Plow vehicle fees back into transport development

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A traffic jam in Hanoi. Concerted measures are needed to deal with traffic congestion in big cities like Hanoi and Ho Chi Minh City, an expert says.

The Ministry of Transport has recently proposed the collection of "circulation fees" for personal vehicles and also for entering or leaving city centers during rush hour. As a measure aimed at reducing traffic congestion, it is necessary, but the fees should be directly invested in transport development instead of being contributed to the common state budget, Dr. Phan Le Binh, senior program officer with the Japan International Cooperation Agency (JICA), told Vietweek.

Vietweek: What is your view on the Transport Ministry's proposal on collecting personal vehicle fees?

Phan Le Binh: To date, local people have not directly contributed to the construction or maintenance of roads. There are some kinds of fees, such as vehicle registration fees, or transport fees calculated in gasoline prices, but all these are contributed to the state budget, which is spent on many activities of the government, not just the transport industry.

To develop the nation's transport infrastructure in a stable manner, we should apply the principle that users pay for the facilities. They should directly contribute to transport development. I don't know if the new proposal of the Ministry of Transport has mentioned this or not. The proposal would not be reasonable or get public consent if the fees are contributed to the common state budget.

It is difficult to say if the fee collection would reduce traffic jams or not. The traffic congestion is caused by the transport supply and demand imbalance. The fee collection cannot help improve the supply immediately, while the demand might only see a slight reduction, because people still have to go to schools or to work.

However, the fee collection could help remarkably reduce traffic congestion if it is directly invested in transport infrastructure development.

So the proposal is still a sound one?

Dr. Phan Le Binh, senior program officer with the Japan International Cooperation Agency (JICA).

Right. JICA helped Vietnam formulate transportation development plans for Ho Chi Minh City between 1999 and 2001, and for Hanoi between 2005 and 2007, which addressed several issues including how many urban railway networks should be built and how much money should be invested.

JICA also suggested financial measures, for example collection of parking and vehicle registration fees. However, I have to say again, the fees should be directly invested in transportation. This is very important.

With the economic development of Vietnam, transport demand will grow strongly. Without a stable financial fund for transport development, traffic jams will happen. The government cannot always access foreign loans to deal with it.

When the economy grows, and local residents' income improves, we should consider collecting fees from them to develop transportation infrastructure in a stable manner.

In fact, many kinds of taxes have been imposed on vehicles. However, they have not yet been effectively invested in transport development. So what can be done now?

Vietnam has imposed import taxes and some other fees on vehicles. We could consider using a part of income sources from automobile import tax for road construction and maintenance. However, the development of road systems and public means of transportation requires large sums of money.

The relatively meager revenue from import taxes cannot be spent solely on transport development at a time when demand for capital is increasing. So it makes sense that residents contribute more to developing transport facilities in the country.

Japan has road development funds that are sourced from gasoline taxes. Vietnam is yet to have sector-specific funds. Typically the common state budget is the source. After collecting fees, the state allocates funds for different sectors like transport, education and health. Most countries apply this method. However, to develop key sectors of the economy, we should learn experience from countries that have designated funds for specific industries.

To guarantee transparency in the use of funds, the tools of audit and inspection can be applied. Sector-specific funds will help us avoid asking for overseas loans whenever we want to build just 10 kilometers of road. We need a more balanced capital structure that is not heavily dependent on overseas loans.

Will it be difficult for people to pay more fees, while their traveling comfort is not improved immediately?

Transportation issues are very complicated and cannot be solved overnight. We start collecting the fees today, so that we have a big fund for transport projects in the next two or three years. JICA has offered loans to many transport projects in Vietnam's big cities like Hanoi and HCMC. All the projects need capital for site clearance, but JICA, in principle, does not offer loans for the purpose. That capital must be mobilized from local sources.

How has Japan mobilized capital for its transport development? Does this have relevance for Vietnam?

In Japan, road development is invested in by state funds collected from gasoline taxes, while private firms invest in railways. To earn profit from their investment, the firms build urban areas, shopping malls and supermarkets along the routes or at railway stations to attract customers.

Countries develop differently, so it is difficult to say a particular model can be applied in Vietnam. However, to attract private investors to the transport sector, we need to build a clear legal corridor and specify risks in investment. We should not ask investors to take all the risks. The state should share the risks with them, as the sector needs huge investments, and the time taken to recoup capital is long.

In addition to transport infrastructure improvement, the development of public means of transport is indispensable. How should Vietnam go about it?

A single measure will not help deal with traffic congestion in big cities like Hanoi and HCMC. Vietnam needs to develop an urban railway network. The construction of such a network is being prepared with loans from Japan, the Asian Development Bank and the World Bank. We should also increase the capacity of the bus system.

Vietnam could also develop urban areas along urban railway stations, which would encourage people to use public means of transport, reducing pressure on roads, and open new roads as the road supply is too thin at the moment.

However, demand may increase following the supply increase. Thus, we should collect fees for traveling during rush hour. Some countries have successfully used this measure to reduce transport pressure.

In general, Vietnam has a lot of work to do to improve its transport situation. It also needs the participation of many administrative agencies.

What do you think are the main reasons that Vietnam has been unable to resolve issues effectively? Is it capital shortage, policy shortcomings or something else?

There are many reasons but the most important is that we have a lot of work to do, but don't know which task should be prioritized. Hanoi and HCMC come up with plans for traffic congestion reduction each year, but I don't see a list of prioritized work.

With limited capital, we cannot do everything, so we have to specify what should be done first and what can be done later.

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