Vietnam’s first-ever law concerns public-private partnership

Vietnam’s Law on Investment that will take effect on January 1, 2021 becomes the first-ever law in the country published in the form of public-private partnership (PPP).

Law envisages five sectors eligible for PPP investment

The law that was ratified by the National Assembly on June 17, 2020 clarifies the scope and scale of power projects eligible for PPP investment, according to Dr. Oliver Massmann, a Financial Accountant and Auditor, who discussed about the Draft Law with key personnel of the parliament.

The revised law incorporates the following recommendations suggested by Duane Morris LLP, a law firm with more than 800 attorneys in offices across the US and internationally.

According to Dr. Oliver Massmann who can be reached under omassmann@duanemorris.com, Article 4 of the Law envisages that five sectors eligible for PPP investment include: a/ Transportation; b/ Power grids, power plants, except for hydroelectricity power plants and cases of State monopoly in accordance with Electricity Law; c/ Irrigation: water supply, drainage, and wastewater treatment, waste treatment; d/ Healthcare, education, training; e/ Infrastructure for application of information technology.

The PPP law also stipulates the total investment capital requirement for a PPP project. For instance, excluding Operation & Maintenance Contracts, power projects must have the minimum total invested capital of VND200 billion (US$8.7 million). The figure is lower (VND100 billion) for projects in areas with difficult socio-economic conditions.

Importantly, the law emphasizes the importance of bankable PPP contracts.

Duane Morris suggested that the National Assembly should consider providing a bankable PPP contract template in the law itself or in its guiding decree/circular.

In Article 47 of the PPP law, it was supplemented that the government shall regulate the issuance of standard contracts for BOT, BTO, BOO, O&M, BTL, BLT, BT or mixed contracts projects. Regarding lenders’ step-in right, PPP Law sets forth that in case of termination of PPP project contract ahead of the deadline and it is required to select a replacement contractor to ensure the progress of the project, the lender must coordinate with the State to select the alternative investor.

Notably, the law determines in details investment incentives that investors can enjoy.

Article 80 specifies that investors are provided with security regarding land access rights, right to use land and other public properties, property mortgage right, right to trade the project and its infrastructure system. PPP project enterprises are also given priority to utilize public services for implementation of the project, and competent agencies must assist investors in carrying out necessary procedures in order to optimize this priority.

In addition, other notable provisions in the new PPP Law, including

1/ Foreign currency balance-ensuring scheme is applicable to projects subject to the National Assembly or the Prime Minister’s issuance of decision on investment policy.

The latter applied for projects with total invested capital of at least VND5 trillion (US$217 million), suggesting that all power projects eligible for PPP investment are automatically eligible for this foreign currency scheme. In addition, there is a ceiling of 30% to be imposed for all PPP projects.

2/ Revenue risk sharing mechanism: When the actual revenue reaches more than 125% of the revenue in the financial plan of the PPP project contract, investor to share with the State 50% of the increase between actual revenue and committed revenue in the contract.

When the actual revenue reaches less than 75% of the revenue in the financial plan of the PPP project contract, the State to share with investor 50% of the decrease between actual revenue and committed revenue in the contract.

This revenue reduction sharing mechanism is applied when the following conditions are met: 1. Type of contract: BOT, BTO or BOO; 2. The cause of loss is change in laws and policies; 3. Measures to adjust product and public service prices and contract terms have been implemented but the total revenue is still less than 75%; and 4. The State Audit has audited the revenue reduction.

3/ Selection of contractors to execute PPP projects: PPP contracts must contain binding content on the contractor’s responsibility if the quality of the project does not meet the agreed requirements. Usage of domestic contractors is encouraged for works that can be carried out by them.

4/ Governing laws: PPP contract, its annexes and related documents are to be construed and interpreted in accordance with Vietnamese laws.

Dr. Oliver Massmann said it is great pleasure that the National Assembly took into consideration Duane Morris’ advice and recommendations as these moves are a step in the right direction.

It remains to be seen whether there will be the political will to fully implement PPP projects regularly and on large scale, the expert added.