FORM OF PUBLIC-PRIVATE PARTNERSHIP TO DEVELOP ROAD TRAFFIC INFRASTRUCTURE IN VIETNAM

Abstract

In general, no government can independently provide adequate infrastructure and road traffic in particular without cooperating with the private sector (Mona et al, 2006). Although traditionally, the provision of transport infrastructure is undertaken by the public sector and financed by the state budget and/or official sources of support (Akintoye et al, 2003). However, the empirical evidence shows that the national budget is tight along with the decline of official aid (in developing countries) have limited the government to implement this function efficiently (ADB, 2000). Besides, the pressure to develop a modern transport infrastructure that meet the strong increase of population and transportation demand has prompted the search for new and better provision, and forms public private partnership (PPP) birth (Yescombe, 2007). In the past two decades, the PPP has been widely used in most countries around the world as an effective method to provide the infrastructure (ADB, 2008). Through PPP, a number of accrued benefits include: accessing private capital (ADB, 2000), increasing value of money, completing the project on schedule (Li et al, 2005) and improving service quality (Akintoye et al, 2003). The study by Hensher and Brewer (2001) also said that PPP can create "miracles" in the struggle to improve the economy of a country, and this is further confirmed in the study by Raisbeck (2009). The global financial crisis of 2008 has created so many challenges for transportation projects funding in most countries around the world that the global PPP market has declined significantly, but it was quickly recovered and then returning to pre-crisis (World Bank, 2010). It is considered one of the appropriate solutions to deal with the current chaos (Plumb et al, 2009; Mazars, 2009). In comparison with the region and the world, transportation in Vietnam is very outdated (especially roads), which reduces the national competitive ability. Although the government has maintained investment of 2 – 2.5% annually in this sector (in which, more than 70 percent in road), there is no significant change in traffic picture of Vietnam. Moreover, there is a growing gap between supply and demand of capital funding in this field. According to World Bank (2007), from now to 2020, Vietnam needs to increase investment to 3.5 – 4 % of GDP per year in order to meet the transport demand and economic growth. For the land in period of 2010 – 2025, the capital investment is estimated at 75 billion USD ($5 billion per year that is equivalent to VND105,000 billion per year). The necessary capital for the process beyond government funding ability (including capital budget, ODA, government bonds) and the underdeveloped domestic capital market which result in the serious shortage of road transport investment in the future. According to David’s, Theron and Maphunye (2005), we live in the era of the Batho Pele principles that demand starts earlier. Therefore, a form which does not meet the market demands will not exist; we need to replace it with more appropriate forms to ensure the supply of goods to meet the demands. In addition, the biggest challenge for developing countries in general and Vietnam in particular is to find the sustainable funding without depending on budget and ODA, and PPP to meet this requirement by raising funding from the private sector (domestic and foreign). However, it is important to understand that there is no perfect and unique way, and the PPP is not a “magic” remedy that can quickly recover the outdated situation of road transport in Vietnam but only promoting the advantages when it is used in a suitable environment. It does matter that the empirical researches in the world occur when PPP market already exists (though the level of their maturities are different) but PPP has not been widely used in Vietnam. The government has been launching a pilot PPP project currently and it seems to be a complete failure because there is no private investor participation, this reinforces the need for different approaches to ensure the success of this kind of investment instead of using the PPP model mechanically. For this reason, as well as the urgent need of practice to have quick development in road infrastructure which are responsible for over 80% of the transportation demand of passengers and goods throughout the country, in order to contribute to improving national competitiveness and sustainable economic development, the subject "Form of public private partnership (Public Private Partnership) to develop road transport infrastructure in Vietnam" has been chosen as the research content in this dissertation.