Vietnam struggles to attract foreign investment in airports

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Airplanes lie on the tarmac of Tan Son Nhat Airport in Ho Chi Minh City

Vietnam has been soliciting foreign investments in airports for the past several years, but it has not succeeded, and critics blame this on the low profitability of airports in the country and vague policies.

The government plans to have 26 airports by 2020, building five and upgrading the 21 existing ones, the latter at a cost of some VND221 trillion ($10.5 billion).

Le Manh Hung, general director of the national airports operator, the Airports Corporation of Vietnam (ACV), said many airports need to be upgraded and expanded.

The government used to provide funds for the construction of airports, usually big-ticket projects, but it has become necessary to attract investment from other sources, both domestic and foreign, he said.

It is difficult to mobilize enough taxpayers' money for the task, and other sources have to be tapped, head of the Civil Aviation Administration of Vietnam (CAAV), Lai Xuan Thanh, concurred.

Public funds can meet just 60 percent of the need, and the rest should be raised from foreign and domestic private investors, according to the CAAV.

It is necessary to find investors with experience in the construction and management of airports, advanced technologies, and deep pockets, Thanh said.

"However, it is difficult to attract foreign investment in airport construction because it requires huge funds and a long time to break even, but fetches little profits."

Nevertheless many investors have expressed interest in developing airports in Vietnam, he said, and have carried out feasibility studies.

Canadian Commercial Corporation is working with Quang Ninh Province authorities to do feasibility studies for Van Don Airport, which will come up 45 kilometers from world heritage site Ha Long Bay.

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The construction of Van Don International Airport in Quang Ninh Province is expected to start this year at an estimated cost of VND5.1 trillion ($242.9 million).

Japanese firms have expressed interest in the $10-billion Long Thanh Airport near Ho Chi Minh City, work on which is expected to start in 2015.

Another barrier to foreign investment is the lack of specific policies, Thanh said.

"We do not have clear regulations about which projects foreign investors can participate in or how much they can invest," he said. In fact, the government announces regulations on a case-by-case basis.

Many airports are used for both military and civilian purposes, and this too causes difficulties in seeking foreign investment, he said.

All airports are managed by the government except in certain cases approved by the government.

Most investors do not want to build airports under build-transfer contracts, but want to manage them, Thanh pointed out, saying this was also a deterrent to attracting investments.

"So, to encourage foreign investment in the field, we need to categorize airports and allow foreign investors to manage them."  

The CAAV has recommended that the Ministry of Transport should categorize airports into two groups, with the first comprising of those playing an important role in international transport and national security - like the ones in Hanoi, HCMC, Da Nang, and Cam Ranh.

The rest would be in the second group and foreign investors should be encouraged to participate in their construction and management, it said.

Barely used

Vietnam's plan to build new airports and upgrade existing facilities is predicated on boosting tourism and vying for more international routes.

Increased domestic air travel, propelled by an increasingly prosperous middle-class, is also spurring this task.

The government plans to have six international airports.

International flights are now mostly routed through Hanoi, HCMC, and Da Nang.

Vietnam is developing a strategy to compete with airports in neighboring Thailand and Singapore, according to the ACV.

Deputy Minister of Transport Pham Quy Tieu said the aviation sector holds promise, with average annual growth of 15 percent in passenger transport and 12 percent in goods transport.

Passenger numbers rose from 6 million in 2000 to 52 million last year.

The country has five carriers that fly to 15 countries, and they are expected to expand their fleets to 150 aircraft by 2015, he said.

However, many of Vietnam's existing airports are struggling to get flights or passengers and suffer losses running into tens of billions of dong (VND1 billion = $47,600).

Dong Hoi Airport in Quang Binh Province is one such. The airport, which cost VND210 billion ($10 million) and has an annual capacity of 500,000 passengers, has only received 140,000 since it opened in 2008, deputy head of the airport, Trinh Hai Duc, said.

It only has a few flights a week to Hanoi and HCMC, and suffers losses of VND55-60 billion a year, he added.

A similar situation exists in Chu Lai Airport in Quang Nam, which was built in 2004 at a cost of VND80 billion.

The airport now handles 60,000 passengers and suffers losses of VND5-6 billion a year.

But despite this, several provinces are planning to build their own airports, hoping it will boost economic and social development.

The central province of Thanh Hoa, for example, plans to sink over VND2.6 trillion into a 213-hectare airport that will become operational in 2030.

The Mekong Delta province of An Giang has announced plans for a $163-million airport, also scheduled for completion in 2030.

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