BT project failure: Problems occur when the law changes

Lawyer Ngo Thanh Tung, arbitrator of the Vietnam International Arbitration Center (VIAC), said that since 1997, the legal regulations on BT contracts have changed a lot, especially in terms of payment methods. He cited that before 2014, Decree 108/2009 authorized the utilization of both cash and land-based payment methods for BT projects. Subsequently, Resolution 01 and Decree 15/2015 discontinued the practice of cash payments.

The 2018 Law on Management and Use of Public Assets formalized the land payment method under the parity mechanism. The 2021 Law on Investment, which established the Public-Private Partnership (PPP) model, rendered BT contracts ineligible for new investment initiatives.

According to the Ministry of Planning and Investment, the suspension of BT projects under the PPP Law stems from the shortcomings of implementing this type of contract. In some cases, projects lack appropriate investment objectives and are deemed unnecessary. The value of BT works is often inaccurately determined, with most projects having higher investment rates compared to those using public investment capital. The selection of investors is primarily conducted through non-competitive bidding, and supervision is often neglected, resulting in poor quality of the works.

Amid the growing difficulty in mobilizing investment capital from the budget and the sharp rise in investment demand for infrastructure development, it is essential to consider continuing the application of the BT contract type. This should be done with a focus on innovation and perfecting the implementation mechanism of this contract type," said a representative of the Ministry of Planning and Investment.

The Ministry of Planning and Investment reported that there are clusters of issues based on statistics from numerous BT projects initiated before to the PPP Law.

Issues have emerged from the legal provisions concerning payments to investors. These include instances where the anticipated value of the land fund to be compensated surpasses the value of the BT project.

Additionally, there is a lack of regulations governing the authority, sequence, and procedures for allocating the state budget to compensate or reimburse investors in the event of contract termination. Furthermore, there are no established guidelines for BT projects regarding cash payments for certain expenses beyond the total construction investment. Lastly, there is an absence of solutions for contracts that contain terms not compliant with the regulations in effect at the time of their signing.

A separate set of issues emerges from the absence of clear regulations for implementation within the decree, or the existing regulations are not uniformly comprehended. This includes matters such as the utilization of cleared land funds or state agency headquarters for compensating investors; the guidelines regarding the application of land funds, particularly concerning public land areas for investor payments, lack specificity.

Currently, there are no established regulations to address the funds that investors have preemptively provided for site clearance and resettlement support from the counterpart land fund. Additionally, there are no provisions for modifying the feasibility study report, construction design, or contract amendments related to BT projects.

Challenges in the contract implementation process include delays in compensation and site clearance, as well as investors failing to submit the budget payment amounts as outlined in the bidding documents. Furthermore, there are issues related to slow progress due to the need to address findings from inspection and auditing agencies.

Despite many inadequacies, localities believe that BT brings many benefits to residents; the only things is that the government should necessarily complete the legal framework to facilitate the implementation of BT projects in accordance with the law.

Deputy Director Vu Duy Tuan of the Hanoi Department of Planning and Investment said that after nearly two decades of execution, Hanoi has undertaken 119 BT projects. Among these, 11 projects have been completed and are now operational, significantly enhancing the city's infrastructure system.

Notably, certain projects have been executed effectively and are regarded as successful, such as the elevated and at-grade sections of Ring Road 2, which commenced construction in April 2018 and concluded in January 2023, with a total investment nearing VND10 trillion by the adoption of innovative technologies.

However, the leader of the Hanoi Department of Planning and Investment acknowledged the limitations and shortcomings of BT projects in the area. These issues have been highlighted by inspection and audit agencies across 17 BT projects. The projects have faced delays, with some only partially invested and unable to proceed further.

Moreover, some projects completed and put into use since 2015 have not been compensated with land funds. Inspections and audits revealed that 16 out of 17 projects were awarded through designated bidding, and the one project that did go to bid had only a single investor.

Furthermore, the total investment level proposed by investors was often very high; following inspection and audit, it sometimes decreased by up to 25 percent.

The primary cause of the above-mentioned shortcomings lies in the frequent changes in legal regulations and the overlaps and inconsistencies between BT regulations and the laws on public property and land. Additionally, appointing contractors often leads to problems that are difficult to resolve later as some investors may not be qualified to implement the projects.

Despite these issues, Hanoi still considers BT to be an effective investment method and continues to propose its inclusion in the Capital Law for further implementation.

In addition to Hanoi, Ho Chi Minh City is also authorized to implement BT contracts under National Assembly Resolution 98/2023/QH15. Nghe An Province has actively proposed and received several specific policy mechanisms, including BT regulations.

According to National Assembly’s Resolution 137/2024, Nghe An Province is allowed to use BT contracts with cash payments for projects in transportation, urban technical infrastructure, lighting systems, decorative electricity, parking lots, drainage and wastewater treatment, and environmental pollution treatment. This mechanism aims to enable Nghe An Province to be flexible in attracting non-state economic sector resources, facilitating infrastructure development projects to meet growth demands.

Despite certain shortcomings and limitations in practical implementation, many localities are keen to continue using BT contracts. To overcome existing challenges, a comprehensive legal framework is necessary, along with amendments, supplements, and guidance on related regulations to effectively address current issues, making it easier for localities to implement these projects.