Vietnam amends its Legal Framework on Public Private Partnerships
The Rationale for PPPs in Vietnam
Improvements to Vietnam’s transportation network, electricity system, water supply network, irrigation systems, telecommunication infrastructure, education and healthcare systems have all been identified as key targets in the Government’s latest 5-year socio-economic development plan. According to estimates of Vietnam’s Ministry of Planning and Investment (“MPI”), the capital required for infrastructure development up until 2030 is VND 3.3 quadrillion (approximately USD 145.3 trillion), excluding costs for high-speed railways, airports and waterway development.[1]
The Vietnamese Government, in recognizing that private sector investment must be leveraged through public private partnerships (“PPPs”) in order to meet the country’s infrastructure needs and investment targets, has just passed Decree No. 63/2018/ND-CP on the Public Private Partnership Investment Form dated 4 May 2018 (“Decree 63”). Decree 63 aims to strengthen Vietnam’s PPP framework and, as of 19 June 2018, will replace Decree No. 15/2015/ND-CP on the Public Private Partnership Investment Form dated 14 February 2015.
Key reforms to be introduced under Decree 63
When it comes into force, Decree 63 will introduce a number of changes to the development process for PPP projects.
Mixed Contracts : With respect to the types of contracts that can be signed between investors and the State to develop a PPP project, “mixed contracts” will now be permitted. “Mixed contracts” are defined under Decree 63 as a PPP contract combining elements of a built-own-transfer, build-transfer-operate, build-transfer, build-own-operate, build-transfer-lease, build-lease-transfer, and operation & maintenance contract. This change will allow greater flexibility in the contractual arrangements concluded between investors and the State for PPP projects.
High Tech Projects : In an effort to encourage the use of new and advanced technologies in PPP projects in Vietnam, investors will be responsible for preparing the project feasibility study after being selected to develop a high-tech PPP project. This differs from more traditional types of projects, where the relevant ministry, central agency or provincial level People’s Committee putting forward the project for development is responsible for preparing the project feasibility study.
Minimum Equity Changes : Decree 63 introduces a change to minimum equity requirements to be maintained by investors in PPP projects. For PPP projects with a total investment capital up to VND 1.5 trillion (approximately USD 66 million), the investor’s equity ratio must not be lower than 20% of the total investment capital of the project (an increase from 15% under Decree 15). For projects with total investment capital of more than VND 1.5 trillion, the investor’s equity ratio with respect to the capital portion up to VND 1.5 trillion must not be lower than 20% (an increase from 15% under Decree 15), while the investor’s equity ratio with respect to the capital portion above VND 1.5 trillion must not be less than 10% (this remains unchanged from Decree 15). These changes have been made in order to ensure the financial capacity of an investor to develop a PPP project, as well as to reflect the variation of the VND to USD exchange rate since the introduction of Decree 15 in 2015
Build Transfer Projects : A number of specific provisions have been introduced relating to “build-transfer” (“BT”) PPP projects in order to clarify applicable implementing procedures. A BT contract is defined as a contract entered into by an authorized State agency and an investor or project enterprise to build an infrastructure facility, upon the completion of which the investor transfers such infrastructure facility to the authorized State agency and is paid through a funding of land, office space, asset infrastructure, direct payments to the investor, and the allocation of rights to exploit a facility or services in order to implement other projects.
Newly introduced Chapter V of Decree 63 includes provisions on allocation of responsibility among State agencies for preparing the design and estimated budgets for BT projects, procedures for evaluating and approving BT project proposals, and the principles governing the valuation of land for the purpose of compensating an investor for developing a BT project (as further guided by land valuation mechanisms under Vietnam’s Land Law and Law on the Management and use of Public Assets).
State Investment Capital : Decree 63 further clarifies the forms through which State investment capital for participation in PPP project implementation can be provided. Such investment forms now include: (i) State capital contribution; (ii) capital for payment to the investor; (iii) the funding of land, office space, asset infrastructure, and allocation of rights to commercially operate and/or exploit a facility and/or services assigned to an investor in a BT project; (iv) capital for supporting construction of auxiliary works, compensation, site clearance and/or resettlement.
Open Tendering : Open tendering procedures are now required in the case investor-proposed PPP projects involving State investment capital, whereas under Decree 15, direct contractor appointment was still a possibility in the case of such projects.
Converting Public Investments to PPP Projects : Further details have been added on the process of converting a public investment project into a PPP project, including details on how the value of the public investment capital portion of the State’s investment capital in a project is to be determined for repayment by the investor under the terms and conditions of the PPP contract. This is to attract private-sector investment to infrastructure projects that cannot be completed by the Government due to budgetary constraints, and reflects the Government’s policy generally of attracting greater private-sector investment to infrastructure development in Vietnam.
No IRC : Importantly, Decree 63 removes the requirement for investors in PPP projects to obtain an Investment Registration Certificate that previously existed under Decree 15. After a decision has been made by a ministry, central agency or provincial people’s committee on selecting an investor for a particular PPP project, the investor shall move directly to establishing an enterprise to implement the PPP project in accordance with Vietnam’s Law on Enterprises. The MPI advocated for this change in Decree 63 on the basis that the PPP project contract should be the main document outlining the rights and obligations of an investor in a PPP project.
Standard PPP Contract Guidelines : Decree 63 foresees that ministries, central agencies and provincial people’s committees will take a greater role in PPP project implementation by providing detailed guidelines on a standard form of PPP project contract/s to be used in implementing projects in branches or sectors under their management. The question that arises here is whether these authorities will have the capacity required to develop such standardized form PPP projects which may be a task more suitable for a centralized Government body such as the MPI’s Public Private Partnership Office.
No Assignment Prior to Completion : Decree 63 now restricts an investor from assigning part or all of its rights and obligations in a signed PPP contract until after completion of construction or entry into the operational phase of a project. The proposed assignee must also prove to the State that it has the financial and managerial capability to implement the PPP project contract.
Further changes ahead
The changes described above are largely in line with the draft of Decree 63 that was circulated in 2017 for comment by relevant ministries and other stakeholders. While Decree 63 will replace Decree 15, relevant provisions of Vietnam’s Law on Investment of 2014, the Law on Public Investment of 2014, the Law on Tendering of 2013, the Law on Construction of 2014, and the Law on Management and Use of Public Assets of 2017 will continue to govern PPP investment projects.
In the wake of Decree 63, amendments to Decree No. 30/2015/ND-CP of the Government on Implementation of the Law on Tendering dated 17 March 2015 on investor selection for PPP projects are expected to be introduced shortly.
While the reforms introduced by Decree 63 are a positive step towards clarifying existing ambiguities in Vietnam’s existing legal framework governing PPPs, there are certain obstacles to successful PPP project implementation in Vietnam that are not addressed by Decree 63. These obstacles include capacity constraints, the absence of certain incentives required to make PPP projects bankable by international financiers, and the absence of a clear policy on risk allocation for PPP projects that can be consistently applied by the implementing ministries, central agencies and people’s committees.
In July 2017, MPI’s Public Procurement Department announced a proposal to pass a PPP law (the “PPP Law”) which is meant to replace Decree 63 and all other lower level decrees, circulars and resolutions dealing with PPP projects. The MPI anticipates that a proposal of the PPP Law will be submitted by the Government to the National Assembly for consideration and approval in late 2020.
While there are clear benefits to having a single PPP law in order facilitate the PPP development process and demonstrate a government’s political commitment to promoting PPP programs and projects, the prospect of the introduction of a specific law on PPPs into Vietnam’s legislative framework in the near future may result in little progress being made in rolling out PPP projects under Decree 63 due to the uncertainty this presents to potential investors in PPP projects in Vietnam.
DFDL Contacts
Hoang Phong Anh
Partner, DFDL Vietnam
phonganh.hoang@dfdl.com
Angus Mitchell
Partner, DFDL Vietnam
angus.mitchell@dfdl.com
The information provided here is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.
[1] “PPPs can work with better grasp of risks”, Viet Nam News, 17 November 2017. Available here.
