Jun 27, 2019 / 14:36

Foreign businesses raise concerns over risks in PPP in Vietnam

Infrastructure development is a long-term business and which not only needs good, transparent and rapid decision-making mechanism for a project to start, but also the one where unexpected behavior changes in either the state or the corporate partner can have dire consequences, according to experts.

A number of foreign businesses organizations have raised concerns over potential risks related to the public-private investment (PPP) model in Vietnam, especially when the law on PPP is curently being circulated for feedback. 
 
Illustrative photo.
Illustrative photo.
The questions were raised at the mid-term Vietnam Business Forum 2019 themed “Roles of business community in rapid and sustainable development” on June 26. 

Tomaso Andreatta, vice chairman of European Chamber of Commerce in Vietnam (EuroCham), informed the group has submitted 109 modifications on the draft law. 

“What is important is not only to get this crucial law right this time, but to build a permanent relationship of trust and clear rules between the government of Vietnam and the companies and markets,” said Andreatta. 

“Infrastructure development is a long-term business and which not only needs good, transparent and rapid decision-making mechanism for a project to start, but also the one where unexpected behavior changes in either the state or the corporate partner can have dire consequences.”

Andreatta pointed to “two legacies” of the past that need to be surpassed if PPP is ever to work at scale in Vietnam: It has to be clear that PPP projects are hybrid and not government projects, so they are mostly subject to normal legislation, and the concept that “what is not regulated cannot exist” does reduce the scope for the imagination of companies to resolve problems.

“As Vietnam grows, the state’s role has to be increasingly the one which shows the direction and facilities and monitors the good behaviors of all agents rather than doing most of the work directly,” he asserted. 

Regarding PPP, Chairman of the Japanese Chamber of Commerce and Industry (JCCI) Nobufumi Miura said this investment model is one of the solutions to limit borrowing, particularly when Vietnam’s public debt is reaching its limit. 

However, “the investors are exposed to significantly high risk in the current PPP scheme,” Miura said. 

“It is instrumental that the government clarifies the risk allocation between the government and the private party and provides comprehensive support for private party to ensure a reasonable return from investment,” Miura stressed. 

JCCI noted the necessity to adopt “Foreign currency exchange guarantee system” and apply “Foreign Law” as a governing law.

Additionally, Miura proposed allowing arbitration agreement outside Vietnam for all infrastructure projects, including “real estate” as a condition of dispute settlement. 

The reprentative of the American Chamber of Commerce (AmCham) stated 76% of all FDI into Vietnam went into three sectors namely manufacturing, real estate, and retail trade, expecting the foreign investment to go into development of key infrastructure in Vietnam. 

According to the Global Infrastructure Outlook, Vietnam will need over US$600 billion to reach its infrastructure goals by 2040. 

“While the government does not have that amount of money, there are trillions of dollars of global capital looking for stable long-term investment,” said the AmCham representative. 

“Connecting that capital to investment in Vietnam’s infrastructure will speed the flow of goods and people, adding to productivity and reliability and will result directly in jobs, and revenue for the state,” he continued. 

Mobilizing the capital needed for infrastructure requires private sector participation which in turn demands market-based risk adjusted returns for investors. While these terms might not be as attractive as that provided by development banks, the source is more abundant and sustainable over the long-term, he added. 

“Our member companies need the government to establish a PPP that enables private investment in infrastructure projects,” he concluded. 

The Asian Development Bank estimated Vietnam would need at least US$16.7 billion in average for the 2015 – 2025 period to cover capital needs for infrastructure development. 

Meanwhile, the World Bank suggested the figure could rise to US$25 billion per year, much higher than the average investment capital in the 2011 – 2015 period.