New law to spur FDI in railway

While a number of foreign investors have shown their interest in Vietnam’s railway projects, few made further steps. Deputy Minister of Transport  Nguyen Ngoc Dong talked with VIR’s Bich Thuy about the existing barriers, as well as new investment incentives in a draft law to revise the 2005 Railway Law, making the industry more attractive.

Could you give an overview of foreign investment attraction in the railway industry over the past years? What are the barriers to foreign investment?

Over the past years, foreign investment in the railway industry has remained modest. Few foreign investors have been interested in railway infrastructure or rail transport business because of the large investment capital required compared with the long return-on-investment period, no specified incentives, and the lack of a risk-sharing mechanism between the state and investors.

The 2005 Railway Law, which took effect on January 1, 2006, was the first law for the railway industry. It regulated the management of transport activities, and aimed to create favourable conditions for investment in the field. However, some clauses of this law have proven problematic and inappropriate for the current and future development of the industry.

One of the issues is that the law does not include clear regulations on investment in commercial centres and service facilities at railway stations. As a result, we have no legal framework to attract investors in these activities.

In addition, the 2005 Railway Law offers only a few incentives, and does not define a specific organ of the state to manage railway infrastructure assets. The lack of this regulation leads to ineffectiveness in management and use of state-funded railway infrastructure assets.

Currently, a few foreign investors from Japan, South Korea, China, and Spain are very keen on railway projects in Vietnam. Which railway projects interest them the most?

Foreign investors, including South Korea’s Lotte Group, are very interested in the project to upgrade Yen Vien-Lao Cai railway. The others are Ho Chi Minh City-Can Tho railroad, and Bien Hoa-Vung Tau railway. In addition, there are potential projects at Hanoi railway station, Giap Bat railway station, a project to relocate Danang railway station, and a railway project linking Haiphong international gateway seaport.

Of specific interest is the north-south high-speed railway project under the national railway development plan. Certain routes, such as Hanoi-Vinh and Nha Trang-Saigon, are proven to have huge trade advantages, which are now a magnet to foreign investors.

A draft law to revise the 2005 Railway Law will be discussed at the National Assembly’s upcoming session in October, as a way to attract more private investment in the railway industry. What are the new incentives proposed in the draft law?

The draft law is aimed at ensuring railway transport development is in line with the market conditions, creating an open mechanism to attract private investment and intensify global integration.

To make the industry more attractive to foreign investors, we propose offering more and higher specific incentives on land and credit in the draft law. For example, we are proposing to support all site clearance costs for a new railway route.

In addition to recently regulated incentives on land, investors of national railway projects and metro lines will enjoy other incentives – including an exemption of land use fees or land leasing fees for the area used for railway infrastructure. They will enjoy reductions of land use or land leasing fees for the area used for trade and service works.

The draft law is developed to separate state management and state-owned companies’ management of business activities, and to separate infrastructure management and transportation business. This means that investors are able to invest in railway infrastructure, railway transport business, and the development of railway industries. This will create healthy competition and more favourable conditions for private investors, including foreign ones.

For example, Vietnam Railway has for years been assigned to operate, manage, and maintain the whole railway network, including rails, stations, transport business, and railway infrastructure assets. This made it difficult for private investors to join.

To create a healthy business environment for all investors, we are proposing that the state will take responsibility for management and determination of railway infrastructure assets (for lease or concession), while businesses will have rights to operate only.

Proper land funding will also be prioritised for development of railway infrastructure and industries. This is one of biggest concerns among foreign investors.

Vietnam is integrating deeply into the world’s economy through the establishment of the ASEAN Economic Community, and the enforcement of many free-trade agreements (FTAs). What are the future prospects of foreign investment attraction in the railway industry?

Foreign investment attraction in the railway industry is a challenge not only for Vietnam but also many other countries in the world.

In general, investors’ interests in the railway industry mainly focus on locomotives, trade activities at central stations, and logistics services. Investment in railway infrastructure is substantially sourced from the state.

Although the country’s attraction of foreign investment in the railway industry has remained lower than other sectors, future prospects look optimistic thanks to the country’s open policies, especially the draft law, which is expected to clear the existing barriers to private investment attraction.

Many countries have legal framework on leasing and concession of railway infrastructure. We will do the same to meet the market demand.

FTAs, including the Trans-Pacific Partnership Agreement (TPP), will make Vietnam’s economic sectors more attractive to foreign investors. And the transport sector, including the railways, is not an exception.

by vir