Recently, on 18 June 2020, the National Assembly has passed the Law on Public – Private Partnerships (“PPP Law”) with 92.57% in agreement marking the first time there was a specific law to regulate the public-private partnerships (“PPP”) in Vietnam. Thus, this will help to attract private investment to public dominating  sectors such as infrastructure, electricity, etc. As the PPP Law will take effect soon, in the meantime, it is important to comprehend the key points of the law.

Governing Scope

PPP Law will only apply to five sectors which are:

• Transportation;
• Power grid and utilities;
• Irrigation, fresh water supply, water drainage, treatment of wasted water and waste substances;
• Medical health, education-training;
• Information infra-structure.

As these five sectors usually require a large amount of capital, the Government expects to attract more private investors to these sectors by providing a more transparent investment environment through issuing the highest legal corridor, i.e. the PPP Law.

Moreover, in an attempt to concentrate on and to avoid spreading resources, PPP Law is only applicable to the projects with total investment from VND200 billion up, with the exception for those in the areas of socio-economic difficulty, particularly socio-economic difficulty, or otherwise in the sectors of medical health, education-training (from VND100 billion up).

Classification of PPP projects

Previously, PPP investment projects are classified in accordance with Law on Public Investment. However, in PPP Law, the classification of projects is connected with the jurisdiction of decision making on investment policies by different competent authorities including the National Assembly, Prime Minister, Ministers, the heads of the central offices and the provincial people’s councils.

Preliminary implementation process of PPP projects

According to PPP Law, a PPP project will undergo three levels of Assessment Council of PPP Projects including governmental, inter-industrial and basic council. This will ensure the strictness, efficiency and feasibility of PPP projects before being published to investors.

Thereafter, investors shall  be selected in accordance with regulations under Bidding Law so as to ensure the uniformity, entirety and continuity of the implementation process of a PPP project.

Capital for PPP projects

In order to provide private investors a more transparent investment environment, PPP Law specifies not only the amount of state-owned funds which shall not go beyond 50% of the total project investment but also the ways of management of  each form for the state-owned funds to support and participate in the PPP projects.

On the other hand, alongside with the traditional channels from banks, the PPP Law allows PPP enterprises to issue corporate bonds for capital mobilization. However, to issue corporate, a PPP enterprise must meet three conditions, which are as follows:

• The amount of capital mobilized through the issuance of bonds shall not exceed the value of the loan amount determined in the PPP project contract;
• Capital mobilized through the issuance of bonds cannot be used for any purpose other than the implementation of PPP project contracts or debt restructuring of enterprises;
• PPP enterprises must open an escrow account to receive money from selling bonds and disburse funds in accordance with the laws.

The mechanism for sharing the increase and decline of the revenues

PPP Law stipulates the mechanism for sharing the increase in revenue as follows:

• When the actual revenue increases more than 125%, the PPP investors shall have to share with the government 50% of the difference between the actual revenue and that of 125% in the financial plan;
• When the actual revenue is declined below 75%, the government shall have to share with the PPP investors 50% of the difference between the 75% in the financial plan and the actual revenue so as to reduce risks for a PPP investment project, especially those which incurred due to the changes made by the State.

In addition, it is also specified the scope and contents the State Audit can exercises the auditing of the PPP investment projects, including: the management and use of the public finance and public property in a PPP project; state budget used to share the decline in revenues; and the value of the property transferred to the State.

Build – Transfer (BT) projects

PPP Law has institutionalized the policy of ceasing the implementation of BT projects especially, from the promulgation of the PPP Law, the research into new BT projects shall be ceased. This decision is due to the negative effects of BT projects causing loss to the State budget, thus, according to PPP Law, there are only seven types of PPP contracts which are:

• Build – Operate – Transfer (BOT)
• Build – Transfer – Operate (BTO)
• Build – Own – Operate (BOO)
• Operate – Manage (O&M)
• Build – Transfer – Lease (BTL)
• Build – Lease – Transfer (BLT)
• Mixed – combine types of contracts

In conclusion, the promulgation of PPP Law not only illustrates the effort of Vietnamese Government in attracting both national and foreign investment by providing a fairer and more transparent investment environment but also helps to improve the legal system of Vietnam.

DISCLAIMER

This LBN newsletter are NOT legal advice. Readers are advised to retain a qualified lawyer, should they wish to seek legal advice. VCI Legal are certainly among those and happy to be retained, yet VCI Legal is not to be hold responsible should any reader choose to interpret/apply the regulations after reading this LBN without engaging a qualified lawyer.