Hanoi (VNS/VNA) - The expansion of Vietnam’sroad network would continue in the next decade in order to support growingfreight transport volumes due a projected increase in economic activity, FitchGroup’s Fitch Solutions Macro Research forecast in a report released on May 14.

In the report on the outlook for Vietnam’s roadinfrastructure, Fitch predicted the country’s road and bridges sector to growby 7.2 percent, in real terms, in 2019, and at an annual average of 6.7 percent from2020 to 2028, driven by a large number of road projects. According to Fitch'skey projects database (KPD), there are a total of 137 road projects currentlyin the planning or construction phases, representing 60 percent of allpipeline projects.

"We are positive that most of theseprojects will be implemented progressively given a projected surge in demand for road infrastructure supportedby sustained, robust economic growth, averaging 6.5 percent annually till2028, as projected by our Country Risk team," Fitch said in the report.

According to Fitch, growth of Vietnam’s roadsector will mainly be supported by the construction of expressways. Thegovernment plans to expand the current network by more than five times to7,000km by 2030, which is an upward revision of the target set in 2016(6,400km).

The plan will include the construction of newexpressways linking the northern and southern regions, several ring routes thatwill circle existing urban cores to enhance suburban connectivity, and theexpansion of existing expressways by extending routes and increasing the numberof lanes.

"Given the high number of roads which areunpaved, we expect a wave of road modernisation to take place over the nextdecade, as currently unpaved roads are upgraded to asphalt or concrete roads.However, we note that some expressway projects are likely to face landacquisition issues, which may delay project timelines and result in costinflation."

Also, Fitch said, as most expressway projectsare likely procured via public-private partnership (PPP), the pace of expansionof Vietnam’s expressway network will depend on the level of private interest,which will pick up if the PPP framework, legal and financial institutions arestrengthened.

The inclusion of sovereign guarantees and theimplementation of a robust legal framework would increase interest in PPPsand provide tailwinds to road sector growth, Fitch noted.

Current PPP laws do not have minimum returnguarantees by the government, which means that the burdenof project-related financial risks are tilted towardsprivate investors. 

As a result, lowinvestor interest in PPP projects often leads to longer implementationtimes and in some cases, cancellation of PPPs. Such ascenario is best exemplified by the Dau Giay-Phan Thiet Expresswayproject, where many investors expressed interest and withdrew ata later date due to financing uncertainties.

According to Fitch, legal barriers have alsodeterred potential investors from the road sector. The lack of a strong legalframework has caused concerns over site clearance, price fixing and concessions.Fitch's KPD showed out of 87 road projects in the pre-construction phase,61 are earmarked as PPPs.

"We believe the progress of these projectswill pick up once the legal environment in the country improves, and reforms tothe current PPP law are made to include guarantees. The more balanced riskprofile of the projects will make them a more attractive investmentproposition to private investors," Fitch concluded.-VNS/VNA