Following years of cautious policies, Vietnam has recently become more open to investments from the private sector, including those in public infrastructures and services in the form of PPPs. Below are ten brief updates about PPPs in Vietnam.
1. Why PPPs
A recent report on the preparation of a draft law on PPPs has shown new radical approaches of local authorities to PPPs: PPPs must be the first priority if they are determined as a potential and effective mechanism in utilizing the public budget. This is a clear departure from previous conservative views on the PPP model. However, unless codified clearly in an effective law, this may remain only impressive in words. The law on PPPs is expected to be promulgated in 2019.
2. How PPPs are attractive
Investors in PPPs may enjoy incentives related to tax treatments, use or lease of land, and government guarantees on certain performances, foreign currency, supply of raw materials, consumption of products and services and other matters. Other incentives such as price supports may further apply under a decision granted by the competent authority.
3. Where PPPs may be applied
PPPs are encouraged in the most diversified public sectors, including infrastructure, transport, power, water, waste treatment, science and technology, housing, sports, tourism, entertainment, health and education. Further, opportunities in PPPs are not only those which are determined by the State but also those which are newly-designed by investors and then approved by the competent authority.
4. What governs PPPs
Currently, the implementation of PPPs faces many issues and difficulties due to conflict among relevant local laws, including the government decrees on PPPs and a number of other laws such as the Law on Investment, Law on Public Investment, Law on Enterprises, Law on Environmental Protection, Law on Land, Law on Construction, Law on Management of Public Debt, and Law on State Budget, among others. However, it is expected that this policy risk will be addressed when the law on PPPs is promulgated in 2019.
5. What should be expected in the implementation of PPPs
Vietnam has recently been extremely consistent in simplifying administrative procedures by way of eliminating the investment registration certificate which used to be a condition precedent for PPPs to be carried out in certain cases. Notwithstanding this, given that strict requirements on utilization of public budget are involved, PPPs may need to undergo complicated procedures before they are carried out in reality. In such a case, a local expert in PPPs may be helpful to navigate the process and anticipate the challenges that may occur thereafter.
6. How PPPs are contracted
Aside from the common forms of BOT, BTO, BT, BOO, BTL, BLT, O&M, PPPs may also be contracted in another form if so approved by the Prime Minister. Regardless of the contract form, investors should not overlook provisions which are fundamental to a PPP contract, such as those related to risk allocations or penalties for potential breach of the counterparty. It should also be noted that a PPP contract can only be amended or supplemented in certain circumstances, e.g., in cases agreed in the PPP contract.
7. How PPPs are financed
PPPs may be financed by (a) the equity capital amount contributed by the investor at the statutory rates, and (b) the participation amount of the State, including those paid by the State, lands and other assets (or asset rights) paid to the investor, and those serving construction of incidental facilities or compensation for land clearance, and others, as applicable. PPPs may also be financed by other capital amounts mobilized by the investor as agreed under the PPP contract.
8. How risks are allocated in PPPs
PPPs can last up to 30 years or longer and involve a large number of people and assets. Therefore, it is very exposed to a wide range of risks, including those related to the sites, commercial or technical matters, local politics and policies, and events of force majeure. As such, risk allocation should be a key provision in the PPP contract, especially when the current laws of Vietnam are still silent in this regard.
9. What are required to exit PPPs
Investors are entitled to exit PPPs by way of transfer of part or their entire rights and duties agreed under the PPP contract under certain conditions prescribed by law and/or agreed under the PPP contract. When there is income arising from the transfer, investors who make the transfer will bear the relevant financial duties in accordance with the law on tax and the PPP contract between the parties.
10. How private investors are protected in PPPs
It is highly advisable if investors are well-prepared to secure a collegial position to the local authority, which is the counter party in the PPP contract, and therefore, should be treated as a partner rather than as a superior. With this aim, the investor should be familiar with, or be supported by a local expert in the local laws and also the host government in order to have a comprehensive assessment of the potential risks and the effective measures which can appropriately deal with the issues. PPP contracts may not be able to fully protect the investor if it is not adaptable to the potential policy risks. Even if PPP contracts designate foreign law and an international tribunal, respectively, as the governing law and dispute resolution mechanism, nothing can assure that a decision held by such international tribunal may be recognized and implemented in Vietnam if those designations are not accepted under the local laws.