The Cat Linh-Ha Dong metro line project, the first of its kind in Hanoi, has incurred a fine of nearly US$740,300 for late loan payment due to complicated legal procedures which hindered the firm’s ability to allocate capital, according to the Ministry of Transport.

The Government Office on Wednesday announced opinions about the late payment of loans for the urban railway project.

On Wednesday, the Ministry of Transport released a statement declaring that Deputy Prime Minister Le Minh Khai had asked the ministry to clarify the legal foundation, jurisdiction, and opinions of relevant ministries and agencies and create a proposal which would allow for handling the issue in line with the law.

In a statement sent to the prime minister late last year, the ministry stated that the Cat Linh-Ha Dong metro line project had been completed and put into operation.

The ministry also completed procedures to hand over loans to the People’s Committee of Hanoi.

However, the Ministry of Finance on June 17, 2022 asked the Ministry of Transport to pay a $740,300 fine for late loan payments related to the metro line project.

According to the Ministry of Transport, the project required a total investment of over VND18 trillion, equivalent to $868.04 million, including nearly VND13.9 trillion ($669.62 million) borrowed from China and $198.42 million in reciprocal capital.

The loans from China were borrowed through three preferential credit agreements worth $169 million, $250 million, and $250.62 million.

The Ministry of Transport empowered the Hanoi Metropolitan Railway Management Board to borrow foreign capital for the operation of the project. The ministry then allocated reciprocal capital to pay these foreign loans and related costs during the construction of the metro line.

The Hanoi People’s Committee later took over the project, including the responsibility to repay the state budget the amount advanced by the Ministry of Transport to pay the foreign loans.

With this financial mechanism, the Ministry of Transport has restructured the total investment in the project to allocate capital totaling over VND772 billion ($33.7 million) to pay the principal of the foreign loans.

However, pursuant to regulations on the management of construction costs and a state audit of the project, the use of the capital provided for the project to pay loans in August 2016 was inappropriate.

To pay off these loans, the Ministry of Transport has repeatedly written to the Ministry of Planning and Investment and proposed that the prime minister add the payment of the principal of loans for the Cat Linh-Ha Dong metro line project to the medium-term public investment plan.

However, the Ministry of Planning and Investment responded that the use of the medium-term public investment to pay loans is not in line with the Law on Public Investment.

Due to the lack of capital to pay mature loans, the Ministry of Finance used over VND224 billion ($9.6 million) from the debt payment accumulation fund to pay the principal.

After taking over the project, the Hanoi People’s Committee has repaid VND756 billion ($32.2 million) to the state budget and over VND224 billion ($9.6 million) to the debt payment accumulation fund.

Explaining the reason for the fine for the late payment of loans, the Ministry of Transport attributed it to bottlenecks in legal procedures in the allocation of capital to pay loans from the medium-term and annual public investment plans.

As a result, it failed to pay the principal during certain periods.

The fine for the late payment of loans in the $250-million loan agreement for 606 days is over $421,000, while the fine for the two remaining agreements amounts to $318,000 for paying loans nearly 1,100 days later than the due date.

According to the Ministry of Transport, the Cat Linh-Ha Dong metro line project is the first of its kind in Vietnam, involved complicated construction methods, and suffered from slow site clearance and difficulties in capital allocation, leading to the late payment of loans.

In addition, the Hanoi Metropolitan Railway Management Board, which represented the Ministry of Transport in borrowing the foreign loans, has no revenue sources to pay its debts.

According to the Ministry of Finance, the elimination of loan interest and fines for late payment is unreasonable in accordance with Government Decree 97/2018/ND-CP on on-lending official development assistance and foreign preferential loans.

Therefore, the Ministry of Transport has proposed that the prime minister not impose fines for the late payment of loans during the construction of the Cat Linh – Ha Dong metro line.

The Cat Linh – Ha Dong metro line has 12 elevated stations and 13 trains which run from Cat Linh Station in Ba Dinh District to Yen Nghia Station in Ha Dong District.

The metro line was put into operation on November 6, 2021 and now services around 22,000 passengers per day on working days, while the daily number of passengers hits up to 30,000 on weekends.

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