In the first half of 2022, the prices of building materials such as steel, cement, asphalt, sand, and stones skyrocketed, slowing down the disbursement of public investment and worrying many investors and contractors involved in large-scale infrastructure projects in Vietnam.

The prices of several materials will continue to increase sharply for the rest of the year, according to a recent report on building material prices and the real estate market in the first six months of the year sent to the steering committee for price management by the Ministry of Construction.

Many property developers, contractors, investors, and economic experts said that it was necessary to quickly adopt appropriate solutions to control the hike in building material prices and deal with price escalation to ensure the progress of public investment projects, especially the big-ticket North-South expressway.

Hesitant to get involved in projects

Tran Anh Tu, general director of Vietnam Infrastructure Development and Finance Investment JSC (Vidifi), which is a major traffic infrastructure developer in northern Vietnam, said that the ongoing price volatility is discouraging investors and contractors from getting involved in infrastructure projects.

To ensure the progress of the projects underway, a suitable mechanism for price adjustment should be applied, Tu said, adding that the mechanism must be issued as soon as possible.

Besides, investors should make life easier for contractors, including increasing advance limits, to remove difficulties over costs.

Ho Dinh Chung, general director of Deo Ca Group, the investor of the Cam Lam-Vinh Hao expressway project, part of the North-South expressway, said that most investors of infrastructure projects clearly saw the risks before executing them.

However, they failed to take building material price fluctuations into account.

Construction agreements signed between private investors and state agencies stipulate cost adjustment for price volatility, but in reality, it takes a long time for such adjustment.

The group proposed the Ministry of Transport suggest the government remove these obstacles.

Unless the government’s support for price adjustment is given, investors and contractors will gradually withdraw from projects or plunge into failure, Chung said.

Building materials now get scarcer and more costly.

As such, apart from efforts from investors and contractors, support from the national government and related ministries is needed, said Chung.

Construction firms nationwide are running into trouble due to skyrocketing building material prices, according to Le Viet Hai, chairman of Hoa Binh Construction Group

To reduce its impact, they have had to negotiate with project investors for price compensation and with material suppliers on price revision.

These enterprises must also cut their profits to make up for losses caused by price volatility.

Timely price escalation compensation 

As of June 30, Vietnam had disbursed over VND151 trillion (US$6.4 million) worth of public investment capital, reaching 27.86 percent of the target set by the prime minister, according to the Ministry of Planning and Investment.

The ministry attributed the slow disbursement to surging prices of construction materials and a shortage of laborers after the COVID-19 pandemic.

Dr. Vu Dinh Anh, former deputy head of the Price Market Research Institute under the Ministry of Finance, said that the progress of public investment projects should be put first so it is vital to use the contingency budget to offset cost increases in the first six months of the year.

In addition, to prevent projects from being delayed, it is urgent to add conditions on price escalation compensation to the execution agreements.

An investor of build-operate-transfer (BOT) projects in central Vietnam affirmed that if price increases are not controlled promptly, a series of large-scale infrastructure projects will lag behind schedule.

To minimize the number of stalled projects, Hoa Binh chairman Hai proposed the government weigh providing construction firms involved in projects funded by the state budget with price escalation compensation.

Conditions on price escalation should be added to new construction agreements amid current fluctuations.

Le Quoc Hiep, chairman of the Vietnam Association of Construction Contractors, said that given the building material price volatility seen since 2021, the association has repeatedly called for support from relevant ministries and departments, but in vain.

Hiep also put forward some solutions for ensuring the progress of public investment capital disbursement amid soaring prices, including requiring cities and provinces to update and detail construction material rates and lowering taxes and fees on building materials.

Furthermore, the Ministry of Construction should closely manage prices and change outdated unit pricing.

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