Vietnam will call for investment from local and foreign businesses during the construction of the terminals and warehouses of a new major airport in the southern province of Dong Nai, Deputy Minister of Transport Pham Quy Tieu said.
Other parts of the Long Thanh airport construction project, including site clearance and the construction of a main runway and parking lot, will be funded by the state because they won’t generate any profits, he said during an online seminar on the project on Friday.
So far, no one has expressed interest in a Build–Operate–Transfer (BOT) deal or Public–Private Partnership (PPP).
Luong Hoai Nam, an aviation expert, said it will be the first time Vietnam considers calling for foreign investment in airport construction and he remains confident investors will bite.
“Given the 22 percent Internal Rate of Return (IRR) estimated by the preliminary feasibility study, this is an appealing project,” he said.
The IRR of public projects in Vietnam often stands around 10-12 percent. The IRR is an estimated rate of return used in capital budgeting to measure and compare the profitability of investments.
Many enterprises have expressed interest in investing in airport projects in Hue, Cam Ranh and Lam Dong, Nam added.
Participation from private investors will also ensure close oversight of capital usage and ensure efficiency, Nam said.
The first stage of the Long Thanh airport construction project slated for 2023 and 2025 is expected to cost some VND165 trillion (over $7.8 billion), of which some VND85 trillion will be contributed by the state through government bonds and ODA loans.
The state-owned Airports Corporation of Vietnam (ACV), the project’s investor, will draw funds from the country's ODA loans, and then assume responsibility for their for repayment.
Tan Son Nhat aiport expansion: Unreasonable
Some have argued that Vietnam would be better off expanding Tan Son Nhat Airport, instead of constructing Long Thanh airport, which could raise Vietnam's already significant debt obligations. Long Thanh is around 40 kilometers to the northeast of Ho Chi Minh City--where Tan Son Nhat is located.
Deputy Minister Tieu said Tan Son Nhat has grown to serve the rising number of passengers. However, the congestion in the airspace over Tan Son Nhat won't be solved as air traffic continues to expand in the coming years.
With around 20 million passengers each year, Tan Son Nhat is currently Vietnam’s largest airport and is expected to exceed its capacity of 25 million passengers some time after 2017.
In addition, the expansion of Tan Son Nhat will be costly and unfeasible because it is located in a dense residential area, only seven kilometers from the city center, he said.
Aviation expert La Ngoc Khue said that in order to increase Tan Son Nhat's capacity, Vietnam needs to build more runways. To ensure unimpeded takeoffs and landings of large airplanes, the runways should be some 4 kilometers long.
Site clearance costs alone would amount to some $9 billion--an unreasonable sum, he said.
Tan Son Nhat now has two parallel runways that are 3,048 meters and 3,800 meter, respectively, according to the ACV.
He reaffirmed that the Long Thanh project is necessary for the country’s development.
The Long Thanh airport is expected to serve up to 100 million passengers and five million tons of goods a year by 2050, becoming a major air hub in Southeast Asia.