Vietnam: February 2024 Draft circular on tariff determination and model power purchase agreement (PPA) for IPP/private investment power projects

In brief

The Ministry of Industry and Trade of Vietnam (MOIT) recently released a draft circular for public comments ("Draft Circular"), which if adopted would replace Circular No. 57/2020 on tariff determination for power projects (including LNG-to-power, other thermal and large-scale hydropower projects).

The Draft Circular generally retains the key principles from Circular No. 57/2020 on tariff determination and negotiation of the PPA for LNG-to-power, other thermal and large-scale hydropower projects, but extends its application to other types of generation (including biomass, solid waste, solar, wind, hydrogen and ammonia). The Draft Circular is open for public comments until 4 March 2024.


Contents

Key takeaways

The Draft Circular provides for the following key points with regard to the principles for tariff determination:

  • The tariff should be set based on the basic principle that sponsors will recover their investment and make a return on investment not exceeding 12%.
  • The tariff for new power plants will be broken down between fixed costs (covering investment costs and fixed operation and maintenance (O&M) costs) and variable costs (covering, among others, fuel costs and transportation costs).
  • The calculation of fixed costs will incorporate certain financing costs, such as interest rates, but the Draft Circular now provides a ceiling up to which interest rates will be considered for tariff calculation purposes.
  • The calculation of various portions of the tariff (including in relation to fuel costs) will not necessarily be based on actual plant conditions but rather on predetermined technical parameters (see Appendix).
  • The tariff remains denominated and payable in Vietnamese dong, although the Draft Circular leaves room to index the tariff for foreign-currency-denominated loans.

Click here to read the full alert.

Contact Information

Copyright © 2024 Baker McKenzie. All rights reserved. Ownership: This site (Site) including all documentation and content (Content) is a Copyright © 2022 Baker & McKenzie. All rights reserved. Ownership: This documentation and content (Content) is a proprietary resource owned exclusively by Baker McKenzie (meaning Baker & McKenzie International and its member firms). The Content is protected under international copyright conventions. Use of this Content does not of itself create a contractual relationship, nor any attorney/client relationship, between Baker McKenzie and any person. Non-reliance and exclusion: All Content is for informational purposes only and may not reflect the most current legal and regulatory developments. All summaries of the laws, regulations and practice are subject to change. The Content is not offered as legal or professional advice for any specific matter. It is not intended to be a substitute for reference to (and compliance with) the detailed provisions of applicable laws, rules, regulations or forms. Legal advice should always be sought before taking any action or refraining from taking any action based on any Content. Baker McKenzie and the editors and the contributing authors do not guarantee the accuracy of the Content and expressly disclaim any and all liability to any person in respect of the consequences of anything done or permitted to be done or omitted to be done wholly or partly in reliance upon the whole or any part of the Content. The Content may contain links to external websites and external websites may link to the Content. Baker McKenzie is not responsible for the content or operation of any such external sites and disclaims all liability, howsoever occurring, in respect of the content or operation of any such external websites. Attorney Advertising: This Content may qualify as “Attorney Advertising” requiring notice in some jurisdictions. To the extent that this Content may qualify as Attorney Advertising, PRIOR RESULTS DO NOT GUARANTEE A SIMILAR OUTCOME. Reproduction: Reproduction of reasonable portions of the Content is permitted provided that (i) such reproductions are made available free of charge and for non-commercial purposes, (ii) such reproductions are properly attributed to Baker McKenzie, (iii) the portion of the Content being reproduced is not altered or made available in a manner that modifies the Content or presents the Content being reproduced in a false light and (iv) notice is made to the disclaimers included on the Content. The permission to re-copy does not allow for incorporation of any substantial portion of the Content in any work or publication, whether in hard copy, electronic or any other form or for commercial purposes.