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What Happened on Vietnam National Highway 20?

March 21, 2014 - Phase one of Vietnam’s National Highway 20 (NH20) crosses two provinces and five districts— passing from largely flat terrain, up through verdant hills and mountains to an elevation of up to 1,500 meters above sea level. NH20 is scenic, certainly. It is also a critical route that connects Ho Chi Minh City, the political and economic center of southern Vietnam, with the Central Highland region. The rehabilitation and expansion of the 268-kilometer highway is a national priority because the Central Highlands, while one of the country’s poorest regions, is also an important source of agricultural products like coffee and flowers, mineral deposits, and tourism destinations. With a substantial number of people in rural areas in the region living below the poverty line, more economic integration with the rest of the country is essential to achieving poverty reduction and shared prosperity in Vietnam. But the significant capital required to finance the improvement and expansion of NH20 was difficult to come by.

Here MIGA was able to play an important role. In early March the Agency announced its support   to BT20 National Highway 20, providing non-honoring of sovereign financial obligations cover of $500 million to the project’s lenders to cover a 15-year loan and associated costs to finance the road’s construction works. The MIGA-insured loan funds the rehabilitation of a severely deteriorated section of the road, a source of significant transportation bottlenecks and accidents. Additionally, the improved supply chain logistics for the goods and commodities traded in this key economic growth pole are expected to engender opportunities for shared prosperity for the regional population.

“This investment supported by MIGA will help reduce travel time, improve safety, and increase rural incomes in a region where close to 40 percent of the rural population still lives below the poverty line despite considerable tourism, mining, and agriculture resources,” explains Victoria Kwakwa, World Bank Country Director for Vietnam.

This large public infrastructure project being implemented by the Government of Vietnam will follow MIGA’s environmental and social sustainability policies. “MIGA’s standards should ensure that the environmental and social risks of the project are taken into account and mitigated. This approach could have a demonstration effect beyond this specific project,” explains Michel Wormser, MIGA Vice President and Chief Operating Officer. “This project will complement the World Bank’s involvement in the transport sector and will leverage the expertise of our World Bank colleagues based in Vietnam, thus increasing our impact in boosting shared prosperity in the country."

Goldman Sachs was the loan arranger and lender alongside Sumitomo Mitsui Banking Corporation and a syndicate of other international commercial banks. “The BT20 financing is a landmark transaction.  With the support of MIGA and the risk coverage provided, we were able to provide a 15 year financing solution for Vietnam for a major public infrastructure project with significant benefits for the country,” said Tim Leissner, Vice Chairman Asia Ex-Japan of
Goldman Sachs.

This project is also notable because Vietnam would not have been able to mobilize long-term  commercial financing to move it forward in the current credit-constrained environment without MIGA’s guarantee. The government was in need of creative solutions to crowd-in private sector financing. “This guarantee demonstrates MIGA is highly responsive to the urgent public infrastructure needs of its member countries,” said Muhamet Bamba Fall, MIGA’s senior underwriter who drove the project forward.  The project itself also helps address inadequate infrastructure, a recurrent concern for foreign investors.

The NH20 story also demonstrates the value of partnership with the World Bank Group.
Jennifer Sara, the World Bank’s Transport Sector Manager based in Hanoi, notes “Most importantly, we were able to produce an integrated package of services for the government.” Through this project, Vietnam is able to leverage the World Bank’s technical support, local presence, and capacity building along with MIGA’s ability to mobilize commercial bank lending to achieve maximum results.

Indeed, the NH20 project is well-aligned with goals outlined by the Vietnamese government that prioritize improving the quality of transportation, enhancing effective operation and maintenance of the transport system network, and improving the accessibility of the transport network to all segments of the population.

“At MIGA, we’re enthusiastic about this project because it is a model for a new era of World Bank Group cooperation,” said Keiko Honda, the Agency’s Executive Vice President. “World Bank local expertise—as well as their strong support during  monitoring going forward—enables MIGA to bring private investors into this priority sector in Vietnam. This project showcases how the combination of World Bank knowledge and MIGA-supported private investment creates high impact.”

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