Revealing solutions to overcome difficulties for the Bac Giang Expressway BOT Project

Revealing solutions to overcome difficulties for the Bac Giang - Lang Son Expressway BOT Project

Amending the contract and adding about 4,500 billion VND of state support capital is probably the most optimal solution to save the Bac Giang - Lang Son Expressway BOT Project from the risk of financial failure.

A section of the Bac Giang – Lang Son highway.

Exactly one month after receiving the request to complete the Project on solutions to handle difficulties and obstacles in some BOT traffic projects, at the end of last week, the People's Committee of Lang Son province sent Report No. 402/BC - UBND to the Ministry of Transport on the implementation status and difficulties and obstacles of the BOT project to invest in the construction of the Bac Giang - Lang Son City expressway, section Km45+100-Km108+500, combined with strengthening the National Highway 1 road surface, section Km1+800 - Km106+500.

Harmonious benefits, shared risks

This BOT project has a very long name but is better known as the Bac Giang – Lang Son Expressway BOT Project, including 2 items: constructing the Bac Giang – Lang Son Expressway with a complete 4-lane scale and strengthening the road surface for National Highway 1 from Bac Giang to Lang Son.

In Report No. 402, Mr. Luong Ngoc Quynh - Vice Chairman of Lang Son Provincial People's Committee said that the contents of the 24-page detailed report were the result of a meeting between the competent State agency of the Bac Giang - Lang Son Expressway BOT Project with investors, project enterprises and credit sponsor, the Vietnam Joint Stock Commercial Bank for Industry and Trade - Vietinbank, held in early August 2024.

It should be added that the Bac Giang - Lang Son Expressway BOT Project is one of three BOT traffic projects in which local authorities act as competent State agencies, and is being included by the Ministry of Transport in the Project to handle difficulties and obstacles in a number of BOT traffic projects.

The most prominent highlight in Report No. 402 is the proposal of the People's Committee of Lang Son province to apply the solution of amending the contract and supplementing the central budget to support to remove difficulties and obstacles for the Bac Giang - Lang Son Expressway BOT Project.

Specifically, the People's Committee of Lang Son province proposed that the Ministry of Transport consider reporting to the competent authority to support the Central Budget capital for the Project with an amount of about 4,600 billion VND as requested by the project enterprise to offset the cash flow deficit during the toll collection period to ensure the financial plan (at that time, the project's payback period is about 28 years and 7 months).

Lang Son Provincial People's Committee also requested the Ministry of Transport to report to the Government, the Prime Minister and central ministries and branches to issue mechanisms and policies to implement debt restructuring and maintain the debt group for the Project.

Previously, at the end of March 2024, in an effort to "rescue" the Bac Giang - Lang Son Expressway BOT Project, the People's Committee of Lang Son province issued Document No. 23/TTr - UBND requesting the head of the Government to consider and agree to the policy of supporting from the central budget about 5,600 billion VND (not exceeding 50% of the audited and finalized value of the Project) to offset the cash flow deficit during the period of collecting tolls to recover capital, ensuring the financial plan and ensuring stable operation and exploitation of the project.

Thus, compared to the March 2024 plan, the amount of support from the State budget has decreased by about VND 1,000 billion. However, this is not the only difference in the rescue plan for the Bac Giang - Lang Son Expressway BOT Project mentioned by the Lang Son Provincial People's Committee in Report No. 402.

It is known that in order to reduce 1,000 billion VND in State support, at the meeting with the presence of "three parties": Lang Son Provincial Construction Investment Project Management Board (representing the competent state agency); investors, project enterprises and Vietinbank (sponsor), the parties agreed to follow the Prime Minister's guiding principle when handling difficulties and problems at the Project, which is "harmonized benefits, shared risks".

Specifically, the capital sponsor agreed to reduce the lending interest rate within 12 months from the date of approval but not later than July 31, 2025, from 10.5%/year to 9.5%/year. At the same time, the base interest rate and margin in the lending interest rate calculation formula in the credit contract were adjusted as follows: the base interest rate is determined by the savings mobilization interest rate, interest paid in arrears, 12-month term notified by the lender on the interest rate determination date; margin 3.5%/year. The investor also agreed to reduce the return on equity from 11.5% to 11%.

Harmony of interests

It is known that in addition to the solution of amending the contract and supplementing the central budget to support the Bac Giang - Lang Son Expressway BOT Project, the People's Committee of Lang Son province and the investor and capital sponsor have also considered two other options to resolve difficulties and obstacles: continue to implement according to the contract or terminate the contract.

Regarding the contract implementation plan, the People's Committee of Lang Son province said that this is the plan that the People's Committee of Lang Son province has applied for nearly the past 5 years. If this plan is continued, there is no need to supplement the state budget to support the project, but there are a series of limitations that are very difficult to handle.

According to the People's Committee of Lang Son province, based on the actual traffic volume on the route and the expected growth rate for the following years, the results of the financial plan calculations of the investor and the project enterprise show that the project's payback period is about 44 years and 11 months, while the initial payback period is 18 years and 3 months.

This not only causes difficulties for investors and project enterprises but also for credit providing banks in the process of loan processing and debt restructuring of the project.

Besides, because the project does not have the participation of state budget capital and there is no revenue sharing mechanism, the solution of only extending the toll collection period according to the contract regulations without support and revenue sharing from the State will not really solve the difficulties and problems of the project.

Regarding the solution to terminate the contract, the People's Committee of Lang Son province said that the competent State agency of the Project needs to arrange about 11,267 billion VND to pay the costs that the investor and project enterprise have implemented, which will immediately resolve the difficulties and problems of the project.

The allocation of 11,267 billion VND in the current period will put relatively large pressure on the state budget. On the other hand, investors will also suffer losses when their investments are not profitable and the credit-providing bank will not be able to collect the unpaid interest from the project's operation stage until now, leading to capital loss at state-owned enterprises.

Thus, the solution of terminating the contract is difficult to implement because it will put great pressure on the state budget, while causing damage to both the State and the investor.

Thus, among the three proposed options, only the solution of amending the contract and supplementing the central budget can resolve the difficulties and obstacles of the project; at the same time, ensure the project continues to be implemented.

“The BOT project of the Bac Giang - Lang Son Expressway is implemented according to the provisions of Decree No. 15/2015/ND-CP dated February 14, 2015 of the Government on investment in the form of PPP, invested with 100% of capital mobilized by investors, without the participation of State budget capital, without a revenue sharing mechanism, so the solution of extending the toll collection period without support and revenue sharing from the State will be difficult to resolve the difficulties and problems of the project”, the leader of the People's Committee of Lang Son province assessed.

It should be added that the Bac Giang - Lang Son Expressway BOT Project is one of the BOT projects with the most "difficult" fate, both in terms of implementation (changing investors 3 times) and the process of collecting tolls to recover capital.

These difficulties and problems of the Project have been confirmed by the State Audit in Notice No. 09/TB-KTNN2 dated January 16, 2020.

Specifically, according to the initial financial plan, the Project was allowed to collect tolls to recover capital at 2 stations on National Highway 1 (at Km 24+800 and Km 93+160) and stations on the expressway, with the expected revenue of the Project being 93 billion VND/month. During the implementation process, due to objective factors, the current toll revenue of the Project is only about 30 billion VND/month, reaching about 32% of the initial financial plan, leading to a deficit in the Project's cash flow to recover capital, not enough to pay the principal and interest incurred by the lending bank.

Actual revenue from toll collection on June 1, 2018 to the end of June 2024 of the expressway and toll station Km93+160, National Highway 1 reached VND 1,905,439 billion, equivalent to 41.6% of the expected cumulative value according to the contract.

In addition, the Huu Nghi - Chi Lang border gate expressway project under the BOT form has not been completed to synchronously connect the route to Lang Son city and Huu Nghi border gate as planned; on the other hand, the impact of the COVID-19 pandemic and China's border trade policy on border gates have led to the traffic growth rate and traffic distribution on the expressway not being as forecasted in the approved financial plan.

In addition, the project was provided with a credit limit of VND 10,169 billion by Vietinbank Hanoi branch, of which about VND 9,229 billion has been disbursed. Since December 31, 2020, the bank has stopped disbursing credit capital for the project due to legal regulations in the banking sector (about VND 940 billion has not been disbursed).

“Currently, the project's outstanding debt is about 400 billion VND for construction and installation and about 21 billion VND for site clearance costs because the credit capital has stopped disbursing since October 2020, leading to prolonged complaints from project contractors, which could affect the normal operation of the project,” the representative of the project enterprise confirmed.

Basic parameters of the BOT project to invest in the construction of the Bac Giang – Lang Son expressway, section Km45+100 – Km108+500, combined with the reinforcement of the National Highway 1 road surface, section Km1+800 – Km106+500:
– Competent authority: Before May 25, 2018: Ministry of Transport; from May 25, 2018 to present: People's Committee of Lang Son province.
– Implementing investor: Joint venture of Deo Ca Transport Infrastructure Investment Joint Stock Company – Lizen Joint Stock Company – Hoa Hiep Company Limited – My Da Construction Company Limited.
– Project enterprise: BOT Bac Giang – Lang Son Joint Stock Company.
– Project scope: The expressway is approximately 63.4 km long; National Highway 1 is approximately 110.2 km long.
– Total investment: 12,188,664 billion VND, of which the investor's equity is 1,654.47 billion VND (equivalent to 13.5% of total investment capital); loan capital is 10,543,194 billion VND (equivalent to 86.5% of total investment capital); state budget capital is 0 VND.
– Loan interest rate during construction and exploitation period is 10.5%/year; profit for investors: 11.5%/year.
– Use revenue from toll stations located at Km93+160, National Highway 1 and on the expressway to recover investment capital for the project (remove station Km24+900, National Highway 1).
– Toll collection method: closed toll collection for expressways, open toll collection for National Highway 1, toll increase schedule is 15%/3 years.
– Project payback period: about 28 years and 7 months (until 2048).

Source: https://baodautu.vn/he-lo-phuong-an-go-kho-cho-du-an-bot-cao-toc-bac-giang—lang-son-d223026.html