Vietnam’s Infrastructure Constraints: Public Investments and Public-Private Partnerships

Successful countries provide economy and society with infrastructure needed to maintain growth. Development experience suggests that investing 7 percent of GDP in infrastructure is the right order of magnitude for high and sustained growth. Over the last twelve years, the government of Vietnam was able to sustain infrastructure investment at 10 percent of GDP. This remarkably high level of investment has resulted in a rapid expansion of infrastructure stocks and improved access. Despite this achievement, Vietnam is experiencing more and more infrastructure weaknesses that negatively affect its ability to sustain high economic growth in the long term. Transport and electricity – the two most essential infrastructure activities – appear to be the weakest infrastructure sectors in Vietnam with blackouts and traffic jams occurring more and more frequently. In transport, many large-scale railway, seaport and airport projects are being planned in near total disregard of the emergence of fast growing industrial clusters. These wrongheaded projects will need to be terminated in order to make funds available for a few crucial projects in the most rapidly growing regions that currently face severe transport bottlenecks. The private sector participation in transport development will help identify and execute the most viable projects. But its potential will only be realized if the returns to private investors come from the projects’ own cash flow, rather than from government subsidies in the form of land. In electricity, the investment pattern of over-reliance on hydro needs to be changed. If hydro continues to be the single largest production source, then extensive idle time will be inevitable for thermal stations, since the wet/dry season power output ratio is so uneven. Vietnam must determine the appropriate mix of hydro and thermal generating capacity that can reliably supply the country’s demand. Electricity prices have to be raised to levels that enable EVN or a single buyer in the future to contract for new generating capacity through competitive bidding. The roadmap for liberalization in the energy sector contemplated in the 2004 Electricity Law needs to be implemented if Viet Nam is to successfully attract the volume of investment and promote the levels of competition and private sector participation required to meet Viet Nam’s long term energy and, hence, developmental needs.