Handling problems at BOT projects

Information that the Ministry of Transport has just submitted to the Prime Minister solutions to handle difficulties and problems in a number of transport infrastructure investment projects under the build-operate-transfer (BOT) model is attracting great attention from not only investors, credit institutions, local authorities, but also transport associations and traffic participants.

This is the second time in the past year that the Ministry of Transport has submitted to the Government solutions to handle difficulties and problems in a number of BOT transport infrastructure investment projects after receiving and completing the direction of the National Assembly Standing Committee, Government leaders, opinions of ministries, branches, localities and updating the results of work and preliminary negotiations with banks and investors in projects that are having problems with financial plans.

There are no complete statistics yet, but if calculated from 2018 to now, the number of proposals to remove obstacles related to a number of BOT traffic projects proposed by the state management agency of the transport sector is certainly greater than 2, in which the later proposals are more urgent than the previous ones.

It should be added that, in the latest proposal to the competent authority, for the first time, the Ministry of Transport has proposed principles, processing procedures, and scope of application. This is a very important work to ensure publicity, transparency, fairness, and at the same time help prevent the abuse and profiteering of policies when handling BOT projects facing difficulties.

Specifically, state budget capital is only used to handle difficulties and obstacles for BOT projects due to objective reasons or state agencies violating the contract implementation and the parties have applied solutions according to the contract's provisions, but they are still not feasible. In all cases, the state budget is not used to handle difficulties and obstacles due to subjective errors of the investor/project enterprise. In addition, the handling process must ensure the principle of "harmonized benefits, shared risks". In case of contract amendments and additional state support capital, investors need to consider reducing the profit margin by 50% compared to the profit margin in the project contract.

The scope of application has also been differentiated for transport infrastructure investment projects under the BOT form signed before the effective date of the PPP Law.

In terms of both reason and emotion, these important principles, if approved by competent authorities, will certainly receive sympathy and sharing from investors, credit institutions and taxpayers.

If comparing the above principles, the number of BOT projects managed by the Ministry of Transport that need to use the state budget to handle is not much, only about 8 projects out of a total of 140 BOT transport projects implemented before the Law on Investment under the Public-Private Partnership (PPP) method took effect.

In fact, to implement the request of the National Assembly Standing Committee, since 2018, the Ministry of Transport has coordinated with investors, relevant ministries, branches and localities, making efforts to apply solutions according to the provisions of the contract to improve financial efficiency. However, the financial plan is still broken because the toll revenue is too low, not enough to cover costs.

The project enterprises themselves in the 8 BOT projects in difficulty have also tried to mobilize their own capital to cover costs, but due to many fluctuations in the economy, especially the impact of the Covid-19 pandemic, the enterprises no longer have capital to cover costs, credit loans have been transferred to debt groups, becoming bad debts; the project enterprises are at risk of bankruptcy. The investors of the 8 projects mentioned above are all at a dead end financially, with the risk of bankruptcy imminent, while all 8 projects are about to enter the overhaul phase, requiring a lot of capital.

The above situation requires that the handling of problems in BOT projects must be implemented more quickly and more decisively, because the longer it is left, the greater the consequences will be, the higher the handling costs will be, especially other production and business areas of the enterprise (in addition to the BOT project investment area) will also be affected. More importantly, if not handled thoroughly, it will affect the level of trust, the investment attraction environment, and the completion of the strategic breakthrough goal of infrastructure development in the context of a very limited state budget.

Source