hanoi capital in accordance with development in the future. 3. Object and Scope of dissertation a. Objects: public private partnerships in management of construction investment. 2 b. Scope: the application of the PPP form in management of construction investment for urban transport in Hanoi capital that is suitable with development of the overall planning of the Capital 2030 and vision to 2050. - Dessertation research has focused pedestrian bridge (one of the six types of building urban transport: roads, railways, bridges, tunnels, waterways and airports) in order to clarify the feasibility study and research content. 4. Research methodology: The dessertation used 6 research methods: 1) statistical method; 2) Method of surveys and interviews; 3) The general analysis method; 4) SWOT method; 5) Method of comparison and contrast; and 6) inherited method. 5. Research content: public private partnerships in in management of construction investment. 6. Contributions in academic and theoretical issues Supplementary methodology in applying PPPs in management of investment construction of urban transport in order to rationally exploit and optimize the role of stakeholders, contribute to enhancing the efficiency of investment . Contents of research associated with the current urgent needs to attract investment resources, improve the quality and efficiency of construction investment in Hanoi capital. Research results are useful references for managers, investors, advisors and teaching materials for educational institutions. 7. The new contribution of the dessertation + By researching on characteristics of the cooperation between the Public and Private Partners, the dissertation has systematized and clarified the general concepts including main contents of public private partnerships (PPP). + Base on research experiences (success and failure) in applying the PPP in management of construction investment in the urban 3 transportation over the world, especially countries, whose social and economic conditions are similar to Vietnam; the dissertation has analyzed the causes of the successful PPP applications. + Moreover, by conducting researches, surveys, and assessment in applying the PPP in management of construction investment for urban transportation of Hanoi capital’s conditions, this research proposes specific practical recommendations to remedy shortcomings in terms of the application. + Furthermore, solutions have been proposed by the dissertation on applying the public private partnership in management of construction investment for urban transportation based on the scientific basis associated with the actual condition of Hanoi capital. The dissertation has proposed detailed solutions and application synchronization for PPP application. + In addition, this dissertation has solved problems in attracting and efficiently using of investment resources of private investors in management of construction investment in urban transportation. Thereby improving the quality of management of construction investment in urban transportation of Hanoi capital that has harmonized the interest between the Public, Private Partner and social community. 8. Concepts, terms of public private partnerships The desseration has analysed 14 different concepts of public private partnership from educational institutions, scholars in the world. Thereby the dessertation propose a new concept of PPP in management of investment construction for urban transport is a form which state agencies and the private investors are undertaking construction investment projects or provision of social services through commitments, constraint by a project contract. In particular 4 the parties are considered partners, have an equal role, and contribution the advantages/its strengths to fulfill common objectives with the highest efficiency. 9. Dissertation structure The dessertation consists of three major research chapters, and section Introduction, Conclusion, Recommendations and Annexes research. CHAPTER 1: OVERVIEW OF PUBLIC PRIVATE PARTNERSHIP IN MANAGEMENT OF CONSTRUCTION INVESTMENT 1.1. Introduction of public private partnerships 1.1.1. The origin o f public private partnerships In 63 BC, the Caesar Augustus, a emperor of the Roman Empire has partnered with Salassi tribe manage Saint Bernhard Pass route PPP [67]. The first term "PPP" appeared in the United States since the 1950s in the field of education [75, 80]. Then "PPP" is gradually popularity in many countries in the field of urban infrastructure. 1.1.2. The difference between traditional investment and PPP The basic difference between traditional investment form and PPPs is the transfer of responsibility to implement a part or all of work from the state to private partner, while the State still holds ownership right, ensuring quality, Figure 1.2: The difference between traditional investment and PPP 5 efficient performance in building and services (Fingure 1.2). 1.2. The situation of applying PPP in the world The dessertation has studied the application of the PPP form in 8 countries: USA, Canada, UK, Netherlands, China, India, Malaysia, and South Africa. The dessertation has analyzed and evaluated the state management systems, legal documents, PPP’s field, In each country, dessertation has research successful and failure reasons in application of PPPs and comparison with conditions of Hanoi capital, Vietnam. 1.3. The situations of Hanoi’s management in investment construction for urban transport 1.3.1. Overview o f Hanoi: Dessertation has introduced the geographic location, characteristics and situation of economic development - social, situation and investment needs in infrastructure construction of urban transport in Hanoi capital. 1.3.2. Situation of management in construction investment 1.3.2.1, construction investment form In Hanoi, there were 61 projects with the participation of private investors under the form BOT, BT. These projects have been implemented with a total investment approximately 155,806 billion VND, of which 32 were selected investors (51,318 billion, using 6641 hectare of land for the project implementation other capital reimbursement); 29 projects were approved investment guidelines and ongoing selecting investors (104 488 billion) [1]. In the 61 projects listed above, there are 9 projects in urban roads, the majority of them implemented under BT with the "land for infrastructure changing", only 01 projects under BOT. However, projects were implemented under BOT, BTO and BT which is not the PPP project by not accurately reflect the nature of cooperation between the State and the Private [18]. 6 1.3.2.2, Capital of the construction in urban transport In recent years, Hanoi has focused on the use of different sources of capital to invest in the construction of urban transportation projects, such as ODA, city budget In the period 2008 ^ 2013, the city has invested 41,677 billion for urban transport sector, accounting for 36% of total investment in developing and 11.5% of total city budget expenditure [14]. Expecting 2015 ^ 2030 period, investment demand of construction in city transportation is expected to be 918,224 billion, of which areas roads will be 442,171 billion (48.1%), Railways will be 433,580 billion (47.2%) [4], [5]. Meanwhile, key reasons of 41 projects in Hanoi was delayed due to lack of funds proposed. The total capital needs for these projects in 2011-2015 period approximately 164,000 billion, but in 2012, the center government and Hanoi has supported 2,000 billion, representing approximately 2% of the demand for capital construction investment [87]. This shows that the pressure on capital construction in Hanoi very large, while the government has been applying policies to reducing public investments. 1.3.2.3. Regarding management of investment construction of urban transport Management of investment construction of urban transport in Hanoi is decentralized by size, characteristics and nature of projects, the state funds managed by entities (MOT, Hanoi’s Government, People's Committee of Districts, ). Projects is divided into two phases: the construction and operation management. Content management of construction investment is stipulated in Decree No. 12/2009/ND-CP on management of construction investment projects. Content management and operation stipulated in Decree No. 130/2013/ND-CP on supplying public services. For example, when the projects (urban road construction) is finished contruction phase, 7 the investors would hand over the project to the Department of Transport has responbility on road and bridge parts; Department of Construction has responbility on drainage, tree; Hanoi’s Power Corporation will manage streetlights, lighting One shortcomings in management of construction investment for urban transport is decentralization and division to seperate part/work that leads to poor investment performance, lack of uniformity in the capital, manpower and management apparatus. 1.3.3 Assessment of conditions’s application PPPs 1.3.3.1. Investigate, examine reality Dessertation establish questionnaire form including 20 questions relating to the application of PPP and conduct investigations, interviews directly with 120 subjects, divided into 04 groups: (i) state management agencies , (ii) investors (unit represents state investment in construction projects, provide public services), (iii) private investors (private enterprise) and (iv) Other subjects. 1.3.3.2. The survey, fieldwork - Quality of respondents: 86.9% respondents have professional jobs related directly to a PPP with the level of interest to 89% PPPs. - The environment application of PPP in Hanoi capital is evaluated according 5 contenst: + The legal framework: there were legal documents on the PPP (since September 2014), that caused psychological apprehension in applying PPP, 82.6% thought that it should be have a Decree on PPP, 17.4% of respondents (including 80% of respondents are private partners) has opinion that it should be have separate Law on PPP. In 14th February 2015 the Government has approved Decree No. 15/2015/ND-CP on investment in the public private partnerships form, but this policy also has been existing some shortcomings. 8 + State management apparatus: Hanoi has not specialized agency of PPP (since March 2013). The capital has established PPP Committee (operational as part-time organization), but the survey shows that 87% of respondents do not know or know very little about this PPP Committee, only 13% of respondents has information about the PPP Steering Committee. + In terms of investor capacity: evaluation on two criteria manpower and finances: 92% of companies surveyed do not have inadequate staffs, experts who have knowledge and experience in applying PPP projects. About financial capacity: 83% of companies surveyed are now medium-sized and small. These businesses operate primarily based on loans from bank or trade institutions. + Awareness for PPPs: results of the survey show that the majority of respondents understood "not right" about PPP, they said that this is a form of "socialization" or "privatization". There is 83.69% respondents said that BOT, BT and BTO is not PPP. Even in some legal documents of government has same mistake on PPP (eg Decree No. 37/2015/ND-CP of Government, Circular No.10/2013/ TT-BXD of the Ministry of Construction, Decision No.9/2012/QD-UBND of Hanoi People's Committee, Document No.135/QD-MPI of Hanoi Department of Planning and Investment, ). + On the time of applying PPP: there is 29% of respondents said that PPP can be apply at this time; 59% suggested that only can be applied in the future in conditons of complete additional state legislation, guidelines on PPP; 12% suggested that it is difficult to applying PPP in practice because of balance costs and benefits between investors and the state. Besides, 60% of private enterprises are not willing to participate in the implementation of PPP projects, [...]... Option 1 Option 2 Option 3 Public partners Private partners Public private partnerships issues which are low 2 Policies Public Public Public 3 Design, construction Public Private Private financial 4 Finance Public Private Public Private 5 Operation, Management Public Private Private 6 Building owner Public Public Public 7 Quality management Public Public Public 8 Design, construction Risk Public Private. .. Franchise in Operation and Management Service Operation and Management 1-2 3-5 5-10 10-30 20-50 Ownership Public Public Public Public Public/ Private Finance Public Public Public/ Private Private Private Financial Risk Public Public Private Public/ Private Private Operation and Management Public/ Private Private Private Private Private Transfer Time (years) Franchise in Concession Operation With various... contract negotiations; investment management construction of urban traffic; management and upgrading urban transport building; The legal framework; Risk sharing between the State and the Private From the experience of PPPs, the desseration draws lessons learned in the application of PPPs in management of construction investment for urban transport in Hanoi capital 2.5 Orientation on PPP applying in. .. practice RESEARCH PAPERS 1 Ngo The Vinh (2012), Vietnamese Infrastructure: Conditions o f applying public private partnerships; The Construction Economics Journal, No 1/2012 2 Ngo The Vinh, Tran Hong Mai (2012), Overview fo r public private partnerships; The Economics Journal, No 5/2012 3 Ngo The Vinh (2012), Introduction about public private partnerships in construction investment in Vietnam; Conference... 12th, Ministry of Construction; 4 Ngo The Vinh, Nguyen Thuy Linh (2013), Risk management in public private partnerships; The Construction Economics Journal, No 2/2013 5 Ngo The Vinh and authors (2014), Some international experience on the application public private partnerships in transportation and model proposed in Vietnam; The Construction Economics Journal, No 2/2014; 6 Ngo The Vinh, Nguyen Thuy Linh... partners conduct process of risk management in PPP under 5 basic steps, namely: Identifying risks; Assessment and Risk Analysis; Allocation of risk; Mitigate and overcome risks and Monitoring, adjusting risk [76] 2.2 Common issues on management of construction investment for urban transport 2.2.1 Features o f management o f construction investment Management of construction investment of urban traffic management. .. 24 + Moreover, by conducting researches, surveys, and assessment in applying the PPP in management of construction investment for urban transportation of Hanoi capital’s conditions, this research proposes specific practical recommendations to remedy shortcomings in terms of the application + Systemize the theoretical basis of application management PPPs in investment construction of urban traffic Look... especially in applying in management of construction investment for urban traffic How to apply PPPs model successful? Dissertation has researched and obtained the following results: + By researching on characteristics of the cooperation between the Public and Private Partners, the dissertation has systematized and clarified the general concepts including main contents of public private partnerships. .. have minimum capital of 20 billion (except for application of the O & M) 3.3 M anagement of construction investment for urban traffic 3.3.1 Selection o f public- private partnership model The collaboration between the public and private sector in the management of construction investment for urban is expressed through many different models The selection of the PPP model must be suitable with investment. .. Steering Committee (operating concurrently), despite remaining shortcomings, but this is the first step to help the city in the study and promote the applying PPP in practice 15 CHAPTER 3: PROPOSED APPLICATION ON PPP FORMS IN MANAGEMENT OF CONSTRUCTION INVESTMENT FOR URBAN TRANSPORT IN HANOI 3.1 The viewpoints, the principle of PPP application 3.1.1 Viewpoints o f PPP’s application - PPP ’s applications . situation and investment needs in infrastructure construction of urban transport in Hanoi capital. 1.3.2. Situation of management in construction investment 1.3.2.1, construction investment form In. resources of private investors in management of construction investment in urban transportation. Thereby improving the quality of management of construction investment in urban transportation of. and Monitoring, adjusting risk [76]. 2.2. Common issues on management of construction investment for urban transport 2.2.1. Features o f management of construction investment Management of construction