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Vietnam PPP law explained for private investors

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Vietnam PPP law is now fixed, and it starts on 1 January, about seven weeks from now. The National Assembly passed the Law on Public-Private Partnership (Law 64/2020/QH14) on 18 June 2020. It is the first time Vietnam has put PPP rules into a full law. Before, they sat in government decrees. Private investors should learn four things now: which sectors are open, how big a project must be, how much equity is needed, and which contract types still exist.

What the law is and when it starts

The law replaces Decree 63 of 2018. The National Assembly passed it at its ninth session. It takes effect on 1 January, and the Government must issue detail rules for many of its articles. Those rules are not out yet.

A PPP project follows five steps. First, the agency prepares a prefeasibility study and the project gets an investment policy decision. Second, a feasibility study is done and the project is approved. Third, an investor is selected. Fourth, the investor sets up a project company and signs the contract. Fifth, the contract is carried out. Projects that use high technology can switch the order, so the investor is picked before the feasibility study.

Sources: Law on Public-Private Partnership 64/2020/QH14, Articles 11 and 100 (English translation); Allens, "Elevation of Vietnam's Public Private Partnership Regime: 14 key changes for foreign investors," 27 July 2020.

Which sectors are open

The law gives a closed list. PPP is allowed in transport; power grids and power plants (not hydropower, and not cases where the State holds a monopoly); irrigation; clean water supply; drainage and wastewater; waste treatment; health; education and training; and information technology infrastructure.

This list is shorter than the one in Decree 63. Law firm Allens notes that sectors such as public lighting, parks, cemeteries, tourism, culture, sport and agriculture are no longer named, unless a project also fits one of the listed sectors. If your plan sits in a dropped sector, check it early.

Sources: Law 64/2020/QH14, Article 4; Allens, 27 July 2020.

Project size and the state share

A project must meet a minimum total investment. For transport, power, water, waste and IT infrastructure the floor is VND 200 billion. In areas with difficult socio-economic conditions it drops to VND 100 billion. Health and education projects need at least VND 100 billion. Projects under operate and manage contracts are not held to these floors.

The State can add money to a project, for example to help build the works or to pay for land clearance. That share must not be more than 50 percent of the total investment for those purposes. Plan your funding with that ceiling in mind.

Sources: Law 64/2020/QH14, Articles 4, 69 and 70.

Contract types and the end of BT

The law lists the contract forms. Where the investor earns fees from users, the forms are BOT (build, operate, transfer), BTO (build, transfer, operate), BOO (build, own, operate) and O&M (operate and manage). Where the State pays for the quality of the service, the forms are BTL (build, transfer, lease) and BLT (build, lease, transfer). A mixed contract is also allowed.

Build-transfer (BT) is gone. The law says new BT projects are suspended. For BT projects whose investment policy was not yet approved, the suspension started on 15 August 2020. Contracts already signed can continue under their old terms.

The Government will also issue standard form contracts. Allens calls that potentially the biggest change, because it is not yet clear how much of a standard contract investors can negotiate.

Sources: Law 64/2020/QH14, Article 45 and Article 101; Allens, 27 July 2020.

Money rules investors should check

  • Equity: the investor must put in at least 15 percent of the total investment, not counting state capital.
  • Performance security: set in the bidding papers at 1 to 3 percent of total investment, given before the contract takes effect.
  • Tender security: Allens reports a new bid deposit of 1 to 1.5 percent of project value, lost if a winning bidder does not sign within 30 days.
  • Revenue sharing: if actual revenue passes 125 percent of the plan, the investor shares 50 percent of the excess with the State. If it falls under 75 percent, the State can share part of the shortfall, under set conditions.
  • Guarantees: Allens notes the law has no general government guarantee for state firms that buy or supply under a project. Foreign currency support is capped at 30 percent of needs.
  • Contract term: if the parties adjust it, the total term cannot run past the land allocation or lease term.

Sources: Law 64/2020/QH14, Articles 48, 51, 77 and 82; Allens, 27 July 2020. Allens is a commentary by a law firm, so read the law text for the exact wording.

What to do before the law starts

Check that your sector is still on the list and that your project clears the size floor. Review your funding plan against the 15 percent equity rule and the 50 percent state cap. If you hold a project in the pipeline, read the transition rules in Article 101, because projects approved before the start date follow different steps. Then watch for the Government decrees that fill in the detail.

This article gives general information only. Your project's size, sector and funding mix decide which PPP Law steps apply, so ask a Vietnam-qualified infrastructure lawyer to review your concession terms before committing capital.

Sources: Law 64/2020/QH14, Article 101. Law text read in an English translation; the official text is in the Official Gazette (Cong Bao Nos 719-720, 25 July 2020).