On 18 June 2020, the National Assembly of Vietnam officially passed the Law on Public - Private Partnership (PPP) investment ("PPP Law") to take effect on 1 January 2021 and replacing the current PPP regulations, including PPP Decree No. 63/2018/ND-CP ("Decree No. 63"). Two draft decrees were also recently released in connection with the PPP Law ("PPP Law Decrees"). They provide details on the processes and procedures for implementing PPP projects and for managing the financial aspects of PPP projects. The PPP Law and its proposed implementing decrees will replace.
Whilst the PPP Law provides for a number of improvements on the current PPP regulations it still does not resolve certain risk allocation and bankability issues that are likely to concern foreign investors and lenders. This may impact the negotiation of PPP Projects and frustrate the development and implementation of what otherwise are commercially attractive projects being developed with limited or non-recourse project financing.
The PPP Law has set as an overall objective the promotion of PPP investments and creating a stable and long-term legal framework. However, issues on flexibility and certainty from a private sector perspective remain a significant concern. The key areas of issues in the PPP Law include the following:
- Investment sectors for PPP project structures are now limited solely to transportation, power grids and plants (other than hydropower), irrigation, water supply, drainage and wastewater treatment, and waste treatment, healthcare, education and training infrastructure and information technology infrastructure.
- PPP projects are now subject to stringent minimum total capital investment thresholds.
- Whilst most PPP project structures have been retained, the PPP Law has removed the possibility of conducting PPP projects on a Build-Transfer basis, citing concerns regarding concerns over the lack of administrative supervision and legal issues in relation to land transfer and land price evaluation in exchange for the BT project’s investment.
- The PPP Law has removed the clear legal basis for government guarantees and undertakings for obligations of state-owned enterprises previously contained in Decree No. 63. Instead, the PPP Law refers to "investment assurance mechanisms" as available to be determined under the Investment Policy Decision, feasibility study report, and/or PPP project contracts, but the scope of this right and its implementation is not clear.
- The PPP Law has introduced new risk-sharing mechanisms for PPP projects, under which the public sector does not always bear an equal level of risk. There are also concerns over the financial feasibility for certain projects, and the lack of flexibility in terms of implementation for different sectors and projects in different scales when fixing thresholds under the proposed risk-sharing mechanisms.
- Foreign currency convertibility limitations remain - these are limited to no more than 30% of the project revenue in Vietnamese dong after subtracting expenditures to all PPP projects - with associated uncertainty on foreign exchange indexation to tariffs.
- Uncertainties remain over the enforceability of granting security over the right of mortgage of assets, mortgage of the rights to commercially operate infrastructure facilities and systems, and a mortgage of the project development company's right to business.
- The PPP Law does not address change-in-law risk allocations and legal value of PPP project contracts against existing or future discretionary permits and administrative documents issued by state-authorized agencies.
- The PPP Law has added flexibility that "for matters for which Vietnamese laws do not regulate, the parties may agree in detail in the PPP Project Contract on the basis of being not contrary to the fundamental principles of Vietnamese laws". However, the added wording of the PPP Law does not make any reference to "foreign law," and so the applicability of foreign law as the governing law of PPP project contracts remain uncertain.
- The PPP Law specifically anticipates a termination or buy-out payments regime in the event of early termination of PPP project contracts for government default, developer default or force majeure. However, specific determination of the amount and components of compensation payments will need to be negotiated on a project-by-project basis.
- The PPP Law has removed the specific grant of lenders' step-in rights which was previously contained in Decree No. 63, therefore such step-in rights, as well as restrictions on share transfers, and other project development and project financing issues will need to be specifically negotiation in PPP contracts.
The PPP Law will apply to numerous ongoing or newly proposed power, energy and infrastructure projects in Vietnam, with effect from 1 January 2021.
Please click here for a detailed summary of the proposed changes and related issues under the PPP Law.
Investors and financial institutions should take into account these new rules in order to be prepared to take the necessary steps to best position themselves for growing investment opportunities in infrastructure projects and in the provision of public services in Vietnam. Moreover, regulatory issues for project developments and project financings based on best practices can be better addressed with a proper understanding of the PPP Law and the draft new decree's guidelines and their developments.
Please do not hesitate to contact us if you would like to know more about any of the following:
- Further details and other areas of the PPP Law, as well as differences between the PPP Law and the Current Regulations on PPP and how they impact ongoing large-scale energy and infrastructure projects
- Specific implications for particular sectors of LNG-to-power and other energy projects, water supply and treatment, expressway, airport, seaport infrastructures, etc., as well as their specialized legal developments
- More details on the draft two new Decrees and potential upcoming additional guidelines related to infrastructure projects
- Specific opportunities, challenges as well as legal and practical solutions for development and investment in energy and infrastructure projects in Vietnam.