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Viet Nam: Express Rail Project Will Increase National Debt Burden
Source: english.vietnamnet.vn
Source Date: Friday, May 21, 2010
Focus: Knowledge Management in Government
Country: Viet Nam
Created: May 24, 2010

"In the context of a national debt burden already 39 percent of GDP, this business of borrowing to invest in the [express rail] project will significantly increase our national debt,” emphasized the chairman of the National Assembly’s Science-Technology and Environment Committee, Dang Vu Minh, on May 20.

Declaring that the work of building an express railway is essential, meets the requirements of economic and social development and of dealing with ever-growing transport infrastructure needs, the Committee, which is charged with reviewing the plan, has many worries, particularly about the debt burden.

Minh explained that the pre-feasibility study calculates a total cost of one million billion dong, or $56 billion, and an average cost of $35.6 million per kilometer of express railway. With the tunnels, viaducts and bridges that must be built, the total investment is likely to be even more than is foreseen.

Seen another way, for the $21 billion required for the first phase (to 2020, for construction of the Hanoi-Vinh and Nha Trang-HCM City segments), an average of $2.63 billion must be found annually, chiefly ODA or ordinary loans.

“Currently, our external debt is 38.9 percent of annual GDP, our national debt more than 42 percent of GDP, our domestic and foreign exchange reserves are small, so borrowing for this project will be a significant additional burden,” Minh said. “The Committee is quite uncertain that Vietnam may be unable to mobilize such large sums.” He asked that the Government release more details about the financing plan.

Evaluating the economic and social benefits of the project, the Committee noted that because the high speed railway will only carry passengers, and ticket charges will be set at 75 percent of the air fare, the payback period will be at least 45 years. A project is normally considered feasible only if its payback period is about 10 years, it added.

Moreover, “if a ticket costs 75 percent of an air ticket, then very many people won’t have the means to use the express rail. And those who can afford it can choose between rail or air. Especially in the case that discount airfares proliferate, the competition with the railway will be fierce,” Minh explained.

One matter that failed to get the immediate agreement of the Committee is the means of financing the investment in the project. The Government reported that it considered four options and chose No.4: upgrading the present railway to meet freight transport requirements and local passenger rail while at the same time building a new railway capable of transporting passengers at 300 kilometers per hour.

The Committee members were of two opinions, Minh continued. Some agreed with the Government’s plan because, they said, the current rail system is obsolete and doesn’t meet goods transport requirements. Investing in a modern system is essential – only that can answer the transport requirements in the years ahead and make a positive contribution to economic and social development.

However, many others favored the option of upgrading the current railway incrementally to meet transport requirements. In the short term, by widening the gauge to 1.435 meters and making other improvements, a first phase top speed of 200 kilometers per hour can be attained. Afterward when conditions permit, a railway with a top speed of 300 kilometers per hour can be built.

“That option would solve the problem of both passenger and goods transport – both important and necessary – with a lower initial cost, putting less pressure on finances, and will be more effective,” Minh said.

From the foregoing analysis, the Committee asked that the Government examine the reasonability of the financial calculations, the means of mobilizing capital and the phasing of investments, clarify which capital will be contributed by the State, the capabilities of private investors to participate, and the level of investment by other countries. The Government ought to examine sufficiently the national debt burden now and in the future so that investment in the rail project will not jeopardize the State’s ability to manage the national debt.
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