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Ho Chi Minh City’s second metro fails to get off ground as loan contracts expire

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Ho Chi Minh City’s second metro line project is getting into a rut left by the city’s first metro line project as loan contracts for it expire while construction has yet to start.

The Ministry of Planning and Investment recently asked the authorities in Ho Chi Minh City to clarify cost overruns, if any, when deadlines to pay loans for the project are extended, and the responsibility of the relevant agencies for the slow progress of the project. 

Bottlenecks in consultancy contract

In 2010, the second metro line project, linking Ben Thanh Market in District 1 and Tham Luong Depot in District 12, was approved and expected to be put into commercial operation in 2016.

Together with the first urban railway project, running from Ben Thanh Market in District 1 to Suoi Tien Theme Park in Thu Duc City, the second metro line project is expected to ease traffic congestion in the northeastern gateway of the city.

The project was designed to pass through six districts, including District 1, District 3, District 10, District 12, Tan Binh District, and Tan Phu District, requiring a total space of more than 251,100 square meters and affecting 603 households.

Thanks to the experience from the first metro line project, site clearance for the second metro line project is being conducted rapidly. However, the deadline for the job was already delayed from 2020 to 2021. 

The city earlier required completing the job in the third quarter of 2022.

However, the Management Authority for Urban Railways of Ho Chi Minh City several days ago reported that districts had issued decisions to take back land and 85.2 percent of the needed land has been handed over for the project.

In District 3, only 41 percent of the affected households have handed over their land as many of them have not accepted the compensation.

Besides obstacles in site clearance, the long-lasting adjustment of the project caused a suspension of the consultancy contract for the project from October 2018.

The Investor and Implementation Consultant (IC), the consulting firm of the project, entered into many negotiations but failed to reach a consensus.

In late March this year, IC announced the termination of its consultancy contract with the Ho Chi Minh City People’s Committee.

The investor must later choose another consultant to complete IC’s half-done work and supervise the construction of the project.

The new consultant will update the front-end engineering design (FEED) and hold tenders for packages from CP2 to CP7 of the project.

As planned, tenders for these packages will be completed by the third quarter of 2024 and work on the project will begin in early 2025.

Between 2025 and 2030, the metro line will be constructed and equipment will be installed, so that it will be put into operation in late 2030.

In the next two years, shortcomings of the project, if any, will be eliminated.

Negotiations of loan contracts a must

According to the Ministry of Planning and Investment, the slow progress of the Ben Thanh-Tham Luong metro line project has caused the expiration of five loan agreements, causing cost overruns.

Of the five, there are two contracts with the Asian Development Bank, two with Germany’s KfW Development Bank, and one with the European Investment Bank.

In a proposal on the adjustment of the project’s progress sent to the Ministry of Planning and Investment, the Ho Chi Minh City People’s Committee said that it would propose new loans after the new consultant completes updating the FEED.

Agreements on these new loans are expected to be signed in 2024 to pave the way for the execution of the main packages from CP2 to CP7.

The Ho Chi Minh City People’s Committee announced that it worked with KfW, which supports developing countries and emerging economies, in April and the bank agreed to allocate a loan to the consultancy package.

A leader of the Ministry of Planning and Investment told Tuoi Tre (Youth) newspaper that the two sides will negotiate the resigning of expired official development assistance loan contracts based on articles in the initial deals.

In its comments on the proposal to delay the planned completion of the second metro line project to 2030 sent to the Ministry of Planning and Investment, the Ministry of Finance stated that from 2010 to 2020, only US$20.13 million worth of loans and 18.52 million euros ($18.16 million) of the official development assistance capital was disbursed for the project.

The execution of the project was slow and failed to meet the plan, causing huge waste.

The Ministry of Finance asked the authorities of Ho Chi Minh City to bear responsibility for the slow execution of the project, clarify the necessity and possibility to continue the project, work out solutions to accelerate the progress, and build a capital disbursement plan matching the project’s progress.

As for loans borrowed from KfW, the national government annually pays a guarantee fee which is 0.25 percent of the undisbursed capital for the bank.

The Ministry of Finance also requested the Ho Chi Minh City authorities to report the possibility of extending the loan disbursement deadline and KfW’s opinions about this issue. The city must also be committed to paying the loans.

‘A chronic disease’

Explaining the slow progress of big-ticket public investment projects, economist Vu Dinh Anh said in reality, the Ben Thanh – Tham Luong metro line is not the only project that lags behind schedule.

“Falling behind schedule has become a ‘chronic disease.’ Just a few public investment projects have been completed as planned,” Anh added.

He said there are many causes for the issue, such as poor preparations and lack of experience due to the application of new technologies to projects.

However, the main cause is the poor execution of projects. The proof is that the transport sector used to complete projects as planned because the head of the projects at the time issued bold directions.

He also attributed the slow progress of public investment projects to the shortage of those urging the implementation of the projects and sanctions for those leading to the slow execution.

Those failing to fulfill their duties should be replaced so that projects can be completed as planned, Anh added.

“Those responsible [for projects], even the system managing the projects are behind with their work,” he said.

“To ensure the progress of projects, those getting involved should do their utmost.”

Waiting for construction of project

Many households on Cach Mang Thang Tam and Truong Chinh Streets have handed over their land for the project.

Those whose entire land was reclaimed moved to resettlement areas, while others with part of their land taken back are repairing their houses.

They are waiting for the construction of the city’s second metro line project.

Vo Huu Thang, residing in Ward 11, Tan Binh District, said, “the expectation for the project is not only for the convenience of myself and our next generations but this is the expectation of the whole city.

“Everyone expects the city to be modern in which metro lines are indispensable. Site clearance is nearly complete, so I wish work on the metro line project will start soon to facilitate local residents’ travel.”

Ho Chi Minh City’s metro route No. 2 stretches 11.2 kilometers, including a 9.2-kilometer underground section and two-kilometer elevated section, with 10 stations. The project requires an estimated cost of over VND47.8 trillion ($2 billion).

An office building and ancillary works at the Tham Luong depot in District 12 have been finished.

By Thanh Ha – Tuoi Tre News – October 05, 2022

Ho Chi Minh City’s second metro fails to get off ground as loan contracts expire
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