Proposal to use budget capital to save National Highway 26 BOT Project

The appearance in the next 2 years of the Khanh Hoa - Buon Ma Thuot expressway will completely disrupt the financial plan of the National Highway 26 BOT Project, which has a payback period of up to 33 years.

Ninh Xuan toll station is located on National Highway 26 through Ninh Hoa Town, Khanh Hoa.

Fate of hardship

Khanh Hoa Provincial People's Committee has just issued Official Dispatch No. 3140/UBND-XDND to the Ministry of Transport (MOT) requesting consideration of the handling plan for the Project of Construction of National Highway 26 through Ninh Hoa town (Km0 - Km2+897) and renovation and upgrading of National Highway 26 including the sections: Km3+411 - Km15+350, Km84+300 - Km88+383, Km91+383 - Km98+800, Km101+800 - Km112+800 under the BOT form (BOT Project of National Highway 26).

The most important highlight in Official Dispatch No. 3140/UBND-XDND is that the People's Committee of Khanh Hoa province requested the state management agency on traffic to consider including the National Highway 26 BOT Project in the list of BOT projects that the Ministry of Transport has just reported to the Government, the Prime Minister to consider and approve solutions to handle difficulties in a number of BOT transport infrastructure investment projects in the form of BOT in Document No. 2451/TTr-BTVT dated March 8, 2024.

If approved, the National Highway 26 BOT Project will be the ninth transport infrastructure project proposed to use state budget capital to support part of the cost to improve the financial plan or use the state budget to pay the investor to terminate the contract ahead of schedule.

The obstacles will be removed when the Khanh Hoa - Buon Ma Thuot expressway is formed.

In Official Dispatch No. 1856/BGTVT-CĐCTVN sent to the Government Office in February 2023, the Ministry of Transport said that the Khanh Hoa - Buon Ma Thuot Expressway Construction Project affects the financial plan of the National Highway 26 BOT Project.
During the investment preparation process for the Khanh Hoa - Buon Ma Thuot Expressway Construction Project, the Ministry of Transport directed relevant agencies to assess the impact and submit it to the Government for consideration; The Government submitted and the National Assembly approved the investment policy for the Khanh Hoa - Buon Ma Thuot Expressway Construction Project in Resolution No. 58/2022/QH15 dated June 16, 2022.

Accordingly, in Submission No. 190/TTr-CP dated May 21, 2022, the Government reported to the National Assembly that: "The quantification of the level of impact on the National Highway 26 BOT Project can only be determined when the highway is put into operation. Therefore, in the next implementation step, the Government will direct the Ministry of Transport to coordinate with localities and relevant agencies to continue researching and coordinating with BOT project enterprises to specifically assess the level of impact, actual revenue and propose appropriate solutions, ensuring compliance with contract conditions, minimizing impacts on investors' interests".

Also in Official Dispatch No. 3140/UBND-XDND, Mr. Nguyen Tan Tuan, Chairman of Khanh Hoa Provincial People's Committee, requested the Ministry of Transport to report to the Prime Minister for consideration and submit to the National Assembly Standing Committee for approval of the investment plan to complete the traffic intersection connecting Khanh Hoa - Buon Ma Thuot Expressway with National Highway 26 in Phase I of the Khanh Hoa - Buon Ma Thuot Expressway Construction Project, to create conditions for this locality to soon form the Ninh Xuan Industrial Park of up to 1,000 hectares.

It is known that this is the second time in the past year that Khanh Hoa Provincial People's Committee has made the above proposals to the Ministry of Transport. This shows the urgency of the issue, especially the handling of difficulties and obstacles at the National Highway 26 BOT Project.

The BOT National Highway 26 project has the most difficult fate among the 72 BOT transport infrastructure projects implemented by the Ministry of Transport in the period of 2012 - 2020. The project was decided to be invested in by the Ministry of Transport in 2015, completed and put into operation in 2019, with a total investment of 816 billion VND. The investor selected to implement the project is Investment and Construction Joint Stock Company 501; the project enterprise is CICO 501 BOT National Highway 26 One Member Co., Ltd.; the credit capital provider is Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank).

According to the signed BOT contract, the investor is allowed to collect tolls at two toll stations, Ninh Xuan station (Km8+800, National Highway 26) and Eadar station (Km93+677, National Highway 26) for a period of 33 years and 1 month. This toll collection period is also the longest among current BOT transport infrastructure projects.

The leaders of Khanh Hoa Provincial People's Committee assessed that the completion and operation of the National Highway 26 BOT Project has helped improve traffic capacity and enhance traffic safety on the vital route connecting the South Central Coast with the Central Highlands provinces. However, after only a few days of toll collection (from December 16, 2019), investors, project enterprises, as well as the provincial government have had a hard time maintaining security and order at the Ninh Xuan toll station to repay capital for the National Highway 26 BOT Project.

Specifically, because the distance between Ninh Xuan station and Ninh Loc toll station to pay back capital for the BOT project to invest in the construction and expansion of National Highway 1, section Km 1374+525 - Km 1392 and section Km 1405 - Km 1425+500 in Khanh Hoa province is too close (only 12 km), so when implementing toll collection, there was a reaction from drivers and transport businesses.

Khanh Hoa Provincial People's Committee said that from April 1, 2020 to January 14, 2021, Khanh Hoa Provincial Police had to handle 38 cases affecting security and order at Ninh Xuan toll station. Along with strictly handling extremists, investors also coordinated with local authorities to exempt and reduce road use fees when passing through Ninh Xuan toll station with the number of up to 5,070 vehicles.

“Thanks to the parallel implementation of the above two solutions, from the beginning of 2021 until now, the security and order situation at Ninh Xuan toll station has basically stabilized,” said the leader of Khanh Hoa Provincial People's Committee.

Debt burden

In fact, the implementation of fee exemptions and reductions for a large number of vehicles has left negative financial consequences for the National Highway 26 BOT Project. From 2021 to present, the average toll revenue at the Project has only reached about 54% of the financial plan, not enough to pay the principal and interest on bank loans.

In addition, although the Project was completed in July 2017, based on the proposal of Khanh Hoa and Buon Ma Thuot provinces and the opinion of the State Audit on continuing to invest in extending the scale of the project, the Ministry of Transport has directed the investor not to collect tolls to invest in an additional 28 km, increasing the total length of the renovated road to nearly 48 km. This leads to the investor having to pay more than 100 billion VND in interest on loans, while the Project has not yet had any revenue.

According to Mr. Le Tu Lam, General Director of Investment and Construction Joint Stock Company 501, the bank that provided the capital has classified the project's debt to group 5 (debt with the possibility of losing capital), leading to the company's business activities being stagnant.

In the context of a "shattered" financial situation, the operation of the Khanh Hoa - Buon Ma Thuot expressway in late 2025 and early 2026 running in parallel is like "the last straw". Due to the diversion of a large number of vehicles, the BOT National Highway 26 Project went bankrupt and was no longer financially feasible. At the time of approval of the BOT National Highway 26 Project, the Khanh Hoa - Buon Ma Thuot expressway was planned to be invested after 2030.

Facing the brink of bankruptcy, recently, investors have continuously sent documents to the People's Committee of Khanh Hoa province and the Ministry of Transport requesting to quickly remove difficulties and obstacles, as the time for the Khanh Hoa - Buon Ma Thuot expressway to come into operation is getting closer.

In a document sent to the Ministry of Transport in April 2022, Investment and Construction Joint Stock Company 501 requested the Ministry of Transport to consider two options to resolve the problems of the National Highway 26 BOT Project when the Khanh Hoa - Buon Ma Thuot Expressway comes into operation. Option 1 is to continue to collect fees at toll stations to recover capital for the National Highway 26 BOT Project and the State will support the annual under-collection fund according to the signed financial plan (the estimated support budget for 33 years and 1 month is 3,500 billion VND).

Option 2 is to eliminate toll stations of the BOT National Highway 26 Project and allocate the state budget (about 1,085 billion VND) to pay investors and funding banks. “If approved, investors will use all the money refunded by the state for this Project to continue investing in other projects under the PPP form of the Ministry of Transport,” said the leader of Investment and Construction Joint Stock Company 501.

According to a leader of the Vietnam Expressway Administration (Ministry of Transport), this agency has received proposals from the Khanh Hoa Provincial People's Committee and the investor of the National Highway 26 BOT Project.

In the process of reviewing and evaluating BOT projects facing difficulties and obstacles to propose solutions to competent authorities, there are some expressways (parallel to BOT projects) that, after being put into operation, have not yet completed procedures to collect fees, which may affect the revenue of BOT projects.

According to updated data, after the completion of the Khanh Hoa - Buon Ma Thuot Expressway, the revenue of the parallel BOT National Highway 26 Project will decrease. When the Can Tho - Ca Mau and Chau Doc - Can Tho - Soc Trang Expressways are completed, the revenue of the two BOT projects on National Highway 1 through Bac Lieu and Soc Trang will decrease.

“When investing in the above BOT projects, the state management agencies have predicted the diversion when the parallel expressways come into operation. The management agencies are continuing to assess the level of impact when the expressway is put into operation to develop appropriate solutions. At the same time, early toll collection for expressway projects invested with the state budget will basically solve the difficulties for the 3 BOT projects, including National Highway 26 due to diversion,” said the leader of the Vietnam Expressway Administration.

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