Why has the Cat Linh - Ha Dong urban railway missed its deadline so many times?

Facilitating Customs clearance of goods in Cat Linh-Ha Dong railway project

The adjusted total investment capital has not yet determined the basis for adjusting to increase the cost of equipment, training and technology transfer costs, and trial running and operating costs. Source: Internet.

Know in advance will have to make up losses

According to the conclusion of the State Audit, the Ministry of Transport had to adjust the project investment capital from VND8,769 billion to VND18,001 billion, an increase of 205% compared to the approved initial investment capital. When deciding to adjust the project capital in February 2016, the Ministry of Transport did not report to the Prime Minister to submit to the National Assembly for approval that the capital adjustment policy was not implemented in accordance with Resolution 49 of the National Assembly and the provisions of the Law on Public Investment.

Notably, the customer flow estimated by the project consultancy unit, analyzing financial and socio-economic efficiency,was much higher than the forecasted data of the Transport Strategy Institute. According to the financial efficiency analysis of the project, the internal rate of return is still lower than the loan interest rate. Also, the net present value is negative, so from afinancial perspective the project will have to compensate for losses. When analyzing the economics of the project, the investor did not consider the operating cost accounting for a large proportion in the exploitation stage, leading to the conclusion that the economic efficiency of the project is inaccurate, the project from the start had to compensate for losses but related parties have not proposed an effective exploitation plan.

Additionally, the conclusion of the State Audit also shows that the project file and appendix to calculate the total initial investment does not show the basis for calculating unit prices of cost items as a basis for building the total investment, total adjusted investment from VND8,769 billion to VND18,001 billion (equivalent to an increase of 205.27%) but the investor has not demonstrated the financial and socio-economic efficiency, due to the adjustment of projections. The adjusted provision cost has not considered the downward slippage factor of three consecutive years, calculating the provision rate (1%) for the completed and accepted completed and paid volume. The adjusted total investment capital has not yet determined the basis for adjusting increases in the cost of equipment, training and technology transfer costs, and trial running and operating costs.

Many mistakes

Also, according to the State Audit, by the end of June 2018, the capital poured into the Cat Linh - Ha Dong urban railway was reported by the investor was about VND11,337 billion, but the audit results only recorded about VND8,679 billion invested in the project. The difference is about VND2,656 billion because the investor incorrectly calculated the amount of VND360 million, the wrong unit price of VND175 billion and the difference of VND698 billion, not yet eligible for finalization of VND1,781 billion. Specifically, the estimates of many items of construction and installation, procurement of materials and equipment for the Cat Linh - Ha Dong railway are not consistent with Vietnam's law on management of unit price norms, management of EPC contracts with approximately VND889 billion, has not been confirmed the amount of VND1,659 billion has been poured into the project by the investor.

The equipment and train for the Cat Linh - Ha Dong railway project have been adjusted to increase capital by about VND3,143 billion, of which the cost of buying trains increased by VND364 billion, the equipment category increased by VND2,778 billion (or 227%).

Meanwhile, the Ministry of Transport has approved the appendix of the EPC contract for equipment with a unit price of US$178.7 million, about US$8.3 million higher than the price in the EPC contract not in accordance with the direction of the Prime Minister.

Regarding the disbursement and use of capital, the loan agreement of 1.2 billion Yuan, equivalent to US$169 million, signed on October 22, 2008, tookeffect on April 27, 2010 and begins to advance 15% from 2009 and pay for the construction and installation volume from December 2012 to September 2015.

The preferential contract of US$250 million for the buyer, signed on November 8, 2009, effective November 15, 2010, starting the advance for the supervision consultancy package from February 21, 2012 and paying for EPC package from September 3, 2015 to June 30, 2018, the new loan of US$250 million was fully disbursed.

Additional loan agreement of 1,597 billion Yuan, equivalent to US$250.62 million signed on May 11, 2017 until December 25, 2017 took effect, and on April 17, 2018, the first disbursement was issued. In June 30, 2018 disbursed US$9.3 million, accounting for 3.7%.

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Thus, up to now, the project has signed 3 loan agreements of about US$669.6 million from China, but the State Audit Office said that the Chinese capital in the short term will solve problems of investment capital. For projects that also meet constraints and disadvantages for the Vietnamese side, such as having to carry out the appointment of Chinese contractors to implement VND13,751.4 billion, accounting for 77% of the total investment.

Therefore, the State Audit of Vietnam said that allowing the Railway Project Management Board to sign contract No. 11 to adjust the contract form from unit price and percentage to the package form when some cost items are only provisional without estimated detail, negotiate to add 6% of additional construction costs (equivalent to US$21.07 million) to the package contract price, which lacks legal basis and causes waste of state budget.