Vietnam – Infrastructure and Energy – Role of Public Private Partnerships

It is estimated that Vietnam needs around 70-80 billion US$ investment in the infrastructure sector in the coming 5-10 years alone. Developing its infrastructure will be one of Vietnam’s major tasks to reach regional competitiveness and be further integrated into global supply chains. A major challenge will be to synchronize the different infrastructure types in order to increase the flow of goods throughout the whole supply chain. We believe that involvement of both financial and technical expertise of the foreign private sector will be key to keeping up with the massive demand in the infrastructure area. Public Private Partnerships (PPP) projects will be of key importance to upgrade Vietnam’s infrastructure as the country integrates further into the world economy. The Vietnamese Government and the Ministry of Planning and Investment (MPI) have in recently introduced new regulations to develop and refine the regulatory framework governing PPP projects and contracts.

In order to further encourage the construction and improvement of infrastructure facilities by the private sector in Vietnam, the Vietnamese Government has recently passed Decree 108, which took effect on 15th January 2010 and contains new provisions relating to infrastructure projects and private sector participation. Further, the Ministry of Planning and Investment (MPI) has just released new draft regulations on “pilot PPP projects in infrastructures development” and particularly encouraged the foreign private sector for their feedback. These new regulations are designed to A encourage more self-sustainable, viable and profitable infrastructure projects. We highly welcome the MPI’s approach to address these PPP issues as a matter of priority and we believe that this is a excellent example of how the MPI works with the private sector. It is finally a great opportunity for the foreign private sector to influence legislation in the important field of PPP. With regards to sea port infrastructure, we have good progress particularly for Cai Mep and Thi Vai seaports, where dredging at 14 meters will bring these ports up to international standards. However, it is important for Vietnam to have a clear national strategy for seaports: Vietnam probably needs 4-5 good ports in the south, 2-3 big ports in the north and maybe 1-2 in the central region. We believe that with 11-12 good ports, Vietnam will be more efficient than by having 50 – 60 small ports scattered among the different provinces. So the government has to carefully decide where to allocate its more mother vessels to access Vietnam ports directly without feeder operations in Singapore, Hongkong and Tanjung Pelepas. Vietnam ports could become hubs for sea freight cargo, increasing the range and volume of logistics services offered in Vietnam.

In this context we note that port charges as per present government tariffs are extraordinarily high in comparison with other South East Asian ports and a significant reduction of these port charges is recommended in order to attract shipping lines entering Cai Mep and other ports as soon as possible, establishing links with the US West Coast and also with European ports. In this context, we believe that improving customs regulations and procedures does not require huge capital investments but can improve drastically the investment climate in Vietnam: Many of our foreign enterprises see long clearance times, often caused by subjecting each good to the same tedious customs procedures. We suggest that customs administrations should introduce simplified clearances for low-value shipments. The key characteristics of such ‘informal’ clearance process include a simplified goods declaration and lower levels of scrutiny and intervention. Informal clearances should also be given on a ‘conditional basis’ to allow an early release of goods. We also recommend waiving of duty and taxes where the liability is considered to be negligible: Such “de-minimus” rule will help to save cost, speed up handling processes and will increase Vietnam’s import competitiveness, whilst audit inspection via customs can still occur. We also believe that whilst some physical control must remain, efficient pre-arrival clearance measures will enable customs to focus its resources and efforts on high risk goods / activities and allows unimpeded delivery of other goods. We finally note that in our view successful preclearance does not necessarily depend on having an Electronic Data Interface (EDI) system: Whilst EDI systems enhance efficiency in transferring data, it has been found that simplification of pre-clearance is equally effective in a manual environment.

With regards to energy and power, consumption of electricity keeps on growing by 15% annually, thereby substantially surpassing the economic growth rates, and is expected to reach 3.5 times the current 2009/2010 figure by 2020. Compared to some other countries in the region, we note that Vietnam has fallen behind with respect to developing a competitive electricity market. This issue has not yet been settled due to a number of problems, of which electricity pricing is probably the most significant. In particular, the prominent role of Electricity of Vietnam (VN) and the related issue that power purchase agreements cannot be negotiated at viable tariffs makes it hard for foreign investors to engage more in this important sector. This is resulting in a shortage of – actually available – investment capital and threatening to perpetuate the slower growth in power capacity. EuroCham recommends adjusting energy prices and maintaining government guarantees in order to encourage foreign investment and lessen the perception of high risk in relation to major energy projects. Along with the mentioned adjustments in electricity pricing policy, and the expansion of the market for energy service companies, we highly recommend the creation of an Energy Efficiency Board in charge of promoting specific action plans and standards (i.e. green building standards) on this vital topic. Further, in view of the many recent industrial pollution cases, we strongly recommend the Government institute new regulations on industrial sites so as to guarantee environmental protection standards through the strict specification of minimum equipment standards. European regulations provide an excellent example in this regard and EuroCham and its members would welcome the opportunity to aid in the transfer of best practice in this area.

Should you have any questions, please contact; Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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