June 2020 – Duane Morris Vietnam

June 30, 2020 by Dr. Oliver Massmann

VIETNAM – PM ANNOUNCES NAME OF WIND POWER PROJECTS TO BE CONSIDERED FOR INCLUSION IN THE ELECTRICITY DEVELOPMENT PLANNING

On 25 June 2020, under Dispatch No.795/TTg-CN, the Prime Minister announced list of wind power projects and grids to be considered for inclusion in the national electricity development planning. The list entails name, location, capacity, connection plans and conditions to release capacity of each project.

The list focuses on 5 regions, of which the Southwest area (including Bac Lieu, Ben Tre, Soc Trang provinces) has the highest number of projects – 3166.8 MW waiting to be included in the power master plan. Follow up is the Central Highlands (Gia Lai, Dak Lak, Dac Nong provinces) with 2432 MW. Next is the North Central region with 941.2 MW of wind projects concentrated mostly in Quang Tri province waiting to be included in the national power development planning.

All wind power projects in the South Central region are located in Ninh Thuan province. The South East region has only 1 project to be considered for inclusion – the Cong Ly Ba Ria Vung Tau project.

Dispatch 795 is expected to serve as a basis for the supervision of investment/construction process of wind power projects, so that these projects can quickly go into operation, supplement the electricity supply for the country and combat electricity shortage. Having a clear, official list of projects to be included in the master plan also helps to combat bribery/corruption among developers and relevant authorities – the latter enables low quality projects to be connected to the national grid thus subsequently damage the infrastructure of the distribution system and create financial loss for the buyer and consumers.

The Ministry of Industry and Trade is responsible for making sure wind power projects and power grids connected to the national electricity system to be appraised in accordance with laws and can contribute to common economic efficiency. The Ministry must also ensure there will be no overload of power grid when putting these projects into operation.

For names and more information of the wind power projects to be considered for inclusion in the electricity development planning, 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.

June 25, 2020June 25, 2020 by Dr. Oliver Massmann

VIETNAM – The World Bank is asking Duane Morris about Doing Business and Government Contracting 2020 – What you must know:

Section 1: Case Study Assumptions

BidCo
Is one of the companies participating in the call for tender and meets all solvency, technical and administrative requirements to compete;
Is a privately and domestically-owned medium-sized Limited Liability Company (or its most common legal equivalent);
Operates in Ho Chi Minh City;
Is up to date with all regulations and is in good standing with all relevant authorities, including those related to taxes;
Has all licenses and permits needed to operate in this technical area;
Has already responded to a public call for tender and is already registered with the procuring entity defined below.

Contract
Entails resurfacing 20 km of a flat two-lane road (not a highway and not under concession), connecting Ho Chi Minh City to another city within Vietnam (and within the same state, region or province as Ho Chi Minh City, if applicable), with an asphalt overlay of 40 to 59 mm (or its most common equivalent in Vietnam);
Value: USD 2.5 Million (equivalent to VND 56,996,865,534);
Does not include any other work (such as site clearance, subsoil drainage, bridgework or further routine maintenance).

Procuring Entity
Is the agency in charge of procuring construction works for the authority that owns the road described above;
Is the sole funder of the works, has budget for the works and is solvent.

Procurement Process
Is an open, unrestricted, and competitive public call for tender for resurfacing a road like the one described above;
Is completed without complaints/challenges/protests from interested parties;
Ends with the awarding of the contract to BidCo, whose bid satisfied all technical and administrative criteria and offered the best value for money.

1. What is the entity that conducts procurement for the authority that owns the majority of roads comparable to the one described above?
Directorate for Roads of Vietnam within the Transport Ministry (“Procuring Entity”)

2. How many open, unrestricted and competitive public calls for tenders for road work contracts were completed in the last 5 years by the Procuring Entity you selected in Q.1?
11-51

3. Please provide a list of the laws, regulations and other binding materials (including guidelines and manuals) that regulate public procurement in Vietnam.
– Civil Code of Vietnam no. 91/2015/QH13 by the National Assembly of Vietnam dated 24 November 2015
– Construction Law no. 50/2014/QH13 by the National Assembly dated 18 June 2014
– Law on Bidding no. 43/2013/QH13 dated 18 June 2014
– Commercial Law no. 36/2005/QH11 dated 14 June 2005
– Decree no. 63/2014/ND-CP dated 26 June 2014
– Decree no. 37/2015/ND-CP dated 22 April 2015
– Decree no. 46/2015/ND-CP dated 17 March 2015
– Decree no. 25/2020/ND-CP dated 28 February 2020
– Decree no. 63/2018/ND-CP dated 4 May 2018
– Circular no. 04/2017/TT-BKHDT dated 15 November 2017
– Circular no. 26/2016/TT-BXD dated 26 October 2016
– Circular no. 10/2016/TT-BKHDT dated 22 July 2016
– Circular no. 23/2015/TT-BKHDT dated 21 December 2015
– Circular no. 10/2015/TT-BKHDT dated 31 October 2015
– Circular no. 01/2015/TT-BKHDT dated 15 April 2015
– Circular no. 11/2019/TT-BKHDT dated 16 December 2019

4. Please list any mandatory standard tender documents and/or standard contract terms that the Procuring Entity must use for a contract like the one described in Section 1.
Contract terms must specify:
a/ Applied legal bases;
b/ Language used in the contract;
c/ Content and volume of work;
d/ Quality, technical requirements of work; pre-acceptance test and handover;
dd/ Contract performance duration and schedule;
e/ Contract price, advance payment, currency used in payment, and payment for the contract;
g/ Contract performance security, contract advance guarantee;
h/ Adjustment of the construction contract;
i/ Rights and obligations of the parties to the construction contract; k/ Liability for violations of the contract, rewards and fines for violations of the contract; l/ Suspension and termination of the contract;
m/ Settlement of disputes over the contract;
n/ Risks and force majeure events; o/ Settlement and liquidation of the contract;
p/ Other contents.
All standards are listed in Bidding Law and Article 141 Construction Law.

5. Are you aware of any change (in practice or in laws/regulations/procedures) related to public procurement between May 2, 2019 and May 1, 2020?
Yes, the issuance of Circular no. 11/2019/TT-BKHDT dated 16 December 2019 to replace Circular 07/2015/TTLT-BKHDT-BTC dated 8 September 2015

6. If one or several electronic procurement portal(s) (i.e., an official website(s) specifically and exclusively dedicated to public procurement) are in operation, please mark which platform would most commonly be used by the Procuring Entity.
http://muasamcong.mpi.gov.vn

7. Which information about road works contracts procured by the Procuring Entity is made publicly available?
Estimated cost/length/completion time – as calculated by the Procuring Entity at the time of advertising the procurement opportunity.
Contract cost/length/completion time – as agreed upon in the contract signed by the Procuring Entity and the contractor.

8.According to the legal framework, when the Procuring Entity prepares to advertise a new procurement opportunity for a contract like the one described in Section 1, which tools are used to estimate the contract value and projected length of works? .
-Market analysis
-Standardized unit cost
-Project-specific technical drawings, Feasibility study
-Similar projects from previous years
-Price evaluation result by authorized state agency or price evaluation enterprise for assets, goods and services subject to price evaluation under the Law on Price.
Legal basis: Article 11.2 Circular No. 58/2016/TT-BTC

9. In practice, is the estimated contract value/budget published in the tender notice/tender documents?
Yes

10. Is the Procuring Entity required to have already allocated budget to a specific project before tendering?
Yes, there is a specific budget allocator

11. How often does the Procuring Entity award a contract without having all the necessary funds?
Occasionally (between 25-50%)

12. According to the legal framework, would open tendering (i.e. the process in which any business can submit a bid) be the default method of procurement in Vietnam for a contract like the one described in Section 1?
No
Legal basis: Section 1, Chapter 2, Bidding Law

13. According to the legal framework, can the Procuring Entity require bidders to participate in a prequalification process specific to that contract before being able to submit their economic offer?
Yes
Legal basis: Article 22 and 24 of Decree 63/2014/ND-CP
a. If “Yes”, how often would this happen for a contract?
Rarely (between 10-25%)
b. In practice, how many days would be necessary for BidCo to receive a decision on its prequalification from the moment it submitted all the necessary documents?
30 days
c. According to the legal framework, must the contractor be registered with the Procuring Entity in order to bid for a contract like the one described in Section 1? Yes

14. In practice, what is the most common method of procurement for a contract like the one described in Section 1?
Open tendering is not the default but remains the most common in practice.

15. Does the legal framework define the situations in which each procurement method should be used?
Yes
Legal basis: Section 2, Bidding Law

16. Does the legal framework prohibit dividing contracts to circumvent thresholds for open tendering?
Yes
Legal basis: Article 89.6.k Bidding Law
In practice, how often does this happen?
Often (between 50-90%)

17. Which materials need to be made publicly available by the Procuring Entity?
Tender notices, Tender documents and technical specifications, notice of award/bidding results

18. Which aspects of subcontracting is regulated by the applicable legal framework?
Features – the legal framework regulates the administrative process to subcontract, the limits of subcontracting, the authorizations required, etc.
Disclosure – the legal framework regulates when and how companies should inform the Procuring Entity of their intent to subcontract.
Liability – the legal framework regulates liability of the contractor and subcontractor in case of poor performance.
Legal basis: Article 128 of Decree 63/2014/ND-CP

19. According to the legal framework, if the intent to subcontract was not disclosed in the bid, what is the contractor who decides to subcontract after the contract is signed required to do?
Inform the procuring entity and seek its approval

20. According to the legal framework, how clarification requests from potential bidders should be addressed?
The procuring entity will answer, but it is not always required to communicate the answer to all other bidders.
Legal basis: Article 11 Circular 11/2019/TT-BKHDT

21. According to the legal framework, is BidCo required to provide a form of bid guarantee?
Yes
Legal basis: Article 11.1 of Law on Bidding
If bid guarantee is not required by law, would it usually be requested in practice by the Procuring Entity for a contract like the one described in Section 1?
Yes

22. In practice, which instrument would BidCo most commonly used as a bid guarantee?
Certificate of deposit, Bank Guarantee/Letter of Credit, Payment retention until satisfactory completion of the contract

23. Does the legal framework establish a timeframe for the Procuring Entity to proceed to bid opening once the deadline for bid submission has been reached?
Yes
Legal basis: Article 14/3(b) Decree 63/2014/ND-CP
In practice, how many days after the deadline for bid submission does the Procuring Entity proceed to bid opening? – Zero

24. In practice, how many days would pass between bid opening and public notice of award (i.e. the moment in which all tenderers, participants and relevant parties are notified of the award decision), considering that no complaints/challenges/protests have been filed?
Time: 45-60 days
Main reasons: the bidder selection result must be verified or amendments to the bidding dossier/documents are required

25. Selection committee – Which characteristics are regulated by the applicable legal framework?
The professional requirements of members of the committee, according to Article 116 of Decree No. 63/2014/ND-CP of 2014.

26. According to the legal framework, which award criterion would be used for a contract like the one described in Section 1?
This is at the discretion of the Procuring Entity, according to Articles 39.1, 39.2 and 39.3 of Law on Bidding No. 43/2013/QH13 of 2013.

27. According to the legal framework, is BidCo required to provide a performance guarantee deposit that ensures a source of compensation in case of failure to perform its contractual obligations?
Yes, according to Articles 66 and 72 of Law on Bidding No. 43/2013/QH13 of 2013.
If a performance guarantee is not required by law, would it usually be requested in practice by the Procuring Entity for a contract like the one described in Section 1?
Yes

28. In practice, which instrument would BidCo most commonly used as a performance guarantee?
Cash / Certified check IEI Certificate of deposit
Bank Guarantee / Letter of Credit

29. In practice, how long does it usually take for the Procuring Entity to return the performance guarantee in full once the works have been completed and accepted by the Procuring Entity?
Within 20 days

30. In practice, how often are the works delivered within the original deadline?
Occasionally (between 25-50%)

31. In practice, if delays are common, what are the main reasons?
Weather shocks (natural disasters, flooding, etc.)
Capacity of the contractor (technical/financial/managerial/human capital constraints)
Poor planning on the procuring entity’s side (poorly designed project specifications, etc.)
Poor planning on the contractor’s side
Change of project scope

32. In practice, how often are the works delivered within the original budget?
Occasionally (between 25-50%)

33. In practice, if cost overruns are common, what are the main reasons for them?
Market conditions (changes in input prices, fluctuations in exchange rate, etc.)
Political events (elections, lack of security in project areas, national referendums, etc.)
Weather shocks (natural disasters, flooding, etc.)
Capacity of the contractor (technical/financial/managerial/human capital constraints)
Poor planning on the procuring entity’s side (poorly designed project specifications, etc.)
Poor planning on the contractor’s side
Change of project scope

34. How often are the following strategies used by the Procuring Entity to circumvent public procurement rules?

Strategy Frequency
Not advertise procurement opportunities long enough to minimize competition. Very rarely (< 10% of cases)
Prioritize projects without sufficient motivation just to benefit a particular bidder. Very rarely (< 10% of cases)
Use non-competitive procurement methods instead of open tendering to restrict market entry. Very rarely ( 90%)
Hold informal meetings with individual bidders. Very often (> 90%)
Unilaterally change some of the tendering requirements after the bid is opened, but before the contract is signed. Very rarely (< 10% of cases)
Biased interpretation of the selection criteria. Occasionally (between 25-50%)
Change the award criteria after the bids are opened. Very rarely (< 10% of cases)
Add specific obligations in the contract that were not previously incorporated in the tender documents, and by doing so impose unnecessary burdens on the contractor. Very rarely (< 10% of cases)
Delay payments to the contractor to request other works not included in the tender documents. Very rarely (< 10% of cases)
Delay the certification of completion of the contract to obtain other works/goods/services not previously included in the tender documents. Very rarely (< 10% of cases)
Unilaterally and arbitrarily terminate the contract. Very rarely (< 10% of cases)

35. How often are the following strategies used by private sector companies to circumvent public procurement rules?

Strategy Frequency
Collusion between bidders Very rarely (< 10% of cases)
Collusion with the Procuring Entity, to negate market entry to other competitors. Often (between 50-90%)
Submission of recklessly low bids to win the tender. Rarely (between 10-25%)
Falsification of documents or failure to disclose essential information in the bidder’s offer. Rarely (between 10-25%)
Informally paying public officials. Often (between 50-90%)
Abuse the renegotiation process to increase the price or the scope of the project without another competitive process. Often (between 50-90%)
Delay the execution of the contract to coerce the Procuring Entity to award other contracts to the same company. Rarely (between 10-25%)
Execute the contract with less quality or with different technical specifications than were submitted during the tender process. Often (between 50-90%)
Employ subcontractors that were neither properly selected nor disclosed during the tender process. Rarely (between 10-25%)

***
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.

June 10, 2020June 10, 2020 by Dr. Oliver Massmann

VIETNAM – PRIME MINISTER REQUESTS MOIT TO SUPPLEMENT MORE WIND POWER PROJECTS INTO THE ELECTRICITY DEVELOPMENT PLAN AND TO EXTEND THE DEADLINE OF FiT RATE

On 9 June 2020, the Prime Minister issued Document No.693/TTg-CN on the addition of wind power projects to electricity development planning. In this Document, the PM requests the Ministry of Industry and Trade (“MOIT”) to:

1. Accelerate the process of approving the inclusion of more wind energy projects into the Master plan to avoid the inherent possibility of electricity shortage nationwide due to large coal thermoelectricity power plants don’t start COD until 2023.

2. Quicken the process of appraisal and approval for inclusion of wind power plants into the Master plan, especially in localities with potential and advantage for wind power development but are having only a few projects and can implement quickly to supplement the power supply for the country.

3. Prepare the formulation of the National Electricity Development Planning in the 2021-2030 period, with a vision to 2045 (Electricity Planning VIII) to submit to the Prime Minister for approval before 31 October 2020.

4. Consider the matter of extending the fixed price mechanism for wind power projects until 31 December 2023. Under Decision 39/2018/TT-BCT, the current FiT rate is 8,5 UScent/kWh (excluding VAT) for onshore projects and 9,8 UScent/kWh (excluding VAT) for offshore projects. These prices are applicable to wind power projects that have part or the whole of the plant with commercial operation date before 1 November, 2021 and apply for 20 years from the date of commercial operation.

Some comments on Document 693:

This is one of the many attempts of the Vietnamese government to encourage development of wind energy, which opens up more rooms for investors looking to participate in this sector as well as allow current investors ample time to obtain key licenses and start construction and commissioning process required for their projects.

The promotion of wind power source is an effective solution to counter power shortage issue because it can takes advantage of the free, limitless wind natural resource without relying on imported fuels from abroad and is eco-friendly. Vietnam has to take into consideration environmental by-products of its economic activities from now on since this is a duty in the EU-Vietnam Free Trade Agreement, which was approved by the National Assembly on 8 June 2020.

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 (in 16 months), because:
-The construction of wind power projects takes quiet some times. 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 investor extra time, especially when there is unexpected delay of equipment delivery;

-The wind power projects included in the electricity development planning in the Southwestern provinces are mostly offshore or near the shore projects using technology and techniques different from those implemented for onshore turbines, hence require longer project preparation time (e.g. construction of onshore wind power projects takes around 2 years and 3 – 3.5 years for offshore ones). Not to mention, the regulations on determining sea borders, licensing for usage of the sea area are quite complicated, thus further increase project schedule time and costs associated with offshore projects.

***

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.

June 8, 2020June 8, 2020 by Dr. Oliver Massmann

VIETNAM – BREAKING AMAZING NEWS: EU-VIETNAM FREE TRADE AGREEMENT COMES INTO FORCE ON 1 AUGUST 2020

With the EVFTA coming into effect, Vietnam will eliminate import duties on 91.8% of tariff lines, equivalent to 97.1% of EU exports.

Some notable provisions of the EVFTA are as follows:

Tax:
Vietnam commits to eliminate import duties on 48.5% of tariff lines, equivalent to 64.5% of EU exports immediately after the Agreement came into effect.

After 7 years, import taxes on 91.8% of tariff lines (equivalent to 97.1% of EU exports) will be removed from Vietnam. After 10 years, the abolition rate will be 98.3% of the total tariff lines, equal to 99.8% of the EU’s exports respectively.

Banking:
Vietnam pled to favorably consider allowing EU credit institutions to raise foreign ownership to 49% of charter capital in two Vietnamese joint stock commercial banks. This commitment will be valid for 5 years only (after the expiry of 5 years Vietnam will not be bound by this commitment) and is not applicable to 4 banks where the State is holding a large sum of shares (i.e. BIDV, Vietinbank, Vietcombank and Agribank).

Market access:
For the sectors listed in the Specific Schedule of Commitments, except where there is a specific reservation, the two parties undertake to not apply restrictions related to: (i) the number of businesses enterprises are allowed to participate in the market, (ii) the transaction value, (iii) the number of activities, (iv) foreign capital contribution, (v) the form of legal entities, (vi) the number of natural persons recruitment.

Public procurement packages:
Under EVFTA, Vietnam commits to allow EU contractors to participate in bidding packages that simultaneously meet the three conditions regarding Value of bidding package; Shopping agency; Goods and services need shopping.

Distribution service:
Vietnam has agreed to abolish the requirement of economic needs test five years after the date of entry into force of the Agreement, but Vietnam reserves the right to implement the distribution system planning on a non-discriminatory basis. Vietnam also agrees not to discriminate in the production, import and distribution of alcohol, allowing EU businesses to reserve their operating conditions under current licenses and only need one license to carry out import, distribution, wholesale and retail activities.