Q2 2015 Vietnam

Q2 2015 www.businessmonitor.com

VIETNAM INFRASTRUCTURE REPORT

INCLUDES 10-YEAR FORECASTS TO 2024

ISSN 1750-5593 Published by:Business Monitor International Vietnam Infrastructure Report Q2 2015

INCLUDES 10-YEAR FORECASTS TO 2024

Part of BMI’s Industry Report & Forecasts Series

Published by: Business Monitor International

Copy deadline: January 2015

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Vietnam Infrastructure Report Q2 2015

CONTENTS

BMI Industry View ...... 7

SWOT ...... 9 Infrastructure SWOT ...... 9 Industry Forecast ...... 11 Construction And Infrastructure Forecast Scenario ...... 11 Table: Construction And Infrastructure Industry Data (Vietnam 2012-2017) ...... 11 Table: Construction And Infrastructure Industry Data (Vietnam 2018-2023) ...... 13 Conducive Monetary Conditions ...... 16 Improving Economic Environment ...... 17 Renewed Interest From Foreign Investors ...... 18 Potential Not Maximised ...... 19 Transport Infrastructure - Outlook And Overview ...... 22 Table: Transport Infrastructure Industry Data (Vietnam 2012-2017) ...... 22 Table: Transport Infrastructure Industry Data (Vietnam 2018-2023) ...... 23 Table: Competitiveness Of Vietnam's Infrastructure ...... 25 Table: Vietnam Railway Corporation's Main Targets ...... 32 Major Projects Table - Transport ...... 41 Table: Major Projects - Transport ...... 41 Energy And Utilities Infrastructure - Outlook And Overview ...... 56 Table: Energy And Utilities Infrastructure Data (Vietnam 2013-2018) ...... 56 Table: Energy And Utilities Infrastructure Data (Vietnam 2019-2024) ...... 57 Major Projects Table - Energy & Utilities ...... 72 Table: Major Projects - Energy & Utilities ...... 72 Residential/Non-Residential Building - Outlook And Overview ...... 84 Table: Residential and Non-Residential Building Industry Data (Vietnam 2013-2018) ...... 84 Table: Residential and Non-Residential Building Industry Data (Vietnam 2019-2024) ...... 85 Table: Major Projects Table - Residential/Non-Residential Construction & Social Infrastructure ...... 90 Industry Risk Reward Ratings ...... 92 Vietnam - Infrastructure Risk/Reward Index ...... 92 Vietnam Risk/Reward Index ...... 92 Rewards ...... 92 Risks ...... 93 Asia Pacific - Infrastructure Risk/Reward Index ...... 95 Developed Markets: Favoured ...... 96 Giants Of Asia: Rewards Sizeable, Risks Sizeable ...... 98 South East Asia: Environment Deteriorating Slightly ...... 99 Table: Asia Pacific Infrastructure Risk Reward Index ...... 101 Market Overview ...... 102

Competitive Landscape ...... 102 Table: Vietnam EQS Data ...... 102 Company Profile ...... 103 Cavico Corporation ...... 103 Electricity Vietnam Group ...... 106 Global Infrastructure Overview ...... 111 Industry Trend Analysis ...... 111 Table: Multilaterals and Development Bank Infrastructure Support Programmes ...... 116 Methodology ...... 118 Industry Forecast Methodology ...... 118 Sector-Specific Methodology ...... 119 Risk/Reward Index Methodology ...... 123 Sector-Specific Methodology ...... 124 Table: Infrastructure Risk/Reward Index Indicators ...... 124 Table: Weighting Of Indicators ...... 125

Vietnam Infrastructure Report Q2 2015

BMI Industry View

BMI View: Following an estimated performance of 1.8% in 2014, we forecast a modest pick-up to 4.3% real growth for Vietnam's infrastructure industry in 2015. While we note this rate remains well below the potential suggested by the country's strong foreign direct investment and improving business environment it is, nevertheless, reflective of an improving macroeconomic environment.

The major developments in Vietnam's infrastructure sector are:

While the infrastructure sector struggled in 2014, we expect growth to pick up modestly in 2015 as the macroeconomic environment improves. Nevertheless, we note there is a lack of upside in near-term spending from the domestic public and private sectors, which is brought on by the dominance and excessiveness of the country's state-owned enterprises (SOEs). While the existence of these SOEs makes it easier for the government to channel resources directly to certain projects, their structure remains unwieldy and inefficient.

On October 28 2014, an international consortium led by India-based road developer IL&FS Transportation Networks (ITNL) signed a contract to acquire a 70% stake in an expressway project that connects the capital city of Vietnam, Hanoi, with the port city of Hai Phong. The contract was signed with state-owned entity VIDIFI, the owner of the 105km expressway project. Besides ITNL, the international consortium consists of Philippine-based Strategic Alliance Holdings and Hong Kong-based Tung Sing Group. Under the terms of the contract, VIDIFI and the ITNL-led consortium are expected to form a joint-venture (JV) to manage the project over a 30-year period. About 70% of the expressway is completed, with the rest scheduled to be finished by the end of 2015.

The Vietnam Railway Administration has urged the transport ministry to appraise and approve a USD10bn plan to upgrade the North-South railway in the country. According to the plan, the trans-Vietnam railway, from Hanoi railway station to the Hoa Hung railway station in Ho Chi Minh City, will be upgraded to grade II railway standards, from grade I. The average speed will increase from the current 50km/h to 80-90 km/h for passenger trains and 50-60 km/h for cargo trains. The upgrade plan will be implemented in three phases. The Hanoi-Vinh section will be upgraded in the USD580mn first phase, the Nha Trang-Saigon section will be upgraded in the USD5.7bn second phase and the remaining projects will be upgraded in phase three.

In December 2014, construction started on Cai Cui, the largest-ever seaport in the Mekong Delta (in the Vietnamese city of Can Tho), to handle the increasing demand for maritime transportation. The seaport's

capacity is expected to be 20,000 tonnes upon completion. The seaport would require a total investment of about VND1.2trn (USD57.1mn). The new port will have three wharves measuring 500 metres in length and a logistics area covering 37 hectares that will allow it to handle 2.3-2.5mn tonnes of cargo yearly, according to Director of the Municipal Transport Department Lu Thanh Dong. The new Cai Cui port is expected to cater to the needs of the southern provinces of An Giang, Hau Giang, Kien Giang, Soc Trang, Bac Lieu and Ca Mau.

SWOT

Infrastructure SWOT

Vietnam Infrastructure Industry SWOT

Strengths ■ The country's strong project pipeline will sustain growth in the sector and add capabilities for further development, particularly as transport structure improves.

■ Rapid growth and firm government commitment has attracted investment from many of the world's largest infrastructure companies.

■ The poor state of infrastructure in the country provides plenty of opportunities for foreign investors and construction companies.

■ A hike in electricity prices should stimulate investment in the energy sector.

Weaknesses ■ State-owned companies dominate the infrastructure market. This is especially the case in the utilities sector, where Electricity of Vietnam's dominant position has deterred investors.

■ Vietnam relies heavily on foreign imports and it is estimated that the country requires 2mn tonnes of steel billets to be imported a year.

■ The country offers a relatively risky environment for major infrastructure projects, especially in relation to project finance operations.

■ Power outages are occurring daily in Vietnam, highlighting the country's severe electricity problems.

Opportunities ■ Demand for urban infrastructure projects in transport and sanitation over our 10-year forecast period to 2023 will rise, in tandem with urbanisation.

■ Severe drought is driving demand in electricity generation sources besides hydropower, such as gas-fired and wind-powered plants.

■ If the government's attempts to cool the overheating economy are successful, Vietnam will see a more stable growth trajectory over the long term.

Vietnam Infrastructure Industry SWOT - Continued

■ Greater opportunities for public-private partnerships (PPP) - the country is offering the Dau Giay-Phan Thiet expressway project, the first road project and the largest infrastructure project to be developed under a PPP format.

Threats ■ A possible shift in the Vietnamese government's focus - from driving economic growth towards fighting inflation and addressing macroeconomic imbalances - could have a cooling effect on the sector.

■ Without foreign capital, public spending cuts and tighter credit conditions are likely to keep economic activity depressed.

■ Lack of energy infrastructure holds downside risk to nearly all projects and presents a significant bottleneck to development.

■ Should any significant events occur to highlight Vietnam's structural difficulties, uncertainty and downside risks in the business environment could have a negative impact going forward.

■ The EU predicts Vietnam will not become a true market economy until 2018, and even this forecast is somewhat ambitious.

Industry Forecast

Construction And Infrastructure Forecast Scenario

BMI View: We expect conducive monetary conditions, an improving economic environment and renewed interest from foreign investors to lead to robust construction growth in Vietnam for 2015 and beyond. However, we believe the sector has yet to maximise its growth potential due to the lack of upside in short- term spending from the domestic public and private sectors.

Construction growth in Vietnam gradually trended higher over the course of 2014. Latest data from the Vietnam General Statistics Office revealed that the construction sector grew by 6.3% year-on-year (y-o-y) in real terms during the first nine months of 2014.

Table: Construction And Infrastructure Industry Data (Vietnam 2012-2017)

2012 2013 2014e 2015f 2016f 2017f

Construction industry value, VNDbn 181,984.00 191,631.00 211,215.69 235,999.28 262,625.66 291,780.04 Construction industry value, USDbn 8.7 9.1 9.9 11.2 12.8 14.6 Construction Industry Value, Real Growth, % y-o-y 2.09 5.83 6.22 6.43 6.28 6.20 Construction Industry Value, % of GDP 5.6 5.3 5.4 5.3 5.3 5.3 Residential and Non-residential Building Industry Value As % of 69.25 71.52 72.67 73.19 73.63 74.06 Total Construction Residential and Non-residential Building Industry Value, VNDbn 126,027.27 137,056.96 153,483.87 172,737.95 193,359.98 216,079.39 Residential and Non-residential Building Industry Value, USDbn 6.04 6.52 7.22 8.22 9.41 10.80 Residential and Non-residential Building Industry Value Real 1.48 2.15 7.99 7.24 6.94 6.85 Growth (%) Residential and Non-residential Building Industry Value as % of 3.88 3.82 3.89 3.91 3.91 3.92 GDP Infrastructure industry value, % of total construction 30.7 28.5 27.3 26.8 26.4 25.9 Infrastructure industry value, VNDbn 55,956.73 54,574.04 57,731.82 63,261.33 69,265.68 75,700.66 Infrastructure industry value, USDbn 2.68 2.60 2.72 3.01 3.37 3.79

Construction And Infrastructure Industry Data (Vietnam 2012-2017) - Continued

2012 2013 2014e 2015f 2016f 2017f

Infrastructure industry value real growth, % y-o-y 5.3 -9.1 1.8 4.3 4.5 4.4 Infrastructure industry value, % of GDP 1.7 1.5 1.5 1.4 1.4 1.4 Total capital investment, VNDbn 785,337.34 856,460.12 975,336.78 1,150,273.19 1,340,643.40 1,530,092.40 Total capital investment, USDbn 37.62 40.73 45.91 54.77 65.23 76.50 Total capital investment, % of GDP 24.20 23.90 24.75 26.05 27.11 27.73 Capital investment per capita, USD 414.38 444.24 496.03 586.43 692.55 805.64 Real capital investment growth, % y-o-y 1.87 4.10 9.50 12.00 11.00 8.80 Construction sector employment, '000 3,271.5 3,258.3 3,641.4 3,928.1 4,226.1 4,538.7 Construction industry employment, % y-o-y 1.56 -0.40 11.76 7.87 7.59 7.40 Active population, total, '000 64,081.40 64,820.11 65,485.17 66,093.66 66,647.27 67,144.29 Construction industry employees as % of total labour 5.11 5.03 5.56 5.94 6.34 6.76 force Cement production (including imported clinker), tonnes 56,355,045 58,482,645 61,670,351 65,127,667 68,383,777 71,344,018 Cement production (including imported clinker), tonnes, % y- -4.6 3.8 5.5 5.6 5.0 4.3 o-y Cement consumption, tonnes 55,592,275 57,646,958 60,762,614 64,141,079 67,307,772 70,166,715 Cement consumption, tonnes, % y-o-y -5.0 3.7 5.4 5.6 4.9 4.2 Cement net exports, tonnes 762,769 835,687 907,737 986,588 1,076,004 1,177,302 Cement net exports, tonnes, % y-o-y 28.3 9.6 8.6 8.7 9.1 9.4

National Sources/BMI

Table: Construction And Infrastructure Industry Data (Vietnam 2018-2023)

2018f 2019f 2020f 2021f 2022f 2023f

Construction industry value, VNDbn 323,676.94 358,791.19 397,609.79 440,159.53 487,198.77 538,678.10 Construction industry value, USDbn 16.3 18.3 20.4 22.7 25.3 28.1 Construction Industry Value, Real Growth, % y- 6.03 6.05 6.02 6.00 5.99 5.97 o-y Construction Industry Value, % of GDP 5.3 5.2 5.2 5.2 5.2 5.2 Residential and Non- residential Building Industry Value As % of 74.48 74.90 75.30 75.68 76.04 76.36 Total Construction Residential and Non- residential Building 241,079.64 268,721.42 299,402.42 333,096.18 370,474.24 411,342.64 Industry Value, VNDbn Residential and Non- residential Building 12.18 13.71 15.39 17.21 19.25 21.48 Industry Value, USDbn Residential and Non- residential Building Industry Value Real 6.67 6.67 6.62 6.55 6.52 6.43 Growth (%) Residential and Non- residential Building Industry Value as % of 3.91 3.92 3.92 3.93 3.94 3.95 GDP Infrastructure industry value, % of total 25.5 25.1 24.7 24.3 24.0 23.6 construction Infrastructure industry value, VNDbn 82,597.29 90,069.78 98,207.37 107,063.35 116,724.53 127,335.46 Infrastructure industry value, USDbn 4.17 4.60 5.05 5.53 6.06 6.65 Infrastructure industry value real growth, % y-o- 4.2 4.2 4.2 4.3 4.3 4.5 y Infrastructure industry value, % of GDP 1.3 1.3 1.3 1.3 1.2 1.2 Total capital investment, VNDbn 1,733,472.28 1,943,846.48 2,173,640.24 2,428,280.02 2,710,208.18 3,019,144.81 Total capital investment, USDbn 87.55 99.18 111.76 125.49 140.79 157.66 Total capital investment, % of GDP 28.15 28.33 28.48 28.64 28.80 28.96 Capital investment per capita, USD 914.86 1,028.85 1,151.44 1,284.73 1,432.77 1,595.54

Construction And Infrastructure Industry Data (Vietnam 2018-2023) - Continued

2018f 2019f 2020f 2021f 2022f 2023f

Real capital investment growth, % y-o-y 8.00 7.00 6.70 6.70 6.60 6.50 Construction sector employment, '000 4,861.7 5,205.0 5,567.4 5,950.4 6,355.4 6,783.3 Construction industry employment, % y-o-y 7.11 7.06 6.96 6.88 6.81 6.73 Active population, total, '000 67,594.92 68,011.07 68,401.62 68,772.11 69,122.44 69,448.57 Construction industry employees as % of total 7.19 7.65 8.14 8.65 9.19 9.77 labour force Cement production (including imported 74,728,888 77,698,611 80,631,004 83,714,375 86,882,615 90,132,798 clinker), tonnes Cement production (including imported 4.7 4.0 3.8 3.8 3.8 3.7 clinker), tonnes, % y-o-y Cement consumption, tonnes 73,440,155 76,283,672 79,080,766 81,958,949 85,031,829 88,046,366 Cement consumption, tonnes, % y-o-y 4.7 3.9 3.7 3.6 3.7 3.5 Cement net exports, tonnes 1,288,733 1,414,938 1,550,238 1,755,425 1,850,785 2,086,432 Cement net exports, tonnes, % y-o-y 9.5 9.8 9.6 13.2 5.4 12.7

National Sources/BMI

Construction growth in Vietnam gradually trended higher over the course of 2014, suggesting building momentum following relatively lacklustre performances in both 2012 and 2013. Latest data from the Vietnam General Statistics Office revealed that the construction sector grew by 6.3% year-on-year (y-o-y) in real terms in the first nine months of 2014.

On The Path To Recovery

Vietnam - Quarterly Construction Industry Value, VNDbn

Source: General Statistics Office, State Bank of Vietnam

This 9M 2014 performance is in line with our estimate that the sector achieved a full-year real growth rate of 6.2% in 2014. Looking ahead, we continue to expect the sector to maintain this relatively robust rate of growth, both in 2015 and over the medium term. We are forecasting real growth for the construction sector to reach 6.4% in 2015 and average 6.1% per annum between 2016 and 2019.

In Recovery

Vietnam Construction (And Sum-Components) Industry Value Forecasts

400,000 7.5

300,000 5

200,000 2.5

100,000 0

0 -2.5 2011 2012 2013 2014f 2015f 2016f 2017f 2018f Construction industry value, VNDbn (LHS) Construction Industry Value, Real Growth, % y-o-y (RHS)

Vietnam General Statistics Office

The primary reason for our construction outlook is due primarily to three factors - conducive monetary conditions, an improving economic environment and renewed interest from foreign investors.

Conducive Monetary Conditions

Monetary conditions in Vietnam are currently conducive for construction activity, with the country's policy rate still at 6.50% since March 2014, the lowest policy rate in more than a decade. Meanwhile, inflation remains relatively benign, leading us to anticipate the Vietnamese central bank to maintain an accommodative policy stance throughout 2014 and beyond. In fact, our Country Risk team expects the Vietnamese central bank to conduct another 50 basis points worth of rate cuts in 2015, bringing the policy rate to 6.00% (see 'Central Bank To Maintain Growth Bias', July 14 2014). This eventuality appears to be increasingly likely following the easing of the deposit rate cap by 50bps in October 2014. Given the lagged impact of monetary easing), any positive effects of this easing could last well into 2015 and on into 2016.

A Loose Monetary Policy

Vietnam - Policy Rate, % & Headline CPI - Housing & Construction Materials, % y-o-y

Source: General Statistics Office, State Bank of Vietnam

This combination of lower input prices and record-low borrowing costs should be favourable for construction activity as construction companies operating in Vietnam would benefit from a higher return on investment, making them more inclined to take up new projects or carry out capital-intensive construction works.

Improving Economic Environment

Another factor driving our positive outlook for Vietnam's construction sector is greater economic activity. We forecast real GDP growth in Vietnam to improve from an estimated 5.7% in 2014 to 6.4% in 2015 and 6.6% in 2016. Growing industrialisation will put demand-side pressure on the electricity supply and transportation systems, while rising incomes among Vietnamese consumers will drive demand for housing and commercial construction projects, such as malls and hotel development. The robust economic activity should also boost the financial viability of existing infrastructure, making it more attractive for investors to finance new projects.

We have already seen signs of this economic recovery in the residential and non-residential building sector. In the non-residential building sector, we have seen a recovery in Vietnam's manufacturing production activity, with the HSBC Purchasing Managers' Index above 50.0 levels since September 2013 (a signal of expansion in the manufacturing sector). While we remained concerned about the potential for deterioration in external trade activity (particularly the potential for a renewed downturn in the Chinese economy), the growing domestic demand for manufacturing goods could increase demand for non-residential buildings to support production activity. As for the residential building sector, we have seen early signs of improvement, with renewed demand for housing and greater public investment in social housing generating greater construction activity in the subsector.

Staying Strong

Vietnam - Purchasing Managers' Index

Source: Markit, HSBC, BMI

Renewed Interest From Foreign Investors

Another major factor driving our positive outlook for Vietnam's construction sector is renewed interest from foreign investors. Improvement in the economic environment and greater political stability in the country following the anti-China riots in May have helped to ensure that foreign direct investment (FDI) into the country remains healthy, particularly towards fixed asset development. According to the Foreign Investment

Department, total FDI inflows into Vietnam grew by 82.2% y-o-y to reach USD7.6bn in the first nine months of 2014, with around 85% of these inflows channelled into construction, real estate, manufacturing and processing projects.

FDI Returns

Vietnam - Foreign Direct Investment, USDmn (LHS) And % chg y-o-y (RHS)

Source: World Bank, BMI

Potential Not Maximised

Despite our positive medium-term outlook for Vietnam's construction sector, we believe the sector is still not maximising its growth potential. In fact, we expect Vietnam's construction sector to continue to underperform the historical ten-year average growth rate (7.1% per annum between 2004 and 2013). This lack of government spending was corroborated with data on public capital expenditure. Vietnam's budget for capital investment only grew by 1.8% y-o-y in the first nine months of 2014.

Public Investment Stagnate

Vietnam - Capital Investment By State Budget, VNDbn And % chg y-o-y

Source: Bloomberg, General Statistics Office of Vietnam, BMI

The primary reason for this is due to the limited potential for a swift increase in capital spending by the government and the domestic private sector, the primary drivers of construction activity in Vietnam. Decades of preferential treatment, subsidies and weak oversight from the government have not only allowed state-owned enterprises (SOEs) to propagate the inefficient use of investment capital (for example, the oversupply of airports and ports in the country), but also fostered a business environment that is uncompetitive and not driven by market forces. This has led to mounting losses for SOEs that the government is obliged to pay, and a crowding out of the private sector.

Domestic Driven, Domestic Capped

Vietnam - Construction Output, 2013, By Source, % of Total

Source: General Statistics Office, BMI

Although the Vietnamese government is in the process of implementing several structural reforms - including restructuring and privatising SOEs, raising electricity prices, as well as widening and streamlining the tax base - these measures would require several years of implementation before they could have a material impact on project financing (see 'Fiscal Deficit To Be Slowly Reined In', February 28 2014).

A primary reason for this is because these reforms are typically opposed by various stakeholder groups due to conflicts of interest, making it difficult to implement them. This is particularly evident in the government's attempts to restructure SOEs. During a conference in September 2014, Nguyen Dinh Cung, the director of the Central Institute for Economic Management, stated that the SOE privatisation process has been slow, with only 16 SOEs undergoing equitisation in 2011, 13 in 2012, 74 in 2013 and 64 in the January-September 2014 period. In a conference on SOE restructuring held in February 2014, the government had stated that it plans to privatise (fully and partially) 432 SOEs within the 2014-2015 period. Cung also stated that the divestment of non-core operations by SOEs is also progressing at a relatively slow pace, with most of the divestments just capital transfers within the public and among SOEs.

Transport Infrastructure - Outlook And Overview

Table: Transport Infrastructure Industry Data (Vietnam 2012-2017)

2012 2013 2014e 2015f 2016f 2017f

Transport infrastructure industry value, % of total infrastructure 65.5 66.5 66.4 66.2 66.1 65.9 Transport infrastructure industry value, VNDbn 36,677.06 36,297.31 38,326.43 41,889.64 45,755.26 49,861.71 Transport infrastructure industry value, USDbn 1.76 1.73 1.80 1.99 2.23 2.49 Transport infrastructure industry value real growth, % y-o-y 0.3 -7.6 1.6 4.0 4.2 4.1 Transport infrastructure industry value, % of total construction 20.2 18.9 18.1 17.7 17.4 17.1 Roads and bridges infrastructure industry value, % of transport infrastructure 50.1 50.8 51.4 52.3 53.2 53.7 Roads and bridges infrastructure industry value, VNDbn 18,388.17 18,445.88 19,694.58 21,914.68 24,331.45 26,776.06 Roads and bridges infrastructure industry value, USDbn 0.88 0.88 0.93 1.04 1.18 1.34 Roads and Bridges Infrastructure Industry Value Real Growth, % y-o-y -2.5 -6.3 2.8 6.0 6.0 5.1 Roads and bridges infrastructure Industry, % of total Infrastructure 32.9 33.8 34.1 34.6 35.1 35.4 Roads and bridges infrastructure Industry, % of total construction 10.1 9.6 9.3 9.3 9.3 9.2 Railways infrastructure industry value, % of transport infrastructure 24.3 24.0 23.8 23.3 22.8 22.5 Railways infrastructure industry value, VNDbn 8,913.78 8,725.64 9,105.50 9,759.04 10,451.95 11,241.86 Railways infrastructure industry value, USDbn 0.43 0.41 0.43 0.46 0.51 0.56 Railways infrastructure industry value real growth, % y-o-Y 19.4 -8.7 0.4 1.9 2.1 2.7 Railways Infrastructure Industry Value, % of Total Infrastructure 15.9 16.0 15.8 15.4 15.1 14.9 Railways Infrastructure Industry Value, % of Total Construction 4.9 4.6 4.3 4.1 4.0 3.9 Airports infrastructure industry value, % of transport infrastructure 9.5 9.1 9.1 8.9 8.7 8.6 Airports infrastructure industry value, VNDbn 3,476.25 3,288.01 3,490.24 3,709.39 3,964.33 4,287.99 Airports infrastructure industry value, USDbn 0.17 0.16 0.16 0.18 0.19 0.21 Airports infrastructure industry value real growth, % y-o-y -20.3 -12.0 2.2 1.0 1.9 3.3 Airports Infrastructure Industry Value, % of Total Infrastructure 6.2 6.0 6.0 5.9 5.7 5.7 Airports Infrastructure Industry Value, % of Total Construction 1.9 1.7 1.7 1.6 1.5 1.5

Transport Infrastructure Industry Data (Vietnam 2012-2017) - Continued

2012 2013 2014e 2015f 2016f 2017f

Ports, Harbours and Waterways Infrastructure Industry Value, % of Transport Infrastructure 16.1 16.1 15.7 15.5 15.3 15.2 Ports, Harbours and Waterways Infrastructure Industry Value, VNDbn 5,898.86 5,837.77 6,036.10 6,506.52 7,007.53 7,555.80 Ports, Harbours and Waterways Infrastructure Industry Value, USDbn 0.28 0.28 0.28 0.31 0.34 0.38 Ports, Harbours and Waterways Infrastructure Industry Value Real Growth, % y-o-y -0.4 -7.6 -0.6 2.5 2.7 2.9 Ports, Harbours and Waterways Infrastructure Industry Value, % of Total Infrastructure 10.5 10.7 10.5 10.3 10.1 10.0 Ports, Harbours and Waterways Infrastructure Industry Value, % of Total Construction 3.2 3.0 2.9 2.8 2.7 2.6

National Sources/BMI

Table: Transport Infrastructure Industry Data (Vietnam 2018-2023)

2018f 2019f 2020f 2021f 2022f 2023f

Transport infrastructure industry value, % of total infrastructure 65.6 65.4 65.1 64.9 64.6 64.2 Transport infrastructure industry value, VNDbn 54,206.49 58,881.20 63,968.79 69,441.16 75,385.01 81,801.60 Transport infrastructure industry value, USDbn 2.74 3.00 3.29 3.59 3.92 4.27 Transport infrastructure industry value real growth, % y-o-y 3.8 3.8 3.8 3.9 3.9 3.9 Transport infrastructure industry value, % of total construction 16.7 16.4 16.1 15.8 15.5 15.2 Roads and bridges infrastructure industry value, % of transport infrastructure 54.1 54.5 54.8 55.2 55.6 56.0 Roads and bridges infrastructure industry value, VNDbn 29,312.92 32,062.27 35,075.52 38,343.31 41,922.21 45,797.33 Roads and bridges infrastructure industry value, USDbn 1.48 1.64 1.80 1.98 2.18 2.39 Roads and Bridges Infrastructure Industry Value Real Growth, % y-o-y 4.6 4.6 4.6 4.6 4.6 4.6 Roads and bridges infrastructure Industry, % of total Infrastructure 35.5 35.6 35.7 35.8 35.9 36.0 Roads and bridges infrastructure Industry, % of total construction 9.1 8.9 8.8 8.7 8.6 8.5 Railways infrastructure industry value, % of transport infrastructure 22.3 22.1 21.9 21.6 21.4 21.2 Railways infrastructure industry value, VNDbn 12,094.97 13,000.71 13,978.34 15,026.77 16,163.61 17,379.28

Transport Infrastructure Industry Data (Vietnam 2018-2023) - Continued

2018f 2019f 2020f 2021f 2022f 2023f

Railways infrastructure industry value, USDbn 0.61 0.66 0.72 0.78 0.84 0.91 Railways infrastructure industry value real growth, % y-o-Y 2.7 2.7 2.7 2.8 2.9 2.9 Railways Infrastructure Industry Value, % of Total Infrastructure 14.6 14.4 14.2 14.0 13.8 13.6 Railways Infrastructure Industry Value, % of Total Construction 3.7 3.6 3.5 3.4 3.3 3.2 Airports infrastructure industry value, % of transport infrastructure 8.6 8.5 8.5 8.5 8.5 8.5 Airports infrastructure industry value, VNDbn 4,647.29 5,031.97 5,448.90 5,899.49 6,395.55 6,942.19 Airports infrastructure industry value, USDbn 0.23 0.26 0.28 0.30 0.33 0.36 Airports infrastructure industry value real growth, % y-o-y 3.5 3.5 3.5 3.6 3.7 3.9 Airports Infrastructure Industry Value, % of Total Infrastructure 5.6 5.6 5.5 5.5 5.5 5.5 Airports Infrastructure Industry Value, % of Total Construction 1.4 1.4 1.4 1.3 1.3 1.3 Ports, Harbours and Waterways Infrastructure Industry Value, % of Transport Infrastructure 15.0 14.9 14.8 14.6 14.5 14.3 Ports, Harbours and Waterways Infrastructure Industry Value, VNDbn 8,151.31 8,786.24 9,466.03 10,171.59 10,903.64 11,682.80 Ports, Harbours and Waterways Infrastructure Industry Value, USDbn 0.41 0.45 0.49 0.53 0.57 0.61 Ports, Harbours and Waterways Infrastructure Industry Value Real Growth, % y-o-y 3.0 3.0 2.9 2.8 2.5 2.5 Ports, Harbours and Waterways Infrastructure Industry Value, % of Total Infrastructure 9.9 9.8 9.6 9.5 9.3 9.2 Ports, Harbours and Waterways Infrastructure Industry Value, % of Total Construction 2.5 2.4 2.4 2.3 2.2 2.2

National Sources/BMI

The transport sector forms the bulk of infrastructure investment pipeline in Vietnam across our 10-year forecast period to 2023 and is expected to account for approximately 65% in 2023. In part, this is because the country still suffers from a significant deficit in transportation infrastructure and we believe the Vietnamese government will continue to develop this sector over the medium term. Therefore, we expect transport infrastructure industry value to grow by an average of 4.0% year-on-year (y-o-y) between 2015 and 2019.

Table: Competitiveness Of Vietnam's Infrastructure

Rank/133 in Rank/139 in Rank/142 in Rank/144 in Rank/148 in 2009/10 2010/11 2011/12 2012/13 2013/14 Quality of Roads 102 117 123 120 102 Quality of Railroad Infrastructure 58 59 71 68 58 Quality of Port Infrastructure 99 97 111 113 98 Quality of Air Transport Infrastructure 84 88 95 94 92 Quality of Overall Infrastructure 111 123 123 119 110

Source: World Economic Forum, Global Competitiveness Report

Road Dominant

Transport Infrastructure Value By Sector (2012-2018)

60,000

40,000

20,000

0 2012 2013 2014f 2015f 2016f 2017f 2018f Roads and bridges infra industry value Railways infra industry value Airports infra industry value Ports, Harbours and Waterways Infra Industry Value

National Sources/BMI

Roads

Within the transport infrastructure sector, the roads and bridges sub-sector leads in terms of contributions to total transport infrastructure industry value, accounting for 50% of total value in 2013. Although most of Vietnam's national road network is paved (only 26%, or 46,650km out of 180,549km, is unpaved as of 2008), surveys indicated that approximately 40% of the network is in a poor or very poor condition and will require substantial investment to reach a maintainable condition. Indeed, according to the World Bank's 2014 Efficient Logistics report on Vietnam, it cites that higher logistical costs compared to its regional peers, such as China and Thailand, results in higher costs for businesses, and disruptions often force them to hold higher levels of inventories.

Vietnam's Ministry of Transport and Communications has estimated that the country will require close to USD60bn in the period up to 2020 to fund new road infrastructure projects. Reaching this investment target will be crucial to Vietnam's long-term economic wellbeing, as roads facilitate the transport of most freight within the country, with a market share of around 60% of domestic cargo. Combined with increased traffic levels in Vietnam's urban areas and growing trade volumes to and from the country, there is a need for roads.

Over recent quarters, there have been several announcements regarding new road projects being planned - such as the Phap Van-Cau Gie highway build-operate-transfer (BOT) project - or being developed in Vietnam - such as the expansion of the NH-1A Cam Ranh City-Cam Lam District (Khanh Hoa province) BOT project, the Danang-Quang Ngai expressway and the Ho Chi Minh City (HCMC)-Long Thanh-Dau Giay Expressway.

However, there are still ongoing concerns about the viability of toll roads in Vietnam. Since February 2012, the Vietnamese transport ministry has been unable to find any investor intending to purchase the right to collect toll fees for the HCMC-Trung Luong expressway (as of July 2014). BIDV Expressway Development Company (BEDC) had previously purchased the toll collection right for 25 years, but due to financial constraints, the company had returned the project back to the government.

We believe that this lack of investment interest in one of the highways linking Vietnam's most economically developed cities reflects our concerns about the viability of building toll roads in Vietnam.

Costly To Build

Investment Cost of Expressways In Vietnam, USDmn Perkm

Source: Vietnam the Business Times

Part of this lack of viability is due to the high cost of construction for expressways within Vietnam. According to an official report from the Ministry of Construction in September 2012, the cost of constructing an expressway in Vietnam is about 1.5-2.0 times higher than comparable roads in China, Europe and Africa. The HCMC-Trung Luong expressway, for example, costs around USD9.9mn per km, higher than an average expressway in China (USD6mn/km) and the US (USD8mn/km).

We believe there are several factors contributing to this high construction cost for toll roads:

■ The lack of project management and technical expertise to complete road projects within budget, resulting in site clearance delays and cost overruns. To resolve this problem, the transport ministry is planning to classify investors and contractors into three grades - A, B and C - with companies at each grade developing projects of the same grade.

■ Corruption, with anecdotal evidence suggesting that 30% of a project's value is pocketed by the contractor, in order to pay bribes to relevant parties.

■ Deficiency in regulations and government institutions that effectively balance the need to safeguard the public interest with the need for expeditious provision of land for infrastructure development. The current regulation - Decree 69/2009/ND-CP - only gives district-level people's committees, not the central government, the right to hire companies to settle site clearance and compensation issues.

■ Difficult geological conditions; most of Vietnam's terrain is uneven.

■ A lack of specialised government institutions that can mediate between developers and landowners about compensation. Combined with the perceived potential for corruption at the district level, these deficiencies do not provide landowners with the assurance that they are receiving the fair amount of compensation for their land. As a result, they are unwilling to sell their land, causing delays in site clearances and cost overruns for road projects.

At the same time, businesses and commuters are unable to support higher toll rates. These factors increase the difficulties for Vietnam to raise financing for several road projects. According to a master transport plan for HCM City (approved by the government in April 2013), the city will upgrade or expand five expressways - the HCM City-Long Thanh-Dau Giay expressway, the HCM City-Thu Dau Mot-Chon Thanh expressway, the HCM City-Moc Bai expressway, the Ben Luc-Long Thanh expressway and the Bien Hoa- Vung Tau expressway - and build five four-lane flyovers with a total length of 70.7km. To finance these projects, the city will need VND45trn between 2013 and 2015.

Compounding the problem, the Vietnamese government is heavily burdened by the debts of its state-owned enterprises (SOEs), and the need to repay this debt is limiting the government's ability to finance infrastructure projects. For example, Vietnam Expressway Corporation is facing the risk of falling into insolvency as it could be unable to pay its bond holders.

To secure financing for road development, the Ministry of Transport started collecting a fee for road maintenance from the start of 2013. This is because a number of key roads are deteriorating rapidly and the government does not have sufficient funds to boost its budget for road maintenance - the ministry estimates that it only meets 40% of the funds needed for road maintenance. The government is also hiking toll fees for existing roads and implementing new toll stations on certain expressways - Intellasia reported that transport costs in Vietnam would treble by 2015 when 21 new BOT toll stations on NH-1A are operational, plus a rise of 3.5 times in road fees.

We highlight that financing from foreign sources for road projects has become increasingly forthcoming. In March 2013, Japan and Vietnam exchanged a diplomatic note that stated that Japan will finance 12 projects worth a combined USD2.2bn, mostly in transport infrastructure (such as the third phase of the Nhat Tan Bridge and the second phase of a road project linking Noi Bai Airport with Nhat Tan Bridge). In May 2013, Goldman Sachs, as leader of a lending syndicate, reached an agreement with the BT 20 Joint Stock Company consortium to provide USD250mn for the rehabilitation (first phase) of the 110km NH-20 under a BT format.

Besides NH-20, the Asian Development Bank had announced in August 2013 that it will provide a USD410mn loan for the Vietnamese government to develop a new arterial road. The loan would help in the construction of Second Southern Highway, which would connect Ho Chi Minh City in Southern Vietnam to the Mekong Delta and southern coastal regions. The project involves the construction of access and interconnecting roads totalling 26km, as well as two cable-stayed bridges with a combined length of 5km. The USD860mn project would also receive a loan of USD260mn from the Export-Import Bank of Korea, while the Vietnamese government would contribute USD56mn. Additionally, the Australian Agency for International Development would grant AUD160mn (USD143mn) for the project.

The Vietnamese government is also making progress with the use of public-private partnerships (PPPs) for roads. On September 19 2013, the Vietnam Ministry of Transport (MOT) and the World Bank completed the fourth and final investor conference for the USD757mn Dau Giay-Phan Thiet expressway project. The conference was aimed at showcasing the 98.7km expressway to international investors interested in becoming the project's secondary investor.

Earlier, in July 2013, the Vietnamese government selected Vietnam-based Binh Minh Import-Export Production and Trade Company (Bitexco) as the primary developer of the four-lane project, with Bitexco providing up to 60% of total equity investment and the remaining 40% by the secondary investor. Bitexco can, however, dilute its share in favour of the second investor during the construction. Since the road show, the Saigon Times reported that only seven investors, out of more than 100 participants, submitted applications to the MOT. While the investors have yet to be made known, a report from the Philippines Star in mid-November noted that Hong Kong-based investment firm First Pacific and Philippines-based Metro Pacific Investments were both interested in the project.

The project was due to be awarded in the fourth quarter of 2014 under a 30-year Design, Build, Finance, Operate, Maintain and Transfer concession, but at the time of writing a final decision had not been reached. The project is expected to start construction in June 2015 and be ready for commercial operations in January 2019. That said, we believe there are a number of issues, such as the hostile business environment that investors have to contend with, which are likely to delay the construction of the project.

The Dau Giay-Phan Thiet expressway project is also the first road project and the largest infrastructure project to be developed under a public-private partnership (PPP) format in Vietnam. It therefore serves as a reflection of the country's ability to implement infrastructure projects under a PPP framework and any failures would be a significant blow to investor confidence. As such, the Vietnamese government has taken several steps to ensure the project's bankability and that its PPP framework meets international standards.

The project is also set to enjoy the bulk of the incentives initiated by the Vietnamese government to spur PPP infrastructure investment. This includes a non-refundable grant from Vietnam's viability gap financing mechanism and assistance for tax, currency exchange, site clearances (land acquisition cost will be carried out by the MOT and funded by the Vietnamese government) among others.

In October 2014, an international consortium led by India-based road developer IL&FS Transportation Networks (ITNL) signed a contract to acquire a 70% stake in an expressway project that connects the capital city of Vietnam, Hanoi, with the port city of Hai Phong. The contract was signed with state-owned entity VIDIFI, the owner of the 105km expressway project. Besides ITNL, the international consortium consists of Philippine-based Strategic Alliance Holdings and Hong Kong-based Tung Sing Group. Under the terms of the contract, VIDIFI and the ITNL-led consortium are expected to form a joint-venture (JV) to manage the project under a 30-year period. About 70% of the expressway is completed, with the rest scheduled to be finished by the end of 2015.

We believe the partial sale of the Hanoi-Hai Phong expressway project highlights the growing maturity in Vietnam's roads sector. This is the first time an overseas party had acquired a concession to operate an expressway in Vietnam. Meanwhile, Vietnam remains on track to complete its first expressway project under a public-private partnership (PPP) format by 2019, the USD757mn Dau Giay-Phan Thiet expressway project. On October 13, the World Bank and the Vietnamese transport ministry reviewed the preparations for the project and had agreed to launch the project in September 2015, with the tendering process for the project's second investor underway (see 'Skeptical Over Dau Giay-Phan Thiet PPP Timeline', December 6 2013).

We also believe the partial sale of the Hanoi-Hai Phong expressway project, highlights the significant opportunities for such concessions in Vietnam. The majority of the country's expressways are owned and developed by state-owned enterprises (SOEs). These SOEs are currently experiencing financial difficulties due to escalating costs and an inefficient use of their investment capital in previous years. As a result, they are in need of fresh capital to stay afloat and meet their capital expenditure needs.

The Hanoi-Hai Phong expressway project is a case in point. The main proponent for the partial sale is VIDIFI's parent company, state-owned Vietnam Development Bank (VDB). VDB owns a 90% stake in VIDIFI and is seeking to completely divest its entire stake in the concessionaire to reduce its obligations. The cost of the Hanoi-Hai Phong expressway project is estimated to have escalated by more than 77%, from an initial VND25.6trn (USD1.2bn) to more than VND45.5trn. This surge is due to higher costs of materials and changes in its design since it first started construction works in 2007.

At present, besides the Hanoi-Hai Phong expressway project, state-owned expressway developer Vietnam Expressway Corporation announced on October 27 that it was planning to privatise (fully or partially) five major expressways with a combined length of 540km and a total investment value of VND125.6trn.

Railways

Railways will account for close to 24% of Vietnam's total transport infrastructure industry value in 2014, according to BMI's forecasts. Vietnam's rail network stretches for 2,632km, but only 527km is standard gauge (1.435m gauge). The network has around 1,790 bridges totalling 45km and 11.5km of tunnels. The principal axis is Hanoi-Ho Chi Minh City (1,726km). Other lines emanating from Hanoi are to Hai Phong (102km), Lao Cai (296km) and Dong Dang (162km).

Vietnam had previously planned to build a USD56bn north-south high-speed railway line, but this was rejected by the Vietnamese National Assembly in June 2010. The proposed project has since resurfaced, with Japan announcing in September 2012 that it remains keen to assist Vietnam in building this north- south high-speed railway line by 2030. In November 2013, an amended proposal was submitted, prepared by the Japan International Cooperation Agency, proposes to upgrade the existing north-south rail route at the cost of USD1.8bn before commencing building a new line, which will be pushed back to 2030.

This differs slightly from an earlier proposal made in April 2013, in which state-owned Transport Engineering Design Inc (TEDI) suggested that work on the north-south high-speed railway project in Vietnam should be delayed and the focus should be shifted on upgrading the current north-south track. It further proposed that the speed of the north-south high-speed train should be slowed down to 150-200km per hour from more than 200km per hour, while the time frame for the development of the trans-Asia railway should be reconsidered along with the rail lines connected to seaports, industrial zones and tourist sites.

There are still plans to build a high-speed railway line between Laos and Vietnam. The USD5bn high-speed railway project, which is close to starting construction work, will span 220km from the Laos central province of Savannakhet to the Lao Bao border gate of neighbouring Vietnam and is expected to be operational over the next five years.

Table: Vietnam Railway Corporation's Main Targets

■ Upgrading north-south railway routes and improving the running speed of passenger trains and freight trains to 100-120kph and 100kph respectively.

■ Upgrading west-east railway corridor so that the maximum speed of passenger trains and freight trains is 80-100kph and 60-80kph respectively.

■ Paying more attention to the development of new routes between Ho Chi Minh City-Vung Tau, Ho Chi Minh City-Can Tho, Thap Cham-DaLat, Yen Bai-Tuyen Quang-Bac Thai, Lien Chieu-Dung Quat, etc.

■ Carrying out surveys and preparing to link the railway network to Singapore-Kunming route is aimed at fulfilling missing links such as Ho Chi Minh City-Phnom Penh city and Cambodia-Vietnam.

Source: Vietnam Railways

Instead of a high-speed railway line, the government is looking to increase the speed of the existing normal- gauge north-south railway line. In April 2013, the Ministry of Transport said that it had assigned the Vietnam Railway Corporation to make a detailed plan to increase the speed of the line from 90km/h to 200km/h. This could be done in two phases. The first phase would increase the speed of the line from 90km/ h to 110km/h, while the second phase would involve the construction of a new double-track standard gauge line that increases the line's speed to 220km/h.

The government is also looking to improve its existing railway network. In March 2013, the Ministry of Transport said that between 2013 and 2020, the Vietnam Railway Corporation needed to focus on improving the existing railway system and building several new 1,435mm gauge dual track lines along the existing 1,726km north-south (Ngoc Hoi-Phu Ly) railway line. Under the amended planning the railway sector would require around VND365.242trn (USD17.4bn) to 2020 for upgrading six existing lines, putting into place three new arterial routes, including some lines heading seaports, economic zones and tourist sites.

Amendments relating to Vietnam's railway development planning to 2020, with a vision toward 2030 (2009 planning), have been reported by the Vietnam Railway Administration (VRA) to the Ministry of Transport in April 2013. According to a proposal from the consultancy unit that is tasked with amending the 2009 planning, Vietnam will weigh up the construction of a trial electrified 1,435mm Ngoc Hoi-Phu Ly gauge dual-track line, with a velocity ranging from 160km to 200km per hour. Overhauling the existing 1,726km north-south railway is estimated to require a total investment of VND39.87trn (USD1.9bn). Of the total, the capital demand to 2020 is set at VND18.61trn (USD886mn).

By 2015, Hanoi Railway Station is expected to emerge as the centre of the country's system. The station will join the other means of transport and boast a multi-functional service centre. The upgraded facilities and services are to have an annual transportation capacity of 13.7mn tonnes of freight and 17.7mn passengers. However, just like the roads, the railway sector suffers from a lack of financing.

In December 2014, the Vietnam Railway Administration urged the transport ministry to appraise and approve a USD10bn plan to upgrade the North-South railway in the country. According to the plan, the trans-Vietnam railway, from Hanoi railway station to the Hoa Hung railway station in Ho Chi Minh City, will be upgraded to grade II railway standards, from grade I. The average speed will increase from the current 50km/h to 80-90 km/h for passenger trains and 50-60 km/h for cargo trains. The upgrade plan will be implemented in three phases. The Hanoi-Vinh section will be upgraded in the USD580mn first phase, the Nha Trang-Saigon section will be upgraded in the USD5.7bn second phase and the remaining projects will be upgraded in phase three.

Urban Railways

As most of the railway projects in Vietnam are at an early stage, we believe that it would be urban railway projects that will drive our railways infrastructure industry value forecasts over the short to-medium term. We believe these urban railway projects will be crucial to Vietnam's economic and social development, as the country attempts to deal with rapid urbanisation, while successfully managing a booming economy. The combination of rising urbanisation and steady population growth is exerting considerable pressure on Vietnam's urban transportation systems.

This urbanisation trend is felt acutely in Hoh Chi Minh City and Hanoi, the country's largest cities and chief commercial hubs. Both cities are home to approximately 16% of the country's total population and traffic conditions have worsened. Congestion occurs frequently at road junctions during rush hour and average traffic speeds vary from around 10-30km/h in both cities. There is much scope for traffic conditions to worsen further. Not only could there be a fundamental shift to cars due to rising incomes - for example, 90% of the vehicles in HCM City are motorcycles - but Vietnam is also looking to accelerate the urbanisation rate in the country. According to a draft national urban development programme approved by the government in June 2012, Vietnam will strive to achieve an urbanisation rate of 38% with 870 urban areas by 2015, and 45% with 940 urban areas by 2020. The country is estimated to currently have an urbanisation rate of 30%.

The development of an urban railway system will, therefore, help alleviate many of the problems associated with congestion. No other system can carry more people and run on such a dependable schedule at a lower

cost, and we expect Vietnam to continue to push forward with urban railway projects. As of May 2012, the government transport plan for Hanoi to 2030 included eight urban railways, with a total length of 284km, and six subway lines, linking key parts of Hanoi and its outlying areas. Meanwhile, Ho Chi Minh City aims to complete around six metro lines with a total length of 120km by 2020.

Some of these urban railway plans have moved forward (such as Ho Chi Minh City's Ben Thanh-Suoi Tien Metro line 1, the underground section of the Metro line 2), but just like the roads sector, several have also faced delays. This is because they are suffering from slow site clearances (such as the Cat Linh Street-Ha Dong District railway line in Hanoi, which is two years behind schedule), cost overruns (such as the Nhon- Hanoi Station urban railway line No. 3), the lack of a legal framework, a lack of proper planning for underground space and integration with other transport modes, and the lack of skilled labour.

The sector is also heavily reliant on financing, mainly official development assistance loans, from several foreign countries and multinational development banks. This has caused delays as to access these loans Vietnam needs to conform to the regulations of all its donors, making it difficult to coordinate construction work for the projects. In addition, European banks are set to face difficult economic conditions and stricter capital controls over the coming years. This could lead to a decline in European financing for Vietnamese projects and has already transpired, with the Spanish government announcing in late November 2012 that it would only provide 40% of the financing it had initially promised for an urban railway project in Ho Chi Minh City (Metro Line No.5).

Having said that, some lenders remain keen to provide funds for Vietnam's urban railway sector. In March 2013, Japan and Vietnam exchanged a diplomatic note, under which Japan agreed to finance 12 local projects such as the first phase of the Hanoi urban railway line 1 (Gia Lam-Giap Bat).

Officials from the Ho Chi Minh City administration also pointed out in March 2013 that the Asian Development Bank (ADB) and the European Investment Bank (EIB) will provide a combined USD735mn for the Metro Line No.2. The loan agreement for the Metro Line No.2 was signed in July 2013. Line 5 of the Ho Chi Minh metro system will be financed by three international organisations, according to the Railway Gazette. The Asian Development Bank, the European Investment Bank and the Spanish government will provide USD500mn, EUR150mn (USD206mn) and EUR200mn (USD275mn) respectively, to construct in 2015 the first 8.9km of the line that is slated to run between Sai Gon Bridge and the Bay Hien Intersection.

Ports

Although roads and railways are dominating transport infrastructure, we highlight that ports, harbours and waterways will see their share increase significantly over the coming years. Vietnam's dense river and canal network - which measures 17,702km - provides the country with a highly developed inland waterway system, but its port infrastructure is poor by international standards. The main ports currently in operations are the Cam Pha Port, Da Nang, Haiphong, Ho Chi Minh, Phu My and Quy Nhon.

Vietnam's seaport network comprises many small- and medium-sized entities, with inefficient distribution. Most ports in the northern part of Vietnam are dispersed and small in scale, while most big ports are located on rivers, such as Hai Phong and Ho Chi Minh City, with limited depth at the entrance. Some ports are located in big cities, thus making it difficult to connect with other modes of transport due to traffic congestion. With the exception of several new or upgraded ports, most have been operating for many years and lack investment. The loading and unloading equipment in some ports is obsolete, leading to low productivity. The average productivity of a Vietnamese port is only 2,500 tonnes/m per wharf, which is less than half of the productivity of other ports in the region.

Activity in the maritime sector is mainly concentrated on boosting the capacity of the southern economic zone, especially in the Thi Vai River area. Major global port operators with interests in the region include Hutchison Port Holdings, Singapore's PSA International, Saigon Port, Denmark's Maersk and France's Compagnie Maritime d'Affrètement-Compagnie Générale Maritime (CMA CGM). These companies have all been involved in the operation and development of major Vietnamese ports in the Thi Vai River.

BMI anticipates increasing investment into Vietnam's port infrastructure over the long term, as it is a sector crucial to the country's economic growth. There are two major factors central to our view:

■ The country needs to upgrade its ports to avoid major bottlenecks, which would constrain the country's export-led growth and investment.

■ Vietnam is becoming increasingly important, not just to growing Intra-Asian trade but also on the global stage. An increasing number of shipping companies are choosing Vietnam as their port of call as they ply the east-west trade route. Vietnam's ports are gradually graduating from feeder stop-offs on the major routes to boasting direct services on both the Asia-US and Asia-Europe services.

Vietnam is keen to address this deficit, but lacks the fiscal strength to meet the required investment. This keenness to meet this deficit has also been dampened recently due to feeble external demand.

Vinacomin also decided to suspend the construction of the Ke Ga deepwater port in the Binh Thuan province, according to Vinacomin General Director Le Minh Chuan in February 2013. The company took the decision due to a cut in bauxite production. The port was scheduled to receive bauxite from mines in Tay Nguyen, with an annual capacity of up to 3.5mn tonnes by 2015, 17.5mn tonnes by 2020, 27mn tonnes by 2025 and 37mn tonnes by 2030. However, the output of bauxite at Tan Rai and Nhan Co alumina projects in Dak Nong Province is low and may reach only 1.3mn tonnes.

Besides Vinacomin, Vinalines is also selling stakes in four of its ports - namely Hai Phong, Da Nang, Quang Ninh, Saigon and Quy Nhon - between 2013 and 2014 to pare down its high level of debts, which were brought on by investment in under-performing ports.

As a result, Vietnam had adjusted its port development plans at the start of January 2013, with the Vietnam Maritime Administration announcing that it would only focus on building large deep-sea ports in Hai Phong's Lach Huyen and Ba Ria-Vung Tau's Cai Mep - Thi Vai port complexes. The administration will also focus on converting the remaining ports in the central region and the Mekong Delta into special-use ports to transport materials for thermo-power plants. Small ports that had been planned for development will not be put into this time's zoning plan if they are not in urgent need.

This plan appears to be taking place, with only the Lach Huyen port project starting construction works in April 2013. The port is scheduled to be built in two phases, with the first phase entailing the construction of port infrastructure, while the second phase will include the construction of two 750m wharves capable of handling 100,000-tonne container ships. The Vietnam Maritime Administration will manage the first phase, involving an investment of more than VND18.6trn (USD885mn), while a joint venture of Vietnamese and Japanese enterprises will manage the second phase worth more than VND6.57trn (USD315mn). The port, due for completion in 2016, will have modern cargo handling equipment. It will be capable of handling container ships of up to 8,000 twenty-foot equivalent units (TEUs).

Vietnam's difficult business environment could continue to slow project implementation. In July 2011, construction work on the USD3.6bn Van Phong International Port in Vietnam's southern central province of Khanh Hoa was suspended, because initial feasibility studies for the port project did not sufficiently assess the site's geology. This resulted in inconsistencies in pile design during the construction phase. Although the project investor Vinalines had signed a deal with Netherlands-based Rotterdam Port for the port's construction, the lack of financial strength in Vinalines has finally forced the government to suspend the project in September 2012. In June 2013, the management of the Van Phong Economic Zone cancelled the

investment licence, held by Vinalines, to build Van Phong International Port project. Vinalines was required to complete all procedures to liquidate the project within H1 2014.

Another business environment issue that is hindering the growth of the port sub-sector is the lack of coordination in developing the different types of infrastructure (roads, ports, airports, railways). Two ports in Ho Chi Minh City - the USD17.5mn Phu Huu Port and the USD19.1mn Phu Dinh Port - have been left unused for several years due to lack of access to key roads. These ports are connected to streets that are either often flooded, too narrow for container trucks or lack access to highways. This could remain an issue for other ports currently being developed. The VND2.73trn Saigon-Hiep Phuoc port was scheduled to be completed by 2014, but as of March 2013, a harbour bridge and port routes to connect it with main highways and roads have yet to materialise:

■ A shortage of qualified logistics staff is a problem.

■ A lack of proper planning is also an issue. According to the Vietnam Seaports Association in January 2013, seaport zoning plans of Vietnam are yet to be synchronic and have still failed to meet rising sea transport demand due to a disproportional focus on the construction of small ports, which are inefficient in meet Vietnam's transhipment needs.

■ The government has also been slow in implementing regulations that support the development of a PPP framework for port projects.

■ Access to financing remains an issue, despite a sharp decline in Vietnam's interest rates. This is partially due to Vietnam's financial regulations and the decline in government investment.

Despite these challenges, there are still foreign companies keen on entering Vietnam's port sector. In June 2013, Australia-based N&M Commodities unveiled plans to develop a USD3.5bn deep-sea port on Hon Khoai Island, Ca Mau province. The company was completing the necessary administrative procedures for the project, which is expected to start construction works at the end of 2016. Once completed, the Hon Khoai Seaport is expected to become the gateway to the Mekong Delta and HCM City.

Airports

Although the airport infrastructure sub-sector accounts for the smallest portion of transport infrastructure, the government has ambitious plans to modernise and expand the country's airport infrastructure, which consists of 44 airports. The government's initial plans were to develop 10 international airports by 2020: Noi Bai, Cat Bi, Phu Bai, Danang, Chu Lai, Cam Ranh, Tan Son Nhat, Long Thanh, Can Tho and Phu Quoc; and 16 domestic airports in the same timeframe, which includes Dien Bien Phu, Na San, Lao Cai, Quang Ninh, Gia Lam, Vinh, Dong Hoi, Phu Cat, Tuy Hoa, Pleiku, Buon Ma Thuot, Lien Khuong, Rach Gia, Ca Mau, Con Son and Vung Tau.

This willingness by the government to get projects under way for the private sector (although this is partially due to a lack of public funds) provides grounds for optimism and this has attracted foreign investors to the sector. In April 2013, the Airports Corporation of Vietnam (ACV) tasked Parsons Brinckerhoff with investigating the potential to develop the Chu Lai airport into a regional cargo hub. The study was funded by a grant from the US Trade and Development Agency. In June 2013, ADC-HAS Airports reiterated its interest in expanding the Cam Ranh Airport and Danang airport.

However, the lack of demand for air travel in the near term and the stiff competition from other airports in Asia to serve as regional hubs could make it difficult for these new airports to be financially viable.

Since early 2012, Vietnam has announced that it was in the search for foreign investors to help construct two international airports: the USD1.2bn Van Don International airport in the northern province of Quang Ninh and the USD10bn Long Thanh International airport in the southern province of Dong Nai. The two airports are part of a strategy to compete with neighbouring airports in Thailand and Singapore. According to Nguyen Cong Hoan, a director for the Vietnamese airport operator ACV, foreign investors have already expressed interest in the Van Don airport, with South Korean investors being highlighted as one of the interested parties in late-2012. Interested investors were due to complete project documents and submit them to provincial and central agencies in November 2012.

The Long Thanh airport, approved in 2011, also appears to be making some progress, albeit slowly. In March 2013, the provincial government of Dong Nai disclosed a development plan for the area surrounding Long Thanh International Airport. The government plans to develop a tourism complex, several industrial clusters and world-class sporting, education and healthcare venues in the 21,000-hectare (ha) area. The plan entails the development of 12 communes in Long Thanh and Cam My districts in the area, excluding the 5,000ha zoned for the terminal, by 2025. The northern part of the airport covering 5,720ha will boast condominiums for aviation employees and locals, while the southern area covering about 4,400ha will boast an international transhipment centre, a supporting industrial park and an area zoned for fruit farms and industrial plants. The plan is likely to be implemented in three phases during 2012-2025, with land acquisition estimated to cost VND10trn as of March 2013.

The terminal will also be developed in three phases, starting from 2015. The first phase (2015-2020) requires USD5.6bn for the construction of two runways, taxiways, aircraft parking zones and two terminals with an annual handling capacity of 25mn passengers and 1.2mn tonnes of cargo. The second phase (2020-2030) involves the construction of a third runway and the increase in passenger handling capacity by 50%, while cargo handling capacity is increased to 1.5mn tonnes per annum. The third phase (2030-

unknown) involves the construction of a fourth runway and the increase in passenger and cargo handling capacity to 100mn passengers and 5mn tonnes of cargo per annum.

Both airports are part of the government's strategy to develop as many as six international airports, which include locations such as Cam Ranh, Chu Lai, Danang and Hue. The Long Thanh airport is the centrepiece of this expansion, as it is the largest greenfield airport project in Vietnam (and possibly in Asia), with an eventual annual passenger capacity of 100mn per annum, a 5mn tonne cargo capacity and four runways.

While there are compelling factors driving the government to build new airports - to meet a growing demand to travel within Vietnam's population and to unlock the growth potential of its tourism sector - these airports could struggle to be financially viable if their aim is to serve as regional transit hubs. Not only is there a lot of competition from other airports in Asia to serve as regional hubs, but these airports already have well established airlines using them as their main point of transit.

Several airports in Vietnam, particularly in the central provinces, were already operating way below capacity, despite the rapid rise in tourists. The Dong Hoi airport incurred losses of VND6.9bn (USD332,000) in 2010 and VND9bn (USD432,000) in 2011. This suggests that the demand for new airports is not broad-based throughout Vietnam, with air traffic in certain regions still immature.

Another reason for this lack of usage could be due to the small number of runways that are able to handle international flights. Most of the international flights in Vietnam are handled by just three of the country's 21 airports, while only nine of these have runways with a length of more than 3,047m, which is a standard requirement to handle international flights for wide-body aircraft. This suggests that Vietnam could need to upgrade the runways in its existing airports, rather than construct new airports. As of September 2012, Vietnam continues to find difficulty in securing financing for its airport projects and is still seeking investment capital from different sources.

The government has since recognised this lack of financial viability for some of these proposed airports and is shifting its focus on a few key airports such as Noi Bai, Danang and Long Thanh. The smaller airports such as Lao Cai, Lai Chau and Quang Ninh could be developed after 2020, according to official from the Ministry of Transport in April 2013.

Meanwhile, it was announced in early 2014 that Vietnam's Ministry of Transport is awaiting approval from the Prime Minister of Vietnam, Nguyen Tan Dung, to partially privatise the country's state-owned airport operator, ACV. The delays to several projects, as well as the development of several airports that have operated below capacity have arisen due to a lack of private sector participation. With greater private

participation, we believe the Vietnamese government will be able to unlock a sizeable amount of capital for the development of new airports in Vietnam as well as increase the likelihood for airport projects to be driven by market forces.

However, we highlight that the privatisation of ACV is not the alpha and omega in generating sustainable growth in Vietnam's airport infrastructure sector. Regulatory reforms are also necessary to eliminate existing hurdles to project execution such as permit approvals, environmental clearances and land acquisition. Regulatory reforms are also needed to create a legal framework that ensures a competitive market and eliminates economic wastage. At present, ACV is operating as a monopoly in Vietnam's airport sector. This creates significant scope for corruption and rent-seeking as private investors that own ACV could focus on eliminating the competition and arbitrarily increase fees that are not in the public's interest.

Operations at Hanoi's new international terminal took place on December 31 2014. Around 99% of the terminal construction has now been completed and the contractor has met the progress and quality targets set for the project. The new facility will operate as an international air terminal, with 96 check-in counters, 17 boarding gates, 10 self-service kiosks and 283 flight information display systems. The facility is 996m long and has 139,000sq m total gross floor area. The airport has plans to construct an additional two terminals as it attempts to boost capacity to 50mn passengers a year.

Major Projects Table - Transport

Table: Major Projects - Transport

Value Project Name (USDmn) Capacity/Length Companies Timeframe Status

Airports

Phan Thiet airport, 0.5mn passengers/ Binh Thuan province 50 yr Rang Dong Group 2014-2020 Approved Chu Lai International Airport Upgrade 355 4.1mn passengers/ - -2025 Announced Project - Phase 2 yr Quang Ninh International Airport (Phase 2), Doan Ket commune, Van Don 76 5mn passengers/yr - 2020-2030 At planning stage region, Quang Ninh province Pleiku Airport Upgrade Project 70 0.5mn passengers/ - 2020-2030 At planning stage (Phase 2), Gia Lai yr Airports Corporation Long Thanh of Vietnam (Operator), International Airport - 50mn passengers/ Japan Airport Phase 2, Dong Nai 2,200 yr Consultants 2020-2030 At planning stage province (Consultant/Project Management) Long Thanh International Airport - 100mn passengers/ Phase 3, Dong Nai - yr - 2030- At planning stage province Long Thanh international airport area development 18,000 100mn passengers/ - - At planning stage plan (Dong Nai yr province) Middle Airports Corporation (Operator), National Construction Consultants Danang International (Construction), Airport (new 74 6mn passengers/yr Vietnam National 2006-2011 Completed passenger terminal) Coal-Mineral Industries Group (Vinacomin) (Construction), Louis Berger Group (Construction) Cam Ranh International Airport 214.3 5.5mn passengers/ - 2015-2030 At planning stage Expansion Project yr Hoa Binh Construction Noi Bai International 10mn passengers/ and Real Estate Airport Extension 960 yr Trading Joint Stock 2012-2014 Under construction Project (T2 terminal) Co (HBC), Taisei Corporation, Northern

Major Projects - Transport - Continued

Value Project Name (USDmn) Capacity/Length Companies Timeframe Status Airports Corporation (NAC) Phu Quoc CPG Corporation Pte International airport 2.6mn passengers/ Ltd (Design/Architect), (new airport), Phase 780 yr Airports Corporation 2008-2012 Completed 1 of Vietnam (Operator) Chu Lai International Airport Upgrade 190 2.3mn passengers/ China Civil Aviation -2015 Announced Project, Phase 1 yr Administration Airports Corporation Long Thanh of Vietnam (Operator), International Airport, 25mn passengers/ Japan Airport Phase 1, Dong Nai 7830 yr Consultants 2015-2020 At planning stage province (Consultant/Project Management) Phu Bai International Airport (Upgrade), Middle Airports Thu Thien-Hue 28.2 5mn passengers/yr Corporation (Operator) 2013-2013 Completed Province Tien Lang International Airport 45000000square (new airport), Hai 8,000 metres - -2030 At planning stage Phong Pleiku Airport Civil Aviation Upgrade Project 35 0.33mn Administration of -2020 At planning stage (Phase 1), Gia Lai passengers/yr Vietnam (CAAV) Da Nang International Airport 64.5 6mn passengers/yr Da Nang International - Completed terminal expansion Airport Cat Bi international airport (first phase) upgrading project, 170 2mn passengers/yr - 2013-2015 Under construction Haiphong, Northern Vietnam Quang Ninh International Airport (Phase1), Doan Ket Korea Airports commune, Van Don 166 2mn passengers/yr Corporation (KAC), 2015-2020 At planning stage region, Quang Ninh Joinus Ltd province Vung Tau Airport - Relocation to Go Gang Island of Long - - - - Approved Son Commune Van Don Airports Corporation International Airport of Vietnam (Operator), (Phase 1), Quang 160 2mn passengers/yr Curzon Group 2015-2020 Contract Awarded Ninh province (Construction) Lao Cai International Airport 61.9 - - -2020 Announced

Ports

Major Projects - Transport - Continued

Value Project Name (USDmn) Capacity/Length Companies Timeframe Status Duong Dong Tourist and Container port Vingroup (Sponsor), PPP project, Phu 56.4 - Government of Kien - At planning stage Quoc Island district Giang (Construction) Cai Cui seaport, Mekong Delta, Can 57.1 20,000 tonnes - 2014- Under construction Tho Saigon International China Harbour Terminal, Phu My 1 163 - Engineering Company 2009-2011 Completed Industrial Park (CHEC) (Construction) Vietnam National Deep water Port at Coal-Mineral Khe Ga Cape, Binh 250 35,000,000 tonnes Industries Group - At planning stage Thuan Province (Vinacomin) Ben Dam deep water Trai Thien Sea transhipment port, Transport Investment Con Dao district, 300 10,000,000 tonnes and Development 2009- Delayed Vung Tau city Joint Stock Company Saigon-Hiep Phuoc port 337 8,700,000 tonnes - 2009-2020 Delayed Van Phong Vietnam National International Shipping Lines Entreport, Khanh 3,600 13,500TEU (Vinalines), Portcoast, 2009-2015 Suspended Hoa Province Rotterdam Port Japan International Cooperation Agency (JICA) (Sponsor), Civil Engineering Cai Mep-Thi Vai 619 100,000 tonnes Construction Joint 2008-2013 Completed International Port Stock Co. No.6 (Construction), Truong Son Construction Corp (Construction) My Thuy deep water Quang Tri province, port 1,100 50,000 tonnes Marine Consultant Co. 2011-2020 Under construction Samsung Son Duong deep Construction & water port, Vung Ang 1,200 30,000,000 tonnes Trading (Samsung 2008-2015 Under construction Economic Zone, Ha C&T), Formosa Ha Tinh Province Tinh Steel Japan ODA (Official Lach Huyen Development deepwater port two- Assistance), Vietnam phase PPP project National Shipping (four container 1,200 60,000,000 tonnes Lines (Vinalines), 2013-2015 Under construction wharves), Hai Phong Molyto, MobileSyrup, province, east of OHL ZS, Itochu, Hanoi Saigon Newport Corporation Carrix, Cordiant Cai Lan International Capital, Cai Lan Port Container Terminal - 720,000 TEU Investment Joint 2010-2011 Completed Stock Company

Major Projects - Transport - Continued

Value Project Name (USDmn) Capacity/Length Companies Timeframe Status Japan Port Consultants Ltd (JPC), Dong Lam cement International Transport port 64 71,000,000 tonnes Development And 2010-2017 Approved Investment Joint Stock International Transport Cua Lo port Development And expansion, Nghe An 490 18,000,000 tonnes Investment Joint 2010-2030 Under construction Stock Tan Cang-Cai Mep deepwater container Wan Hai Lines, Hanjin, trans-shipment 204 1,800,000TEU Mitsui OSK Lines 2011- Completed terminal, Ba Ria- (MOL) Vung Tau province Ke Ga Deep-Water Port, Tan Thanh Vietnam Coal and Commune, Ham 1,000 3,500,000 tonnes Mineral Industries - Cancelled Thuan Nam District, (TKV) Binh Thuan Province Northern Delta waterway transport (corridors and river ports) upgrade 201.5 - World Bank (Financier) 2011- Under construction project, Bac Ninh province Deepwater port, OGL Mineral and Coal Mekong Delta region 1,000 - Mining Company 2012- At planning stage Thanh Phuoc Port Joint Stock Company, Thanh Phuoc Port, U&I Logistics JSC., Tan Uyen District, 65.3 - Binh Duong 2010-2018 Under construction Binh Duong province Construction, Nam Tan Uyen Industrial Park JSC Two-Phase Shipyard Project - Phase I, Thinh Dong - - Oshima Shipbuilding -2016 At planning stage Commune, Cam company (Operator) Ranh city Electricity of Vietnam Port Project in Duyen (EVN), China Hai Electricity 200 12,000,000 tonnes Communications 2013-2014 Under construction Center, Tra Vinh Construction province Company (CCCC) Dung Quat Economic Zone Authority (DEZA) (Operator), Nikken Dung Quat II Port, Sekkei Civil Dung Quat Economic 28,190,000square Engineering Ltd Zone, Quang Ngai - metres (Consultant/Project - At planning stage Province Management), Port and Waterway Engineering Consultants JSC

Major Projects - Transport - Continued

Value Project Name (USDmn) Capacity/Length Companies Timeframe Status (Consultant/Project Management) Japan International Cooperation Agency (JICA), Japan Da Nang Port Overseas Coastal Area Upgrade Project - Development Institute Phase 2, Tien Sa 350 - (ACDI), Japan Port 2013-2018 At planning stage Port Consultants Ltd (JPC), Japan Transport Cooperation Association (JTCA) Vietnam National SP-SSA International Shipping Lines Terminal, Cai Mep 95.4 1,500,000TEU (Vinalines), SSA 2009-2020 Under construction River, Ba Ria-Vung Holdings International, Tau Province Saigon Port

Rail

Government of Vietnam (Sponsor), Japan International North-South High- Cooperation Agency Speed Railway 56,000 1,570km (JICA) (Financier), -2025 At planning stage Project Vietnam Railway Corporation (VRC) (Operator) Railway line (Phnom Penh's Oudong District [Kampong Speu Province] - - - Government of China 2011-2015 At planning stage Vietnam's Loc Ninh (Sponsor) District [Binh Phuoc Province]) Metro Line 3B (Cong Hoa Crossroads [Tan Binh District] - Hiep Binh Phuc [Thu Duc - 12km - - At planning stage District]), Ho Chi Minh City Metro Line 6 (Ba Queo - Phu Lam - 6.7km - - Feasibility studies/ Intersaction) EIA underway Hanoi Monorail Ministry of Transport System - - of Vietnam (Sponsor) - At planning stage Package 1B , Ben Thanh Market to Ba Maeda Corporation Son Shipyard,section - 2.6km (Construction), 2014-2018 Contract Awarded of Metro line 1 Ho Shimizu Corporation Chi Minh City (Construction) Hanoi-Vinh section upgrade Project, 580 - - - At planning stage North-South railway

Major Projects - Transport - Continued

Value Project Name (USDmn) Capacity/Length Companies Timeframe Status Nha Trang-Saigon section upgrade, 5,700 - - - At planning stage North-South railway Cat Linh (Dong Da District) - Yen Nghia (Ha Dong District) 552.9 13.08km - 2011-2015 Under construction urban railway line No. 2A, Hanoi Hanoi Urban Railway Line 1 (Gia Lam - Hanoi railway station 1,070 15km - 2013-2019 Under construction - Ngoc Hoi), Hanoi GS Engineering & Construction Corporation (Construction), European Investment Bank (EIB) (Financier), Sumitomo Metro line 1 (Ben (Construction), Traffic Thanh - Suoi Tien), 2,490 19.7km Works Construction 2012-2019 Under construction Ho Chi Minh City Corporation No. 6 (Cienco 6) (Construction), Vincom Joint Stock Company (Sponsor), Hitachi (Equipment), SABMiller European Investment Bank (EIB) (Financier), Asian Development Bank (ADB) (Financier), German Metro line 2 Phase-1 Bank for (Ben Thanh Market - 1,200 11.3km Reconstruction 2010-2016 Under construction Tham Luong Depot) (Financier), Poyry (Construction), Tedi South (Construction), Obermeyer Planen & Beraten (Construction) Monorail Line 2 (between East-West European Investment Highway and Bank (EIB), Asian Project finance National Road No 50) 350 14km Development Bank 2010-2015 closure PPP Project, Ho Chi (ADB), Italian Thai Minh City Development (ITD) Monorail Line 3 (between Quang European Investment Trung street to Tan Bank (EIB), Asian Thoi Hiep ward) PPP 200 8.5km Development Bank -2014 Contract Awarded Project, Ho Chi Minh (ADB), Italian Thai City Development (ITD) Metro Line 4 (Nguyen European Investment Van Linh - Ben Cat Bank (EIB), Asian Bridge [District 12]) 2,500 36km Development Bank - At planning stage PPP Project, Ho Chi (ADB), Italian Thai Minh City Development (ITD)

Major Projects - Transport - Continued

Value Project Name (USDmn) Capacity/Length Companies Timeframe Status European Investment Bank (EIB) (Sponsor), Urban Mass Rapid Hanoi Urban Railway Transit Project - Management Board, Railway Line No. 3 Systra, Vietnam Bank (Nhon [Liem District] 1,010 12.5km for Industry and Trade 2011-2018 Under construction - Hanoi Railway (Sponsor), Asian Station [Hoan Kiem Development Bank District]) (ADB) (Sponsor), Government of France European Investment Bank (EIB) (Financier), Urban Mass Rapid Asian Development Transit Project - Bank (ADB) Railway Line No. 2, 2,405.75 11.54km (Financier), World -2018 At planning stage Nam Thang Long- Bank (Financier), Tran Hung Dao, Hanoi Urban Railway Hanoi Management Board (Sponsor) Ho Chi Minh City Line (Ben Thanh Market - Ba Son 232 2.6km Shimizu Corporation -2019 In tender/Tender Shipyard), Package launched 1B Japan International Ho Chi Minh City Cooperation Agency Metro Railway 1,100 19.7km (JICA) (Financier), 2012-2017 Under construction Project - Line 1 HCMC Urban Railway Authority (Operator) Underground MRT Section (Thu Thiem HCMC Management New Urban Area Authority, Asian [District 2] - An 1,370 20km Development Bank 2014-2018 At planning stage Suong Coach Station (ADB) (Sponsor) [District 12]) Railway construction of Hanoi - HCM City railway line, Lao Cai - Vietnam Railway Hanoi - Hai Phong 9,300 - Corporation (VRC) 2012-2015 Approved line, Hanoi - Dong Dang line eDES Engineering Ho Chi Minh City - Solutions, Phuong Can Tho Province 3,600 134km Nam Institute of - At planning stage Railway Line Science and Technology Metro line 3A/3B, Ho Chi Minh City - 23km - - At planning stage Ho Chi Minh City Metro line 5 (Saigon Urban Railway Bridge [District 2] - Management Board, Bay Hien Intersection Spanish government [Tan Binh District] - 1,850 17km (Sponsor), Idom 2015-2016 Project finance Can Giuoc Bus Ingenieria Consultoria, closure Station [District 8]), GEV Corp, Asian Ho Chi Minh City Development Bank (ADB) (Sponsor)

Major Projects - Transport - Continued

Value Project Name (USDmn) Capacity/Length Companies Timeframe Status Underground interchange/ Japan International terminals for lines 1, 429 - Cooperation Agency 2012- At planning stage 2, 3A, 4 and, District (JICA) (Sponsor) 1, Ho Chi Minh City Japan Transport Cooperation Urban Railway Line Association (JTCA) No. 1 (Giap Bat-Gia - 15.36km (Construction), -2019 Contract Awarded Lam), Hanoi Vietnam Railway Corporation (VRC) (Sponsor) Vietnam Railway Corporation (VRC) Urban Railway Line (Operator), Japan No. 5 PPP Project International (West Lake-Ba Vi 835 38.43km Cooperation Agency -2019 Announced District), Hanoi (JICA) (Financier), Ministry of Transport of Vietnam (Sponsor) Trang Bom (Dong Nai) - Hoa Hung Vietnam Railway (HCM City) Railway 550 - Corporation (VRC), - At planning stage Line Project, Ho Chi Government of Japan Minh City Bien Hoa-Vung Tau Railway Line, Ho Chi - 54.6km Asian Development -2020 At planning stage Minh City Bank (ADB) (Financier) Lao Cai-Hanoi- Haiphong Railway 4,286.4 381km Vietnam Railway - At planning stage Line Project Corporation (VRC)

Roads & Bridges

Hue Junction Multi- level Flyover Project, 86 - - 2013-2015 Under construction Da Nang City Cao Lanh Bridge (over the Tien River), Mekong Delta 143 2km - 2013-2017 Under construction Connectivity project Bach Dang Which Bridge - 4.3km SE Group Inc 2013-2016 At planning stage Ha Noi Expressway- The Sai Gon - Ha Noi Eastern Ring Road - - Commercial Bank -2020 At planning stage link road PPP (Financier) Luong Dinh Cua The Sai Gon - Ha Noi Street - - Commercial Bank -2020 At planning stage widening ,District 2 (Financier) Civil Engineering Ben Luc-Long Thanh 1,500 57.1km Construction 2014-2018 Under construction highway Corporation (Construction),

Major Projects - Transport - Continued

Value Project Name (USDmn) Capacity/Length Companies Timeframe Status Sumitomo (Construction) Henderson Land Development (HLD) (Financier), Civil Ho Chi Minh City- Engineering Long Thanh-Dau Construction Giay (National Corporation No. 4 Highway 1) 115.14 11.5km (Construction), Japan 2013- Under construction expressway, contract Bank for International No. 9 Cooperation (Financier), Asian Development Bank (ADB) (Financier) Phuong Thanh Transport Construction and Investment Company Ho Chi Minh City- (Construction), The Long Thanh-Dau Vietnam Waterway Giay (National Construction Highway 1) 67.3 - Corporation - Under construction expressway, contract (Construction), Japan No. 7 Bank for International Cooperation (Financier), Asian Development Bank (ADB) (Financier) The Vietnam Waterway Construction Corporation (Construction), HLD Expressway project Ho Chi Minh City- (Financier), Civil Long Thanh-Dau Engineering Giay (National 932.4 932.4km Construction 2013- Under construction Highway 1) Corporation No. 4 expressway (Construction), Japan Bank for International Cooperation (Financier), Asian Development Bank (ADB) (Financier) Van Cuong Construction Company Ho Chi Minh City- (Construction), Truong Long Thanh-Dau Son Construction Giay (National 55.1 - Corp (Construction), - Under construction Highway 1) Japan Bank for expressway, contract International No. 7 Cooperation (Financier), Asian Development Bank (ADB) (Financier) Nguyen Van Troi- Tran Thi Ly Bridge 86 0.73km - 2010-2013 Completed Mu Loi Bridge 88 - - 2009-2012 Completed

Major Projects - Transport - Continued

Value Project Name (USDmn) Capacity/Length Companies Timeframe Status My Phuoc-Tan Van Becamex IDC Expressway 196 42km Corporation (Operator) 2009-2013 Completed Civil Engineering Construction Corporation No. 4 Ring Road No. 3, 256 8.5km (Construction), Japan 2011-2012 Completed Hanoi, Phase II International Cooperation Agency (JICA) (Sponsor) Highway to link Cai Mep and Phuoc An 350 21.3km - 2009-2015 Under construction ports Sumitomo Mitsui Nhat Tan Bridge Construction (includes access (Construction), IHI roads), package No. 423 3,900km Corporation (Design/ 2009-2012 Completed 3, Hanoi Architect), Vinaconex (Construction) Vietnam Expressway Corporation, Asian Development Bank (ADB) (Sponsor), Four-lane Noi Bai Doosan Heavy [Hanoi Airport] - Lao 1,460 245km Industries & 2010-2013 Completed Cai [Chinese border] Construction Co., highway Keangnam, POSCO Engineering and Construction, Guangxi RBEC, Vinaconex Vietnam Expressway Corporation, Asian Ho Chi Minh City- Development Bank Long Thanh-Dau (ADB) (Sponsor), Giay (National 1,180 55km Japan Bank for 2010-2014 Under construction Highway 1) International expressway, North Cooperation South Highway (Sponsor), Hashin Construction Sumitomo Mitsui Bank (Financier), Vietnam Infrastructure Development and Finance Investment Joint Stock Company (VIDIFI) (Sponsor), GS Six-lane Hanoi [Gia Engineering & Lam] - Hai Phong 1,500 105.5km Construction 2009-2015 Under construction [Dinh Vu dam] Corporation expressway project (Construction), Cienco 1 Company and Infrastructure Development and Finance Investment Company (Construction), PSJ Holdings

Major Projects - Transport - Continued

Value Project Name (USDmn) Capacity/Length Companies Timeframe Status Asian Development Bank (ADB) (Financier), Vietnam Ben Luc-Long Thanh Expressway Expressway, North- - 57.8km Corporation, Japan -2016 Contract Awarded South Highway International Cooperation Agency (JICA) (Sponsor) Road linking East- West Avenue with Japan International the Trung Luong 106.8 2.7km Cooperation Agency - At planning stage Expressway (JICA) Deo Ca Investment, Mai Linh Group JSC, Deo Ca Tunnel 750 13.4km Hanoi Construction 2012-2016 Under construction Project Corp, BOT Hai Thach Investment Ministry of Construction Thai Ha Bridge Over 102 - (Vietnam), - Approved Red River Construction Company No. 1 Korea Development Bank, Japan International Cooperation Agency My Thuan-Can Tho (JICA), African Project finance Expressway Project, - 32.3km Development Bank, -2014 closure Southwest Vietnam Transport Engineering Design Incorporated (TEDI), Cuu Long CIPM Ring road No. 4, Hanoi 1,970 98km - 2010-2015 At planning stage National Road No 25 expansion (ie Phu Yen section, 21.5km; 113 57.5km - 2010-2014 Approved Gia Lai section) Overhaul of Phap Vietnam Expressway Van-Cau Gie 71.4 30km Corporation, Central 2011- At planning stage expressway Japan Expressway Duc Long Gia Lai Group (DLG), Vietnam National Road No 14 Commercial Joint crossing, Dak Nong 50 - Stock Bank for 2010-2022 Contract Awarded province Industry and Trade (VietinBank-CTG) Six-lane Cau Gie - Ninh Binh expressway project Vietnam Expressway first phase (National Corporation (Sponsor), Highway 1A (in 430 50km Japan International 2006-2012 Completed Hanoi) to Highway Cooperation Agency No.10 (Nam Dinh (JICA) (Sponsor) province)

Major Projects - Transport - Continued

Value Project Name (USDmn) Capacity/Length Companies Timeframe Status Australian Agency for International Development (AusAID), Asian Vam Cong Bridge 271 2.9km Development Bank 2013-2017 Under construction (ADB), Government of Vietnam, Export- Import Bank of Korea (Eximbank) Ring roads 3 and 4, Civil Engineering connecting Ho Chi Construction Minh City with the Corporation Ben Luc-Long Thanh 8,000 100km (Construction), 2011-2014 Under construction and Bien Hoa-Vung Sumitomo Tau (Construction) Road upgrading project, northern 170 300km Asian Development 2011-2016 Under construction provinces Bank (ADB) (Financier) Nippon Koei Group (Construction), Chodai and Thai Engineering Consultants (Construction), Nippon Engineering Da Nang-Quang Consultants Ngai Expressway 1,400 139.52km (Construction), Project 2013-2017 Under construction Project (DQEP) Management Unit 85 (Sponsor), Japan International Cooperation Agency (JICA) (Financier), World Bank (Financier) Six-lane Ninh Binh - Thanh Hoa [Nghi 1,565.2 126.7km - 2011- Under construction Son] road project Government of Vietnam (Financier), Government of Rach Gia section, Australia (Financier), Chau Thanh District, 82 20.8km Asian Development 2011-2014 Under construction Kien Giang Province Bank (ADB) (Financier), Government of South Korea (Financier) Minh Luong - Thu Asian Development Bay section 50 21km Bank (ADB) (Financier) 2011-2014 Under construction Beton 6 Joint Stock Nhieu Loc-Thi Nghe - 8.44km Company - Suspended - Flyover No. 1 (Construction) Six-lane Dau Giay- Phan Thiet Binh Minh Import expressway PPP Export Production and In tender/Tender project (parallal to 750 98.7km Trading Group 2013-2020 launched NH-1), Dong Nai (Bitexco) Province Thu Bay - Kenh Korea Exim Bank section, Southern 47.3 31km (Financier), Ssangyong 2011- Contract Awarded

Major Projects - Transport - Continued

Value Project Name (USDmn) Capacity/Length Companies Timeframe Status Coastal Corridor Engineering and Project Construction Duong Dong - Cua Civil Engineering Lap road, connecting 16 7km Construction 2008- Under construction Phu Quoc Airport Company No 5 Four-lane elevated highway, Vinh Binh bridge (Thuan An commune) to My 800 31.5km - 2012-2014 Approved Phuoc town (Ben Cat district), southern Binh Duong province China Guangzhou International Economic & Technical Cooperation Co., Gia Loc-Tu Ky Vietnam Infrastructure section, Hai Duong 169 15.3km Development and 2012-2015 Under construction province Finance Investment Joint Stock Company (VIDIFI), Guangdong Provincial Changda Highway Engineering Strategic Alliance Holdings (Operator), Tung Sing Group (Operator), Vietnam Infrastructure Package EX4, EX5 & Development and EX6, Six-lane Hanoi- Finance Investment Hai Phong - 40km Joint Stock Company 2012-2015 Contract Awarded expressway project, (VIDIFI) (Sponsor), Hai Duong province Vietnam Development Bank (Financier), IL & FS Engineering and Construction (Operator) Civil Engineering Noi Bai International Construction Airport to Nhat Tan Corporation No. 4, Project finance Bridge connecting 240.2 12.1km Japan International 2012-2015 closure road construction Cooperation Agency project (JICA) (Financier) Southern Coastal Ssangyong Corridor Project 47.3 31km Engineering and 2011- Contract Awarded (Vietnam - Thailand) Construction Ring Road No. 2 (from Nhat Tan World Bank Bridge to ending 304.7 2km (Financier), Global 2012-2015 Under construction point of Cau Giay Environmental Facility Crossroad), Hanoi Asian Development Bank (ADB) Mekong Delta (Financier), Australian Project finance connectivity (first 860 29.3km Agency for 2011-2017 closure phase) project International Development (AusAID)

Major Projects - Transport - Continued

Value Project Name (USDmn) Capacity/Length Companies Timeframe Status Ca Pass tunnel (Phu Yen and Khanh Hoa 742.8 14.5km Deo Ca Investment -2016 Under construction provinces) Saigon Bridge No. 2 project, linking Binh HCM City Thanh District and 71.5 1km Infrastructure 2012-2013 Completed District 2 in Ho Chi Investment Joint Minh City Stock Co (CII) Six-lane road widening BOT project, Hanoi - Can 6,000 1,887km Government of -2016 Under construction Tho section, National Vietnam (Sponsor) Highway 1 Ho Chi Minh Road, NH-2 (Pac Bo - Dat - 3183km - -2020 Under construction Mui) Van Tuong Co Ltd, Volunteer Youth Group, Traffic Works Construction La Son - Tuy Loan Corporation No. 8, highway BT project, Construction North-South 1,000 81.7km Corporation No. 1, - Contract Awarded Highway Truong Son Construction Corp, Truong Thinh Group Joint Stock Co, Son Hai Group Co Ltd National Highway No 1 expansion BOT project, Thanh Hoa - Government of Vung Ang (Ha Tinh 4,300 1,057km Vietnam (Sponsor) 2012- At planning stage province) - Can Tho section Bac Luan 2 Bridge, Mong Cai (Quang Ninh) - Dongxing - - - 2012- At planning stage (Guangxi) Government of Vietnam (Financier), Republic of South Vinh Thinh Bridge, 137 5.5km Korea (Financier), GS 2011-2014 Under construction Hanoi Engineering & Construction Corporation Four-lane Buu Hoa - Hiep Hoa bridge, 29 1.5km - 2012-2013 Completed Dong Nai province Beltway No. 2, An Lap intersection - Nguyen Van Linh - - - 2012- Delayed Parkway

Nguyet Vien-Thanh - 11km - - At planning stage Hoa Bridge PPP

Major Projects - Transport - Continued

Value Project Name (USDmn) Capacity/Length Companies Timeframe Status National Highway 61B (Vi Thanh District [Hau Giang 165 47.5km - 2008-2012 Completed Province] - Can Tho City [Mekong Delta]) Ha Long City - Mong Cai City expressway Italian Thai project, Quang Ninh 2,100 132km Development (ITD) 2013-2015 At planning stage province How Yu Construction Ha Long city - Bach 278 19.8km Vietnam Company 2013-2016 Under construction Dang bridge road Limited First overhead road project (Cong Hoa Intersection - Nguyen Huu Canh 714 8.4km - - At planning stage Street), Ho Chi Minh City Second overhead road project (To Hien Thanh Street - Belt 328 10.2km - - At planning stage road No. 2), Ho Chi Minh City Third overhead road project (To Hien Thanh Street - Nguyen Van Linh 817 - - - At planning stage Boulevard), Ho Chi Minh City Fourth overhead road project (Binh Phuoc Junction - Cong Hoa 547 7.7km - - At planning stage Intersection), Ho Chi Minh City Japan Bridge & Structure Institute Tan Vu-Lach Huyen Inc(JBSI), Nippon Koei Expressway Project, Group, Oriental Lach Huyen Port 568 15.63km Consultants, Japan 2013- Contract Awarded Project ODA (Official Development Assistance) (Sponsor) Ring Road No. 5 (Son Tay-Phu Ly, Phu Ly-Bac Giang; Transport Engineering Bac Giang-Thai 4,000 330km Design Incorporated -2020 Approved Nguyen and Thai (TEDI) Nguyen-Son Tay), Hanoi

National Highway 20 Petrovietnam Upgrade Project - Construction Joint Phase I (Dau Giay - - 123km Stock Corporation 2012- Contract Awarded Bao Loc City) (PVC), Cuu Long CIPM, Mekong East

Major Projects - Transport - Continued

Value Project Name (USDmn) Capacity/Length Companies Timeframe Status Co, Construction Materials No 1 Six-lane Nha Trang City [Khanh Hoa Province] - Phan Feasibility studies/ Thiet City [Binh 3,500 235km - -2020 EIA underway Thuan Province] PPP Expressway Project North-South Cengiz Insaat Highway 18,500 1,941km (Holdings) 2010-2015 Under construction Vietnam Infrastructure 4 Road Projects, Thu Development and Thiem new urban Finance Investment area, District 2, Ho 480 - Joint Stock Company 2012-2015 Contract Awarded Chi Minh City (VIDIFI), Dai Quang Minh Real Estate Lao Bao [Quang Tri Province] - Hai Phong port [Hanoi] (Extension of the - 900km - - At planning stage Khon Kaen-Tien Sa Port Road)

*n/a = Not Available. Source: BMI Key Projects Database

Energy And Utilities Infrastructure - Outlook And Overview

Table: Energy And Utilities Infrastructure Data (Vietnam 2013-2018)

2013 2014e 2015f 2016f 2017f 2018f

Energy and utilities infrastructure industry value, % of total infrastructure 33.5 33.6 33.8 33.9 34.1 34.4 Energy and utilities infrastructure industry value, VNDbn 18,276.74 19,405.39 21,371.69 23,510.42 25,838.95 28,390.81 Energy and utilities infrastructure industry value, USDbn 0.87 0.91 1.02 1.14 1.29 1.43 Energy and utilities infrastructure industry value real growth, % y-o-y -11.8 2.2 4.8 5.0 5.0 5.0 Energy and utilities infrastructure industry value, % of total construction 9.5 9.2 9.1 9.0 8.9 8.8 Power plants and transmission grids infrastructure industry value, % of total energy 90.8 90.6 90.7 90.6 90.6 90.6 and utilities Power plants and transmission grids infrastructure industry value, VNDbn 16,589.38 17,589.20 19,373.74 21,303.32 23,418.96 25,734.77

Energy And Utilities Infrastructure Data (Vietnam 2013-2018) - Continued

2013 2014e 2015f 2016f 2017f 2018f

Power plants and transmission grids infrastructure industry value, USDbn 0.79 0.83 0.92 1.04 1.17 1.30 Power plants and transmission grids infrastructure industry value real growth, % y- -11.5 2.0 4.8 5.0 5.0 5.0 o-y Power Plants and Transmission Grids Infrastructure Industry Value, % of Total 30.4 30.5 30.6 30.8 30.9 31.2 Infrastructure Power plants and transmission grids infrastructure industry, % of total construction 8.7 8.3 8.2 8.1 8.0 8.0 Oil and gas pipelines infrastructure industry value, % of total energy and utilities 1.6 1.6 1.5 1.4 1.4 1.3 Oil and gas pipelines infrastructure industry value, VNDbn 288.97 306.02 322.54 339.96 358.32 377.31 Oil and gas pipelines infrastructure industry value, USDbn 0.01 0.01 0.02 0.02 0.02 0.02 Oil and gas pipelines infrastructure industry value real growth, % y-o-y -18.0 1.9 0.1 0.4 0.5 0.4 Oil and Gas Pipelines Infrastructure Industry Value, % of Total Infrastructure 0.5 0.5 0.5 0.5 0.5 0.5 Oil and Gas Pipelines Infrastructure Industry Value, % of Total Construction 0.2 0.1 0.1 0.1 0.1 0.1 Water infrastructure industry value, % of total energy and utilities 7.7 7.8 7.8 7.9 8.0 8.0 Water infrastructure industry value, VNDbn 1,398.39 1,510.18 1,675.41 1,867.14 2,061.67 2,278.73 Water infrastructure industry value, USDbn 0.07 0.07 0.08 0.09 0.10 0.12 Water infrastructure industry value real growth, % y-o-y -13.7 4.0 5.6 6.4 5.5 5.6 Water Infrastructure Industry Value, % of Total Infrastructure 2.6 2.6 2.6 2.7 2.7 2.8 Water Infrastructure Industry Value, % of Total Construction 0.7 0.7 0.7 0.7 0.7 0.7

National Sources/BMI

Table: Energy And Utilities Infrastructure Data (Vietnam 2019-2024)

2019f 2020f 2021f 2022f 2023f 2024f

Energy and utilities infrastructure industry value, % of total infrastructure 34.6 34.9 35.1 35.4 35.8 36.1 Energy and utilities infrastructure industry value, VNDbn 31,188.57 34,238.58 37,622.18 41,339.52 45,533.85 50,171.64

Energy And Utilities Infrastructure Data (Vietnam 2019-2024) - Continued

2019f 2020f 2021f 2022f 2023f 2024f

Energy and utilities infrastructure industry value, USDbn 1.59 1.76 1.94 2.15 2.38 2.63 Energy and utilities infrastructure industry value real growth, % y-o-y 5.1 5.0 5.2 5.2 5.5 5.6 Energy and utilities infrastructure industry value, % of total construction 8.7 8.6 8.5 8.5 8.5 8.4 Power plants and transmission grids infrastructure industry value, % of total energy 90.7 90.7 90.7 90.7 90.8 90.8 and utilities Power plants and transmission grids infrastructure industry value, VNDbn 28,273.05 31,038.30 34,112.30 37,492.80 41,324.64 45,565.23 Power plants and transmission grids infrastructure industry value, USDbn 1.44 1.60 1.76 1.95 2.16 2.39 Power plants and transmission grids infrastructure industry value real growth, % y- 5.1 5.0 5.2 5.2 5.6 5.7 o-y Power Plants and Transmission Grids Infrastructure Industry Value, % of Total 31.4 31.6 31.9 32.1 32.5 32.8 Infrastructure Power plants and transmission grids infrastructure industry, % of total construction 7.9 7.8 7.8 7.7 7.7 7.7 Oil and gas pipelines infrastructure industry value, % of total energy and utilities 1.3 1.2 1.2 1.1 1.1 1.0 Oil and gas pipelines infrastructure industry value, VNDbn 396.93 417.57 438.86 461.25 484.77 509.49 Oil and gas pipelines infrastructure industry value, USDbn 0.02 0.02 0.02 0.02 0.03 0.03 Oil and gas pipelines infrastructure industry value real growth, % y-o-y 0.4 0.4 0.4 0.4 0.5 0.5 Oil and Gas Pipelines Infrastructure Industry Value, % of Total Infrastructure 0.4 0.4 0.4 0.4 0.4 0.4 Oil and Gas Pipelines Infrastructure Industry Value, % of Total Construction 0.1 0.1 0.1 0.1 0.1 0.1 Water infrastructure industry value, % of total energy and utilities 8.1 8.1 8.2 8.2 8.2 8.2 Water infrastructure industry value, VNDbn 2,518.60 2,782.71 3,071.02 3,385.47 3,724.45 4,096.92 Water infrastructure industry value, USDbn 0.13 0.14 0.16 0.18 0.19 0.22 Water infrastructure industry value real growth, % y-o-y 5.7 5.7 5.7 5.5 5.4 5.4 Water Infrastructure Industry Value, % of Total Infrastructure 2.8 2.8 2.9 2.9 2.9 2.9 Water Infrastructure Industry Value, % of Total Construction 0.7 0.7 0.7 0.7 0.7 0.7

National Sources/BMI

Slowly Overshawdowed

Energy And Utilities Infrastructure Value And Share Of Infrastructure Value Forecasts (2013-2019)

40,000

30,000

20,000

10,000

0 2013 2014e 2015f 2016f 2017f 2018f 2019f Energy and utilities industry value, bn Power plants and transmission grids value, % of total

National Sources/BMI

Although total investment in the transport sector will continue to overshadow spending on energy and utilities, the value of the power plants and transmission grids sub-sector will increase, with real growth averaging 5.0% annually between 2015 and 2019. Vietnam's power consumption is expected to rise sharply, in light of positive economic and demographic growth. The government will, therefore, need to step up the country's power generation to meet growing demand and avoid the real risk of persistent electricity shortages, which could in turn deter foreign manufacturers from using the country as an export base and force them to direct investment elsewhere.

The government has since announced ambitious plans for the sector. Under the government's Seventh Power Development Plan, a target of developing 75,000 megawatts (MW) of power generation capacity by 2020 has been set, with coal-based plants accounting for 48% of this investment. This plan is expected to require an investment capital of USD48.8bn.

Vietnam does not have the fiscal strength to finance this ambitious plan, and as such, we believe that interest from foreign investors is vital for it to succeed. That said, the current structure of the market

suggests that this is unlikely to happen, with limited private investment, due to the bureaucratic obstacles and rigidity of the internal market. Electricity Vietnam (EVN) enjoys a monopoly over distribution in Vietnam's electricity market. A unified tariff is applicable across the country, and artificially low, capped prices have long made it unprofitable for foreign infrastructure companies to invest in the power sector, mainly because most of the equipment for power stations has to be purchased from other countries at global market prices. They have also been deterred by an onerous negotiating process for pricing and distribution contracts.

Addressing those two issues is clearly within the government's reach and could boost activity in the market, helping to mitigate some of the risks to future growth inherent in the over-reliance on EVN's investment programme. In early 2006, the country's Prime Minister approved EVN's master plan for the development of a three-step competitive power market by 2022. This will be restricted to power generation up to 2014, expanding to the wholesale market between 2015 and 2022, followed by the retail sector.

Bottom-Up Restructuring

Vietnam's Power Development Roadmap

Source: Electricity Regulatory Authority of Vietnam

Vietnam officially launched its competitive generation market (CGM) on July 1 2012, marking the first phase of its power market development roadmap. The roadmap spans 10 years, including the introduction of an electricity wholesale market in 2014 and an electricity retail market by 2023. Under the CGM, independent power producers (IPPs) would forward their asking prices to the Electric Power Trading Company (EPTC). These EPTCs would purchase the electricity via a competitive cost-based pool and sell it to distribution companies and large consumers at regulated prices.

To liberalise the power sector further, Vietnam's Minister of Industry and Trade, Vu Huy Hoang, granted approval to establish three power generation companies in June 2012: Genco 1, Genco 2 and Genco 3. These companies are to take over power generating plants directly under EVN. Genco 1 will manage hydropower plants, such as Dai Ninh, Ban Ve and Song Tranh. Meanwhile, Uong Bi Thermal Power in Northern Quang Ninh Province will serve as a backbone for Genco 1, which will also acquire EVN's shares in the Quang Ninh thermal power plant and some other thermal project management boards throughout the country. Genco 2, which is the upgrade of Can Tho Thermal Power, will manage the Quang Tri and An Khe KaNak hydropower plants and the Thu Duc, Hai Phong and Pha Lai thermal power plants. The establishment of Genco 3 is based on Phu My Thermal Power and 11 affiliates, including the Vinh Tan thermal power plant and the Buon Kuop hydropower plant. These three companies will remain under EVN, which will also appoint their personnel.

Vietnam Electricity Group (EVN) announced in January 2015 that it would accelerate the development of a number of power projects in Southern Vietnam in order to shore up power supply during the region's dry season, when generation from hydropower generally declines. These projects include the Duyen Hai 1 thermal power plant, the second generator of the O Mon 1 thermal power plant, as well as the Dong Nai 5 hydropower plant.

Vietnam is making some progress on the renewable front as well. In December 2014, Danish wind turbine manufacturer Vestas Wind Systems and Vietnam's Phu Cuong Group (PCG) signed a memorandum of understanding (MOU) to build a 170MW wind farm in Vietnam. The wind farm will be built in the Mekong Delta province of Sóc Trăng. Further details pertaining to the park have not yet been provided.

EVN Maintaining Dominance

Vietnam - Installed Capacity Mix By Ownership (2012)

Source: EVN

Coal: Growing Foreign Participation

The first ever public-private partnership (PPP) in Vietnam's power generation sector gained momentum in May 2009. Malaysia's JAKS Resources reportedly signed a memorandum of understanding (MoU) with the Vietnamese government for the construction and operation of the Hai Duong thermal power station. This is a significant milestone for Vietnam as it indicates that opportunities to fill the investment gap left by state-owned EVN are proliferating for IPPs.

Since then, foreign involvement in the sector has significantly accelerated, with the largest project a UD10.6bn deal signed between Russian and Vietnamese authorities to construct Vietnam's first 2,000 megawatt (MW) nuclear power plant in the Ninh Thuan province.

The coal generation sector has also been receiving significant attention from foreign investors. The Mong Duong 2 plant in particular is representative of this growing liberalisation in the Vietnamese utilities sector, as it is one of Vietnam's first foreign-backed build-operate-transfer (BOT) coal-fired plants. Aside from

being built and operated by foreign companies, the project is financed by foreign banks. Besides the Mong Duong 2 plant, four other coal-fired plants (Nghi Son 2, Phu My 3, Phu My 2.2 and Hai Duong) are being implemented by foreign independent power investors under BOT contracts. Several BOT coal-fired power plant projects are in the pipeline.

In February 2013, Japan's Sumitomo Corporation lodged an application to secure an investment licence for the construction of a USD2bn, BOT coal-fired power plant in Khanh Hoa. The first turbine of the 1,320MW plant is likely to start commercial operations in 2017. The plant will use coal imported from Australia and other nations and will deliver power to state-owned EVN.

In April 2013, the Vietnamese government approved Toyo Ink Group's request to be the project investor of the USD3.5bn Song Hau 2 thermal power plant under a BOT basis. A MoU would be negotiated and signed by the Ministry of Industry and Trade and several government agencies with Toyo Ink on the project. As of July 2013, the company had yet to finalise negotiation with the authorities regarding detailed terms such as the power tariff, concession period, and fuel supply.

In June 2013, India-based electric utility Tata Power secured a contract worth USD1.8bn from the Vietnamese government. The contract is to develop two 660MW coal-fired thermal power plants in South Vietnam. The construction of the power project, called Long Phu 2, is likely to start in 2019. This is believed to be the largest Indian investment in Vietnam and will support Tata Power's own aspirations in South East Asia and India's Look East policy. The memorandum of understanding for this deal was signed in November 2013.

In September 2013, a department in the Ministry of Industry and Trade signed a memorandum of understanding with Singapore's Sembcorp Industries to jointly develop the USD2bn Dung Quat coal-fired power plant in Quang Ngai Province. Also in the same month, Vietnam approved the construction of the 1,200MW Vinh Tan 1 coal-fired power plant, with the USD2bn BOT project officially awarded to China Southern Power Grid in mid-October 2013.

Besides BOT contracts, the Vietnamese government is keen to award foreign players engineering, procurement and construction (EPC) contracts for thermal (gas- and coal-fired) power plants. Together with this, the government also relies on foreign players to provide equipment for coal-fired power plants, as well as to develop a domestic power equipment manufacturing industry. Through the use of local power equipment, the government is aiming to increase the capacity of domestic power equipment manufacturers and end low-quality power equipment imports, which arrive mostly from China. The three plants in

question are: the Vinacomin-invested Quynh Lap 1 in Central Nghe An province; the PetroVietnam- invested Song Hau 1 in Southern Hau Giang province; and the PetroVietnam-invested Quang Trach 1 in Central Quang Binh province.

The pilot plan to use locally manufactured power equipment is expected to encourage domestic and foreign manufacturers that have established facilities in Vietnam to boost their investment in the country. The statement was made by Dao Phan Long, the deputy president of the Vietnam Association of Mechanical Industry. Tran Viet Ngai, the chairman of the Vietnam Energy Association, said that Chinese contractors have participated in 20 thermal power projects in Vietnam. Surveys have found that the weakness of contracts has led to problems in the implementation and operation of these projects.

We highlight that coal-fired power plants that rely on domestically sourced coal are set to face rising fuel costs, which could erode their profitability. This is because state coal miner and supplier Vinacomin has been selling coal to power plants below the cost of production. Although the price of coal sold to the power sector was raised on April 20 2013, this is still just equal to 85-87% of the projected production costs for 2013. Vinacomin was previously able to sustain losses from these sales as the power sector only accounted for 10-15% of total output, while coal exports (which accounted for most of total output) were highly profitable. However, a decline in global coal prices and an increase in demand from local power producers (30% of total output in 2012) has led to the unwinding of the situation, and the Vietnamese trade ministry is busy determining a second rate hike.

Some coal-fired power plant projects are also facing difficulties with reaching financial closure. In April 2013, local authorities in the Kien Giang province announced that the Kien Luong Power Centre project will likely be halted if the Tan Tao Group is unable to arrange capital required for investment, worth around USD6.7bn. The project was licensed five years ago. The first phase of the project, thermal power plant Kien Luong 1, was expected to become operational by end-2013.

Land clearance for the construction of the Kien Luong 1 was obtained almost two years ago, but no progress on it was made owing to a lack of capital, according to ITACO, a subsidiary of Tan Tao Group. Although the Tan Tao Group still plans to continue with the project - the group has already pumped USD240mn into infrastructure and land clearance - the provincial People's Committee has filed a petition with the Ministry of Industry and Trade to revoke the investment licence for the thermal plant over the company's failure to arrange capital for it.

In a sign that power needs continue to receive attention in the country, Indian power firm Tata Power announced in October 2014 its plans to complete work on the USD1.8bn Long Phu 2 Power Project in Soc Trang province, Vietnam, by 2019, instead of 2022. Tata Power secured the contract to build the 1,320MW coal-fired power plant on a build-own-transfer basis in 2013. 'I have promised to the Tatas we will create favourable conditions for the power project. They said this project is not the final step. They are interested in expanding the relationship further,' said Nguyen Tan Dungm, Vietnam's prime minister.

Hydropower: Indispensible, But Problematic

Hydropower provides more than a quarter of Vietnam's electricity. In previous years, there has been a stable stream of investment into increasing hydropower capacity as elevated coal prices in Asia render coal plants costly to operate. This trend has changed in recent years, with a growing number of hydropower projects, particularly small-scale hydropower plants, being cancelled. The country has 1,021 hydropower projects, with a combined capacity of 24,246MW, located in over 36 provinces and cities.

In March 2013, the Vietnamese province of Kon Tum had implemented a ban on new hydroelectric power (HEP) projects, reported Energy Business Review. The ban was imposed owing to environmental reasons, namely the loss of forest cover and the erosion of downstream river basins, which has occurred as a result of HEP development. There have been 21 proposed HEP projects cancelled as a consequence of the ban. Several other Vietnamese provinces have previously imposed similar prohibitive legislation.

In June 2013, a report published by the Vietnam National Assembly (NA) showed that nearly half of the 1,108 small-scale hydropower projects in the National Master Plan for Power Development until 2020 had been cancelled. In addition, NA Deputy Truong Van Vo had also proposed that the government withdraw the planned hydropower projects 6 and 6A in Dong Nai Province from the national master plan. The projects have a combined capacity of 240MW, and were undergoing environmental impact assessments.

We believe this adverse sentiment towards hydropower plants is due to three factors:

Reliability: In recent years, hydropower has proven to be an unreliable source of electricity, as severe droughts have plagued Vietnam.

Lack Of Economic Feasibility: The report published by the NA stated that there was a lack of investor interest in hydropower projects due to low profits. We believe this is due to the fact that electricity prices are artificially capped; the government controls prices, and the average rate for electricity in Vietnam is VND1,369 (USD0.066) per kilowatt hour (kWh), which is one of the lowest in the world. This means that

the country's sole electricity distributor, EVN, is likely to purchase electricity at an even lower rate, thus making it hard for hydropower producers (loaded with high upfront costs) to break even within an attractive period of time.

Environmental Concerns: Environmental concerns - namely deforestation and the destruction of natural landscapes - were key reasons cited by the Vietnamese Department of Industry and Trade in June 2012 regarding its decision to reject 52 sub-standard hydroelectricity projects for the first half of 2012. The NA also stated that only 2.1% of the 51,000 hectares of forested land that had been used for construction of hydro-power projects in Vietnam had been planted with new trees.

Despite this negative investment climate, there are still hydropower projects being developed. In January 2013, Alstom was awarded a contract to supply electro-mechanical equipment for a hydroelectric power plant in Vietnam, reported Energy Business Review. Alstom will install turbines and generators at the 154MW Dong Nai 5 facility, working in conjunction with its Chinese business partner, Hydrochina Huadong.

Nuclear: Still In The Works

Vietnam has taken the first step towards nuclear energy. Vietnam's nuclear ambitions stretch back to the 1980s, when the country first considered developing the technology. According to the country's Seventh Power Master Plan, there are plans for 10 nuclear power plants with an installed capacity of 10,700MW by 2030. Eight sites in central Vietnam are being considered as locations for potential nuclear power plants, including locations in Ninh Thuan, Binh Dinh, Phu Yen, Ha Tinh and Quang Ngai provinces. According to a statement by the Vietnamese prime minister in March 2013, the country now plans to build 8,000MW of nuclear capacity by 2025 and 15,000MW by 2030, representing 10% of total generation.

This ambition appears to be in process of being achieved as, in November 2011, Vietnam signed two key agreements - one loan agreement and one consultancy agreement - with Russia for the construction of its first nuclear power plant, the USD10bn, 2,000MW Ninh Thuan 1 nuclear project. The project is estimated to cost a total of USD10bn, and Russia will provide up to USD9bn for the project, as well as a second loan of USD500mn for the establishment of a nuclear science and technology centre. A Russian consortium was expected to complete the feasibility study of the project by late 2013, which includes the selection of the project site. Atomstroyexport, a subsidiary of Russian state nuclear holding company Rosatom, will begin constructing the plant in 2014, which is to become operational in 2020.

In a visit in January 2014, the International Atomic Energy Agency's chief, Yukiya Amano, agreed to provide support to Vietnam. This includes the nuclear watchdog sending delegations of experts to discuss infrastructure, safety and other issues, on top of funding aid through technical projects.

Thermal Dependent

Vietnam Electricity Generation Capacity Mix, 2012e

e = BMI estimate. Source: UN Data, EIA, BMI

In September 2011 a Japanese consortium known as the International Nuclear Energy Development of Japan (INEDJ) signed an agreement with Vietnamese state utility EVN to jointly develop the Ninh Thuan 2 nuclear power project in Vietnam. As part of the agreement, nuclear plant operator Japan Atomic Power conducted a USD26mn feasibility and environmental study on the project and was set to report the results, which include an assessment on tsunamis, to EVN in July 2013. Japan Atomic will also provide consulting to EVN on the preparation of necessary documentation for site approval for Vietnam's Ninh Thuan 2 nuclear plant, according to the Wall Street Journal. Japan Atomic would also provide or secure financing and insurance of up to 85% of the project's total coast, with Japan providing loans around USD500mn for the project.

Vietnam's Song Da 5 also signed a contract in early February with Russian company NIAEP to send some Vietnamese workers to build Russia's Rostov nuclear power plant. This is part of the training to build the Ninh Thuan nuclear plant, with Vietnamese workers to be sent to Japan as well.

Despite concerns over Vietnam's readiness to adopt nuclear power, the country is at a more advanced stage than other developing countries and already has cooperation agreements in place with South Korea, Japan, the US, Canada, China and France. Vietnam has also passed an Atomic Energy Law - which has been in effect since 2009 - and a national nuclear safety commission responsible to the Prime Minister, which was established in July 2010. Vietnam also set up a new National Council for Atomic Energy Development in 2013. The council, headed by Vietnam's science and technology minister, will advise the government on identify strategies and draw up key policies on nuclear energy development. It will also coordinate with various agencies, governmental bodies and localities in developing nuclear energy. However, even in its most optimistic outlook, the Vietnamese government does not expect nuclear capacity to come online before 2020.

South Korean companies are also keen to build nuclear power plants in Vietnam. In March 2012, South Korea signed an agreement with Vietnam to check the viability of building a nuclear power plant. South Korea was expected to initiate the feasibility studies in April 2012 and these were scheduled to be concluded in mid-2013. The US also appears keen to secure any future nuclear power plant contracts in Vietnam, as the country sent a delegation in May 2013 to discuss the development of nuclear generation in the US and Vietnam.

Geothermal: Making Its Presence Felt

A 25MW geothermal power plant was constructed in Dakrong District in Central Quang Tri Province, Vietnam in 2012. This will be the first power plant of its kind in Vietnam and has already secured licences by provincial authorities. The geothermal plant will have the capability to operate 24 hours a day, without being affected by weather conditions such as sunlight, wind or waves. The plant will reportedly use hot dry rock heat mining technology to generate power.

ADB To Support Underinvested Transmission Network

Vietnam's electricity transmission network is in a poor condition and suffers from high levels of electricity wastages, due to an inefficient grid system. According to EVN, electricity losses in the first five months of 2012 were over 5.3bn kWh; 11% of the total electricity production and purchase. This is significantly higher than its South East Asian peers who have an electricity loss ratio of about 4-5% according Tran Viet Ngai, chair of the Vietnam Energy Association. According to Ngai (cited from Intellasia), the losses are due to old transmission lines, overloading, locking connectors, distribution wires and old substations.

Significant investment is therefore required to address these transmission losses and meet future demand for grids. According to the National Power Transmission Corp (NPT) in June 2012, total demand for investment capital to develop the electricity transmission network to 2020 reaches about USD10bn. Transmission projects have so far borrowed only USD4bn-worth of official development assistance (ODA) and commercial loans; the remaining USD6bn has not been arranged.

Vietnam is looking to change this. In November 2011, the NPT announced that Vietnam will develop 300-350 power transmission projects in the period up to 2015. This would require an annual investment of USD1bn and the country is seeking foreign investment. The Asian Development Bank (ADB) has since agreed to provide some of the financing.

In February 2012, the ADB and the State Bank of Vietnam signed documents for the first tranche of a USD730mn loan facility to be provided by the ADB to improve the electricity transmission network of Vietnam. The loan will be used to finance the Power Transmission Investment Programme, which is designed to fulfil the increasing electricity demand of the industrial sector and households. The ADB is expected to provide the funds in four tranches, with the programme scheduled to be completed in June 2020. The first payment of USD120.5mn will be provided through ordinary capital resources and will have a term of 25 years. The funds from the first tranche will be utilised to build 648km transmission lines with a voltage of 500 kilovolt (kV), and 100km transmission lines with 220kV voltage.

In May 2012, Vietnamese state-operated power company Ho Chi Minh City Power Corporation (HCMC Power) has asked the Saigon municipal government to allow it to install power lines underground, reported The Saigon Times. HCMC needs to invest VND17tn (USD816mn) in development by 2015, but has an annual budget of just VND600bn (USD28mn). The company has therefore proposed to install underground power lines in order to cut costs, comprising 18km of medium-voltage power lines and 43km of low-voltage power lines. The entire city's power network is expected to be underground by 2025. However, structural

changes need to be made before there is sufficient investment to meet the long-term demand for grids. Vietnam's electricity transmission price remains low, averaging 6.58% of electricity prices during the 2008-2012 period. This is much lower than the global average price and needs to be raised to 10-12% of electricity prices.

In July 2012, NPT started implementing a USD215mn power transmission line project which involves: the 437km, 500kV Pleiku-My Phuoc-Cau Bong transmission line; the 15.94km, 220kV Cau Bong-Hoc Mon- Binh Tan line in HCM City; and the 13.4km 220kV Cau Bong-Duc Hoa line in HCM City. The project is financed by ADB (USD115mn) and by the French Development Agency (USD100mn). The project aims to transmit electricity from power plants in the central region, imported electricity from Laos and Cambodia, coal-fired power plants in Northern Vietnam to the southern provinces.

In January 2013, the Southern Electricity Corporation announced it would invest nearly VND4.5trn (USD225mn) for major power projects in 2012. These projects include a 56km sea cable system from Ha Tien to Phu Quoc island - the EPC contract for the project was awarded to Italy's Prysmian Powerlink Sri and power transmission networks in areas inhabited by Khmer people in Kien Giang, Soc Trang and Tra Vinh provinces.

Water Treatment: Droughts Driving Demand For Services

Vietnam has significant potential for large-scale water treatment facilities and we are forecasting real growth in the water infrastructure industry to average 5.4% per annum between 2014 and 2018. Despite the presence of the Mekong River, Vietnam faces severe droughts periodically, with the drought in early 2010 reportedly one of the country's worst in 100 years, according to Time Magazine.

We believe that these droughts have the potential to increase in severity over the long term. Rapid industrialisation throughout Vietnam is polluting the country's water supply at an increasing rate and reducing the availability of potable water.

Many countries located along the Mekong River, such as China and Laos, are also keen to utilise the river's hydropower potential for electricity generation, damming up major tributaries further up the Mekong River. These countries have questionable environmental licensing regulations; thus, it is unclear if water resources used for electricity supply are environmentally sustainable. This creates significant potential for severe environmental consequences and further reduces the availability of clean water supply to Vietnam. Consequently, large-scale water treatment facilities are needed to make up for this decline in water supply, and we have seen the country offer several projects under a PPP framework.

Urbanisation in major Vietnamese cities is also rapidly contaminating their water sources, while at the same time increasing their demand for potable water. Hanoi, for example, is reliant on ground water to meet its water needs, with clean water demand estimated to be around 550,000m3 per day according to local media reports. With urbanisation and economic growth, this demand for potable water is expected to surge to 1.0-1.5mn m3 per day. This would create a deficit in clean water resources and necessitate the use of surface water resources, which are potentially contaminated.

Various multilateral financial institutions are keen to finance these water utility projects, with the ADB having already agreed to provide USD1bn in funds to improve the country's water supply system between 2011 and 2020. Indeed, the urban water supply projects in Vietnam are now mainly funded by ODA capital and developed by local state-owned water supply companies, said Tran Tuong Lan, head of the Department for Infrastructure and Urban Centres under the Ministry of Planning and Investment.

Most of the country's large-scale water utility projects are located near the main cities, Hanoi and Ho Chi Minh City.

Vietnam has also recognised the need to improve its water infrastructure, and we have seen Vietnam offer several large-scale water utility projects (mainly water treatment facilities) under a PPP framework. According to the Vietnam Ministry of Construction, there are around 15 large-scale urban water supply projects worth USD500mn that are in need of investment across Vietnam.

In addition, there is also a significant deficit in wastewater treatment facilities among Vietnam's industrial parks. In August 2012, the Vietnam Department of Environmental Crime Control (under the Ministry of Public Security) said that only 143 out of the 232 industrial parks in Vietnam have wastewater treatment facilities. With Vietnam set to take a tougher stance on pollution, this could prompt companies to develop the necessary wastewater treatment facilities.

Under the law on administrative sanctions to come into force on July 2013, the maximum penalty for environmental violations will quadruple from the current VND500mn to VND2bn. In addition, the Ministry of Public Security is coordinating with the Ministry of Natural Resources and Environment to revise the 2005 Environment Protection Law and map out an Ordinance on the Vietnam Environment Police.

Several foreign investors have expressed an interest in Vietnam's water utilities sector, particularly Japan- and Philippines-based companies. For example, Japan-based clean water companies Metawater and TSS are believed to be building the Bay Mau wastewater treatment plant in Hanoi, a project financed by Japan's ODA coordinator, Japan International Cooperation (JICA). Another notable example is the recent

acquisitions by Philippine conglomerate Ayala Group. In May 2012 Ayala, through its subsidiary Manila Water, had acquired stakes in two Vietnamese water utility companies. The company bought a 10% stake in Nha Be Water Supply, a company that supplies potable water to a district in Ho Chi Minh. Manila Water also bought a 49% stake in Kenh Dong Water Supply, the owner of the 300,000m3/day Thu Duc Water Treatment Plant. This makes Manila Water the largest foreign investor in Vietnam's water utilities sector.

There are, however, many investors still deterred from Vietnam's water utilities sector, and we believe some of the reasons are:

■ The inability of investors to determine the price of water sold to customers, which is currently set by Vietnamese authorities. Given that most countries do not allow the private sector to set the price of water, we believe this issue has more to do with Vietnam's lack of regulatory capacity to address and manage downside risks for private investors.

■ The lack of incentives to attract investors to the sector. According to the HCMC Institute of Development Studies (cited by the Saigon Times), private companies enjoy corporate income tax reductions and exemptions, but unlike state-owned enterprises, they do not have priority access to preferential loans. This is particularly important at the moment due to poor credit conditions globally.

■ The lack of clarity regarding the PPP framework for water utility projects. The Vietnamese government had launched a pilot PPP mechanism in November 2010, but specific regulations for the different types of infrastructure (including water) have yet to be completed by their respective agencies.

Major Projects Table - Energy & Utilities

Table: Major Projects - Energy & Utilities

Project Name Value (USDmn) Capacity/Length Companies Timeframe Status Oil & Gas Pipelines Petrovietnam Gas Corporation (PV Gas), B-O Mon Natural Vietsovpetro Joint Gas Pipeline n/a 400km (6.4 bcm/ Venture Co, n/a Contract Awarded Project year) Petrovietnam (March 2010) Construction Joint Stock Corporation (PVC) Nam Con Son 2 Pipeline Project, 1,200 293km Petrovietnam Gas -2014 Contract Awarded Southern Vietnam Corporation (PV Gas) (July 2011) Power Plants & transmission grids Long Phu 2 coal- fired power plant, 1,800 1,200MW Soc Trang Province - 2019- Contract Awarded

Major Projects - Energy & Utilities - Continued

Value Project Name (USDmn) Capacity/Length Companies Timeframe Status Coal-fired power plant, Quang Tri 2,300 1,200MW province - 2015-2018 Contract Awarded Pedco Waste-to- power plant, Hanoi 200 9MW - 2014- At planning stage Kiev Scientific Research and Designing Institute (JSC KIEP), Energo Project Technology (LLC EPT), - 1,060MW Atomexportstroy, Electricity of Vietnam Ninh Thuan 1 (EVN), Government of nuclear power Russia (Sponsor), plant Unit 1, Thuan Rosatom, E4 Group, Nam District VTB 2014-2020 Approved Kiev Scientific Research and Designing Institute (JSC KIEP), Energo Project Technology (LLC EPT), - 1,060MW Atomexportstroy, Electricity of Vietnam Ninh Thuan 1 (EVN), Government of nuclear power Russia (Sponsor), plant Unit 2, Thuan Rosatom, E4 Group, Nam District VTB 2016-2020 Approved Song Hau 2 coal- fired power plant phase -1, Hau - 1,000MW PetroVietnam, Toyo Ink Giang Group -2021 Contract Awarded Song Hau 2 coal- fired power plant phase -2, Hau - 1,000MW PetroVietnam, Toyo Ink Giang Group -2022 Contract Awarded Japan Atomic Power Ninh Thuan 2 Company (JAPC), nuclear power - 1,000MW International Nuclear plant Unit 1, Vinh Energy Development Feasibility studies/EIA Hai Corporation of Japan 2015-2020 under way Japan Atomic Power Ninh Thuan 2 Company (JAPC), nuclear power - 1,000MW International Nuclear plant Unit 2, Vinh Energy Development Feasibility studies/EIA Hai Corporation of Japan 2016-2022 under way Ninh Thuan 2 nuclear power plant Unit 3, Vinh - 1,000MW Hai - -2026 At planning stage Japan Atomic Power Ninh Thuan 2 Company (JAPC), nuclear power - 1,000MW International Nuclear plant Unit 4, Vinh Energy Development Hai Corporation of Japan -2027 At planning stage

Major Projects - Energy & Utilities - Continued

Value Project Name (USDmn) Capacity/Length Companies Timeframe Status Lai Chau hydropower plant Alstom SA, Electricity phase 1, Lai Chau - 400MW of Vietnam (EVN), Song province Da Group - Under construction JAKS Resources, Hai Duong Coal- Wuhan Kaidi Electricity Fired Power Plant - 600MW Power Engineering BOT Project, Unit 1 Company 2014-2017 At planning stage JAKS Resources, Hai Duong Coal- Wuhan Kaidi Electricity Fired Power Plant - 600MW Power Engineering BOT Project, Unit 2 Company 2014-2018 At planning stage Wind Farm Phase I, Bac Lieu, Cuu Cong Ly Construction, Long Province, - 16MW General Electric Mekong Delta (Equipment) 2010-2012 Completed Wind Farm Phase II, Bac Lieu, Cuu Cong Ly Construction, Long Province, - 83.2MW General Electric Mekong Delta (Equipment) 2010-2014 Under construction Japan International Cooperation Agency (JICA) (Financier,85), Thermal power 1,270 600MW Marubeni, Electricity of plant in Vietnam's Vietnam (EVN) Thai Binh province (Financier,15) 2014-2018 Under construction Trung Son - National Power System - 220kV Transmission Line Electricity of Vietnam In tender/Tender Project, Quan Hoa (EVN) - launched Taekwang Power Holdings (Construction), POSCO Engineering and Construction 2,000 1,200MW (Construction), ACWA Nam Dinh 1 IPP Power International Project (first (Consultant/Project phase) , Hai Hau Management), District, Nam Dinh Electricity of Vietnam Province (EVN) (Operator) - At planning stage Japan Bank for International Cooperation (Financier), Toshiba (Equipment), 1,800 1,200MW Mitsubishi Corporation (Operator), Doosan Vinh Tan 4 Thermal Heavy Industries & power plant , Binh Construction Co. Thuan Province (Operator) -2018 At planning stage Phu Cuong Soc Trang Wind (Construction), Vestas Farm, Mekong 436 170MW Wind Systems Delta (Construction) 2016- At planning stage

Major Projects - Energy & Utilities - Continued

Value Project Name (USDmn) Capacity/Length Companies Timeframe Status Nhon Trach 2 gas- based power plant, Ong Keo Industrial 470 760MW Park, Dong Nai PetroVietnam Power province Corporation (Operator) 2009-2011 Completed The Vinh Tan 2 Electricity of Vietnam thermopower plant 1,130 1,244MW (EVN) 2010-2014 Under construction Wind power plant, BinhThuan 440 200MW Saigon Invest Group - Approved Vietnam Coal and Mineral Industries (TKV), China Power 2,000 1,200MW International Development Limited, Vinh Tan 1 Power CSG Limited, China Plant, Binh Thuan Southern Power Grid -2018 Contract Awarded Wind farm in Thuan Bac district, Ninh 500 200MW Trung Nam Investment Thuan and Construction 2010- Under construction Dak R'Tih hydropower plant, Construction Gia Nghia town, 192 141MW Corporation No. 1, Dak R'Lap district, Dakdrinh Hydropower Dak Nong province Joint Stock Company 2007-2011 Completed Kiev Scientific Research and Designing Institute (JSC KIEP), Energo Project Technology (LLC EPT), 10,000 4,120MW Atomexportstroy, Electricity of Vietnam Ninh Thuan 1 (EVN), Government of nuclear power Russia (Sponsor), plant, Thuan Nam Rosatom, E4 Group, District VTB 2014-2025 Approved Toyo Ink Group, Petrovietnam Song Hau 2 coal- 3,500 2,000MW Construction Joint fired power plant, Stock Corporation Hau Giang (PVC) -2022 Contract Awarded Japan Atomic Power Company (JAPC), Ninh Thuan 2 12,000 4,000MW International Nuclear nuclear power Energy Development Feasibility studies/EIA plant, Vinh hai Corporation of Japan 2014-2027 underway Doosan Heavy Industries & Construction Co., Posco Energy Ltd., AES Corporation, China Mong Duong 2 1,900 1,240MW Investment Company coal-fired BOT (CIC), Hoa Binh power plant Construction and Real project, Quang Estate Trading Joint Ninh Stock Co (HBC) 2011-2015 Under construction

Major Projects - Energy & Utilities - Continued

Value Project Name (USDmn) Capacity/Length Companies Timeframe Status Wind power project in Vinh Tan and Vinh Phuoc, Soc - 300MW Trang EAB Group, Trasesco - At planning stage Son La hydropower power plant, Muong La district, 2,900 2,400MW Electricity of Vietnam Son La province (EVN) (Sponsor) 2005-2012 Completed Long Phu 1 coal- Petrovietnam Technical fired power plant, 1,200 1,200MW Services Joint Stock Soc Trang Province Corporation (PTSC) 2011-2014 At planning stage Lai Chau Alstom SA, Electricity hydropower plant, 1831 1200MW of Vietnam (EVN), Song Lai Chau province Da Group 2011-2017 Under construction Khai Dich Vu Han Thang Long thermo Power Engineering Co power plant, Le Loi Ltd, Thang Long Commune, Hoanh 645 600MW Thermoelectric, Wuhan Bo Dist, Quang Kaidi Electricity Power Ninh Engineering Company -2015 At planning stage Vung Ang II Thermal Power 1,700 1,320MW Mitsubishi Corporation, Plant Vapco Engineers 2014- At planning stage Ultra High Voltage (UHV) Electric Power Transmission - 1,100kV Project near Ho Chi Tokyo Electric Power Minh City Company Co. (TEPCO) 2011- At planning stage Japan Bank for International Cooperation, Korea Exim Bank, Korea Electric Power 2,300 1,200MW Corporation (KEPCO), Nghi Son 2 Coal Marubeni, Vietnam Fired Power Plant National Coal-Mineral 25-year BOT Industries Group Project, Thanh Hoa (Vinacomin) 2011-2018 Contract Awarded Cong Thanh Coal- Fuelled Power Plant, Nghi Son 619 660MW Economic Zone, General Electric, Cong Thanh Hoa Thanh Corporation 2011-2014 Contract Awarded Da M'bri DONG Energy, Hydropower Plant, 85.4 75MW Southern Region Lam Dong Hydropower 2011- Under construction A Luoi Hydropower Central Hydropower Plant, Thua Thien 155.5 170MW JSC, Cavico Hue Province Corporation 2007-2012 Completed Hua Na PetroVietnam Power Hydropower Plant, Corporation, LILAMA Que Phong, Nghe 286 180MW Vietnam Machine An Province Installation Corporation, 2008-2013 Completed

Major Projects - Energy & Utilities - Continued

Value Project Name (USDmn) Capacity/Length Companies Timeframe Status Hua Na Hydropower Joint Stock Co Solar and wind power development, Ninh 249 124.5MW Landville Energy Feasibility studies/EIA Thuan province (Operator) - underway Thermo-power STFE, Khang Thong Feasibility studies/EIA plant, Binh Dinh 972 1400MW Group 2012-2014 under way Wuhan Kaidi Electricity Power Engineering Company, Vietnam National Coal-Mineral 577 440MW Industries Group Mao Khe Coal- (Vinacomin), BNP Fired Power Plant, Paribas (Sponsor), Quang Ninh Bank of China Province (Sponsor), WULFF 2009-2013 Completed Duyen Hai 2 Coal- Fired Power Plant, 1,500 1,200MW Alstom SA, Teknik Tra Vinh Province Janakuasa Sdn Bhd 2011-2015 Project finance closure JPAWORR Group, Quang Trach 1 PetroVietnam, EPF Coal-Fired Power 2,250 1,200MW Power, Sumitomo Plant, Quang Binh (Sponsor) 2013-2015 Under construction Trung Son Electricity of Vietnam Hydropower (EVN), Samsung Project, Quan Hoa 411 260MW Construction & Trading District, Thanh Hoa (Samsung C&T), World Province Bank (Sponsor) 2012-2017 Under construction Hai Phong 1 thermo power plant - 300MW - -2011 Completed Marubeni (Construction), Dongfang Electric Corporation (DECL) 623 300MW (Construction), Hai Hai Phong 2 Phong Thermo Power Thermal Power Joint Stock Co Plant (Sponsor) -2014 Completed Undersea (110KV) Power Cable Prysmian Powerlink Project (Ha Tien 112 58km SRL Group, EVN Township - Phu Southern Power Quoc Island), Kien (Sponsor), World Bank Giang (Sponsor) 2013-2014 Under construction JAKS Resources, Hai Duong Coal- Wuhan Kaidi Electricity Fired Power Plant 2,260 1,200MW Power Engineering BOT Project Company 2014-2018 At planning stage Wind Farm, Bac Lieu, Cuu Long General Electric Province, Mekong 247 99.2MW (Equipment), Cong Ly Delta Construction 2010-2014 Under construction

Major Projects - Energy & Utilities - Continued

Value Project Name (USDmn) Capacity/Length Companies Timeframe Status Song Hau 1 Coal- PetroVietnam, Japan fired Power Plant, International Hau Giang 1,500 1,200MW Cooperation Agency province (JICA) (Financier) 2011-2018 Under construction Zhejiang Power Construction, Southwest Design Institute, Eastern Electrification, China 1,200 1,245MW Development Bank, ICBC (Industrial and Commercial Bank of Duyen Hai 3 Coal- China), Electricity of fired Power Plant, Vietnam (EVN), Bank of Tra Vinh province China (Sponsor) 2012-2017 Under construction Vietnam Electricity Corporation (Sponsor), LILAMA Vietnam Machine Installation Corporation (Equipment), Export- 1,700 1,080MW Import Bank of Korea (Eximbank) (Sponsor), Mong Duong 1 Asian Development Power Plant Coal- Bank (ADB) (Sponsor), fired PPP Project, Hyundai Engineering & Vietnam Construction 2011-2015 Under construction Viet A Joint Stock Commercial Bank Srepok 4A 55 64MW (Financier), Buon Don Hydropower Plant Hydropower Joint Project Stock Co 2010-2013 Completed Son My Power Centre (LNG) BOT PacifiCorp, Sojitz Project, Ham Tan 4,667 3,000MW Corporation, Feasibility studies/EIA District International Power -2019 underway Phu Quoc Investment Thermoelectric and Development plant, Ganh Dau 356.8 200MW Management Board, Commune World Bank (Financier) -2015 At planning stage Can Tho Thermal O Mon IV Power Company combined cycle Limited (Operator), power station (O 793.5 750MW Asian Development Mon thermal power Bank (ADB) (Financier), complex, Can Tho AF Gruppen city) (Construction) 2012-2017 Contract Awarded Coal-fired power plant, Hai Lang Sao Nam Group District, Quang Tri - 3,000MW (Sponsor), PHI Group Economic Zone (Sponsor) - Contract Awarded Power National Power Transmission Transmission Corp Investment 730 860km (NPT), Asian Program (invovles Development Bank In tender/Tender building 648km of (ADB) 2011-2020 launched

Major Projects - Energy & Utilities - Continued

Value Project Name (USDmn) Capacity/Length Companies Timeframe Status transmission lines in first tranche) Coal-fired power plant, Dung Quat Economic Zone, 2,000 1,200MW Binh Son district, Quang Ngai - 2016-2021 Contract Awarded Waste plasma- converted gas-fired Power Plant 400 - KGC Company, Trisun Project, Ho Chi International Minh City Development 2012- At planning stage Agence Francaise de Developpement (AFD), Pleiku-My Phuoc- Asian Development Cau Bong 500KV 447 437km Bank (ADB), National Transmission Line Power Transmission Project Corp (NPT) 2011-2014 Under construction Dak Nong - Phuoc Vietnam Electricity Long - Binh Long Corporation, National Transmission Line 67 128.17km Power Transmission Project Corp (NPT) 2011-2013 Completed African Development Song Bung 4 Bank (Financier), Mott hydropower EPC 250 156MW MacDonald project, Bung River (Construction) 2008-2014 Under construction Vietnam National Coal- Mineral Industries Dong Nai 5 310 154MW Group (Vinacomin), hydropower plant Alstom SA -2015 Contract Awarded Bank of China An Khanh Thermo- (Sponsor), An Khanh electricity Plant 2 in 481 300MW Thermo Power Joint Pho Yen District Stock Co. -2016 Project finance closure An Khanh Thermo- electricity Plant 1 in 160 100MW An Khanh Thermo Pho Yen District Power Joint Stock Co. 2013- Under construction Standard Chartered (Consultant/Project Management), China Kien Luong Coal- - 1,200MW Harbour Engineering fired Power Company (CHEC) Complex (Phase 2), (Operator), Tan Tao Kien Giang Energy Corporation Province (Sponsor) - Delayed Standard Chartered (Consultant/Project Management), China Kien Luong Coal- Harbour Engineering fired Power - 2,000MW Company (CHEC) Complex (Phase 3), (Operator), Tan Tao Kien Giang Energy Corporation Province (Sponsor) - Delayed Grid revamping HCMC Power project; 8km of 816 - Corporation 2012-2015 At planning stage

Major Projects - Energy & Utilities - Continued

Value Project Name (USDmn) Capacity/Length Companies Timeframe Status medium-voltage power lines and 43km of low- voltage power lines Daelim Industrial Company, Sojitz Corporation, Petrovietnam 1,600 1,200MW Construction Joint Stock Corporation Thai Binh 2 coal- (PVC), PetroVietnam fired power plant, Power Corporation, Thai Binh province Toshiba 2011-2016 Under construction Mekong Delta Wind Power Centre, Vinh Trach Dong - 500MW Commune - -2015 Under construction Solar Farm, Binh Thuan province - 50MW ACO Group 2012- At planning stage Vietnam National Coal- Quynh Lap 1 coal- Mineral Industries fired power plant, 1,500 1,200MW Group (Vinacomin), No Central Nghe An 1 Construction province Consultancy JSC 2012-2016 Under construction Japan International Cooperation Agency Da Nhim 90.1 80MW (JICA) (Financier), Da hydropower plant Nhim-Ham Thuan-Da expansion project Mi Hydropower JSC 2014-2016 At planning stage Vinh Tan 3 thermal Harbin Electric power plant BOT International (HEI), Vinh project, Binh Thuan 1,100 1,980MW Tan 3 Energy Joint province Stock Company (VTEC) 2014-2018 Contract Awarded O Mon 2 gas- based power plant, O Mon thermal - 720MW Can Tho Thermal power complex, Power Company Can Tho city Limited 2012-2015 At planning stage O Mon 3 gas- based power plant, O Mon thermal - 700MW Can Tho Thermal power complex, Power Company Can Tho city Limited 2012-2015 At planning stage Vietnam National Coal- Mineral Industries Group (Vinacomin) 253.3 - (Financier), China National Heavy Nong Son thermal Machinery Corporation power plant (CHMC) 2008- Suspended Power Transmission Company No. 3, Pleiku-Phu Lam Export-Import Bank of transmission line, 40 500kV the United States North-South power (Sponsor), General transmission Electric 2012-2013 Completed

Major Projects - Energy & Utilities - Continued

Value Project Name (USDmn) Capacity/Length Companies Timeframe Status Dong Nai 6/6A hydroelectriciy - 241MW Duc Long Gia Lai plant Group (DLG) -2015 Cancelled Duyen Hai 1 Coal- Chinese Oriental Power fired Power Plant, 1,570 1,245MW Group, Electricity of Tra Vinh province Vietnam (EVN) 2010-2015 Under construction Coal-fired Power Plant BOT Project, Van Phong 2,190 1,320MW Economic Zone, Khanh Hoa Sumitomo 2015-2019 Delayed

Water

Tan Hiep 2 water treatment plant, Ho 100 109.5mn m3 per Saigon Water Supply Chi Minh City year Corporation (Sawaco) 2013-2024 At planning stage Thu Duc 4 water treatment plant, Ho 130 109.5mn m3 per Saigon Water Supply Chi Minh City year Corporation (Sawaco) 2013-2024 At planning stage Thu Duc 5 water treatment plant, Ho 176 182.5mn m3 per Saigon Water Supply Chi Minh City year Corporation (Sawaco) 2013-2024 At planning stage Dam Bay and West Lake waste water treatment plants, 19.2 - Ha Noi - -2015 At planning stage Duc Hoa Industrial Park - Upgrade of Wastewater - 17.1mn m3 per Glacier (Construction), Treatment Facility, year New Asia Investments Long An (Construction) -2014 Completed Hanoi Water Pipeline Project - 28km - 2014-2014 Under construction Thanh My Loi Ward Wastewater 520 164.25mn m3 per Treatment Plant year World Bank (Financier) 2015-2018 Announced Song Hau 1 Water Petrovietnam Treatment Plant 182.5mn m3 per Construction Joint PPP Project, Can 600 year Stock Corporation Tho City (PVC) 2015-2020 At planning stage Song Hau 2 Water Treatment Plant PPP Project - 1,000 365mn m3 per year Phase II, An Giang - 2015-2020 At planning stage Song Hau 3 Water Treatment Plant PPP Project, Ha 100 73mn m3 per year Noi - 2015-2020 At planning stage Binh Duong Water Supply Sewerage Wastewater 95 6.4mn m3 per year Environment Co Ltd Treatment Plant, (BIWASE), Japan Binh Duong International 2011-2013 Completed

Major Projects - Energy & Utilities - Continued

Value Project Name (USDmn) Capacity/Length Companies Timeframe Status Cooperation Agency (JICA) Strengthening Water Management and Irrigation Systems - - Rehabilitation Project (Lien Nghia Asian Development In tender/Tender Pumping Station) Bank (ADB) (Financier) - launched Yen So Wastewater Japan International Treatment Plant Cooperation Agency PPP Project, 250 73mn m3 per year (JICA), Hanoi Water Hoang Mai District, Drainage Company, Hanoi Gamuda 2008-2013 Completed Water pipeline system project (Binh Thai Asian Development intersection - Dien 154 10km Bank (ADB) (Financier), Bien Phu Street), Saigon Water Supply Ho Chi Minh City Corporation (Sawaco) 2012-2014 Under construction Agence Francaise de Developpement (AFD) (Financier), Government Phuc Hoa Water 85 - of Vietnam (Sponsor), Resource Project, Asian Development Ho Chi Minh City Bank (ADB) (Financier) -2014 Project finance closure Japan International Cooperation Agency (JICA), Metawater, 4.86mn m3 per Environment Bay Mau PPP 29 year Investment WWTP under II Construction, Hanoi Hanoi Drainage Water Drainage Project , Vietnam Company 2012-2014 Under construction Phu Do Wastewater 73.55mn m3 per Treatment Plant 144 year Hanoi Water Drainage PPP, Hanoi Company - At planning stage Yen Xa Water Treatment Plant 643 98.55mn m3 per (Sponsor), Hanoi Water PPP, Hanoi year Drainage Company -2020 Project finance closure Binh Hung wastewater treatment plant Center of Urban Flood second phase, 80 210.2mn m3 per Control, Japan Binh Chanh year International District, Ho Chi Cooperation Agency Minh City (JICA) 2011-2015 Under construction Hoa Lien Japan International Wastewater Cooperation Agency treatment PPP 190 - (JICA) (Sponsor), JFE project, Da Nang Holdings, Nihon Suido city Consultants 2011- Project finance closure Tra Bong water Anh Phat Water Supply supply project, 190 73mn m3 per year Group Joint Stock Co 2012- Under construction

Major Projects - Energy & Utilities - Continued

Value Project Name (USDmn) Capacity/Length Companies Timeframe Status Binh Son district, Quang Ngai province Nhieu Loc-Thi Nghe Canal Basin Asian Development environmental 787 - Bank (ADB) (Sponsor), sanitation project World Bank (Sponsor) 2003-2012 Completed Ayala Corporation, Kenh Dong water Manila Water Company treatment BOT - 73mn m3 per year (MWC), Kenh Dong project, Ho Chi Water Supply Joint Minh City Stock Co 2003-2012 Completed Saigon Water Supply Corporation (Sawaco) (Operator,60), Refrigeration Electrical Engineering Corp - REE (Sponsor,30), Water Water pipeline - 12.4km Supply & Sewerage system project Construction and (Binh Thai Investment JSC - intersection - Thu Waseco (Sponsor,10), Duc water plant), Asian Development Ho Chi Minh City Bank (ADB) (Financier) -2012 Completed Passavant-Roediger, Saigon Clean Water and Investment Joint Thu Duc 3 water 109.5mn m3 per Stock Company, treatment plant, 58 year Construction Linh Trung Ward, Corporation No. 1, Thu Duc District, Commerzbank Ho Chi Minh City (Sponsor) 2013-2014 Under construction Nhieu Loc-Thi Nghe wastewater treatment plant (second phase), 480 310.25mn m3 per Thanh My Loi year Ward, District 2, Ho Chi Minh City - 2014-2019 At planning stage Western West Lake waste water 22.41mn m3 per treatment plant, 144 year Hanoi - -2015 At planning stage Ha Dong waste water treatment Official Development plant (first phase), 20 73mn m3 per year Assistance - ODA Hanoi (Sponsor) 2012- At planning stage Green waste treatment plant, Thu Thua district, 700 - Vietnam Waste Long An Province Solutions Co. (VWS) - At planning stage

Major Projects - Energy & Utilities - Continued

Value Project Name (USDmn) Capacity/Length Companies Timeframe Status Son Tay water treatment plant, 12 3.27mn m3 per Hanoi year - 2012- At planning stage

* n/a= Not Available. Source: BMI Key Projects Database

Residential/Non-Residential Building - Outlook And Overview

Table: Residential and Non-Residential Building Industry Data (Vietnam 2013-2018)

2013 2014e 2015f 2016f 2017f 2018f

Residential and Non-residential Building Industry Value As % of Total 71.52 72.67 73.19 73.63 74.06 74.48 Construction Residential and Non-residential Building Industry Value, VNDbn 137,056.96 153,483.87 172,737.95 193,359.98 216,079.39 241,079.64 Residential and Non-residential Building Industry Value, USDbn 6.52 7.22 8.22 9.41 10.80 12.18 Residential and Non-residential Building Industry Value Real Growth 2.15 7.99 7.24 6.94 6.85 6.67 (%) Residential and Non-residential Building Industry Value as % of GDP 3.82 3.89 3.91 3.91 3.92 3.91

National Sources/BMI

Table: Residential and Non-Residential Building Industry Data (Vietnam 2019-2024)

2019f 2020f 2021f 2022f 2023f 2024f

Residential and Non-residential Building Industry Value As % of Total 74.90 75.30 75.68 76.04 76.36 76.66 Construction Residential and Non-residential Building Industry Value, VNDbn 268,721.42 299,402.42 333,096.18 370,474.24 411,342.64 456,133.40 Residential and Non-residential Building Industry Value, USDbn 13.71 15.39 17.21 19.25 21.48 23.94 Residential and Non-residential Building Industry Value Real Growth 6.67 6.62 6.55 6.52 6.43 6.29 (%) Residential and Non-residential Building Industry Value as % of GDP 3.92 3.92 3.93 3.94 3.95 3.95

National Sources/BMI

We expect the residential and non-residential building sector to slow modestly in 2015 following an estimated 8.0% performance in 2014. Real growth for the sector is forecast to expand by 7.2% in 2015, before slowing further to 6.9% in 2016.

Recovering After 2012

Residential And Non-Residential Building Industry Value (2013-2019)

300,000 10

200,000 6

4 100,000

0 0 2013 2014e 2015f 2016f 2017f 2018f 2019f Residential and Non-residential Building Industry Value, VNDbn (LHS) Residential and Non-residential Building Industry Value Real Growth (%) (RHS)

National Sources/BMI

We believe the ongoing recovery will be driven by the non-residential buildings sector, rather than the residential building sector. Large inflows of foreign capital into the real estate market, poor economic conditions in Vietnam and loose monetary policy in recent years have led to an oversupply in the residential building sector. This oversupply of units has prompted a sharp decline in land and real estate prices as investors aggressively lower their asking prices to offload their units.

To compound the problem, many of the real estate companies have taken on large amounts of debt to fuel their building activity in previous years. With a sizeable part of their real estate stock unsold, many of them are facing difficulties repaying their loans and are unable to take on new projects. Vietnamese banks are wary about providing credit to real estate developers as they already account for a significant portion of their debts.

Although the aggressive rate cuts taken by the government in recent months could reignite demand for housing, the scale of the over-supply makes any quick price escalation unlikely as it is estimated that the current stock of flats could take seven years to be fully absorbed by the market.

We do believe, however, that the residential building sector is starting to show early signs of improvement. Although the sector is still suffering from significant oversupply and falling prices, unsold inventory of new residential units has fallen back to more moderate levels by historical standards. Unsold apartments as a share of total units under construction fell from 30.3% in Q4 2012 to 27.7% in Q2 2013, while unsold villas and townhouses fell from 54.3% to 10.7% over the same period. By August 2014, it was reported that inventories had dropped by approximately 13.0% from year earlier. In addition, the rate of decline in housing prices is slowing down, which could indicate growing demand for property. The Vietnam Real Estate Index, which tracks transaction prices of highly liquid apartments in Hanoi and Ho Chi Minh City, fell by 8.2% year-on-year (y-o-y) in August 2013, significantly lower than the contraction of 15.2% y-o-y in August 2012.

Signs Of Bottoming

Vietnam - Real Estate Index

Source: Bloomberg, BMI

We have also seen an increase in foreign investment into the Vietnamese residential sector. According to government statistics, the real estate sector attracted USD2.5bn in 2014, accounting for approximately 12.6% of the country's total FDI. This increase in FDI inflows into the residential sector is likely to continue

over the coming years as the government lifts existing restrictions on foreign ownership of real estate in Vietnam.

Two new laws which were passed in late 2014 will allow foreign organisations including investment funds, banks, representative offices of multinational companies, as well as individuals who possess a valid visa, to purchase and own residential properties in Vietnam. The laws have been well received by local developers, while surveys conducted by various real estate agencies suggest that foreign investors generally view the move as a highly positive development for the property market. At present, less than 500 out of 80,000 expats in Vietnam own properties in Vietnam, but the government has responded to growing demand to ease regulation and allow all foreigners to own properties in Vietnam.

Foreign investors have also highlighted complicated regulations, inefficiencies with the regulatory authorities, the lack of liquidity, and other delays throughout the entire process of purchasing a property, as key factors making the Vietnamese market less attractive relative to the region. The issues will need to be addressed along with the introduction of the liberalisation of foreign real estate purchases, which is set to come into effect in July 2015. On the whole, we believe that Vietnam's residential property sector will receive a major boost from the inclusion of registered foreigners in the market.

Besides relaxing foreign ownership, the Ministry of Construction (MoC) was also seeking approval from the government in April 2013 to turn commercial housing into houses for lease. This could ease financial pressures on real estate companies and allow people from low-income groups to secure housing. At present, rented houses account for more than 6.3% of people who own houses in Vietnam, according to the MoC. Around 14% and 19% of all housing in Hanoi and in HCM City are for rent respectively, with the rest of the cities around 5%. A national housing strategy approved in 2011 had aimed to raise the proportion of rental housing to 20% by 2015 and 30% by 2020. As of June 2013, the MoC was still finalising the rental housing plan.

In June 2013, the Vietnamese government approved a VND30trn stimulus package to provide loans for purchasing and completing low-cost housing, though the impact of the stimulus package is expected to be limited given its relatively small scale. The demand for affordable houses is still robust, as residential development in the past has largely focused on high-end customers. The Vietnamese government is keen to meet this demand. For example, there are plans to build 2.7mn m2 of social housing by end-2015 in HCM City. The social housing programme is expected to provide accommodation for 100,000 college students and 93,000 workers, as well as 17,500 apartments for low income earners. In Hanoi, city authorities have

announced in July 2013 that they will supply 15,500 apartments for low-income people by 2015. The project, which is in its first phase, is expected to cost USD402mn.

The MoC had also introduced Circular No 02/2013, which allows companies to convert the apartment structure of commercial housing projects to low-cost housing. As of August 2013, 50 housing projects, valued at around USD1bn, had been given permission to convert to low-cost housing.

Besides government measures, other upside risks for the residential sector are Vietnam's attractive macroeconomic and population fundamentals. Rising incomes among Vietnamese consumers and rapid urbanisation rates will boost demand for housing and commercial construction projects, such as malls and hotels, over the coming years. Meanwhile, the country's private consumption growth is expected to remain resilient, while the unemployment rate will remain at historical lows over the long term. These factors would also ensure that the demand for housing and commercial projects remains robust over the long term.

Non-Civil Building To Outperform

Despite positive developments in the residential sector, we continue to believe that the main driver of growth for the residential and non-residential building sector is the non-residential sector. Although the lack of external demand for Vietnam's manufacturing goods is set dampen the demand for industrial buildings (such as factories and warehouses) over the coming years, the demand for Vietnam's resources could remain robust and this could drive demand for energy-related facilities and non-residential buildings. A key sector is the petrochemicals industry. Around nine petrochemicals projects are at the planning stage and are expected to be completed by 2025, with foreign investment to be sought for six of the plants managed by PetroVietnam.

The country is racing to meet growing demand for petrochemicals - to reach about 5.4mn tonnes per annum by 2020 - and a supply shortfall is expected to remain, even after the completion of the planned projects. The projects include a facility with 1mn tonnes per annum (tpa) polyethylene, 500,000tpa polypropylene and 400,000tpa PVC capacity, according to the director of PetroVietnam's Research and Development Centre for Petroleum Processing, Phan Minh Quoc Binh, as quoted by Plastics News.

One of the largest projects is the Long Son petrochemical complex. In February 2012, Siam Cement Group (SCG), QPI Vietnam, PetroVietnam and Vietnam National Chemical Corporation (Vinachem) signed a joint venture (JV) agreement to invest in a USD4.5bn petrochemical complex in Southern Vietnam. Under the deal, SCG is to acquire a 46% stake in the project. The fully integrated complex, which will use ethane, propane and naphtha as feedstock, will be situated on Long Son Island at Ba Ria-Vung Tau

province. The complex, which is likely to start commercial operations within four years, will have an annual production capacity of 1.4mn tonnes of olefins. As of August 2013, 400ha of cleared land has been handed over to the project investors and the project began construction works in early 2014.

Another key project is the USD8bn Nghi Son oil refinery in the central province of Thanh Hoa. The USD2.1bn engineering, procurement and construction (EPC) contract for the project was awarded to GS Engineering and Construction and SK Engineering & Construction making it Vietnam's largest ever EPC contract for the oil and gas sector. Under plans first unveiled in 2008, Nghi Son refinery is a joint venture between PetroVietnam with a 25.1% stake, Kuwait Petroleum International with 35.1%, Japan's Idemitsu Kosan with 35.1% and Mitsui Chemicals with 4.7%. The project is expected to be completed by 2017 and have an annual capacity of 10mn tonnes of crude oil, or 200,000, 1.5 times greater than Dung Quat's current capacity.

Vietnam's relatively low cost of labour could also still attract investors to develop manufacturing capacity in the country. In March 2013, Samsung started building a USD3.2bn high-tech complex in the Thai Nguyen province, which will house Samsung's largest mobile phone factory in the world.

Table: Major Projects Table - Residential/Non-Residential Construction & Social Infrastructure

Project Name Value (USDmn) Capacity/Length Companies Timeframe Status Commercial Construction Vietnam Export Eximbank headquarters 60,000 square Import Bank tower project, Ho Chi 150 metres (Eximbank) 2015-2017 At planning stage Minh City (Operator) South Hoi An integrated resort project, Chu Lai 15,000,000 square VinaCapital Open Economic Zone 4,000 metres (Operator) n/a At planning stage (OEZ), Quang Nam Khang Thong Happyland Group Entertainment Complex, 3,380,000 square (Construction), 2,200 metres Sanderson Group 2011-2014 Under construction Ben Luc District, Long (Design/Architect), An Province Phu An Investment (Sponsor) Empire Residences and Thanh Do Resort project, Ngu 21,294 square Construction and Hanh Son District, Da 480 metres Investment 2011-2014 Under construction Nang City (Operator) Casino eco-tourism 1,350,000 square resort project, Phu Quoc 4,000 metres n/a -2020 Approved Riviera Point Ssangyong Condominium complex 57.8 549 units Engineering and -2015 Under construction

Major Projects Table - Residential/Non-Residential Construction & Social Infrastructure - Continued

Value Project Name (USDmn) Capacity/Length Companies Timeframe Status (Three condominiums), Construction, Ho Chi Minh City Keppel Land Ecotourism centre, Southern Hon Khoai Island, Ngoc Hien 142.14 n/a n/a 2012- At planning stage District, Ca Mau Province Tokyu Binh Duong Becamex IDC Garden City, Binh 1,200 1,100,000 square Corporation, 2012- Under construction Duong province metres Tokyu Corporation

Industrial Construction

Vietnam Oil and Gas Group, Nghi Under construction Son Refinery and (October 2013 - Nghi Son Oil Refinery 200,000 b/d Petrochemical, Project to be built on and Petrochemical 9,000 (10,000,000 tonnes) Mitsui Chemicals, -2017 400 hectares area in Complex, Tinh Gia Idemitsu Kosan, Nghi Son economic Kuwait Petroleum zone) International (KPI) Delayed (Indochina Energy Industry Co ltd Solar modules Industry Company has requested Chu Lai manufacturing plant, 120MW (120,000 Limited (ICE), Open Economic Zone Chu Lai Open Economic 390 square metres) IndoChina Energy n/a Management Board to Zone Company extend the timeline for completing the project) Solar Panel Factory - HCM City, Dong Nam 1,200 113,000square First Solar Group 2011 Industrial Park metres Siam Cement, QPI Vietnam, Long Son Island PetroVietnam, Petrochemical Complex, 4,500 1,650,000 tonnes Vietnam National 2013-2016 Delayed Ba Ria-Vung Tau Chemical Corporation (Vinachem) Residential Construction Residential Keppel Land, developments and 291 n/a CapitaLand, manufacturing projects PepsiCo Development of 60mn square metres of residential space (public 19,700 600,000 units n/a 2010- Contract Awarded housing)

2015-2020 At planning stage

n/a = Not Available. Source: BMI Key Projects Database

Industry Risk Reward Ratings Vietnam - Infrastructure Risk/Reward Index

Vietnam Risk/Reward Index

Vietnam has achieved a score of 53.4 in BMI's Asia Pacific infrastructure Risk/Reward Index (RRI). It remains firmly in the lower half of the rankings in 12th position, out of 17 countries. That said, the country actually has one of the fastest-moving business environments in the region. Rapid expansion has raced ahead of the regulatory environment and the country is a clear outperformer among emerging South East Asian countries in terms of rewards. Nevertheless, corruption and heavy delays to project development continue to be a significant downside risk.

Rewards

Industry Rewards

Vietnam's score in this category is higher than the regional average. This is indicative of a dynamic market and reflects our view that Vietnam will continue to be one of the most active and attractive infrastructure markets in the region. The long-term risks to the market are generally to the upside. Based on BMI's Key Projects Database, about 330 infrastructure projects with a combined value of around USD328bn are currently listed as under construction or under consideration in Vietnam. The country therefore achieves a relatively high score for sector growth in this category.

Country Rewards

In terms of country structure components, which include financial and labour market infrastructure, Vietnam disappoints, coming in below the regional average. The predominant cause is a lack of sufficient financial infrastructure. Lending in Vietnam is characterised by poor lending standards and dominated by the four state-owned banks, while gaining access to foreign capital can be difficult. These poor lending standards have also resulted in high loan-to-deposit ratios in Vietnam's banking sector. In the event of a liquidity shortage or insolvency triggered by economic stress, a financial crisis would be a plausible scenario, further restricting funding to the construction sector. There are some risks to the upside, given that the banking sector has seen a raft of privatisations and increased involvement from foreign development banks - something that may liberalise the sector and could bode well for the construction sector in the long term.

Risks

Industry Risks

Industry Risks represent the largest hurdle for Vietnam at present, as the country scores only 40 in this category. This is indicative of structural weaknesses in the infrastructure sector, which in turn pose long- term risks to investors. The transparency of the tendering process is rated poorly, scoring only three out of 10. Competitiveness in the infrastructure and construction sector remains limited and road building, as well as the energy and utilities sector, is dominated by state-owned firms. The ports and urban railways sector is where there is the greatest level of foreign investor penetration in the infrastructure sector and we have seen growing foreign private participation in the power plant and transmission sector.

Vietnam has also been pushing for the faster implementation and development of public-private partnerships (PPPs) for upcoming infrastructure projects. While PPPs have the potential to address the country's infrastructure needs, this method is wholly predicated upon the creation of a regulatory PPP framework to govern the sector. In November 2010, the prime minister had launched a mechanism piloting PPP investment model via Decision 71/QD-TTg, which came into force from January 15 2011. Under this legislation, concerned agencies were tasked to craft regulations that allow projects to be developed under a PPP model and to evaluate and award projects for investment under a PPP model. Companies under the PPP model would enjoy corporate tax reductions and exemptions, as well as land use fee or land rental exemptions. Companies are also allowed to buy foreign currencies for project execution. Investors under the PPP model would not have to worry about site clearance as it would be done by the local officials.

This pilot ruling was meant to be replaced by new PPP guidelines or a full PPP law in three-five years, but progress was slowed by an inability for sub-sovereign governments and state agencies to carry out the necessary project assessments.

However, progress on these tasks is proceeding slowly and the PPP framework for areas such as payments for land rental, land clearance and compensation remained unclear. The Ministry of Planning and Investment has since introduced draft amendments to Decision 71/QD-TTg, but it remains to be seen if they are effective. Over 20 projects have been proposed for development under the PPP format, but only the Dau Giay-Phan Thiet expressway is at an initial tendering stage, with the rest in the pre-feasibility study stage.

Country Risk

Corruption is prevalent in Vietnam, resulting in poor scores within the Country Risk Index. Investors see official corruption as one of the biggest hindrances to running a business in Vietnam, with anecdotal evidence suggesting 30% of a project's value is pocketed by the contractor to pay bribes to relevant parties. For example, at end-2011, the World Bank banned Vietnam's Social and Environmental Development and its Managing Director, Nguyen Xuan Doan, for five years, following allegations of fraud among World Bank-financed water supply projects.

Joint ventures with state-owned enterprises are particularly prone to corruption and graft, though surveys indicate that while corruption affecting businesses is fairly prevalent, the amounts involved are usually quite small. Rapid economic growth provides opportunities for graft to grow more quickly than government systems evolve. Vietnam scored 2.7 out of 10 in BMI's Index for corruption and also rates poorly for its external risks and legal framework.

There are gradual changes to its political system, which could speed up economic reforms and improve Vietnam's business environment. In June 2013, the Communist Party of Vietnam (CPV) made an unprecedented move by allowing for a no-confidence vote on the performance of senior government officials, setting the stage for increased accountability for party members in future. Government officials who received 'Low Confidence' votes from two-thirds of the 500-member National Assembly (NA) will face another vote, which could lead to their dismissal. Meanwhile, those who received more than 50% in 'Low Confidence' votes for two years consecutively will be asked to relinquish their post.

The move symbolises a significant milestone in Vietnam's evolving political system towards a more accountable and, gradually, more democratic system of government. This is crucial to maintaining political stability over the long term. Not only is the CPV struggling to cope with a more informed population due to the rapid adoption of internet technologies, such as social media, but policymakers are also facing mounting pressure to allow for democratic reforms due to an increasingly vocal and highly educated population of young Vietnamese citizens.

Asia Pacific - Infrastructure Risk/Reward Index

BMI View: The average Risk/Reward score for the Asian infrastructure sector has declined slightly, due to a weaker outlook in Japan as well as the Philippines. Overall, Asia's infrastructure sector retains considerable potential for returns, reinforcing the region's status as the world's largest infrastructure and construction market by industry value.

The average Risk/Reward Index (RRI) score for Asia has declined marginally from 56.2 to 56.0 in Q215, on the back of a weaker outlook in Japan as well as the Philippines. However, there is still a substantial disparity in the demand for infrastructure throughout Asia. This translates into a significant divergence in rewards and risks among the Asia Pacific infrastructure markets, and a sizeable 40-point differential exists between the top- and bottom-ranked countries in our regional infrastructure index table. This wide dispersion presents investors with a range of rewards for different risk appetites.

The key findings from this quarter's update can be summarised as follows:

■ The more developed countries in the region continue to present the most attractive business environments to realise their relatively sizeable rewards.

■ Australia retained its top place ranking in our Asia Pacific regional index table due to the presence of a mature public-private partnership (PPP) market, a conducive monetary environment through lower interest rates supporting private companies for infrastructure development and greater project execution by the public sector.

■ Japan has moved down by one position to sixth place, in view of unsustainable stimulus measures that will see growth in the construction sector slow down over the coming quarters.

■ The most populous countries in the region (China, India, and Indonesia) continue to present sufficient scope in rewards to overcome risks, underpinned by efforts to push through reforms, but these risks remain considerable, particularly political and policy risks.

■ Emerging South East Asian (SEA) countries continue to offer sizeable rewards for their level of risk as they push forward with their multi-billion dollar infrastructure-building programmes.

A Mixed Bag

Asia - Infrastructure BE Risk/Reward Ratings, Scores out of 100

Source: BMI

Developed Markets: Favoured

The top spots in our Asia Pacific Risk/Reward infrastructure regional index table continue to be dominated by countries that have attained developed market status in terms of their infrastructure market maturity, with Australia, New Zealand and South Korea coming in first, second, and third place respectively.

Despite their maturity, these markets still offer significant greenfield opportunities. The average score for rewards in these developed markets is 59.4 out of 100, higher than the other 10 Asian markets (higher scores indicate higher rewards) with an average score of 49.9. Meanwhile, they offer the best business environments for realising returns on investment as they are highly developed in terms of their legislative and regulatory environments, and present very little in the way of risks to sponsors and financiers. The average score for risks in these developed markets is 79.1 out of 100, significantly higher than the other 10 Asian markets (higher scores indicate lower risks) which have an average of 48.9.

Greatest Potential To Realise Rewards

Developed Countries In Asia - Infrastructure Rewards (LHS) And Risks (RHS) BER, Scores out of 100

*Higher Score = Lower Risks. Source: BMI

Looking at the individual countries, Australia retains its top place ranking in our Asia Pacific regional index table this quarter, with an overall Risk/Reward score of 73.1. The combination of a conducive monetary environment through low interest rates which will benefit private developers with lower cost of capital and greater project execution by the public sector is creating multiple opportunities in Australia's infrastructure sector, providing a counterbalance to the decline in mining-related infrastructure opportunities. Moreover, the country's attractive operating market for public-private partnerships (PPPs) - in addition to the AUD100bn (USD80.7bn) privatisation plan to private various public assets which will create opportunities for private investors - is also creating project opportunities. Along with the UK and Canada, Australia has one of the world's most mature PPP markets and over the last two decades has pioneered the delivery of complex PPP projects. This credibility, combined with lower project execution risks, should ensure that such projects continue to reach financial closure in Australia.

Notably, Japan has dropped to sixth place from fifth position since the previous quarter, with the country's Risk/Reward score for Q215 declining slightly to 62.9 from 63.9. The downgrade is largely on the back of a deteriorating outlook for the construction sector - which we forecast to grow by an average of 0.3% between 2015 and 2019 annually in real terms - as monetary and fiscal stimulus measures implemented by the government in 2013 lose steam. Despite the expansion of the government's quantitative easing program in October, banks have remained reluctant to boost lending, which further highlights the fragile state of Japan's

economy. These measures will also continue to weigh on the country's fiscal woes over the long term, and hamper any sustainable impact on the sector.

We continue to believe that structural reforms are necessary for Japan to ensure long term growth in the construction sector. Such reforms include the launch of strategic special zones to attract foreign investment, the full liberalisation of the electricity market, and the increased use of public-private partnerships (PPP) and private finance initiatives (PFI) to implement infrastructure projects.

Giants Of Asia: Rewards Sizeable, Risks Sizeable

These developed markets however, do not necessarily offer the highest rewards to investors. Asia's largest emerging economies - China, India and Indonesia - continue to rank highly in terms of their Reward score, securing second, fourth and seventh place respectively for this category. The combination of high industry values, positive long-term macro fundamentals, large fiscal expenditure on infrastructure and expectations of relatively high growth in construction and infrastructure industry value underpin the high scores in this category. However, they also present numerous risks, as indicated by their below-average Risks scores.

Above Average Rewards, Below Average Risks

China, India And Indonesia - Infrastructure Rewards (LHS) And Risks*(RHS) BER, Scores out of 100

*Higher Score = Lower Risks. Source: BMI

China, for example, is expected to face greater threats to its rewards in the near future. Although the Chinese government could continue with the use of monetary and fiscal stimulus measures to prevent a

deep economic slowdown over the near-term by accelerating infrastructure projects, such measures will come at the expense of future growth in the country's infrastructure sector. Further use of these measures would aggravate the structural imbalances within the Chinese economy such as a shaky financial system, overvalued property market, expensive infrastructure build-up, and huge industrial overcapacity. In our opinion, aggravating these imbalances increases the potential for a deep slowdown in China's economy over the long-term, which could cap infrastructure demand.

India also faces threats to its rewards. Even though the historic win by the pro-business Bharatiya Janata Party during the 2014 Lok Sabha elections increases the likelihood for policy formation and execution as well as greater coordination between ministries, other factors dampening construction and infrastructure activity are unlikely to be resolved anytime soon. These factors include the high cost of domestic capital, high cost of overseas inputs due to a relatively weak Indian rupee, the lack of fiscal capacity to finance fixed asset investment and the numerous business environment issues that continue to delay infrastructure development (e.g. environmental clearances, land acquisition, convoluted bureaucracy).

For Indonesia, political risk in the country is still elevated. Even though the inauguration of Joko Widodo (Jokowi) as Indonesia's president in October 2014 brings about newfound political stability, the parties supporting Jokowi do not have a majority in the Indonesian parliament. This means that parties not aligned with Jokowi have sufficient clout to stonewall Jokowi's legislative agenda. Such a scenario could allow policy inertia to continue to persist in Indonesia, resulting in a lack of resolution over the numerous business environment issues that continue to delay infrastructure development in the country.

South East Asia: Environment Deteriorating Slightly

Emerging South East Asian (SEA) countries continue to offer sizeable rewards for their level of risk as they push forward with their multi-billion dollar infrastructure-building programmes. However, there has been a slight decline in the average Reward scores for these emerging SEA (which excludes Singapore and Indonesia), Falling from 45.8 to 45.6.

Business Environment Deteriorating

Emerging South East Asia (ex Indonesia) - Infrastructure Rewards (LHS) And Risks* (RHS) BER, Scores out of 100

*Higher Score = Lower Risks. Source: BMI

The slight dip in scores is attributed to a lower Reward score for the Philippines, which declined to 48.5 from 50.2. While the country's Public-Private Partnership (PPP) scheme appears to be gaining traction, given the progress of the six airport projects that moved to the bidding phase in December 2013, we note that the lack of business environment maturity continues to create significant scope for projects under the PPP programme to experience delays. Possibilities of project delays will continue to hamper the growth potential of the Philippines' construction sector.

Table: Asia Pacific Infrastructure Risk Reward Index

Rewards Risks Industry Country Industry Country Infrastructure Regional Rewards Rewards Rewards Risks Risk Risks RR Index Ranking Australia 60.0 86.1 69.1 90.0 77.0 82.2 73.1 1 New Zealand 57.5 85.1 67.2 90.0 80.0 84.0 72.2 2 South Korea 47.5 88.9 62.0 70.0 78.2 74.9 65.9 3 China 72.5 60.9 68.4 40.0 68.5 57.1 65.0 4 Singapore 37.5 86.2 54.6 90.0 88.6 89.2 64.9 5 Japan 40.0 90.1 57.5 85.0 71.6 77.0 63.4 6 Hong Kong 42.5 87.0 58.1 75.0 73.7 74.2 62.9 7 India 75.0 45.4 64.6 55.0 52.5 53.5 61.3 8 Malaysia 52.5 64.3 56.6 55.0 64.3 60.6 57.8 9 Indonesia 65.0 48.2 59.1 35.0 57.4 48.4 55.9 10 Taiwan 32.5 74.0 47.0 75.0 69.9 71.9 54.5 11 Vietnam 50.0 60.4 53.6 40.0 61.7 53.0 53.4 12 Philippines 32.5 72.3 46.4 50.0 60.4 56.3 49.4 13 Thailand 45.0 55.1 48.5 35.0 60.1 50.1 49.0 14 Pakistan 27.5 43.6 33.1 35.0 47.4 42.5 35.9 15 Myanmar 37.5 25.9 33.4 25.0 42.3 35.4 34.0 16 Cambodia 40.0 24.7 34.6 25.0 37.4 32.4 34.0 17 Regional Average 47.9 64.6 53.8 57.1 64.2 61.3 56.0

Scores out of 100, with 100 highest. Source: BMI

Market Overview Competitive Landscape

Construction companies in Vietnam are fairly small and are confined to urban and roads infrastructure projects. The inland waterway transport sub-sector is managed by two state corporations affiliated with the Ministry of Transport, a state-owned enterprise affiliated with the Vietnam Inland Waterway Authority and some enterprises managed by other ministries, which are operating in support of the power generation, cement and paper industries.

Table: Vietnam EQS Data

Market Interest Name Latest FY Cap Revenue Growth Operating Profit Total Debt/ Coverage PE Earnings (USDmn) (% y-o-y) Growth(% y-o-y) Ebitda Ratio Ratio Vietnam Construction & 12/2013 330.8 -12.3 -11.2 4.9 1.1 12.4 IMPO Songda Urban & Industrial Zone 12/2013 121.1 1145.9 n/a 15.9 78.1 36.2 HCM City Infrastructure 12/2013 154.1 198.0 n/a 15.4 0.9 40.4 Becamex Infrastructure 12/2013 183.3 0.5 -21.3 2.8 6.8 23.7 Developments PetroVietnam Construction 12/2013 117.6 14.0 -25.9 n/a -3.2 n/a Company Development Investment 12/2013 125.4 -2.1 -20.0 21.7 0.6 58.1 Construction Kinh Bac City Development SH 12/2013 178.6 281.3 n/a 8.3 1.4 48.3 Cotec Construction 12/2013 135.8 38.2 23.2 0.0 n/a 11.1 JSC

Source: Bloomberg

Company Profile Cavico Corporation

SWOT Analysis

Strengths ■ It is diversified across a number of interrelated sectors.

■ A portfolio of completed projects sets a precedent for the company in Vietnam's construction and infrastructure sectors.

Weaknesses ■ According to the company, 'Cavico's business growth is correlated to Vietnam's economic and infrastructural development' - this endangers the company's operations and revenue streams in the current downturn.

■ The small size of the company means that competition from domestic state-owned companies and foreign majors could erode its market share.

■ The value of contracts is very small for a construction and infrastructure company, typically below USD10mn.

Opportunities ■ Vietnam is one of the best-placed Asian economies to weather the global financial crisis.

■ The government's willingness to improve infrastructure seems undiminished.

Threats ■ The procedures for project start-ups are bureaucratic in Vietnam (administrative burdens and inefficiency).

■ Regional contraction in the Asian markets poses threats to Cavico's planned expansion in the region.

Company Overview Cavico Corporation is the largest private infrastructure and mining company based in Vietnam (while mining activities are at the heart of the company's operations, for the purpose of this report we will only focus on Cavico's infrastructure operations). Through its various subsidiaries, Cavico operates in the power, transport and urban development sectors. In the power generation sector, Cavico mainly focuses on hydropower and dam construction, although recently it also made its first venture into wind power

generation. Transport is the largest, or most active, segment of the company, with operations in tunnels, bridges and highways. The company also has a presence in commercial and residential construction in Hanoi and other regional centres with large- scale mixed-use projects under way.

Strategy According to the company's declared business strategy, the key points that will guide investment decisions are: prioritising the key businesses of industrial engineering, infrastructure construction and mining; investing in strategic industries for the economy of Vietnam (infrastructure, energy, mining, tourism); diversifying further; widening the company's portfolio abroad; and increasing joint ventures and partnerships with international majors.

Cavico has kept to its strategic guidance and has managed to expand into new sectors (such as wind power generation) and abroad, most recently in neighbouring Laos.

The company's aim is to increase its current backlog of projects within Vietnam and to cement its presence in the country's infrastructure sector. BMI believes that Cavico is well placed in its operations in Vietnam. Its presence in the country has set a precedent and it has a history of partnerships with local state-owned contractors. Vietnam's planned infrastructure investments in the power and transport sectors present significant opportunities that could allow Cavico to achieve its aim of increasing its order backlog. This rose 33.8% year-on-year (y-o-y) to reach USD304.6mn as of June 30 2010. The firm also saw a loss of USD1.8mn in the second quarter of 2010. According to the company, this was due to the fact many of its hydropower construction projects were in the early stages, and not generating sufficient revenue to offset their initial construction costs. Once these projects progress further into completion, net income will increase as more revenues are generated.

Recent ■ In April 2011 Cavico Corporation announced its subsidiary Cavico Mining had Developments received an investment licence for the Tan My Hydropower Plant. The licence grants Cavico the right to build-own-operate (BOO) a hydropower plant downstream from the Tan My Irrigation Reservoir. The plant will be built in the Phuoc Tan Village, Ninh Thuan Province. The plant has a designed capacity of 6MW and is estimated to cost USD6.7mn. ■ In March 2011, Cavico Corporation announced that its subsidiary Cavico Construction Manpower & Services signed a contract to construct the tunnel roof and grout the arch consolidation of a 1.4-mile-long rock transport tunnel at the Nghi Son cement plant, Thanh Hoa Province. The contract was valued at approximately USD1.3mn. Cavico expected to complete the project within seven months from the start of construction. ■ In January 2011, Cavico Corporation announced that its subsidiary Cavico Hydropower Construction signed a USD7.75mn tunnel construction contract with Song Giang Hydropower Joint Stock Company for the Song Giang 1 hydropower plant in Khanh Vinh District, in central Vietnam's Khanh Hoa Province. The twin-unit plant, which is located 31 miles from Nha Trang city, will have a 24MW annual capacity once it becomes operational. Song Giang Hydropower Joint Stock Company expects to invest a total of USD23.2mn in the plant.

■ In December 2010, Cavico Corporation announced that its subsidiary Cavico Bridge and Tunnel had signed a USD6mn construction contract with Vietnam's state-owned electricity company, EVN, for the100MW Song Bung 2 hydropower plant project. Under the contract, Cavico will be responsible for the construction of three tunnels, a surge tank and a power house.

Financial Data In Q2 2010, revenues rose by 7.9% y-o-y to reach USD14.7mn. Net profit for Q2 2010 was a loss of USD1.8mn, compared with net income of USD37,445 in the same period of 2009.

Order backlog as of June 30 2010 was USD304.6mn, an increase of 33.8% y-o-y.

For 2010, the company expected revenues of between USD65-70mn, while overall the company expected to see a net loss in the range of USD4-5mn.

Electricity Vietnam Group

SWOT Analysis

Strengths ■ EVN's power companies account for 55% of Vietnam's total electricity generation.

■ EVN has outlined ambitious plans to build 74 new power stations by 2020, in line with the country's power sector development.

■ EVN has a diversified portfolio and is involved in all types of power plant projects.

Weaknesses ■ Tightening credit conditions in the domestic banking sector are a key source of funds for the company. These, together with rising construction costs, have severely hindered EVN's ability to implement its investment mandate.

■ High debt levels are inhibiting plans for expansion.

Opportunities ■ The Vietnamese government is committed to energy sector development visible in its ambitious plans to increase Vietnam's total installed generating capacity from 20GW in 2011 to 75GW by 2020.

Threats ■ Vietnam's Electricity Law (2005) might make operating in the electricity sector more complex, especially in relation to transitional procedures.

Company Overview Electricity Vietnam (EVN) was founded in 1995 as a state-owned utility engaged in the generation, transmission, trading and distribution of electricity. EVN owns five limited liability power companies: Electricity North Vietnam (EVN NPC); Southern Electricity Corporation (EVN SPC); Central Electricity Corporation (EVN CPC); TP Power Corporation Hanoi (EVN HANOI); and the Electricity Corporation TP Ho Chi Minh City (EVN HCMC). In addition, the subsidiary in charge of EVN's transmission grids is the National Power Transmission Corporation (NPT).

As of 2010, EVN's power companies accounted for 60% of total electricity generation in the country and had around 98,000 employees. EVN is managing almost all plant groups, except for some independent power plants (IPP) and some other build-operate- transfer (BOT) power plants. Despite further privatisation plans, power transmission companies and hydropower plants - including Hoa Binh, Tri An and Yaly - as well as the nuclear power programme, are expected to remain under the management of EVN.

EVN has also played a role in Vietnam's successful rural electrification programme by implementing power projects financed by the World Bank.

Strategy EVN is expected to face major changes in future due to the launch of the Electricity Law in 2005. The law sets out a phased introduction of a competitive generation market, followed by a competitive wholesale market and finally a competitive retail market. While there are target dates for the realisation of each phase, important detail is lacking, especially in relation to transitional procedures. EVN, which is currently the monopoly off-taker and controller of the electricity transmission and distribution network, is expected to face increasing competition in the future. As the largest utility and electricity wholesaler in Vietnam, EVN is the main force driving the development of Vietnam's power sector. It has taken up this mantle by launching and financing numerous power projects throughout Vietnam, and has plans to continue to do so. In July 2011, EVN announced that it would invest USD39bn in building an additional 95 power plants with a total capacity of around 49,000 megawatts (MW) over the next 10 years, 38 of which will be built between 2011 and 2015. To meet this target by 2015, EVN would need to invest USD3bn a year in new power plants and transmission infrastructure between 2011 and 2015.

However, this target appears to be difficult to achieve. EVN is suffering from crippling debts and is unable to raise sufficient capital to meet its investment needs. In late June 2012, EVN said that it faced a funding gap of around VND185trn (USD8.9bn) for power plant projects between 2011 and 2015.

One reason for EVN's high debt levels is artificially low electricity prices in the past, and a lack of sophistication in setting electricity prices. Electricity prices in Vietnam were at levels below the cost of electricity production, making it unprofitable for power utilities to sell electricity. Meanwhile, these electricity prices are not allowed to fluctuate, thus a rise in the cost of basic inputs such as energy commodities cannot be passed on to the consumer. Consequently, EVN is forced to incur additional losses to absorb these costs.

In addition to electricity prices, diversification into non-core businesses such as the Vietnamese telecoms sector is another contributing factor which has damaged EVN's profit-generating ability. EVN had invested significant capital in setting up a Vietnamese telecoms subsidiary, EVN Telecom, despite the presence of several established players - VinaPhone, MobiFone and Viettel Telecom. EVN has found it difficult to compete in such a challenging market and was reported to have generated revenues of just VND2.8trn (USD135.9mn) in 2010, equivalent to 61% of its target. We believe that this is because EVN Telecom lacks the financial capacity to invest in networks; it also incurs substantial rental costs due to infrastructure leasing. EVN was looking to divest EVN Telecom, but its plans to sell the subsidiary to the Corporation for Financing and Promoting Technologies fell through in April 2011. Vietnam Multimedia Corporation is

now the most likely candidate to acquire the telecoms subsidiary, according to local media reports.

Weather conditions have also played a part in damaging EVN's profit-generating ability. A sizeable portion of its portfolio is hydropower and severe droughts across the country have reduced water levels for hydropower reservoirs, hampering their ability to generate electricity. As a result, EVN has to rely on expensive oil-based generation sources and electricity imports from China to meet the shortfall.

In a bid to ease EVN's current financial difficulties and meet its investment targets, the Vietnamese prime minister has directed commercial banks to extend credit to carry out projects under the six power planning scheme. EVN will also be granted guarantees by the Ministry of Finance for domestic credit loans to pay for electricity purchases from thermo power plants under the direction of the prime minister. This has taken place in January 2013, where EVN secured a USD120mn loan from Vietnam Development Bank for two new thermal power plants (Vinh 2 and Duyen Hai 1). The utility was also seeking a government guarantee for its loan to build Duyen Hai 3 thermal power plant in mid- December 2012.

EVN would also be allowed to issue domestic bonds in 2013 to meet its funding gap, but it remains to be seen if investors would be interested given the bond scandals with several state-owned companies such as Vinashin.

Lastly, the government had allowed EVN to hike electricity prices twice (5% in July, 5% in December) in 2012, increasing electricity prices by a total of 10%. Electricity prices averaged VND1.437 (USD0.07) at the end of December 2012 and the hike in December could potentially allow EVN to earn an additional VND7trn (USD330mn) in 2013. There are also plans (as of March 2013) to adjust electricity prices if input costs increase by 2-5% over the current average power price, according to a draft decision about the mechanism for retail power price management and adjustment.

Recent In December 2013, state utility and monopoly distributor EVN and Japan- Developments based Marubeni Corporation signed an engineering, procurement and construction contract for the main thermal power plant of the Thai Binh Power Station in Vietnam. The project will entail an investment of VND26.5trn (USD1.3bn), with 85% of the investment coming from the Japan International Cooperation Agency and the remaining 15% from EVN. The construction of the 600MW plant is expected to commence in Q1 2014, with the first turbine scheduled to operate in Q4 2017 and the second in Q2 2018. The two-turbine plant will generate about 3.3bn kWh every year.

In October 2013, EVN reported its total outstanding bank debts were VND118.84trn at the end of July 2013.

In September 2013, EVN and the National Power Transmission Corp (EVN NPT) announced that the Lai Chau-Son La-expanded power line of 500 kV and Son La power

station of 500 kV was to start in late 2013. In the same month, EVN Finance sold more than 16mn shares (23% stake) of Thac Mo Hydropower Company (TMP).

In August 2013, EVN announced that electricity prices in Vietnam will increase by 5% starting from August 1 2013. The average electricity price will be increase to VND1508.85 per KWh.

During July 2013, EVN was expected to auction its 25.2mn shares in An Binh Commercial Joint Stock Bank (ABBank) in August 2013. EVN is required to finish divestment from non-core operations by the end of 2015. Besides ABBank, EVN has invested in companies such as Global Insurance Company, EVN Finance Company, Saigon Vina Property Company and Central Power Corporation.

In June 2013, EVN reported that it aims to have six new generators with a combined capacity of 1420MW operational in 2013. They are two generators in Nghi Son 1 thermo power plant, a generator in Quang Ninh power plant, a generator in Hai Phong power plant and two generators in Ban Chat hydropower plant. According to EVN's seventh power plan, the utility will put 20 generators with a combined capacity of 6,366MW into operation between 2013 and 2015.

In March 2013, the Vietnam Ministry of Industry and Trade issued a decree stating that EVN's CEO will be dismissed if the utility fails to maintain the expected return on equity or suffer losses for two consecutive years. In return, EVN will be given permission to adjust the electricity prices within the regulated price limits.

EVN announced in January 2013 that it plans to issue VND10trn (USD483mn) worth of bonds in the domestic market, while converting its debt to PetroVietnam into bond debt via a VND14trn (USD673mn) issuance.

In December 2012, EVN pulled out from the USD800mn Lower Se San 2 hydropower plant project in Cambodia. China's Hydrolancang International Energy is expected to purchase EVN's stake in the project, with the electricity produced from the dam to be used in Cambodia.

During November 2012, EVN signed an agreement with the World Bank to finance a USD800mn project aimed at ensuring stable power supply in Vietnam. The World Bank will provide a loan worth USD449mn with an annual interest rate of 1.25% over a 25- year period, with a five-year grace period. A USD30mn loan will be provided by the Clean Technology Fund, carrying an annual interest rate of 0.75% over a 20-year period, with a 10-year grace period. Technical assistance estimated to be worth USD8mn will be provided by the Australian Agency for International Development.

In June 2012, Vietnam granted approval to establish three power generation companies: Genco 1, Genco 2 and Genco 3. These companies are to take over power generating plants directly under EVN. Genco 1 will manage hydropower plants, such as Dai Ninh, Ban Ve and Song Tranh. Genco 2, which is the upgrade of Can Tho Thermal Power, will manage the Quang Tri and An Khe KaNak hydropower plants and the Thu Duc, Hai Phong and Pha Lai thermal power plants. The establishment of Genco 3 is

based on Phu My Thermal Power and 11 affiliates, including the Vinh Tan thermal power plant and the Buon Kuop hydropower plant. These three companies will remain under EVN, which will also appoint their personnel.

In April 2014, EVN announced it had divested from its non-core and unprofitable real estate holdings, selling all of its shares in the Land Saigon and Land Mien Trung realty developers. The move reflects an ongoing effort by EVN to focus more on its core business and less on non-core sectors, such as real estate and telecoms.

Financial Data In January 2013, EVN announced a profit of VND6trn in FY2012, a reversal from the loss of VND3.5trn in FY2011. This return to profitability was attributed to the company's hydropower business and electricity price hikes. However, the company still had debts amounting to an estimated VND34trn at end-2012.

Global Infrastructure Overview Industry Trend Analysis

The global infrastructure sector is experiencing a transition period, with new entrants expanding their market share - private equity, regional players and Chinese companies are all strengthening their global footprint. Conversely the global majors continue to consolidate their presence whilst seeking strategic partnerships and acquisitions to target new opportunities. Against this changing competitive landscape, countries will have to work harder to attract investment, and reforms in emerging market business environments will be key in securing much needed infrastructure upgrades.

Five key themes for the infrastructure sector in 2015:

1. Increased Consolidation And M&A Activity

2. Expansion Of Private Equity Role In Infrastructure

3. China Infrastructure Focus Going Global

4. Multilaterals and Development Banks Changing Role

5. Reforms Crucial To Sustain Infrastructure Investment

Increased Consolidation And M&A Activity

We expect 2015 to see a rise in merger and acquisition activity - with major players consolidating, offloading non-core assets and acquiring access to strategic sectors. The post-financial crisis construction sector continues to present the challenges of reduced contract opportunities, more challenging client demands and a constrained financing environment and we expect mergers will be a popular tool in order to improve economies of scale and enhance bidding positions. The acquisition trend is also likely to accelerate as companies seek to target new markets or provide the whole range of services to meet more demanding clients (see, 'Merger Plans Support Cement Industry Views', 16 April 2014 and 'AECOM-URS Merger Continues Consolidation Trend', 23 July 2014).

Equally, companies will continue to cut non-core assets, leading to acquisition opportunities. On the other side of the trend we see increased M&A activity as creating opportunities for regional players to continue to

expand their market share in the global competitive landscape. The sale of assets to meet competition regulation for example, will be one factor providing smaller regional players the opportunity to consolidate their positions both domestically and regionally.

Consolidating To Compete

Major North American And British Engineering Firms, FY2013 Revenues, USDbn

Source: Company Reports

Expansion Of Private Equity Role In Infrastructure

We expect the volume of capital from private equity invested into infrastructure to expand notably in 2015. At the same time, the elevated fundraising rate is expected to continue, with a wider array of investors entering the sector.

With volatility returning to the financial markets, infrastructure's appeal will only expand, especially to institutional investors. We expect the level of pension fund investment into the sector, especially in the US and the UK to expand in 2015.

Infrastructure fundraising has been expanding since 2012, with infrastructure assets under management standing at a record high as of mid-2014. The level of un-invested capital in funds is at its highest level, and

we therefore expect investments into the sector to step up from 2015. We believe developed markets to continue to account for the majority of investment targets with North America and Europe particularly popular, and utilities and transport assets popular. Conversely, the trend of targeting energy and mining assets is under threat from lower commodity prices hitting asset valuations.

We expect fundraising to expand beyond the traditional remit over 2015 and anticipate emerging markets to increasingly be targeted by funds. Asia has been the one exception to the primarily developed market focused fundraising over recent years; however, we expect increasingly funds will target a more global emerging market picture.

Ready To Be Deployed

Value Of Assets Under Management, USDbn

Source: Preqin

China Infrastructure Focus Going Global

We anticipate that Chinese companies will continue to expand the scope of their engagement in the global infrastructure sector in 2015 (See, 'Special Report: China's Infrastructure Focus Goes Global', 9 September 2014). The role of Chinese engineering and construction players, in addition to sector investors, is expected

to continue to evolve beyond the traditional resource model, with implications for developed and emerging markets. To offset a slowing domestic construction sector, China is making greater efforts to improve the reputation of and export its expertise and secure access to more stable assets and project opportunities in developed markets. At the same time, it is extending its engagement in beyond Sub-Saharan Africa, with investment targeted in Latin America and Eastern Europe and expanding its presence in developed markets.

In particular we highlight real estate, energy and infrastructure assets and investment as high on the list for Chinese companies and investors. We expect this trend to gather pace in 2015, as governments remain cash strapped and therefore more open to Chinese investment and financial support. In contrast, Chinese companies are looking to offset domestic weakness through greater international operations. Acquiring stable assets in developed markets and building a better brand to compete in the global construction sector are on the agenda. In emerging markets gaining greater market share and influence and diversifying commodity sources are motivating investments, with Latin America and Eastern Europe prime targets for investment.

China Expanding Investments In 2015

Chinese Investments And Contracts, By Country, USDmn

Source: Heritage Foundation

Multilaterals and Development Banks Changing Role

The role of multilateral financial institutions and development banks in supporting infrastructure investment is expected to evolve in 2015 (see, 'Multilaterals To Engender Greater Bankability', 14 October 2014). We anticipate that the role played will shift from primarily capital contributions to projects, into the provision of support on a technical and regulatory front. Increasingly regional and global development agencies are providing capital to help countries build up expertise, regulatory environments and overall lend credibility to projects - in the hope of creating a more attractive environment for private investors. Multilateral agencies have a strong role to play in anchoring investors, lending project expertise and guarantees that enable governments to attract private capital. We expect a proliferation of programmes and platforms intended to provide this support and the execution of these programmes to increase over 2015.

Table: Multilaterals and Development Bank Infrastructure Support Programmes

Date BMI Announced Initiative Supporter Platform/Programme Description Analysis Africa50 Aims To Aimed at tackling project Tackle delivery by improving Obstacles To Oct-13 African Development Bank Africa50 institutional capacity and Infrastructur providing legal, financial and e Growth', technical training. October 2 2013 BRICS Bank: USD100bn multinational Long-Term development bank expected Impact to initially invest in Positive, Jul-14 BRICS BRICS development bank infrastructure projects within Near-Term the BRICS countries. Impact Scheduled to start lending in Immaterial, 2016. July 17 2014 Multilaterals Intended to improve EM To Engender Global Infrastructure project planning by sharing Greater Sep-14 G20 Initiative information, matching Bankability, projects and investors, and October 14 reducing red tape. 2014 Aimed at boosting the number of bankable projects Multilaterals that achieve financial close. To Engender Global Infrastructure Designed to improve the Greater Oct-14 World Bank Facility level of sophistication in Bankability, project development, October 14 planning and tendering of 2014 projects. Officially expressed support for G20 global infrastructure hub. Offered expertise, World's top development resources, and financing Nov-14 banks instruments to contribute to closing the global infrastructure gap (estimated at USD1trn/year). Aimed at sharing successful experiences that can be Nov-14 EBRD Infrastructure Project replicated in and improving Preparation Facility efficiency and quality of project planning.

Source: Media sources, press releases, BMI

Reforms Crucial To Sustain Infrastructure Investment

The growing need for reforms in the infrastructure sectors of emerging markets will become increasingly apparent in 2015. Growing pressure on country balance sheets, especially in the large commodity producers, is further underlining the need for private investment to develop much needed infrastructure. In this context,

reforms at the regulatory level will be crucial for countries to attract private investment. In particular, we highlight risks in financing, tendering, permitting and labour as key areas in need of reform across major emerging markets.

We believe Latin America and Sub-Saharan Africa on average are making the greatest strides in reforming to compete for infrastructure investment, whilst the BRICS countries will continue to lag behind over the near term (see 'Latin America And SSA Pull Ahead In Infrastructure Reform Drive' 28 October 2014). In 2015 we see some potential for tangible progress from China and India, but expect little change in Brazil, Russia and South Africa.

Methodology

Industry Forecast Methodology

BMI's Industry forecasts are generated using the best-practice techniques of time-series modelling and causal/econometric modelling. The precise form of model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined.

Common to our analysis of every industry, is the use of vector autoregressions. Vector autoregressions allow us to forecast a variable using more than the variable's own history as explanatory information. For example, when forecasting oil prices, we can include information about oil consumption, supply and capacity.

When forecasting for some of our industry sub-component variables, however, using a variable's own history is often the most desirable method of analysis. Such single-variable analysis is called univariate modelling. We use the most common and versatile form of univariate models: the autoregressive moving average model (ARMA).

In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality is poor. In such cases, we use either traditional decomposition methods or smoothing methods as a basis for analysis and forecasting.

We mainly use OLS estimators and in order to avoid relying on subjective views and encourage the use of objective views, we use a 'general-to-specific' method. BMI mainly uses a linear model, but simple non- linear models, such as the log-linear model, are used when necessary. During periods of 'industry shock', for example poor weather conditions impeding agricultural output, dummy variables are used to determine the level of impact.

Effective forecasting depends on appropriately selected regression models. We select the best model according to various different criteria and tests, including but not exclusive to:

2 2 ■ R tests explanatory power; adjusted R takes degree of freedom into account

■ Testing the directional movement and magnitude of coefficients

■ Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value)

■ All results are assessed to alleviate issues related to auto-correlation and multi-collinearity

BMI uses the selected best model to perform forecasting.

It must be remembered that human intervention plays a necessary and desirable role in all of our industry forecasting. Experience, expertise and knowledge of industry data and trends ensure that analysts spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not.

Sector-Specific Methodology

Construction Industry

Construction Industry Value

Our data is derived from GDP by output figures from each country's national statistics office (or equivalent). Specifically, it measures the output of the construction industry over the reported 12-month period in nominal values (ie domestic currency terms). As it is derived from GDP data, it is a measure of value added within the industry (ie the additional contribution of the construction industry over other industries, such as cement production). Consequently, it does not measure the nominal value of all inputs used in the construction industry, which, for most states would increase the overall figure by 50-60%. Furthermore, it is important to note that the data does not provide an indication of the total value of a country's buildings, only the construction sector's output in a given year.

This data is used because it is reported by virtually all countries and can therefore be used for comparative purposes.

Construction Industry Value Real Growth

Our data and forecasts for real construction measures the real increase in output (rather than nominal growth, which would also incorporate inflationary increases). In short, it is an inflation-adjusted value of the output of the construction industry year-on-year. Consequently, real growth will be lower than the nominal growth of our 'construction value' indicator, except in instances where deflation is present in the industry.

Data for this is sourced from the constant values for construction value added, using the same sources noted above. We use officially calculated data to accurately account for inflation specific to the construction industry.

Construction Industry, % Of GDP/Construction Value (USD)

These are derived indicators. We use BMI's Country Risk team's GDP and exchange rate forecasts to calculate these indicators.

Capital Investment

Total Capital Investment

Our data is derived from GDP by expenditure data from each country's national statistics office (or equivalent). It is a measure of total capital formation (excluding stock build) over the reported 12-month period. Total capital formation is a measure of the net additions to a country's capital stock, so takes into account depreciation as well as new capital. In this context, capital refers to structures, equipment, vehicles etc. As such, it is a broader definition than construction or infrastructure, but is used by BMI as a proxy for a country's commitment to development.

Capital Investment (USD), % Of GDP, Per Capita

These are derived indicators. We use our Country Risk team's population, GDP and exchange rate forecasts to calculate them. As a rule of thumb, we believe an appropriate level of capital expenditure is 20% of GDP, although in rapidly developing emerging markets it may, and arguably should, account for up to 30%.

Government Capital Expenditure

This is obtained from government budgetary data and covers all non-current spending (ie spending on transfers, salaries to government employees, etc). Due to the absence of global standards for reporting budgetary expenditure, this measure is not as comparable as construction/capital investment.

Government Capital Expenditure, USDbn, % Of Total Spending

These are derived indicators.

Construction Sector Employment

Total Construction Employment

This data is sourced from either the national statistics office or the International Labor Organization (ILO). It includes all those employed within the sector.

Construction Employment, % y-o-y; % Of Total Labour Force

These are derived indicators.

Average Wage In Construction Sector

This data is sourced from either the national statistics office or the ILO.

Infrastructure Data Sub-Sectors

BMI's Infrastructure data examines the industry from the top down and bottom up in order to calculate the industry value of infrastructure and its sub-sectors. We use a combination of historic data as reported by the central banks, national statistics agencies and other official data sources, and BMI's Infrastructure Key Projects Database tool.

Where possible we source historic data for the relative portion of either infrastructure spend or value generated by the various sub-sectors we classify as infrastructure. We seek to segment official infrastructure data into pre-set categories classified by us, across all countries, in order to optimise the ability to compare industry value across the sub-sectors of infrastructure. We then apply ratios to the infrastructure subsector value in order to derive the value. Real growth is calculated using the official construction inflation rate.

In those instances where historic data is not available, we use a top down and bottom up approach incorporating full use of BMI's Infrastructure Key Projects Database, in most cases dating back to 2005. This allows us to calculate historical ratios between general infrastructure industry value and its sub-sectors,

which we then use for forecasting. Our Key Projects Database is not exhaustive, but it is comprehensive enough to provide a solid starting point for our calculations.

The top down approach uses data proxies. We have separated countries into three tiers. Each tier comprises a group of countries on a similar economic development trajectory and with similar patterns in terms of infrastructure spending, levels of infrastructure development and sector maturity. This enables us to confirm and overcome any deficiencies of infrastructure-specific data by applying an average group ratio (calculated from the countries for which official data exists) to the countries for which data is limited.

■ Tier I - Developed States. Common characteristics include:

■ Mature infrastructure markets;

■ Investments typically target maintenance of existing assets or highly advanced projects at the top of the value chain;

■ Infrastructure as percent of total construction averages around 30%.

■ Tier I countries: Canada, Germany, Greece, UK, US, France, Hong Kong, Taiwan, Singapore, Israel, Japan, Australia.

• Tier II - Core Emerging Markets. Common characteristics include

■ The most rapidly growing emerging markets, where infrastructure investments are a government priority;

■ Significant scope for new infrastructure facilities from very basic levels (eg highways, heavy rail) to more high value projects (renewables, urban transport);

■ Infrastructure as percent of total construction averages around 45% and above.

■ Tier II countries: Colombia, Malaysia, Mexico, South Korea, Peru, Philippines, Turkey, Vietnam, Poland, Hungary, South Africa, Nigeria, Russia, China, India, Brazil, Indonesia.

• Tier III- Emerging Europe. Common characteristics include:

■ Regional socioeconomic trajectories;

■ Development defined by recent or pending accession to European structures such as the EU. Infrastructure development to a large degree dictated by EU development goals and financed through vehicles such as the PHARE and ISPA programmes, and institutions such as the EBRD and EIB;

■ Infrastructure as percent of total construction averages between 30% and 40%.

■ Tier III countries: Czech Republic, Romania, Bulgaria, Slovakia, Slovenia, Estonia, Latvia, Lithuania, Croatia, Ukraine.

This methodology has enabled us to calculate infrastructure industry values for states where this was not previously possibly. Furthermore, it has enabled us to create comparable indicators.

The top down hypothesis-led approach has been used solely to calculate the infrastructure industry value as a percentage of total construction. For all sub-sector calculations we apply the bottom-up approach, ie calculating the ratios from our Key Projects Database where data was not otherwise available.

Risk/Reward Index Methodology

BMI's Risk/Reward Index (RRI) provide a comparative regional ranking system evaluating the ease of doing business and the industry-specific opportunities and limitations for potential investors in a given market.

The RRI system divides into two distinct areas:

Rewards: Evaluation of sector's size and growth potential in each state, and also broader industry/state characteristics that may inhibit its development. This is further broken down into two sub categories:

■ Industry Rewards (this is an industry-specific category taking into account current industry size and growth forecasts, the openness of market to new entrants and foreign investors, to provide an overall score for potential returns for investors).

• Country Rewards (this is a country-specific category, and the score factors in favourable political and economic conditions for the industry).

Risks: Evaluation of industry-specific dangers and those emanating from the state's political/economic profile that call into question the likelihood of anticipated returns being realised over the assessed time period. This is further broken down into two sub categories:

■ Industry Risks (this is an industry-specific category whose score covers potential operational risks to investors, regulatory issues inhibiting the industry, and the relative maturity of a market).

• Country Risks (this is a country-specific category in which political and economic instability, unfavourable legislation and a poor overall business environment are evaluated to provide an overall score).

We take a weighted average, combining industry and country risks, or industry and country rewards. These two results in turn provide an overall Risk/Reward Index, which is used to create our regional ranking system for the risks and rewards of involvement in a specific industry in a particular country.

For each category and sub-category, each state is scored out of 100 (100 being the best), with the overall Risk/Reward Index a weighted average of the total score. Importantly, as most of the countries and territories evaluated are considered by us to be 'emerging markets', our score is revised on a quarterly basis. This ensures that the score draws on the latest information and data across our broad range of sources, and

the expertise of our analysts. Our approach in assessing the Risk/Reward balance for infrastructure industry investors globally is fourfold:

■ First, we identify factors (in terms of current industry/country trends and forecast industry/country growth) that represent opportunities to would-be investors.

■ Second, we identify country and industry-specific traits that pose or could pose operational risks to would-be investors.

■ Third, we attempt, where possible, to identify objective indicators that may serve as proxies for issues/ trends to avoid subjectivity.

■ Finally, we use BMI's proprietary Country Risk Index (CRI) in a nuanced manner to ensure that only the aspects most relevant to the infrastructure industry are incorporated. Overall, the system offers an industry-leading, comparative insight into the opportunities/risks for companies across the globe.

Sector-Specific Methodology

In constructing these indices, the following indicators have been used. Almost all indicators are objectively based.

Indicators

Table: Infrastructure Risk/Reward Index Indicators

Rationale

Rewards Industry rewards Construction expenditure, USDbn Objective measure of size of sector. The larger the sector, the greater the opportunities available. Sector growth, Objective measure of growth potential. Rapid growth results in increased % y-o-y opportunities. Capital investment, % of GDP Proxy for the extent the economy is already oriented towards the sector. Government spending, % of GDP Proxy for extent to which structure of economy is favourable to infrastructure/ Country rewards Labour market infrastructure From BMI's Country Risk Index (CRI). Denotes availability/cost of labour. High costs/low quality will hinder company operations. Financial infrastructure From CRI. Denotes ease of obtaining investment finance. Poor availability of finance will hinder company operations across the economy. Access to electricity From CRI. Low electricity coverage is proxy for pre-existing limits to infrastructure coverage. Risks Industry risks

Infrastructure Risk/Reward Index Indicators - Continued

Rationale

No. of companies Subjective evaluation against BMI-defined criteria. This indicator evaluates barriers to entry. Transparency of tendering process Subjective evaluation against BMI-defined criteria. This indicator evaluates predictability of operating environment. Country risks Structure of economy From CRI. Denotes health of underlying economic structure, including seven indicators such as volatility of growth; reliance on commodity imports, reliance on single sector for exports. External risk From CRI. Denotes vulnerability to external shock - principal cause of economic crises. Policy continuity Subjective score from CRI. Denote predictability of policy over successive governments. Legal framework From CRI. Denotes strength of legal institutions in each state. Security of investment can be a key risk in some emerging markets. Corruption From CRI. Denotes risk of additional illegal costs/possibility of opacity in tendering/business operations affecting companies' ability to compete.

Source: BMI

Weighting

Given the number of indicators/datasets used, it would be inappropriate to give all sub-components equal weight. Consequently, the following weighting has been adopted:

Table: Weighting Of Indicators

Component Weighting, % Rewards 70, of which - Industry rewards 65 - Country rewards 35 Risks 30, of which - Industry risks 40 - Country risks 60

Source: BMI