Monday, May 14, 2012

Highway costs in Vietnam higher than elsewhere in the world

Reports show that the expenses on making highways in Vietnam are 1.5-2 times higher than that in neighboring countries such as China, Indonesia, Malaysia and Thailand, and even higher than in the US. As a result, Vietnam still finds it difficult to attract investors to highway projects and it always takes investors long time to recover the investment capital. The high costs also put a heavy burden on the State.

Nevertheless, there has been no official figure about the average investment rate for every kilometer of highways. The Ministry of Transport has never made concrete figures public.

Sky-high costs, terribly low quality

The Lang – Hoa Lac Highway in Hanoi has been well known as one of the most costly highways in Vietnam. The project, initially capitalized at 5379 billion dong, was kicked off in March 2005. It was expected that once it is put into operation, after 30 months, this would become the most modern highways in Vietnam.

However, to date, the project has not been completed yet due to a lot of problems, including the site clearance. Under the initial design, the highway would have the investment rate of 179 billion dong per kilometer.

However, as the project went slowly, in October 2007, the Ministry of Transport decided to make some changes to the project, raising the investment capital to 7527 billion dong. This means that the average investment rate would climb to 250 billion dong instead of 179 billion dong as previously thought.

The figure dazed a lot of people who could not imagine before about such a big figure. Meanwhile, in many localities in Vietnam, local authorities cannot arrange enough several hundreds of billions of dong to build bridges. Students there have to swim to school or go across the small and dangerous foot bridges.

People cannot understand why it is so costly to build a highway in Vietnam. Where the labor cost is cheap, workers’ skills are good and material supplies are profuse.

Meanwhile, the idiom “you get what you pay for” proves to be untrue in highway projects. A lot of expensive highways still have low quality with a lot of potholes appearing just a short time after the highways were put into operation.

The “envelops” with a 10 percent commission inside

Experts have pointed out that the “underground money,” which all the contractors have to pay to high ranking officials, investors and involved parties, has pushed the highway costs up.

Bui Kien Thanh, a well-known economist, said that in order to win the bids, contractors have to “give envelops” to investors, and the envelops need to contain the sum of money which is no less than 10 percent of the value of the projects.

Contractors can play a lot of tricks to obtain jobs. When attending bids, they usually offered low prices, but after signing contracts with investors, they would show higher estimates, citing a lot of reasons to explain the changes.

Experts have estimated that contractors can pocket 30 percent of the project value from every project.

Dr Nguyen Minh Phong from the Hanoi Economics and Development Institute said that most of the highway projects in Vietnam have raised doubts about the costs and quality. While the labor force is very cheap in Vietnam, the country still has to pay high for building highways.

Phong said that the current management procedure which shows many problems, has “created favorable conditions” for embezzlement, which then makes the costs higher.