Domestic contractors inferior to Chinese due to the lack of capital

Published: 06/06/2011 05:00



Nearly a half of the value of the installation and construction packages in Vietnam in 2010, fell into the hands of the enterprises from China, while Vietnamese enterprises only got 39 percent due to the financial difficulties.

According to Deputy Minister of Construction, Bui Pham Khanh, despite great efforts, Vietnamese contractors still cannot attain many projects right in the home market. It is estimated that about 150 projects are implemented every year, but most of them fall into the hands of the contractors from Japan, China and South Korea. Especially, Chinese contractors win the contracts for 90 percent of energy and mining projects.

“The weak financial capability leads to the difficulties in capital arrangement. Bad equipment and low productivity make Vietnamese contractors fail to obtain projects,” Khanh explained.

According to the Ministry of Planning and Investment, 453 package deals worth 77,683 billion dong in 2010, were put for international bids, while 13,939 packages worth 200,724.29 billion dong applied the mode of public bidding.

Over the last five years, Chinese contractors won the bids which accounted for 24 percent in the number of bids and 48 percent in terms of value in state budget funded EPC (engineering, procurement, construction) contracts. Meanwhile, Japanese accounted six percent in the number of EPC contracts and 11 percent in the value. Especially, Vietnamese contractors, though winning 67 percent of the total EPC state budget funded contracts, the value of the contracts just accounted for 39 percent of the total EPC contracts’ value.

Limited capital is the key problem

Vu Quy Ha, Deputy General Director of the Vietnam Import-Export and Construction Corporation Vinaconex, said that the biggest problem for Vietnamese contractors is the lack of capital. In order to undertake EPC contracts, contractors need to have big capital, including the capital in foreign currencies. However, Vietnamese contractors hardly can purchase enough foreign currencies from banks. Besides, the increasingly high interest rates have discouraged Vietnamese contractors, because it always takes long time to take back investment capital in EPC projects.

According to Ha, Vietnamese contractors can be competitive only in some fields. For example, the Song Da Corporation is a big name in building hydropower plants, Vinaconex in implementing high-rise buildings, while the Thang Long Bridge Corporation has been well known in the field of building bridges. However, the number of Vietnamese contractors who work as general contractors in EPC projects remains really modest.

According to Pham Van Loc, Deputy General Director of the Thang Long Industrial Zone Development Corporation, Vietnamese contractors always do their tasks very well under the supervision of foreign contractors. However, these contractors would not be able to satisfy the demand of projects if they do these works alone.

Loc believes that the lack of capital is the key. Since the State holds the controlling stakes in big economic groups and general corporations, enterprises always have to go through many procedures to get disbursements, which takes much time. Vietnamese contractors regularly have to borrow capital from banks at high interest rates; therefore, they do not feel self-confident when joining bids for big projects.

In many cases, contractors have weak financial capability, but they still have to gain projects at any costs to ensure jobs for workers, and in order to do that, they have to offer low prices which even make them incur losses.

Experts have also pointed out that Chinese contractors won many important bids because they always offered low prices, while the currently applied Bidding Law prioritizes the contractors who offer low prices. Meanwhile, in many cases, low costs also mean low quality.

Nguyen Xuan Dao, Deputy Director of the Bidding Management Department under the Ministry of Planning and Investment, said that Vietnam is going to amend the bidding law and reconsider the problems.

Pham Huyen

Provide by Vietnam Travel

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