Vietnam's trade hub ambitions run into rough weather

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  Construction has been halted at the Van Phong Port project in central Vietnam's Khanh Hoa Province

The decline of Vinalines from a strong shipping group into what the government has called a bad example of a state-owned company has also put Vietnam's goal of becoming a sea transportation giant at risk.

As the largest port operator in the country, the group had been assigned the task of developing Van Phong, a multi-billion dollar seaport in central Vietnam that would help the country become a trade hub like Hong Kong or Singapore.

But without enough money, construction of the international transshipment seaport in Khanh Hoa Province stalled a few months after it began in October 2009.

Following several failed attempts to kick-start the project, the government last month decided to halt construction and look for new investors to replace Vinalines, which is now mired in huge losses and one of the biggest corporate corruption scandals in the country over the past few years.

Deputy Transport Minister Nguyen Hong Truong said his ministry has ordered Vinalines to review its work so far and proposed that the government seek assistance from foreign consultants.

The Port of Rotterdam Authority from the Netherlands has agreed to help Vietnam come up with new strategies and after a new plan has been finalized, the country will invite local and foreign investors to join the project, he said.

Vietnam plans to have 39 seaports by 2020, and Van Phong is one of the most important parts of this network.

Due to the lack of deep-water seaports to accommodate large vessels, shipments from Vietnam have to be transported by small ships that will gather somewhere else in the region where the goods are put on heavy-weight ships for a longer journey.

The general idea is that Van Phong would facilitate trading, with a designed capacity to accommodate ships of 15,000 twenty-foot equivalent units, or twice the size of the largest ship that most current ports in Vietnam can handle. According to the World Bank, ports and terminal handling takes three days for exports and four days for imports in Vietnam, compared to just one day in Singapore.

The government also hopes that the port, which carries a cost projection of US$3.6 billion, can take over the role of a regional transport center and in the process boost the economy in central Vietnam.

But now, with the fate of the project uncertain, experts have expressed concerns about these goals.

Nguyen Manh Ung, deputy general director of Portcoast Consultant Corporation, which provided the basic design and carried out the feasibility study for the project, said Van Phong is supposed to compete against other international transshipment terminals, but prolonged delays could blunt its challenge.

Vinalines has failed to attract foreign investment, which was said to be key to the project's success, he said.

If it loses out to regional ports, Van Phong will not be chosen by shippers to even handle shipments from Vietnam, Ung said, noting that the port sits in the middle of Cai Mep-Thi Vai, a port area close to Ho Chi Minh City, and the upcoming Lach Huyen International Seaport in the northern city of Hai Phong.

"Goods from northern and southern economic hubs could just go straight to these two major ports before heading out and shipping lines will have no reason to pass through Van Phong," he said.

Hoang Dinh Phi, deputy director of the management board of the Van Phong Economic Zone Authority, said the whole zone is waiting to be "triggered" by the port, so its delay will have a certain effect on other projects.

The zone has attracted $14.2 billion into 120 projects, including a $2 billion power plant and a
$4.5 billion oil refinery and petrochemical complex, he said.

Chu Quang Thu, former director of the Vietnam Maritime Administration, said the project is no longer as attractive as it used to be since transshipment ports in Hong Kong, Singapore and especially mainland China have grown strongly.

As a late entrant, Van Phong will face a tough fight against these ports and it can only attract enough shippers if it offers lower fees, Thu said.

But Thu also said the country should not give up on the project, even though delays would reduce its chance of success.

Van Phong has a great location, and with favorable policies, foreign investors will come and turn it into a major shipping hub, he said.

Analysts estimate that a year of delay will cost the project an extra $100 million, not to mention a VND20 billion ($960,000) bill for the original project design that may have to be replaced.

Vinalines posted losses of VND1.44 trillion ($69.1 million) in the first half of this year, blaming the downturn in the sea transport industry for its poor performance. Several senior executives of the company have been arrested for alleged financial mismanagement.

Its former chief, Duong Chi Dung, was arrested in a neighboring country last month after an international manhunt. Before being wanted by police, Dung headed the Vietnam Maritime Administration, which oversees the whole sea transport sector.

Industry insiders say that many seaports have not been able to attract enough shippers even after sharp rate cuts and were suffering losses. The ports in Cai Mep-Thi Vai, for instance, have each faced losses of between $6 million and $30 million since the second half of last year.

Ngo Minh Tuan, deputy director of Tan Cang-Saigon, a major port in Ho Chi Minh City, said investors had been too optimistic, launching many new port projects in 2006 and 2007, but transportation demand turned out to be lower than expected.

The problem is while many ports are struggling, new ports continue to pop up, he said. Building and expanding ports will just make the oversupply problem more serious, he warned.

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