Industry structure for infrastructure development

The importance of infrastructure has long been established in Vietnam. The central government has legislated the creation of infrastructure development implementation organizations since the post-war recovery period. After the reunification in 1975, most roads and communication networks in the whole country were damaged and outdated, and could not catch up with the national economic growth. The need for the recovery of transport and communication networks was emphasized during the Fourth Party Congress in 1976. As a result, hundreds of public enterprises in transport and communication sectors in the whole country were created during the first decade after the reunification (Ministry of Transport, 2008).

Following the liberalization in the mid to late 1990s, the government decided to reform these public enterprises into public limited corporations. Their funding has been mainly drawn from the state budget and ODA resources. However, the state budget and ODA resources have shrunk as the country moved forward. To ease the budget constraints, the reform was speeded up since 2001. These corporations were restructured into a parent-subsidiary consortium comprising a management board to manage the parent and the creation of separate subsidiaries. To take up the burden for financing and constructing infrastructure, these public corporations could issue their own bonds, borrow from the private sector, or initiate a joint-venture with private companies (Vietnam Business Forum, 2011). Major players engaged in the development of the transport and telecoms sector in Vietnam are discussed below.

The main developer of new roadways in Vietnam is the Vietnam Expressway Corporation (VEC). VEC is a state-owned corporation established in 2004 under the administration of the MoT. The Corporation has been designated to cover investments, development, management and maintenance for the national expressways. A number of key expressways have been developed by VEC, including key routes in the north-south link and in the Greater Mekong Subregion transport corridor (Vietnam Expressway Corporation, 2009; Moore et al., 2010).

The Vietnam Railways Corporation (VNR) operates all the railway tracks and rolling stocks in Vietnam. The Corporation was established in 2003. The Corporation was designed to become a leading state-owned economic group in the country and the region with business areas focusing on railway transportation and operations for the economic development of Vietnam. Major national and provincial rail projects have been assigned to VNR, including

- To upgrade and modernize the existing railways, especially those on the north-south link;

- To invest in and develop elevated rail lines in urban cities, new rail lines and stations to connect major business and industrial zones in the whole country, creating a modern railway network; and

- To study and initiate the development of strategic railways, including the high-speed rail lines linking Hanoi and Ho Chi Minh City (Prime Minister's Office of Vietnam, 2007a).

Similarly, the majority of airport upgrades and new terminal construction have been developed by Vietnamese aviation bodies including the Northern Airports Corporation, Middle Airports Corporation and Southern Airports Corporation under the administration of the Civil Aviation Administration of the MoT. These

state-owned corporations were reformed from the airports authorities founded in 1993. The market for airports construction is dominated by Vietnamese state-owned companies.

However, foreign contractors and designers, especially from Japan, have been involved in some investments financed by ODA (Moore et al., 2010).

Participation of foreign developers and contractors in the port sector is more considerable. Global port operators such as Hutchison from Hong Kong, SSA (Stevedoring Services of America) Marine from the US and the Maritime and Port Authority of Singapore have participated in a series of projects, and often in the form of a joint-venture with major Vietnamese port operators such as Vietnam National Shipping Lines and Saigon Port. Main contractors and suppliers in these projects were from neighboring countries, including China, Japan, Korea and Hong Kong. The Vietnam Waterway Construction Corporation and TediPort (a member of Tedi) under the MoT are the largest state-owned companies in port construction and design respectively (Moore et al., 2010).

The Vietnam Posts and Telecommunications Group (VNPT) currently owns and controls the national communications network on behalf of the government. The Group was reformed from the Vietnam Post and Telecommunication Corporation founded in 1995 under the Ministry of Information and Communication. The Group currently accounts for approximately 94% of the aggregate market, including operations in all telecom segments: equipment, engineering, construction and consulting (Nguyen et al., 2005).

In the energy sector, most large power projects were invested by the two state-owned groups including Electricity of Vietnam (EVN) and the Vietnam Oil and Gas Group (Petrovietnam). While EVN is the main builder of new power plants in the country, the role of Petrovietnam is increasingly important. Several foreign-invested

projects were primarily those involved in renewable energy, offshore gas reserves and pipelines development.

Electricity of Vietnam was established in 1994 under the direction of the Ministry of Energy (now the Ministry of Industry and Trade) as the leading state-owned corporation in power supply. Major activities of the Corporation involve power supply, investments and development in accordance with the state master plans and development plans of the power sector. The Corporation was reformed into EVN, a state-owned economic group in 2006 with other corporations in the power sector as company members. EVN accounts for more than 90% of total power generation with a transmission and distribution network to every district in the whole country (Prime Minister's Office of Vietnam, 1994; Electricity of Vietnam, 2008; Anh, 2010).

The main contractors in infrastructure construction projects were state-owned construction companies. Major Vietnamese contractors and consultants are Construction Company #1, Lilama, Cienco, Licogi, Vinaconex and Tedi. There were also a few foreign contractors, who are mostly involved in ODA-funded projects.

Most foreign companies participated in the sector as equipment and machinery suppliers rather than as engineering and construction contractors. However, foreign contractors have greater opportunities in large-scale infrastructure projects which require greater technical expertise or which are mainly funded by ODA sources.

Many Japanese engineering and construction firms were awarded contracts in Japanese ODA projects in Vietnam. These foreign construction firms subsequently worked with local construction firms for project implementation (Moore et al., 2010).

More recently, the participation of foreign contractors, especially Chinese contractors, has increased. It was estimated that Chinese contractors was awarded 90%

of EPC contracts in Vietnam. Among them, many are major national projects in oil

and gas, chemicals and power. Notably, Chinese contractors usually imported equipment, materials and even labour from China rather than worked with local firms for project implementation. Local firms were losing their domestic market.

Government authorities have unofficially expressed cautious opinions about the level at which the sector should be opened to foreign participation, especially Chinese firms, and the real economic growth of Vietnam as well as the national security. It was argued that bidding requirements for large projects, which were often prepared by foreign consultants rigidly applying international formats, were not suitable in the Vietnam context. As a result, local bidders were rarely short-listed for these bids. In smaller projects, local contractors stood a greater chance. However, local bidders often had to deal with high costs in preparing bidding documents and kickbacks. As a result, low prices offered by Chinese contractors often helped them win the bids. In addition, the increase of noncompliance with the Tendering Law and exploiting some loopholes in the law had made the situation worse (Vietnam Association of Mechanical Industry, 2010a, 2010b).