Vietnam's public infrastructure sector, notorious for long delays, receives a rude wake up call with huge compensation demand by Japanese contractor
Construction underway at the Nhat Tan Bridge, a package in a major project to build a highway connecting downtown Hanoi with the Noi Bai International Airport. The project has been delayed by 27 months due to slow site clearance, prompting its Japanese constructor to demand millions of dollars in compensation. Photo by Mai Ha
Nguyen Ngoc Thong and his four children have refused to move away for the construction of a major thoroughfare planned through their 983-square-meter (10,548 square feet) land in Hanoi because of disputes over the compensation.
"We rely on farming to make a living. How can we survive when our agriculture land is revoked for just a few dozen million dong," said his daughter-in-law Khuong Thi Tuyet. About 71 percent of 89 million Vietnamese live in rural areas, and 62 percent depend on agriculture for their livelihood, according to the UN's Food and Agricultural Organization.
Thong and his four children stay in five houses on the same land plot in Tay Ho District that has been earmarked for Beltway No. 2, which will connect downtown Hanoi and the Noi Bai International Airport, located more than 30 kilometers away.
They have lodged a lawsuit against the district's authorities protesting the meager compensation offered.
Land compensation disputes have been common throughout Vietnam for several decades now, and have resulted in the delay of many major construction projects.
However, the persistent problem entered a new dimension recently after a Japanese constructor demanded a huge extra payment for costs incurred by delays in land clearance.
While there has been heated debate over who is responsible for paying up in this case, experts are concerned it can set a precedent for similar cases to come.
Last week, the Ministry of Transport asked for the Prime Minister's approval for paying VND155.9 billion (US$7.38 million) to Japan's Tokyu Corporation.
Tokyu demanded the money to cover costs incurred by delays in the Nhat Tan Bridge Project a package in the Beltway No. 2 Project funded by Japan's official development assistance (ODA) and invested in by the Vietnamese transport ministry.
Tokyu won the bid to build several roads connecting to the bridge and the compensation demanded involves a sub-package to build a road in Dong Anh District that is valued at more than VND1.8 trillion ($85.4 million) and broke ground in March 2009.
This sub-package was scheduled for completion in February 2012 but was later delayed for 27 months, until May 2014, due to sluggish site clearance.
The payment buck
In an interview with Vietweek earlier this week, deputy transport minister Nguyen Hong Truong said although most of transport infrastructure projects in Vietnam fall behind deadlines, it was the first time a contractor has demanded additional payment.
The ministry and the Hanoi People's Committee, the municipal government, are working together to clarify the responsibilities of people involved in the delayed site clearance, Truong said.
In its request, the transport ministry said the payment will be temporarily sourced from the project's funds and Hanoi will pay the amount in 2014 from the state exchequer.
But experts say relevant agencies should identify the people responsible for the delay instead of using the state exchequer for paying the compensation.
Pham Sy Liem, deputy chairman of the Vietnam Construction Association, said it is right to pay the Japanese constructor for relevant damages.
"But the investor [the transport ministry] should be held responsible for the payment, instead of using the state exchequer," he said.
Dang Hung Vo, former deputy minister of Natural Resources and Environment, told Tien Phong (Vanguard) newspaper in a recent interview that there should even be a criminal investigation into the case to identify responsible individuals.
"The taxpayers are frustrated," he said.
In the Tokyu case, the transport ministry has to relocate local people as well as a 200kV grid that transmits power to local production establishments.
Experts are hopeful that after this case, government agencies will learn a "hard" lesson in implementing public infrastructure projects.
Vu Khoa, chairman of Vietnam Construction Contractor Association, said government agencies often ignore the terms on site clearance and capital disbursement when investing in projects that hire local constructors.
"But foreign constructors always request these terms in any contract, requiring the investor to compensate for late site clearance.
"This is a really hard lesson. But hopefully the cost will change the unprofessional behavior of [government agencies]," he said.
Following the compensation demand from the Japanese constructor, deputy minister Truong said his ministry did not assign any constructor for another package of the beltway to construct a road from Nhat Tan Bridge to Noi Bai Airport, fearing demand for further compensation.
The Hanoi People's Committee had promised to complete relocation of residents under this package by June. However, 342 households in Soc Son District under the package have refused to move away and are demanding higher compensation.
Meanwhile, investors in other projects are concerned that their constructors will follow Tokyu and demand compensation in extended projects.
Luong Quoc Viet, deputy director of the Hanoi Lao Cai Expressway Project said many residents in several sections have not moved to make way for the project.
Do Tat Binh, head of the management unit of the project to build an additional terminal at the Noi Bai airport, also said many residents have refused to budge.
"Construction is expected in these areas next week. But site clearance has not been done," he said, adding that the constructor is expected to complain about the delay.
The Hanoi People's Committee held a conference on August 5 to discuss reasons for delays in many public infrastructure projects.
Representatives from many districts agreed that the main reason is site clearance. They said relevant regulations have changed several times, causing difficulties in calculating land prices for compensation.
A transport expert, who declined to be named, said all cities and provinces nationwide should simplify compensation procedures.
"There should be regulations on responsibility and punitive measures against the investor and local officials involved in the compensation process," he added.
In a recent report, Tuoi Tre (Youth) newspaper listed several road construction projects missing original deadlines due to difficulties in relocating affected residents.
The $932.4 million project to build the 55-km Ho Chi Minh City Long Thanh Dau Giay Highway broke ground in 2009 and was expected to be completed in 2012.
However, it has been extended for a year and new date for completion has been set as 137 households are still disputing the compensation paid under the project.
Le Thi Thach, an affected resident, said she and other residents do not oppose the project. "However, the compensation is too low. We didn't move away because we don't have enough money to buy land elsewhere," she said.
Another project to build a metro line connecting HCMC District 1 and Binh Duong Province also faces site clearance problems in package No. 2, the section from District 1 to District 9.
Le Khac Huynh, deputy head of the project's management unit, said it contracted Japan's Sumitomo Corporation and Vietnam's Cienco 6 to build this package and the investor will have to pay VND2 billion per day for late site clearance.
Referring to slow site clearance in the Nhat Tan Bridge Project, Nguyen Sy Cuong, deputy director of the Ta Ngan (Left Bank) Project Management Unit, the agency assigned to relocate residents, said the actual cause of the delay is that many residents do not agree on the compensation.
"The city has recently issued a decision saying compensation must be based on the land's market price. But it's difficult to calculate the market price," he said.
Land grievances have remained the main source of concern and protests in Vietnam.
A report done recently by the Vietnamese Institute for Legislative Studies and Oxfam, a British anti-poverty group, found that land prices decided by the state are "inconsistent" and the enforcement of legal regulations on land pricing is neither clear nor transparent. It also said that the land acquisition process lacks transparency.
The report was conducted based on consultations with more than 1,300 people and nearly 300 local government officers in four provinces (Hoa Binh, Yen Bai, Quang Binh and Long An).
People are upset that law enforcement does not follow the principle of "resettlement with development conditions equal or better than before," especially regarding their compensation, it said.
While people receive little compensation or support, many investors gain significant benefits from land acquisition, it added.
A 2011 study commissioned by the Embassy of Denmark, the World Bank, and the Embassy of Sweden systematically examined the process of obtaining a land-use rights certificate and the processes associated with land acquisition and allocation.
The practice of compulsory land acquisitions, especially when prices are set below market values, creates large uncontested profits for some, and this can contribute to corruption, the report said.
Regarding the Nhat Tan Bridge Project, Nguyen Minh Thuyet, a retired outspoken legislator, told Tien Phong in an interview: "Normally, they will blame the residents for refusing to relocate.
"But it's unfair to say so. It is said that the project has been amended to avoid relocation of certain individuals."
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