July 2021 – Duane Morris Vietnam

July 16, 2021July 16, 2021 by Dr. Oliver Massmann

VIETNAM – AGRICULTURE 4.0 – ECONOMIC TIMES INTERVIEWING DR. OLIVER MASSMANN

1. How would you comment on Vietnam’s advantages and disadvantages in attracting FDI into the agriculture sector?

Advantages:

In the general growth of the whole economy in the first 6 months in 2021, the agriculture, forestry and fishery sector increased by 3.82% over the same period last year (contributing 12.15% to the overall national growth).

Recently, the Government has issued many policies to attract businesses to invest in the agriculture sector. For example, enterprises with special agricultural projects that rent or sub-lease land and water surface from households and individuals to implement investment projects are entitled to the Government’s investment incentives. The country will provide funding equivalent to 20% of the land rent and water surface rent for the first 5 years since the project is completed and put into operation. Or, the government supports agricultural product processing establishments, livestock and poultry slaughter establishments with 60% of the investment capital and not more than 15 billion VND/project to build infrastructure for waste treatment, transportation, electricity, etc.

Disadvantages:

Human resources are not maximized: Abundant labor force is an advantage, but vocational training programs and projects are not really appropriate and effective, so the quality of labor is still low. In 2020, untrained agricultural, forestry and fishery workers was around 12 million people, accounting for 89.97% of the total number of agricultural, forestry and fishery workers in working age.

Small production is still the majority, quality of products is not high: Development and production is still scattered and small. Most of the production units are of small scale with low investment capital, so the production and business efficiency is not high.

Environmental pollution is still a big issue: The production of agriculture sector has revealed more and more clearly the weaknesses in protecting the ecological environment in recent years. The collection and treatment of waste are still inadequate. The disposition of bottles and packaging of pesticides right in fields, lakes, ponds, canals, rivers and streams is quite common. In 2020, there are 4,096 communes nationwide that do not have a collection point for bottles and pesticide packaging, accounting for 49.37% of the total number of communes in rural areas.

Non-advanced agricultural technology: most (if not all) of agricultural production remain outdoor, making it easily directly affected by risks from natural disasters, epidemics (in cultivation and animal husbandry, aquaculture) at any time, affecting production and profits of enterprises.

2. Under Decision No.255/QD-TTg approving the Plan on restructuring the agricultural sector in the 2021-2025 period, the country would focus on developing sustainable agriculture as well as enhancing quality, added value, and competitiveness of local agricultural product. From this, how do you forecast some prospects for appealing FDI in the agricultural sector in the years to come?

According to Decision 255, the following fields will be of focus in the next 4 years:

a) Cultivation field
Vietnam aims to increase the proportion of fruit trees to 21%, vegetables to 17% to meet the consumption demand of the market, contributing to ensuring national food security.

b) Livestock field
Adjust the structure of livestock herds, aiming to reduce the proportion of pigs, increase the proportion of poultry and herds of cattle.

c) Fishery field
Promote offshore agriculture, focusing on objects of high economic value; development of organic aquaculture.

d) Salt industry
To renovate, upgrade and modernize infrastructure, apply technical advances to increase production of industrial salt and clean salt; to form a key industrial-scale salt production area in the South Central provinces; sharply reduce the area of manual salt production, converting inefficient salt production areas to other areas with higher economic efficiency.

3. It can be said that one of the bottlenecks of investment into the agricultural sector is the local mindset. What are the solutions to overcome the barriers and attract more foreign investors into Vietnam’s agricultural sector?

– Creating investment incentives for FDI projects in the agricultural sector, for example: preferential loans for projects investing in developing raw materials for the sector, projects that apply biotechnology; support scientific research activities, tax incentives, land levy.
– Applying guarantee mechanisms for FDI businesses, work with banks to create favorable access of foreign companies to private capital.
– Developing support mechanism for projects suffering from natural disasters or at risk of market price fluctuations.
– Developing one-stop-shop regulations for FDI investors, simplify investment procedures especially with regard to land clearance.
– Developing the vocational training system in rural areas. Vietnam has a lot of protocols with other countries in the EU aiming at the exchange of agricultural knowledge in various forms that should be maximized.
– Promoting the role of local organizations in supporting FDI investors to approach local farmers.

4. As FDI into the hi-tech and sustainable agriculture is considered as a current trend and solution. What have been the main concerns of foreign agribusiness regarding sustainable development?

The biggest difficulty when investing in agriculture for FDI enterprises is securing agricultural land. Even when there is a land fund for agriculture, the procedures are also relatively time consuming and difficult. In addition, the transportation of agricultural products between production place and consumption place is still difficult due to the lack of synchronous infrastructure.

Currently, foreign investors are not allowed to receive the transfer of agricultural land use rights, are not allowed to rent agricultural land directly from households, nor are they allowed to use this leased land as collateral for loans, leading to limited access to land resources and it is impossible for foreign investors to form a large enough land area to implement big projects. Nevertheless, in some localities, if there are land funds, priority is given to the planning of industrial parks because they will generate higher and faster revenue.

5. Which strategies should the Government adopt in the 2021-2025 period in order for the country to realize those targets?

Besides those mentioned in Answer 2 above, some other recommended strategies include:

_ Guide e-commerce trading floors to facilitate sellers and traders of agricultural products to join the floor; and
_ Promote the application of high technology in transporting agricultural products. Currently, the process of transporting and exporting agricultural products often damages about 40% of products, causing great cost to the economy.

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.

July 12, 2021July 14, 2021 by Dr. Oliver Massmann

VIETNAM – SOLAR POWER AUCTION SYSTEM: WHAT YOU MUST KNOW

In late January 2021, the Ministry of Industry and Trade (“MOIT”) issued the draft Decision of the Prime Minister guiding the selection of investors implementing solar power projects under the bidding mechanism (“the Draft”). Since the latest Decision 13/2020/QD-TTg applies to grid-connected projects with Commercial Operation Date (“COD”) by 31 December 2020 latest, it is expected that the Draft will soon be finalized and become effective so solar energy developers as well as relevant government authorities can have guidelines for projects with COD from 2021. As of July 2021, it is reported that a newer version of the Draft is being prepared by the MOIT and will soon be published for public comments. MOIT is directing its Electricity and Renewable Energy Department to coordinate with international agencies including the World Bank and Asian Development Bank to develop the bidding mechanism for renewable energy development that is expected to apply after 2021

According to the Draft, the Decision would be applicable to projects with grids connected directly to the national power network. The Ministry of Industry and Trade shall coordinate with the Electricity of Vietnam and the People’s Committees of localities to organize the formulation and approval of the renewable energy power source development plan for a period of 5 years and every 2 years to serve as a basis for the bidding system. In addition, every 02 years, the Ministry of Industry and Trade shall issue a Price Framework for electricity generation in order to determine the ceiling price for bidding to select investors of solar power projects with COD in the next 02 years.

The plan for development of renewable energy power sources for a period of 5 years shall include the total capacity scale for each renewable energy power source in the 5-year period, the total capacity scale for each renewable energy power source for each load region (8 regions) and a list of transmission lines and substations (220 kV at least) to be put into operation for a period of 5 years. The 02-year plan shall have similar content but for a 2-year period only and shall be more provincial specific.

Some notable points in the Draft

Selection of investors to implement solar power projects is conducted either by (i) Bidding to select investors according to project location or (ii) Investor approval. Bidding for projects or for project development areas will be implemented if at least 02 independent investors participate.

Requirements for Investors participating in bidding:
a) Investors must be independent legally financially independent from each other;
b) The investor is not named in two or more Technical Proposals as an independent investor or as a member of a consortium;
c) Investors do not have shares or contributed capital of more than 20% of each other when participating in the pilot program; and
d) An investor (or a member company of the investor) does not share a controlling shareholder (holding 26% of the shares of the enterprise) with any other Investor (or a member company of this investor).

Applicable solar power purchase price is the price for the connection point proposed by the winning bidder/investor in the bidding dossier (excluding value added tax).

Adjustment to investment schedule: if the investor is permitted to adjust the investment schedule and the project’s COD occurs after the commitment date stated in the bidding documents, the applicable electricity price of project is the electricity selling price specified in point (1) with a cumulative reduction rate of 4% for every 90 days of schedule delay. Project delay time must not exceed 12 months.

Bidding guarantee: Investors must apply the bid security measure, which is equal to 0.5% of the total project invesment, before the bid is closed.

The standard power purchase agreement issued alongside as part of the Decision must be used in transactions between Power Seller and Power Buyer being EVN or an entity authorized by EVN. The power purchase agreement is valid for 20 years from commercial operation date.

Costs associated with the investor selection process are to be borne by the local Provincial Committee or another legal funding source and to be accounted for as part of the project’s total investment capital. Expenses related to the preparation of Bids (including technical proposals and financial proposals) are the responsibility of the investor.

Bidding procedure: Within 6 months since the Ministry of Industry and Trade approved the Solar Power Development Plan for a 2-year period, the Provincial People’s Committees shall organize the formulation, approval and completion of the implementation of the Plan for selecting investors to develop solar power projects locally every 2 years.
The plan for selecting investors of a solar power project must be publicly announced on the National Bidding Network System, serving as a basis for determining the number of investors and investment projects registered to participate. The content of information to be disclosed include investor selection plan, solar power investment project, time limit for receiving bids, contact information of the bid organizer and competent state agencies.
The bidding organization applies the open bidding process according to the one-stage, two-envelope bidding process. People’s Committees of localities to publish the bidding dossiers. The investor submits a Bid which includes Technical Proposal and Power Price Proposal. Bid opening will be conducted twice, Technical Proposal will be opened right after the deadline for submission of bids, investors who satisfy technical requirements will have their Power Price Proposals examined for evaluation.

Documents to be submitted by the Investor to participate in bidding:
• Decision of the competent authority approving the inclusion of the project into a power development plan;
• Documents proving the investor’s eligibility;
• Financial statements for the last 2 years, audited or certified by tax authorities, and other documents proving the investor’s independent financial accounting;
• Documents proving the investor’s capacity and experience; and
• Documents proving the ability of the investor to raise investment capital.

Once the Draft comes into effect, the Feed-in tariff (FiT) mechanism will no longer apply to solar energy projects. MOIT has proposed that the same strategy to be executed for wind power projects after 2023. The employment of bidding method will enable for the selection of capable developers through transparent procedures in order to eliminate projects that run behind schedule for years.

The Vietnam Government has continuously promoted the development of renewable energy sources as a feasible and effective solution to counter the country’s ongoing power shortage issue because renewable energy projects can be constructed quickly and promptly for operation in the period of 2021-2023, while taking advantage of the country’s natural potential without relying on imported fuels and is eco-friendly. By the end of 2020, the total solar power capacity (including floating solar energy systems) put into operation was about 17 GW, concentrated in the southern provinces and the Central Highlands. The Government plans to bring the total solar power capacity to about 40 GW by 2045.

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.

July 9, 2021July 12, 2021 by Dr. Oliver Massmann

VIETNAM TO IMPLEMENT DIRECT POWER PURCHASE MECHANISM AFTER 2021

On 8 April 2021, the Ministry of Industry and Trade published the latest Draft Circular on the pilot implementation of the direct power purchase between renewable power project developers (RE GENCO or GENCO) and consumers (“the Draft”). As of July 2021, it is reported that MOIT is in the middle of preparation for Applicants Conference and Launch Event for the DPPA pilot program launch as well as reviewing transaction agreements, a one-stop-shop website for all information on the scheme and facilitating an application review process.

This mechanism suits customers who are committed to clean, sustainable energy use. DPPA allows direct access to and purchase of an amount of electricity generated from a renewable-energy generating unit through a long-term, bilateral contract with the price and duration of the contract mutually agreed by both parties. As a result, DPPA can help corporates to manage price fluctuations and reduce energy bills as well as facilitating a positive public image.

The pilot is to be implemented nationwide with a total capacity of selected wind and solar projects of 1 GW (or 1000 MW) at max. The nominal capacity of each project must be 30 MW and the project must have been listed in a National Power Development Plan. The GENCO and Consumer must apply online together for participation in the pilot scheme. Consumers can directly negotiate, purchase electricity with GENCO under a Fixed-term Contract. The two parties shall agree upon electricity price and output in the Contract for future trading cycles. GENCO and the consumer must also calculate and carry out payment for the contract output under the Contract for the difference between the contract price and the market price (i.e. reference price). Do note that consumers can be a single entity or a consortium of Consumers.

Under the Draft, renewable energy generators are defined as:
• organizations, individuals owing a grid-connected solar or wind power plant;
• installed capacity of the plant is more than 30 MW (conversion rate for solar plants: 01 MWp equals 0.8 MW);
• project already included in the power development plan that has been approved by competent authority;
• have a binding principle agreement with consumers to sell electricity; and
• are selected for the pilot implementation of DPPA by competent authority.

Electricity consumers are:
• organizations, individuals purchasing electricity for industrial production at a voltage level of 22 KV or higher;
• have a binding principle agreement with the RE GENCO to purchase electricity; and
• are selected for the pilot implementation of DPPA by competent authority.

Selection criteria of the pilot implementation participants:
For electricity generators:
• have a committed COD deadline of the whole power plant of no more than 270 working days since the date of announcement on the plant being selected to participate in the pilot implementation; or
• have written document of financial institutions on the financing for the power plant.

For consumers:
• have renewable energy usage commitments or is a manufacturing enterprise in the
supply chain of corporations or enterprises that have renewable energy usage commitments; or
• commit to contract at least 80% of total electricity consumption from the RE GENCO

The evaluation and selection of registration dossiers for participation in pilot direct electricity purchase and sale shall be carried out through a service unit selected by the Ministry of Industry and Trade and announced on the DPPA website.

Applicable power purchase agreement template:
• Between developer and EVN: the published contract templates in Decree 18/2020/TT-BCT for solar energy project and in Circular 02/2019/TT-BCT for wind energy project
• Between developer and consumer: to be drafted by the parties
• Between consumer and EVN: to be drafted by EVN, taking into consideration consumers’ opinion.

Transactions in the DPPA mechanism:
a) Between GENCO and spot electricity buyer: GENCO to submit the price quotation to the electricity system and market operator in which the offer price is zero (VND/kWh) for offered capacity ranges, and the capacity in the quotation is the announced capacity of GENCO.
b) Between spot electricity buyer and EVN: Electricity purchase price and payment payable by EVN must comply with the Regulation on operation of competitive wholesale electricity market promulgated by the Ministry of Industry and Trade.
c) Between EVN and Consumer: EVN sells power to Customers as per the electricity purchase price of EVN on spot electricity market plus the cost of direct electricity trading services (e.g. transmission costs, distribution costs).
d) Between Consumer and GENCO: The price and output of electricity committed in the contract for future trading cycles shall be agreed upon by the parties.

The direct power purchase agreement mechanism can bring about numerous benefits, namely enabling the imposition of take-or-pay obligation on off-takers in order to guarantee developer’s revenue stream, fixed electricity purchase price that is not subject to change in or delay on the implementation of national legislation, flexibility in monthly exchange rate calculation and increasing consumer’s environmental commitments. Developers and consumers must incorporate international standards regarding step-in right, dispute settlement, and termination clauses in order to make the direct power purchase agreement bankable. A bankable DPPA put developers in advantage when seeking financial supports from banks and other credit institutions.

On 23 June 2021, the Renewable Energy Buyers Vietnam Working Group, alongside the Clean Energy Investment Accelerator and the USAID Vietnam Low Emission Energy Program II co-hosted a webinar to discuss the development of the DPPA pilot program. In which, it was advertised that the US International Development Finance Corporation (“DFC”) offer financing tools such as long-term loans or equity financing to political risk insurance and technical assistance development. The DFC is looking to collaborate with DPPA Pilot Program participants.

MOIT is currently reviewing the Draft DPPA Circular based on the feedback of the private sector , then will circulate throughout the rest of the government before being legally approved and going into effect, ideally by the end of 2021. Within 15 working days from the effective date of the DPPA Circular, MOIT will announce the pilot scheme for direct electricity trading. Within 15 working days after that, MOIT will open the registration portal on the DPPA website and publicize the service unit responsible for reviewing application dossiers. Duane Morris will keep our readers updated of any new revisions to or decision regarding the Direct Power Purchase Agreement mechanism.

July 6, 2021July 6, 2021 by Dr. Oliver Massmann

VIETNAM: DIRECT POWER PURCHASE AGREEMENTS (DPPA) AND SOLAR ROOFTOP- UPDATING DEVELOPMENT OF NEW REGULATIONS ON DPPA AND C&I ROOFTOP IN VIETNAM

Both draft regulations for the Direct Power Purchase Agreement (DPPA) pilot program and the C&I Rooftop Solar are now still under review by the competent authorities. Below are some key updates in these two sectors in Vietnam up to June 2021:

1. Key updates on the Direct Power Purchase Agreement (DPPA) pilot pro-gram:

· MOIT is still reviewing the 2nd draft Circular on the pilot implementation of the direct power purchase between RE GENCO and the consumer (“Draft DPPA Circular”). The Circular will then be circulated throughout the rest of the gov-ernment before being legally approved and going into effect, ideally by the end of 2021;

· The Draft DPPA Circular maintains a target size of 1 GW for PDP-approved wind and solar projects above 30 MWac;

· RE Generation Companies (RE GENCO) and industrial Consumer(s) must apply together for participation in the DPPA Pilot Program through the DPPA online application portal;

· The RE GENCO must commit to reaching commercial operation date (COD) within 270 working days from the date of selection announcement;

· The DPPA Mechanism per the Draft Circular dated 8 April 2021 remains un-changed.

· DPPA Pilot Program Timeline:

– Pilot Project Planning (May-December 2019): MOIT Public Consulta-tion; First Action Plan agreed with ERAV; Market Preparation;

– Legal Approval/Invitation to Participate (Q2-Q4/2021): MOIT Circular draft published for public comment; MOIT Circular goes into effect; Pilot Program launched;

– Project Selection (Q1-Q2/2022): Applications to MOIT submitted and evaluated; Transaction documents executed; Operational capacity devel-oped.

(Source: DPPA Pilot Program Update (V-LEEP II, June 2021))

2. Key updates on the C&I Rooftop Solar:

· In 2020, Vietnam recorded 102,000 rooftop systems and reached 9.58 GW in capacity;

· The FIT 2 scheme expired at the end of 2020 and now the market is still waiting for the new Government’s new regulations on FIT 3;

· The draft regulations on FIT 3 for rooftop solar projects are still under re-view with the proposed FIT 3 as below:

ℴ For projects that achieve commercial operation in 2021, the FIT-3 in-centive will depend on project size:

– Less than 20kWp system: 6.84 UScent/kWh
– 20kWp to less than 100kWp: 6.35 UScent/kWh
– 100kWp to 1,250kWp: 5.89 UScent/kWh

ℴ For projects COD in 2022 and onward: MOIT to review and propose new tariff on annual basis;

ℴ Rooftop solar systems will be required to have a minimum self-consumption rate of 20% or a maximum excess power sale of 80% gener-ation;

ℴ Rooftop solar systems over 100kWp in size may be required to install mini-SCADA systems to support remote monitoring and system controls.

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 Di-rector 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.

Posted on July 5, 2021July 5, 2021 by Dr. Oliver Massmann
VIETNAM – POWER DEVELOPMENT PLAN VIII (PDP8) – Upcoming List of LNG-to-Power Projects – What you must know:

As you may know, in late March 2021, the very first draft of the Prime Minister’s Decision on the Approval of National Power Development Planning VIII (PDP8) (“Draft”) has been published through unofficial sources (i.e. not through MOIT’s website). Such Draft was planned to be signed off at the end of March during the last days of Prime Minister Nguyen Xuan Phuc’s administration, but it was delayed as the hand-over to new administration was already under way. It appeared that the investors and LNG-to-power projects in this Draft were scaled down comparing to those in the PDP8 proposal published by Ministry of Industry and Trade (MOIT) earlier.

On 23 April 2021, the Deputy Prime Minister (DPM) Le Van Thanh directed a Government’s meeting on the PDP8 and concluded that, among others, PDP8 must be (i) updated with qualifications for prioritized projects, and (ii) revised to reasonably review and allocate development of power sources, especially LNG-to-power projects in PDP8 in order to ensure the competition, optimization on development of power system. DPM asked the MOIT to careful review and digest opinion from EVN in its official letter No. 1645/EVN-KH dated 2 April 2021. Finally, the DPM required the MOIT to submit the updated PDP8 proposal prior to 15 June 2021.

Unfortunately, due to Covid-19 situation and heavy workload on updating the PDP8 proposal, MOIT failed to submit a revised proposal to the Government for consideration. On 17 June 2021, the MOIT Minister arranged a press meeting to update the PDP8 progress and planned to submit the revised PDP8 proposal to the Government within June 2021.

So far, it is not crystal clear whether the MOIT has finished the revised PDP8 proposal. However, on 2 July 2021, an article from Bloomberg naming “The U.S. Risks Losing Out From Its Own Trade Push in Vietnam” pointed out that Vietnam may not want to support LNG-to-power projects from USA investors as the need to reduce trade deficit with USA is phasing out due to change of strategic approaches from the President Biden’s administration. This article also questioned about the feasibility of all LNG-to-power projects proposed by USA investors so far: “The IEEFA has raised questions about the feasibility of at least seven of the proposed projects. Several of them had appeared on the nation’s previous power plan of nine proposals, or on the draft of a new plan that expanded to more than 40 projects by February. The plan, which was supposed to have been approved in early April, was kicked back to the trade ministry by Deputy Premier Le Van Thanh for reconsideration and whittling down to the most viable.” This might be a signal from the MOIT that the LNG-to-power projects in the final PDP8 would have been scaled down and restructured to greenlight only projects with strong support from USA government and clear financial capability.

Pending the draft PDP8’s finalization, we advise that the investors follow-up and coordinate with MOIT and their local partners/ consultants on the process/ progress for inclusion of LNG projects into the future PDP8. We could assist you to review and identify the application, documents and licensing process issues and advise to facilitate the process including meeting and negotiating with relevant stakeholders.

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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.