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Vietnam’s railway sector set to pick up PPP steam
Friday, 17 August 2018 01:54

Vietnam’s railway sector is expected to become more appealing to investors interested in public-private partnership projects on the back of new incentives. Vaibhav Saxena of Vietnam International Law Firm analyses the future potential and the challenges ahead.

Vietnam’s forgotten railway industry

Railways are one of the essential means of transport in Vietnam. The railway industry has seen enormous development in infrastructure and technology and become dominant in mid-length and long-length transportation, and especially in freight transportation.

The quality of railway infrastructure, telecommunication systems, and other auxiliary elements is too retrograde, which results in a warning in terms of the number of railway passengers. This situation can be attributed to two facts: (i) Vietnam Railways (VNR), a state-owned enterprise (SOE), held a monopoly in the industry, and (ii) the government overlooked the potential of railway transport, pouring little investment into it.

Now, realising the need to re-construct this sector, the government has promulgated a new policy and legislation on railways, which makes VNR surrender its monopoly and allows the private sector to enter into this industry. This is a huge and important move by the government, opening up plenty of opportunities for investors.

Legal framework

Vietnam’s new Law on Railways dated June 16, 2017, which entered into force in July, replaces the old law dated June 14, 2005. The Law on Railways 2017 introduces unique preferential mechanisms which will attract investors to engage in railway projects. The railway projects taking shape in the form of public-private partnerships (PPP) shall follow the guidelines stipulated under governmental Decree No.63/2018/ND-CP dated June 19, 2018, on investment in the form of PPP.

Project classification

Railway projects are large-scale projects and the ones which fall under the PPP regime can be classified as projects of national importance. They are divided into groups A, B or C depending upon elements such as capital investment, potential environmental impact, location, likely impact on the surrounding community, and the specific industry into which the project falls in accordance with the Law on Public Investment. Accordingly, urban railway projects having a total investment capital of (i) more than VND2.3 trillion ($101.77 million) shall fall into Group A; (ii) between VND120 billion and VND2.3 trillion ($5.3-$101.77 million) shall be categorised under Group B; and (iii) below VND120 billion ($5.3 million) shall fall into Group C. If state investment capital in an urban railway project is above VND10 trillion ($444.44 million), such a project shall be classified as a project of national importance. The group to which an investment project belongs shall determine the procedures to be followed by the investors of that project.

The implementation of such railway PPP projects, except for those projects classified under Group C as well as build-transfer projects, are to be carried out as follows:

- Preparing and appraising pre-feasibility study report, approving project investment proposal, and announcing the project;

- Formulating, appraising, and approving feasibility study report;

- Selecting preferred bidder;

- Negotiating, establishing special purpose entity (if any), and concluding project contract; and

- Undertaking the project, preparing the final account, and transferring the facilities.

Investment capital

There should be at least a 20-per-cent equity capital contribution of the total investment capital by the investors in a railway PPP project. If the investment capital surpasses VND1.5 billion ($66.66 million), the minimum equity capital shall be 20 per cent of VND1.5 billion, with no less than 10 per cent of the residual.

Investment incentives

According to the Law on Investment 2014 and the Law on Railways 2017, railway investment projects are eligible for special investment incentives:

- Import duty (ID): Exemption from ID on goods imported to create fixed assets of the railway project, including an exemption within five years from the start of production for raw materials, materials, components, and equipment necessary for the construction of the railway project which cannot be produced domestically.


- Corporate income tax (CIT): Reduced to 10 per cent for 15 years, extendable by up to 15 years with the prime minister’s approval. Exemption for the first four years and a 50-per-cent reduction in the subsequent nine years.

- Land use levy/rent: Railway projects are entitled to land allocation without land levy of the land area used for construction of national and urban railway infrastructure.

- Loans: Concessional loans at preferential interest rates from the government’s investment credit sources or government-guaranteed loans for investment in the development of national and urban railway infrastructure; the procurement of railway vehicles, machines, and equipment for railway maintenance; and the development of the railway industry.

- Other incentives: Availability of the entire amount of funding for site clearance of the land area for rail transport that is used for construction of railway infrastructures from the government and provision of an exclusive radio frequency in service of the rail transport administration and access to the traction power network in service of train operations.

Practical analysis

In the past, since urban railway projects were merely aimed to serve the needs of locals as well as national development and the foreign investors concentrated on the incentives and the return on their investment, projects in the urban railway industry could not attract foreign investment and were mainly invested by state-owned enterprises. However, as the government has paid further attention to develop this sector, foreign investors are keener to invest in the urban railway development sector.

In fact, the natural and geographical conditions of Vietnam are a win-win factor for the development of the railway network. Furthermore, the urban railway business is expected to receive ample support from the Vietnamese government. As the government has relaxed the limitations, a new investment arena has emerged for the investors to explore.

Nevertheless, there remain some obstacles and difficulties that foreign investors may foresee:


- Land security is a prolonged issue and could be a concern to foreign investors. However, the risk could be mitigated by the growing confidence of investors and the stable political and social conditions of Vietnam.

- The capital outflow is a significant factor which investors should consider by estimating the financial viability of the projects prior to investing.

- Despite the fact that urban railway projects require whopping amounts of capital to build and operate, the pay-back ability and profits derivability from such projects attract significant concern on the part of the investor. It is precedent that urban railway infrastructure projects are built to facilitate socio-economic development and strengthen national transportation. However, this sector was shunned in the past due to unfavourable policies, but is expected to overcome this dark phase in the near future with a rapid boost to flow from the Law on Railways 2017.
Scrap imports into Vietnam surge
Wednesday, 15 August 2018 02:10

The volume of second-hand products imported into Vietnam has rocketed in recent times, announced officials at a press conference on the management of waste imports, organized on July 30 by the General Department of Vietnam Customs.

In 2016, Vietnam had imported more than 4.8 million tons of scrap, including iron, steel, plastic and paper. The volume had increased to more than 6.5 million tons last year, reaching over four million tons in the first half of this year.

In the January-June period, plastic waste imports amounted to 277,700 tons, well above 245,800 tons imported in 2016.

As of July 25, nearly 3,600 waste containers had been left unattended at the Cat Lai Port in HCMC and some 1,500 scrap containers had been left at the Haiphong Port in Haiphong City.

Customs officials attributed the backlog of scrap containers at the local ports to China’s suspension of 24 types of scrap imports.

Au Anh Tuan, head of the Customs Supervision and Management Division under the General Department of Vietnam Customs, said that many waste importers have yet to complete customs clearance procedures as they have failed to meet the requirements on environmental protection to import scrap as production materials, leading to the surge of waste containers at the ports.

As waste containers pose a high risk for environmental pollution, shipping companies and port service providers have proactively stopped accepting waste shipments, Tuan added.

News website Vietnamplus quoted Nguyen Khanh Quang, deputy head of the Anti-smuggling Investigation Division under the General Department of Vietnam Customs, as saying at the press conference that one of the major difficulties in managing waste imports is the falsification of required documents by importers.

He cited the example of Duc Dat, a waste importer headquartered in Ninh Binh Province. The firm has been prosecuted for deliberately falsifying waste import documents.

Under prevailing regulations, waste importers submit copies of the required documents, forcing the competent agencies to collect the original ones during investigations. In addition, importers are not willing to cooperate with the customs agencies, hindering the investigations, Quang reportedly said.

Mai Xuan Thanh, deputy general director of the General Department of Vietnam Customs, saidtthe customs agencies had found it difficult to detect those enterprises without certificates of eligibility for environmental protection on scrap imports granted by the Ministry of Natural Resources and Environment as the list of all eligible waste importers has yet to be publicized on the national single window portal.

Another hindrance is that the customs officials are required to take four to five waste samples per container, which means they need to open all the containers, but the available space at the ports to carry out this exercise is limited.

Besides this, the customs agencies need to review, classify and address abandoned waste containers at the ports. Transport firms have been assigned to carry the imported waste that is likely to cause environmental pollution out of Vietnam. However, the competent agencies have not introduced penalties for transport firms that fail in their duty, according to the Sai Gon Giai Phong newspaper.

Therefore, the General Department of Vietnam Customs will soon propose penalties. It is also expected to suggest a reduction in the volume of waste imports and a waste import ban in the future.

Meanwhile, the municipal and provincial governments should ask the port service providers in their localities to store the abandoned waste containers in specific areas at the ports.

Vietnam jumps 25 levels in WB’s logistics performance index
Monday, 13 August 2018 01:58

Vietnam’s position in the Logistics Performance Index (LPI) in 2018 rose 25 levels compared to two years ago, jumping to the 39th among 160 surveyed countries, according to the latest report from the World Bank (WB).

Representatives from the Ministry of Transport attributed the result to the improvement of the two indicators of “Logistics Competence” (up 29 levels) and “Tracking and Tracing” (up 41 levels).

The report states that among the lower-middle income countries, large economies such as India and Indonesia, as well as emerging economies such as Vietnam and Côte d'Ivoire, stand out as top performers by showing a significant jump to a higher rank.

The top five logistics performers this year are Germany, Sweden, Belgium, Austria and Japan.

Among Vietnam’s neighboring countries, Thailand is still ahead, ranking 32nd.

The LPI is the world’s logistics performance index released by the WB every two years. It is a unique benchmarking tool, providing the same measure for more than 160 countries.

It measures performance on trade logistics within a country based on six indicators, namely the efficiency of customs and border management clearance; the quality of trade and transport-related infrastructure; the ease of arranging international shipments with competitive price; the competence and quality of logistics services; the ability to track and trace consignments; and the frequency with which shipments reach consignees within the scheduled or expected delivery time.

The LPI is a crucial part of global efforts to better understand logistics performance in the context of increasingly complex supply chains.

Thanks to the ranking, enterprises can get insight into logistics systems of each country, thus calculating the efficiency for their investment and business

In 2016, Vietnam ranked 64th out of the 160 countries in the World Bank’s Logistics Performance Index and fourth in ASEAN after Singapore, Thailand and Malaysia.

Vietnamese firms mainly provide domestic logistics services such as transport service, airport, seaport and warehouse services and cargo handlng services.

Few firms provide international logistics services through acting as agents for foreign enterprises.

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