VIETNAM SOLAR POWER – THE FIRST OFFICIAL PPA – VIETNAM INVESTMENT REVIEW INTERVIEWING DR. OLIVER MASSMANN

1. Could you point out for me the good point of this solar PPA?

While the previous draft solar PPA does not require the Feed-in-Tariff (FiT) conversion between USD and VND be according to the exchange rate at the time of payment, this newly issued solar PPA repeats the language in Decision No. 11/2017/QD-TTg (Decision 11) that the FiT will be adjusted according to the fluctuation in the VND/USD exchange rate. This is consistent with what is stipulated in Decision 11.
In addition, I note that while the FiT for power output from on-grid projects is adjusted according to the fluctuation in the VND/USD exchange rate, meaning at any time during the year, it is not the same for rooftop projects. Instead, the mentioned FiT for excessive power output generated from rooftop projects remains the same throughout the first year of operation, and the new FiT for the next year will be adjusted based on the announced VND/ USD exchange rate of the last working day of the previous year.

2. Are there any concerns of investors that the solar PPA has not solved?

The rights of the investors are not fully protected in the following cases:
– when EVN is in the process of installing equipment, or making repairs, replacement, inspection or examination of the grid connection of the seller’s power plant;
– when the transmission grid or the distribution grid connected to EVN’s grid has a problem or grid equipment directly connected to EVN’s transmission grid or the distribution grid has a problem; and
– when EVN’s grid needs support to recover after the incident in accordance with the provisions of operation of the national power system and the standards, technical regulations of the electric industry.
– allocation of feeding points into the grid
It is quite risky for the producer if the output is ready to be fed to the grid but the connection is not available to do so. Absent a clear indication of whether the Solar PPA is a ‘take or pay” agreement, investors will find it difficult to secure and ensure the profits and revenue of their projects.
• No international arbitration dispute resolution clause
• No Government guarantee to enhance the credit of EVN as the sole off-taker;
• No provision addressing the risks of changes in applicable laws; and
• The Solar PPA is required to follow a specific template, which is not bankable.

3. Is this PPA solar bankable or not?

This PPA is not bankable due to reasons specified in 2).

4. In your opinion, how Vietnam government should do in order to reach their target for solar power capacity in the coming to time?

There is an increasing interest of foreign investors in the sector, proven by the fact that there are many solar projects with total capacity of 10,000 MW registered with the MOIT. However, not many of them have submitted the pre-feasibility study to the MOIT for consideration. There are many reasons behind this, but the most important ones are the lack of Government guarantee of EVN’s payment obligation in the PPA and currency hedging. Thus, the Government should consider a mechanism where EVN has to fulfil its payment obligation and the investors are ensured that they will be able to remit their profits abroad in foreign currency.

***
Please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details on the above. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.
Thank you!

Vietnam’s proposed wind power price hike – is it enough?

One of the main criticisms levelled at Vietnam’s wind power sector is the relatively low feed-in tariff (FiT) introduced by the government in 2011. With the country’s rapid growth, energy demand is expected to soar over the coming years. Coupled with international pressure to keep to its greenhouse gas commitments, Vietnam is in desperate need of large-scale and long-term investment in its renewable energy sector.

 

The buying price of VND1,614/kWh (US$0.078) was set for all land-based projects in the country, with 6.8 cents paid by State-run power monopoly Vietnam Electricity (EVN), and the rest coming from the country’s Environment Protection Fund.

 

However, the rate, intended to encourage the development of wind power projects, was considered insufficient for investors to recover their investment capital. The tariff is also much lower than in neighbouring Indonesia (US$0.11), Malaysia (US$0.1476) and Thailand (US$0.19).

 

Change of direction

 

Vietnam’s Ministry of Industry and Trade (MoIT) has recently proposed an adjustment to the rate, asking the government to raise the buying price for wind power in an effort to help investors cover high input costs. It is hoped that such a move would push foreign firms to develop new wind power projects or expand their existing farms. Accelerated development in this sector is vital if Vietnam is to meet the energy targets it has set for itself, as well as wean the country off dirty and expensive imports of coal.

 

The ministry has suggested the price be lifted to US$0.087 per kilowatt-hour (kWh) for wind energy projects on land and US$0.0995 cents per kWh for offshore farms. Such a rate would still lag behind regional competitors and the global average of US$0.196 per kWh as reported by the World Energy Commission, but may present a more feasible option to investors.

 

On top of the off-putting FiT, the number of wind power projects in Vietnam remains low as only wind turbine towers, accounting for 20 percent of production costs, can be produced locally, while investors have to import the remaining components.

 

Not winding down yet

 

There’s little doubt about the country’s potential for wind exploitation ­– according to a World Bank report, 8.6 percent of Vietnam’s land mass is suitable for the construction of wind farms, which would produce sufficient electricity to meet a lot of current and future power needs.

 

Some of the country’s currently operating wind farms, specifically in the province of Binh Thuan, work with the previously promulgated FiT of US$0.078 per kWh, and the Bac Lieu wind farm enjoys US$0.098 per kWh due to its offshore location.

 

The MoIT has highlighted these projects as part of the reasoning behind the rate hike. Concerns have been raised by the investors behind the projects over the time it would take to recover their investment capital. In fact, the investors in question had previously requested authorities raise the regulated FiT to $0.095 per kWh, but were unsuccessful.

 

According to the investor of the Phu Lac wind farm, the first phase of the project, which came into operation in November 2016, has total investment capital of VND1.1 trillion (US$48.4 million). With the existing FiT, it would take around 14 years to recover the investment of just the first phase. Considering the average lifespan of a wind farm is just 20 to 25 years, it’s no wonder that developers are hesitant about breaking ground on new projects.

 

As of now, there are 48 registered wind power projects with total capacity of 5,000MW in Vietnam, 23 of which have had their pre-feasibility reports approved by the MoIT and are patiently waiting for an increase in the FiT. It remains to be seen whether the suggested increase is enough for the projects to move ahead.

 

Incremental improvement

 

The proposal by the MoIT demonstrates an acceptance that despite a range of tax benefits offered to foreign investors including exemptions from customs duties, a preferential corporate tax rate of 10% and income tax and land use fee exemptions, the government’s initial energy strategy proved unappealing to investors. To offset any complaints, the trade ministry has calculated that the price adjustment they are proposing would raise EVN’s production costs by a slight VND0.08 per kWh this year and VND0.23 per kWh in 2019.

 

Even a light increase in the FiT, as put forward by the MoIT, could stoke some growth in the sector. The attraction of foreign investors capable of producing complicated parts could mean that the localisation ratio is bumped to more than 40 percent. For example, China has reached a localisation ratio of almost 100 percent for their wind power projects, but the selling price of the energy stands at around US$0.08 per kWh.

 

In summary, the proposed hike seems insufficient to really improve Vietnam’s position as a renewable energy leader in Southeast Asia. The sector remains riddled with problems of transparency and the perpetual presence of giants like EVN is an obstacle for smaller private players looking to enter the market. A meagre FiT does little to neutralise the risks faced by investors and power producers, especially with more promising offers in the region. The silver lining, however, is that authorities are open to change. The MoIT is echoing the concerns of the renewable energy sector, from both established and potential projects, and looking at ways to develop a more favourable climate going forward. Even if they’re not yet blown away by the increase, investors would do well to watch this space.

 

For more information about Vietnam’s energy sector, please contact Giles at GTCooper@duanemorris.com or any of the lawyers in our office listing. Giles is co-General Director of Duane Morris Vietnam LLC and branch director of Duane Morris’ HCMC office.

Vietnam – Solar Power Taking Off –  PPA Breaking News- The text of the PPA is issued – How to work with it:

Following the issuance of Decision No. 11/2017/QD-TTg of the Prime Minister on mechanism for encouragement of development of solar power in Vietnam (Decision 11), on 12 September 2017, the Ministry of Industry and Trade officially released Circular No. 16/2017/TT-BCT guiding Decision 11 (Circular 16). Circular 16 is aimed at providing regulations on formulation, approval and amendment of the national as well as provincial power master plan. In addition, the solar Power Purchase Agreement (Solar PPA), which is of great interest for many foreign investors, is also provided in Circular 16 as a mandatory template for future on-grid and rooftop solar power projects with only minor changes expected to be permitted during the contract negotiations.

In essence, the Solar PPA is almost the same as current applicable PPAs for renewable projects. This creates bankable issues for solar projects and a hindrance to foreign investors planning an investment in the sector.

Feed-in-Tariff (FiT)

Circular 16 repeats the solar FiT for power output from on-grid projects and excessive power output generated from rooftop projects specified in Decision 11 to be VND2,086/kWh or US 9.35 cents/kWh. This FiT only applies to on-grid projects and rooftop projects coming into commercial operation before 30 June 2019 and will remain within 20 years from the commercial operation date. We note that while the FiT for power output from on-grid projects is adjusted according to the fluctuation in the VND/USD exchange rate, meaning at any time during the year, it is not the same for rooftop projects. Instead, the mentioned FiT for excessive power output generated from rooftop projects remains the same throughout the first year of operation, and the new FiT for the next year will be adjusted based on the announced VND/ USD exchange rate of the last working day of the previous year.

EVN’s rights and obligations as the sole off-taker

EVN is delegated to purchase all power output generated from solar power projects pursuant to terms and conditions of the Solar PPA within 20 years.

It is noteworthy that the Circular 16 and the Solar PPA list out certain circumstances where EVN is not obliged to purchase power as negotiated with the seller, for example:

  1. when EVN is in the process of installing equipment, or making repairs, replacement, inspection or examination of the grid connection of the seller’s power plant;
  2. when the transmission grid or the distribution grid connected to EVN’s grid has a problem or grid equipment directly connected to EVN’s transmission grid or the distribution grid has a problem; and
  3. when EVN’s grid needs support to recover after the incident in accordance with the provisions of operation of the national power system and the standards, technical regulations of the electric industry.

Unfortunately, the current Solar PPA does not include provisions protecting the interests of the seller in the abovementioned circumstances. It is quite risky for the producer if the output is ready to be fed to the grid but the connection is not available to do so. Absent a clear indication of whether the Solar PPA is a ‘take or pay” agreement, investors will find it difficult to secure and ensure the profits and revenue of their projects.

Dispute resolution

The Solar PPA allows either party to the agreement to bring the dispute to local courts for litigation and other energy-related state bodies of Vietnam (General Directorate of Energy and the Electricity Regulatory Authority of Vietnam) for mediation and resolution.

The Solar PPA does not provide for international arbitration to be an option to resolve the dispute. This could be a great concern for foreign investors, especially those of large utility scale projects.

Other key issues of concern

  • No Government guarantee to enhance the credit of EVN as the sole off-taker;
  • No provision addressing the risks of changes in applicable laws; and
  • The Solar PPA is required to follow a specific template, which is not bankable.

Conclusion

Although these abovementioned bankability issues remain in the Solar PPA as the same for other renewable energy PPAs, we have assisted our clients on different large scale power projects, also in the Renewable Energy sector  and managed to win bankable PPAs with EVN. We strongly believe that our track record experience will help investors and the same will be done for the Solar PPA.

***

Please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details on the above. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

 

 

 

 

Rechtsanwalt in Vietnam Dr. Oliver Massmann DAS TRANSPAZIFISCHE PARTNERSCHAFTSABKOMMEN VERPFLICHTUNGEN ÜBER DEM LEVEL DER WTO – EINE ANALYSE

Überblick über das Transpazifische Partnerschaftsabkommen (TPP)

Das TPP wurde ursprünglich bekannt als „Trans-Pacific Strategic Economic Partnership“, das 2006 zwischen Singapur, Neuseeland, Chile und Brunei als „P-4-Abkommen“ abgeschlossen wurde als Mittel zur Förderung der Handelsliberalisierung im asiatisch-pazifischen Raum. Wie der Name schon sagt, war der ursprüngliche Zweck der Vereinbarung nur, ökonomische Fragen zu betreffen. Da die Zahl der teilnehmenden Länder in der P-4-Vereinbarung gestiegen ist, beginnend mit den Vereinigten Staaten im September 2008 (welche aber 2017 wieder terminiert haben) und anderen Ländern, wie Australien, Peru, Vietnam, Malaysia, Kanada, Mexiko und Japan bis Juli 2013 zu folgen, wird die Vereinbarung vereinbart “Eine umfassende, regionale Vereinbarung der nächsten Generation, die Handel und Investitionen liberalisiert und neue und traditionelle Handelsfragen und Herausforderungen des 21. Jahrhunderts anspricht” von den TPP-Handelsministern. Im Juni 2015 genehmigten die Vereinigten Staaten die Handelsförderungsbehörde für Präsident Obama. Die Vereinbarung endlich wird so, wie es heute durch harte Verhandlungsrunden ist, während die letzte Runde in Atlanta im September 2015 als die intensivste war. Die Verhandlungen zum TPP wurden bereits am 06. Oktober 2015 abgeschlossen. Im Februar kuendigten die USA das TPP worauf alle anderen Staaten sich einigten, das Schicksal des TPP im November 2017 endlich zu beschließen, wobei jetzt schon klar ist, dass die Mehrheit der Unterzeichnerstaaten das abkommen ratifizieren will (TPP11).

Der erfolgreiche Abschluss der TPP-Verhandlungen fügt Vietnam einer Gemeinschaft von 11 Nationen hinzu, die 28% des weltweiten Handels ausmacht.

Vietnam wäre der größte Profiteur dieses Handelspaktes. Das BIP in Vietnam würde eine sich zusätzlich um 13,6% steigern. Nach dem Weltwirtschaftsforum wird Vietnam voraussichtlich im Vergleich zu anderen TPP-Volkswirtschaften, RECP-Volkswirtschaften und RCEP-Volkswirtschaften die bedeutendste Veränderung des BIP im Jahr 2025 (d.h. 28,2%) aufweisen. Die Reallöhne von Vietnam werden bis 2025 ebenfalls voraussichtlich um 10,5% ansteigen, so dass Malaysias als zweithöchstes Einkommensaufsteigerland aus den TPP-Mitgliedern weit hinter sich gelassen werden wird.

Das TTP wird Vietnam dabei helfen, internationale Kooperationsmöglichkeiten zu nutzen, die Beziehungen zu den wichtigsten Märkten auszugleichen, sich größeren Märkten zu nähern, darunter Japan, Kanada, den Im- und Export zu steigern, das Import-Defizit zu reduzieren und ausländische Investitionen zu vergrößern. Darüber hinaus wird TTP auch dazu beitragen, dass die Wirtschaft Vietnams ihre Ressourcen effektiver nutzt und aktive Unterstützung der Prozesse der Umstrukturierung, der Innovation und der Verbesserung der Vorschriften ermöglicht und die Verwaltungsreformen verbessert.

Was macht das TPP zur Vorlage für kommende Vereinbarungen – Welche Verpflichtungen liegen außerhalb des WTO-Niveaus?

Die freiere Handelszone

Verpflichtungen im Handel mit Waren

Tarif- und nichttarifgebundene Handelshemmnisse werden im gesamten Handel mit Dienstleistungen und Waren im Rahmen des TPP erheblich reduziert und entfernt. Einfuhrzölle werden zu 100% für Waren reduziert, die zwischen den Mitgliedsstaaten gehandelt werden, wobei mehr als 90% sofort bei Abschluss des Abkommens beseitigt werden. Das TPP umfasst auch Fragen, die in Abkommen der WTO noch nicht angesprochen wurden, einschließlich der Ausfuhrabgaben, der Einfuhrzölle für Wiederverkäufe, des Marktzugangs für neu gestaltete Waren, strengere Vorschriften für Einfuhr- und Ausfuhrlizenzen, Monopole und Waren im Transit. Niedrigere Tarifbarrieren aus dem TPP geben Vietnam einen größeren Zugang zu großen Verbrauchermärkten in den USA, Japan, Kanada und Australien. Die potenziellen positiven Auswirkungen auf den Handel könnten transformativ sein, mit Schätzungen, dass das TPP die Ausfuhren Vietnams um über 37% bis 2025 steigern wird. Bemerkenswerterweise schloss Vietnam im August auch das Freihandelsabkommen mit der EU ab und ist somit dabei, Freihandelsabkommen mit drei seiner vier größten Exportziele – der EU, Japan und den USA – abzuschließen.

Verpflichtungen im Handel mit Dienstleistungen und Investitionen

Alle 12 Mitgliedsstaaten eröffnen die Möglichkeit eines liberalisierten Handels in diesem Bereich. Mehrere Sektoren werden im TPP im Vergleich zur WTO eröffnet, wie z.B. Telekommunikation, Vertrieb und Fertigung.

Darüber hinaus nimmt das TPP neben der Einbeziehung von grundlegenden WTO-Grundsätzen (nationale Behandlung (NT), Meistbegünstigung (MFN), Marktzugang und lokaler Präsenz) einen negativen Ansatz ein, so dass ihre Märkte für Dienstleister voll offen sind. Andere TPP-Parteien, soweit diese in ihren Verpflichtungen nichts anderes eingegangen sind (d.h. nicht- konforme Maßnahmen). Um solche Vorbehalte zu erheben, muss der Mitgliedsstaat die Notwendigkeit einer solchen Erhaltung und Verhandlung mit anderen Mitgliedsstaaten nachweisen. Bei der Genehmigung sind die nicht-konformen Maßnahmen nur auf solche Listen beschränkt, mit Ausnahme von Maßnahmen in bestimmten sensiblen Sektoren, die in einer separaten Liste enthalten sind. Die Mitgliedstaaten sind nur berechtigt, Maßnahmen zu ergreifen, die bereits besser sind als das bestehende (Ratchet-Prinzip). Das TPP schließt auch Verpflichtungen zur Beseitigung von Leistungsanforderungen ein (d.h. keine Bedingungen für lokale Anforderungen an Inhalte, Exportbedingungen, Nutzungen bestimmter Technologien, Standort des Investitionsprojekts usw.) und angemessene Anforderungen an die Geschäftsleitung und den Vorstand. Bemerkenswert ist, dass das TPP-Kapitel über Investitionen erstmals sehr klar und transparent im Hinblick auf das MFN-Prinzip ist, dass die Länder, die im Mehrstaatsregime tätig sind, den ausländischen Investoren die besten Investitionsbedingungen aller Staaten geben müssen, unabhängig von dem Staat, in dem die Investition findet statt. Investoren sind auch berechtigt, gegen die Regierung von der Investitionsregistrierung Anträge zu stellen.

Textilien

Textilien gehören zu den wichtigsten Handelswaren Vietnams. Nach Vorschlägen der Vereinigten Staaten wurden die Verhandlungen über Textilien getrennt von Verhandlungen über den Marktzugang für andere Güter geführt. Um für die TPP-Präferenzzollbehandlung qualifiziert zu sein, wendet das TPP das Stoff-Verarbeitungs-Prinzip an, d.h. Textilprodukte müssen in TPP-Ländern aus Stoffen vorbereitet werden. Allerdings enthält das TPP Ausnahmen, die es erlauben, dass (i) bestimmte Materialien von außerhalb TPP bezogen werden (“Short supply list”), (ii) bestimmte Fertigungsphasen (z.B. Färben, Weben usw.), die außerhalb von TPP durchgeführt werden sollen; Und (iii) ein Land, um Nicht-TPP-Materialien im Austausch für die Ausfuhr bestimmter Textilwaren in ein anderes Land verwenden zu können.

Staatliche Logistik

Das TPP macht eine Liste von Regierungsstellen und Agenturen, deren Logistik von bestimmten Waren und Dienstleistungen in einem bestimmten Betrag der öffentlichen Ausschreibung unterliegen muss. Dieses Kapitel enthält NT- und MFN-Prinzipien, entfernt bevorzugte Bedingungen, die lokale Ausschreibungen wie die Verwendung lokaler Güter oder lokaler Lieferanten, Bedingungen für den Technologietransfer oder den Zwei-Wege-Handel und die Investition usw. begünstigen. Diese Regelungen erfordern die Mitarbeit aller Parteien, insbesondere Vietnams, in Bezug auf Chinas Vorreiterstellung durch die vielen Angebote mit niedrigem Angebotspreis, aber qualitativ minderwertigen Dienstleistungen, ihre Gebotsverfahren zu reformieren und ihre eigenen Interessen zu schützen, indem sie die Angebote mit schlechter Leistung und geringer Kapazität disqualifizieren.

Streitbeilegung zwischen Investoren und Staaten

Das TPP zielt darauf ab, Investoren und ihre Investitionen in das Gastland zu schützen, indem sie Anforderungen an die Nichtdiskriminierung einführt; eine gerechte Behandlung einfordert; einen vollen Schutz und Sicherheit wahrt; das Verbot der Enteignung, das nicht für den öffentlichen Zweck, ohne ordnungsgemäßen Prozess oder ohne Entschädigung ist; die freie Übertragung von Mitteln im Zusammenhang mit Investitionen; und die Freiheit, Führungspositionen unabhängig von der Nationalität zu ernennen.

Das TPP enthält auch Verfahren für die Schiedsgerichtsbarkeit als Mittel zur Beilegung von Streitigkeiten zwischen Investoren und dem Aufnahmestaat. Es deckt neue Bestimmungen im Vergleich zu bestehenden Vereinbarungen wie Transparenz in Schiedsverfahren, Offenlegung von Einreichungen und Schiedssprüchen und die Beteiligung interessierter nicht streitender Parteien, um amicus curiae (lat. für: unabhängige Sachverständige) Entscheidungen zu erhalten.

Vereinbarkeit des TPP und älterer / bestehender Vereinbarungen

Die Mitgliedsstaaten des TPP erkennen die bestehenden Rechte und Pflichten jedes Mitglieds im Rahmen bestehender internationaler Vereinbarungen an, zu denen alle TPP-Mitgliedsstaaten Parteien sind (z.B. WTO-Abkommen, NAFTA oder weitere bilaterale Abkommen) oder von den mindestens zwei Mitgliedsstaaten Parteien sind. Im Falle einer Kollision zwischen einer Bestimmung des TPP und einer Bestimmung einer anderen Vereinbarung, auf die mindestens zwei TPP-Mitgliedsstaaten Parteien sind, werden diese Parteien miteinander eine gemeinsame zufriedenstellende Lösung erreichen. Bitte beachten Sie, dass der Fall in dem eine andere Vereinbarung eine günstigere Behandlung von Waren, Dienstleistungen, Investitionen oder Personen als die Behandlung des TPP vorsieht, nicht als Inkonsistenz angesehen wird.

Frist der Umsetzung des TPP

Am 04. Februar 2016 trafen sich die Handelsminister in Neuseeland, um das Abkommen zu unterzeichnen, damit es in den einzelnen Mitgliedstaaten im nächsten Schritt vor dem Inkrafttreten des Abkommens ratifiziert wird. Die TPP wird nicht wirksam, wenn nicht mindestens sechs Länder, die 85% des BIP des Blocks ausmachen, es ratifizieren. Laut dem Vietnamesischen Minister für Industrie und Handel, Herrn Vu Huy Hoang, wird erwartet, dass das TPP im Jahr 2018 in Kraft tritt auch ohne die USA! Dies wird auf dem APEC Treffen im November 2017 entschieden.

***

Bitte zögern Sie nicht, Herrn Rechtsanwalt Dr. Oliver Massmann unter omassmann@duanemorris.com zu kontaktieren, sofern Sie Fragen haben oder mehr darüber erfahren möchten. Dr. Oliver Massmann ist der Geschäftsführer von Duane Morris Vietnam LLC.

Vielen Dank!

 

 

 

 

 

Vietnam’s New Civil Code and Contracts – GBA Presentation 11 Sep 2017

Vietnam’s new Civil Code and how it affects commercial contracts. Presentation slides from the German Business Association meeting in Ho Chi Minh City on 11 September 2017:

170911 GBA – New Civil Code and Contracts – Duane Morris – Otto

Topics:

  1. Contract signatory (apparent authority)
  2. Damages (actual and liquidated; penalty)
  3. Foreign arbitration (“basics principles of Vietnam law”)

    Extra: UN Convention on Contracts for the International Sale of Goods (CISG)

If you have any question or comment, please contact Manfred Otto at MOtto@duanemorris.com or any other lawyer you are regularly communicating with at Duane Morris.

The firm’s full disclaimer applies to this post.

Vietnam Wind Power is taking off – The new Feed in Tariff – what you must know:

Decision No. 37 of the Prime Minister on supporting regime for wind power projects provides an FIT of 7.8 UScent/ kWh. This FIT applies to two current projects in operation in Binh Thuan, namely Phu Lac and Binh Thuan No. 1. For Bac Lieu near shore wind project, the FIT follows a special financial regime, being 9.8 UScent/kWh. However, with the current FIT, the Ministry of Industry and Trade (MOIT) opines that it will be difficult for these plants to recover their investment capital.

Thus, the MOIT has recently proposed the Government to increase wind FIT for inland wind power plants to 8.77 UScent/ kWh and to 9.97 UScent/kWh for near shore wind projects. This proposal is expected to attract more investors in the market as well as create incentive for current projects whose pre-feasibility reports have been approved by the MOIT to come into real operation.

***

If you have any question on the above, please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

Thank you very much!

 

 

Lawyer in Vietnam Dr. Oliver Massmann – Solar Power Development in Vietnam – what you must know:

 

  1. What can you tell me about the policies Vietnam now has in place to support solar development?

The legal framework is almost complete. I expect the solar PPA template will be issued within this year so that the investors have full guidance to develop projects in Vietnam. However, as I see from the recent draft solar PPA, it repeats the same mistakes in other renewable PPAs that make projects not bankable. This issue needs to be sorted out soon so that solar development will be on fast track in near future.

  1. Total PV installations in Vietnam are still quite low — what has been holding back development?

Because the latest Prime Minister’s Decision promulgating solar FIT was only issued on 11 April 2017. In addition, solar energy is still expensive and less stable throughout the year compared with other sources of energy. Bankability of the PPA is also a worth-noting issue.

Bankability of PPAs has been achieved for other power projects in the past in Vietnam. We are now working on solutions for the solar power sector. It can be done.

  1. How do you see the solar market evolving through the end of this decade, both in terms of manufacturing and project development?

I foresee a rapid development in the sector. This is due to the Government’s change of focus on clean energy and environment protection policies. I can see many foreign investors visiting Vietnam recently to look for investment opportunities and many of them have managed to reach a deal with local partners.

  1. Where are the opportunities in Vietnamese PV and how should prospective investors and developers approach the market?

Vietnam is an untapped market for solar. The Government offers many good incentives to attract foreign investment, for example, exemption of land rental within 3 years from the operation date, CIT 10%, etc. Investors and developers should first establish close contact with local authorities and conduct careful due diligence on local partners. BOT is the most recommended investment form. In addition, investors and developers may consider taking part in different segments such as equipment supply, solar panels manufacturing, or assembling, etc.

  1. What can you tell me about the availability of financing?

IFC and ADB are the most active financiers. Local banks are also more and more interested in lending to renewable projects in general and solar projects in particular. However, due to poor performance and credit of EVN, the financing resources are still limited. We recommend MIGA (Multilateral Investment Guarantee Agency) support for on-grid utility scale solar power projects (above 50 MW).

***

If you have any question on the above, please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com, Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

Thank you very much!

 

 

 

Hope and hesitation at M&A forum

Discussion at this year’s Vietnam M&A Forum, which took place earlier this month in Ho Chi Minh City, revolved around the challenges facing Vietnam’s M&A market and the need for a big push to maintain the momentum of previous years.

 

As of this month, deals have fallen short of the record levels in 2016, and surpassing the US$5.8 billion total looks like a tall order. Although impressive, last year’s figure represented just 5% of Southeast Asia’s total M&A activity, with Singapore alone claiming over 50%. Additionally, 64% of the deals in Vietnam were valued at less than US$20 million. While 77% of the deals were domestic, Thai firms were the biggest foreign buyers in terms of value, enacting aggressive takeovers of major Vietnamese firms in retail and consumer goods. In terms of quantity most deals came from Singapore and Japan.

 

With advantages of proximity in terms of geography, culture, and climate, Thai firms have sought to penetrate the growing Vietnamese market quickly. Alongside other neighbouring nations who have struggled as their home markets mature, they have increasingly sought high-growth or low-production-cost economies for expansion elsewhere.

 

There is a lot to celebrate, but the total value of M&A activity reached just US$1.1 billion in the first quarter of 2017, a drop of 24.4 percent year-on-year. A slowdown in the State’s equitisation process is partially to blame for the drop, and many of the speakers at the M&A Forum expressed the need for a big push in the second half of the year.

 

Trains, planes and automobiles

 

To continue the high rate of economic growth achieved over the past few years, the Ministry of Planning and Investment (MPI) concluded that Vietnam is in dire need of M&A investment in the infrastructure sector. Deals need to come in thick and fast across many branches of the economy, with roads, railways, airports and seaports needing upgrades to meet international standards, in addition to the continued expansion of the country’s real estate and retail conglomerates.

 

As well as the increased divestments of State-owned enterprises, Vietnam’s administrative policy framework will need to be improved to attract and accommodate foreign investors.

 

Banking on big deals

 

Besides recent prime ministerial decisions regarding the SOE equitisation process, the government has made a priority of dealing with non-performing loans. This in particular could mean big news for M&A activity in the banking sector.

 

A resolution was recently adopted by the country’s National Assembly, with the State Bank of Vietnam (SBV) aiming to reduce the ratio of non-performing loans (NPLs) to below 3 percent by 2020. As part of the resolution, credit institutions, foreign entities and bad debt trading institutions will be able to buy and sell bad debts in an open and transparent way.

 

The move has had a positive impact on banking shares, and recent reports suggest that South Korea’s Shinhan Bank is poised to acquire a financial institution in Vietnam, following its takeover of ANZ Vietnam’s retail business. Two Japanese investors are also negotiating the purchase of stakes in two different Vietnamese financial institutions.

 

Moves like these show that foreign firms appreciate the potential of Vietnamese consumer finance, especially with attempts to unburden the system of its bad debt. StoxPlus, a leading financial and business information corporation in Vietnam, valued the market in 2016 at US$26.55 billion, with an annual growth rate of 30-40%.

 

Japan’s interest is good news for Vietnam’s budding financial sector, which could do with an injection of experience from more established players.

 

So, there is reason to be optimistic. However, participants at the M&A Forum stressed that foreign-ownership limits and the lack of clear regulations in areas attractive to big investors are still obstacles to fulfilling the country’s potential.

 

Dearth of details

 

Foreign investors often bring up the subject of transparency, which remains a big issue. The opaque investment environment can complicate negotiations in Vietnam, and this is particularly true when dealing with equitised state-owned enterprises. Investors are required to make substantial upfront commitments in terms of time and money at the early stages of the bidding process, shouldering significant risks to enter the market.

 

Used to dealing with more sophisticated operations, the financial statements of Vietnamese companies can also fall short of investors’ expectations. There is certainly a need for advisors and consultants, who can help with valuations and due diligence, offsetting some of the risk involved.

 

Until Vietnamese firms grow large enough to regularly participate in substantial cross-border M&A deals, foreign partners will need to make sufficient preparations when it comes to tax and legal requirements. Over time, Vietnamese companies will become more aware of the requirements set forward by investors in M&A transactions, which will generate more deal flow as well as shorten the transaction process.

 

Cause for cautious optimism

 

These complaints aside, the overall impression at the M&A Forum was positive, with some predicting that M&A activities in Vietnam would double or triple over the next five to ten years. With some adjustments it’s certainly possible to surpass 2016’s deal value in the short term, especially if the growth of the consumer retail sector continues to attract the attention of Korean investors. Raising the foreign-ownership limits in Vietnamese banks could also prove to be a tipping point for some big transactions.

 

To maintain momentum over the long term, however, more significant adjustments will be needed. The issues of equitising SOEs, state divestment and the foreign ownership cap will become more urgent as time goes on. The government will need to respond to suggestions and support legal reforms if the country is to attract more M&A capital. Crucially, the efficiency and transparency of the M&A market will need to be improved for foreign investors. Policymakers have promised that further legal reforms are underway and the government is pushing forward with state divestment. Let’s hope they keep to their commitments.

 

For more information about M&A in Vietnam, please contact Giles at GTCooper@duanemorris.com or any of the lawyers in our office listing. Giles is co-General Director of Duane Morris Vietnam LLC and branch director of Duane Morris’ HCMC office.

Lawyer in Vietnam Dr. Oliver Massmann – E-COMMERCE IN VIETNAM – WHAT YOU MUST KNOW:

1. Who are the major ‘e’ commerce players in Vietnam?
Global Sources, Sendo, chodientu, Agoda, Foody, Lazada, Tiki, Zalora, Nguyen Kim and adayroi according to public source.

2. How are they structured?
a. Sales through global website/ Direct ship to customer
Mostly online travel agents are structured this way.
b. Sales through a global website/ Shipment through a Bonded Zone or Foreign Trade Zone
c. Sales through a local website/ imported by resident entity
Mainly sales through a local website and/ or imported by a resident entity.
d. Other

3. What is the Sales/ Shipment Volume
The latest statistics is from 2015, when the total e-commerce revenue was USD4.9 billion.

4. How are duties and taxes assessed?
Duties and taxes are assessed based on total revenue of the enterprise/ individual.
Enterprises doing e-commerce business registered in Vietnam must pay Value- Added Tax (VAT) at a basic rate of 10% and Corporate Income Tax (CIT) of 20%.
Individual residents doing e-commerce business without establishing a company in Vietnam will only be subject to tax obligations if they have annual sale revenue (including other sale activities) of over VND100 million. In particular, they have to pay VAT of 1% and personal income tax (PIT) of 0.5% over the sale revenue.
Foreign contractors must declare and pay taxes, either via their authorized person in Vietnam or tax agents.

5. What is the profile of a typical ‘e’ commerce shopper?
In 2015, an average monthly income of consumers in Hanoi and Ho Chi Minh City was USD700 – 720. Vietnamese people tend to save 11-12% of their income generally. They spend 27-29% of their income on fresh food and fast moving consumer goods (FMCG). An average Vietnamese online shopper spends USD150 purchasing goods & services online per year in 2015. People having higher income shop less frequently than those with lower income, but when the former do, they spend more.
Around 25-35% of Vietnamese consumers tend to try multiple brands instead of sticking to one/ a few familiar or well-known brands.

6. How is ‘e’ commerce affecting the traditional bricks & mortar shop?
Bricks & Mortar retailers have to make plan to develop e-commerce channels. Some successful retailers are NguyenKim, thegioididong and FPT.

7. Has ‘e’ commerce hit the rural areas?
Yes, but still to a very limited extent. Bricks & mortar establishments still dominate the rural market. However, as a result of internet availability, smartphone usage and increasing GDP, we expect that e-commerce will become more popular in rural areas in the near future.

8. How is delivery made?
Delivery is mainly dependent on a third party’s service.
Delivery by motorbikes is the most popular means of delivery thanks to its flexibility and convenience in Vietnam’s narrow streets, small alleyways and dense traffic.
Cash on Delivery is still preferable in Vietnam (85% of e-commerce users choose this method).
Although there are many international logistics service providers in Vietnam, local ones are in many cases better choices because they have nationwide coverage, industry understanding and experience, as well as cheaper delivery cost.

9. How are return goods handled?
Depending on policies of each e-commerce site. For example, returning process can be done by filling an online form, going to the office directly or phone calling. Returnable duration varies by each site, from 07 days to 30 days.

***
Please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details on the above. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.
Thank you!

 

Risk and reward in Vietnam’s real estate as investors ignore uncertainty over future of land rights

Vietnam has emerged as an attractive destination for foreign investors looking to enter the real estate market. Driven by a fast-growing economy, high rate of urbanisation and expanding middle-class, cities like Hanoi, Da Nang and Ho Chi Minh City have become dynamic and lucrative metropolises. For those willing to shoulder the risks, the market offers substantial rewards and great potential over the coming decades.

 

Much of the development can be attributed to the implementation of the Land Law (No. 45/2013/QH13), Law on Housing (No. 65/2014/QH13) and Law on Real Estate Business (No. 66/2014/QH13), which effectively opened the floodgates to foreign investment in real estate.  In principle, these laws allow foreigners most of the same rights as locals when it comes to purchasing and owning real estate.  Many foreign development companies are jumping at the chance to develop new residential and commercial properties in one of the world’s fastest growing economies.  Question marks remain however over the underlying rights foreign-invested developers enjoy in the land on which these buildings sit and it remains to be seen how this will play out.

 

Lack of Certainty 

 

For many developers the country’s political landscape remains a hurdle. In Vietnam, land is collectively owned by the people, and administered by the State on their behalf. Under this system, property owners are denied full and legal ownership over the land. Their rights to the land are limited to ‘land use rights’ within the scope permitted by law.  A land user is issued a land use right certificate (LURC) that recognises the land user’s rights over the property.  There are different types of land use rights possible and some come very close to being analogous to freehold ownership as many would know it in the West (use right in perpetuity, subject to reversion and compulsory public works acqusitions, right to sell, transfer, mortgage etc).

Continue reading Risk and reward in Vietnam’s real estate as investors ignore uncertainty over future of land rights