Vietnam halts use of German ODA loans for HCMC metro line

The Government has approved a proposal by Ho Chi Minh City to stop borrowing official development assistance (ODA) loans from Germany’s KfW development bank for Metro Line No. 2 and instead use domestic funds to avoid further delays.

Prime Minister Pham Minh Chinh on Tuesday issued a resolution allowing the city to terminate two financial agreements signed in 2011 with KfW, which provided a total of EUR 155 million ($181.6 million) in concessional loans and EUR 66.2 million in non-refundable ODA.

According to the resolution, the HCMC People’s Committee will be responsible for managing the remainder of the non-refundable aid in line with regulations. The city must also cover all expenses arising from the cancellation, including commitment fees and related charges, as outlined by KfW.

The decision comes amid long-standing procedural and disbursement bottlenecks that have slowed progress on Metro Line No. 2, which will run from Ben Thanh Market in former District 1 to Tham Luong in former District 12.

The first phase of the line, stretching 11.3 km with 10 underground and one elevated station, was approved in 2010 with an estimated cost of VND26 trillion ($994 million). That figure was revised to nearly VND47.9 trillion ($1.8 billion) in 2019 after delays and cost escalations.

Despite these adjustments, the project has struggled to begin major construction work. Disbursement rates for foreign loans remain low, and prolonged negotiations with foreign partners have hindered the selection of contractors for key packages, threatening the planned groundbreaking later this year.

To resolve these issues, city authorities proposed using local funds under the city's medium-term public investment plan and taking advantage of fast-track procedures permitted by the National Assembly's Resolution No.188 on pilot mechanisms for HCM City development.

According to the HCMC Management Authority for Urban Railways (MAUR), 100% of the site clearance and technical infrastructure relocation has been completed. The agency is now expediting the selection of design consultants and contractors in preparation for construction.

If procedures proceed smoothly, construction of Metro Line No. 2 could begin by the end of 2025 and enter operation in 2030.

Meanwhile, two groups of private investors, including automaker Thaco and a joint venture of Dai Dung, Hoa Phat and CC1, have submitted proposals to invest in the metro line. The city’s Department of Finance has been tasked with evaluating these proposals and advising on investment options.

The move to terminate ODA loans from KfW marks a significant policy shift, reflecting the city’s determination to accelerate urban railway development through greater use of domestic resources and simplified procedures.

HCMC currently operates one urban railway line, with Metro Line No. 1 completed in December 2024 after multiple delays. Metro Line No. 2 is expected to serve as the spine of the city’s future mass transit network, eventually stretching over 48 km once fully completed in later phases.