Legal framework introduced to enable PPP projects in Vietnam on a pilot scheme

On 9 November 2010, the Prime Minister (“PM”) has issued Decision No. 71/2010/QD-TTg issuing for the first time the regulations on pilot Public Private Partnership Investment Form (the “Framework”). By this Framework, Vietnam aims to augment investment of the private sector, both domestic and foreign, in infrastructure development. Before a real regulation may take off, the pilot Framework shall fly for three to five years from the effective date. Technically, the regulations of the Framework substantially adhere to the Government Decree No. 108/2009/ND-CP dated 27 November 2009 on BOT, BTO, and BT investment forms (“Decree 108”). In this context, we introduce the new provisions that investors and its lenders may interest.

Applicable projects for PPP

To be implemented under the Framework, a project must both be on an applicable sector and satisfy certain selection criteria (as discussed below).

Regarding specific applicable sectors, only sectors of urban transport and hospital are newly added by the Framework. For other sectors such as: roads, railways, airports, sea ports, purified water supply systems, power plants, waste treatment plans, etc., the Framework is identical with Decree 108.

Unlike Decree 108, a project to be invested under PPP form must further satisfy any of following criteria:

§  the project is of great significance, large scale and urgently required for need of economic development;

§  the project is capable of returning investment capital to the investor from reasonable revenue collected from consumers;

§  the project is capable of taking advantage of the private sector's technology, management and operations experience and effective use of financial capacity; or

§  the project meets other criteria as decided by the Prime Minister.

Financial participation: State vs. Private

On basis of the total investment capital, the Framework and the Decree control the minimum and maximum thresholds of the financial participation of State and private investors. Such thresholds remarkably differentiate the Framework from Decree 108.

49% of the total investment capital is the maximum threshold that State capital may be contributed in a project. Such 49% of the Decree is reduced under the Framework where State capital, investment incentives and relevant financial policies shall, whether together or separate, constitute the State participation which may not exceed 30% of the total investment capital.

The Framework also further makes it clear that State capital shall not be an equity contribution in the project enterprise and associated with any right to receive profit distribution from the project revenue.

As inferred from the maximum threshold that State participation may be, private participation must hold at least 70% of the total investment capital of a PPP project. Private participation shall comprise of equity capital and loan capital. Equity capital is required to be at least 30% of private participation and accordingly at least 21% of the total investment capital. Loan capital shall be mobilized from commercial loans or other sources without State involvement such as Government guarantee.

Unit: VND

Decree 108			Decision 71
Investment Capital (Billion VND)	State Participation	Equity Contribution (Billion VND)	Investment Capital	State participation	Equity Contribution (Billion VND)	Loan and other capital source
≤ 1,500	≤ 49%	≥15%	Any	≤ 30%	≥ 21%	≤49%
> 1,500		≥ 10% for amounts above 1,500 billion; and ≥ 15% for the portion under 1,500 billion

Prime Minister’s approval

Under Decree 108, the PM only approves feasibility study reports and proposals for some limited projects subject to the importance or scale of land use, etc. By the Framework, the PM has more active roles. Any proposals must be finally approved by the PM before being included in the list of projects to be implemented under PPP investment form. The State participation, the investment guarantee regime and other matters shall be in principle approved by the PM before the feasibility reports to be approved in accordance with the prevailing regulations.

Performance guarantee

Both the Decree and the Decision require investors to provide security for the project performance but the amount of security has been adjusted.

Decree 108		Decision 71
Investment Capital	Security amount	Investment Capital	Security amount
≤ 1,500	≥ 2%	No threshold	≥ 2%

Security may be provided in the form of a bank guarantee or other forms of security for obligations prescribed in the Civil Code.

The Framework on PPP totally sticks to the Decree 108!!! That is my view. Even I understand it requires more stricter conditions than Decree 108. I have written another article following that criticized view. However, one of my partners perceived that there is gold in the Framework and what I have written is just rough dig. Thus I wrote this one to submit instead. As you can see, it is not an analysis yet update...