1. 1
Nummary Tactical Keynote (NTK) solution and
Attracting Public Private Partnership
in road infrastructure investment in Vietnam
Bc. Duy Khanh Nguyen
Petrovietnam Finance Corporation (PVFC)
B.A. Hieu Trung Nguyen
London School of Economics and Political Science (LSE)
Abstract: From the economic perspective, Nummary Tactical Keynote (NTK) focuses
on the core existing of Public Private Partnership: “CoI & CoB~Consistent of Interest &
Conflict of Benefit". Determining the breakeven point G (Break-even Point) on the
revenue curve R following the Law of Diminishing Returns is the heart of the NTK
solution. It aims at attracting investors with capital contribution in developing the road
infrastructure, to meet the current urgent task of transport sector in Vietnam.
I. The Context.
Decision No. 71/2010/QĐ-TTg of the Vietnam Prime Minister dated November
9’ 2010 of the Regulation on pilot investment in the form of public private partnership
(PPP) is the driving force, creating breakthrough to develop infrastructure in transport
infrastructure sector, especially the major highway in Vietnam. Dau Giay - Phan Thiet
Highway project has been selected as the first PPP projects.
On the 3rd
August, 2012 The Minister of Transport (Vietnam) has signed issued
Decision No. 1815/QĐ-BGTVT on the establishment of investment management unit
of public-private partnership projects. This move showed huge determination to
implement PPP in Vietnam. Not only has the determination of the Government, the
interest of foreign partners in the implementation of PPP in Vietnam become clearer.
Bilateral, multilateral donors as well as domestic and foreign investors are expecting a
PPP legal framework. Thus, the implementation of PPP in Vietnam is very close, even
though only has few first steps in pilot breakthrough.
II. Introduction.
In order to create attraction of PPP projects for investors and policy maker experts,
the task of assessing the economic and financial feasibility of PPP projects is very
important. Currently, the analysis and assessment include:
Commercial aspect: relating to business orientation of infrastructure services
provider who can become a partner in the PPP relationship.
Economic aspect: Traditional method aims to identify feasibility of investment in
public infrastructure projects by the national budget and based on the viewpoints of the
government. The main indicator is the economic internal rate of return (EIRR).
Financial aspect: study the nature of cash flow and considered the project as a
business activity. The main indicator is the financial internal rate of return (FIRR),
calculated on real value, and not including inflation. The purpose is determining the
project‘s potentiality to attract investment capital from private sector and with/without
government subsidies. It also includes consideration of overall financial feasibility of

2. 2
different factors which has major effects such as: significantly increase in traffic levels,
toll scenarios, traffic volume forecasts for different economic growth scenario...
Accounting aspect: see the project as a real business completely operated by
private enterprise. The main indicator is return on owner’s equity (ROE), calculated on
nominal value, including inflation and based on cash flow after capital investment, debt/
tax paid deduction, if any. The lender parties will also look at the debt cover ratio to
ensure the ability to repay debt of project. At the same time, the method identifies the
need for government subsidies through VGF (Viability Gap Funds) and many other
incentives.
III. Financial indicators and financial simulation.
Currently, the evaluation of PPP projects mainly based on the following indicators:
 Weighted average cost of capital (WACC): is the cost of capital is calculated
based on the proportion of sources used, including: common shares, preferred shares,
bonds and other long-term debt.... In other words, WACC is the annual cost for each unit
of capital.
 The project's internal rate of return (IRR): the profitability of the project without
taking into account the financial structure. An attractive IRR should be higher than 7% -
8% in real value.
 Return on equity (ROE): shows the profit of the shareholders who receive
dividends. The shareholders usually compare ROE ratio with "Hurdle Rate", also known
as the minimum acceptable ratio, typically ≥ 13%.
 Annual debt services cover ratio (ADSCR): The project can be considered to be
maintainable when ADSCR is greater than 1 for each year of the project. Minimum
ADSCR must be greater than 1.1 or 1.2.
 Loan life cover ratio (LLCR): the ability of the project to overcome temporary
cash shortage situation which can lead to inability to repay debts in the ending years of
the project.
 The net present value (NPV) of the subsidies: when calculating NPV, we need a
parameter called "realization rate" or deduction rate. This parameter has a significant
impact on result. Deduction rate should be chosen appropriately.
Based on the above financial indicators, we can set up financial simulation model
to describe the expected cash flow in different situations and to show the result of the
financial indicators.
The meaning of the financial simulation:
 Reflects the assumption of risk and risk distribution.
 Allows making decisions: Select project structure and operational
environment; Understanding borrowers, partners and users.
 Through simulation of account deficit in term of cost (construction,
operation, etc.), the objective changes (demand, inflation, interest rates, etc.).
Therefore, the simulation is frequently used in the development of PPP
projects in order to assess the impact of different scenarios, to update or
approve the decisions relating to the PPP structure.

3. 3
In the process of monitoring and evaluating of PPP projects, this simulation is
considered as a useful tool.
Finally, analyze sensitivity of the above financial indicators by selecting the base
case when there is increase /decrease in term of revenue or cost.
IV. Nummary Tactical Keynote (NTK).
Step 1: The feasibility of PPP investment projects of road infrastructure.
Summary of the typical parameters in investment and operation phase of the Road
Infrastructure Project.
INVESTMENT PHASE OPERATIONAL PHASE
Owner’s equity. A1i
Toll Revenue. B1j
Loans. A2i
Other Revenue. B2j
Capitalized interest and
bank charges.
A3i
Loan principal and interest. B3j
Government subsidies. A4i
Owner’s equity B4j
Management fees. A5i
Dividends. B5j
Government subsidies. B6j
Fixed costs (management, operation,
maintenance, renovation, major repairs,
equipment replacement, etc.).
B7j
Variable costs (arising from changes of
traffic volume which leads to change of
associated fixed costs).
B8j
VAT, corporate income tax and other taxes. B9j
Depreciation of construction assets B10j
After studying and making report on the feasibility of project, we have the total
investment of the project: CTOTAL; or expressed in another way as follows:
If n is the number of construction years to complete the project, i= (1÷n), we have the
total cost in the investment phase as:
)A5A4A3A2(A1 iii
n
1i
iiTOTAL  

C
Call m the number of years since operation year to “loading cessation” year, j = (1 ÷ m),
we have the total income/expenditure (+/-) in the operation phase as:
)B10B9B8B7B6B5B4B3B2(B1 jjjjjjjj
m
1j
jjTOTAL  

B
So, we have the following comments and reviews:
 If BTOTAL ≥CTOTAL: the project is feasible.

4. 4
 If BTOTAL <CTOTAL: the project is not feasible.
In special case "conditional feasibility", when the project is the focusing project in
the socio-economic development strategy of the country, government subsidies {B6j
with j= (1÷m)} have to increase significantly to ensure: BTOTAL =CTOTAL.
Step 2: NTK Nomograph with feasible project (BTOTAL ≥ CTOTAL).
Assume having the set R={R1,R2,R3,...,Rj,..Rm} with revenue Rj corresponding with year
Tj of the set T={T1,T2,T3,...,Tj,..Tm}, specific details will be described in the next section.
Call RLoading Cessation is the maximum revenue of the project corresponding to year
TLoading cessation.
Call )A5A4A3A2(A1 iii
n
1i
ii  

InvestmentC .
Call )B2(B1
m
1j
jjRe 

venueR .
Call RBreak-even is achieved revenue corresponding to the break-even year TBreak-even.
According to the general principles of the Law of diminishing returns, revenue curve R
has the form shown in NTK Nomograph.

5. 5
So we can have important comment of point G on NTK Nomograph as follows:
At the year TBreak-even, break-even point G is the point at which total revenue
equals total cost. In other words, at break-even point G: The project started generating
profits.
Step 3: Solution Nummary Tactical Keynote (NTK).
Call the set R = {Rj}j=1,m, in which Rj =(B1j+B2j) - (B6j+B7j+B8j+B9j+B10j).
Based on known data, particularly the values from B1j, B2j, B6j, B7j, B8j, B9j,
B10j are constant number at year j. Therefore, the set R = {Rj}j=1,m is the domain of
definition.
To determine the breakeven point G or TBreak-even, we need to apply the principle
of hierarchical priority: firstly paying the debts, including principal and interest;
secondly paying owner’s equity.
Call beginning year of project operation is the first year Tj =1 until year Tj = TBreak-
even - the year that all borrowed amounts are completely paid off; thus there are two
existing phase as follow:
 First phase: Tj = (1, k) is the period to pay loans, including principal and interest.
Therefore, the revenue at year k (Tj=k) will be greater than or equal to the final
loan payable.
 Second phase: Tj =(k+1, TBreak-even ) is the length of time to repay the owner’s
equity.
In other words: (1 < k < TBreak-even).
1. Indentify k:
Call BDebt is total loans, including principal and interest; as we have known:



m
1j
jDebt B3B .
Based on the set R = {Rj}j=1,m, establish a data range U1j continuously starts from
U1j=1 = Rj=1 satisfy the condition of inequality [1] : Debt
m
1j
j BU1 

.
Assume j = j
*
is satisfied stop condition of [1]. We have the following two cases:
 If Debt
m
1j
j BU1 

,we conclude: k=(j
*
+1).
Call ∆k is Residue at the year k=(j
*
+1) , and is calculated by the formula :




1*J
1j
Debtjk BRΔ
 If Debt
m
1j
j BU1 

, we conclude: k=j
*
.
With ∆k is Residue at the year k= j
*
, thus: ∆k = 0.

6. 6
So Tj = (1 ÷ k) is the period to repay debts of project, including principal and interest.
In other word, the year Tj = k is fully debt repayment year of the project.
2. Determining TBreak-even:
Call BOwner’s equity is the total owner’s equity, as we have known:
)(B4B
m
1j
jequitysOwner' 

 .
Based on the set R = {Rj}j=1,m, establish data range U2j continuously start from
U2j=k+1 = Rj=k+1 that satisfy the condition of inequality [2] :
}Δ{BU2 kequitysOwner'
m
1kj
j 

Assume j = j
**
is satisfied stop condition of [2]. We have the following two cases:
 If equitysOwner'
m
1kj
j BU2 

, we conclude: TBreak-even= (j
**
+1).
 If equitysOwner'
m
1kj
j BU2 

,we conclude: TBreak-even = j
**
.
Therefore, Tj = {(k +1) ÷ TBreak-even} is the time to repay owner’s equity of project.
In other words, the year Tj =TBreak-even is fully owner’s equity repayment year of the
project.
The general reviews about NTK solution:
Advantages: The presentation of NTK solution through NTK Nomograph is easy to
understand, clear solving orientation. The practical application is feasible.
Disadvantages: The incomplete or incorrect data derived from the results of the design
or forecasting phase will lead to significant deviations.
Development direction: The determination of the structure of debts, owner’s equity,
government subsidies; from then indentify total debts, including principal and interest,
should be researched continuously to expand into: Solution NTK
+
Plus.
V. Conclusion.
The solution “Nummary Tactical Keynote” (NTK) is a new approach to attract Public
Private Partnership in road infrastructure investment in Vietnam. Apply the basic
principles of economics and using detailed mathematical tools, the solution has come up
with: break-even point G and values: Tj=k the fully debts repayment time, including
principal and interest; TBreak-even is the break-even year; revenue at break-even RBreak-
even... These results are foundation which helps stakeholders: investors, bankers, policy
makers, managers, etc seek their own beneficial strategies and select necessary
compromises in order to "win-win": profit sharing and achieving rational homogeneous
interests. /.

7. 7
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