1. Is the new PPP law that came into effect earlier this year likely to help encourage foreign investment in these projects?
Yes, the 2020 PPP Law and its guiding Decrees contain various provisions that benefit foreign investors. Among others, for example:
Provision on lenders’ step-in right highlight the importance of bankable PPP contracts: PPP Law sets forth that in case of termination of PPP project contract ahead of the deadline and it is required to select a replacement contractor to ensure the progress of the project, the lender must coordinate with the State to select the alternative investor.
Detailed investment incentives that foreign investors can enjoy: Article 80 of PPP Law specifies that investors are provided with security regarding land access rights, right to use land and other public properties, property mortgage right, right to trade the project and its infrastructure system. PPP project enterprises are also given priority to utilize public services for implementation of the project, and competent agencies must assist investors in carrying out necessary procedures in order to optimize this priority.
Foreign currency balance-ensuring scheme is applicable to projects subject to the National Assembly or the Prime Minister’s issuance of decision on investment policy. The latter applied for projects with total invested capital of at least VND 5000 billions, suggesting that all power projects eligible for PPP investment are automatically eligible for this foreign currency scheme. In addition, there is a ceiling of 30% to be imposed for all PPP projects.
Revenue risk sharing mechanism
When the actual revenue reaches more than 125% of the revenue in the financial plan of the PPP project contract, investor to share with the State 50% of the increase between actual revenue and committed revenue in the contract.
When the actual revenue reaches less than 75% of the revenue in the financial plan of the PPP project contract, the State to share with investor 50% of the decrease between actual revenue and committed revenue in the contract. This revenue reduction sharing mechanism is applied when the following conditions are met:
1. Type of contract: BOT, BTO or BOO;
2. The cause of loss is change in laws and policies;
3. Measures to adjust product and public service prices and contract terms have been implemented but the total revenue is still less than 75%; and
4. The State Audit has audited the revenue reduction.
2. Have these wastewater projects been driven by the November 2020 changes to the environmental protection law and are we likely to see further such projects?
Yes, it can be said that the revision to environmental protection law is a pushing factor for more environmental-friendly projects such as wastewater treatment. However, I think the most important factor is consumers’ needs and the lack of domestic funding for these projects. Wastewater treatment projects tend to require a lot of funding in the beginning and investors can only receive profits after around 10 years that is quiet late. With rapidly growing population and not enough treatment plants, and those with advanced technology, in sight to accommodate more than 3 millions cubic metric of wastewater per day, Vietnam calls for more wastewater projects with funding from foreign investors. We will definitely see more of such projects in the future, albeit with better technology.
3. Do we know what model PPP these projects are likely to use and has that been influenced by the new PPP law?
The model of these projects will depend on discussion and agreement between foreign investors and the Vietnamese authorities. Most of big projects in the past follow either BT or BOT route.
4. Is it likely these projects will be publicly procured, and if so, when?
Yes, it is highly likely that these projects will be publicly procured. The timing of such public procurement depends on provincial authorities.
***
Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC, a Member of the Supervisory Board of the PetroVietnam Insurance JSC, and the only foreign lawyer to address members of the National Assembly in the Vietnamese language.