Five specific mechanisms are needed for high-speed rail construction.

What is the primary source of funding?

The Prime Minister has just requested a review of the investment costs for the high-speed railway project, and based on that, proposed special mechanisms, especially regarding resource mobilization and procedures, land policies, site clearance, material quarries, etc. In your opinion, why does this project need special policies?

A special policy means that the law does not yet regulate it, and this mechanism falls under the authority of the National Assembly . So, in order to implement it, what issues are not yet regulated by law?

Dr. Le Xuan Nghia, member of the Advisory Council on Financial and Monetary Policy, former Vice Chairman of the National Financial Supervisory Commission.

To clarify this question, I will return to analyzing the project's capital structure, which includes: Budgetary capital; Government bond issuance capital – essentially also budgetary capital; Construction bond issuance capital – from local authorities; ODA capital; and bank capital.

Four out of five funding sources in the aforementioned structure are already clear. Regarding the construction bond funding, whichever province finds it advantageous will issue it, primarily for land acquisition, investment in connecting transportation infrastructure, logistics systems, etc.

Local authorities can also take advantage of this opportunity, utilizing the land around high-speed railway stations for urban, industrial, and service development.

So where will the local authorities get the money to invest in these projects? They hope to auction off the land use rights in these new urban areas, because after development, the land value will increase sharply, thereby paying for the construction bonds they issue.

Regarding ODA loans, I believe the amount is insignificant, only a few billion USD. However, the advantage of ODA is that the funds are readily available and can be used as deposits for technology costs, or design or supervision contracts.

Therefore, the core remains government bonds. Infrastructure bonds are the second largest source. Regarding bank capital, the main issue is how to get the central bank involved in building the bond market.

And to address the issues of mobilizing, utilizing, and maximizing the effectiveness of capital for the project as analyzed above, there are five policies that require specific mechanisms.

5 specific mechanisms

What are those five specific mechanisms, sir?

Firstly, there is the specific policy regarding the use of budget funds. Current regulations do not allow the transfer of funds from one category to another.

However, for this project, it is necessary to request the National Assembly to allow the Government to authorize the Prime Minister to flexibly reallocate funds between different accounts, as well as between different items.

For example, a project may include many components such as land compensation and resettlement, technology procurement, design consulting, construction, etc. During implementation, some components will be done first, and others later.

Therefore, at any given time, some projects may not require much or no capital, and vice versa. In that case, funds from projects not in need must be reallocated to those in need, ensuring there is absolutely no capital shortage. For example, a construction company that lacks funds and cannot hire workers will immediately face project delays.

The second specific mechanism relates to the mobilization and use of government bond capital. To date, the legal framework for issuance, payment mechanisms, and interest rates for government bonds is complete; what remains is a mechanism that allows for flexible reallocation of this capital between different categories.

For example, bonds originally intended for bridge construction might be diverted to road construction before the bridge design is complete. High-speed rail projects are very large-scale and technically complex, so many scenarios can occur.

The third specific mechanism relates to the issuance of infrastructure bonds. Previously, the law only allowed localities with sufficient financial resources to issue them, meaning only Hanoi and Ho Chi Minh City met the criteria. However, the demand for these bonds in Hanoi and Ho Chi Minh City may not be high, as each locality only has one train station.

However, for other localities, especially those with many tourist attractions, the train station represents a great development opportunity. Therefore, all provinces should be allowed to issue construction bonds when necessary, and to finance this through auctioning land use rights. And they should be held accountable for that operation.

The fourth specific mechanism concerns the issuance of government bonds. The current Budget Law does not allow the central bank to act as an issuing agent, although this is common practice worldwide.

With a central bank "standing alongside," the Ministry of Finance can issue as many government bonds as it wants, and the central bank also has an immediate tool to regulate the monetary policy.

Meanwhile, the central bank has several advantages. Firstly, it can coordinate monetary and fiscal policies quickly and effectively: the Ministry of Finance issues the bonds, and the central bank guarantees them. If the Ministry of Finance issues 100 billion and only sells 50 billion, the bank buys the remaining 50 billion, and then the government bonds become a tool to adjust monetary policy. For example, if inflation increases and the central bank wants to withdraw money, it will sell the bonds; conversely, when inflation is low, it will buy those bonds back.

In other words, with the central bank standing by, the Ministry of Finance can issue as much money as it wants without fear of oversupply. The central bank also has an immediate tool to regulate the money supply: "injecting" and "withdrawing" funds.

The fifth special mechanism allows all businesses that win bids to participate in the project to borrow medium and long-term capital from banks without collateral. Or at least, they can borrow short-term working capital without collateral. Instead, the business is secured by the right to collect debts or the bank manages the customer's cash flow in this project.

"One of the reasons why the banking system is not open to lending for transportation projects is that in the past, disbursing budget funds to contractors was very complicated. In some cases, even after completing a project, the contractor still hadn't been paid five years later because they borrowed money to complete it first, waiting for the budget to disburse the funds later."

"But recently, the disbursement of public investment has been accelerated. Especially with key projects like this, I believe the disbursement speed will be even faster," said Mr. Le Xuan Nghia.

This specific policy does not fall under the authority of the National Assembly but is specific to the banking sector. However, the State Bank of Vietnam only takes the National Assembly's opinion to direct commercial banks to provide loans. The State Bank of Vietnam is fully capable of supporting commercial banks when necessary.

For example, the State Bank of Vietnam could simply reduce the mandatory reserve requirement from 3% to 2% to create a large amount of money for businesses to borrow. Or, in the interbank market, where interest rates are 4%, businesses could borrow at 3%.

For example, a small or medium-sized bank with capital of around 500 trillion VND, if its reserve requirement were reduced from 3% to 2%, could have a surplus of 5 trillion VND, more than enough to provide unsecured loans.

If we consider the entire banking system, which currently has total deposits of approximately 13 million billion VND, then a 1% reduction in the reserve requirement would provide us with 130,000 billion VND available for lending to the economy.

"No one would borrow 60 billion and then just keep it in storage."

If the five specific policies mentioned above are implemented, how do you assess the project's ability to raise capital?

Some experts are comparing the project's scale to GDP. That's understandable, but I think it's not enough.

For a long time, the sole buyers of government bonds have been the financial system, including banks and insurance companies. They buy them for business purposes, as they are considered the safest and most liquid investment product, allowing for profitable sales at any time. For these two reasons, commercial banks allocate 2-5% of their total assets to purchasing government bonds.

Meanwhile, with the total assets of the entire banking and insurance system at approximately $600 billion (one and a half times the estimated GDP of $440 billion), if they only spent about 1% annually on government bonds, we would have $6 billion each year.

In reality, the total volume of government bonds currently at around 350 trillion VND is mostly purchased by the banking system. And issuing an additional 150 trillion VND of government bonds for the high-speed railway project is not a problem.

In addition, allowing the State Bank of Vietnam to act as an agent, as analyzed above, commercial banks can later trade these bonds with the State Bank of Vietnam, using them as a tool to regulate the market, which would be even safer.

Moreover, I understand that many international investors are also eyeing the upcoming government bond issuance, due to the attractive interest rates.

Currently, the banking system holds approximately 350 trillion VND in government bonds.

As he analyzed, we can be somewhat reassured about the resources for the project. Now it's time to discuss interest rates; how can we alleviate this burden?

There's a calculation suggesting that a total loan of $60 billion multiplied by a 3% interest rate equals $1.8 billion per year, and over 10 years, it amounts to $18 billion. Given the project's revenue of around $200-300 million per year, how can it possibly cover that interest?

But they miscalculated, because no one would be foolish enough to borrow $60 billion all at once and then just sit there, withdrawing a few billion each year for use. Instead, we would issue the funds in installments, based on the actual needs of the project, for example, $6 billion this year, accumulating to $10 billion next year, and $18 billion the year after that…

And because of this phased approach, mobilizing funds only when needed, interest rates are not as high as expected.

This has been calculated in detail by the Ministry of Transport in the pre-feasibility report, including the sensitivity of the project and indicators such as: Internal Rate of Return (IRR) is higher than bank deposit interest rates; Net Present Value (NPV) is positive.

That's the interest; we still have to pay back the principal, don't we, sir?

To fully assess the financial and economic effectiveness of the project, a holistic view is necessary. Firstly, the project's revenue will increase rapidly. Secondly, the project's spillover effects are significant.

Until now, we've only considered revenue from passenger transport, which is insufficient, as it doesn't take into account the ripple effect on the entire supporting industry, such as locomotives and carriages, and even the development of the real estate market.

Thirdly, it will boost tourism. Fourthly, in the future, we will "profit" from carbon taxes…

According to our calculations, carbon taxes could increase by 2-3% of revenue for air transport and 4-5% for road transport, meaning all profits would be lost if we don't switch to green. This is based on Indonesian carbon prices, projected at around $60/ton by 2030; if calculated using European prices, the figures would be even higher.

Applying this project to the market, if we achieve the projected revenue of $200 million and a carbon tax of 3%, we could potentially profit $6 million annually to cover other costs.

Another added value is attracting labor, solving employment problems, and especially creating an on-site "training ground" for high-quality human resources, ranging from mechanical engineering, advanced construction, signal control to management...

Experience shows that vocational school training alone is insufficient; it must be linked to the field and factories. Therefore, we must have a strategy to utilize projects as a practical training ground to train highly skilled engineers and workers, creating a foundation to serve the development of the defense industry and industrialization.

How will it be managed, operated, and exploited?

We expect this project to increase GDP by 1% annually , equivalent to $4 billion . To achieve, or even surpass, that goal, what organizational, management, and operational methods should be considered ?

Based on the experience of Japan, the project was initially undertaken by the state, then privatized and managed by three private corporations operating each line.

Based on experience from other countries, AI assists in the calculation and control of the entire high-speed rail system.

In my opinion, we should also organize things in a similar way. Initially, it should be a state-owned enterprise, but gradually it should be handed over to private companies to operate. This would be more economical, transparent, and multi-purpose, and therefore more effective. If we only focus on one "item"—transportation services—the risk of losses is high.

The next important step is to quickly train a team of personnel to manage and operate the system, apply modern technology, and digitize the entire system… Once digitized, operation will be very simple.

Currently, AI systems can assist in the calculation and control of entire high-speed rail lines. For example, in Japan, if a natural disaster such as a storm or flood occurs during operation, the AI ​​can accurately analyze the situation and halt the entire line at the appropriate time, preventing hundreds of running trains from colliding. Only digitalization can achieve such absolute precision.

Many people are concerned about whether we have the expertise to build, manage, and operate such a mega-project. That concern is unfounded.

In the past, we had to rely on the Soviet Union to build the Thang Long Bridge. Later, we built all the bridges in Vietnam ourselves. We also relied on the Soviet Union to build the Hoa Binh Hydroelectric Power Plant, but later we built the Son La Hydroelectric Power Plant, which is several times larger. We must have faith in our engineering team. And most importantly, we must use that very field experience to train them, as mentioned above.

Furthermore, high-speed rail must become the "backbone" of the economy, connecting localities not only economically, but also socially and culturally.

To achieve this, each area around the train station must be transformed into a new urban center, where modern and integrated infrastructure and logistics radiate outwards to industrial, service, and tourism zones, each leveraging the strengths of its respective locality.

Vietnam has experience in successfully implementing many large-scale infrastructure projects.

Lessons learned from land clearance

We have implemented many large-scale projects before, from the North-South expressway to Long Thanh airport… But this is the first time we've undertaken a high-speed rail project, and it's on a very large scale. In your opinion, how should we apply the experience gained from previous projects?

For the high-speed railway project, the Ministry of Transport has proposed a ratio of 60% elevated tracks, 30% underground tracks, and 10% tunnels and bridges. This is also one of the lessons learned from the implementation of the North-South expressway project. Prioritizing elevated tracks helps avoid hindering traffic, people's lives, and irrigation, while also saving land used for road construction, farming, or business production.

Only sections of road that pass through forests, which will inevitably impact the ecosystem, need to be considered. Similarly, this applies to areas of national defense land, and this may require a special mechanism from the National Assembly. Previously, people feared that elevated roads would be too expensive, but now new technologies are cheaper than building roads on the ground.

Therefore, I believe that for the above-ground sections of the project, we should study the possibility of increasing the use of new technology – viaduct technology. With this technology, the road will not subside, drainage will be improved, and there will be no need to worry about the extremely costly earthworks for road embankment…

He just shared that high -speed rail mainly runs on elevated tracks, but there are still some underground sections. So how should land acquisition be implemented ? What lessons from previous projects should be taken into account?

This is a state-funded project, and the law stipulates three steps: mobilization and public awareness campaigns; negotiation and agreement on compensation prices; and enforcement if necessary. Land clearance requires local government leaders to be determined, proactive, and responsible, all for the common good.

This is also a successful experience from many localities, such as Hung Yen province recently and, before that, Quang Ninh province, when the Prime Minister was still the Provincial Party Secretary. The lesson learned is that the Provincial Party Secretary himself must head the land clearance committee.

For this project, a special mechanism might also be needed, namely the National Assembly authorizing enforcement in necessary cases.

Thank you, sir!

Source: https://www.baogiaothong.vn/can-5-co-che-dac-thu-lam-duong-sat-toc-do-cao-192241008231653821.htm