The Corporation also had autonomous rights to select contractors of its own choice for several huge projects of the National Expressway. However, now VEC is unable to show even viable profits, and is facing huge losses in revenue.
Revenue and profit discrepancy
As a wholly state-owned company, VEC was designated as an investor for several large projects of the National Expressway like the Cau Gie-Ninh Binh, Noi Bai-Lao Cai, Da Nang-Quang Ngai and the Ho Chi Minh City-Long Thanh-Dau Giay routes. Most of VEC revenue came from these projects, but profits have been very meager. In 2020, VEC is expected to show revenue of atleast VND 4,251 bn, but so far profits have only touched VND 2.2 bn.
VEC explains that its profits have been small because most of its revenue from the expressway projects has been used to pay off loans, and most of these loans have been in Japanese Yen and US dollars which have caused VEC to make considerably larger payments to cover for fluctuation in foreign exchange rates. Therefore, VEC has used upto VND 4,248 bn of its VND 4,251 bn revenue in 2020 to pay off the loans, resulting in a fall in profits which is now showing only VND 2.2 bn. VEC has also said that it is struggling because the Government has taken the loan money, but has not provided the finances, and has also not used the state budget to restructure the Corporation. VEC is having difficulty in restructuring the capital for five expressway projects.
The explanation provided by VEC is not very plausible, because its business performance has been poor over a long period of time, long before the difficulties of Covid-19 overwhelmed this year. Now late in 2020, VEC has just provided its financial statement of 2018. By the end of 2018, VEC payables were at VND 87,000 bn, of which the short-term debt was at VND 19,672 bn and long-term debt was at VND 67,327 bn, mainly from borrowings and financial leases. While VEC equity is just VND 9,556 bn, the payables were nine times higher, at about 90% of the capital. With borrowings several times higher than the company equity, VEC is facing serious financial liabilities now.
Tax default and bank loans
In late 2019, the Hanoi Tax Department said that from 1 July 2016 until 2017, it had provided VEC with VAT refunds nine times, for a total amount of almost VND 950 bn. However, the Tax Department later found that VEC had not met the requirements for such VAT refunds on investment projects. The Hanoi Tax Department then issued two decisions to take back all the VAT refund amount, plus delayed payables of about VND 83 bn, causing VEC to pay back a total of approximately VND 1,033 bn.
VEC is not only a debtor of the tax department but also owes several banks. By the end of 2018, VEC owed the Asian Development Bank (ADB) almost VND 31,200 bn. It also owed VND 28,960 bn to the Japan Bank for International Cooperation (JBIC) and about VND 5,400 bn to the World Bank. Another report shows that most of the loans were meant for expressway projects of Noi Bai-Lao Cai, Long Thanh-Dau Giay, and Da Nang-Quang Ngai routes, with loans that would mature in one to forty years.
One big concern is that these enormous amounts in loans have been mostly in Japanese Yen and US dollars, causing fluctuation in exchange rates to seriously hurt VEC business performance. In 2018, the exchange rate spike caused loss of almost VND 2,200 bn, and in the previous year it was about VND 368 bn. This was the main reason why profits of the expressway have seen a downward spiral. Worse still, VEC owes VND 12.7 bn in short-term loan to the Bank for Investment and Development of Vietnam (BIDV), together with a debt of VND 8,000 bn in principal bonds and interest payable to the Ministry of Finance.
Lack of accountability
Lax regulations and poor business performance, along with far too many privileges and little accountability seem to be the reasons for VEC to have shown such poor results. VEC had no competitors when it came to bidding for construction of a big project like the National Expressway. Several companies have even sued VEC for lack of fairness and transparency. This shows that the policies adopted by VEC need accountability and restructuring.
Speaking with Saigon Investment, Asso. Prof. Dr. Đinh Trọng Thịnh, an economic expert, said that VEC used to be the pride of the transport sector with total assets worth upto VND 90,000 bn, but VEC has only made a profit of VND 2.2 bn this year. This is absolutely unacceptable. Competent agencies should probe the management of the company and the responsibilities of its CEO. Dr. Đinh Trọng Thịnh also expressed his doubts on the effectiveness of VEC business practices and called for substantial changes to State policies and a major restructuring of VEC as regards to its high debts and huge loss of revenue.
