A positive development: Vietnam’s new PPP decree

Introduction

The legal framework for public-private partnership (PPP) in Vietnam has undergone several transformations, from the limited options of BOT, BTO, BT contracts to the more comprehensive framework of PPP under the first guiding decree of the government, namely, Decree No. 15/2015/ND-CP dated February 14, 2015 (Decree 15) and previously, the pilot Decision No. 71/2010/QD-TTg dated November 9, 2010. However, the growing demand for, and development of, PPP projects in Vietnam have exposed several obstacles during the implementation of the PPP project model under Decree 15. The government recently replaced Decree 15 by enacting Decree No. 63/2018/ND-CP on investments under the form of PPP on May 4, 2018 (Decree 63), the effective date of which is June 19, 2018.

In overview, in comparison with the previous regulations, Decree 63 introduces several new provisions to strengthen the capacities of investors, optimise and simplify the investment procedures, as well as enhance the project’s management, among others. Below are the most notable updates in Decree 63.

Investment thresholds

Decree 63 imposes more stringent conditions on the investor’s capital in the total investment capital. With respect to a project with total investment capital up to D1.5 billion (approximately $64 million), the rate of the investor’s capital must not be lower than 20% thereof. With respect to a project with total investment capital of more than D1.5 billion, the investor’s capital in the portion up to D1.5 billion must satisfy the aforesaid rate. For the portion in excess of D1.5 billion, the rate of the investor’s capital must not be lower than 10% of the amount of such portion. These are notable increases in comparison to the rates of 15% and 10%, respectively, under Decree 15.

State involvement

Decree 63 systemises the state’s participation in PPP in several forms, more than Decree 15 which sets out such participation only in the form of capital contribution. Under Decree 63, the portion of the state’s participation in a PPP project may be in any of the following forms: (i) the state’s capital contribution, (ii) capital for payment to the investors, (iii) appropriate assets under BT contract which include the land fund (i.e., land available), head offices, infrastructure as payment to the investor or the right to carry out the business, operate facilities, or perform services assigned to the investor, and (iv) capital for supporting construction of auxiliary works, compensation, site clearance and/or resettlement.

The introduction, or more appropriately, the re-classification of new participation by the state assets, such as the right to carry out
the business, operate facilities or perform services in concession contracts, provides the state with great value to contribute to a PPP project instead of pure capital. Previously, when the state granted concession of business rights to an investor, such as toll fee collection, it was not considered as the state’s participation in the project. Further, to clarify and distinguish the involvement of the state, a regulation on how to determine the portion of the state’s contribution in a PPP project is provided more clearly in Decree 63.

Build-Transfer

In addition to several supplementations to the procedures of PPP project implementation in general, Decree 63 also provides a whole new chapter detailing the procedures for using build-transfer (BT) contracts in the implementation of PPP projects. Previously, Decree 15 provided almost universal procedures for all forms of PPP contracts with only a few notes on BT contracts. The introduction of a new chapter on BT projects confirms the state’s serious consideration of this PPP contract form, which may utilise the land fund and other high value assets of the state.

Simplified procedures
Finally, Decree 63 abolishes all regulations in relation to procedures of investment registration and issuance of investment registration certificate for large projects (Group B or above) which were required under Decree 15. This was reportedly to simplify the investment procedures for PPP projects.

What next
By the issuance of Decree 63, the government is sending a message to investors that the legal framework of procedures for PPP projects is clearer and more transparent for the purpose of providing practical innovations in the implementation of PPP projects. The government has also announced its plan to propose to the National Assembly the development and adoption of a PPP law, and Decree 63 shall be the most important legal basis for such future development.