Sonadezi’s story: “Generating USD 3/m2 in profit for the State”

In deploying Bien Hoa 2 Industrial Park, Sonadezi’s biggest difficulty was limited finance to invest in essential technical infrastructure facilities to best serve investors. At that time, local roads were aimed to support rainwater drainage also while street lights, signs and traffic signal… were almost not existing, requiring completely new development.

The power supply system that could be taken advantage of was the 110/22 KV substations with residual voltage based closely to the project site to power initial investment projects with not too high electricity loads. However, it was necessary to install 22 KV medium voltage lines connecting customers’ factories and enterprises.

Water could be temporarily sourced from the Saigon Water Supply Company as the existing supplier to Long Binh Warehouse (with a 5,000 m3 water tank available) but water pipes to customers’ factories and enterprises had to be installed.

Regarding the telecommunications system, in the immediate future, the Gold Star 256-number telephone system will provide IDD telecommunications services to subscribers in the new projects, but a cable line was to be installed underground through National Highway 1 to connect the system in Bien Hoa 1 Industrial Park and Bien Hoa 2 Industrial Park.

All of these projects required a large amount of investment while the state budget was then not enough to cover all and the Company did not have access to other sources of loans. Fortunately, in discussing such issues with foreign investors who shared the same vision and readiness to support the Company, they suggested that the Company collect in advance infrastructure user fee in the first few years from the investors and committed to use such a revenue to build essential technical infrastructure for their chosen areas, thus immediately serving their projects.

That was extremely valuable advice. During negotiations on land sublease contracts with clients, about the infrastructure user fee of USD 1/m2/year, Sonadezi suggested that investors pay a lump sum of USD 5/m2/5 years. However, some investors were short of capital at the beginning and asked to pay such a fee in advance for 3 years or less than 5 years.

Sonadezi negotiated with each investor flexibly and generated a considerable amount of revenue from the initial investment projects. This revenue was then invested by the Company in repairing or renewing a number of internal roads, electricity supply, water supply and communication lines for the investment project sites. Block and phase-wise investment in infrastructure of industrial park also developed from here. In line with this approach, efforts to engage new investment had to focus on introducing areas where infrastructure had been developed, not accepting investors’ site requests made in the principle of “feng shui”, to avoid scattered distribution and barriers to investment and development of industrial park infrastructure.

In once opportunity, the tax and financial inspectors of the province came to check the company’s accounting books and receipts. All were transparent and prepared in accordance with state regulations. However, they wondered why most of the initial investment projects in Bien Hoa 2 Industrial Park were charged for an infrastructure user fee of USD 5/m2 but some projects were only charged for USD 3/m2? This meant the Company lost USD 2/m2 in revenue from these projects.

In the draft inspection report, positive comments were provided in most of the aspects; however, for the projects that were charged for USD 3/m2 as an infrastructure user fee in Bien Hoa 2 Industrial Park, the Company had caused a loss of USD 2/m2 to the state budget, as it failed to collect USD 5/m2 from these projects like others. When the Head of the inspection team sent the draft to the Company’s Director for confirmatory signing before making a record of official inspection and submitting it to his leader, the Company’s Director removed the “caused a loss of USD 2/m2 to the state budget” part, which was paraphrased as “generated USD 3/m2 in profit for the State” before signing. “This is our opinion and please help report to your leader verbatim!”. The Director of the Company concluded and… the inspection ended successfully.