OPENING AND WELCOME REMARKS Tomaso Andreatta - Vice Chairman, EuroCham Vietnam

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1 TRANSPORT INFRASTRUCTURE OUTLOOK VIETNAM 2017 Monday, 22 May 2017, Reverie Saigon OPENING AND WELCOME REMARKS Tomaso Andreatta - Vice Chairman, EuroCham Vietnam Distinguished Guests, Dear Eurocham members, Ladies and Gentlemen: I am Tomaso Andreatta, Vice Chairman of EuroCham Vietnam and Chief Representative for Indochina of Italy s largest bank Intesa Sanpaolo On behalf of EuroCham, I would like to thank Bricsa Consulting for the invitation to open this TRANSPORT INFRASTRUCTURE OUTLOOK Transport is a topic of strategic importance for Vietnam and our companies can bring know-how, investment and sustainable technology in all fields of transportation. Eurocham s main activities are to advocate with the Vietnamese Government in Hanoi and, where necessary in the provinces, to improve the legal and administrative framework for doing business in Vietnam, and to communicate ideas and solutions to the business 1

2 community, of the 1000 European companies who are our members, as well as of all other international and local companies. Transport is an international and regional challenge and we applaud to the organizers idea to discuss a regional railways project here today. This follows ADB s approach as well, looking towards road, railway and river transport in a comprehensive regional take to the whole Greater Mekong Region. Vietnam and other emerging ASEAN economies are highly affected by shortcomings in infrastructure. Since trade has much increased within the area they have to cooperate to tackle the issues. At the same time, since infrastructure is also a competitive factor and one that requires large investment, much larger than can be mobilized locally, each country should be trying its best to be fair, transparent, efficient and well-regulated so that it leaps forward in the race to attracting investment and other international resources from donors and ever more from the private sector. Vietnam s international trade is expected to be increasing a lot thanks to the enactment of the EU-Vietnam FTA in 2018 and it is still possible that in some form a Pacific FTA come to life again. All transport infrastructures are going to be further challenged by such developments 2

3 In addition, one has to look only as far as China for an example of a country which economy has grown to a relevant extent thanks to the expansion of its transport infrastructure. Vietnam has come a long way in recent years in getting many projects started and a few completed, with most success in roads, most of which supported by the World Bank (north-south) or ADB (east-west). As we shall see later however Vietnam has also showered resources to all provinces, thus weakening large scale essential projects. I am a banker, and I have been in this country for almost 10 years, but, as many international investors and lenders here, I have been frustrated in getting business done in infrastructure mostly due to policy and management of procurement, bids and contracts. Many project, construction and infrastructure management companies, among other areas from Europe, have been coming to Vietnam attracted by its GDP growth rate, large population, stabile social and political environment only to be stopped by the barriers, most of which could be overcome by a changes in rules and especially their application. I would like to talk about 5 modalities of transport and of how to finance them. While concentrating on the Vietnamese specifics, these perspectives 3

4 are also valid for the other countries of Indochina. This is a synopsis of the topics we work on at Eurocham. I shall only give hints of our point of view and raise some issues that I hope will be addressed by the many experts who shall present their analyses over the course of today and tomorrow. These are: 1. HIGHWAYS are extremely important and are one of the areas of relative success now; 2. RAILWAYS on the other hand are not treated as a priority in Vietnam and the High Speed Project is 100% relying on a very expensive gift from outside which might have to be paid with political goodwill; 3. PORTS. As a growing producer and transformer of goods and given current market conditions, Vietnam has an opportunity to wrestle away some business from the transhipment ports of HK and Singapore, but it needs to act decisively on it. 4. AIRPORTS. It is not clear if Vietnam has a strategy of national hub and spoke (as the very ambitious investment in Long Thanh Airport would suggest) or in several international airports directly linked to key locations. 5. METRO. Some projects in Hanoi and HCMC have started and when completed they should help reduce the ever more congested traffic 4

5 on some roads, but it seems that money is not coming in as fast as needs and works have slowed down 6. Finally, Vietnam needs to sort out its framework for FINANCING: today the only sources of funds for infrastructure projects are the Government budget, ODA and few local firms financed by local bank, usually the state controlled ones and their sum does not match the bill, which can only be footed with the help of international markets and private companies. This is particularly actual today when the Vietnamese government debt is at the high limit. TOPICS 1. HIGHWAYS are crucial for transport and today the most realistic way to develop transport infrastructure. However many of them are built with no barriers to the traffic and they become dangerous and slowed by local traffic and motorcycles. Other roads are fenced by tolls but the level set for those tolls, while being high enough to induce part of the traffic to choose alternative routes, makes them have a payback of many decades, thus ruling out commercial financing. In addition while cars and trucks are too already 5

6 too many for the roads in the larger cities, they are far less diffused than in other countries with equivalent degree of industrialization, limiting the total income from tolls at least for the next few years. The limited effectiveness of controls on the weight of the trucks leads to roads wearing very fast, slowing down traffic and making it more dangerous. There are at least two possible approaches to address the shortfall of the toll to pay the investment back: involving the IFC or ADB private side to offer A and B loans on the one hand, and leasing out of commercial areas along the highways, as we do in Europe, where private companies run efficiently our highways and motorways. 2. RAILWAYS. Vietnam has so far been doing little to improve the system of the railways, while compared to roads would be cheaper to run, more friendly to the environment, safer, as there are less accidents on train than on the roads and, used as we think it should, mainly for goods, it would substantially reduce the weight carried by trucks. It may also have a by-product of reducing smuggling done in the region on the roads. We believe a realistic kmh normal speed train will need 10 times less money than a high speed train that Vietnam cannot realistically buy by itself, by spending in total an amount comparable to 6

7 just the feasibility study of the HST. Some logistically important routes, for example those connecting ports and airports to the cities or the industrial areas, could be privatized as soon as they are built. 3. PORTS. Vietnam needs to substantially improve the efficiency and the cost of its ports to become an industrial and trading hub. The first steps have already been taken with creation of a new port in Cai Mep, with the ambition to become a transhipment location for large container ships. However, the fact that the majority of the activity has not been transferred from HCMC and the fact that the various operators do not cooperate in managing flows, added to the spreading thin of resources and goods by scattering activity among the various ports of the country have until now been a dampener on its success. One major problem that the authorities have to tackle is the tax collection that would shift from Saigon to Vung Tau. We believe that all ports business would benefit from lowering fees and if competition on cabotage is allowed. One external factor that would have an important effect on the quality of logistics for shipping but also for the roads is the switch of the energy 7

8 reliance from coal to gas, both natural and LNG, as gas can be more easily transported by terminals and pipelines, instead of blocking ports and roads. Finally, Free trade zones are a reasonable solution here. To create them wisely, the competent authorities need to work out coordination between provinces on tax transfer and enable cooperation between different operators. Other ASEAN countries have done this extensively, it s time for Vietnam to also realise that port-equipped Free Trade Zones generate value for the country as whole, but also for the local economies of the provinces. 4. AIRPORTS on this topic the government should avoid the pitfall that plagued Alitalia for many years: developing more than one major hub before having enough traffic for each. While some improvement has been apparent from the privatization of some shopping and food establishments in the airports, more can be done by speeding up the full privatization of the operators. In addition, if Vietnam eventually manages to get the Long Thanh Airport funded and the project going, it has better link it by train to the center of HCMC to spare the average 5 hours of traffic that it takes to reach to reach the city of Moscow from Sheremetevo Airport, on a distance that is 1/3. 8

9 Such a grand project, matching that of Suvarnabhumi in Bangkok requires a substantial increase in tourism coming to Vietnam and crucial agreements with international airlines to make it become a regional hub. 5. METRO. We very much welcome projects in this modality of transportation as it has revealed over time to be efficient and successful in moving people and making outer areas of cities increase in value since they become rapidly accessible. It is clear that a complex strategy of coordinated multiple platforms must be developed in parallel, with buses of various sizes and taxis completing the connectivity. Moving the port out of the city of HCM may make waterways available for local transportation. Since money seems to running thin for metro projects, which many European companies would like to contribute building, new sources of income should be used, such as more retail spaces in the stations and charging cars for parking in the streets. 6. Establishing a FINANCING regime which is open, efficient, trustworthy, well-managed, fair, and stable is crucial to make all of this investment happen. First priority is to streamline the Public-Private Partnership frameworks and their transition from the BOT regimes, 9

10 o making the bid process more open, transparent and timely; o resolving the issues of convertibility, availability of foreign currency to repay investors and providers of funding and of the de-valuation of the Vietnam Dong versus the US Dollar; o using government guarantees and contractual clauses to cover Viability Gap Funding for foreign as well as for local parties Vietnam also needs to improve capacity of Government agencies to deal with foreign investment in infrastructure and clarification channels since financing is heavily affected by slowdowns in the starting as well as the delays in the completion of the construction; apply investment protection, and allow international arbitration agreements, respecting and enforcing their outcome, introducing a rule whereby the law of the contract is subject only to the law chosen by the parties without backdoor reference to Vietnamese law, especially when new laws strongly contradict internationally established customs and procedures. Encouraging international commercial banks support by accepting ISDA rules for international currency lending 10

11 Finally new ways to mobilize internal resources could be approved, such as infrastructure bonds that could be acquired by all professional investors (funds, insurance, banks) in addition to pure government bonds. Realizing all of this will not only make this country more productive as well as an attractive investment destination, but it will further plug it into the global market and most importantly the benefits will be enjoyed by all the Vietnamese people, its companies and Government! Remember: Vietnam is not the only country with high potential and opportunities in the world and in SE Asia. The time is now! For Europe, a chance to tap into its potential ahead of other competitors has appeared with the EU-Vietnam Free Trade Agreement that should come into force next year. Negotiations have already started with other countries in ASEAN and investors, not only European but those Japanese, Korean, Singaporean and Chinese interested in global trade, may very well become more interested in other, better prepared countries, once these negotiations are concluded. 11

12 On behalf of EuroCham, I wish you all a successful event with health and prosperity for you all. Thank you. 12