Sharp funding cut in Long Thanh airport project

Lan Nhi

Transport Minister Dinh La Thang speaks about the cost cut in Long Thanh airport project at the 35th session of the National Assembly (NA) Standing Committee in Hanoi on February 27 - PHOTO: VOV

Transport Minister Dinh La Thang told the 35th session of the National Assembly (NA) Standing Committee in Hanoi on February 27 that the Government had revised down the funding estimate for the first phase of the international airport in Dong Nai Province by US$2.6 billion after careful reviews.

The latest revision in the new report the minister delivered on behalf of the Government is higher than the US$1.2 billion reduction discussed by representatives of the Ministry of Transport, Airports Corporation of Vietnam (ACV) and relevant agencies at a meeting on Tuesday.

Of the US$5.2 billion planned for the first phase, official development assistance (ODA) funding is projected to account for US$1.3 billion and the State budget US$578.3 million. The remaining US$3.2 billion is sourced from the project’s investor ACV with VND12.15 trillion (over US$568 million), proceeds of equitized components and investments of enterprises joining the project via the public-private partnership (PPP) format.

The funding cut is attributable to some major adjustments, including construction of only one runway in the first phase instead of two as planned at the end of last year. This will help save some US$1 billion but still ensure the airport could handle 254,000 take-offs and landings and 38 million passengers a year.

More money could be saved from more components of the airport project in Long Thanh District subject to equitization after the international airport is put into operation.

The new report also says that the financial internal rate of return (FIRR) of the passenger terminal of the airport would be 13.9% with return on investment over 25 years in addition to the economic internal rate of return (EIRR) put at 22.1% with return on investment over 40 years in the previous report.

Thang acknowledged that the accuracy of calculations in the pre-feasibility study of the airport project was not high. He pledged the ministry and relevant agencies will continue reviewing facts and figures when making the feasibility study if the NA gives the nod to the project.

The ministry proposed withdrawing 5,000 hectares for the project at one time and then earmarking 2,750 hectares for civil aviation only to help save another US$535 million.

At a meeting in Hanoi on Wednesday, the ministry proposed a pilot scheme to sell the operation rights to Phu Quoc International Airport and Hall E of Terminal 1 at Noi Bai International Airport to investors to raise capital for Long Thanh airport development.

At the session of the NA Standing Committee yesterday, Thang sought approval for ACV to use the money mobilized from its equitization to fund the airport project.

Despite explanations made by Thang, members of the NA Standing Committee wanted the Government to clarify more about the sharp funding cut for the airport project and its impacts on the State budget and public debt as the State budget still covers the PPP and ODA funding for the project.

Phung Quoc Hien, head of the NA’s Financial and Budgetary Committee, called for the Government to weigh the possible impacts of Long Thanh airport as the State budget needs to provide more than VND40 trillion (over US$1.87 billion) for the project if all sources of capital are calculated.

Hien questioned the role of Long Thanh when it is designed to serve as a transshipment airport for the flights from Indonesia, the Philippines and Australia. However, Thang said the airport is expected to operate as a hub for the airlines from other markets rather than the three countries only.

Thang said the State budget should cover a maximum 30% of total funding of the project and that capital for the project would not be a big concern if ACV is allowed to use the money raised from its equitization and Phu Quoc airport is up for sale.

Nguyen Thi Kim Ngan, vice chairwoman of the NA, asked to make clear the proportions of funds from the State budget, bonds, ODA and PPP sources for the project, and that how much the State budget could be saved if other investment sources are mobilized.

NA deputies asked the Government to provide exact funding figures for three phases of the airport project and find effective ways to avoid adjusting up it when the project is implemented.

Revised total funding for the whole project is estimated at US$15.8 billion, down nearly US$3 billion compared to the previous report, according to news site VnExpress.

Long Thanh airport is designed to handle Airbus A380 jumbo jets and those of same seating capacity, and up to 100 million passengers and five million tons of cargo per year. Previously, ACV planned to break ground for the first phase of the Long Thanh airport project this year.

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