Growing role for private investors in Vietnam infrastructure: report

Workers install underground drainage on a street in Hanoi.
Workers install underground drainage on a street in Hanoi.
FEBRUARY 06, 2020 - 6:51 PM

WITH Vietnam's rising need for infrastructure, private investment can play an increasingly important role, said Moody’s Investors Service in its Feb 6 infrastructure and project finance report, Infrastructure in Emerging Markets: Focus on Vietnam.

With a relatively high public debt burden and nascent capital markets, Vietnam has been aiming to increase public-private partnerships and foreign direct investment to meet infrastructure needs. While multilateral development banks still help to fill some funding gaps, the availability of such funding is likely to fall as Vietnam graduates to a lower middle-income country.

But the government needs to work on facilitating private investment, as major challenges are still posed by evolving regulations and administrative deficiencies.

Power and paving

The main areas for expansion and quality improvements are likely to be energy and toll roads, said the report.

Under the government's masterplan, the aim is to increase generation capacity from about 48 gigawatts (GW) now to 60 GW by 2020, rising to 96.5 GW by 2025 and 129.5 GW by 2030.

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With a government commitment to reduce greenhouse gas emissions, renewables are set to form a growing share of capacity and generation. But they are currently lagging, with renewables apart from hydropower accounting for just 0.2 per cent of Vietnam's power generation mix in 2018. The aim is for this to rise to 6.9 per cent by 2025 and 10.7 per cent by 2030.

Meanwhile, expansion and improvement of toll roads is needed to increase connectivity between cities, amid industrialisation and a rising urban population. Only about a fifth of the country's national roads are paved.

"In addition, the continued expansion of and quality improvements to infrastructure will be needed for Vietnam to fully benefit from a potential shift in production chains from China to economies in Asia," said the report.

State role

State-owned companies will continue to play central roles as the off-takers of energy projects or major developers. Said the report: "The government’s move to introduce competition in some infrastructure sectors through sector reform is unlikely to have a significant impact on the dominance of state-owned companies in the short to medium term, given that strategic assets will continue to be held by those companies."

The government is making progress in developing contractual legal frameworks for infrastructure, which should attract more private capital. But existing administrative deficiencies must also be addressed, such as the efficiency of getting regulatory approval; risk allocation; and framework consistency.