Vietnam Infrastructure Report INCLUDES BMI's FORECASTS

Q1 2013 www.businessmonitor.com

VietnaM infrastructure Report INCLUDES BMI'S FORECASTS

ISSN 1750-5593 Published by Business Monitor International Ltd. VIETNAM INFRASTRUCTURE REPORT Q1 2013 INCLUDES 10-YEAR FORECASTS TO 2021

Part of BMI's Industry Report & Forecasts Series

Published by: Business Monitor International

Copy deadline: October 2012

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Vietnam Infrastructure Report Q1 2013

CONTENTS

BMI Industry View ...... 5 SWOT Analysis ...... 6 Vietnam Infrastructure SWOT ...... 6 Market Overview ...... 7 Vietnam ...... 7 Competitive Landscape ...... 9 Table: Vietnam EQS Data ...... 9 Building Materials ...... 10 Asia ...... 10 Cement Forecasts ...... 16 Table: Vietnam Cement Production and Consumption Data, 2010 – 2016 ...... 16 Table: Vietnam Cement Production and Consumption Long Term Forecast, 2017 – 2021 ...... 16 Industry Forecast Scenario ...... 17 Table: Vietnam Construction And Infrastructure Industry Data, 2010 – 2016 ...... 17 Table: Vietnam Construction And Infrastructure Long Term Forecast, 2015 – 2021 ...... 18 Construction And Infrastructure Forecast Scenario ...... 20 Transport Infrastructure ...... 26 Table: Vietnam Transport Infrastructure Industry Data, 2010 – 2016 ...... 26 Table: Vietnam Transport Infrastructure Long Term Forecasts, 2015-2021 ...... 28 Transport Infrastructure Outlook and Overview ...... 30 Title: Competitiveness Of Vietnam's Infrastructure ...... 30 Table: Vietnam Railway Corporation’s Main Targets ...... 34 Major Projects Table – Transport ...... 39 Table: Major Projects – Transport ...... 39 Energy And Utilities Infrastructure ...... 54 Table: Vietnam Energy and Utilities Infrastructure Industry Data, 2010 – 2016 ...... 54 Table: Vietnam Energy and Utilities Infrastructure Industry Long Term Forecast, 2015-2021 ...... 56 Energy And Utilities Infrastructure Outlook and Overview ...... 58 Major Projects Table – Energy And Utilities ...... 68 Table: Major Projects – Energy and Utilities ...... 68 Residential/Non-Residential Construction and Social Infrastructure ...... 80 Table: Vietnam Residential and Non-residential Building Industry Data, 2010 – 2016 ...... 80 Table: Vietnam Residential and Non-residential Building Long Term Forecasts, 2015 – 2021 ...... 80 Residential/Non-Residential Building Outlook and Overview ...... 81 Major Projects Table – Residential/Non-Residential Construction And Social Infrastructure ...... 84 Table: Major Projects – Residential/Non-Residential Construction And Social Infrastructure ...... 84 Risk/Reward Ratings ...... 86 Vietnam’s Risk/Reward Ratings ...... 86 Rewards ...... 86 Risks ...... 86 Regional Overview ...... 87 Asia Pacific Infrastructure Risk/Reward Ratings ...... 87 Table: Asia Infrastructure Risk/Reward Ratings ...... 93

Vietnam Infrastructure Report Q1 2013

Company Monitor ...... 94 Cavico Corporation ...... 94 Electricity of Vietnam Group (EVN) ...... 97 Global Overview ...... 100 Source: Bloomberg ...... 106 Methodology ...... 107 Industry Forecasts ...... 107 Construction Industry ...... 108 Data Methodology ...... 108 New Infrastructure Data Sub-sectors ...... 108 Construction ...... 110 Capital Investment ...... 111 Construction Sector Employment ...... 111 Infrastructure Risk/Reward Ratings ...... 112 Table: Infrastructure Business Environment Indicators ...... 113

Vietnam Infrastructure Report Q1 2013

BMI Industry View

BMI View: Construction activity in Vietnam continued to contract in the third quarter of 2012, prompting us to pencil in a mild contraction for our 2012 construction forecasts. Real growth is now expected to come in at a negative 0.2% in 2012, compared to our previous forecast of 0.1% real growth. Despite this downward revision, we remain convinced that a near-term recovery is still on the cards for Vietnam's construction industry – construction real growth is projected to reach 7.1% in 2013 – as monetary conditions remain conducive for construction. This recovery will be led by the residential and non-residential building construction sector as we expect the infrastructure sector to continue facing difficulties in securing project financing.

The major developments in Vietnam’s infrastructure sector are:

In September 2012, Thailand-based Italian-Thai Development signed a memorandum of understanding (MoU) to draw out the investment plan and technical design for phase 2 of the Halong-Mong Cai expressway project in the Quang Ninh province. The 134km project, which is part of the Noi Bai-Halong-Mong Cai expressway project, is expected to cost a total of US$2.1bn. The expressway is expected to take three years to be completed. In September 2012, A consortium led by South Korea's engineering and construction company Daelim Industrial has entered into a contract with Cantho Thermal Power Company Limited for the construction of a thermal power plant in the south of Vietnam. The contract has a value of US$335mn, with construction work to be completed by October 2015. The power plant is to be located in the O Mon district on the Mekong Delta. Daelim Industrial possesses a stake in the project worth US$285mn, with the plant to have the capacity to generate 330MW of electricity. Daelim Industrial will be responsible for the plant's design and construction, while its Japanese partner Sojitz Corporation will supply steam turbines.

In October 2012, the deputy director of the railway administration, Nguyen Van Doanh, said that a total of 20 railway projects were earlier recommended by the Vietnam National Railway Administration to be developed under the forms of BOT, build-transfer and build-transfer- operate, and this list of projects was submitted to the Ministry of Transport in early 2010; although a lack of investors prevented from starting them. Among the 20 railway projects calling for investment in 2010-2020, they include the 381km Lao Cai-Hanoi-Hai Phong railway line, the 114km Bien Hoa-Vung Tau route and the 49km railway connecting Trang Bom in Dong Nai with Hoa Hung in HCM City.

Vietnam Infrastructure Report Q1 2013

SWOT Analysis

Vietnam Infrastructure 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 has attracted investment from many of the world’s largest infrastructure companies. The poor state of infrastructure in the country provides easy wins 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 (EVN)’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 presents 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 2021 will rise in tandem with urbanisation. Severe drought is driving demand in electricity generation sources besides hydropower; i.e. 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.

Threats The Vietnamese government's shift in focus – from driving economic growth towards fighting inflation and addressing macroeconomic imbalances – is expected to have a cooling effect. Public spending cuts, tighter credit conditions and aggressive monetary tightening 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. The EU predicts Vietnam will not become a true market economy until 2018.

Vietnam Infrastructure Report Q1 2013

Market Overview

Vietnam

Vietnam's emergence as one of the most promising economies in Asia, if not the world, stems largely from the Communist Party of Vietnam's (CPV) adoption of the Doi Moi market reform policies in 1986. The gradual but steady shift from a largely agrarian country with a high degree of state ownership and government intervention to a market economy has stimulated a flow of foreign investment and domestic entrepreneurship, which are now the prime drivers of growth. For instance, Vietnam attracted foreign direct investment (FDI) of almost US$14.7bn in 2011, according to Vietnam’s Ministry of Planning and Investment, although this was a 21% drop from 2010’s recorded figure.

However, Vietnam’s poor infrastructure has long been an impediment to the country’s growth, as its developing industry is highly dependent on sound infrastructure (especially power and road) to operate. This infrastructure deficit is expect to worsen further as the combination of rising urbanisation and steady population and GDP growth is expected to exert considerable pressure on Vietnam's urban transportation systems. 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. It is estimated that the country has an urbanisation rate of 30%.

This urbanisation trend is felt acutely in Hoh Chi Minh City (HCM City) and Hanoi – the country's largest cities and chief commercial hubs. The capital demand for transport infrastructure development in HCM CITY is estimated to be US$3-4bn per annum between now and 2020, but the city's budget can only provide US$500mn per annum, according to a statement from the HCM City government in July 2012. For Hanoi, the city authorities released the city's infrastructure development in July 2012. Under this plan, the city would need about VND584trn (US$28bn) by 2020, VND324trn (US$15.6bn) of which would be capital from the central budget and the city budget, with the remainder to be raised from social resources.

Vietnam does not have the fiscal means to meet its infrastructure deficit. According to the Vietnamese Ministry of Planning and Investment, there remains a huge deficit between the annual requirement for infrastructure investment capital, which is estimated at about US$15bn, and the annual mobilised fund of US$7-8bn.

Vietnam has been making noteworthy efforts to address this shortfall in investment, and the government has made infrastructure a priority investment area. This has been demonstrated through various demand- side policies aimed at boosting macroeconomic growth and a variety of infrastructure spending initiatives. The use of official development assistance (ODA) to finance infrastructure projects has also achieved success, with Europe, Japan and the Asian Development Bank becoming frequent co-financers in several infrastructure projects.

Vietnam Infrastructure Report Q1 2013

Improved contract agreements between the Export-Import Bank of the United States (US Exim Bank) and the Vietnam Development Bank (VDB) are also helping to provide financing for infrastructure development. In February 2012, the US Exim Bank concluded a business-development mission into Vietnam and is looking to invest up to US$1.5bn in infrastructure projects such as satellite, thermal power and renewable energy projects.

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. This has not been achieved due to an inability by sub-sovereign governments and state agencies to carry out the necessary project assessments. 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. However, progress on these tasks are proceeding very slowly, and are still uncompleted as of July 2012.

This inability to complete its PPP plans and the poor credit conditions globally were causing project delays. According to the Ministry of Planning and Investment, 4436 projects were delayed in 2011. These projects accounted for 11.55% of the total amount of projects being implemented in Vietnam, with most of them belonging to projects with more than 30% of state-owned investment capital. A total of 3568 projects had to adjust their investment capital; this does not include projects that, according to investment management laws, are not allowed to adjust their total investment capital, due to price fluctuations and policy changes.

These difficulties were also pushing the Vietnamese government to seek funds from non-banking sources, such as project bonds and sovereign wealth funds. This trend is starting to take place, with the Vietnamese government having granted approval for HCM City to issue bonds for infrastructure projects in Q212. Meanwhile, the Association of South East Asian Nations (ASEAN), of which Vietnam is a member, signed a shareholder agreement in April 2012 for the ASEAN Infrastructure Fund, a special purpose vehicle aimed at providing member countries up to US$4bn for infrastructure development.

A regulatory and legal framework to nurture the development of concessions is also largely absent, although there are regulatory frameworks under construction. Law firm Duane Morris has identified four main obstacles that are limiting the participation of the private sector in Vietnamese infrastructure. These are:

The weak governance structures of the state-owned companies that dominate the construction and utilities sectors;

Difficulty in accessing domestic capital;

Vietnam Infrastructure Report Q1 2013

Costly delays for projects, due to the weak regulatory environment;

The often uncertain support of the government.

Competitive Landscape

Table: Vietnam EQS Data

Operating Market Revenue Profit Total Interest Latest FY Cap Growth Growth Debt/ Coverage Name Earnings (US$mn) (% y-o-y) (% y-o-y) Ebitda Ratio PE Ratio

Vietnam Construction & IMPO 12/2011 232.9 -4.0 39.8 6.5 1.4 7.1

Songda Urban & Industrial Zo 12/2011 154.3 -86.3 NA -45.8 -30.1 NA

HCM City Infrastructure INV 12/2011 100.4 0.4 -8.4 21.7 0.3 15.8

Becamex Infrastructure Devel 12/2011 139.3 276.8 117.5 1.5 15.5 8.7

Petrovietnam Construction Co 12/2011 182.1 26.9 -29.4 10.5 1.0 14.3

Development Invest Construct 12/2011 104.8 -35.5 -80.9 8.7 2.3 20.4

Kinh Bac City Development SH 12/2011 152.8 -30.7 -47.4 21.2 0.7 392.9

Cotec Construction JSC 12/2011 70.9 36.5 11.6 0.0 NA 5.1

*exchange rates accurate as of 13/07/2012. Source: Bloomberg

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 (SOE) 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.

Vietnam Infrastructure Report Q1 2013

Building Materials

Asia

BMI View: Asia will continue to outperform in the production and consumption of building materials, expanding its share of the global market as regional construction sectors exhibit strong levels of growth across the board. Although we note that macroeconomic fundamentals and demographic trends will support long-term growth, the risks weighing on our forecast are increasing in line with the increasingly muted picture for the world-leading Chinese building materials sector.

Key Views:

Sound fundamentals - rising per capita incomes, demographic growth, industrialisation and robust urbanisation - will be the key drivers of Asia's building materials consumption story. Bearing in mind the continued weakness that we see in Europe (see our online service, September 28 2012, 'Eurozone Weakness Still Depressing Market'), we forecast that Asia will continue to expand its share of global total cement and steel production.

Growth in regional competition will intensify as small firms compete for market share. Over the long term, this trend will switch to one of increasing consolidation.

Reflecting these trends, global building materials manufacturers will increasingly look to enhance their operations to diversify against a slump in developed markets. In the cement market, this will trigger the emergence of a number of Asian majors - China's Anhui Conch, Thailand's Siam Cement and Indonesian firms Indocement and Semen Gresik continue to improve sales volumes vis-a-vis established players such as Holcim and Lafarge.

Demand for building materials continues to weaken in China as the country faces a systemic re- evaluation of fixed capital spending plans. Despite this, we believe growth rates will remain relatively robust and will benefit in the immediate term from a new round of infrastructure spending announced by local governments and supported by Beijing.

However, we note that chronic overcapacity and local government indebtedness pose significant long term risks to our China forecast, and that these factors may work to drag down demand for materials through 2013. A heavy landing in China - a scenario which is supported by our country risk team - would cause a significant downward revision to our Asia building materials forecast.

Demand in India will support robust growth in the building material consumption over the medium term, yet challenges such as rising input costs and significant overcapacity will mean that the outlook for firms in the sector will remain challenging.

Vietnam Infrastructure Report Q1 2013

India's cement market will continue to face issues of surplus capacity as smaller firms begin to undercut the profits of national majors. Over Q212, major firms were fined by the Competition Commission of India (CCI) for engaging in cartelism and price fixing. Since then the price of cement has slumped as new firms have entered the market.

Asia Forging Ahead

India/China - BMI's Steel Forecast - Production/Consumption ('000 tons)

Source: BMI, WSA

China - Slowing Yet Consumption Still Strong We expect a slump in demand for cement and steel to continue to weigh on the country's building materials sector for the foreseeable future. Both official and private sector data point to a deceleration in construction spending over 2011, and we expect that, due to deterioration in macroeconomic fundamentals, this trend will largely continue over 2012, despite the renewed efforts of the government to bolster infrastructure spending.

Although we believe that the stimulus may support levels of growth experienced over H112 into 2013 as the government looks to construct a further 7mn housing units, new rail projects get under way and local governments such as Changsha and Nanjing announce ambitious spending plans, we do not believe that investments will facilitate a rise in demand sufficient to return the ailing building materials sector back to peak levels.

We believe that Chinese equities will continue to feel the brunt of a softening in demand, despite market cement warming towards cement majors on announcement of market warming measures. Although manufacturers may experience a slight rebound off the back of a renewed round of infrastructure spending, the longer-term picture remains bleak.

Despite our forecast for a slowing steel production due to a fall in investment in real estate and fixed capital, figures from the China Iron & Steel Association suggest that output grew by 1.2% month-on-

Vietnam Infrastructure Report Q1 2013

month (m-o-m) in August 2012. This is despite the fact that, according to Citigroup, China's steel stockpiles stand at almost 100m tons. We believe that, if proven true, this trajectory is unsustainable and reflects structural inefficiencies within China's steel market. If the pattern continues over the long term, we believe that an increasing surplus of inventories may facilitate a shock leading to a production slump and a period of painful readjustment for the industry. Previous rounds of stimulus, such as that implemented in 2008, have only worked to exacerbate the issue of stock-piling, as producers have historically upped output in excess of actual demand. As we believe that the most recent round of stimulus spending will have a far smaller impetus on the construction sector, this issue poses a significant threat to the medium-term performance of firms. According to China Daily, 83% of the nation's steel producers ran loses over H112. With this in mind, and reflecting a trend that we believe will continue over the long term, Boashan Iron & Steel Co, China's biggest listed steelmaker, has idled a three million tonnes per annum (mtpa) plan in Shanghai.

Indian And Chinese Equities Diverging Anhui Conch Cement & Asia Cement (HK) vs Ultratech Cement & Madras Cements (India) - 2-Year Share Price Performance (% Change, Rebased October 2010)

Source: Bloomberg

India - Much Demand To Be Met Overall, it is our view that India will emerge as a regional outperformer over 2012. According to World Steel Association (WSA) estimates, steel production in the country grew by 5.7% year-on-year (y-o-y) in 2011. In line with robust economic growth, steel production in India has grown by an average of nearly 8% y-o-y since 2007, and in November 2011, India's steel ministry estimated that demand for the metal could increase by around 9% y-o-y over the following five years.

Vietnam Infrastructure Report Q1 2013

The outlook for cement consumption is equally robust, and we expect growth to average nearly 10% y-o- y between 2012 and 2016. The country currently has 137 large and 365 mini cement plants, according to the Cement Manufacturers Association.

Our optimistic outlook is weighed to the upside and could be further buoyed if the government is successful in gaining the US$1tn in infrastructure investments by 2017 - a sum required to fulfil the goals outlined by its National Planning Committee. However, risks are abound, and we note that the operating environment for firms will remain challenging over the medium term.

Over Q212, major firms, such as UltraTech Cement and Shree Cement were fined by the Competition Commission of India (CCI) for engaging in cartelism and price fixing and, since then, the price of cement has slumped as new firms have entered the market and undercut the majors.

According the Economic Times, the price of cement in Andhra Pradesh - India's second largest producer of the material - fell 10% over the first few weeks of September, and is down 25% from the industry's peak levels of Rs 300 per bag. Overcapacity in the state is now at 60%, and production continues to be disrupted by poor access to inputs such as sand and the increasing activity of the Telangana independence movement, which has caused deadlock over the state budget. Across the country, margins have been further squeezed by a rise in the price of inputs such as gypsum and diesel. However, a fall in the price of imported coal has gone some way to curb loses.

However, over the medium term, we expect firms to benefit from a renewed infrastructure drive and a softening of interest rates. We forecast that India's building material consumption growth will overtake that of all other regional competitors over 2012, and with this in mind believe that the medium term will witness the expansion of a number of global majors into the country.

An example of this is the expansion of HeidelbergCement in central India. The company has announced that the firm is to increase its grinding capacity from 3.1 mtpa to 6 mtpa and clinker output capacity from 1.2 mtpa to 3.1 mtpa. The expansion is scheduled to begin in November 2012 and represents the attraction of central areas such as Uttar Pradesh and Madhya Pradesh, which consistently offer higher realisation rates to firms.

In contrast to Andhra Pradesh, according to TET utilisation rates in the region stand at around 90-95%. Fast-growing Indian manufacturer India Cement is also looking to diversify its operations away from established regions of Andhra Pradesh, Tamil Nadu and Rajasthan and open new plants in Madhya Pradesh.

Despite growing demand for steel, the land clearance obstacles facing foreign steel players such as POSCO and ArcelorMittal continue to stall a vast pipeline of projects. Reports in January 2012 that POSCO may build a smaller steel plant than the mega 12 mpta mill originally planned in India's eastern state of Orissa are a direct result of the long-running land and environmental disputes that have paralysed

Vietnam Infrastructure Report Q1 2013

the project since 2008. While the introduction of a new land bill could, if approved, bring much-needed speed and clarity to the acquisition process, there remains much opposition to the proposed bill.

Overcapacity And Increased Competition Driving Regional Shift India - Cement Consumption, Production & Capacity By Region (mn tons)

Source: Cement Manufacturers' Association, BMI

Dynamic and Increasingly Competitive Indonesia - the continent's third most populous country - the Philippines, Thailand and Vietnam will also be key growth markets for the consumption of building materials in the region over the coming years. Moreover, the high interest rates implemented by various Asian countries in 2011 are likely to fall in 2012 as disinflationary, rather than inflationary, pressures take precedence in the face of softening global activity. This could make it increasingly tenable for cement and steel companies to finance their capital expenditures through debt and take on new projects in 2012.

We expect cement consumption in the country to grow by an average of 6.2% y-o-y between 2012 and 2016, but note that the robust outlook for infrastructure investment over the coming years, combined with ongoing improvements in the business environment creates upside risks. Through passing a much-delayed land bill at the end of 2011 (see our online service, December 16 2011, 'Land Acquisition Bill A Big First Step'), Indonesia took a major step towards removing a long-term obstacle to investment in the sector.

This growth potential is attracting the attention of foreign cement companies within the region. In July 2011, Siam Cement announced plans to spend US$219mn on developing its ceramic and construction material businesses in Indonesia, whilst Anhui is reportedly planning to build plants in South Kalimantan, East Kalimantan and Papua - investing in a new capacity of 10mtpa. In August 2012, Mexico's Cemex

Vietnam Infrastructure Report Q1 2013

announced that it was raising the cement production capacity of its APO plant in the Philippines by 1.5mtpa.

These investments will add welcome new capacity and stimulate increased competition in a market where significant potential for consolidation exists. Vietnam is another market that looks set for increasing consolidation. We expect over-capacity, together with high energy and transportation costs, to put increasing pressure on many of the less competitive and inefficient cement companies.

Finally, we believe that Semen Gresik's announcement in March 2012 that it is in talks with Myanmar's foreign investment body over plans to build a 1.5mn to 2.5mn tonnes/year cement plant in the country could provide the firm with an important foothold in the resource-rich frontier market. Myanmar's reliance on imported cement and the potential for growth driven by demand for mining-related infrastructure projects could generate significant rewards for foreign players prepared to brave the political and industry-specific risks (see our online service, March 20 2012, 'Semen Gresik's Seeks Frontier Foothold').

South East Asia Picking Up Chinese Slack Asia - BMI's Cement Consumption Forecast (% y-o-y Growth)

Source: USGS, BMI

Vietnam Infrastructure Report Q1 2013

Cement Forecasts

Table: Vietnam Cement Production and Consumption Data, 2010 – 2016

2010 2011 2012e 2013f 2014f 2015f 2016f

Cement production (including imported clinker), tonnes 50,816,923 45,837,500 47,694,500 50,348,760 53,206,724 56,336,812 59,607,235 Cement production (including imported clinker), tonnes, % y-o-y 6.1 -9.8 4.1 5.6 5.7 5.9 5.8 Cement consumption, tonnes 49,633,422 45,223,301 47,012,275 49,574,510 52,340,442 55,374,453 58,544,698 Cement consumption, tonnes, % y-o-y 11.3 -8.9 4.0 5.5 5.6 5.8 5.7

Cement net exports, tonnes 1,183,500 614,199 682,225 774,251 866,282 962,359 1,062,537 Cement net exports, tonnes, % y-o-y -64.1 -48.1 11.1 13.5 11.9 11.1 10.4

e/f = BMI estimate/forecast. Source: BMI Research, USGS, UN.

Table: Vietnam Cement Production and Consumption Long Term Forecast, 2017 – 2021

2015f 2016f 2017f 2018f 2019f 2020f 2021f

Cement production (including imported clinker), tonnes 56,336,812 59,607,235 63,076,952 66,637,578 70,344,120 73,995,195 73,995,195

Cement production (including imported clinker), tonnes, % y-o-y 5.9 5.8 5.8 5.6 5.6 5.2 0.0

Cement consumption, tonnes 55,374,453 58,544,698 61,912,829 65,367,031 68,963,121 72,495,987 72,495,987

Cement consumption, tonnes, % y-o-y 5.8 5.7 5.8 5.6 5.5 5.1 0.0

Cement net exports, tonnes 962,359 1,062,537 1,164,124 1,270,547 1,380,999 1,499,207 1,499,207

Cement net exports, tonnes, % y-o-y 11.1 10.4 9.6 9.1 8.7 8.6 0.0

e/f = BMI estimate/forecast. Source: BMI Research, USGS, UN.

Vietnam Infrastructure Report Q1 2013

Industry Forecast Scenario

Table: Vietnam Construction And Infrastructure Industry Data, 2010 – 2016

2010 2011 2012e 2013f 2014f 2015f 2016f

Construction Industry Value, VNDbn 139,162.0 162,620.0 176,907.1 200,669.0 226,016.2 252,303.6 281,090.3

Construction Industry Value, US$bn 7.3 7.9 8.4 9.6 11.0 12.4 14.0

Construction Industry Real Growth, % chg y- o-y 10.1 -1.0 -0.2 7.1 6.4 6.4 6.4

Construction Industry, % of GDP 7.0 6.4 6.1 6.1 6.0 5.9 5.9

Total Capital Investment, VNDbn 704,401.0 745,494.0 847,631.6 954,642.1 1,075,165.7 1,201,771.8 1,338,833.9

Total Capital Investment, US$bn 36.8 36.1 40.3 45.9 52.3 59.1 66.6

Total Capital Investment, % of GDP 35.6 29.4 29.1 28.9 28.5 28.2 27.9

Capital Investment Per Capita, US$ 419.1 406.5 449.1 506.3 571.0 639.5 714.0

Real Capital Investment Growth, % y-o-y 10.9 -10.4 4.3 5.9 6.0 6.2 6.1

Construction Industry Employment, '000 2,707.8 2,687.2 2,682.5 2,831.2 2,974.8 3,127.4 3,290.6

Construction Industry Employment, % y-o-y 7.7 -0.8 -0.2 5.5 5.1 5.1 5.2

Total Workforce, '000 61,842.0 62,824.3 63,694.6 64,449.1 65,116.8 65,719.2 66,294.0

Construction Industry Employees as % of total labour force 4.4 4.3 4.2 4.4 4.6 4.8 5.0

Infrastructure Industry Value As % of Total Construction 46.1 47.0 46.9 46.4 45.9 45.3 44.6

Infrastructure Industry Value, VNDbn 64,157.4 76,431.4 83,010.8 93,124.8 103,648.6 114,283.7 125,419.9

Infrastructure Industry Value, US$bn 3.4 3.7 3.9 4.5 5.0 5.6 6.2

Infrastructure Industry Value Real Growth, % chg y-o-y 17.6 0.5 -0.4 5.8 5.1 5.0 4.7

Infrastructure Industry Value as % of GDP 3.2 3.0 2.9 2.8 2.7 2.7 2.6

Vietnam Infrastructure Report Q1 2013

Table: Vietnam Construction And Infrastructure Industry Data, 2010 – 2016

2010 2011 2012e 2013f 2014f 2015f 2016f

Residential and Non- Residential Building Industry Value As % of Total Construction 53.9 53.0 53.1 53.6 54.1 54.7 55.4

Residential and Non- Residential Building Industry Value, VNDbn 75,004.6 86,188.6 93,896.4 107,544.2 122,367.6 138,019.9 155,670.4

Residential and Non- Residential Building Industry Value, US$bn 3.9 4.2 4.5 5.2 6.0 6.8 7.7

Residential and Non- Residential Building Industry Value Real Growth, % chg y-o-y 16.5 -3.8 -0.1 8.2 7.5 7.5 7.8

Residential and Non- Residential Building Industry Value as % of GDP 3.8 3.4 3.2 3.3 3.2 3.2 3.2

f = BMI forecasts. Sources: Census and Statistics Department/ILO

Table: Vietnam Construction And Infrastructure Long Term Forecast, 2015 – 2021

2015f 2016f 2017f 2018f 2019f 2020f 2021f

Construction Industry Value, VNDbn 252,303.6 281,090.3 313,160.2 348,229.7 386,859.6 428,148.3 472,493.5

Construction Industry Value, US$bn 12.4 14.0 15.7 17.4 19.3 21.4 23.6

Construction Industry Real Growth, % chg y- o-y 6.4 6.4 6.4 6.2 6.1 5.7 5.4

Construction Industry, % of GDP 5.9 5.9 5.8 5.7 5.7 5.6 5.5

Total Capital Investment, VNDbn 1,201,771.8 1,338,833.9 1,491,527.9 1,658,504.4 1,842,432.5 2,039,020.1 2,250,160.6

Total Capital Investment, US$bn 59.1 66.6 74.6 82.9 92.1 102.0 112.5

Total Capital Investment, % of GDP 28.2 27.9 27.6 27.3 27.0 26.6 26.1

Capital Investment Per Capita, US$ 639.5 714.0 792.4 873.9 963.2 1,058.1 1,159.6

Real Capital Investment Growth, % chg y-o-y 6.2 6.1 6.1 5.9 5.8 5.4 5.1

Vietnam Infrastructure Report Q1 2013

Table: Vietnam Construction And Infrastructure Long Term Forecast, 2015 – 2021

2015f 2016f 2017f 2018f 2019f 2020f 2021f

Construction Industry Employment, '000 3,127.4 3,290.6 3,464.2 3,642.9 3,829.4 4,013.6 4,197.5

Construction Industry Employment, % y-o-y 5.1 5.2 5.3 5.2 5.1 4.8 4.6

Total Workforce, '000 65,719.2 66,294.0 66,773.8 67,197.2 67,607.8 68,026.5 68,431.5

Construction Industry Employees as % of total labour force 4.8 5.0 5.2 5.4 5.7 5.9 6.1

Infrastructure Industry Value As % of Total Construction 45.3 44.6 43.9 43.2 42.5 41.8 40.9

Infrastructure Industry Value, VNDbn 114,283.7 125,419.9 137,594.6 150,536.8 164,441.9 178,861.3 193,385.6

Infrastructure Industry Value, US$bn 5.6 6.2 6.9 7.5 8.2 8.9 9.7

Infrastructure Industry Value Real Growth, % chg y-o-y 5.0 4.7 4.7 4.4 4.2 3.8 3.1

Infrastructure Industry Value as % of GDP 2.7 2.6 2.5 2.5 2.4 2.3 2.2

Residential and Non- Residential Building Industry Value As % of Total Construction 54.7 55.4 56.1 56.8 57.5 58.2 59.1

Residential and Non- Residential Building Industry Value, VNDbn 138,019.9 155,670.4 175,565.6 197,692.9 222,417.7 249,287.0 279,107.8

Residential and Non- Residential Building Industry Value, US$bn 6.8 7.7 8.8 9.9 11.1 12.5 14.0

Residential and Non- Residential Building Industry Value Real Growth, % chg y-o-y 7.5 7.8 7.8 7.6 7.5 7.1 7.0

Residential and Non- Residential Building Industry Value as % of GDP 3.2 3.2 3.3 3.3 3.3 3.3 3.2

f = BMI forecasts. Sources: Census and Statistics Department/ILO

Vietnam Infrastructure Report Q1 2013

Construction And Infrastructure Forecast Scenario

In Decline Construction Industry Value And Infrastructure Share

e/f = BMI estimate/forecast. Source: BMI, Vietnam General Statistics Office

BMI View: Construction activity in Vietnam continued to contract in the third quarter of 2012, prompting us to pencil in a mild contraction for our 2012 construction forecasts; Real growth is now expected to come in at -0.2% in 2012, compared to our previous forecast of 0.1% real growth. Despite this downward revision, we remain convinced that a near-term recovery is still on the cards for Vietnam's construction industry – construction real growth is projected to reach 7.1% in 2013 – as monetary conditions remain conducive for construction. This recovery will be led by the residential and non- residential building construction sector as we expect the infrastructure sector to continue facing difficulties in securing project financing.

Construction activity in Vietnam is still in negative territory for the third quarter of 2012. The latest data from the Vietnam General Statistics Office showed that real growth for the construction sector contracted by 0.9% year-on-year (y-o-y) in Q312, compared with a growth of 5.0% y-o-y in Q311. However, the rate of decline slowed down significantly in Q312, suggesting that construction activity was picking up for the quarter. Construction activity in Vietnam had contracted earlier in the year by 3.8% y-o-y in Q212 and 8.3%y-o-y in Q112.

Therefore, even though the lack of growth in Q312 has prompted us to pencil in a mild contraction for our 2012 construction forecasts – construction real growth is forecast to reach a negative 0.2%, compared to our previous forecast of 0.1% growth – we remain convinced that a robust recovery in Vietnam's

Vietnam Infrastructure Report Q1 2013

construction sector is just around the corner, with construction real growth expected to reach double-digit levels in Q412.

On The Path To Recovery Vietnam – Construction Real Industry Value Data (At 1994 Constant Prices), By Quarters, VNDbn And % chg y-o-y

f = BMI forecast. Source: General Statistics Office, State Bank of Vietnam

Our optimistic outlook for Vietnam's construction sector remains primarily driven by the country's conducive monetary conditions. The benchmark interest rate in Vietnam has stayed at around 10.00% since July 2012 and this should be favourable for construction activity. Indeed, we believe two indicators are already suggesting that construction activity is picking-up in Vietnam.

Firstly, inflation for construction materials bottomed out in July and remains on the rise at the end of September. This, in our opinion, indicates a growing demand for materials to carry out construction work.

Secondly, industrial production expanded by 9.7% y-o-y in September, a significant increase from 4.4% y-o-y in August and the fastest rate of expansion since February. Industrial production is a measure of output of the industrial sector (ie, manufacturing, mining, and utilities) and this increase in production could boost the demand for non-residential buildings such as mining-related facilities and industrial buildings (ie, factories, warehouses).

Vietnam Infrastructure Report Q1 2013

Monetary Conditions Conducive Vietnam – Policy Rate, % & Headline CPI – Housing & Construction Materials, % y-o-y

Source: General Statistics Office, State Bank of Vietnam

2013: Infrastructure Underperformance We believe that the recovery in Vietnam's construction sector will last well into 2013, with real growth for the sector forecast to come in at 7.1% for 2013. This recovery will be led by the residential and non- residential buildings construction sector. Real growth for the building industry is forecast to reach 8.2% in 2013, compared to 5.8% for the infrastructure sector in the same year.

Vietnam Infrastructure Report Q1 2013

Residential And Non-Residential Leads Vietnam – Construction (And Sum-Components) Industry Value Real Growth Forecasts

e/f= BMI estimate/forecast. Source: General Statistics Office, State Bank of Vietnam, BMI

This underperformance of the infrastructure sector is primarily due to difficulties in securing financing. We continue to see evidence of infrastructure projects being delayed by financing shortages. The latest statistics from the transport ministry's department of planning and investment showed that in mid-2012, there were around 107 road upgrading projects in need of funds, while only six of the 14 expressways projects to be developed in Vietnam had reached financial closure by mid-2012. These financing shortages are not confined to the transport sector. Vietnam's state utility EVN reported in late-June that they faced a funding gap of around VND185trn (US$8.9bn) for power plant projects between 2011 and 2015.

In our opinion, these financing issues will not be resolved anytime soon due to three factors. Firstly, 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. Vietnam's budget for capital investment, which is primarily channelled towards infrastructure development, contracted in September, the first time in seven months. Although the Vietnamese government plans to raise funds by privatising several SOEs and raising electricity prices, these measures would require several years of implementation before they could have an impact on project financing.

Vietnam Infrastructure Report Q1 2013

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

Source: Bloomberg, BMI, General Statistics Office of Vietnam

Secondly, we believe that poor global economic conditions will dampen the demand for riskier assets such as infrastructure projects in Vietnam. The sector remains fraught with business environment issues such as slow land clearances, poor planning, corruption, significant red tape, and lack of regulatory clarity. These issues are a deterrent to foreign investment as they have led to severe delays and cost overruns for many infrastructure projects in recent years. In September 2012, the transport ministry stated that in the past three to six years, the implementation cost for transport projects jumped by an average of 180% against their approval cost.

The demand for infrastructure projects in Vietnam is also dampened by a lack of financial viability. Over the course of 2012, we have noticed several transport infrastructure projects struggle to be financially viable. A number of airports in Vietnam, particularly in the central provinces, are currently operating way below capacity despite the rapid rise in the number of visitors in Vietnam, while certain toll roads in HCM City are forced to reduce their toll fees to attract sufficient commuters to stay viable. While cost overruns have contributed to this lack of viability, we believe that the transport infrastructure sector could be oversaturated, as economic activity within Vietnam has not reached levels that are financially viable for such infrastructure.

Vietnam Infrastructure Report Q1 2013

In Decline Vietnam – Foreign Claims From European Banks, US$mn And % chg y-o-y

Source: Bank For International Settlements (October 2012), BMI

Lastly, Vietnam relies significantly on European banks to finance its infrastructure and residential development. With European banks set to face difficult economic conditions and stricter capital controls over the coming years, funds from these European sources could decline as European banks look to strengthen their capital ratios by calling back higher-risk loans and imposing curbs on issuing new loans. For instance, lending growth from European banks to Vietnam continues to be in decline, falling from 10.5% y-o-y in Q411 to 9.4% y-o-y in Q112, according to data from the Bank Of International Settlements. Although the Vietnamese government is trying to seek funds from non-banking sources such as project bonds and sovereign wealth funds, it remains to be seen if they will be sufficient to cover the decline in credit from European banks.

Vietnam Infrastructure Report Q1 2013

Transport Infrastructure

Table: Vietnam Transport Infrastructure Industry Data, 2010 – 2016

2010 2011 2012e 2013f 2014f 2015f 2016f

Transport Infrastructure Industry Value As % Of Total Infrastructure 71.2 68.6 67.8 67.6 67.6 67.5 67.3

Transport Infrastructure Industry Value, VNDbn 45,677.4 52,406.5 56,306.6 62,908.2 70,077.4 77,147.0 84,380.8

Transport Infrastructure Industry Value, US$bn 2.4 2.5 2.7 3.0 3.4 3.8 4.2

Transport Infrastructure Industry Value Real Growth, % chg y-o-y 21.2 -3.9 -1.6 5.4 5.1 4.8 4.4

Transport Infrastructure Industry Value As Percent Of Total Construction (%) 32.8 32.2 31.8 31.3 31.0 30.6 30.0

Roads and Bridges Infrastructure Industry Value As % of Transport Infrastructure 34.2 48.5 48.3 49.2 49.9 50.4 50.8

Roads and Bridges Infrastructure Industry Value, VNDbn 15,621.7 25,394.5 27,223.8 30,946.4 34,943.5 38,856.7 42,852.4

Roads and Bridges Infrastructure Industry Value, US$bn 0.8 1.2 1.3 1.5 1.7 1.9 2.1

Roads and Bridges Infrastructure Industry Value Real Growth, % chg y-o-y 34.3 43.9 -1.8 7.3 6.7 5.9 5.3

Roads and Bridges Infrastructure Industry As % of Total Infrastructure 24.3 33.2 32.8 33.2 33.7 34.0 34.2

Roads and Bridges Infrastructure Industry As % of Total Construction 11.2 15.6 15.4 15.4 15.5 15.4 15.2

Railways Infrastructure Industry Value As % of Transport Infrastructure 31.1 20.7 20.4 20.0 19.5 19.2 19.0

Railways Infrastructure Industry Value, VNDbn 14,205.7 10,843.3 11,493.3 12,594.1 13,699.1 14,824.7 16,015.9

Railways Infrastructure Industry Value, US$bn 0.7 0.5 0.5 0.6 0.7 0.7 0.8

Railways Infrastructure Industry Value Real Growth, % chg y-o-y 25.2 -42.3 -3.0 3.2 2.5 3.0 3.0

Vietnam Infrastructure Report Q1 2013

Table: Vietnam Transport Infrastructure Industry Data, 2010 – 2016

2010 2011 2012e 2013f 2014f 2015f 2016f

Railways Infrastructure Industry As % of Total Infrastructure 22.1 14.2 13.8 13.5 13.2 13.0 12.8

Railways Infrastructure Industry As % of Total Construction 10.2 6.7 6.5 6.3 6.1 5.9 5.7

Airports Infrastructure Industry Value As % of Transport Infrastructure 17.9 11.7 11.9 11.4 11.1 10.7 10.5

Airports Infrastructure Industry Value, VNDbn 8,176.3 6,113.6 6,687.2 7,190.5 7,758.5 8,284.5 8,854.0

Airports Infrastructure Industry Value, US$bn 0.4 0.3 0.3 0.3 0.4 0.4 0.4

Airports Infrastructure Industry Value Real Growth, % chg y-o-y -19.3 -43.9 0.4 1.2 1.6 1.5 1.9

Airports Infrastructure Industry As % of Total Infrastructure 12.7 8.0 8.1 7.7 7.5 7.2 7.1

Airports Infrastructure Industry As % of Total Construction 5.9 3.8 3.8 3.6 3.4 3.3 3.1

Ports Harbours and Waterways Infrastructure Industry Value As % of Transport Infrastructure 16.8 19.2 19.4 19.4 19.5 19.7 19.7

Ports Harbours and Waterways Infrastructure Industry Value, VNDbn 7,673.8 10,055.1 10,902.3 12,177.2 13,676.4 15,181.1 16,658.5

Ports Harbours and Waterways Infrastructure Industry Value, US$bn 0.4 0.5 0.5 0.6 0.7 0.7 0.8

Ports Harbours and Waterways Infrastructure Industry Value Real Growth, % chg y-o-y 62.1 12.4 -0.6 5.3 6.1 5.8 4.7

Ports Harbours and Waterways Infrastructure Industry As % of Total Infrastructure 12.0 13.2 13.1 13.1 13.2 13.3 13.3

Ports Harbours and Waterways Infrastructure Industry As % of Total Construction 5.5 6.2 6.2 6.1 6.1 6.0 5.9

e/f = BMI estimate/forecast. Source: BMI Research

Vietnam Infrastructure Report Q1 2013

Table: Vietnam Transport Infrastructure Long Term Forecasts, 2015-2021

2015f 2016f 2017f 2018f 2019f 2020f 2021f

Transport Infrastructure Industry Value As % Of Total Infrastructure 67.5 67.3 67.0 66.6 66.2 65.7 65.4

Transport Infrastructure Industry Value, VNDbn 77,147.0 84,380.8 92,186.3 100,318.4 108,892.0 117,562.2 126,407.3

Transport Infrastructure Industry Value, US$bn 3.8 4.2 4.6 5.0 5.4 5.9 6.3

Transport Infrastructure Industry Value Real Growth, % chg y-o-y 4.8 4.4 4.3 3.8 3.5 3.0 2.5

Transport Infrastructure Industry Value As Percent Of Total Construction (%) 30.6 30.0 29.4 28.8 28.1 27.5 26.8

Roads and Bridges Infrastructure Industry Value As % of Transport Infrastructure 50.4 50.8 51.1 51.4 51.6 51.7 51.8

Roads and Bridges Infrastructure Industry Value, VNDbn 38,856.7 42,852.4 47,104.8 51,516.1 56,145.4 60,796.8 65,508.9

Roads and Bridges Infrastructure Industry Value, US$bn 1.9 2.1 2.4 2.6 2.8 3.0 3.3

Roads and Bridges Infrastructure Industry Value Real Growth, % chg y-o-y 5.9 5.3 4.9 4.4 4.0 3.3 2.8

Roads and Bridges Infrastructure Industry As % of Total Infrastructure 34.0 34.2 34.2 34.2 34.1 34.0 33.9

Roads and Bridges Infrastructure Industry As % of Total Construction 15.4 15.2 15.0 14.8 14.5 14.2 13.9

Railways Infrastructure Industry Value As % of Transport Infrastructure 19.2 19.0 18.8 18.7 18.6 18.6 18.6

Railways Infrastructure Industry Value, VNDbn 14,824.7 16,015.9 17,322.8 18,723.5 20,238.6 21,816.8 23,471.3

Railways Infrastructure Industry Value, US$bn 0.7 0.8 0.9 0.9 1.0 1.1 1.2

Railways Infrastructure Industry Value Real Growth, % chg y-o-y 3.0 3.0 3.2 3.1 3.1 2.8 2.6

Railways Infrastructure Industry As % of Total Infrastructure 13.0 12.8 12.6 12.4 12.3 12.2 12.1

Railways Infrastructure Industry As % of Total Construction 5.9 5.7 5.5 5.4 5.2 5.1 5.0

Vietnam Infrastructure Report Q1 2013

Table: Vietnam Transport Infrastructure Long Term Forecasts, 2015-2021

2015f 2016f 2017f 2018f 2019f 2020f 2021f

Airports Infrastructure Industry Value As % of Transport Infrastructure 10.7 10.5 10.4 10.3 10.3 10.4 10.5

Airports Infrastructure Industry Value, VNDbn 8,284.5 8,854.0 9,577.0 10,373.0 11,255.3 12,207.7 13,240.2

Airports Infrastructure Industry Value, US$bn 0.4 0.4 0.5 0.5 0.6 0.6 0.7

Airports Infrastructure Industry Value Real Growth, % chg y-o-y 1.5 1.9 3.2 3.3 3.5 3.5 3.5

Airports Infrastructure Industry As % of Total Infrastructure 7.2 7.1 7.0 6.9 6.8 6.8 6.8

Airports Infrastructure Industry As % of Total Construction 3.3 3.1 3.1 3.0 2.9 2.9 2.8

Ports Harbours and Waterways Infrastructure Industry Value As % of Transport Infrastructure 19.7 19.7 19.7 19.6 19.5 19.3 19.1

Ports Harbours and Waterways Infrastructure Industry Value, HKDbn 15,181.1 16,658.5 18,181.7 19,705.7 21,252.7 22,740.9 24,186.8

Ports Harbours and Waterways Infrastructure Industry Value, US$bn 0.7 0.8 0.9 1.0 1.1 1.1 1.2

Ports Harbours and Waterways Infrastructure Industry Value Real Growth, % chg y-o-y 5.8 4.7 4.1 3.4 2.9 2.0 1.4

Ports Harbours and Waterways Infrastructure Industry As % of Total Infrastructure 13.3 13.3 13.2 13.1 12.9 12.7 12.5

Ports Harbours and Waterways Infrastructure Industry As % of Total Construction 6.0 5.9 5.8 5.7 5.5 5.3 5.1

e/f = BMI estimate/forecast, Source: BMI Research

Vietnam Infrastructure Report Q1 2013

Transport Infrastructure Outlook and Overview

Roads Dominant Transport Infrastructure Value, By Industry, VNDbn

e/f = BMI estimate/forecast, Source: BMI, Local news sources, industry sources, BMI Research (Major Projects Database)

BMI View: The transport sector forms the majority of infrastructure investment in Vietnam throughout our 10-year forecast period, accounting for 65% in 2021. Vietnam 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. This is reflected in our forecast for transport infrastructure industry value, which is expected to grow by an average of 4.8% year-on-year (y-o-y) between 2013 and 2017.

Title: Competitiveness Of Vietnam's Infrastructure

Rank/133 in Rank/139 in Rank/142 in Rank/144 in 2009/10* 2010/11** 2011/12*** 2012/13****

Quality of Roads 102 117 123 120

Quality of Railroad Infrastructure 58 59 71 68

Quality of Port Infrastructure 99 97 111 113

Quality of Air Transport Infrastructure 84 88 95 94

Quality of Overall Infrastructure 111 123 123 119

*Rank out of 133 countries in 2009/10. ** Rank out of 139 countries in 2010/11. *** Rank out of 142 countries in 2011/12. ****Rank out of 144 countries in 2012/13. Source: World Economic Forum, Global Competitiveness Report 2009/10, 2010/11, 2011/12 and 2012/13

Vietnam Infrastructure Report Q1 2013

Roads Dominate With.... Within the transport infrastructure sector, the roads and bridges sub-sector leads in terms of contributions to the total transport infrastructure industry value, accounting for 49% of total value in 2013. Although most of Vietnam’s national road network is paved (only 26%, or 45,603km out of 171.392km, 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. Vietnam’s Ministry of Transport and Communications has estimated that the country will require close to US$60bn 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 well-being, 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 the past quarter, there have been several announcements regarding new road projects to be developed in Vietnam:

In July 2012, the Ministry of Transport said that construction work on 24 new roads is expected to start soon. They include: Ho Chi Minh roadway La Son-Tuy Loan section, Long Thanh-Dau Giay highway, Da Nang-Quang Ngai highway, BOT and BT highway tunnel over Ca mountain pass on National Road 1A, Tan Vu- Lach Huyen motorways.

In August 2012, Transport Engineering Design Incorporated (TEDI) presented detailed planning report of the ring road 5 in Hanoi. The 385km project is expected designed in detail between 2012 and 2015, with the US$4.7bn project fully completed by 2030. Ring road 5 is expected to be divided into four parts: Son Tay-Phu Ly, Phu Ly-Bac Giang; Bac Giang-Thai Nguyen and Thai Nguyen-Son Tay.

In September 2012, Thailand-based Italian-Thai Development signed a MoU to draw out the investment plan and technical design for phase 2 of the Halong – Mong Cai expressway project in the Quang Ninh province. The 134km project, which is part of the Noi Bai – Halong – Mong Cai expressway project, is expected to cost a total of US$2.1bn. The expressway is expected to take three years to be completed.

However, there are concerns about the viability of toll roads in Vietnam over the near-term. In July 2012, the Vietnamese government accepted a proposal from the Ministry of Finance to reduce toll fees for trucks using the Ho Chi Minh City (HCMC)-

Trung Luong expressway by 25-30%. The approval was given on July 4 2012 and would allow the finance ministry to finalise the details and determine a date for the toll cut. Once implemented, trucks weighing over 18 tonnes and 40-feet container trucks would pay around VND448,000-480,000 (US$22- 23) per trip for using the 61.9km expressway, compared with the current fee of VND640,000 (US$31).

Vietnam Infrastructure Report Q1 2013

The decision to cut toll fees is because traffic volumes fall sharply in the HCMC-Trung Luong expressway once it required commuters to pay a toll fee in February 2012.

We believe that this toll cut in one of the highways linking Vietnam's most economically developed cities reflects our concerns about the viability of building toll roads in Vietnam. The approval of the toll cut not only suggests that the sector could be oversaturated, but that economic development within Vietnam has not reached levels that are financially viable for such tolls roads.

This lack of financial viability for toll roads in Vietnam is collaborated with anecdotal evidence regarding the HCMC-Trung Luong Expressway. According to the association, heavy trucks – the main vehicle used by transport companies – have to pay a toll fee of VND320,000-640,000 for a round trip on the expressway. However, these companies only earn a profit of VND300,000-400,000 for each transport trip within 100km.

Costly To Build Investment Cost of Expressways In Vietnam, US$mn per km

Source: Vietnam The Business Times (May 3 2012).

We believe that this lack of viability and the need for unattractive toll fees are due to the high cost of construction for expressways within Vietnam. According to anecdotal evidence from the Vietnamese Business Times, the cost of constructing an expressway in Vietnam is about 1.5-2 times higher than neighbouring countries such as China, Indonesia, Malaysia and Thailand. The HCMC-Trung Luong expressway, for example, costs around US$9.9mn per km, higher than an average expressway in China (US$6mn/km) and the US (US$8mn/km).

Vietnam Infrastructure Report Q1 2013

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

High inflation and domestic interest rates.

The lack of project management expertise to complete road projects within budget, resulting in site clearance delays and cost overruns.

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.

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. Site clearances have been repeatedly reported by local media sources as the key reason for holding up major road projects in Ho Chi Minh City, and they include the 14km Tan Son-Nhat Binh Loi outer ring road project, the 245km Noi Bai-Lao Cai expressway, the 55km HCM City-Long Thanh-Dau Giay Highway and the widening of the Hanoi Highway.

This lack of viability, combined with poor global economic conditions, makes it difficult for Vietnam to raise financing for its road projects. These projects include the Ben Luc-Long Thanh expressway, the Danang-Quang Ngai expressway, the Dau Giay-Phan Thiet expressway project, the National Highway 1 expansion project, the Trung Luong-My Thuan expressway project, the La Son – Tuy Loan expressway project, the Rach Chiec Bridge No 2 on the Eastern Ring Road and the road linking the East-West Highway with the HCM City-Trung Luong Expressway.

....Railways Railways accounted for around 20% of Vietnam's total transport infrastructure industry value in 2013, according to BMI. Vietnam’s rail network stretches for 2,347km, but only 178km is standard gauge (1.435m gauge). The network has 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 Infrastructure Report Q1 2013

Vietnam had previously planned to build a US$56bn north-south high-speed railway line, but this was rejected by the Vietnamese National Assembly in June 2010. BMI views this as a positive and encouraging move in light of the serious concerns regarding the prohibitive price tag and worries about the misallocation of resources. The hefty cost and potential inflationary effects on Vietnam's foreign debt were the main grounds for opposition. Having said that, Japan announced in September 2012 that it remains keen to assist Vietnam in building this north-south high-speed railway line by 2030.

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

The government has since looked at improving its existing railway network, In June 2012, the Vietnamese government approved Vietnam Railway Corporation 's railway development plan for the 2012-2015 period. The plan will involve a total investment of VND200trn (US$9.5bn), with VND195trn (US$9.28bn) to be directed towards the upgrading and construction of new railway lines and connecting them to major ports, industrial zones and tourist attractions. The plan entails the upgrading of the north- south Thong Nhat railway. Preparations are to be concluded to build railway routes connecting Hanoi- HCM City, and the double tracking of the Lao Cai-Hanoi-Hai Phong and Hanoi-Dong Dang corridors. The detailed plan for the construction of a new 191km railway line from HCM City to Can Tho is also expected to be completed in 2013.

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 October 2012, the deputy director of the railway administration, Nguyen Van Doanh, said that a total of 20 railway projects were earlier recommended by the Vietnam National Railway Administration to be developed under the forms of BOT, build-transfer and build-transfer-operate and this list of projects was submitted to the Ministry of Transport in early 2010, but a lack of investors prevented from starting them. Among the 20 railway projects calling for investment in 2010-2020, they include the 381km Lao Cai-Hanoi-Hai Phong

Vietnam Infrastructure Report Q1 2013

railway line, the 114km Bien Hoa-Vung Tau route and the 49km railway connecting Trang Bom in Dong Nai with Hoa Hung in HCM City.

Urban Railways As most of the railway projects in Vietnam are at an early stage, we believe that it would urban railways projects that will drive our railways infrastructure industry value forecasts over the short to medium term. BMI believes 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 includes 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 the US$2.25bn Ben Thanh-Suoi Tien Metro line 1 in Ho Chi Minh City), but just like the roads sector, several have also faced delays despite generous financing from foreign countries and multinational development banks. These projects are mainly suffering from slow site clearances (such as the Cat Linh Street-Ha Dong District railway line in Hanoi) and cost overruns (such as the Nhon-Hanoi Station urban railway line No. 3).

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 it’s port infrastructure is poor by international standards. Vietnam's seaport network comprises of 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

Vietnam Infrastructure Report Q1 2013

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. In June 2011, the Vietnam Marine Department stated that the country was home to 266 large and small-scale seaports, but was only able to handle 100mn tonnes of cargo and no large vessels.

BMI anticipates increasing investment into Vietnam's port infrastructure, 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's port infrastructure ranked only 111th out of 142 countries in the 2011/12 competitiveness report published by the World Economic Forum.

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 necessary fiscal strength to meet the required investment. As such, it is looking to public-private partnerships (PPPs) to develop its port sub-sector. Vietnam’s Ministry of Planning and Investment has been tasked with submitting draft regulations on PPP-infrastructure projects. There are 23 proposed PPP projects relating to seaport development and services, involving a total investment of US$3.3bn. Twelve of the proposed projects involve seaport construction. PPPs could make Vietnam's master plan for port development, which calls for total cargo volume throughput to increase to 500-600mn tonnes a year by 2015 and 800-1,100mn tonnes by 2020, more achievable.

Under the plan, Vietnam needs about US$4bn to build an additional 15-20km of wharves by 2020. According to Nguyen Chi Hung of the Vietnam Maritime Administration, the development of projects that allow ports to handle larger vessels and meet international-standards will take priority. These include the Van Phong Port, which can handle 9,000-15,000 20-foot equivalent units (TEU) container ships, and Ba Ria-Vung Tau Port, which can handle 4,000-8,000TEU ships.

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

Vietnam Infrastructure Report Q1 2013

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.

The Vietnamese government also has major plans to boost the combined port capacity in the Mekong Delta provinces, from 15.7mn tonnes in 2010 to 28mn tonnes in 2020. According to plans developed by the government in September 2011, the expansion in capacity will focus on river ports and seaports located on the Tien and Hau rivers, which are the main tributaries of the Mekong River.

New sea ports will also be constructed in the Ca Mau peninsula (part of the Mekong Delta region) and in the Gulf of Thailand. These include the Nam Can seaport in the Ca Mau province, as well as the Hon Chong, Bai No and Binh Tri ports in the Kien Giang province. These ports, once completed, will also be able to receive vessels of 5,000-10,000DWT.

However, Vietnam’s difficult business environment continues to slow project implementation. In July 2011, construction work on the US$3.6bn 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 foreced the government to suspend the project in September 2012. The Transport ministry has since directed the Vietnam Maritime Administration to set up plans to call for domestic and foreign investments in the construction of the port under any appropriate forms.

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 US$17.5mn Phu Huu Port and the US$19.1mn 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.

A shortage of qualified logistics staff is also an issue, where according to the Vietnam Freight Forwarders Association (July 2012), only 40% of the demand for qualified logistics staff is met.

Lastly, access to financing remains an issue, despite a sharp decline in Vietnam's interest rates. In June 2012, Formosa Plastics Group (FPG) was reported to be facing difficulties in obtaining funds for its steel and seaport project in Vietnam's Central Ha Tinh province. This is due to lending limitations at foreign bank branches in Vietnam, as a foreign bank is not permitted to lend more than 15% of its own equity for a single borrower. This lending limitation comes under the Law on Credit Institutions, which became effective on January 1 2011. Formosa Ha Tinh, which is also the investor of the US$8.9bn project, is working on the first phase, which entails the construction of a 14-berth Son Duong port, a hotel for workers, a 427-room guest house and office buildings. The investor requires US$3bn to be mobilised

Vietnam Infrastructure Report Q1 2013

from a foreign bank outside Vietnam and US$3bn from foreign bank branches in Vietnam. The investor, which is using its own capital for the construction work, is planning to start commercial operations by end-2015.

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. This willingness by the government to get projects under way provides grounds for optimism, and this has attracted foreign investors to the sector. In April 2011, US-based ADC-HAS presented a proposal to the Vietnamese Ministry of Planning and Investment with regard to investing in seven airports in the country's central region – Chu Lai, Phu Bai, Da Nang, Tuy Hoa, Quy Nhon, Pleiku and Cam Ranh airports.

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.

In March 2012, Vietnam announced that it was in the search for foreign investors to help construct two international airports: the US$1.2bn Van Don International airport in the northern province of Quang Ninh and the US$10bn 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 Airports Corporation of Vietnam, foreign investors have already expressed interest in the Van Don airport. However, he did not provide specific details of investors.

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 year, 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, are already operating way below capacity, despite the rapid rise in tourists. The Dong Hoi airport incurred losses of VND6.9bn (US$332,000) in 2010 and VND9bn (US$432,000) in 2011. This suggests that the demand for new airports is not broad-based throughout Vietnam, with air traffic in certain regions still immature.

Vietnam Infrastructure Report Q1 2013

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 difficult in securing financing for its airport projects and is still seeking investment capital from different sources.

Major Projects Table – Transport

Table: Major Projects – Transport

Value Capacity/ Project Name (US$mn) Length Companies Timeframe Status

Airports

Planning stage – Quang Tri Airport – Gio Approved in Linh District Airport 27 na na 2009-2015 February 2009

Middle Airports Corp., Louis Berger Group, Completed, Two Passenger terminal, 6mn Airport Consultants B.V. 2006 – years behind Danang International passengers and National December schedule Airport 74 /year Construction Consultants 2011 (December 2011)

Project approved, 5.5mn US$9.5mn terminal Cam Ranh International passengers/ completed in late- Airport expansion 590 yr na 2009 – 2020 2009 (Nov 2011)

Northern Airports Corporation (NAC), September Contract awarded Noi Bai International 10mn Taisei, Hoa Binh 2012 – (September 2012); Airport extension passengers Construction and Real November US$759mn ODA (includes T2 terminal) 960 /year Estate Corporation 2014 loan from Japan

Under Construction, Phu Quoc International 7mn Construction on airport, Duong To passengers/ Southern Airports 2009 – Q4 terminal started in Commune 810 yr Corporation 2012 end-Jan 2012

4mn Chu Lai International passengers Garuda Asea, Airis MoU for feasibility Airport 1000 /year International -2025 study approved

Long Thanh international airport (Passenger terminal, runway, parking 100mn Japan Airport At planning stage, place), Dong Nai passengers Consultants, Airports finalising investment province 6700 /year Corporation of Vietnam 2015-2020 plan (August 2012)

At planning stage, Phu Bai International 5mn government to Airport upgrade, Thu passengers/ arrange financing Thien-Hue Province 595 year Middle Airports Corp. 2011 – 2020 for 2012 (Nov 2011)

Vietnam Infrastructure Report Q1 2013

Table: Major Projects – Transport

Value Capacity/ Project Name (US$mn) Length Companies Timeframe Status

80mn Tien Lang International passengers Airport, Hai Phong na /year na 2010- At planning stage

500000 Pleiku Airport (two-phase passengers 2011-2030 upgrade), Gia Lai 105 /year na (first phase) At planning stage

Da Nang International 6mn Completed; Airport terminal passengers Da Nang International Opening in May expansion 64.5 /year Airport na 2011

Proposal for Seven PPP airport projects send to projects (Chu Lai, Phu Vietnamese Ministry Bai, Da Nang, Tuy Hoa, of Planning and Quy Nhon, Pleiku and Investment (MoPI) Cam Ranh) na na na 2011- by ADC-HAS

International airport, 100mn Haiphong, Northern passengers/ Vietnam na yr na 2011- Project announced

Preparation to be Quang Ninh International finalised by 2012, airport, Doan Ket Project site moved commune, Van Don 2-5mn to Doan Ket region, Quang Ninh passengers/ Joinus, Korea Airports commune (Jan province 250 yr Corporation 2013 – 2015 2012)

At planning stage, received approval Vung Tau airport for new project site expansion na na na 2011 - (September 2011)

Van Don International Project announced, airport, 45km from Ha at planning stage, Long Bay, Quang Ninh Airports Corporation of March 2012 Foreign interest province 1200 na Vietnam - expressed (Mar-12)

At planning stage, Lao Cai international January project announced airport 62.6 na na 2012 – 2020 (January 2012)

Ports Can Tho City People's Committee/Vietnam 60000 Shipping Line Corp Second phase Cai Cui port project 32 tonnes (Vinalines) 2009-2015 under construction

Saigon International Terminal, Phu My 1 China Harbour Industrial Park 163 na Engineering Company 2009-2011 Completed

Deep water Port at Khe Ga Cape, Binh Thuan 35mn tonnes Province 250 /year Vinacomin 2009-2020 At planning stage

Vietnam Infrastructure Report Q1 2013

Table: Major Projects – Transport

Value Capacity/ Project Name (US$mn) Length Companies Timeframe Status

Licence awarded Ben Dam deep water Trai Thien Sea Transport (April 2009); transhipment port, Con Investment and Delayed due to Dao district, Vung Tau 10mn tonnes Development Joint Stock disputes (April city 300 /year Company April 2009 - 2010)

8.7mn Saigon-Hiep Phuoc port 337 tonnes /year na 2009-2020 Under Construction

Japanese-Vietnam agreement for the port's development Hai Phong International 50000 signed in November port 800 tonnes Vinalines 2012-2016 2010

Vietnam National Shipping Lines Construction Van Phong International (Vinalines), Portcoast, suspended; Entreport, Khanh Hoa 12,000- Nippon Koei, Rotterdam October Seeking investors Province 3600 15,000TEU Port , SK E&C 2009 – 2015 (September 2012)

Cai Mep-Thi Vai International Port (includes roads Civil Engineering October connecting National Construction Joint Stock 2008 – Highway 51 to the Cai 100000 Co. No.6 and Truong Son December- Under construction Mep port) 700 tonnes Corp 2012 (March 2012);

50000 Marine Consultant Co. Approved in My Thuy deep water port 1100 tonnes and Quang Tri province 2010-2020 October 2008

Son Duong deep water Under construction, port, part of Vung Ang Formosa Plastics Group, November facing financing Economic Zone, Ha Tinh 30mn Formosa Ha Tinh Steel, 2008 – end- difficulties (June Province 1200 tonnes/yr Samsung C&T 2015 2012)

Gemalink Cai Mep Under construction, Container Terminal (first 1.2mn Gemalink, CMA-CMG, 2010 – 2013 construction tempo phase) 300 TEU/yr Dealim-SAMWHA (first phase) slowed (June 2012)

Vietnam National Shipping Lines (Vinalines), Molyto, Mitsui Lach Huyen deepwater O.S.K. Lines (MOL), Under construction, port PPP project (four Nippon Yussen Kaisha tender for package container wharves), east 60mn tonnes (NYK), Itochu, Japan Q4 2012 – 6 delayed (August of Hanoi 1800 /yr ODA [Sponsor] 2016 2012)

Cai Lan Port Investment Completed; Cai Lan International Joint Stock Company, US$127mn funding Container Terminal na 720000 TEU Carrix, Cordiant Capital 2010-2011 secured

International Transport Licence granted; Development And first phase to be Dong Lam cement port 64 71mn tonnes Investment Joint Stock 2010-2017 completed by 2013

Vietnam Infrastructure Report Q1 2013

Table: Major Projects – Transport

Value Capacity/ Project Name (US$mn) Length Companies Timeframe Status

Ongoing International development, Transportation Phase II and III to Cua Lo port expansion, Development and be completed in Nghe An 490 18mn tonnes Investment 2010-2030 2020 and 2030

Tan Cang-Cai Mep deepwater container trans-shipment terminal, Ba Ria-Vung Tau 1.8mn TEU Mitsui OSK Lines (MOL), - March province 204 /year Hanjin and Wan Hai 2011 Completed

Port facility, Nghe An province 365 na Kobe Steel 2011-2013 At planning stage

Ke Ga deep-water port (three-phase), Tan Undergoing site Thanh Commune, Ham 3.5mn April 2012 – clearance (Mar-12); Thuan Nam District, Binh tonnes /year Vietnam Coal and 2014 (first works delayed since Thuan Province 1000 (first phase) Mineral Industries (TKV) phase) Aug-10

Waterway transport (corridors and river ports) upgrade project (includes Viet Tri – First two bidding Quang Ninh corridor, package under Lach Giang estuary, Phu construction, Tho port, Ninh Binh US$171.5bn loan port), northern delta, Bac December from World Bank Ninh province 201.5 na Word Bank [Sponsor] 2011 - (December 2011)

Deepwater port, Mekong OGL Mineral and Coal Delta region 1000 na Mining Company May 2012 - At planning stage

Binh Duong Construction, 2012 – 2014 Consulting and (first stage); US$37.5mn first Thanh Phuoc Port, Tan Investment JSC, Nam 2018 stage under Uyen District, Binh Tan Uyen Industrial Park (second construction (May Duong province 107.5 na JSC, U&I Logistics JSC. stage) 2012)

Two-phase shipyard project, Thinh Dong Commune, Cam Ranh Oshima Shipbuilding June 2012 – Investment licence city 180 na company 2016 granted (June 2012)

Port project, part of Duyen Hai coal-fired EPC contract power centre, Tra Vinh 12mn China Communication June 2012 – awarded (June province 181 tonnes/yr Construction [EPC], EVN Q3 2014 2012)

Dung Quat II Port, part of Nikken Sekkei Civil At design phase, Dung Quat Economic Engineering Ltd, Port and design consultant Zone, Quang Ngai Waterway Engineering August 2012 contract signed province na na Consultants Company - (August 2012)

Vietnam Infrastructure Report Q1 2013

Table: Major Projects – Transport

Value Capacity/ Project Name (US$mn) Length Companies Timeframe Status

Japan Transport Cooperation Association (JTCA), Japan Port Consultants Ltd (JPC) and Japan Overseas At planning stage, Coastal Area seeking ODA funds Da Nang port upgrading Development Institute September from JICA project phase 2 na na (ACDI), JICA [Sponsor] 2012 - (September 2012)

Rail Vietnam Railway Saigon My Tho Railway 445 na Corporation (VRC) 2010-2015 At design stage

Cat Linh (Dong Da District) – Yen Nghia (Ha Under construction, Dong District) urban October delayed by land railway line No. 2A, 2011 – June clearance (July Hanoi 419 13.08km na 2015 2012)

Under construction; ODA loans of Hanoi Urban Railway US$386.5mn from Line 1 (Gia Lam – Hanoi France, the railway station – Ngoc remaining financing Hoi), Hanoi 1070 15km na 2010 – 2016 from EIB and Hanoi

Sumitomo [EPC], Traffic Works Construction Corporation No. 6 US$420mn contract (Cienco 6) [EPC], Vincom awarded for surface Joint Stock Company, works, land Metro line 1 (Ben Thanh 19.7km Japan [Sponsor], acquisition not Market [District 1] – Suoi (2.6km European Investment September completed, Under Tien [outlying District 9]), underground Bank [Sponsor], GS E&C 2012 – end- construction Ho Chi Minh City 2250 ) [EPC] 2017 (September 2012)

Asian Development Bank (ADB) [Sponsor], European Investment Bank [Sponsor], Tedi Design and site Metro line 2 (Ben Thanh South [Design], clearance phases [District 1] – Thu Thiem 11.3km Obermeyer Planen & underway (June Pennisula [District 2] – (9.3km Beraten [Design], ILF 2012); Design Tham Luong [District underground Beratende Ingenieure August 2013 phase: February 12]), Ho Chi Minh City 1370 ) [Design], Poyry [Design] – 2017 2012 – August 2013

North-South (Ho Chi Vietnam Railway Minh City – Hanoi) Corporation, Japan railway rehabilitation International Cooperation August 2012 At planning stage project 1800 na Agency - (August 2012)

Subway project no 5 GEV, HCMC's Urban Spanish firms pulled (First phase running from Railway Management out due to financial the Bay Hien crossroads Board, Spanish constraints, lacking to the Saigon bridge), Ho government – US$239mn (April Chi Minh City 1850 na US$698.7mn [Sponsor] 2011- 2012)

Vietnam Infrastructure Report Q1 2013

Table: Major Projects – Transport

Value Capacity/ Project Name (US$mn) Length Companies Timeframe Status

Monorail line 2 (between East-West Highway and National Road No 50), Ho Chi Minh City 350 14km Italian Thai Development 2011- MOU signed

Monorail line 3 (between Quang Trung street to Tan Thoi Hiep ward), Ho MOU signed (March Chi Minh City 200 8.5km Italian Thai Development 2011- 2011)

Metro line 4 (Nguyen Pre-feasibility study Van Linh – Ben Cat 24km (19km for BOT project Bridge [District 12]), Ho underground underway (April Chi Minh City 2500 ) Italian Thai Development April 2012 - 2012)

12.5 km Urban railway line No. 3 (8.5km of Under construction, project (Nhon [Liem aerial track Systra, Vietnam Bank for potentially delayed district] – Hanoi railway and 4km of Industry and Trade; ADB September due to lack of station [Hoan Kiem underground [Sponsor], EIB [Sponsor], 2010 – Q3 financing (July district]), Hanoi 1430 track) France [Sponsor] 2015 2012)

Awaiting Nam Thang Long-Tran government Hung Dao urban railway Hanoi Urban Railway October approval in Q411 line project, Hanoi na 11.5km Management Board 2011 – 2020 (Oct 2011)

Underground section (Ben Thanh Market – Ba At tendering stage, Son Shipyard), part of land acquisition not Metro line 1, Ho Chi May 2012 – completed (May Minh City na 2.6km na 2017 2012)

National railway project (involves Hoa Hung railway station and At planning stage, District 3 [Hao Hung] – initial design Binh Chanh District [Tan rejected by HCM Kien] track section), Ho CITY authorities Chi Minh City na na na June 2012 - (June 2012)

Underground MRT Section (Thu Thiem New Urban Area [District 2] – An Suong Coach Station US$500mn loan [District 12]), part of from ADB received Mass Rapid Transit April 2013 – for underground (MRT) line 2 na 9.3km ADB [Sponsor] 2016 section (May 2012)

Railway development plan (includes Received construction of Hanoi – government HCM City railway line, approval, Lao Cai – Hanoi – Hai preparations being Phong line, Hanoi – Vietnam Railway June 2012 – finalised (June Dong Dang line) 9300 na Corporation 2015 2012)

Vietnam Infrastructure Report Q1 2013

Table: Major Projects – Transport

Value Capacity/ Project Name (US$mn) Length Companies Timeframe Status

At planning stage, Southern Transport detailed plan to be Ho Chi Minh City – Can Design and Consulting completed by 2013 Tho railway line 9630 191km JSC June 2012 - (June 2012)

Metro line 3A/3B [Ben Thanh Market [District 1] – Tan Kien, Cong Hoa Crossroads [Tan Binh District] – Hiep Binh Phuc [Thu Duc District]), August 2012 At planning stage Ho Chi Minh City na 23km na - (July 2012)

Metro line 5 (Sai Gon Bridge [District 2] – Can Giuoc Bus Station [District 8]), Ho Chi Minh August 2012 At planning stage City na 17km na - (August 2012)

Metro line 6 (Ba Queo [Tan Binh District] – Phu Lam [District 6]), Ho Chi August 2012 At planning stage Minh City na 6km na - (August 2012)

Cuu Long Traffic Investment, Development and Management Joint At pre-construction National Highway 20 Venture and Mekong stage, seeking upgrade BT project (Dau East Co, Petroleum and financing, first Giay [Dong Nai province] Construction Joint Stock September phase contract – NH-27 [Lam Dong Company, Construction 2012 – late signed (September province]) 345 268km Materials No 1 2014 2012)

Underground interchange/terminals for lines 1, 2, 3A, 4 and, District 1, Ho Chi Minh At planning stage City 429 na JICA [Sponsor] July 2012 - (July 2012)

Urban railway line No. 1 Technical design (Giap Bat-Gia Lam), July 2012 – completed (July Hanoi na na JICA 2017 2012)

Urban railway line No. 2 (Nam Thang Long-Trn At planning stage Hung Dao), Hanoi na na JICA July 2012 - (July 2012)

Urban railway line No. 5 PPP project (West Lake- At feasibility study Ba Vi District), Hanoi na na JICA July 2012 - stage (July 2012)

Trang Bom (Dong Nai) – Hoa Hung (HCM City) At planning stage, railway line project, Ho September seeking investor Chi Minh City 528 49km na 2012 - (September 2012)

Bien Hoa-Vung Tau At planning stage, railway line, Ho Chi Minh September seeking investor City 720 114km na 2012 - (September 2012)

Vietnam Infrastructure Report Q1 2013

Table: Major Projects – Transport

Value Capacity/ Project Name (US$mn) Length Companies Timeframe Status

At planning stage, Lao Cai-Hanoi-Hai September seeking investors Phong railway line na 381km na 2012 - (September 2012)

Roads & Bridges Song Bung 4 access road 1 na Cavico Corp. 2009- 2010 Completed

1A National Highway (Ngoc Hoi – Cau Gie Hanoi Department of section) 50 24km Transportation -2009 Completed

Approved in January 2009 – To Tran Thi Ly- Nguyen Van be completed in Troi bridge 86 0.731km na 2010-2014 2014

Project approved in Mu Loi Bridge 88 na na 2009-2012 September 2008

My Phuoc-Tan Van Becamex IDC Expressway 196 42km Corporation 2009-2013 Under Construction

Cienco4, Japan Ring Road No. 3, Hanoi, International Cooperation Under construction Phase II 280 6 Agency (JICA) 2011 – 2013 (August 2012)

Tan Son Nhat International Airport – Project stalled due Binh Loi – Outer Ring to delays in site Road BT project, Ho Chi GS Engineering and June 2008 – clearances (June Minh City 383 13.7km Construction late-2013 2012)

Construction of the Highway to link Cai Mep first phase due to and Phuoc An ports 350 21.3km na 2009-2015 commence in Q409

IHI, Sumitomo Mitsui Nhat Tan Bridge Construction, Import- Under construction (includes access roads), Export Construction (Third and Final package No.3, Hanoi 423 3900km Corporation (Vinaconex), 2009-2012 stage)

Vietnam Expressway, POSCO E&C [package A1, A2, A3], Keangnam [A4, A5], Doosan [A6], Under construction, Four-lane Noi Bai [Hanoi Guangxi RBEC, significantly behind Airport] – Lao Cai Vinaconex, Asian schedule due to [Chinese border] Development Bank 2010 – late- land clearances highway 952 245km [Partial sponsor] 2013 (September 2012)

Vietnam Expressway Corporation (VEC), Japan Bank for Under construction, Ho Chi Minh City-Long International Cooperation significantly behind Thanh-Dau Giay [Sponsor], Asian schedule, delayed (National Highway 1) Development Bank due to site expressway, part of [Sponsor], Hashin June 2010 – clearances (August North South Highway 1180 55km Construction 2014 2012)

Vietnam Infrastructure Report Q1 2013

Table: Major Projects – Transport

Value Capacity/ Project Name (US$mn) Length Companies Timeframe Status

Vietnam Infrastructure Development and Finance Investment Joint Stock Company (VIDIFI) [BOT], PSJ Holdings, Cienco 1 Company and Infrastructure Development and Under construction, Finance Investment packages 13-55% Company, GS E&C, completed, Six-lane Hanoi [Gia Lam] Citibank Japan significantly behind – Hai Phong [Dinh Vu [Sponsor], Sumitomo schedule (June dam] expressway project 1500 105.5km Mitsui Bank [Sponsor] 2009 – 2014 2012)

Ca pass tunnel BOT project (Dong Hoa [Phu Yen province] – Van Hanoi Construction Corp, Received Ninh [Khanh Hoa Mai Linh Group JSC, Hai government province] section), part Thach Investment JSC. A Q2 2012 – approval (January of National Highway 1A 750 13.4km Chau (Asia) JSC Q2 2016 2012)

Construction Vietnam Expressway delayed to 2013 Ben Luc-Long Thanh Development Company, due to cost expressway, part of JICA [Sponsor, ADB Q2 2013 – escalations North-South Highway 1600 57.8km [Sponsor] 2017 (September 2012)

Road linking East-West Avenue with the Trung Project approved Luong Expressway, part (October 2010); of 217km south coastal Seeking financing corridor project 1 2.7km na 2010 – 2013 (June 2012)

Hanoi Construction, BOT Hai Thach Investment, Deo Ca tunnel 500 11.125km Mai Linh Group 2010-2014 Under construction

Thai Ha Bridge 102 na Construction Corp No 1 2010-2012 Under construction

Road project between Received uyen Van Cu and Ngoc government Thuy Roads in Hanoi 12 3km na 2011-2013 approval

Fifth bidding package for Ho Chi Minh City – Long Thanh – Dau Giay expressway, part of Pumyang-Sungjee North-South Highway 43 13.9km Construction 2010-2013 Under construction

Road linking Phuc Tho Investment finalised and Son Tay district 8 4.3km na 2011-2014 in Q410

US$441.6mn loan My Thuan-Can Tho Transport Engineering from Vietnamese Expressway project, Design Incorporated, Cuu November government (Nov Southwest Vietnam 441.6 32.3km Long CIPM 2011 – 2014 2011)

Vietnam Infrastructure Report Q1 2013

Table: Major Projects – Transport

Value Capacity/ Project Name (US$mn) Length Companies Timeframe Status

Katahira, Nippon, Design and consultancy Vietnam Expressway contract for Ben Luc- Investment and Long Thanh expressway 10 na Development Company 2010-2012 Contract awarded

Upgrading of the Tasco Joint Stock, provincial road No 39B, Agribank, Maritime Bank, US$92.3mn loan Thai Binh province 106 29km Southeast Asia Bank 2010-2013 pledged by banks

New and existing Awaiting highways, railway, government maritime projects 34900 na na 2010-2020 approval

Ring road No. 4, Hanoi 1970 98km na 2010-2015 Plans submitted

National Road No 25 expansion (ie Phu Yen section, 21.5km; Gia Lai Project approved section) 113 57.5km na 2010-2014 (December 2010)

A 530.5m bridge linking Viet Hung Urban the east side of Hanoi Development and with the Van Giang Investment, Utracon district across the Bac Overseas, Ultracon Hung Hai river 26 0.53km Vietnam Company 2010-2012 Contract signed

Hoa An Bridge over Construction Dong Nai River 56 1.30km na 2010-2013 underway

Kon Brai Bridge, Kon December Tum province (Part of Vietnam Road 2010 – May Under construction National Highway No 24) 164 19m Corporation [Sponsor] 2012 (January 2011)

Central Japan Expressway, Vietnam Expressway Investment Overhaul of Phap Van- and Development Under negotiations Cau Gie expressway 87 30km Company (VEC) 2011- for a JV

Duc Long Gia Lai Group, Vietnam Commercial Credit contract National Road No 14 Joint Stock Bank for signed; BOT crossing, Dak Nong Industry and Trade contract announced province 50 na (VietinBank-CTG) 2010-2022 in September 2010

Six-lane Cau Gie – Ninh Binh expressway project first phase, connects National Highway 1A (in Vietnam Expressway, Hanoi) and Highway Japan International No.10 (Nam Dinh Cooperation Agency 2006 – June Completed (June province) 430 50.3km (JICA) [Sponsor] 2012 2012)

US$200mn loan for project by Korea Eximbank, the rest from Australian and Vam Cong Bridge 500 na na 2011- ADB

Vietnam Infrastructure Report Q1 2013

Table: Major Projects – Transport

Value Capacity/ Project Name (US$mn) Length Companies Timeframe Status

(Ring road 3); Ring roads 3 and 4, 197.6km (Ring road connecting Ho Chi Minh 4) – Vietnamese City with the Ben Luc- Ministry of Long Thanh and Bien Transport to start a Hoa-Vung Tau highways 8000 100km na 2011- procedure to call

First phase to finish Road upgrading project, in 2017 -US$80mn northern provinces 170 300km na 2011 – 2017 loan from ADB

Hoa Vang District (Danang) – Quang Ngai Project Management Unit Expressway (involves 85, Nippon Koei, Nippon 65km Danang-Tam Ky Engineering Consultants, section and 74km Tam Chodai and Thai Construction Ky-Quang Ngai section), Engineering Consultants, delayed due to part of North-South JICA [Sponsor], World Q2 2013 – costs escalations Highway 1470 139km Bank [Sponsor] 2016 (September 2012)

Under tendering process (July 2011); 30% Financing from Six-lane Ninh Binh – government, 70% Thanh Hoa [Nghi Son] from private road project 2800 126.7km na 2011 - investors

Rach Gia section, part of Under construction 924km southern coastal (May 2011); corridor project, Chau Financing from Thanh District, Kien ADB, Korea, Giang Province 82 na na May 2011 - Australia, Vietnam

Under construction (May 2011); – (including 2 bridges over Cai Lon and Minh Luong – Thu Bay Financing from ADB, Cai Be rivers), part section 50 21km Korea, Australia, Vietnam May 2011 - of 217km

Initial report submitted to Transport Ministry Nhieu Loc-Thi Nghe Bach Khoa Construction (July 2011); Design flyover no. 1 project na na Consultant Corporation 2011 - completed by 2011

Feasibility study end-2012 – completed, received Six-lane Dau Giay-Phan 2014 (first government Thiet expressway PPP Binh Minh Import Export phase); 2020 financing for land project (parallel to NH-1), Production and Trading (second acquisition Dong Nai Province 1130 101km Group (Bitexco) phase) (September 2012)

Contract awarded Thu Bay – Kenh section, Ssangyong Engineering (September 2011); part of 924km Southern and Construction, Korea September Financing from Coastal Corridor Project 47.3 31km Exim Bank [Sponsor] 2011 - Korea Exim Bank

Vietnam Infrastructure Report Q1 2013

Table: Major Projects – Transport

Value Capacity/ Project Name (US$mn) Length Companies Timeframe Status

Two overpasses, part of Ho Chi Minh City-Long Thanh-Dau Giay IDICO Investment BOT contract (National Highway 1) 800m & Consultancy Joint Stock Q411 – mid- signed (September expressway 33.8 680m Company 2012 2011)

50% completed (September 2011); Duong Dong – Cua Lap 508 Company, Civil Originally road, connecting Phu Engineering Construction October completed by Quoc Airport 16 7km Company No 5 2008 - November 2009

Four-lane elevated highway, Vinh Binh bridge (Thuan An commune) to My Phuoc Received town (Ben Cat district), government southern Binh Duong approval province 800 31.5km na 2012 – 2014 (September 2011)

Vietnam Infrastructure Development and Gia Loc-Tu Ky section, Finance Investment Joint Package EX5 of six-lane Stock Company (IDIFI), Hanoi-Hai Phong Guangdong Provincial expressway project, Hai Changda Highway Contract awarded Duong province 169 15.3km Engineering 2012 – 2015 (September 2011)

EX5 awarded by VIDIFI, EX4 & EX6 Package EX4, EX5 & awarded by EX6, part of six-lane Vietnam Infrastructure September and Hanoi-Hai Phong Development and October expressway project, Hai Finance Investment Joint respectively (Sep Duong province na 40km Stock Company (VIDIFI) 2012 – 2015 2011)

Noi Bai International Airport to Nhat Tan May 2012 – Bridge connecting road September At planning stage construction project 83 12.1km JICA [Sponsor] 2014 (May 2012)

Southern Coastal Corridor Project Ssangyong Engineering Contract awarded (Vietnam – Thailand) 47.3 31km and Construction 2011 - (September 2011)

Ring Road No. 2 (from Under construction; Nhat Tan Bridge to US$155mn loan ending point of Cau Giay World Bank, Global March 2012 from World Bank Crossroad), Hanoi 304.7 2km Environmental Facility – 2015 (Mar-12)

Technical Mekong Delta consultancy service connectivity (first phase) Australian Agency for agreement signed; project (includes Vam International US$751mn from Cong Bridge, Cao Lanh Development (AusAID), AusAID, ADB and Bridge and 23.5km of the Asian Development October Vietnamese roads) 751 29.3km Bank (ADB) 2011- government

Vietnam Infrastructure Report Q1 2013

Table: Major Projects – Transport

Value Capacity/ Project Name (US$mn) Length Companies Timeframe Status

Road tunnel beneath Ca mountain pass, between Dong Hoa (Phu Yen province) and Co Ma Project announced, Pass in the Van Ninh construction to start district (Khanh Hoa in May 2012 (Feb province) 749 14.5km na May 2012 - 2012)

Saigon Bridge No. 2 BT mid-April Under construction project, links Binh Thanh HCM City Infrastructure 2012 – (April 2012); District and District 2 in Investment Joint Stock October Seeking financing Ho Chi Minh City 71.5 987m Co (CII) 2012 (June 2012)

Six-lane road widening At planning stage, BOT project, Hanoi – Awaiting Can Tho section, part of government 2300km National Vietnam government June 2012 – approval (June Highway 1 6000 1760km [Sponsor] end-2016 2012)

2000 – 2007 First phase Ho Chi Minh Road, NH-2 (first phase); completed; Second (Pac Bo [Cao Bang 690 2015 phase under province] – Dat Mui [Ca (Second (second construction (Mar- Mau province]) phase) 3183km na phase) 12)

Volunteer Youth Group, Construction Corp No 1, Truong Son Construction Corp, Truong Thinh La Son [Thua Thien-Hue Group Joint Stock Co, At tendering province] – Tuy Loan Son Hai Group Co Ltd, process, companies [Danang city] highway Traffic Works shortlisted, seeking BT project, part of North- Construction Corp No 8, Q3 2012 – financing (June South Highway 1000 81.7km Van Tuong Co Ltd 2015 2012)

At planning stage, seeking government National Highway No 1 approval, expansion BOT project, government funds Thanh Hoa – Vung Ang fully disbursed, in (Ha Tinh province) – Can Vietnam government March 2012 need of additional Tho section 4300 1057km [Sponsor] - funds (May 2012)

Bac Luan 2 bridge Agreement signed connecting Mong Cai between Vietnam (Quang Ninh) and March 2012 and China (March Dongxing (Guangxi) na na na - 2012)

Under construction, US$130mn ODA Vinh Thinh Bridge, part loan from South of National Highway No Thang Long, South December Korea (December 2C, Hanoi 137 5.5km Korea [Sponsor] 2011 - 2011)

Four-lane Buu Hoa – January Hiep Hoa bridge, Dong Vietnam Railway 2012 – early- Under construction Nai province 29 1.5km Corporation (VRC) 2013 (January 2012)

Provincial Road 10, Long Land acquisition An Province na na na 2010 – 2013 delayed (April 2012)

Vietnam Infrastructure Report Q1 2013

Table: Major Projects – Transport

Value Capacity/ Project Name (US$mn) Length Companies Timeframe Status

Design work completed, Land Beltway No. 2 (An Lap acquisition not intersection to Nguyen completed (April Van Linh Parkway) na na na April 2012 - 2012)

Nguyet Vien-Thanh Hoa Bridge na na na May 2012 - At planning stage

National Highway 61B (Vi Thanh District [Hau Giang Province] – Can Completed (May Tho City [Mekong Delta]) 165 47.5km na - May 2012 2012)

Ha Long City – Mong Cai City expressway project, MOU signed for part of Noi Bai – Halong feasibility study – Mong Cai expressway, Q1 2013 – phase 2 Quang Ninh province 2100 134km Italian-Thai Development 2015 (September 2012)

Ha Long – Hai Phong Highway BOT project, MOU signed (June Quang Ninh province na 25km na June 2012 - 2012)

First overhead road project (Cong Hoa Intersection – Nguyen At planning stage, Huu Canh Street), Ho seeking Financing Chi Minh City 714 8.4km na June 2012 - (June 2012)

Second overhead road project (To Hien Thanh At planning stage, Street – Belt road No. 2), seeking Financing Ho Chi Minh City 328 10.2km na June 2012 - (June 2012)

Third overhead road project (To Hien Thanh At planning stage, Street – District 7), Ho seeking Financing Chi Minh City 817 na na June 2012 - (June 2012)

Fourth overhead road project (Binh Phuoc Junction – Cong Hoa At planning stage, Intersection), Ho Chi seeking financing Minh City 547 7.7km na June 2012 - (June 2012)

Sa Huynh – Dung Quat coastal road project, Under construction, Quang Ngai central cost increased by province 269 na na 2012 - 100% (June 2012)

Tan Vu-Lach Huyen expressway project, part of Lach Huyen port December At planning stage project 630 15.63km Japan ODA [Sponsor] 2012 - (May 2012)

Cuu Long Corporation for Trung Luong – My Investment, Development At planning stage, Thuan – Can Tho and Project Management seeking financing expressway project 1000 54km of Infrastructure 2013 - (August 2012)

Vietnam Infrastructure Report Q1 2013

Table: Major Projects – Transport

Value Capacity/ Project Name (US$mn) Length Companies Timeframe Status

Ring Road No. 5 (Son September Tay-Phu Ly, Phu Ly-Bac 2012 – 2015 Giang; Bac Giang-Thai Transport Engineering (detailed At detail planning Nguyen and Thai Design Incorporated planning); stage (September Nguyen-Son Tay), Hanoi 4700 385km (TEDI) 2030 2012)

US$376mn loan from JICA, at pre- Japan International feasibility study 84 bridge upgrading Cooperation Agency September stage (September project 376 na (JICA) [Sponsor] 2012 - 2012)

Six-lane Nha Trang City [Khanh Hoa Province] – Phan Thiet City [Binh Thuan Province] PPP expressway project, part September At feasibility-study of north-south Highway 3500 235km na 2012 - stage (August 2012)

2010 – 2015 (136km); – 2020 (793km); – Certain sections 2020 under construction North-South Highway 22800 1811km na (1018km) (August 2012)

Source: BMI. na=not available.

Vietnam Infrastructure Report Q1 2013

Energy And Utilities Infrastructure

Table: Vietnam Energy and Utilities Infrastructure Industry Data, 2010 – 2016

2010 2011 2012e 2013f 2014f 2015f 2016f

Energy and Utilities Infrastructure Industry Value As % Of Total Infrastructure 28.8 31.4 32.2 32.4 32.4 32.5 32.7

Energy And Utilities Infrastructure Industry Value, VNDbn 18,480.0 24,024.9 26,704.2 30,216.6 33,571.2 37,136.7 41,039.1

Energy and Utilities Infrastructure Industry Value, US$bn 1.0 1.2 1.3 1.5 1.6 1.8 2.0

Energy and Utilities Infrastructure Industry Value Real Growth, % chg y-o-y 9.5 11.3 2.1 6.8 4.9 5.4 5.5

Energy and Utilities Infrastructure Industry Value As Percent Of Total Construction (%) 13.3 14.8 15.1 15.1 14.9 14.7 14.6

Power Plants and Transmission Grids Infrastructure Industry Value As % Of Total Energy and Utilities 89.8 89.6 89.5 89.6 89.5 89.4 89.3

Power Plants and Transmission Grids Infrastructure Industry Value, VNDbn 16,591.7 21,523.5 23,904.7 27,066.5 30,039.4 33,204.3 36,665.7

Power Plants and Transmission Grids Infrastructure Industry Value, US$bn 0.9 1.0 1.1 1.3 1.5 1.6 1.8

Power Plants and Transmission Grids Infrastructure Industry Value Real Growth, % chg y-o-y 10.0 11.0 2.1 6.9 4.7 5.3 5.4

Power Plants and Transmission Grids Infrastructure Industry Value As % of Total Infrastructure 25.9 28.2 28.8 29.1 29.0 29.1 29.2

Power Plants and Transmission Grids Infrastructure Industry Value As % of Total Construction 11.9 13.2 13.5 13.5 13.3 13.2 13.0

Vietnam Infrastructure Report Q1 2013

Table: Vietnam Energy and Utilities Infrastructure Industry Data, 2010 – 2016

2010 2011 2012e 2013f 2014f 2015f 2016f

Oil and Gas Pipelines Infrastructure Industry Value As % Of Total Energy and Utilities 3.2 2.3 2.3 2.1 2.0 1.9 1.8

Oil and Gas Pipelines Infrastructure Industry Value, VNDbn 594.9 563.3 602.7 641.3 679.2 715.8 754.5

Oil and Gas Pipelines Infrastructure Industry Value, US$bn 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Oil and Gas Pipelines Infrastructure Industry Value Real Growth, % chg y-o-y -25.1 -24.0 -2.0 0.1 -0.4 0.2 0.4

Oil and Gas Pipelines Infrastructure Industry As % of Total Infrastructure 0.9 0.7 0.7 0.7 0.7 0.6 0.6

Oil and Gas Pipelines Infrastructure Industry As % of Total Construction 0.4 0.3 0.3 0.3 0.3 0.3 0.3

Water Infrastructure Industry Value As % Of Total Energy and Utilities 7.0 8.1 8.2 8.3 8.5 8.7 8.8

Water Infrastructure Industry Value, VNDbn 1,293.3 1,938.1 2,196.7 2,508.8 2,852.6 3,216.5 3,618.9

Water Infrastructure Industry Value, US$bn 0.1 0.1 0.1 0.1 0.1 0.2 0.2

Water Infrastructure Industry Value Real Growth, % chg y-o-y 27.9 31.2 4.3 7.9 7.5 7.5 7.5

Water Infrastructure Industry As % of Total Infrastructure 2.0 2.5 2.6 2.7 2.8 2.8 2.9

Water Infrastructure Industry As % of Total Construction 0.9 1.2 1.2 1.3 1.3 1.3 1.3

e/f = BMI estimate/forecast, Source: BMI Research

Vietnam Infrastructure Report Q1 2013

Table: Vietnam Energy and Utilities Infrastructure Industry Long Term Forecast, 2015-2021

2015f 2016f 2017f 2018f 2019f 2020f 2021f

Energy and Utilities Infrastructure Industry Value As % Of Total Infrastructure 32.5 32.7 33.0 33.4 33.8 34.3 34.6

Energy And Utilities Infrastructure Industry Value, VNDbn 37,136.7 41,039.1 45,408.3 50,218.5 55,550.0 61,299.1 66,978.3

Energy and Utilities Infrastructure Industry Value, US$bn 1.8 2.0 2.3 2.5 2.8 3.1 3.3

Energy and Utilities Infrastructure Industry Value Real Growth, % chg y-o-y 5.4 5.5 5.6 5.6 5.6 5.3 4.3

Energy and Utilities Infrastructure Industry Value As Percent Of Total Construction (%) 14.7 14.6 14.5 14.4 14.4 14.3 14.2

Power Plants and Transmission Grids Infrastructure Industry Value As % Of Total Energy and Utilities 89.4 89.3 89.3 89.3 89.3 89.3 89.3

Power Plants and Transmission Grids Infrastructure Industry Value, VNDbn 33,204.3 36,665.7 40,550.5 44,838.3 49,602.1 54,752.7 59,797.5

Power Plants and Transmission Grids Infrastructure Industry Value, US$bn 1.6 1.8 2.0 2.2 2.5 2.7 3.0

Power Plants and Transmission Grids Infrastructure Industry Value Real Growth, % chg y-o-y 5.3 5.4 5.6 5.6 5.6 5.4 4.2

Power Plants and Transmission Grids Infrastructure Industry Value As % of Total Infrastructure 29.1 29.2 29.5 29.8 30.2 30.6 30.9

Power Plants and Transmission Grids Infrastructure Industry Value As % of Total Construction 13.2 13.0 12.9 12.9 12.8 12.8 12.7

Vietnam Infrastructure Report Q1 2013

Table: Vietnam Energy and Utilities Infrastructure Industry Long Term Forecast, 2015-2021

2015f 2016f 2017f 2018f 2019f 2020f 2021f

Oil and Gas Pipelines Infrastructure Industry Value As % Of Total Energy and Utilities 1.9 1.8 1.8 1.7 1.6 1.5 1.5

Oil and Gas Pipelines Infrastructure Industry Value, VNDbn 715.8 754.5 795.2 838.2 883.4 931.1 981.4

Oil and Gas Pipelines Infrastructure Industry Value, US$bn 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Oil and Gas Pipelines Infrastructure Industry Value Real Growth, % chg y-o-y 0.2 0.4 0.4 0.4 0.4 0.4 0.4

Oil and Gas Pipelines Infrastructure Industry As % of Total Infrastructure 0.6 0.6 0.6 0.6 0.5 0.5 0.5

Oil and Gas Pipelines Infrastructure Industry As % of Total Construction 0.3 0.3 0.3 0.2 0.2 0.2 0.2

Water Infrastructure Industry Value As % Of Total Energy and Utilities 8.7 8.8 8.9 9.0 9.1 9.2 9.3

Water Infrastructure Industry Value, VNDbn 3,216.5 3,618.9 4,062.6 4,542.0 5,064.4 5,615.3 6,199.4

Water Infrastructure Industry Value, US$bn 0.2 0.2 0.2 0.2 0.3 0.3 0.3

Water Infrastructure Industry Value Real Growth, % chg y-o-y 7.5 7.5 7.3 6.8 6.5 5.9 5.4

Water Infrastructure Industry As % of Total Infrastructure 2.8 2.9 3.0 3.0 3.1 3.1 3.2

Water Infrastructure Industry As % of Total Construction 1.3 1.3 1.3 1.3 1.3 1.3 1.3

e/f = BMI estimate/forecast, Source: BMI Research

Vietnam Infrastructure Report Q1 2013

Energy And Utilities Infrastructure Outlook and Overview

Slowly Overshadowed Energy And Utilities Infrastructure Value And Share Of Infrastructure Value

e/f = BMI estimate/forecast, Source: BMI, Local news sources, industry sources, BMI Research (Major Projects Database)

BMI View: The energy and utilities sector is seeing rising levels of growth, with BMI forecasting average annual industry value growth of 5.6% between 2013 and 2017.

Although the 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 5.6% annually between 2013 and 2017. Vietnam's power consumption is expected to rise sharply, in light of both 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 ambitions plans for the sector. Under the government's Power Development Plan 7, the government has set a target of developing 75,000MW of power generation capacity by 2020, with coal-based plants taking up 48% of this investment. This plan is expected to require an investment capital of US$48.8bn.

Vietnam does not have the fiscal strength to finance this ambition plan, and we believe that investor demand is vital for it to succeed. However, private investment has been limited, due to the bureaucratic obstacles and rigidity of the internal market. EVN enjoys a monopoly over distribution in Vietnam's

Vietnam Infrastructure Report Q1 2013

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, Phan Van Khai, 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 launching its competitive generation market (CGM) on July 1 2012, marking the first phase of its power market development roadmap. The roadmap spans over 10 years and is projecting the introduction of an electricity wholesale market in 2014 and an electricity retail market by 2022. 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

Vietnam Infrastructure Report Q1 2013

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.

EVN Still Dominating Power Generation Vietnam – 2010 Installed capacity mix by owners, %

Source: Vietnam Institute of Energy 2011.

Growing Foreign Participation In Coal Sector The first ever 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 independent power producers (IPPs).

Since then, foreign involvement in the sector has significantly accelerated, with the largest project a U$10.6bn deal signed between Russian and Vietnamese authorities to construct Vietnam's first 2000MW 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 BOT (build-operate-transfer) 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, three other coal-fired plants (Phu My 3, Mhy My 2.2 and Hai Duong) are being implemented by foreign independent power investors under BOT contracts. Sembcorp Utilities is the

Vietnam Infrastructure Report Q1 2013

latest company to potentially develop a power plant in Vietnam under a BOT format. In April 2012, Sembcorp Utilities secured in-principle approval for the construction of a 1,200MW power plant in Dung Quat Economic Zone in Quang Ngai, Vietnam. The company is evaluating the feasibility of this project.

Besides BOT contracts, the Vietnamese government is keen to award foreign players EPC (engineering, procurement, construction) contracts for thermal (gas- and coal-fired) power plants and announced in September 2011 that it is in talks with foreign companies over the construction of a further 12 power plants in the country. Some of the foreign companies that have won such projects are: Chinese consortium CHENGDA, DEC, SWEPDI and ZEPC for the Duyen Hai 3 coal-fired power plant in August 2011; Hyundai Engineering & Construction for the Mong Duong 1 coal-fired plant in September 2011; Wuhan Kaidi Electric Power for the Thang Long coal-fired power plant in December 2011; PHI Group for the Hai Lang coal-fired power plant in December 2011; Toyo Ink Group for the Song Hau 2 coal/diesel oil plant in January 2012; Trisun International Development for a US$400mn plasma- converted gas plant for power generation in Ho Chi Minh City; and Daelim Industrial for the O Mon 1 gas-based power plant in September 2012.

Vietnam is also reliant on foreign players to provide equipment for coal-fired power plants. In May 2012, a joint venture (JV) comprising South Korea's Daelim Industrial and Japan's Sojitz Corporation has been awarded a US$826mn contract to provide plant equipment for the 1,200MW Thai Binh 2 coal-fired power plant. The JV signed the contract with PetroVietnam Construction Joint Stock , the construction subsidiary of state-run oil and gas company PetroVietnam. Under the terms of the agreement, the JV would install and test-run boilers, turbines and two generators for the US$1.6bn Thai Binh 2 plant, according to the Vietnamese government, cited by Reuters. This followed with US-based Babcock & Wilcox, being awarded a US$300mn equipment contract for the project in August 2012. In February 2012, PVC had signed a US$1.6bn contract with state utility Electricity of Vietnam (EVN) to provide engineering, procurement and construction (EPC) services for the Thai Binh 2 plant. If completed, the Thai Binh 2 plant would be the largest conventional thermal power plant in northern Vietnam. The plant is expected to become operational by 2016.

The country is also keen for foreign companies to develop a domestic power equipment manufacturing industry in Vietnam. In July 2012, the Vietnamese government had selected three thermal power plants that are to use locally manufactured power equipment, reports Intellasia. 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.

Vietnam Infrastructure Report Q1 2013

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.

Hydropower: Indispensible, But Problematic Hydropower provides more than a quarter of Vietnam’s electricity. There is a stable stream of investment into increasing hydropower capacity, as elevated coal prices in Asia render coal plants costly to operate. However, hydropower has proven to be an unreliable source of electricity, largely due to the severe droughts that have plagued Vietnam. As a result, Vietnam is reliant on electricity imports from China to meet the shortfall, although this is an expensive option.

The environmental effects caused by hydropower plants are also increasingly becoming a concern. In June 2012, the Vietnamese Department of Industry and Trade announced that local authorities had rejected 52 substandard hydroelectricity projects since the start of 2012. Environmental concerns, such as deforestation and the destruction of natural landscapes, have been cited as reasons for the decision. The country has 1,021 hydropower projects, with a combined capacity of 24,246MW, located in over 36 provinces and cities.

In October 2012, nine hydropower projects planned in the Vietnamese province of Thua Thien Hue were cancelled by the provincial People's Committee in late-September. These nine are part of 21 small- to medium-capacity plants planned in the province for completion by 2020, with a total combined capacity of 357MW. Reasons given for the cancellation included: poor economic feasibility, a lack of progress, and environmental concerns.

Nuclear Still In The Works Vietnam has taken the first step towards nuclear. Vietnam's nuclear ambitions stretch back to the 1980s, when the country first considered developing the technology. According to the country's nuclear power development plan, Vietnam is planning to construct 10-13 nuclear reactors in eight different sites by 2030, bringing the country's total nuclear capacity to 15,000MW.

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 2000-megawatt (MW) Ninh Thuan 1 nuclear project. A Russian consortium will conduct an 18-month feasibility study on the project, 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.

Vietnam Infrastructure Report Q1 2013

Similarly, in September 2011, Vietnam Electricity Generation Capacity Mix, a Japanese consortium, known 2012e as the International Nuclear Energy Development of Japan (INEDJ), signed an agreement with Vietnamese state utility Electricity of Vietnam (EVN) to jointly develop the Ninh Thuan 2 nuclear power project in Vietnam. As part of the agreement, nuclear plant operator Japan Atomic Power will conduct a US$26mn feasibility and environmental study on the project and report the results, which includes an assessment on tsunamis, to e/f = BMI estimate/forecast, Source: UN Data, EIA, BMI EVN by March 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.

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. 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 are scheduled to be concluded in mid-2013.

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. We estimate that electricity losses in Vietnam due to transmission and distribution made up 10.3% of total output in 2011. Significant investment is therefore required to address these transmission losses and meet future demand for grids. According to the National Power Transmission Corp (June 2012), total demand for investment capital to develop the

Vietnam Infrastructure Report Q1 2013

electricity transmission network to 2020 reaches about US$10bn. Transmission projects have so far borrowed only US$4bn worth of ODA and commercial loans; the remaining US$6bn has not been arranged.

Vietnam is looking to change this. In November 2011, the National Power Transmission Corporation (NPT) announced that Vietnam will develop 300-350 power transmission projects in the period up to 2015. This would require an annual investment of US$1bn and the country is seeking foreign investment. The Asian Development Bank 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 US$730mn 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 US$120.5mn 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 HCMC Power Corporation has asked the Saigon municipal government to allow it to install power lines underground, reports The Saigon Times. HCMC needs to invest VND17tn (US$816mn) in development by 2015, but has an annual budget of just VND600bn (US$28mn). 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 at 6.58% of electricity prices during the 2008-2012 period. This is much lower than the global average price and needs to be raise to 10-12% of electricity prices.

In July 2012, General Electric signed an equipment supply contract worth US$16.5mn with the Power Transmission Company No. 4, a subsidiary of the National Power Transmission Corporation, to double Vietnam’s existing power transmission capacity. GE’s series capacitor banks will be installed as part of the upgrade of the 500-kV Pleiku–Phu Lam transmission line to increase power capacity from 1,000 amps to 2,000 amps, according to the contract signed in Hanoi at the witness of U.S. Secretary of State Hillary Rodham Clinton, cited from the Saigon Times.

Droughts Driving Demand For Water Treatment Services Vietnam has significant potential for large-scale water treatment facilities and we are forecasting real growth in the water infrastructure industry to average 7.5% per annum between 2013 and 2017. Despite

Vietnam Infrastructure Report Q1 2013

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.

Driving Demand For Water Treatment Services Vietnam – Real GDP and Organic Water Pollutant Emissions Data

f= BMI forecast. Source: BMI, World Bank, Vietnam General Statistics Office

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

Vietnam Infrastructure Report Q1 2013

surge to 1-1.5mn 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 US$1bn 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 Centers 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 public private partnership (PPP) framework. According to the Vietnam Ministry of Construction, there are around 15 large-scale urban water supply projects worth US$500mn 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, expected to be issued in the third quarter of 2013.

Several foreign investors have expressed an interest in Vietnam's water utilities sector, particularly Japanese and Philippines 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.

Vietnam Infrastructure Report Q1 2013

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

The inability for 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 .

Vietnam Infrastructure Report Q1 2013

Major Projects Table – Energy And Utilities

Table: Major Projects – Energy and Utilities

Value Capacity/ Project Name (US$mn) Length Companies Timeframe Status

Oil & Gas Pipelines

Vietsovpetro Joint Venture Co, PetroVietnam Construction Joint Stock Corp and PetroVietnam B-O Mon natural gas Technical Services Joint Construction started pipeline 800 400km Stock Corp 2009-2011 (November 2009)

PetroVietnam to 2nd Nam Con Son gas prepare feasibility pipeline na 400km PetroVietnam 2010-2014 study (March 2010)

PetroVietnam Construction and PetroVietnam Equipment Contract awarded Nam Con Son 2 pipeline Assembly, Metal by Petrovietnam project, southern Vietnam 441 293km Structure 2011 – 2013 Gas (July 2011) Power Plants & transmission grids

Nghi Son 1 thermal power Marubeni, Electricity of Construction plant, Thanh Hoa province 981 600MW Vietnam 2010-2014 underway

Geruco Song Con Danang hydropower plant 74 170MW Hydropower 2010-2013 Under construction

Tan Tao Energy Kien Luong Coal-fired Corporation, China Power Complex (Phase 1), Harbour Engineering Q1 2010 – Kien Luong Province 2500 1200MW Company [EPC] end-2013 Under construction

Nhon Trach 2 gas-based power plant, Ong Keo mid-2009 – Industrial Park, Dong Nai November Completed province 470 760MW PetroVietnam 2011 (November 2011)

August 2010 – late-2013 Vinh Tan 2 thermal power (first plant, part of Vinh Tan turbine); Electric Centre, Tuy Phong June 2014 districts, Binh Thuan Shanghai Electricity (second Under construction province 1300 1244MW Corporation-China [EPC] turbine) (July 2012)

Project approved in Two wind farms, Binh August 2010 principle (August Thuan Province 440 200MW Saigon Invest Group - 2010)

Coal power plant BOT project, Binh Thuan China Southern Power September province 1750 1200MW Grid Corp 2010 – 2014 Under construction

Vietnam Infrastructure Report Q1 2013

Table: Major Projects – Energy and Utilities

Value Capacity/ Project Name (US$mn) Length Companies Timeframe Status

Completed – Started commercial Muong Kim hydropower Hanoi Electrical operations plant 37 13.5MW Equipment -2010 (September 2010)

Wind farm in Thuan Bac district, Ninh Thuan Trung Nam Investment Construction Province 500 200MW and Construction 2010-2012 underway

Dak R'Tih hydropower plant, Gia Nghia town, Dak Dakdrinh Hydropower 2007 - Completed without R'Lap district, Dak Nong Joint Stock Company, December foreign guidance province 192 144MW Construction Corp No 1 2011 (Oct 2011)

Dak Sepay hydropower Duc Long Gia Lai Group plant in Bai Tho spring 3 3MW (DLG) 2010- Currently underway

EVN, Rosatom, Atomstroyexport, E4 US$8bn loan from Group , Kiev Scientific Russia, consultancy Research and Designing agreement for 18- Institute (JSC KIEP), month feasibility Ninh Thuan 1 nuclear EnergoProjectTechnolog study signed(Nov power plant 10600 2000MW y (LLC EPT) 2014-2020 2011)

Song Hau 2 coal-fired BOT project power plant (Song Hau received Thermo Power Complex), PetroVietnam, Toyo Ink January government Hau Giang province 2500 2000MW Group 2012 – 2018 approval (Jan 2012)

US$26mn feasibility International Nuclear and environmental Energy Development study to be Ninh Thuan 2 nuclear Corporation of Japan, completed by March power plant 14400 2000MW Japan Atomic Power 2014-2022 2013 (Sep 2011)

AES, Posco Power, China Investment Company (CIC), Doosan Heavy Industries & Construction, Hoa Binh Mong Duong 2 coal-fired Construction and Real Under construction, BOT power plant project, Estate Trading Joint September 40% completed Quang Ninh province 2100 1200MW Stock Co (HBC) 2011 – 2015 (September 2012)

Wind power project in Vinh Tan and Vinh Phuoc, Soc At the development Trang Province na 300MW EAB Group, Trasesco 2011- stage

Electricity of Vietnam, Received Huoi Quang hydropower French Development US$100mn plant project na 520MW Agency (AFD) 2010-2015 financing from AFD

Vietnam Infrastructure Report Q1 2013

Table: Major Projects – Energy and Utilities

Value Capacity/ Project Name (US$mn) Length Companies Timeframe Status

PetroVietnam Power Corporation, Electronics and Informatics Corp (VEIC), Viettronics First phase under Construction JSC construction; (VIETCT), Amec Financing secured Phu Quy wind power plant, Technologies Joint Stock with OceanBank Binh Thuan Province 17 6MW Co 2010- and HSBC

Contract signed – Dak Mi 2 Hydropower First turbine plant 128 96MW Song Da 9.01 2010- 2013 expected 2013

Song Chay 5 hydropower Song Da 5 Investment, plant project, Then Phang Construction and Energy Commune, Xin Man Dist, Development Joint Stock Construction Ha Giang province 21 16MW Co 2010-2012 underway

Son La hydropower power plant, Muong La district, Electricity of Viet Nam 2005 – Son La province 2900 2400MW (EVN) [Sponsor] August 2012 Completed

Long Phu 1 coal-fired Petrovietnam, power plant, Soc Trang Petrovietnam Technical Construction Province 1200 1200MW Services Corp 2011-2014 underway

Under construction; Facing payment delays (June 2011); First phase Lai Chau hydropower Electricity of Vietnam completed by March plant, Lai Chau province 1831 1200MW (EVN), Song Da Group 2011-2017 2016

Thang Long coal-fired Wuhan Kaidi Electric circulating fluidised bed Power, Thang Long power plant, Guangninh Thermoelectric, EPC contract province 303 600MW Vinacomin 2012 – 2015 signed (Dec 2011)

Vung Ang 2 coal-fired power plant, Ky Anh Vapco, Hung Nghiep At planning stage District, Ha Tinh Province 1700 1200MW Formosa Ha Tinh Co. 2012 – 2020 (July 2012)

1.1mn-volt ultra high voltage (UHV) electric Feasibility study power transmission project Tokyo Electric Power completed in near Ho Chi Minh City na na (TEPCO) 2011- February 2011

Nam Cong 2 and Nam Cong 3 power plants in Hoang AnhAttapeu Attapeu, Laos 135 111MW Electric 2011-2013 Licence Granted

Sumitomo Mitsui Financial Group [Sponsor], Nippon Export Sumitomo Mitsui and Investment Financial Group has Insurance of Japan agreed to US$51 [Sponsor], Chugoku February mn loan (February Hydropower plant 62.5 na Power Co 2011 - 2011)

Vietnam Infrastructure Report Q1 2013

Table: Major Projects – Energy and Utilities

Value Capacity/ Project Name (US$mn) Length Companies Timeframe Status

Marubeni Corp, Vietnam Nghi Son 2 coal fired National Coal-Mineral power plant, Thanh Hoa Industries Group Undergoing province 2000 1200MW (Vinacomin) 2011-2016 negotiations

Phu My 2.2 thermal power Electricity of France EDF selected as station na 715MW (EDF) 2011- investor

Cong Thanh coal-fuelled power plant, Nghi Son Economic Zone, Thanh Hoa 619 600MW Cong Thanh Corporation 2011- 2014 Under construction

Da M'bri plant, Lam Dong Southern Region Construction province 2 75MW Hydropower, Mien Dong 2011-2012 contract awarded

First unit completed, Second unit A Luoi Hydropower, Thua Cavico, Central 2007 – May completed by end- Thien Hue Province 155.5 170MW Hydropower 2012 2012 (May 2012)

Under construction; Hua Na hydropower plant, Hua Na Hydropower First generator into Que Phong district, Nghe Joint Stock Co, Lilama 35 2008 – late- operation (August An province 286 180MW Joint Stock Co 2012 2011)

A solar and wind power development, Ninh Thuan Received province 249 124.5MW na 2011- investment licences

2 wind power projects – Central Region Wind- Nhon Hoi Economic Zone, Power, Phuong Mai Binh Dinh province 60 51MW Windpower Q2 2011- Under construction

At planning stage; Document Thermo power plant, Nhon submitted to Hoi Economic Zone, Binh Vietnamese Dinh province 972 1400MW STFE 2012 -2014 government

Seeking formal Thermoelectric power government plant, Hau Giang 2500 2000MW TOYO 2011-2019 approval

Construction approved – Planned production capability of 124 Waste-to-power treatment million kWh of plant, Binh Phuoc 60 na Suc Song Xanh 2011- electricity per year

Under construction, Mao Khe coal-fired power Vinacomin, BNP Paribas first 220MW unit plant, Quang Ninh [Sponsor], Bank of China operational (July province 577 440MW [Sponsor] 2009-2012 2012)

Vietnam Infrastructure Report Q1 2013

Table: Major Projects – Energy and Utilities

Value Capacity/ Project Name (US$mn) Length Companies Timeframe Status

To start construction in 2011; Project fully Duyen Hai 2 coal-fired financed by power plant, Tra Vinh Huadian province 1500 1200MW Janakuasa 2011-2014 Engineering

Under construction, seeking funds, selected to use Quang Trach 1 coal-fired PetroVietnam, EPF local power power plant, Quang Binh Power, JPAWORR, early-2013 – equipment (July province 2250 1200MW Sumitomo [Sponsor] 2015 2012)

Song Tranh 4 hydropower plant, Quang Nam province 77 48MW na 2011- 2014 Under construction

World Bank [Sponsor], 47 Under construction, Trung Son hydropower Construction JSC (C47), main construction project, Quan Hoa, Thanh Samsung C&T H2 2011 – contract awarded Hoa province 411 260MW Corporation Q2 2017 (September 2012)

Generator No 1 and Hai Phong 1 thermo power 2 joined national plant na 300MW na - Q2 2011 grid (Q211)

Third generation to start in April 2013; Hai Phong 2 thermo power Hai Phong Thermo -September Fourth generator, plant na 300MW Power Joint Stock Co 2013 September 2013

Under construction; US$178 credit Dadrinh hydropower plant, Dakdrinh Hydropower contract signed with along Tra Khuc River, Joint Stock Co., Credit Agricole Quang Ngai Province 170 125MW Petrovietnam 2011 – 2014 Corp.

US$12mn loan Solar power generation approved from plant, Quang Binh Korea Eximbank province 14 na na 2011 – 2013 (June 2011)

Undersea (110KV) power EVN Southern Power cable project (Ha Tien [Sponsor], World Bank Township – Phu Quoc [Sponsor], Prysmian EPC contract Island), Kien Giang Powerlink SRL Group May 2012 – awarded (May province 112 56km [EPC] late-2013 2012)

Under construction; 25-year BOT Jaks Resources Berhad, contract awarded; Hai Duong coal-fired Meiya Power, Island Key agreements power plant, northern Circle, JAKS Pacific Q2 2013 – (BOT, land, PPA) Vietnam 2260 1200MW Power Q2 2017 signed (Aug 2011)

Vietnam Infrastructure Report Q1 2013

Table: Major Projects – Energy and Utilities

Value Capacity/ Project Name (US$mn) Length Companies Timeframe Status

Under construction; September GE to provide Wind Farm, Bac Lieu, Cuu Cong Ly Construction, 2010 – turbines (Jul 2011); Long province, Mekong General Electric (GE), September PPA signed (August Delta 247 99.2MW Trade and Tourism 2013 2012))

EAB Group, General In discussion with Wind power plant, Duyen Trading Production and Tra Vinh province Hai District, Tra Vinh Services Joint Stock Co People's Committee province. na 30MW (Trasesco 2011 - (July 2011)

Wind power project, Tram Hanh Commune, Da Lat At planning stage City, Lam Dong province na 300MW na 2011 – 2013 (July 2011)

Ninh Loan wind power plant, Duc Trong District, Under construction Lam Dong province na na na 2011 – 2013 (July 2011)

BOO agreement signed; US$15.5mn equipment contract Dakdrinh Hydropower awarded to Dakrinh hydropower plant, Joint Stock Co, PV Dongfang Electric Kon Turn province 205 125MW Power, PetroVietnam 2011 – 2013 (July 2011)

Under construction, selected to use Song Hau 1 coal-fired PetroVietnam, local power power plant, Hau Giang Petrovietnam Technical equipment (July province na 1200MW Services Corp 2011 – 2015 2012)

Duyen Hai 3 coal-fired EPC awarded by power plant, Tra Vinh EVN; 85% financed province, southern region CHENGDA, DEC, by Chinese banks of Vietnam 1300 1245MW SWEPDI, ZEPC 2011 – 2015 (August 2011)

Petrovietnam, LILAMA Under construction; Corporation [EPC], Steam turbine Vung Ang 1 coal-fired Toshiba, Sojitz, JBIC generators from power plant, Ha Tinh [Sponsor], Sumitomo August 2011 Toshiba, Sojitz province 1600 1200MW Mitsui [Sponsor] – July 2012 (November 2011)

Under construction; Mong Duong 1 coal-fired October EPC contract power plant, near Cam 2011 – awarded (Sep Pha Town, northern Hyundai Engineering & August 2015 2011); US$930mn Quang Ninh Province 1700 1080MW Construction (first turbine) loan from ADB

Srepok 4A hydropower Buon Don Hydropower 2011 – late- Under construction plant na 64MW Joint Stock Co 2012 (Sep 2011)

Feasibility study prepared for Son My Power Centre 1950MW Son My 1 (LNG) BOT project, Ham International Power, October power plant (Oct Tan District 4670 3000MW Sojitz, Pacific 2011 – 2019 2011)

Vietnam Infrastructure Report Q1 2013

Table: Major Projects – Energy and Utilities

Value Capacity/ Project Name (US$mn) Length Companies Timeframe Status

Phu Quoc Investment Received Thermoelectric plant, and Development October government Ganh Dau Commune 344 200MW Management Board 2011 - approval (Oct 2011)

Under construction (Nov 2011); Hydropower plant, Song November US$50mn loan from Bac River, Ha Giang 2011 – end- Sumitomo Mitsui province 50 42MW Song Bac Hydroelectric 2012 Bank

O Mon 4 combined cycle US$309.9mn loan gas-based power plant, Can Tho Thermal Power from ADB, part of O Mon thermal Company, Asian US$370mn from power complex, Can Tho Development Bank 2011 – June KfW Bankengruppe city 793.5 720MW (ADB) 2016 (Nov 2011)

Integrated gasification combined cycle system coal-fired power plant, Hai Lang District, Quang Tri Economic Zone, central PHI Group, Sao Nam December MOU signed (Dec Vietnam na 3600MW Group 2011 - 2011);

US$730mn loan Power Transmission from ADB, first Investment Program Asian Development Bank tranche of (involves building 648km (ADB), National Power December US$120.5mn of transmission lines in Transmission 2011 – June approved (Dec first tranche) 730 860km Corporation 2020 2011)

Coal-fired power plant, Feasibility study Dung Quat Economic underway; Zone, Quang Ngai Received license Province 338 1200MW Sembcorp Industries June 2012 - (June 2012)

Trisun International Waste plasma-converted Development, Kien Giang gas-fired power plant first Composite KGC March 2012 Project awarded phase, Ho Chi Minh City 400 na Company - (Mar-12)

Can Tho Thermal Power Company Limited, Daelim Industrial [Design O Mon 1 gas-based power and Construction], Sojitz September plant, part of O Mon Corporation [Steam 2012 – thermal power complex, Turbines], JICA October Under construction Can Tho city na 660MW [Sponsor] 2015 (September 2012)

Under construction; US$200mn from ADB, US$192mn Pleiku-My Phuoc-Cau September from Vietcombank, Bong 500KV Transmission National Power 2011 – end- US$74mn from Line 447 na Transmission Corp (NPT) 2012 VDB

Dak Nong-Phuoc Long- September Under construction; Binh Long 220KV National Power 2011 – end- US$45mn from Transmission Line 67 na Transmission Corp (NPT) 2012 BIDV

Vietnam Infrastructure Report Q1 2013

Table: Major Projects – Energy and Utilities

Value Capacity/ Project Name (US$mn) Length Companies Timeframe Status

Hoang Anh-Thanh Hoa Hydropower Joint Stock Ba Thuoc 2 hydropower Co, Hoang Anh Gia Lai September plant project 72 na Group 2009 – 2012 Under construction

Alstom, Hydrochina Song Bung 4 hydropower Huadong Engineering February Contract awarded EPC project, Bung River 24 156MW Corp 2012 – 2014 (February 2012)

Dong Nai 5 Thermo coal- fired power plant na 300MW Vinacomin 2011 – 2015 At planning stage

An Khanh 2 coal-fired power plant, Tan Phu Investment licence Commune, Pho Yen An Khanh Thermo Power received (October District, Thai Nguyen Joint Stock Co., Bank of early-2012 – 2011); Site province 481 300MW China [Sponsor] 2016 clearance underway

An Khanh 1 coal-fired power plant, An Khanh Commune, Dai Tu District, An Khanh Thermo Power Under construction Thai Nguyen province. na 100MW Joint Stock Co. 2011 - (December 2011)

Tan Tao Energy Kien Luong Coal-fired Corporation, China Power Complex (Phase 2), Harbour Engineering June 2010 – Contract awarded in Kien Luong Province na 1200MW Company [EPC] early-2014 2010

Tan Tao Energy Kien Luong Coal-fired Corporation, China Power Complex (Phase 3), Harbour Engineering Contract awarded in Kien Luong Province na 2000MW Company [EPC] June 2010 - 2010

Project suspended due to Thermal power plant, Ly environmental Son Island, Quang Ngai concerns (April province na na na - April 2012 2012)

Phuong Mai Wind Power Plant No 1, Nhon Hoi Industrial Park, Binh Dinh Clean Energy, CP April 2012 – Under construction Province 60.25 30MW Phuong Mai Wind Power April 2013 (April 2012)

Grid revamping project; 8km of medium-voltage power lines and 43km of HCMC Power May 2012 – At planning stage low-voltage power lines 816 na Corporation 2015 (May 2012)

PetroVietnam Power Corporation, PetroVietnam Construction Joint Stock Corporation [EPC], Toshiba, Sojitz [Equipment], Daelim US$300mn Thai Binh 2, coal-fired Industrial [Equipment], equipment sub- power plant, Thai Binh Babcock & Wilcox Beijing August 2012 contract awarded province 1600 1200MW Company (BWBC) – end-2015 (August 2012)

Vietnam Infrastructure Report Q1 2013

Table: Major Projects – Energy and Utilities

Value Capacity/ Project Name (US$mn) Length Companies Timeframe Status

Vietnam Development Under construction Mekong Delta Wind Power Bank [Sponsor], Export- (June 2012); US$1 Centre, Vinh Trach Dong Import Bank of the United June 2012 – loan received Commune 1000 500MW States [Sponsor] 2015 (October 2011)

Undersea power cable project (Sa Ky Port – Ly Power Engineering Surveying activities Son Island), Quang Ngai Consulting Joint Stock completed (June Province 14.4 26km Company 2 June 2012 - 2012)

Solar farm, Binh Thuan At planning stage province na 50MW ACO Group July 2012 - (July 2012)

Under construction, selected to use Quynh Lap 1 coal-fired Vinacomin, No 1 local power power plant, Central Nghe Construction Consultancy January equipment (July An province 1500 1200MW JSC 2012 – 2016 2012)

Da Nhim hydropower plant Da Nhim-Ham Thuan-Da Q1 2013 -Q4 At planning stage expansion project na 80MW Mi Hydropower JSC 2015 (July 2012)

At documentation stage, BOT contract Vinh Tan 1 thermal power yet to be signed plant BOT project, part of (July 2012); Vinh Tan Electric Centre, Undergoing land Tuy Phong districts, Binh acquisition process Thuan province 1900 na China Southern Group July 2012 - (August 2012)

Hitachi Zosen Corporation, Japanese New Energy and Industrial Technology Development Organisation [Sponsor], Waste power generation Hanoi government August 2012 Contract awarded project, Hanoi 29.5 na [Sponsor] - (August 2012)

Vinh Tan 3 thermal power plant BOT project, part of At planning stage, Vinh Tan Electric Centre, undergoing land Tuy Phong districts, Binh August 2012 acquisition process Thuan province na na Vinacomin - (August 2012)

O Mon 2 gas-based power plant, part of O Mon thermal power complex, Can Tho Thermal Power August 2012 At planning stage Can Tho city na 720MW Company – 2015 (August 2012)

O Mon 3 gas-based power plant, part of O Mon thermal power complex, Can Tho Thermal Power August 2012 At planning stage Can Tho city na 700MW Company – 2015 (August 2012)

Seeking Nam Chien hydropower government plant BO project, Son La August 2012 financing (August province na 200MW Song Da Group - 2012)

Vietnam Infrastructure Report Q1 2013

Table: Major Projects – Energy and Utilities

Value Capacity/ Project Name (US$mn) Length Companies Timeframe Status

Received Geothermal power plant, government Dakrong District, Quang September approval Tri province na 25MW na 2012 - (September 2012)

China National Heavy Nong Son coal-fired power Machinery Corporation Construction halted, plant, Quang Nam (CHMC), Vinacomin 55% completed province 253.3 na [Sponsor] 2008 - (September 2012)

Pleiku-Phu Lam 500kV Power Transmission US$16.5mn transmission line, part of Company No. 4, General equipment supply North-South power Electric (GE), US Exim 2012 – Q3 contract signed transmission na 500km Bank [Sponsor] 2013 (July 2012)

Water

Thanh My Loi wastewater Site selected treatment na na na -2015 (August 2010)

Song Hau 1 water Contract awarded; treatment plant PPP Construction due to project, Can Tho City na na PetroVietnam 2011 - begin (May 2012)

Song Hau 2 water Plan approved by treatment plant, An Giang the government in Province na na na 2011 - 2010

Song Hau 3 water Plan approved by treatment plant, An Giang the government in Province na na na 2011 - 2010

Wastewater treatment 6mn m3 2011-mid plant, Binh Duong 95 /year na 2013 Under construction

US$85mn loan from ADB and French government; The Water supply and irrigation rest from system project, south of Asian Development Bank Vietnamese Vietnam 329 na (ADB) 2011-2014 government

Gamuda, Gamuda Land Vietnam Co., Japan International Cooperation Yen So PPP wastewater Agency (JICA), Hanoi Under construction, treatment plant, Hoang 200,000 Water Drainage almost completed Mai District, Hanoi 300 m3/day Company 2008-2012 (June 2012)

Water pipeline system project (Binh Thai intersection [Thu Duc District] – Dien Bien Phu Asian Development Bank US$138mn loan Street near Saigon [Sponsor], Saigon Water June 2012 – from ADB (June Bridge), Ho Chi Minh City 154 10km Corporation (Sawaco) late-2014 2012)

US$60mn supplementary Phuc Hoa water resource financing provided project 60 na na 2011 – 2014 by ADB

Vietnam Infrastructure Report Q1 2013

Table: Major Projects – Energy and Utilities

Value Capacity/ Project Name (US$mn) Length Companies Timeframe Status

Japan International US$192.4mn loan Bay Mau PPP wastewater Cooperation Agency signed with JICA treatment plant under (JICA), Metawater, TSS, (Jul 2011); To form Second Hanoi Drainage Hanoi Water Supply, JV with Vietnam Project For Environmental 13300 Sewerage, Environment October company (Sep Improvement, Vietnam 29 m3/day Investment Construction 2011 - 2011)

Phu Do wastewater 84000 m3 Hanoi Water Drainage At planning stage treatment plant, Hanoi 144 /day Company July 2012 - (July 2012)

Hanoi Water Drainage Yen Xa water treatment 275000 m3 Company, ODA At planning stage plant, Hanoi 288 /day [Sponsor] July 2012 - (July 2012)

Seven water supply Saigon Water Supply September Under construction projects, Ho Chi Minh City 240 na Corporation (Sawaco) 2011 – 2015 (September 2011)

Received approval from Tay Ninh Sewage treatment plant, September provincial People's Ben Rong commune, Go 300tonnes/ Vietnam Green 2011 – late- Committee Dau district, Tay Ninh 14.4 day Environment Company 2012 (September 2011)

Binh Hung wastewater Center of Urban Flood treatment plant second Control, Japan MOU for second phase, Binh Chanh 512000 International Cooperation phase signed with District, Ho Chi Minh City na m3/day Agency (JICA) July 2011 - JICA (July 2011)

Working group Garbage and wastewater established for treatment PPP project, Da JFE Engineering, Nihon November feasibility study Nang city 190 na Suido Consultants 2011 - (Nov 2011)

Tra Bong water supply project, Binh Son district, 200000m3/ Anh Phat Water Supply April 2012 – Under construction Quang Ngai province 197 day Group Joint Stock Co Q4 2013 (April 2012)

US$317mn first phase under construction (April Nhieu Loc-Thi Nghe Canal World Bank [Sponsor], 2003 – June 2012); Second Basin environmental Asian Development Bank 2012 (first phase to cost sanitation project 787 na [Sponsor] phase) US$470mn

Kenh Dong water Kenh Dong Water Supply treatment BOT project, Ho 200000 Joint Stock Co, Ayala 2003 – H2 Under construction Chi Minh City na m3/day Corp, Manila Water 2012 (April 2012)

Water pipeline system project (Binh Thai intersection – Thu Duc Asian Development Bank water plant), Ho Chi Minh (ADB), Saigon Water Completed (June City na 12.4km Corporation (Sawaco) - June 2012 2012)

Thu Duc 3 water treatment 2012 – late- plant, Ho Chi Minh City na na na 2014 Under construction

Vietnam Infrastructure Report Q1 2013

Table: Major Projects – Energy and Utilities

Value Capacity/ Project Name (US$mn) Length Companies Timeframe Status

Nhieu Loc-Thi Nghe wastewater treatment plant (second phase), Received HCM City Thanh My Loi Ward, 850000m3/ approval (July District 2, Ho Chi Minh City na day na July 2012 - 2012)

Western West Lake waste water treatment plant, 61400m3/d At planning stage Hanoi 144 ay na July 2012 - (July 2012)

Ha Dong waste water treatment plant (first 20000m3/d At planning stage phase), Hanoi 20 ay ODA [Sponsor] July 2012 - (July 2012)

At planning stage; Design, feasibility, Green waste treatment geological study plant, Thu Thua district, 40000 Vietnam Waste Solutions August 2012 completed (August Long An Province 700 tonnes/yr Co. (VWS) – 2022 2012)

Saigon Infrastructure Real Estate Investment (SII), HFIC Investment At planning stage, water supply project, 30000m3/d Joint Stock Company, project announced Pleiku, Gia Lai province 9 ay Tuan Loc Company 2013 – 2014 (August 2012)

Water supply project, Van Phong Economic Zone, 30000m3/d September At planning stage Khanh Hoa Province 4.8 ay na 2012 - (September 2012)

Son Tay water treatment 9000m3/da At planning stage plant, Hanoi 12 y na July 2012 - (July 2012)

Source: BMI. na=not available.

Vietnam Infrastructure Report Q1 2013

Residential/Non-Residential Construction and Social Infrastructure

Table: Vietnam Residential and Non-residential Building Industry Data, 2010 – 2016

2010 2011 2012e 2013f 2014f 2015f 2016f

Residential and Non- Residential Building Industry Value As % of Total Construction 53.9 53.0 53.1 53.6 54.1 54.7 55.4

Residential and Non- Residential Building Industry Value, VNDbn 75,004.6 86,188.6 93,896.4 107,544.2 122,367.6 138,019.9 155,670.4

Residential and Non- Residential Building Industry Value, US$bn 3.9 4.2 4.5 5.2 6.0 6.8 7.7

Residential and Non- Residential Building Industry Value Real Growth, % chg y-o-y 16.5 -3.8 -0.1 8.2 7.5 7.5 7.8

Residential and Non- Residential Building Industry Value as % of GDP 3.8 3.4 3.2 3.3 3.2 3.2 3.2

e/f = BMI estimate/forecast, Source: BMI Research

Table: Vietnam Residential and Non-residential Building Long Term Forecasts, 2015 – 2021

2015f 2016f 2017f 2018f 2019f 2020f 2021f

Residential and Non- Residential Building Industry Value As % of Total Construction 54.7 55.4 56.1 56.8 57.5 58.2 59.1

Residential and Non- Residential Building Industry Value, VNDbn 138,019.9 155,670.4 175,565.6 197,692.9 222,417.7 249,287.0 279,107.8

Residential and Non- Residential Building Industry Value, US$bn 6.8 7.7 8.8 9.9 11.1 12.5 14.0

Residential and Non- Residential Building Industry Value Real Growth, % chg y-o-y 7.5 7.8 7.8 7.6 7.5 7.1 7.0

Residential and Non- Residential Building Industry Value as % of GDP 3.2 3.2 3.3 3.3 3.3 3.3 3.2

e/f = BMI estimate/forecast, Source: BMI Research

Vietnam Infrastructure Report Q1 2013

Residential/Non-Residential Building Outlook and Overview

BMI View: Vietnam's robust economy, which is forecast to grow at an average rate of 7.2% year-on- year (y-o-y) between 2013 and 2017, is to be a driving force for residential and non-residential building sector growth. Rising trade activity will drive demand for industrial buildings, while rising incomes among Vietnamese consumers will drive demand for housing and commercial construction projects, such as malls and hotel development. We also believe that there is upside potential to our long-term forecast in Vietnam's residential and non-residential building sector and are forecasting real growth for the sector to average 7.8% y-o-y between 2013 and 2017.

We expect the residential and non-residential building sector to see a significant recovery in 2013. Real growth for the sector is forecast to reach 8.2% in 2013, compared to a contraction of 0.1% in 2012. Our optimistic outlook for Vietnam's buildings sector is primarily driven by the country's conducive monetary conditions. The benchmark interest rate in Vietnam has stayed at around 10.00% since July 2012 and this should be favourable for construction activity.

Recovering After 2012 Residential And Non-residential Building Industry Data

e/f = BMI estimate/forecast, Source: BMI, Vietnam General Statistics Office

However we believe this 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. According to Vietnamese investment group Dragon Capital in a recent economic forum held in late-September, above 35,000 apartments are currently available for sale in Hanoi and Ho Chi Minh City each. This excess supply have seen land and real estate prices fall significantly and consistently since mid-2011.

Vietnam Infrastructure Report Q1 2013

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. According to the HCM City Department of Construction, the city currently is has planned for over 1,100 apartment projects. If completed, these projects will provide the market with around 380,000 apartments. However, only 195 projects, or 17% of the total number, have been completed at the end of September. Out of the 815 unfinished projects, 158 projects have not completed investment procedures, 122 projects have yet to get off ground and the remaining 14 have been suspended. A survey carried out by the department (cited from Intellasia) showed that many projects had fallen far behind schedule due to 'prolonged hardship of the real estate market, lateness in site clearance, investment formalities and financial problems of investors'.

In Hanoi, it is reported that hundreds of urban and residential projects in the Ha Tay Province and Vinh Phuc’s Me Linh District failed to start construction despite receiving government approval. In the Me Linh District, it is believe that there are as many as 110 projects ready to start construction, with significant portions of the land cleared. However, all of these projects are now sit abandoned.

Although the aggressive rate cuts taken by the government in 2012 could reignite demand for housing, the scale of the oversupply makes this unlikely. According to Dragon Capital, the current apartments in stock could take 7 years to be fully absorbed by the market unless demand stimulus measures are executed. There are currently plans to carry out such a stimulus, but it remains to be seen if they will be enacted. During a real estate conference in June 2012, the Vietnamese government is planning to increase public investment disbursements that will indirectly revive the real estate sector. The government is also planning to launch a fund subsidised by the state budget for the poor to buy houses, and a fund for middle and higher income earners to save their own money to buy houses.

Besides stimulus measures, other upside risks for the residential sector is 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. Lastly, the demand for affordable houses is still outstripping supply, as residential development has largely focused on high-end customers.

Non-Civil Building To Outperform We believe that the main driver of growth for the residential and non-residential building sector is the non-residential building sector. We believe an increase in trade activity could boost the demand for energy-related facilities and industrial buildings (ie, factories, warehouses). A key sector is the petrochemicals industry. Around nine petrochemicals projects are at the planning stage and are expected

Vietnam Infrastructure Report Q1 2013

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 year 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 year polyethylene, 500,000 tonnes polypropylene and 400,000 tonnes 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 project 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 agreement to invest in a US$4.5bn petrochemical complex in Southern Vietnam. Under the deal, SCG is to acquire a 46% stake in the project. The company has said that the complete details regarding investment in the project and how it will be financed are scheduled to be finalised in 2013. 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.

Tourism – Gambling On A Trend Another key driver of growth in the non-residential buildings sector is the tourism sector. We expect tourism – both domestic and regional – to become a growing source of value creation for the sector, as disposable income levels rise across the Asia Pacific region and short-haul travel becomes more accessible to an expanding middle-class population. The rising popularity of integrated gaming resorts across the region epitomises this growing trend, with casinos fast becoming a pre-requisite for many would-be tourism developments. In August 2011, foreign investors were invited to bid for a planned US$4bn tourism complex on Phu Quoc Island, having been given the go-ahead by the Vietnamese government, with the government aiming to transform the island into a trade and tourism hub. While there are casinos in many Vietnamese hotels that are open to foreign tourists, these are deemed too small in scale to attract the kind of numbers required to compete with the likes of Macau's multibillion dollar developments.

The Vietnamese government has therefore set a US$4bn minimum investment threshold for its 135 hectare (ha) project, which will include a 30,000 m2 casino with a 30-year operating licence, as well as five- or six-star hotels. The government plans to make the island a special administrative and economic region – Macau has a similar status bestowed upon it – which will presumably allow it to function outside the country's gambling laws. The island is expected to attract two to three million visitors per year by 2020.

However, it has not been all smooth-sailing. In September 2012, Genting Malaysia, a subsidiary of Genting Group, withdrew from a US$4bn resort project in the Quang Nam province. The project was to

Vietnam Infrastructure Report Q1 2013

be jointly developed with VinaCapital, but the Malaysian gaming conglomerate chose to pull out because the Vietnamese government does not allow Vietnamese to enter gaming facilities.

Major Projects Table – Residential/Non-Residential Construction And Social Infrastructure

Table: Major Projects – Residential/Non-Residential Construction And Social Infrastructure

Value Capacity/ Project Name (US$mn) Length Companies Timeframe Status

Commercial Construction

At planning stage – Eight ibis hotels in Vietnam's Accor, Benthanh 1st hotel to open in major cities na na Group 2010- 2012

Six tourism construction projects, Nhon Hoi economic Projects approval zone, Binh Dinh 518 na na 2011- received

Tourism and entertainment resort, Chu Lai Open Economic 21000000 Government approval Zone (OEZ) 4000 sq m Genting Group 2011- received

Ryobi Kiso Holdings, Ryobi Kiso Holdings, Contract (foundation SSG Tower, Ho Chi Minh City 11 na Phu Cuong 2011 - works) awarded

Empire Residences and Resort Thanh Do project (include 5-star hotel), Construction and 2011 – - Under construction Ngu Hanh Son District 476 na Investment 2012 (August 2011)

Casino resort (include 30,000sq August m casino and five-star hotels), 1350000 2011 – At tendering stage Phu Quoc Island 4000 sq m na 2020 (August 2011)

Ssangyong Three condominiums, Ho Chi Engineering, Keppel September Contract awarded Minh City 57.9 549 units Land 2011 - (September 2011)

Wonderland World Vung Tau complex (includes a five-star January hotel, 4 four-star hotels, an 2007 – entertainment centre), Nguyen October Investment license An Ninh Ward, Vung Tau city 1300 na Good Choice 2011 revoked (Oct 2011)

Ecotourism centre (includes 20km bridge), Southern Hon At planning stage, Khoai Island, Ngoc Hien District, project announced Ca Mau Province 143 na na July 2012 - (July 2012)

Education

Ayunpa secondary school, Ca Mau general Hospital na na Korea Eximbank 2010- US$6mn loan signed

Happyland Vietnam Entertainment Complex project (includes US$600mn Happyland theme park project and November US$140mn Movie World), Ben 35000000 2011 – April Under construction Luc District, Long An Province 2000 sq m Sanderson Group 2014 (Nov 2011)

Vietnam Infrastructure Report Q1 2013

Table: Major Projects – Residential/Non-Residential Construction And Social Infrastructure

Value Capacity/ Project Name (US$mn) Length Companies Timeframe Status

Healthcare

Social development project (educational and healthcare US$29mn loan from buildings), Ho Chi Minh City 138 na AFD 2011- French AFD agreed

Orthopaedic hospital BT project, Clearance Binh Chanh District,Ho Chi Minh Compensation April 2012 - BT contract signed City 54 500 beds Corporation mid-2014 (April 2012)

Industrial Construction

Petrovietnam Construction, Mitsui Chemicals, Idemitsu Request 70% Kosan, Kuwait October financing from JBIC Nghi Son refinery, Thanh Hoa Petroleum 2011 – (Feb 2011); Financing province 5800 200000bpd International (KPI) 2015 from IFC (Oct 2011)

Under construction; Solar cell factory, Dong Nam commission of Industrial Park, Hoa Phu First Solar Group, First US$300mn module Commune, Cu Chi Dist, HCM Solar Vietnam 2011-H2 factory postponed City 1000 238MW Manufacturing Co Ltd 2012 (Nov 2011)

120MW per year – Solar modules manufacturing Indochina Energy & Under construction; plant, Chu Lai Open Economic Industry Company First to have capacity Zone 390 120MW Limited (ICE) May 2011 - of 30MW per year

Solar panel manufacturing plant, Indochinese Energy 120MW /year – Under Quang Nam province na 120MW Company 2011- 2013 construction

Siam Cement Group Vinachem to withdraw (SCG), QPI Vietnam, from project, Land PetroVietnam, acquisition and EPC Petrochemical complex, Long Vietnam National tender to be Son Island, Ba Ria-Vung Tau 1.4mn Chemical Corporation completed by end- province 4500 tonnes/yr (Vinachem) 2013-2016 2012 (July 2012)

Residential Construction

Residential developments and CapitaLand, manufacturing projects 291 na KeppelLand, PepsiCo 2010- contract signed

Development of 60mn square metres of residential space 600000 (public housing) 19700 units na 2015-2020 At planning stage

Daewoo Engineering & Construction, Hi Commercial-residential complex, Brand Vietnam, Hanoi 188 na Inpyung 2011- 2013 Contract awarded

Source: BMI. na=not available.

Vietnam Infrastructure Report Q1 2013

Risk/Reward Ratings

Vietnam’s Risk/Reward Ratings

Vietnam has achieved a score of 54.5 in BMI’s Asia Pacific infrastructure risk/reward ratings (RRRs). It remains firmly in the lower half of the rankings and is ninth out of 13 countries; however, the country is actually 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 the emerging SEA countries in terms of rewards. That said, corruption and heavy delays to project development continue to represent 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, around 200 infrastructure projects with a combined value of around US$200bn are currently listed as under construction or under consideration in Vietnam. The country 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 wallows with middling scores, still 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 of foreign capital can be difficult. These poor lending standards have also resulted in very 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, as the banking sector witnesses a raft of privatisations and increased involvement from foreign development banks – something that may liberalise the sector.

Risks

Industry Risks Industry risks represent the largest hurdle for Vietnam at present, scoring 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 very poorly, scoring only three out of 10. The 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

Vietnam Infrastructure Report Q1 2013

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.

Country Risk Corruption is prevalent in Vietnam, resulting in poor scores within the country risk ratings. Investors see official corruption as one of the biggest hindrances to running a business in Vietnam, with anecdotal evidence suggesting that 30% of a project's value is pocketed by the contractor to pay bribes to relevant parties. For example, at the end of 2011, the World Bank (WB) banned Vietnam's Social and Environmental Development and its Managing Director, Nguyen Xuan Doan, for five years, following allegations of fraud among WB-finance water supply projects. Joint ventures (JVs) 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 rating for corruption and also rates poorly for its external risks and legal framework.

Regional Overview

Asia Pacific Infrastructure Risk/Reward Ratings

BMI View: The risk/reward scores for Asia's infrastructure sector continue to be adversely affected by the ongoing slowdown in global economic activity. Although this has dampened the demand for infrastructure in some countries, it has prompted several others to boost their project pipeline, while providing a more conducive credit climate for construction growth. Overall, the potential for returns in Asia's infrastructure sector remains robust, reinforcing the region's status as the world's most concentrated infrastructure and construction market.

There remains a substantial disparity in the demand for infrastructure throughout Asia, translating into a significant divergence in rewards and risks among the Asia Pacific infrastructure markets. A 40-point differential exists between the top and bottom countries in BMI's risk/reward infrastructure regional ratings table. This wide dispersion presents investors with a range of rewards for different risk appetites.

The key findings from this quarter's update on the Asia Pacific infrastructure risk/reward ratings (RRRs) can be summarised as follows:

Economic activity across Asia continues to soften. Although this has dampened the demand for infrastructure, it has prompted countries such as Hong Kong and Malaysia to boost the project pipeline to offset the economic slowdown.

Furthermore, this decline in economic activity is allowing Asian countries to loosen their monetary policies and create a more positive credit climate for construction growth.

Vietnam Infrastructure Report Q1 2013

Despite poorer economic conditions for infrastructure, the most populous countries in the region continue to present sufficient scope in rewards to overcome risks. However, policy inertia remains a problem in India and Indonesia, suggesting that risks at a grass-roots level will remain considerable for these countries.

Emerging South East Asian (SEA) countries continue to offer greater rewards for their level of risk, but there are growing risks for these export-oriented economies due to weakening external demand.

Similarly, the more developed countries in the region continue to present the most attractive business environment, but the decline in external demand is dampening rewards in their respective infrastructure markets.

Global Downturn Impacts All Asian Countries - Infrastructure BE Risk/Reward Ratings, Scores out of 100

* Higher Score = Lower Risks. Source: BMI

China, India and Indonesia: Rewards Sizeable Asia's largest economies - China, India and Indonesia - continue to head the group in terms of industry rewards. 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. Furthermore, disinflationary pressures and a significant slowdown in economic growth have provided their respective governments with the leeway to loosen their monetary policies in 2012, making it increasingly tenable for infrastructure companies to take on new projects in 2012 by financing capital expenditures through debt.

Vietnam Infrastructure Report Q1 2013

China's economy is experiencing a significant slowdown and this has prompted the government to carry out a series of pro-growth policies aimed at arresting the growth downturn. Some of these policies are directed towards boosting growth in the infrastructure sector, including boosting access to financing for infrastructure projects, creating incentives to encourage greater private sector participation and accelerating the approval of new infrastructure projects such as airports, renewables and railways.

In September 2012, the National Development and Reform Commission approved railway projects worth a total of US$110bn. The figure is nearly twice the amount announced in July 2012, though this seems to be a longer-term spending plan, with the projects included still in the feasibility stages.

However, we believe that these policies are not going to boost infrastructure spending to levels seen in previous years, thus limiting the upside potential for China's reward score.

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

* Higher Score = Lower Risks. Source: BMI

India has massive plans to plug its infrastructure deficit, with the government aiming to raise US$1trn in infrastructure investment over the 12th Five-Year Plan period (FY2012/13-FY2016/17). These planned investments, along with the release of several initiatives to accelerate and enhance the flow of long-term financing for infrastructure projects, lead us to believe that there are significant rewards to be realised in India.

However, repeated failures to carry out the necessary reforms to accelerate project execution (e.g. land acquisition, environmental clearances, coal supply, electricity tariff hike) have created a non-conducive investment climate for the private sector. The momentum to carry out reforms by the government has taken a turn for the worse, with the ruling United Progressive Alliance (UPA) coalition having been

Vietnam Infrastructure Report Q1 2013

rocked by the withdrawal of its second largest member, the All-India Trinamool Congress (TMC). The populist TMC was staunchly opposed to the reforms introduced by the UPA in mid-September 2012, and its complete withdrawal leaves the UPA short of an absolute majority in the lower house of parliament (Lok Sabha). This could prompt Prime Minister Manmohan Singh to backtrack on reform or in a worst- case scenario, be forced to announce early general elections well ahead of the 2014 constitutional deadline.

As for Indonesia, the country continues to present vast opportunities across the entire infrastructure spectrum. However just like India, the country's political landscape is hindering the push for regulatory reforms. The presidential elections in 2014 represents a key risk to the reform process as Indonesian President Susilo Bambang Yudhoyono is constitutionally prohibited from standing for a third term. We have already noticed a growing trend towards nationalism within the current government and the likely presidential candidates.

Therefore, even though President Yudhoyono has finally signed the long-awaited regulation on land acquisition, we remain concerned that the government might not enact reforms in other pertinent business environment issues. For example, the private sector remains wary of providing long-term financing for infrastructure projects and companies, due to a continuing lack of legal rights to safeguard private interests. Indonesia also suffers from significant red tape and a lack of institutional capacity to resolve contract disputes.

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

* Higher Score = Lower Risks. Source: BMI

Vietnam Infrastructure Report Q1 2013

South East Asia: Large Pipelines, Loose Monetary Policy The risk/reward scores for emerging SEA countries are facing downside pressure, as we continue to see evidence of a decline in global economic activity. We have once again revised down the rewards scores for Vietnam (58.5 to 56.9) and the Philippines (48.6 to 46.9).

That said, there is a silver lining. The decline in global economic activity has improved monetary conditions in these countries, as disinflationary pressures have provided leeway for policymakers to adopt monetary easing measures (e.g. cut interest rates) to support economic and infrastructure growth. We have already seen Vietnam and the Philippines slash interest rates to levels predicted by our country Risk team, and we believe that Thailand and Malaysia could follow suit.

Furthermore, we continue to expect emerging SEA countries to offer greater rewards relative to their level of risk over the coming years. These countries exhibit varying levels of infrastructure deficits and many have launched multi-billion dollar infrastructure programs to address these shortfalls.

Malaysia's rewards scores, for example, continues to growth in strength despite the poor external environment. The country's 10-year investment plan continues to provide a lot of greenfield opportunities, prompting us to improve Malaysia's rewards score from 51.7 to 55.0. Several large-scale infrastructure projects, particularly in terms of railways and the power sector, reached key milestones in 2012 and are on track to be awarded and/or start construction.

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

* Higher Score = Lower Risks. Source: BMI

Vietnam Infrastructure Report Q1 2013

Nearly Developed Markets: Boosting Pipeline To Offset Slowdown Disinflation is also taking hold in Asian countries that are nearing developed market status in terms of their infrastructure market maturity. However, monetary easing measures are unlikely to overcome a general decline in economic activity (their export-oriented economies leaves them highly vulnerable to the deleterious effects of a languorous global economy), resulting in a net decrease in the demand for infrastructure and a decline in the amount of fiscal funding for infrastructure. We have revised down our rewards scores for Taiwan (from 51.9 to 50.3) this quarter because a deep economic slowdown in China, Taiwan's main trading partner, is creating an increasingly dour investment climate for construction.

Hong Kong is also affected by this slowdown in external demand, but its rewards score has improved again this quarter, from 54.3 to 57.5. This is because Hong Kong's plans to boost land supply for construction and to improve the city's transport links are moving into full swing, creating numerous project opportunities for infrastructure. We also expect the third round of quantitative easing by the US Federal Reserve to increase the demand for speculative investments in Hong Kong, including real estate. This could in turn, drive property developers to increase the supply of buildings to meet demand, further driving the demand for infrastructure.

As a whole, these countries continue to offer the best business environments for realising investment returns. Countries such as Singapore, Hong Kong, Taiwan and South Korea are highly developed in terms of their legislative and regulatory environments and present very little in the way of risk to sponsors and financiers. The average score for risks in these developed markets is 78.2 out of 100, significantly higher than the remaining nine Asian markets, which have an average of 50.3. This risk score reflects their high degree of policy continuity - a major criterion to project execution and viability.

Vietnam Infrastructure Report Q1 2013

Table: Asia Infrastructure Risk/Reward Ratings

Rewards Risks

Industry Country Industry Country Infrastructure Regional Rewards Rewards Rewards Risks Risk Risks RR Rating Ranking

South Korea 50.0 88.9 63.6 70.0 77.5 74.5 66.9 1

China 72.5 60.9 68.4 40.0 67.8 56.7 64.9 2

Singapore 35.0 86.2 52.9 90.0 88.6 89.2 63.8 3

Hong Kong 40.0 90.1 57.5 85.0 71.9 77.1 63.4 4

India 75.0 45.4 64.6 55.0 55.1 55.1 61.8 5

Taiwan 37.5 74.0 50.3 75.0 69.9 71.9 56.8 6

Indonesia 65.0 48.2 59.1 35.0 62.0 51.2 56.8 7

Malaysia 50.0 64.3 55.0 55.0 62.9 59.8 56.4 8

Vietnam 55.0 60.4 56.9 40.0 54.6 48.8 54.5 9

Thailand 40.0 72.3 51.3 50.0 61.1 56.7 52.9 10

Philippines 42.5 55.1 46.9 35.0 56.8 48.1 47.3 11

Cambodia 32.5 25.9 30.2 25.0 42.3 35.4 31.7 12

Pakistan 10.0 43.6 21.8 35.0 45.1 41.0 27.6 13

Regional Average 46.5 62.7 52.2 53.1 62.7 58.9 54.2

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

Vietnam Infrastructure Report Q1 2013

Company Monitor

Cavico Corporation

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 US$10mn. Opportunities Vietnam is one of the best-placed Asian economies to weather the global financial crisis. The government’s willingness to improving infrastructure seems undiminished. The energy and utilities sector in Vietnam has picked up a lot of pace since FY2009, creating plenty of opportunities. 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 Corp. is the largest private infrastructure and mining company based in Vietnam*. 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 lately it has also made its first venture in 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.

Financial Highlights In Q210, revenues rose by 7.9% year-on-year (y-o-y) to reach US$14.7mn. Net profit for Q210 was a loss of US$1.8mn, compared to a net income of US$37,445 in the same period of 2009.

Order backlog as of June 30 2010 was US$304.6mn, an increase of 33.8% y-o-y.

For 2010, the company expected revenues of between US$65mn and US$70mn, while overall the company expected to see a net loss in the range of US$4mn to US$5mn.

Strategy and According to the company’s declared business strategy, the key points that will guide investment Evaluation 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.

Hitherto, 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

Vietnam Infrastructure Report Q1 2013

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 by 33.8% y-o-y to reach US$304.6mn as of June 30 2010.The firm also saw a loss of US$1.8mn in the second quarter of 2010. According to the company, this was due to the fact many of the company’s 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.

Activity and Projects In April 2011, Cavico Corporation announced that its subsidiary, Cavico Mining, had received an investment licence for the Tan My Hydropower Plant. The licence grants Cavico the right to build own and 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 US$6.7mn.

In March 2011, Cavico Corporation announced that its subsidiary, Cavico Construction Manpower & Services, has 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 is valued at approximately US$1.3mn. Cavico expects to complete the project within seven months from the start of construction.

In January 2011, Cavico Corporation announced that its subsidiary, Cavico Hydropower Construction, had signed a US$7.75mn 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 US$23.2mn in the plant.

In December 2010, Cavico Corporation announced that its subsidiary, Cavico Bridge and Tunnel, had signed a US$6mn 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. Cavico expects to complete construction by 2014.

In October 2010, Cavico Corporation announced that its wholly-owned subsidiary, Cavico Hydropower, had successfully completed all construction activities at the Dong Nai 3 Hydropower Plant. The company has started the handover process to the project owner, EVN.

In June 2010, Cavico Corporation announced that its majority-owned subsidiary, Cavico Bridge, and Tunnel JSC had signed a transport tunnel construction agreement with Korea- based Doosan Heavy Industries & Construction Co., Ltd. for the Noi Bai-Lao Cai Highway. The expected revenue value for this new contract is US$5.8mn, excluding VAT. In March 2010, Cavico announced it has won a contract for a US$2.1mn road construction contract related to this project. Cavico expects to complete its portion of the project in 20 months.

Vietnam Infrastructure Report Q1 2013

In June 2010, Cavico Corporation announced that its majority-owned subsidiary, Cavico Mining, had signed a construction contract for construction of Portal No. 2 at Ngan Truoi reservoir of the Ngan Truoi Irrigation Dam located in Ha Tinh province. The expected revenue value of this contract is US$3.3mn; however, the contract also has cost escalation clauses, which may increase the revenues associated with the project. In May 2009, Cavico signed a contract for US$8.5mn to construct Portal No. 1 on the same site. Cavico will be responsible for the construction of a diversion dam, water intake gates and a groin dam distributor. Ngan Truoi reservoir’s Portal No. 2 will be 2.5m in diameter and 464m in length.

* While we appreciate that mining activities are at the heart of the company’s operations, for the purpose of this report we will only focus on the company’s infrastructure operations.

Key Statistics Financial Data

Revenue Q210: US$14.7mn

Net income Q210 (loss): US$1.8mn

Vietnam Infrastructure Report Q1 2013

Electricity of Vietnam Group (EVN)

Strengths EVN’s power companies account for 55% of the 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 Vietnamese government is committed to energy sector development visible in its ambitious plans to increase Vietnam’s total installed generating capacity from20GW 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 was founded in 1995 as a state-owned utility engaged in the generation, transmission and distribution of electricity. It has played an important role in supplying power which is necessary for socio-economic development in Vietnam. EVN has moved forward with plans to privatise member enterprises since the early 2000s, in line with the Government’s Strategy for Electricity Sector Development. By April 2006, EVN had completed the privatisation of 21 subsidiaries and successfully converted five others into one-member limited liability companies. EVN then began the process of privatising a further 18 companies and restructuring five others. It was renamed as Vietnam Electricity Group.

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 BOT power plants. Despite further privatisation plans, power transmission companies, 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 four big power projects financed by the World Bank, worth US$370mn.

Strategy And EVN is expected to face many major changes over the coming years due to the launch of the Evaluation 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,

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EVN announced that it will invest US$39bn in building an additional 95 power plants with a total capacity of around 49,000MW over the next ten years, 38 of which will be built between 2011 and 2015. To meet this target by 2015, EVN would need to invest US$3bn a year in new power plants and transmission infrastructure between 2011 and 2015.

However, EVN is currently suffering from crippling debts due to a tightening in credit growth. Earlier in 2011, Deputy General Director of EVN, Dinh Quang Tri, revealed that the company was burdened with huge debts from the purchases of oil, gas, coal and electricity. EVN is also struggling to clear these debts on its own, as the utility suffered a financial loss of VND8trn (US$388mn) in 2010. EVN is currently in negotiations with PetroVietnam and Vinacomin to refinance and extend the tenure of its debt payments, while also requesting loans and additional capital from the government to repay EVN's debts.

One reason for EVN's high debt levels is due to artificially low electricity prices and lack of sophistication in setting electricity prices. Electricity prices in Vietnam are still 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 the Vietnamese telecoms sector is also 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 – ie 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 (US$135.9mn) 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. At present, EVN is looking to divest EVN Telecom, but plans to sell the subsidiary to the Corporation for Financing and Promoting Technologies fell through in April 2011, with Vietnam Multimedia Corporation now the most likely candidate to acquire the telecoms subsidiary, according to local media reports.

In a bid to ease EVN’s current financial difficulties, in July 2011, the Vietnamese prime minister 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 (MoF) for domestic credit loans to pay for electricity purchases from thermo power plants under the direction of the prime minister.

Activity And Projects In June 2012, Vietnam had 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

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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 June 2012, EVN Southern Power Corporation (EVNSPC) and Prysmian Powerlink SRL Group signed a US$112mn EPC contract for an undersea cable system in Vietnam. The cable system, which will be the longest of its type in Southeast Asia, will connect Ha Tien Township and Phu Quoc Island in the southern province of Kien Giang. The cable system is scheduled to be completed by late-2013 and will be funded by the World Bank and EVNSPC.

In January 2012, VnExpress reported that the acquisition of EVN Telecom, a unit of Vietnam's state utility Electricity of Vietnam (EVN), by mobile operator Viettel will be completed by end-Q112. In December 2011, the government granted approval for the transfer of EVN Telecom to Viettel from January 1, according to earlier reports. In October 2011, Viettel expressed interest in acquiring EVN Telecom, which posted around VND2.43trn (US$114mn) in turnover in 2011.

In July 2011, Southern Power received approval from the Vietnamese Ministry of Industry and Trade for developing an undersea power cable project, according to Thanhniennews.com. The 54km project, valued at VND1.81trn (US$87.5mn), will link the southern province of Ha Tien with Phu Quoc Island. The company is seeking approval from the government and its parent company EVN so it can launch a tender in Q311 . The bids will cover the engineering, procurement and construction (EPC) of the project, which is due to start commercial operations in 2013.

In December 2010, construction began on the Lai Chau hydropower plant in Nam Hang, Vietnam, reported Intellasia. The 1,200MW plant will require total investment of VND35.7trn (US$41.8bn). One of the largest hydropower plants in South East Asia, Lai Chau is scheduled for completion in 2017.

In November 2010, EVN reported a loss of VND6.5trn (U$333bn) between January and July 2010, reported Intellasia. The loss was due to the firm being forced to use expensive diesel for power generation, after a number of natural disasters damaged hydropower plants and caused a shortage of hydroelectric power in the country. The government is currently attempting to balance electricity prices to cover production costs.

Company Data In January 2012, EVN announced a loss of VND3.5tn (US$168bn), which was a vast improvement from a forecasted VND11tn (US$528bn). This smaller-than-expected loss comes from a greater reliance on hydropower of 4.07TWh and a lower reliance on thermal by 10.9TWh as forecasted.

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Global Overview

Our proprietary Global Infrastructure Index points to an ameliorating picture for the industry as a whole (also see our online service, July 20 2012, 'Infrastructure Equities Reflect Ameliorating Picture'), with utilities and machinery underperforming the wider industry. However, the overall index is in an uptrend, suggesting there is positivity on the horizon.

Infrastructure Equities In An Uptrend

BMI Infrastructure Index, BMI Infrastructure Index 1-year Performance (%), By Sector

Source: BMI, Bloomberg.

We maintain our bearish view on French infrastructure. This is based on our macro outlook, which points to a precarious picture, especially for public finances, which have been the linchpin behind infrastructure financing in France over the past few years. The country’s banking sector and its ability for large-scale project finance amidst the sovereign debt crisis in Europe, as well as Basel III, are two of the main drivers behind out outlook for the French infrastructure sector. Combined, the two issues suggest that the sector's growth will moderate in the coming quarters and adjust to the new macro and financial reality. We believe that Bouygues and Eiffage are most at risk to be dragged down if the sector underperforms, with Vinci's diversification acting as a safety net for the stock.

Vietnam Infrastructure Report Q1 2013

Bearish France France Major Construction Companies, EUR

Source: Bloomberg.

Our bullish view for the construction sector throughout the Gulf Cooperation Council (GCC) has been substantiated by the astonishing rally of some of the largest listed construction companies over the past 12 months. UAE-based Arabtec has been the second best performing stock in BMI's Infrastructure Index over the past 12 months, rising by 111%. We hold a bullish view on companies with a well-diversified portfolio across the GCC infrastructure and construction sector that allows taking advantage of opportunities and spreading the risks.

Vietnam Infrastructure Report Q1 2013

Bullish Middle East Construction Arabtec, Drake and Scull, AED / Orascom Construction, EGP

Source: Bloomberg.

One of the best performing sectors across the industry has been the US homebuilders. We formulated our bullish view on the US homebuilders segment during Q311, and since then it has taken shape nicely, with the main homebuilders in the United States posting strong gains on the back of rising confidence in the sector (see our online service, January 13 2012, 'Lennar Results Support Housing Recovery View'). According to the latest National Association of Home Builders/Wells Fargo Housing Market Index, confidence is returning rapidly, though overall the index is below 50 - an indication that the majority of the market participants surveyed view the home sales conditions as poor. However, if the index continues to rise at the current levels (it has gained nearly 28 points since January 2012), it will surpass the 50-point mark in the next few months. US homebuilder equities track the HMI closely, and therefore expect the uptrend in their share prices to continue.

Vietnam Infrastructure Report Q1 2013

Rally Has Further To Run

US Homebuilders - Lennar, PulteGroup, KB Homes

Source: Bloomberg.

Another top performer over the year has been Mexican infrastructure and construction player Empresas ICA. The company is one of the strongest Latin American-listed infrastructure players, and in our view it is on its way to becoming a strong barometer for the entire Latin America infrastructure sector. We believe that ICA's development from a Mexican-focused construction company to a regional heavy- weight came at the right time and its stock performance supported our bullish view of ICA over its bigger rival IDEAL, which is exclusively focused on the Mexican infrastructure sector. Since we looked at the factors why ICA would perform better than its Mexican rival IDEAL, the stock has gained 101% (see our online service, October 14 2011, 'Strong Fundamentals Support Our Optimism For ICA Over IDEAL').

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ICA Diversification Bolsters Stock Performance

Mexican Construction - ICA, IDEAL, MXN

Source: Bloomberg.

We have been bullish on the US midstream operators for more than 15 months based on the capacity constraints on the US energy transport network, which makes available capacity all the more valuable (see our online service, February 2 2012, 'Bullish Outlook on Midstream Sector Plays Out'). Oil and liquids transportation companies have been reaping windfalls from the astonishing growth taking place in the US oil & gas upstream segment. While in the upstream segment returns have been volatile, especially for the natural gas-heavy producers, the necessity for transportation of higher volumes has meant that energy transportation companies (from specialist rail freight to trucking to barges and of course pipelines) have been reaping significant benefits. Midstream energy is a sector we expect to see a lot of investment in over the coming years; therefore we also see rewards for engineering companies in the sector. The US Pipelines Index from Bloomberg outperformed the S&P 500 Energy Index for most of 2012.

Vietnam Infrastructure Report Q1 2013

Transportation Benefits North American Energy And Wider Market Indices, 100 = October 2011

Source: Bloomberg.

We expected the infrastructure sector equities in India to outperform the wider market, from both a technical and fundamental perspective (see our online service, January 12 2012, 'Macro/Industry Strategy: Indian Infra, US Autos, Morocco'). Having said that, the Indian business environment remains fraught with risks and difficulties, even for the majors that dominate the industry, and thus creating a discount to the stocks. Larsen and Tourbo had an impressive 2012, rising by 16.5% and outperforming its peers. However, major structural risks remain and with the ailing macro picture, we expect problems to remain. It is because of this view that we are cautiously optimistic.

Vietnam Infrastructure Report Q1 2013

Infrastructure Sector In India Holding Up Indian Infrastructure Companies, INR

Source: Bloomberg

Vietnam Infrastructure Report Q1 2013

Methodology

Industry Forecasts

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. BMI mainly uses ordinary least squares (OLS) estimators and in order to avoid relying on subjective views and encourage the use of objective views, uses 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 a deep industry recession, dummy variables are used to determine the level of impact. Effective forecasting depends on appropriately selected regression models. BMI selects the best model according to various different criteria and tests, including, but not exclusive to:

R2 tests explanatory power; Adjusted R2 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-co linearity.

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 BMI’s industry forecasting. Experience, expertise and knowledge of industry data and trends ensures that analysts spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not. Within the infrastructure industry, this intervention might include, but is not exclusive to, new investments across sectors or cancelled projects; general investment climate and business environment changes; changing domestic or regional trends; macroeconomic indicators; and regulatory changes.

Example Of Construction Value Model

(Construction value)t = β0 + β1*(Gross Fixed Capital Formation)t + β2*(inflation)t + β3*(lending rate)t +

β4* (population)t + β5*(government expenditure)t + β6*(construction value)t-1 + εt

Note: Infrastructure sub-sector values are forecast using a similar regression model.

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Construction Industry

A number of principal criteria drive our forecasts for each construction and engineering variable:

Construction GDP And Infrastructure Spending Figures for construction GDP and infrastructure spending are based, where possible, on national accounts as published by relevant central banks, as well as primary government/ministry sources and official data. Where these are unavailable, construction GDP forecasts are based on a range of variables including:

Stated infrastructure and development programmes;

Likely increases owing to related urban or industrial sector developments;

Political factors (such as an electorally motivated public works programmes).

Construction as a percentage of GDP is calculated using BMI’s own macroeconomic and demographic forecasts.

Employment Within The Construction Industry These figures are forecast based on:

The growth or otherwise of the construction industry;

Company results and expansion plans.

Data Methodology New Infrastructure Data Sub-sectors

BMI’s new Infrastructure Data examines the industry both from the top down and the bottom up in order to calculate the industry value of infrastructure and its sub-sectors.

For the bottom up – a country-specific – approach, we have made full use of BMI’s Infrastructure Major Projects Databases for each country, in most cases dating back to 2005. This has allowed us to calculate historical ratios between general infrastructure industry value and its sub-sectors, which we then use for forecasting. Our Major Projects Tables are not exhaustive, but they are sufficiently comprehensive to provide a solid starting point for our calculations.

The top down approach uses deduction to form the main hypothesis. We have separated the 35 countries into three Tiers. Each Tier comprises a group of countries that are on a similar economic development trajectory and have similar patterns in terms of infrastructure spending, levels of infrastructure development and sector maturity. This methodology enables us to confirm and overcome any deficiencies

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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 characteristic: 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 on average around 30%.

Countries in Tier I: Germany, Greece, UK, US, France, Hong Kong, Taiwan, Singapore, Israel, Japan, Australia.

Tier II – Core Emerging Markets; common characteristic: the most rapidly growing of emerging markets, where infrastructure investments are a strategic priority for the government. There is significant scope for new infrastructure facilities from very basic levels (highways, heavy rail for instance) to more high value projects (renewables, urban transport). Infrastructure as percent of total construction on average around 45% and above.

Countries in Tier II: Mexico, South Korea, Peru, Turkey, Vietnam, Poland, Hungary, South Africa, Nigeria, Russia, China, India Brazil, Indonesia.

Tier III- Emerging Europe; common characteristic: regional socioeconomic trajectories, development has been defined by the recent or pending accession to European structures such as the European Union. 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 on average between 30% and 40%.

Countries in Tier III: 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 have applied the bottom-up approach, i.e. calculated the ratios from our Major Projects Tables where data was not otherwise available.

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Construction

Construction 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 (i.e. domestic currency terms). As it is derived from GDP data, it is a measure of value added within the industry (i.e. 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. However, it is important to note that, where we are able to locate them, data released by national statistical offices or industry groups or associations for the overall value of the construction sector also taken into account and published by us.

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 – in virtually all instances – be lower than the nominal growth of our ‘construction value’ indicator.

Construction Industry, % Of GDP/Construction Value (US$) These are derived indicators. We use BMI’s Country Risk team’s GDP and exchange rate forecasts to calculate these indicators.

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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 (US$), % 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 (i.e. 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, US$bn, % 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 Labour 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.

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Infrastructure Risk/Reward Ratings

Risk/Reward Ratings Methodology BMI’s 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 Ratings (CRR) 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.

Ratings System Conceptually, the ratings 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.

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.

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

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Table: Infrastructure Business Environment Indicators

Indicator Rationale

Rewards

Industry rewards

Construction expenditure, Objective measure of size of sector. The larger the sector, the greater the opportunities US$bn available.

Sector growth, % y-o-y Objective measure of growth potential. Rapid growth results in increased opportunities.

Capital investment, % of GDP Proxy for the extent the economy is already oriented towards the sector.

Government spending, % of Proxy for extent to which structure of economy is favourable to infrastructure/ GDP construction sector.

Country rewards

From BMI’s Country Risk Ratings (CRR). Denotes availability/cost of labour. High Labour market infrastructure costs/low quality will hinder company operations.

From CRR. Denotes ease of obtaining investment finance. Poor availability of finance Financial infrastructure will hinder company operations across the economy.

From CRR. Low electricity coverage is proxy for pre-existing limits to infrastructure Access to electricity coverage. Risks

Industry risks

Subjective evaluation against BMI-defined criteria. This indicator evaluates barriers to No. of companies entry.

Transparency of tendering Subjective evaluation against BMI-defined criteria. This indicator evaluates predictability process of operating environment.

Country risks

From CRR. Denotes health of underlying economic structure, including seven indicators such as volatility of growth; reliance on commodity imports, reliance on single sector for Structure of economy exports.

From CRR. Denotes vulnerability to external shock – principal cause of economic External risk crises.

Subjective rating from CRR. Denote predictability of policy over successive Policy continuity governments.

From CRR. Denotes strength of legal institutions in each state. Security of investment Legal framework can be a key risk in some emerging markets.

From CRR. Denotes risk of additional illegal costs/possibility of opacity in tendering/ Corruption business operations affecting companies’ ability to compete.

Source: BMI