The investor of Phu My Bridge is considering handing over its operation to HCM City 25 years ahead of schedule due to losses.
PMC may return Phu My Bridge due to losses
Phu My Bridge BOT Joint Stock Company, now known as Phu My Construction Investment Corporation (PMC), is taking losses after just one year of operations.
Mounting losses
PMC was contracted to build the Phu My Bridge under the build-operate-transfer (BOT) model in 2004.
According to the contract signed between PMC and the municipal government, the firm was responsible for mobilisation of all capital for the bridge’s construction. After completion, PMC would be allowed to run the toll bridge for a period of 26 years to recoup their investment.
Over the past year, however, revenue from the bridge has been much lower than expected. PMC is facing difficulties paying the interest on debts they incurred for the project\'s construction.
Another part of the company\'s financial troubles stems from the fact that the projected cost of the bridge was VND1.8 trillion (USD86.95), while the actual cost turned out to be VND3.4 trillion (USD164.2 million), according to the head of the firm.
The foreign exchange and high interest rates also contributed to the situation, he said.
"When we began construction, interest rates were at 8.6%. Now they are 20%. At the same time, the VND100,000 toll we collect used to be valued at USD6.5, while now it equals just USD4.78. This is really hurting our ability to settle our debts," said Nghiem Sy Minh, Chairman of PMC.
In an effort to resolve their predicament, PMC sent two proposals to the municipal government of Ho Chi Minh City. One sought approval for an extension, of between 15 to 20 years from the previous 10, of the terms of the company\'s debt to HCM City Finance and Investment State-owned Company (HFIC). The other request was for a new soft loan of VND1 trillion (USD48.3 million) to help repay a portion of the debts they have incurred during the first five years of operations.
These requests were accompanied by a warning to the city government that they may have to turn over operation of the bridge before schedule. In case of a handover the city would also have to take over all of PMC\'s debts.
Not as planned
PMC attributes the modest revenue from Phu My bridge to the fact that the municipal government has yet to conform to clauses included in the BOT contract.
Stagnant belt road project blamed for PMC\'s loss
Under the agreement, the city government was to complete construction of a belt road east of the Phu My Bridge after the bridge came into operation in order to attract more vehicles. However, the municipal project is still underway.
The city government also agreed to change traffic regulations in a way that would direct heavy vehicles towards belt road leading to Phu My Bridge.
The contract also stipulated that PMC had the legal right to return the bridge to the local government ahead schedule if the belt road project was more than three years behind schedule.
The Phu My bridge came into use in September 2009. This means that the municipal government is responsible for completing the construction of the belt road by September 2012. Otherwise, the contract could be terminated.
Nghiem foresees that the road might not be completed by the deadline.