Loopholes in management of BT projects

Friday, 2018-05-25 18:19:29
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BT contracts applied in Vietnam mainly cover the area of infrastructure (illustrative image)
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NDO - A number of projects implemented in the BT (build-transfer) model have had shortcomings revealed, with financial misuse up to VND4.5 trillion (US$198 million) in 2017, according to a report on budget spending released by the Vietnam State Audit (VSA) on May 21.

The report, which was presented at the 14th National Assembly's fifth session in Hanoi on May 21, stated that through the audit of 30 BT projects in 2017, the VSA identified several project which misused more than US$198 million, of those, there were projects posting financial misuses up to 27% of their total value.

BT contracts applied in Vietnam mainly cover the area of infrastructure which is a commitment of the State to "buy" the BT projects through the State budget or the sources of revenue to the State budget. In fact, BT projects can bring risks to investors as they have to advance capital without interest to clear the land in addition to making pre-feasibility and feasibility study reports, among other issues.

If the project is not approved by the authorities, investors will not be reimbursed for their losses. However, the State management over BT projects has revealed inadequacies and loopholes in the following aspects:

Firstly, the selection of contractors for BT projects is mainly implemented through the designation and investors gain initiative in negotiating with management agencies in selecting projects, determining the total investment capital, and implementing and finalising the projects.

The supervision of the quality of BT construction is also loose, and is something which is usually entrusted to the investors. State management agencies only supervise the obligation of contracts of investors and enterprises. Only in cases of necessity, State management agencies hire qualified consultants to assist them in supervision.

In many localities, BT projects are all proposed by investors and the review and approval of the project value is only based on reports prepared by the investors and is audited by an independent auditing organisation.

Secondly, the payment mechanism via government bonds has transfigured BT projects into public investment projects which offer higher profits for investors like other public investment projects which are exclusively implemented without bidding.

Thirdly, the payment mechanism through exchanging land to investors is abused by investors seeking to make huge profits as the price of land at the time of transfer was usually valued at a much lower price than when construction on the projects was completed, resulting in huge losses for the State budget.

Fourthly, loose regulations and state management have also led to many errors and losses in BT projects over the past time. Even the 2013 Land Law does not contain any detailed provisions on the valuation of infrastructure as well as the valuation of land to allocate to investors in BT projects. Until June 2014, the Ministry of Natural Resources and Environment issued a circular that specifies the methods to value land.

BOT (build-operate-transfer) and BT projects are investment forms which are conformable with the market mechanism and are increasingly expanded, contributing to raising capital and creating the motivation for investing in infrastructure and economic development.

However, it requires a full awareness of the impact of these types of investment and the comprehensive implementation of sound management policies in addition to the good coordination between parties concerned to close any legal loopholes and enhance the efficiency of State management capacity.