What are BOTs?
Capital source of BOT
Issues with BOT transport projects


As the current infrastructure system in Vietnam is still limited, economic experts believe that investment in the highway system should be considered as an important driving force for the country's development. Build, operate and transfer (BOT) is a special form of investment, often found in traffic works, such as bridges and roads. The participation of private investors in many BOT projects has aided in speeding up the progress of connecting highways across the country. BOT projects contribute to the overall development of the economy, enhance traffic circulation and reduce logistics costs. However, at present, there is a large number of economic problems surrounding such investments.

What are BOTs?

According to the decree on investment in the form of public-private partnership (PPP), BOT is a contract signed between a competent state agency and an investor to build infrastructure works. After completing the work, the investor is entitled to do business for a certain period. When the time limit expires, the investor transfers the work to a competent authority for management.

Currently, BOT projects often appear in the form of investment in traffic works, such as bridges and roads. A BOT booth, also known as a "BOT toll booth", is built by the investor to collect tolls for vehicles running on the road sections that the BOT contract covers. Enterprises investing in these projects will have the right to collect service fee for using the works for a limited time (this period is estimated to recover capital and make profits). The proceeds from vehicles participating in traffic are used to return on investment, upgrade and maintain BOT transport works. Currently, the toll rate is regulated and adjusted by the state from time to time, for each type of vehicle and route. After the expiration of the toll collection period, the works are transferred without compensation to the state for management and use.

Capital source of BOT

BOT projects need a large capital source, which is currently the biggest difficulty for BOT investors. Investors can use equity capital or loan capital to implement BOT projects. However, most of the laws governing this method prescribe a minimum percentage of investors' capital. This ratio must be enough to tie investors' interests to the success of the project. Despite the state's participation in capital contribution, mainly using the state budget capital or capital derived from the national coffers, the state is not considered a shareholder or a business partner of the project enterprise. The state's capital investment is only considered as a support solution to investors to ensure the effectiveness of the financial plan and encourage them to participate.

According to statistics, between 2015 and 2020, new traffic BOT projects were almost absent from the list of investment works. Numerous BOT projects, after being completed and put into operation, have faced many problems, such as:

  • low revenue;
  • a lack of adjustment of toll rates according to the route; and
  • projects of upgrade and renovation of the existing roads that have not aligned the interests of people and businesses.

Recently, the Vietnam Association of Road Traffic Construction Investors (VARSI) reported to the government about the shortcomings in the policy of allocation and accounting of loan interest for BOT projects. According to the VARSI, the total investment capital (mainly bank loans) for infrastructure investment enterprises is large. Therefore, the interest expense in the first years of a new project is very high due to large interest balance (which gradually decreases in the following years). On the contrary, the revenue in the first years is low and gradually increases in the following years (due to the growth in vehicle traffic, which increases ticket prices according to the route).

The recognition of interest expenses in accordance with current regulations of the Ministry of Finance will lead to a large loss in business results in the first years and a very high profit in the last years of the project. Currently, the Ministry of Finance is also studying this issue. However, according to Tran Chung, the president of VARSI, the more delay there is, the more challenges there will be for investors, because BOT is currently short of revenue, while bank interest is a burden on BOTs. In addition, a current difficulty for BOT investors is that banks all classify BOT transport projects as "high-risk" and are cautious when arranging credit.

Issues with BOT transport projects

Bad debt rising
The banking industry has always considered the lending to BOT transport projects as a potentially risky field that needs to be strictly controlled. Therefore, the State Bank of Vietnam has continuously issued warnings to commercial banks about lending in this area.

According to the Credit Department of Economic Sectors of the State Bank, as of 30 June 2021, the amount of credit for BOT transport projects was 105,000 billion dongs ($4.5 million), of which the largest concentration was on Bank for Investment and Development of Vietnam (BIDV) and VietinBank. However, lending has many problems related to credit risk. As of the second quarter of 2021, the bad debt ratio for BOT transport projects increased four times higher than the overall bad debt ratio of the economy. The reason why bad debts for BOT projects increased sharply is that 56 out of 116 BOT projects coming into operation have a revenue that does not meet the financial plan in the project contract, with outstanding loans of 71,970 billion dongs ($3.1 million). Further, 30 out of 116 projects may have to restructure bad debt group with an outstanding debt of 28,166 billion dongs ($1.2 million).

In addition, the covid-19 pandemic has worsened the financial situation of BOT businesses, as many toll booths had to close and revenue plummeted during the long months of lockdown in many provinces and cities. For booths that were not subject to shut down, travel demand also decreased significantly, leading to many BOT transport projects increasingly falling into a state of loss. Further, BOT booths in the 19 southern provinces that had to be closed for a long time due to social distancing, according to Directive 16, had to suspend BOT toll collection from midnight on 20 July 2021. BOT toll booths on roads in Hanoi also stopped collecting tolls when the city implemented social distancing. Moreover, many BOT stations reduced fees for vehicles. The Hanoi-Hai Phong highway, for example, reduced fees by 30%.

BIDV is one of the leading capital-financing banks in the field of investment in infrastructure construction, transport projects and BOT projects. However, Nguyen Quoc Hung, the director of BIDV's project finance department, has expressed many worries and concerns, stating that BIDV has so far financed 33 transport infrastructure projects, with a total outstanding loan of approximately 26,000 billion dongs ($1.1 million), equivalent to about 25% of the banking sector's capital in the BOT field. This mainly focuses on lending that took place from 2011 to 2015. Since 2016, the bank has been more cautious and only granted loans to two projects.

Currently, the continuous decline in fee revenue has made it impossible to pay principal and interest, causing many businesses to suffer prolonged losses. Typically, Tasco Joint Stock Company, which is considered the "boss" of BOT, had to report losses for five consecutive quarters. By the end of the second quarter of 2021, Tasco still had long-term debt of nearly 5,243 billion dongs ($229,332). The same has been recorded in Thai Ha BOT Joint Stock Company (which is the owner of the BOT project of Thai Ha Bridge crossing the Red River). Since being eligible to organise the collection of the payback fee, the business has been idle and has continued to record losses. By 30 June 2021, the enterprise recorded more than 972 billion dongs ($42,515) in long-term debt at VietinBank (the Ha Nam branch).

Therefore, banks have had to take many measures to support businesses, such as:

  • debt restructuring;
  • debt repayment term adjustment; and
  • interest rate reduction.

However, this put great pressure on the bank's business results and financial position, in addition to the prolonged impact of the covid-19 pandemic. In the near future, this will put pressure back on BOT transport projects. Meanwhile, most transport projects have a duration of more than 20 years. Therefore, banks always end up facing risks from BOT projects for an extended time. In this regard, commercial banks often have many petitions with competent authorities, especially the Ministry of Transport, to consider and handle difficulties. However, the competent state authorities have still not resolved these issues in a satisfactory manner.

Weight of debt
In the past 10 years, Vietnam has put an additional 1,074 kilometres of highways into operation, which brought the total length of the country's highways to 1,163 kilometres by the end of 2020. According to the Ministry of Transport, in order to achieve the goal of the Resolution of the 13th Party Congress by 2030, Vietnam should strive to have approximately 5,000 kilometres of highways, which requires breakthrough solutions in terms of regulations and policies for investment and development of highways. In particular, the participation of private investors in large BOT projects has contributed to speeding up the progress of highway traffic connections across the country. However, banks have begun to show weariness toward BOT transport projects.

This weariness stems not only from bad debt but also from a host of other factors. Firstly, BOT lending is very specific – it is a form of unsecured loan without collateral. Secondly, the loan period usually lasts between 10 and 15 years, if not longer; therefore, the bank must solve the problem of using short-term capital for medium- and long-term loans to ensure adherence to the regulations of the State Bank. Currently, this rate is allowed at 37% (since 1 October 2021), but it will gradually decrease to 34% and further to 30%. Thirdly, it is difficult for banks to control the quality of projects. Banks were previously considered to be a vehicle for BOT transport projects. However, they are no longer interested when the debt weighs so heavily.

On the other hand, to complete more than 2,000 kilometres in the next five years as planned, which is nearly twice as much as in the previous period with a total mobilised capital of about 393,000 billion dongs ($17.1 million), the state budget has allocated approximately 239,500 billion dongs ($10.4 million); the remaining 153,500 billion dongs ($6.7 million) needs to be mobilised from outside the budget. This is a huge challenge in terms of both time and resources. While the demand for investment capital for socio-economic development is large, the sources of the state capital, preferential capital and aid tend to decrease. Bank credit has also reached the threshold, and commercial banks are cautious to lend to new BOT projects because they are afraid that the bad debts of BOTs will keep increasing.


The investment management mechanism for the construction of BOT transport projects has many drawbacks, which have not created the motivation to promote the application of science, technology, innovation, improvement of management methods and select the optimal design to reduce the total investment of the projects. Alarmingly, besides input problems, the collection of BOT fees has been "ignored", which has raised a concern about the lack of transparency. It is suspected that there are many automatic toll booths that have not been installed and that manual collect and management is still in operation. Experiences in some countries show that investors do not directly collect fees but rather hire companies specialising in separate fee collection services. In fact, when inspecting and checking a number of booths, it was found that the actual revenue was higher than the forecasted revenue. According to Nguyen Van Quyen, the chairman of the Vietnam Automobile Transport Association, the cost of organising the collection in recent years accounts for 10% to 11% of the toll. Therefore, public opinion often mentions an existing problem that the investment rate for highways in Vietnam is high compared to many other countries. In addition, there is a multitude of reasons that cause BOT projects to lose revenue, such as:

  • the survey process;
  • the calculation of booth locations;
  • the inaccurate revenue estimates; and
  • the inaccurate traffic forecasting.

Recently, when bidding, most of the traffic projects hardly called for potential investors, proving not to be attractive to the private sector. In the past, banks were very eager to participate in BOT transport projects, but after a period, large bad debts arose, leading to fear of lending in this sector. Therefore, in order for banks to be more generous, the government should change the policy mechanism. International experience shows that investment capital for infrastructure projects often comes from many sources, such as the issuance of project bonds, equity of enterprises and loans from financial institutions or investment funds. While capital from the state budget only plays the role of "bait capital" to attract private investors to participate in this field.

From the perspective of commercial banks, the capital demand for the development of BOT expressway projects is large, amounting to billions of dongs. Therefore, it is difficult to rely only on bank loans; therefore, BOT projects also have to find other sources of capital such as corporate bonds and international loans. However, the biggest problem now is that the payback period of BOT projects is normally long, usually 15 to 20 years, while the common corporate bond issuance term in Vietnam's market today is usually approximately five years (seven-year terms are only suitable and reserved for the banking industry). Meanwhile, calling for individual investors or international organisations is also quite difficult because the rate of return in this field is low and the risks are high.

If commercial banks lend without recovering capital, it will affect the safety of the banking system, strike at the macro-economy level and impact the ability to provide capital for the economy to serve production and businesses. Therefore, the market mechanism should be allowed to operate on its own and there should be no administrative intervention in this matter, as it will cause distortion and create long-term consequences if the intervention is wrong.

Consequently, it is necessary to produce satisfactory studies and better construction management solutions, and to create motivation and focus. There should also be more projects that are feasible enough to attract capital and resources to invest in transport works. The government should have policies to promote trade to encourage the implementation of industrial parks and real estate projects alongside the BOT projects. Further, the deployment of satellite projects around BOT projects helps increase vehicle traffic, and BOT project investors should be allowed to participate in these satellite projects as main investors or main shareholders. This will assist in the evaluation of BOT projects more positively, boosting the bank's confidence when investing in these projects. In particular, it is important that the investment stage be separated from the fee collection stage to aid transparency and the control of revenue sources for both credit institutions and the economy.

For further information on this topic please contact Net Le or Van Tuan Nguyen at LNT & Partners by telephone (+84 28 3821 2357) or email ([email protected] or [email protected]). The LNT & Partners website can be accessed at