-Investment sector reduction: Article 04.01 of the new law sets
out 05 investment sectors. Compared to Article 04.01 of Decree No.
63/2018/ND-CP, the scope of investment sectors in the new law has
been narrowed down to 5 sectors: transportation, healthcare,
education, transmission grid, water. This list implies the
intention of the Government in promoting primary and sustainable
economic sectors. If investors engage in projects related to these
sectors, they will benefit from investment incentives (Article 79
& 80), especially those set forth in the new Law on Investment
2020 such as preferred enterprise income tax, exemption or
reduction of land lease fee, credit support to name a few.
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 VND 200 billions. The figure is lower (VND 100 billions) for projects in areas with difficult socio-economic conditions.
-Open bidding commitment: While Decree No. 63/2018/ND-CP does not prescribe the open bidding process, the new law of PPP treats it as a prerequisite. In specific, Article 37 of the new law requires that all PPP projects must apply the open bidding process for selection of preferred investors, except for cases provided in Article 38; 39; 40 (e.g. there are less than 3 qualified investors, the project applies technologies that are prioritized for development, there's a need to protect national security...). The open bidding process entitles investors to compete in good faith for the PPP projects. Hence, foreign investors should make use of this process, also with their advantages of substantial investment capital, to win the bids of major projects.
2. Do you think the new law is likely to make PPPs in Vietnam more attractive to foreign investors specifically? Our understanding has been that at least in the water sector, foreign investors have felt reluctant towards PPPs due to the previous lack of guarantees.
Absolutely. The main goal of the new law is to attract
investors, especially foreign investors, to execute PPP projects.
Types of guarantees under the new PPP law include:
– Guarantee of access to land, exercise of land use right and other public goods.
– Guarantee of provision of civil service.
– Guarantee of right to mortgage of property, right to operate project and infrastructure.
– Guarantee of revenue risk sharing.
-Guarantee of foreign-currency balance-ensuring scheme.
Vietnam commits to provide guarantees for private and foreign investors. The issue, however, lies on the enforcement ability of officials. Thus, in case investors are deprived of above guarantees, investors shall assert claim against authorities before Vietnamese courts or arbitration bodies to be granted award (article 97 of the new law).
3. In your opinion, are there any sectors where the appetite for PPPs will be larger than in other sectors? Does this reflect the current attitudes towards PPPs in different sectors, or is it something that could change with the new law?
The new law reflects market demand: the 5 eligible sectors under PPP law are also the sectors that have been, are and will in the long run require funding from foreign investors. This is due to the increasing demand in those sectors not corresponding with the limited State budget.
4. In the water sector, while we haven't seen much large-scale activity under the previous PPP decrees, we have seen privately financed projects proceed under the Direct Investment Law – could this have a negative impacts on PPPs under the PPP law in the sense that such projects are 'competing' with the PPP law?
A reason why projects may have chosen to follow the route set out in the Law on Investment is because the framework for investment procedures under it is less complex and less time-consuming than the one set out for PPP projects. However, for large-scale projects, it is recommended that investors follow the latter form since PPP projects come with certain guarantees and commitment from the Vietnamese government, which can help investors to avoid substantial risks if risks cannot be managed well.
5. Obstacles which the new law does not address might bother potential investors:
– The difficulty in disbursement of state budget: The
overlapping regulations in legal documents such as Law on State
Budget and Law on Public Investment deters special purpose entities
from receiving investment capital from state budget.
– Legal uncertainty in the judgment of Vietnamese courts: Indeed, for most foreign investors, international arbitration centers are the preferred choice, rather than Vietnamese courts, whose judgments maybe biased. Investors may struggle for dispute settlement if trial clarity does not improve.
– Burden of administrative procedures: In 2018, the Vietnamese government issued Resolution No. 19/2018/NQ-CP on implementation of major duties and measures to improve business environment. The Resolution featured determination of central authorities in reducing and reforming administrative procedures. Investors, however, still have to fulfill lengthy and unclear administrative procedures before operation of business and investment.
6. Opinions on how likely it is that there will be political will in favor of PPPs:
In the 1980s, Vietnam, with a central-planning economy, put an unfriendly attitude towards private sector and foreign investment. The accession to WTO and a variety of FTAs, however, has changed the attitude of Vietnamese authorities as to these economic sectors. Indeed, respectively in 2017 and 2019, the Central Committee and the Politburo of the Communist Party of Vietnam (CPV) issued two resolutions on private sector and foreign investment, particularly the Resolution No. 10/NQ-TW on developing the private economy sector into an important motivation of the socialist-oriented market economy and the Resolution No. 50/NQ-TW on orientations to perfect mechanisms, policies, raise quality and efficiency of foreign investment by 2030. These resolutions significantly emphasized the promotion and variation of PPP projects to which private and foreign investors are parties. Therefore, Vietnamese government and other authorities, in accordance with the CPV's directions, will certainly assist investors in implementing PPP projects, especially large-scale ones.
Originally published by Duane Morris, July 2020
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