Vietnam loses on ODA because of high project prices, says former official

By Bao Van, Thanh Nien News (The story can be found in the April 11 issue of our print edition, Vietweek)

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Rendering of a bridge on a section of the North-South Highway which links Ben Luc Town in the Mekong Delta and Long Thanh District, Dong Nai Province. The construction of this highway section, which is slated for beginning this year, is funded partly by Japanese aids.

Vietnam should hire foreign consultants to assess bids for ODA-funded projects because there is a lack of local capacity and the country is losing by accepting ODA even when firms in donor countries quote very high prices, former deputy construction minister Pham Sy Liem tells Vietweek.

A Japanese company executive has recently alleged he paid bribes to get ODA project contracts in Vietnam. What are the shortcomings in tender management that allow these things to happen?

Pham Sy Liem: Some ODA donors, including Japan, stipulate that contractors of ODA projects should be firms from their country or Vietnam. Some other donors require international tenders to choose contractors for the projects.

If only Vietnamese firms and those from a donor country are invited to bid, the former find it hard to win because of they have less construction experience. Many construction works, like the Thu Thiem Tunnel (under the Saigon River in Ho Chi Minh City), have been done in Vietnam for the first time, meaning we don’t have experience in these fields. Local firms also have low financial capacity and shortage of specialized machines. Foreign firms often win bids for ODA projects and then hire Vietnamese firms to work as subcontractors.

Some firms from an ODA donor country in Vietnam could tacitly consent to facilitate a firm to get a contract and another firm to get another contract. All the firms could participate in a tender, with most of them quoting very high prices. Only one firm, which is supposed to get the contract, quotes a more reasonable price, easily winning the tender.   

Japanese contractors often quote high prices, saying that they use high-quality construction materials so that the work would meet the high Japanese quality standards.

A Japanese professor said last year in a Japanese newspaper that Japanese contractors quoted US$1,000 per cubic meter of construction materials for the Nhat Tan Bridge (in Hanoi). But they pay only $100 per cubic meter when signing subcontracts with Vietnamese partners, attributing the large gap to high management costs.

Does Vietnam have any means to monitor the situation?

It has. If Japan quotes too high prices for ODA projects, Vietnam could refuse to accept the aids. We should indicate that the rates it offers are too high, and Japan might reconsider. However, Vietnam has not done this. It has taken all the ODA offered without any complaints about the prices for the ODA-funded projects. It is because of our weak assessment of ODA-funded projects.

We have not turned down ODA since we are in need of capital. The conditions for getting ODA from Japan are easy. Japan offers ODA loans with a long grace period. During the time, Vietnam is not required to pay principal or interest.

The psychology (of officials) not having to take responsibility for repaying the debts in the future and hoping they would be forgiven are also reasons for accepting ODA.

Debts are forgiven. The former Soviet Union forgave Vietnam its debts. But donors only forgive debts when countries are ruined because of repayment of debts. We have grown from being a low-income country to a middle-income one, and so there is no reason for forgiving our debts. Vietnam not only has to repay its loans but also has to offer ODA to other countries with lesser economic development.

I think we should hire foreign consultants to assess the prices of ODA projects.

"Vietnam has taken all the ODA offered without any complaints about the prices for the ODA-funded project"

Japanese firms are often chosen to implement projects with Japanese ODA. But the prices they quote are often high. Is this a reason for the bribery scandals that have rocked Vietnam in recent years?

Bribery is very common in public construction activities in Vietnam. It happens not only in ODA projects but also state-funded ones. The case of the Japan Transportation Consultants, Inc. that allegedly paid bribes to get an ODA project contract is not the first one. Some years ago Huynh Ngoc Si, former deputy director of the Ho Chi Minh City transport department and head of the project, was charged with taking bribes in 2003 from a Tokyo-based company for a major infrastructure project – a highway linking the east and west of HCMC – also funded by Japanese ODA.

ODA is an important source of funds for Vietnam. However, what we gain from the use of ODA might be less than what we lose…

That argument is not correct. There are many good ODA projects with reasonable prices. My Thuan Bridge with Australian ODA is of good quality and reasonable price. It was built at a cost of $90 million, including $60 million in ODA from Australia.

In general, projects funded by international organizations like the World Bank and the Asian Development Bank are closely monitored.

What should Vietnam do to improve the capabilities of its firms so that they can win contracts for major construction projects?

We have to rapidly modernize our construction sector. We could learn from China. From being an underdeveloped country in the field, it now has many of the top 250 leading construction contractors in the world. It requires construction projects with a value of 5 million yuan (some $833,000) upwards to be managed by project management professionals. In Vietnam, projects are managed by government officials.

We also do not have human resources companies that can provide qualified construction workers. China has such firms. We should also have strong companies leasing out specialized construction machines.

Vietnam should also consider negotiating with ODA donors about requirements for contractors to participate in projects. For example, a Vietnamese firm could get an ODA project contract if a local bank guarantees that it will provide enough funds to implement the project. Under current regulations, a Vietnamese can only get an ODA project if it can demonstrate it is financially capable by itself.

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