Land-for-infrastructure projects at focus of auditing activities

Illustrative image (Photo: VNA)

Hanoi (VNA) – A number of individuals, businesses and localities have not obeyed regulations or intentionally circumventing the law to earn profits from BT (Build-Transfer) projects.

The State Audit Office of Vietnam (SAV) detected violations worth thousands of billions of dong after auditing 35 BT projects, with the rate of problematic finances in some projects as high as 27 percent of the total project value.

Deputy Auditor General Nguyen Quang Thanh talked to VietnamPlus about the problem.

- Can you tell us about the performance of the SAV in 2018, and what do you think is the most outstanding result?

Deputy Auditor General Nguyen Quang Thanh: The SAV continued to reform and improve the quality of its activities in terms of capacity, efficiency and effectiveness. By now, the SAV has completed all 253 audits on its yearly plan and releases reports in accordance with schedule. All audits have adhered to the set targets, contents and pace, as well as to the regulations on the organisation and operation of State audit delegations and the code of conduct of State auditors.

As of December 31, 2018, the SAV detected violations worth 89.6 trillion VND, and proposed increases in contributions to the State budget and cuts in State budget spending worth 44.466 trillion VND, up 18.39 percent from 2017, and the highest figure of this kind so far.

The SAV also proposed amending, supplementing and replacing 115 legal documents to close loopholes in State regulations and mechanisms, thus preventing losses and wastefulness. The most mistakes and shortcomings were found in the fields of ODA management and use; natural resources and mineral management and exploitation; refund of VAT; management of key national projects; implementation of BT, BOT (Build-Operate-Transfer) projects; management of economic zones, hi-tech zones; equitisation and divestment of State-owned enterprises.

The auditing of some projects and thematic audits achieved good outcomes, including the 10 trillion VND flood control project in Ho Chi Minh City, the Ben Thanh-Suoi Tien metro project, the Cat Linh-Ha Dong elevated railway project, and the thematic audit on VAT refund.

The State audit sector transferred records of five cases that showed signs of law violations to the investigation police for further investigation and settlement in accordance with the law.

Regarding international cooperation, 2018 marked a new step forward in the SAV’s development and efforts to enhance its position in the community of supreme auditing agencies in the region and the world. An outstanding event was the successful organisation of the 14^th Assembly of ASOSAI (Asian Organisation of Supreme Audit Institutions) from September 19-22 in Hanoi, with the participation of international delegations from supreme audit agencies in 46 countries in Asia.

At the assembly, the SAV was elected as Chair of ASOSAI for the 2018-2021 term. This is an opportunity for the SAV to establish its position and role among ASOSAI members and in international organisations.

Deputy Auditor General Nguyen Quang Thanh (Photo: VietnamPlus)

-You have mentioned the audit of BT projects. Can you give more details about the violations detected by the SAV relating to land-for-infrastructure projects?

Deputy Auditor General Nguyen Quang Thanh: In recent years, the SAV has conducted audits of 35 BT projects, including some involving the exchange of land for infrastructure.

The audits proved that such projects had contributed to perfecting the infrastructure system in the country, giving a facelift to many localities and promoting economic growth, particularly when the State budget is facing many difficulties. However, as this is a new policy, many mistakes and limitations have emerged during its implementation.

After all, the nature of BT projects is to invest using State resources, but many such projects were not really necessary or urgent. In most BT projects, investors were appointed, thus limiting competition and posing the high risk of choosing incapable investors.

In some projects, the appointed investor conducted contract negotiations at the same time with the approval of project proposal, which is a loophole that pushes up the project value. In many projects, payment to the investor was made in the form of transferring land through auction, which was not in compliance with the 2013 Land Law, and the land price set too low compared to market value is a legal inadequacy causing losses to the State budget.

There were also cases in which the rate of payment in the form of land was higher than the rate set in the feasibility report; the investor did not make financial plans and BT contract file, nor reached agreement on contents relating to loan interest rates. Some projects even calculated the interest rates of capital that is not borrowed in the final balance.

Besides, the State management mechanisms also revealed shortcomings, such as a lack of clear rules on the supervision, disbursement and payment of expenditures paid from the investor’s ownership capital, the calculation method for profit, investor’s profit margin, and the ratio of ownership capital and borrowed capital, as well as the ratio of project management costs.

In addition, rules on the time of land handover in BT projects are not clear, resulting in the situation that land was handed over to investors before the project’s start in some cases, during the project’s implementation in other cases, and in yet other cases land was not handed over even after the project had completed.

After auditing 35 BT projects, the SAV proposed handling 7.453 trillion VND worth of financial violations, with some projects recording financial violations valued at 27 percent of the total project value.

-What are the causes of this problem and what solutions does the SAV recommend to deal with it?

Deputy Auditor General Nguyen Quang Thanh: There are many causes of the above-mentioned law violations, which vary depending on each unit and audited project, but overall there are three main reasons as followed:

Firstly, there are limitations and loopholes in mechanisms and regulations on land-for-infrastructure and BT project management.

Secondly, some individuals, units and localities failed to strictly follow rules on public finance and asset management and BT project management, with intentional circumvention of rules to gain illegal profit.

Thirdly, the management, inspection and supervision of land-for-infrastructure projects, including those in the BT form, were lax, creating the conditions for rule violations, causing losses and wastefulness of budget capital.

To address the situation, the SAV has proposed that the Government should refine the system of legal documents and laws on BT investment and the use of public assets to pay investors.

-Will the SAV continue to conduct audit of BT projects?

Deputy Auditor General Nguyen Quang Thanh: Based on the outcomes and experience accumulated in the recent past, the SAV will continue to make auditing BT projects, including those involving the exchange of land for infrastructure, a key content in its audit plan in 2019.

Accordingly, the SAV will perform a thematic audit on the implementation of BT projects in four centrally-run cities and provinces which are Hanoi, Ho Chi Minh City, Bac Ninh and Thanh Hoa, and integrate this kind of audit in local budget audits at all cities and provinces subject to audit in 2019.

The SAV will make a more comprehensive assessment of State management in implementing BT investment, the necessity and advantages of BT investment in comparison with other forms of investment. The SAV will also evaluate the implementation of the 2013 Land Law’s stipulations on using land resources to pay investors of BT projects and of regulations on preferential treatment and investment support for those projects.-VNA