VIETNAM — Mergers and Acquisitons — Market overview — Vietnamnews interviewing Dr. Oliver Massmann

1. What is your assessment of the M&A market in Vietnam?

Covid-19 has significantly reduced M&A activities both globally and locally in our country. With the extraordinary pandemic control, Vietnam is still emerging as a safe, attractive destination for foreign investors.

Remarkable M&A deals during the Covid-19 outbreak include the merger of VinCommerce into Masan, the acquisition of 15% of BIDV’s charter capital worth USD 878 million by KEB Hana Bank (Korea), or the acquisition of Vinhomes’ shares worth USD 650 million by KKR and Temasek.

The main industries attracting M&A deals in Vietnam from June 2019 to October 2020 are real estate, banking and finance, logistics, pharmaceutical and healthcare, and construction.

M&A activities did slow down due to the pandemic but is expected to resume its activeness in the first quarter of 2021 at earliest.

2. What is the main driver of growth of M&A activities in Vietnam, especially during the Covid-19 period?

(i) Vietnam has entered into many free trade agreements (FTAs), which help to attract investment waves from abroad. FTAs such as the CPTPP, EVFTA, EVIPA and most recently RCEP will open up more opportunities to draw in investment in the form of M&A in various sectors, especially those that require the application of high-technology such as waste-to-power energy or water treatment.

(ii) The implementation of the new Securities Law, Investment Law and Enterprise Law 2020 are also identified as an important milestone, contributing to the simplification and synchronization of relevant administrative and legal procedures. For instance, under the new Investment Law taking effect on 1 January 2021, the foreign investor threshold is lowered from 51 percent to 50 percent. In addition, the law removes the need for approval if the M&A transaction does not increase the foreign investor’s ownership ratio in the target company.

(ii) The new Government administration in Vietnam is expected to comprise of younger people with more political willingness to integrate Vietnam to the world.

3. Which are difficulties that The M&A market of Vietnam has to face in the Covid-19 pandemic?

_ Review of the purchase target: if key customers and suppliers of the target company negatively affected, potential purchaser may question the efficiency of the business model
_ Adjustment on purchase price: price agreed before the pandemic occurs are most likely based on historically high evaluations and maybe reduced upon further examination of Covid-19’s effect on the target’s operation
_ Purchase is delayed due to reduced to none site travel: For many deals, site inspection is essential for potential partners to verify information and conclude their purchase
_ Increased risk of technology fraud: e-signature can be faked, confidential information is leaked (e.g. via Zoom)
_ Dramatic reduction in stock market prices have left investors with uncertainties regarding capital market transactions

4. There is a saying that SMEs will have more benefits than a big enterprise. What do you think about that?

I think the benefits are distributed in different ways for SMEs and for large corporates. However, when looking at the Covid-19 instance, I’d say large enterprises have more benefits.

Large enterprises last against the economic downturn longer due to larger capital reserve and brand presence while we see a lot of SMEs shutting down. However, higher number of human resources also means higher expenses for large corporates. The Covid-19 outbreak, in some ways, can be said to allow large corporates and multinational companies to relocate their business operation to provinces/countries that prove to handle extraneous factors well. For example, we have seen a lot of companies relocating their production plants from China to Vietnam during the corona crisis.

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For more information on the above, please do not hesitate to contact the author Dr. Oliver Massmann under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC, Member to the Supervisory Board of PetroVietnam Insurance JSC and the only foreign lawyer presenting in Vietnamese language to members of the NATIONAL ASSEMBLY OF VIETNAM.

VIETNAM – WHAT FOREIGN INVESTORS NEED TO KNOW ABOUT THE OFFLINE GAME BUSINESS IN VIETNAM

Number and types of gaming machines

A foreign enterprise that engages in the offline prize-winning electronic game business must obtain Investment Registration Certificate and Certificate of Satisfaction of Conditions for a Gaming Business (“SC Certificate”). The SC Certificate will reflect the type and number of gaming machines that an enterprise is permitted to have. Circular 11/2014/TT-BTC (“Circular 11”) lists the following seven types of gaming machines that an enterprise is allowed to operate:

1. Coin Slot Machines
2. Roulette
3. Automatic Baccarat
4. Electronic Blackjack
5. Sic Bo or Tai Siu Machines
6. Horse Racing and Mahjong; and
7. Poker Machines

Items 2-7 above are permitted only if they are automated and do not require participation by members of staff.

The total number of gaming machines of the enterprise must not exceed the permitted number stipulated in the SC Certificate. In addition, the number of gaming machines belonging to each of categories 2-7 above must not exceed 15% of the total number of gaming machines operated by the enterprise. No maximum percentage is applied to coin slot machines.

Circular 57/2017/TT-BTC (“Circular 57”) requires the enterprise to lodge a report to the Ministry of Finance, local Department of Finance, local Department of Culture, Sport and Tourism and local Department of Taxation, describing the total number and type of gaming machines, including the ratio of each type, within 5 business days from the date of commencement of operation. Any variation in the number and type of each machine must also be reported to each of these Department and Ministry.

Back-up equipment for gaming machines

Under Circular 57, enterprises licensed with an SC Certificate are permitted to purchase back-up equipment for gaming machines. Enterprises can purchase the following items for replacement where necessary:

1. Screens
2. Cash and token receipt systems
3. Prize payment systems
4. Archiving systems
5. Circuit boards

All back-up equipment must be 100% new and cannot exceed 10% of the number of gaming machines operated by the enterprise for which that item of back-up equipment would be used.

Where back-up equipment is used by an enterprise to replace items in gaming machines, that enterprise must keep detailed records specifying the type of gaming machine, the type of equipment and the reason for replacement.

Procedures to obtain a SC Certificate

An enterprise must satisfy the following conditions in order to apply for a SC Certificate:
– Have an Investment Registration Certificate that states the business line for prize-winning electronic game business operation
– Total investment capital of at least VND 200 billions
– If the enterprise also operates tourist accommodation service, the tourist accommodation establishment must be of five-star class as ranked by a state agency
– The facility for prize-winning electronic game business must be located separately from other business areas of the enterprise and must be equipped with 24/7 CCTV
– The business facility manager must have at least a Bachelor’s degree and at least 03 years of experience in managing prize-winning electronic game business
– The business facility must satisfy conditions on security and fire safety.

Application dossier for an SC Certificate includes: standard application form, copy of Investment Registration Certificate, site plan of the business facility, proof of the business facility manager’s competence, internal regulations on management, control, anti-money laundering and game rules.

Accounting system and reporting

Enterprises that operate electronic gaming equipment must conduct separate cost accounting for revenue, expenses and profit of its gaming business, and must separately monitor items related to the gaming business in its system of accounting books and financial statements.

Circular 11 requires an enterprise to submit to local authorities the following reports on a quarterly and annual basis:

1. Financial statements
2. Report on the number and type of gaming machines
3. Report on the purchase, use, re-export or destruction of equipment of gaming machines
4. Report on the status of operation of the gaming business

The issuance of Circular 11 and Circular 57, alongside the execution of legal instruments on casino business in Vietnam, indicates the Government’s increasing willingness in attracting foreign investors for the development of these gaming industries. Investors are strongly recommended to invest in Vietnam – one of the few global economies that manage to thrive flourishingly amid the Covid-19 pandemic and also the country with the fastest increase in the number of middle-class citizens in South East Asia.

For more information on the above, please do not hesitate to contact the author Dr. Oliver Massmann via email under omassmann@duanemorris.com or via LinkedIn under Dr. Oliver Massmann. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC, Member to the Supervisory Board of PetroVietnam Insurance JSC and the only foreign lawyer presenting in Vietnamese language to members of the NATIONAL ASSEMBLY OF VIETNAM.

VIETNAM – REGULATIONS ON ONLINE GAMES THAT FOREIGN INVESTORS NEED TO KNOW

Guiding regulations:

Decree No. 72/2013/ND-CP on the management, provision and use of Internet services and online information;
Decree No.103/2009/ND-CP promulgating the regulation on cultural activities and commercial provision of public cultural services;
Vietnam’s Specific Commitments to WTO in Services

Enterprise Establishment:
Foreign investors who wish to engage in the online games distribution service must have either a Contract of Business Cooperation or a joint venture with a Vietnamese partner who is eligible to provide online gaming business. In case of a joint venture, the foreign investors’ capital must not exceed 49%.

The joint venture can be in the form of a Limited Liability Company or a Joint Stock Company. Generally, there are more options to mobilize capital in a Joint Stock Company.

Only Vietnamese enterprises can apply for G1, G2, G3 and G4 gaming license in Vietnam. A Vietnamese entity is defined under Law on Enterprise 2014 as an entity established or registered to establish under Vietnam laws and has headquarter in Vietnam.

Online Games Classification:
G1: Video games that have interaction among multiple players via the game server
G2: Video games that only have interaction between the players and the game server
G3: Video games that have interaction among multiple players without interaction between players and the game server
G4: Video games that are downloaded from the Internet without the interaction among players and between players and the game server

Licensing procedures for G1 Games:
G1 gaming license expires after 10 years and you can only extend it once for one extra year. The Ministry of Information and Technology is seeking to reduce the license’s validity to only 5 years.

Conditions to apply for G1 gaming license:
-Must have a headquarter and contact number
-Registered for a domain name to use to provide the service
-At least 1 personnel administers 2 servers
-The business manager must have at least a Bachelor’s degree
-Sufficient financial capacity, adequate gaming systems
-Have backup plan for equipment and connection as well as data backup plan
-Have professional measures to manage game forum content

Important documents of application dossier:
-Documents proving the ownership of domain name
-Business location rental/ownership contract
-Game service payment plan
-List of partners providing payment assistance service
-Detailed description of host devices

After attaining G1 gaming license, you would need to obtain Approval for script content for each G1 game in order to operate the G1 game

Conditions to apply for Approval of script content for each G1 game:
-Game content must be culturally appropriate
-The game’s age rating must be suitable with the content
-Have measures to manage players’ account

During operation phase, the game provider must ensure to manage under 18-year-old player’s time to not exceed 180 minutes in 24 hours each day

For more information on the above, please do not hesitate to contact the author Dr. Oliver Massmann under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC, Member to the Supervisory Board of PetroVietnam Insurance JSC and the only foreign lawyer presenting in Vietnamese language to members of the NATIONAL ASSEMBLY OF VIETNAM.

VIETNAM – MOIT PROPOSES NEW FIT RATE FOR WIND POWER PROJECTS

On 28 October 2020, the Ministry of Industry and Trade (MOIT) issued Official Letter No.8159/BCT-DL to collect comments from other Ministries and relevant agencies on solutions for difficulties in wind energy project development. The comments were combined into a Draft report for the Prime Minister’s review and approval.

A notable provision of the Draft report is for wind power projects that have been supplemented into the power development planning and do not meet the COD deadline for current wind FiT rate of November 2021, the new applicable FiT rate shall be:

No. Category FiT rate for onshore projects (Uscent/kWh) FiT rate for offshore projects (Uscent/kWh)

1 Projects reaching COD from November 2021 to December 2022 7,02 8,47

2 Projects reaching COD in 2023 6,81 8,21

In addition, the Draft report also proposes to extend the current FiT rate deadline to 31 December 2023, instead of November 2021.

As stated in our previous articles on FiT rate for wind power projects, the need to extend the deadline for current FiT rate is essential because the projects waiting to be included in the Revised PDP VIII is unlikely to have commercial operation date before November 2021, because:
• The supplement into PDP for new wind power sources was suspended for more than 1 year (from October 2018) because there were no guidelines to implement the Planning Law;
• The construction of wind power projects takes more time than that of solar power projects. For feasibility study reports, investors must carry out wind measurement for at least 12 months. Moreover, wind turbines are mostly imported from abroad, which costs investors extra time, especially when there is unexpected delay of equipment delivery (e.g. due to Covid-19).

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Please do not hesitate to contact the author Dr. Oliver Massmann under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC, Member to the Supervisory Board of PetroVietnam Insurance JSC and the only foreign lawyer presenting in Vietnamese language to members of the NATIONAL ASSEMBLY OF VIETNAM.

VIETNAM – HOW THE NEW DRAFT DECREE ON THE MANAGEMENT OF INTERNET SERVICES AND ONLINE INFORMATION AFFECTS FOREIGN INVESTORS

The Ministry of Information and Communications issued a Draft Decree amending and supplementing Decree No. 72/2013/ND-CP and Decree No. 27/2018/ND-CP regarding the management, provision and use of Internet services and online information (“the Draft”). The Draft will affect telecommunications businesses, publishers of video games and businesses that engage in producing and utilizing electronic newspapers, social networks, and sales websites.

Provisions in the Draft that may affect foreign investors

On Aggregate information:
1. Aggregate information is information retrieved from Vietnamese press sources and must relate to the following 08 sectors: science, technology, economy, culture, sports, entertainment, advertising and social security.

2. Organizations’ internal websites and specialized website providing aggregate information must obtain aggregate information website license. This measure aims to prevent internal websites from illegally posing as aggregate information websites in order to lure in viewers. Multinationals which usually have their own global websites for staff members across the world must take extra caution when handling information already published by the Vietnamese press.

On Re-releasing published contents:
1. Aggregate information websites, application distribution stores and social networks can only re-released content published by Vietnamese press sources at least 01 hour later than the time of publishing the source content. Re-released content must be removed immediately after the source content has been removed.

2. Agreggate information must state clearly the author’s name, the source’s name, the time of posting and place a link to the source content right below the re-released content. Aggregate information must not include readers’ comment of the re-released content (except for aggregate information websites constituted by press agencies).

3. Aggregate information must not concern other localities. This measure is somewhat impractical given the fact that in this era global events closely interwove with and have direct effects on people’s everyday life, this is especially true for international organizations, and thus viewers are increasingly looking for information about other countries. For example, the war in Yemen can drive up oil price in Vietnam or the gold price fluctuates with the hourly results of the US presidential election. Putting such measure could hinder aggregate information website’s business growth.

On Cross-border provision of public information:
Foreign entities engaging in this service must comply to Vietnam laws. Failure by investors in handling violating information can lead to the Ministry of Information and Communications proactively implementing technical interventions.

On Social networks:
1. Social networks are classified into social networks with high levels of interaction and ones with low level of interaction based on the monthly number of interaction or registered users. Social networks with high levels of interaction (at least 1 million interactions and/or 10,000 registered users per month) have to obtain a Social Network License issued by the Ministry of Information and Communications. Social networks with low levels of interaction need only notify the Ministry of Information and Communication on its operation.

2. Only licensed social networks have the right to charge fees and perform livestreaming services. The Ministry of Information and Communications will also embed a tool to monitor interaction levels for licensing-related purpose.

These measures, if come into effect, would seriously hamper the development of new social networks that rely on service fees in order to further expand their business. The possibility that such new social networks have to go through lengthy administrative procedures before they can carry out any fees collection and the possibility that entities have to amend their information technology system to accommodate the Ministry’s monitoring tool, would not only cause them financial burdens but also interfere with their freedom of doing business.

On Online games:
1. The Draft removes the requirement for online game providers to obtain a master license/certificate. A Dissemination License is now only required for each G1 game, while a Certificate for Game Dissemination Registration is required for each G2-4 games.

2. Providers must also show that they have (i) A head office with clear address and contact; (ii) Capacity to register and store users’ personal information including national identification information; (iii) Capacity to control players’ playtime, including restriction on children’s playtime.

The application of an uniform policy for all online games creates an imbalance in management as new games that need to prioritize attracting players or new developers short on funds must adhere to the same standards for established games/developers, thus creating difficulties in online games distribution.

3. Payment system of online games (if any) must be located in Vietnam and connected with Vietnamese payment service providers.

Within this era of ever-changing technological advances and the society’s increasing dependence on technology, the Draft Decree would play a very important role in managing this under-regulated sector. Duane Morris calls for further amendment on the Draft Decree to address the aforementioned issues.

Please do not hesitate to contact the author Dr. Oliver Massmann under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC, Member to the Supervisory Board of PetroVietnam Insurance JSC and the only foreign lawyer presenting in Vietnamese language to members of the NATIONAL ASSEMBLY OF VIETNAM.

VIETNAM – APPRAISAL OF WIND POWER PROJECTS SUSPENDED

The Government’s policies have created a driving force for wind energy development in Vietnam over the years. From 2018 to now, the Ministry of Industry and Trade (“MOIT”) has received requests for project inclusion into the National Power Development Plan (“NPDP”) of up to 50,000 MW.

At the moment, the total planned capacity of wind power in 2025 is 11,800 MW – of which competent authorities have approved 4,800 MW before January 1, 2019, and an additional 7000 MW was included by July 2020. MOIT has also sent a written report to the Prime Minister on the appraisal results of 74 wind power projects with a total capacity of about 6400 MW, which are proposed to be included in the NPDP.

MOIT is urgently completing the National Electricity Development Plan VIII (“VIII Master Plan”) for the period 2021-2030, with a vision to 2045 to submit for the Prime Minister’s approval in October 2020. To assist with this process, on 5 October 2020, MOIT issued Document No.7421/BCT-DL on the list of wind power projects proposed to be included in the VIII Master Plan, guiding the following:

1. The People’s Committees of provinces and cities to create a list of wind power projects requesting for survey, research, and supplementation into the NPDP.

2. Due to time constraint on the submission deadline of the VIII Master Plan, appraisal and approval for inclusion of wind energy projects shall be suspended until further notice.

3. The People’s Committees of provinces and cities are responsible for reviewing the site planning of wind power plants.

MOIT’s guidance to suspend the inclusion of more wind power projects into the NPDP is a recommendable move given the fact that the national power transmission system has been experiencing overload. Moreover, Electricity Vietnam (EVN) predicts that roughly 20-35% of total installed capacity will not be released in the South Central Region (including renewable energy hotspots Binh Thuan and Ninh Thuan) in 2025 if all projects that have been included in the NPDP go into operation in the next 4 years.

For more information on the above, please do not hesitate to contact the author Dr. Oliver Massmann under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC, Member to the Supervisory Board of PetroVietnam Insurance JSC and the only foreign lawyer presenting in Vietnamese language to members of the NATIONAL ASSEMBLY OF VIETNAM.

RECHTSANWALT IN VIETNAM DR. OLIVER MASSMANN – ERNEUERBARE ENERGIEN – WARUM SIE JETZT INVESTIEREN SOLLTEN

Es war noch nie einfacher und profitabler in Vietnam in erneuerbare Energien zu investieren. Es ist eines der Länder mit den meisten Sonnenstunden im Jahr und kann sich mit einer 3000 km langen Küste rühmen, die sich für den Ausbau von Windkraft eignet.
Die Regierung hat ausländische Investitionen in diesem Sektor gefördert, in dem sie erneuerbare Energien als eines der fünf geeignetsten Sektoren für die Entwicklung öffentlich-privater Partnerschaften ernannt und die enormen Vorteile daraus gezogen hat, wie die Erteilung von Standard- Stromabnahmeverträgen unter Berücksichtigung der Meinungen ausländischer Investoren, sowie Tarifsätze (Fit) Steuern für Windkraft- und Sonnenenergie Projekte, Ratifizierung des EU-Vietnam- Freihandelsabkommens, des umfassenden und progressiven Abkommens für die trans-pazifische Partnerschaft (CTPP) und so weiter.

I) Analyse des Energiesektors in Vietnam:

Vietnam hat in seinem Energiesektor in den letzten 10 Jahren viele erfolgreiche Leistungen erzielt.
Der Ausbau der Öl- und Gasproduktion ist gestiegen und hat eine Reihe groß angelegter petrochemischer Raffinerieanlagen gebildet; Wind- und Solarenergie- Projekte entwickeln sich mit hoher Geschwindigkeit.
Da jedoch auch der Energieverbrauch steigt und sich die Verbraucherstruktur in Richtung Industrialisierung bewegt, sieht sich Vietnam einem steigenden Energieimport gegenüber. Einige Indikatoren der Energiesicherheit bewegen sich bereits in eine nachteihafte Richtung. Darüber hinaus hat der massive Verbrauch fossiler Energiequellen die Umwelt stark verschmutzt, trotz strenger Sanktionsmaßnahmen.

Als Reaktion hierauf hat die Regierung den Ausbau erneuerbaren Energiequellen gefördert um die fossilen vollständig zu ersetzen.
Es wird auch die Nutzung von Wind-, Solar- und Wasserkraftenergie zur Stromerzeugung unterstützt, insbesondere Solarprojekte auf Dächern und Wasseroberflächen, sowie Offshore- Windkraftprojekte.
Darüberhinaus werden Investoren dazu ermutigt, in den Bau von Kraftwerken unter Verwendung von Stadtabfällen, Biomasse und Festmüll zu investieren.
Die Förderung des Ausbaus erneuerbarer Energiequellen ist eine praktikable und effektive Lösung, um dem Problem der Stromknappheit entgegenzuwirken, da Projekte für erneuerbare Energien schnell gebaut und umgehend für die Periode 2021-2023 in Betrieb genommen werden können, während das natürliche Potential des Landes genutzt wird, ohne auf externe Faktoren, wie importierte Kraftstoffe, zurückgreifen zu müssen und sie ist umweltfreundlich.
Vietnam erwartet bis 2030 in der gesamten Primärenergieversorgung etwa 20 % aus erneuerbaren Energiequellen zu gewinnen.
Dies soll bis 2045 erwartungsgemäß auf ungefähr 30 % ansteigen.
Die Regierung beabsichtigt außerdem, 8 Milliarden Kubikmeter LNG bis 2030 und 15 Milliarden Kubikmeter bis 2045 zu importieren.
Vietnam verfolgt das Ziel, Gasstrom zu einer wichtigen Stromversorgungsquelle zu machen, insbesondere gasbefeuerte Wärmekraftprojekte unter Verwendung von LNG.
Das Land bemüht sich die Technologie für die Erforschung und Erschließung eigener Gasquellen zu verbessern.
Es ist empfehlenswert, Wärmekraftwerkeprojekte synchron aufzubauen, von der Brennstoffversorgung über die Speicherung bis hin zur Anlagenbauphase, wobei der Preis für den Stromverkauf durch das Einholen von Angeboten festgelegt wird.

Solarenergie:
Nach der Entscheidung 13/2020/QD-TTg, beträgt die FiT-Steuer 7,09 US cent pro kWh für netzgebundene Projekte, bei denen die Entscheidung über die Investitionspolitik vor dem 23. November 2019 und der Zeitpunkt des kommerziellen Betriebs (Commercial Operation Date, COD) zwischen dem 1. Juli 2019 und dem 31. Dezember 2020 genehmigt wurde. In Bezug auf die Provinz Ninh Thuan beträgt der Kaufpreis für Strom in netzgekoppelten Solarstromprojekten, die vor dem 1. Januar 2021 mit COD und einer Kapazität von nicht mehr als 2000 MW in die Stromentwicklungsplanung aufgenommen wurden, 9,35 US-Cent/kWh.
Der FiT-Satz für schwimmende PV-Projekte beträgt 7,09 US-Cent/kWh. Für Aufdachprojekte beträgt der Satz 8,38 US-Cent/kWh, aber dies ist verhandelbar, wenn der Käufer nicht Electricity Vietnam (EVN) ist.
Am 31. August gab das Industrie- und Handelsministerium Rundschreiben 18 heraus, das den neuen Standard-Stromabnahmevertrag (Power Purchase Agreement – PPA) für netzgekoppelte und Aufdach-Solarstromprojekte beinhaltet. Das neue PPA hat dazu beigetragen, den Mangel an Vorschriften für Solarstromprojekte seit Juli letzten Jahres zu beheben. Die Vorlage enthält jedoch Bestimmungen für Investoren, nämlich (i) das Fehlen der Zahlungsverpflichtung der EVN im Falle von Übertragungsproblemen, (ii) den Mangel an transparenten Möglichkeiten für internationale Schiedsverfahren und (iii) die fehlende Bankfähigkeit. Obwohl die Parteien Einzelheiten der Vereinbarung ergänzen können, dürfen solche Änderungen nicht wesentlich von den Bestimmungen der Standardvorlage abweichen.

Windkraft-Energie
Gemäß Rundschreiben 02/2019/TT-BCT beträgt der FiT-Satz 8,5 US-Cent/kWh für Onshore-Projekte und 9,8 US-Cent/kWh für Offshore-Projekte. Der Stichtag für diese Sätze ist der 1. November 2021. Von diesem Zeitpunkt an prüft die Regierung die Möglichkeit, den Auktionsmechanismus für den An- und Verkauf von Windenergie einzuführen, um die Wettbewerbsfähigkeit und Transparenz auf dem Strommarkt zu fördern.
Das Ministerium für Industrie und Handel hat vorgeschlagen, den FiT-Satz für Windkraftprojekte bis Ende 2023 zu verlängern, um den Investoren genügend Zeit zu geben, ihre Anlagen in Betrieb zu nehmen. Die Standardvorlage für den Kaufvertrag über Windenergie ist auch unter Rundschreiben 02 verfügbar.
Gegenwärtig sind die Stromnetze in Vietnam überlastet, was dazu führt, dass die Kraftwerke unter ihrer maximalen Kapazität betrieben werden müssen. Dies hat offensichtlich zum Ausfall von Anlagen und zu finanziellen Verlusten geführt. EVN ist das einzige Unternehmen in Vietnam, das berechtigt ist, die Aufrüstung der Netze durchzuführen, so dass es für Investoren sehr zeitaufwändig sein kann, warten zu müssen, während sie gleichzeitig über das Fachwissen und die finanziellen Mittel verfügen, um einzuspringen und die Netze zu verbessern. Der Erlass eines Preisrahmens führt zu mehr Investitionen in Off-Grid-Projekte und entlastet damit das Übertragungsnetz.

Bioenergie
Bioenergie ist die Erzeugung von Energie aus Biomasse-Materialien wie den Nebenprodukten der Land-, Lebensmittel- und Forstwirtschaft sowie häuslichen und industriellen Abfallmanagement-Systemen.
In Vietnam haben Großstädte wie Hanoi und Ho-Chi-Minh-Stadt mit der rapide zunehmenden Abfallmenge und Luftverschmutzung zu kämpfen, die durch die beliebte Methode der Verbrennung verursacht wird. Statistiken der Regierung zeigen zum Beispiel, dass HCM City mehr als 9000 Tonnen Abfall pro Tag produziert. Infolgedessen hat Vietnam Investitionen in den Sektor Abfallverbrennung stark gefördert, um die Umwelt zu schützen und die Energieeffizienz zu steigern.
Im Jahr 2014 erließ der Premierminister den Beschluss 31/2014/QD-TTg zur Unterstützung von Mechanismen zur Entwicklung von Stromerzeugungsprojekten unter Verwendung fester Abfälle in Vietnam. Zu den bemerkenswerten Anreizen gehören: (i) Verpflichtung des Käufers, den gesamten von den von ihm verwalteten Anlagen erzeugten Strom zu kaufen, (ii) Befreiung von der Einfuhrsteuer für Waren, die zur Schaffung von Anlagevermögen für das Projekt importiert werden, und (iii) Ermäßigung/Freistellung von Landpachtzinsen (abhängig vom Standort des Projekts). Der FiT-Satz beträgt 10,05 US-Cent/kWh für Projekte, bei denen feste Abfälle direkt verbrannt werden, und 7,28 US-Cent/kWh für Projekte, bei denen aus Deponien gesammeltes Gas verbrannt wird. Die Standard-PPA für Stromerzeugungsprojekte, die mit festem Abfall betrieben werden und an das Netz angeschlossen sind, wird im Rundschreiben 32/2015/TT-BCT veröffentlicht.

Wasserkraft
Die einzigen Materialien, die für die Wasserstoffproduktion benötigt werden, sind die von der Natur gegebenen Elemente Wasser und Sonneneinstrahlung, was bedeutet, dass Wasserstoff eine unerschöpfliche Brennstoffquelle ist. Die Nutzung der Wasserstoffenergie wurde von der vietnamesischen Regierung aufgrund ihrer umweltfreundlichen Eigenschaften und der Tatsache, dass sie für den Bau unabhängiger Kraftwerke genutzt werden kann, die Städte selbst versorgen, ohne an das nationale Stromnetz angeschlossen zu sein – das zu Spitzenzeiten täglich fast überlastet ist -, stark gefördert.
Die Wasserkraft wird in einer Brennstoffzelle genutzt, die keine Arten von Umweltverschmutzung erzeugt, einen höheren Wirkungsgrad hat und im Vergleich zu Verbrennungsmotoren (die zur Verbrennung von Gas, Öl und anderen Brennstoffen mit Luft verwendet werden) mehr Energie einspart. Brennstoffzellen sind definitiv eine vielversprechende erneuerbare Energiequelle, und Investoren werden ermutigt, die Möglichkeit der Entwicklung von Wasserstoffprojekten in Vietnam zu prüfen.

II. Die Rolle der großen Handelsabkommen bei der Unterstützung ausländischer Investoren
Ausländische Investoren, die sich im Energiesektor engagieren, können die Vorteile verschiedener Unternehmensgarantien im Rahmen des Freihandelsabkommens zwischen der EU und Vietnam (EVFTA), des Investitionsschutzabkommens zwischen der EU und Vietnam (EVIPA), des umfassenden und progressiven Abkommens für eine transpazifische Partnerschaft (CPTPP), des Gesetzes über Investitionen in Form einer öffentlich-privaten Partnerschaft (PPP), des neuen Investitionsgesetzes 2021 usw. nutzen.
Das EVFTA ist am 1. August 2020 in Kraft getreten und gilt für Investoren aus der Europäischen Union. Das EVIPA ist ratifiziert worden und wartet auf die Zustimmung des EU-Parlaments, um durchsetzbar zu sein. Das CPTPP trat am 14. Januar 2019 in Kraft, zu seinen Unterzeichnern gehören strategische Verbündete Vietnams wie Japan, Kanada, Australien und Singapur. Viele Bestimmungen dieser beiden großen Handelsabkommen stehen in direktem Zusammenhang mit Investitionen in den Sektor der erneuerbaren Energien, nämlich dem öffentlichen Beschaffungswesen und der Beilegung von Streitigkeiten zwischen Investoren und Staaten.

Öffentliches Beschaffungswesen
Das öffentliche Beschaffungswesen ist im Allgemeinen der Prozess, bei dem eine Regierungsbehörde (die beschaffende Stelle) für öffentliche Zwecke Waren einkauft oder Dienstleistungen erwirbt. Vietnam geht zum ersten Mal über das CPTPP und das EVFTA internationale Verpflichtungen im Bereich des öffentlichen Beschaffungswesens ein. In den Kapiteln über das öffentliche Beschaffungswesen (Kapitel 15 im CPTPP und Kapitel 09 im EVFTA) ist die Entschlossenheit Vietnams zur Öffnung des öffentlichen Beschaffungsmarktes festgehalten. Insbesondere verpflichtet sich Vietnam, die Transparenz bei der Auswahl von Auftragnehmern durch die Offenlegung von Informationen über Ausschreibungen und die Abschaffung unnötiger Qualifikationsverfahren zu erhöhen. Gleichzeitig erkennt Vietnam die faire, unparteiische und vertrauliche Behandlung von Angeboten an. Gegenwärtig hat Vietnam einen Online-Bietungsmechanismus eingeführt, der es Investoren ermöglicht, leicht Informationen über Menge und Preis eines Bieterpakets zu finden. Die für die Warenbeschaffung und die damit verbundene Beratung verwendeten Vorlagendossiers werden ebenfalls online veröffentlicht.
Es ist darauf hinzuweisen, dass es zwischen dem CPTPP und dem EVFTA in Bezug auf die staatliche Beschaffung einige wesentliche Unterschiede gibt. Erstens verpflichtet sich Vietnam im CPTPP nur zur Öffnung der Beschaffung durch 21 Ministerien und Zentralbehörden. Im EVFTA ist der Anwendungsbereich der Beschaffungsstellen jedoch weiter gefasst als im CPTPP. Neben den Zentralbehörden, den subzentralen Behörden und den staatlichen Unternehmen sind auch öffentliche Krankenhäuser, öffentliche Institute und Universitäten berechtigt, sich am staatlichen Beschaffungswesen zu beteiligen. Zweitens legt das EVFTA mehr Umstände fest, unter denen ein Lieferant von der Teilnahme an Beschaffungen ausgeschlossen wird, darunter (i) Insolvenz, (ii) falsche Erklärungen, (iii) erhebliche Mängel bei der Erfüllung wesentlicher Verpflichtungen in früheren Verträgen und (iv) Nichtzahlung von Steuern.
Es wird erwartet, dass der Mechanismus des staatlichen Beschaffungswesens ausländischen Investoren Möglichkeiten und Vorteile in einer Weise bietet, dass sie fair und transparent mit vietnamesischen Staatsunternehmen (SOEs) konkurrieren können.

Beilegung von Streitigkeiten
Ausländischen Investoren wird im Rahmen des EVIPA ein hohes Schutzniveau gewährt. Dieses Abkommen ist eine Kombination aus dem New Yorker Übereinkommen von 1958 und dem ICSID von 1965. Das EVIPA und das CPTPP ermöglichen es ausländischen Investoren, die vietnamesische Regierung wegen ihrer investitionsbezogenen Entscheidungen zu verklagen. Der endgültige Schiedsspruch ist bindend und vollstreckbar, unabhängig von Fragen der örtlichen Gerichte bezüglich seiner Gültigkeit.
Das EVIPA sieht insbesondere einen zweistufigen Schlichtungsmechanismus vor, bei dem die Parteien Berufung einlegen können, wenn sie mit dem ersten Schiedsspruch des Schiedspanels nicht zufrieden sind. Wenn jedoch keine der streitenden Parteien gegen den vorläufigen Schiedsspruch Berufung eingelegt hat, wird dieser rechtskräftig und “kann nicht angefochten, überprüft, aufgehoben, annulliert oder in sonstiger Weise angefochten werden” (Artikel 3 des EVIPA).
Es gibt immer mehr Energieprojekte, die von ausländischen Investoren in Vietnam betrieben werden. Dies führt unweigerlich zu einer wachsenden Zahl von Streitigkeiten zwischen dem Staat Vietnam und Investoren. Die Interessen der ausländischen Investoren müssen jedoch fair und vollständig sein

Für weitere Informationen zu den obigen Ausführungen wenden Sie sich bitte an den Autor Dr. Oliver Massmann unter omassmann@duanemorris.com. Dr. Oliver Massmann ist der Generaldirektor von Duane Morris Vietnam LLC, Mitglied des Aufsichtsrats von PetroVietnam Insurance JSC und der einzige ausländische Anwalt, der den Mitgliedern der NATIONALEN VERSAMMLUNG VON VIETNAM in vietnamesischer Sprache Vortraege hält.

New Rooftop Solar Guidance – MOIT Official Letter 7088  

Further to the recent publication of Circular 18, the Ministry of Industry of Trade (“MOIT”) has issued Official Letter 7088 dated 22 September 2020 to provide further guidance on development of rooftop solar power projects.

The following important points are worth considering for developers and prospective investors alike:

  1. Combining multiple projects into a single PPA

Where a group of rooftop solar projects (e.g. a portfolio of 5 rooftop solar installations in separate locations) exceeds a total combined capacity of 1MW, it is not permitted for the producer to combine several distinct PPAs into a single PPA for the entire portfolio.

Rather, separate PPAs must be executed with offtakers for each individual rooftop solar power project.  If not, the project will not qualify as a “rooftop solar system” and will be considered something else, presumably a solar project subject to additional licensing requirements including power masterplan approval and need to obtain relevant electricity operation license(s).  Though whether a system actually mounted on a roof can be treated as a ‘ground-mounted’ system for procedural purposes remains a matter open to debate.

While this is logical and previously largely presumed, it does potentially expose investors to additional contractual risk and contract management issues.  Ideally investors would secure guarantees from a single source for a string of rooftop PPAs.

  1. Genuine rooftop purpose

In order to be characterized as a valid rooftop solar project for the purposes of attracting FiT 2 under Decision 13, a rooftop solar project must only be installed on a rooftop which has a genuine construction purpose beyond that of merely existing to hold solar equipment.

In other words, rooftops which have no other function than to hold solar installations will not be characterized as a valid rooftop, and thus ineligible to receive FiT.

The Official Letter specifically references agricultural land on this point, suggesting that solar systems would need to be installed on a rooftop which has a genuine pre-existing agricultural or farming function.

This was something that was foreshadowed by previous unofficial comments from various authorities.  With the FiT 2 regime due to expire at end of December 2020, it remains open whether and how private rooftop PPA arrangements can proceed on structures that don’t otherwise meet FiT criteria.

  1. Eligibility under FiT 2

Rooftop solar projects of a voltage level of more than 35kV are not eligible to receive FiT 2 under Decision 13.

Further, rooftop solar installations on agricultural farm land with a capacity of more than 1MW or 1.25 MWp are now also ineligible to receive FiT 2. 

  1. Recent info on fire prevention requirements for rooftop solar project

Separate from the above Official Letter, we have also seen recently some regulations on providing additional information in regards to fire prevention obligations for ground-mounted and rooftop solar power developments.

Specifically, projects listed in Appendix IV of Decree 79/2014/ND-CP must have a design for fire prevention approved prior to the construction phase.

Appendix IV includes residential areas, apartment buildings, industrial zones, hospitals, educational facilities, and shopping malls, amongst several other specific development sites.

Relative to the current uncertainty over application of construction permit regulations for rooftop solar project around the country, this at least seems a reasonably clear and consistent requirement.

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Should you have any further queries on rooftop solar power regulations or investment opportunities in Vietnam, please do not hesitate to contact us.

For more information, please contact Giles Cooper at GTCooper@duanemorris.com or Daniel Haberfield at DHaberfield@duanemorris.com. Giles is Chairman of Duane Morris Vietnam LLC and branch director of Duane Morris’ HCMC office. Daniel is an Australian qualified lawyer and associate in Duane Morris’ HCMC office.

VIETNAM – WHY YOU SHOULD INVEST IN RENEWABLE ENERGY NOW

It has never been easier and more beneficial to invest in renewable energy in Vietnam. The country has one of the most sun hours during the year and boasts a 3000km coastline suited for wind power development. The Government has been encouraging foreign investment in this sector by naming renewable energy one of the 5 sectors eligible for Public-Private Partnership development and the vast benefits thereunder, issuing standard Power Purchase Agreements taking into account opinions of foreign investors as well as Feed-in-Tariff (FiT) rates for wind and solar power projects, ratifying the EU-Vietnam Free Trade Agreement, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and so on.

I. Analysis of the energy sector in Vietnam

Vietnam has attained many successful achievements in the energy sector in the past 10 years. Oil and gas development output has increased, forming a number of large-scale petrochemical refining facilities; wind and solar power projects developing at high speed. However, as energy consumption increases and consumption structure shifts towards industrialization, Vietnam faces increasing energy import. Some indicators of energy security are already moving in an adverse direction. On top of this, the mass use of fossil energy sources has severely polluted the environment despite strict penalties measures.

In response to this, the Government has promoted the development of renewable energy sources to fully replace fossil ones. It is also encouraged to use wind, solar and hydrogen power for electricity generation, especially rooftop and water surface solar projects as well as offshore wind projects. Moreover, investors are encouraged to invest in the construction of power plants using urban waste, biomass and solid waste.

Promoting the development of renewable energy sources is a feasible and effective solution to counter power shortage issue because renewable energy projects can be constructed quickly and promptly for operation in the period 2021-2023, while taking advantage of the country’s natural potential without relying on extraneous factors such as imported fuels and is eco-friendly.

By 2030, Vietnam expects to see about 20% of renewable sources in the total primary energy supply. By 2045, this is anticipated to increase to approximately 30%. The Government is also looking to import about 8 billion cubic meters of LNG by 2030 and 15 billion cubic meters by 2045.

Vietnam aims to make gas electricity an important power supply source, especially gas-fired thermal power projects using LNG. The country is looking to improve technology for the exploration and development of domestic gas sources. It is commendable to develop thermal power projects synchronously from fuel supply, storage to plant construction phase with the electricity-selling price determined through bidding.

Solar power energy

Under Decision 13/2020/QD-TTg, the FiT rate is 7,09 US cents/kWh for grid-connected projects that have Decision on Investment Policy approved before 23 November 2019 and Commercial Operation Date (COD) between 1 July 2019 and 31 December 2020. With respect to Ninh Thuan province, purchase price of electricity in grid-connected solar power projects included in electricity development planning with COD before 1 January 2021 and capacity of no more than 2000MW is 9.35 US cents/kWh.

The FiT rate for floating PV project is 7,09 US cents/kWh. For rooftop projects, the rate is 8,38US cents/kWh but this is negotiable if the purchaser is not Electricity Vietnam (EVN).

On 31 August, the Ministry of Industry and Trade issued Circular 18, which entails the new standard Power Purchase Agreement (PPA) for grid-connected and rooftop solar power projects. The new PPA has helped to solve the lack of regulations on solar power projects since July last year. However, the template contains concerning provisions for investors, namely (i) the lack of EVN’s payment obligation in case of transmission problem, (ii) the lack of transparent possibility for international arbitration and (iii) the lack of bankability. Though parties can supplement details to the Agreement, such changes must not derogate substantially from the provision of the standard template.

Wind power energy

Under Circular 02/2019/TT-BCT, the FiT rate is 8,5 US cents/kWh for onshore projects and 9,8 US cents/kWh for offshore projects. The deadline for these rates is 1 November 2021. From then onwards, the Government is looking into the option of implementing the auction mechanism for the sale and purchase of wind energy with a view to promote competitiveness and transparency within the power market. The Ministry of Industry and Trade has been proposing to extend the FiT rate for wind power projects until the end of 2023 in order to give investors ample time to put their plants into operation. The standard template for wind power purchase agreement is also available under Circular 02.

Currently, the electricity grids in Vietnam is experiencing overload, leading to power plants have to operate below their maximum capacity. This has evidently resulted in breakdown of equipment and financial loss. EVN is the only company in Vietnam authorized to carry out upgrade for grids, so it can be very time-consuming for investors having to wait while they also have the expertise and funding to step in and ameliorate the grids. The issuance of a pricing framework leads to more investment in off-grid projects, thus relieving pressure on the transmission system.

Bioenergy

Bioenergy is the production of energy from biomass materials such as the byproducts of agricultural, food and forestry industries, as well as domestic and industrial waste management systems.

In Vietnam, metropolitans like Hanoi and Ho Chi Minh City have been dealing with rapidly increasing amount of waste and air pollution caused by the popular method of burning them. For instance, statistics produced by the Government show that HCM City produces more than 9000 tons of waste per day. As a result, Vietnam has strongly encouraged investment in the waste-to-electricity sector in order to protect the environment and boost energy efficiency.

In 2014, the Prime Minister issued Decision 31/2014/QD-TTg on supporting mechanisms for development of power generation projects using solid waste in Vietnam. Notable incentives include: (i) An obligation on purchaser to buy all power produced by the plants under its management, (ii) Exemption from import tax for goods imported to create fixed assets for the project and (iii) Land rent reduction/exemption (subject to the project’s location). The FiT rate is 10.05 US cents/kWh for projects that burn solid waste directly and 7.28 US cents/kWh for projects that combust gas collected from landfill. The standard PPA for solid waste-generated power projects that are connected to the grid is issued in Circular 32/2015/TT-BCT.

Hydrogen power

The only materials required for hydrogen production are nature-granted elements water and sunlight radiation, meaning hydrogen is an inexhaustible source of fuel. The use of hydrogen power has been strongly encouraged by the Vietnamese government given its eco-friendly characteristics and the fact that it can be used to build independent power stations that self-supply to cities without being connected to the national grid – which is almost overstressed daily during peak hours.

Hydropower is used in a fuel cell, which does not generate any types of pollution and has higher efficiency rate as well as save more energy compared to internal combustion engines (used for the burning of gas, oil and other fuels with air). Fuel cells are definitely a promising renewable energy source and investors are encouraged to explore the option of developing hydrogen projects in Vietnam.

II. The role of major trade agreements in supporting foreign investors

Foreign investors engaging in the energy sector can reap the benefits of various business guarantees under the EU-Vietnam Free Trade Agreement (EVFTA), the EU-Vietnam Investment Protection Agreement (EVIPA), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the Law on Investment in the form of Public-Private Partnership (PPP), the new Law on Investment 2021 and so on.

The EVFTA came into force on 1 August 2020 and is applicable to investors from the European Union. The EVIPA has been ratified and is pending the EU’s Parliament consent to be enforceable. The CPTPP took effect since 14 January 2019, its signatories including strategic allies to Vietnam such as Japan, Canada, Australia and Singapore. Many provisions under these two major trade agreements are directly related to investment in renewable energy sector, namely Government Procurement and Investor-State Dispute Resolution.

Government Procurement

Government procurement, in general, is the process in which a governmental authority (the procuring entity) purchases goods or acquires services for public purposes. Vietnam, for the first time, engages in international government procurement commitments through the CPTPP and EVFTA. The Government Procurement Chapters (Chapter 15 in CPTPP, and Chapter 09 in EVFTA) feature the determination of Vietnam to open the public procurement market. Specifically, Vietnam commits to enhancing transparency in the selection of contractors by disclosing bidding information and removing unnecessary qualification procedures. Concurrently, Vietnam recognizes the fair, impartial and confidential treatment of tenders. At the moment, Vietnam has implemented online bidding mechanism that allows investors to easily find information on quantity and price of a bidding package. Template dossier used for goods procurement and related consultancy are also published online.

It should be noted that there are some substantial differences between CPTPP and EVFTA with regard to government procurement. First, in CPTPP, Vietnam only commits to opening procurement by 21 ministries and central authorities. In the EVFTA, however, the scope of procuring entities is broader. In addition to central authorities, sub-central authorities and state-owned enterprises, public hospital, public institutes and universities are also entitled to partake in government procurement process. Second, the EVFTA sets out more circumstances in which a supplier shall be excluded from participating in procurement, including (i) insolvency; (ii) false declarations; (iii) significant deficiencies in the performance of substantive obligations in prior contracts and (iv) failure to pay taxes.

The Government Procurement mechanism is expected to provide opportunities and benefits for foreign investors in a way that they can compete fairly and transparently with Vietnamese state-owned enterprises (SOEs).


Dispute Resolution

Foreign investors are given high level of protection under the EVIPA. This Agreement is the combination of the New York Convention 1958 and the ICSID 1965. The EVIPA and CPTPP make it possible for foreign investors to sue the Vietnamese Government for its investment related decisions. The final arbitral award is binding and enforceable regardless of questions from the local courts regarding its validity.

In particular, EVIPA stipulates a two-tier arbitration mechanism, in which parties can appeal if they are not satisfied with the first award issued by the arbitration panel. However, if neither disputing parties has appealed against the provisional award, it shall become final and “shall not be subject to appeal, review, set aside, annulment or any other remedy” (Article 3 of the EVIPA).

There have been more and more energy projects operated by foreign investors in Vietnam. This inevitably leads to growing number of disputes between the State of Vietnam and investors. The interests of foreign investors, however, shall be fairly and completely protected by the dispute settlement mechanism under the EVIPA.
At the moment, Vietnam has reserved the right to fulfill this commitment for 5 years from the effective date of the EVIPA. Nevertheless, Duane Morris Vietnam has the legal and technical tools to make such provisions work in favor of investors from now.

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For more information on the above, please do not hesitate to contact the author Dr. Oliver Massmann under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC, Member to the Supervisory Board of PetroVietnam Insurance JSC and the only foreign lawyer presenting in Vietnamese language to members of the NATIONAL ASSEMBLY OF VIETNAM.

New Draft Decree – Regulations Implementing the PPP Law 2020

Vietnam’s first uniform Public-Private Partnership Law (the “PPP Law”) was recently passed by the National Assembly, effective from 1 January 2021.

Whilst the new law provides a much needed legislative framework for the facilitation of PPP investment, it is not without criticism and several drafting uncertainties present potential concerns for developers and lenders alike.

A recently published draft decree serves to clarify such uncertainty, providing further guidance in several key regulatory areas.[1]

Eligible Project Sectors and Investment Size

The PPP Law introduced several general eligible sectors for PPP investment (e.g. Transport, Power, Water, Waste, Healthcare, Education and Training, IT) but did not provide further guidance on the specific sub-sectors or investment amounts pertaining to each.[2] The draft decree confirms the following:[3]

  • Transport: Transportation projects require a total minimum investment amount of VND 1,500 billion for projects in road, rail, inland waterway, maritime, and aviation;

 

  • Power: Power plant and grid projects require a total minimum investment amount of VND 2,300 billion;

 

  • Water: Clean water supply projects require a total minimum investment amount of VND 1,500 billion (urban areas) / VND 200 billion (rural areas) / VND 100 billion (difficult or especially difficult socio-economic areas);

 

  • Waste: Wastewater drainage and treatment projects require a total minimum investment amount of VND 1,500 billion (urban areas) / VND 200 billion (rural areas) / VND 100 billion (difficult or especially difficult socio-economic areas);

 

  • Health, Education, and Training: Minimum total investment amount of VND 100 billion; and

 

  • IT: Minimum total investment amount of VND 800 billion for concentrated IT park developments and VND 200 billion for technical IT projects (i.e. national information systems, government e-platforms and databases, information security, technical infrastructure, amongst others).

The Introduction and Role of Project Evaluation Councils

For each proposed PPP project, a State Evaluation Council (National Assembly-level investment) or Inter-Branch Evaluation Council (Prime Ministerial-level investment) or Grassroots Evaluation Council (People’s Council-level investment) will be established. [4]

Such councils are tasked with arranging an evaluation and official opinion on the submitted pre-feasibility and feasibility study reports. Councils will comprise of official representatives from the Ministry of Planning and Investment and other relevant agencies as decided by the Prime Minister.

The draft decree introduces the potential for domestic or foreign organizations to be formally hired as consultants to assist with such evaluation, as approved by the Prime Minister or relevant People’s Council. [5]

The Ability of Investors to Self-Propose Projects

Importantly, the draft decree seems to confirm that investors will be able to self-propose PPP projects. [6] Specifically, investors are required to submit formal proposals to the Department of Planning and Investment (“DPI”). The proposal must satisfy several criteria as detailed under Article 27.1 of the PPP Law. Following this, investors will be required to prepare a pre-feasibility report for submission.

Where two or more investors submit proposals for the same project, the DPI will select the most feasible project based on several factors including investor capacity and expertise, financial considerations, and potential socio-economic impacts, amongst others.[7]

Project Conversion: Public to Private

Projects currently funded by way of public capital may seek to formally convert to a PPP form as under the new law.[8] Conversion will require the current authorized agency to withdraw their public capital portion, with the investor undertaking the relevant re-capitalization.

It is unclear at this point if any limitations will apply to potential conversions. For example, a restriction on the conversion of projects which are already at a particular development phase (e.g. construction phase).

Whilst the opportunity to invest in underperforming pre-existing public projects is attractive and potentially lucrative, corporate restructuring under Vietnamese law is highly complex and requires careful further legal consideration.

 

 

 

Project Contract – Takeover Rights

The new draft decree provides that where an investor commits a serious breach of their contractual responsibilities and is unable to remedy such breach within a reasonable time, the procuring agency is granted a statutory right to temporarily takeover the management and operation of the project facility.[9] Such rights apply broadly, arising when the project is in the pre-construction, construction, and operational phases. [10]

Termination Rights – Procuring Agency

The draft decree details broad circumstances leading to the rights of a procuring agency to terminate for serious contractual breach by the project enterprise: [11]

  • Pre-construction: Failure to procure essential financing options, failure to execute the PPP project contract or to incorporate a project enterprise prior to the specific contractual deadline, failure to obtain the necessary licenses or approvals, failure to commence basic construction works or lodge formal project design documentation;

 

  • Construction: Failure to comply with building regulations or design criteria, failure to complete works within the agreed schedule; failure to comply with labor regulations and other public laws; and

 

  • Operation: Failure to supply services pursuant to quality standards prescribed by law and under contract, failure to comply with price controls, temporary interruption to the supply of services without consent, failure to maintain the facility in accordance with agreed quality standards, failure to comply with any imposed administrative sanctions or penalties.

 

Such termination rights are broad and potentially uncertain, greatly favoring the procuring agency, and will thus likely present as an unwanted contractual risk for prospective investors.

Termination Rights – Project Enterprise

Conversely, a project enterprise is provided with very limited grounds for termination should the procuring agency commit a serious contractual breach: [12]

  • Acts of corruption or bribery;

 

  • Failure to make the required payments to the project enterprise;

 

  • Failure to obtain the necessary licenses to operate the facility where such failure is not the fault of the project enterprise; and

 

  • Failure by the procuring agency to provide necessary support for the performance of the project contract.

Compensation for Contractual Termination

The draft decree confirms that compensation for termination should be included in the project’s contractual agreement as specifically negotiated between the procuring agency and the project enterprise. The draft decree also contemplates that a compensation clause should include reference to the fair value of work already performed up to the point of termination, as well as any further expense or loss, including loss of profit. [13]

Conclusion

The passing of Vietnam’s first Public-Private Partnership Law provides an exciting development in the evolution of the Vietnamese PPP market. Whilst the new law serves to protect investors via the codification of key legal rights, the drafting of the law is not without concern and numerous uncertainties exist as to statutory application.

It is anticipated that several guiding circulars and decrees will be issued to assist in the implementation of the new law. The first such decree, albeit currently in draft form, provides important further clarification on eligible PPP sectors, investment size, the role of project evaluation councils, contractual termination rights, and compensation terms.

Please do not hesitate to contact us should you have any further queries or wish to discuss how the incoming PPP Law may provide investment opportunities for you.

***

For more information, please contact Giles Cooper at GTCooper@duanemorris.com or Daniel Haberfield at DHaberfield@duanemorris.com. Giles is Chairman of Duane Morris Vietnam LLC and branch director of Duane Morris’ HCMC office. Daniel is an Australian qualified lawyer and associate in Duane Morris’ HCMC office.

[1] Draft Decree, Detailed Regulations for Implementation of Law 64 on Public-Private Partnership Investment Form, 27 August 2020, (“Draft Decree”).

[2] Article 4.1, PPP Law 2020.

[3] Article 3, Draft Decree.

[4] Articles 7-16, Draft Decree.

[5] Article 17, Draft Decree.

[6] Article 31, Draft Decree.

[7] Article 32, Draft Decree.

[8] Articles 34-35, Draft Decree.

[9] Article 38, Draft Decree.

[10] Article 40, Draft Decree.

[11] Article 40, Draft Decree.

[12] Article 41, Draft Decree.

[13] Article 42, Draft Decree.