Category Archives: Vietnam – Public Private Partnerships

New Rooftop Solar Guidance – MOIT Official Letter 7088  

Further to the recent publication of Circular 18, the Ministry of Industry of Trade (“MOIT”) has issued Official Letter 7088 dated 22 September 2020 to provide further guidance on development of rooftop solar power projects.

The following important points are worth considering for developers and prospective investors alike:

  1. Combining multiple projects into a single PPA

Where a group of rooftop solar projects (e.g. a portfolio of 5 rooftop solar installations in separate locations) exceeds a total combined capacity of 1MW, it is not permitted for the producer to combine several distinct PPAs into a single PPA for the entire portfolio.

Rather, separate PPAs must be executed with offtakers for each individual rooftop solar power project.  If not, the project will not qualify as a “rooftop solar system” and will be considered something else, presumably a solar project subject to additional licensing requirements including power masterplan approval and need to obtain relevant electricity operation license(s).  Though whether a system actually mounted on a roof can be treated as a ‘ground-mounted’ system for procedural purposes remains a matter open to debate.

While this is logical and previously largely presumed, it does potentially expose investors to additional contractual risk and contract management issues.  Ideally investors would secure guarantees from a single source for a string of rooftop PPAs.

  1. Genuine rooftop purpose

In order to be characterized as a valid rooftop solar project for the purposes of attracting FiT 2 under Decision 13, a rooftop solar project must only be installed on a rooftop which has a genuine construction purpose beyond that of merely existing to hold solar equipment.

In other words, rooftops which have no other function than to hold solar installations will not be characterized as a valid rooftop, and thus ineligible to receive FiT.

The Official Letter specifically references agricultural land on this point, suggesting that solar systems would need to be installed on a rooftop which has a genuine pre-existing agricultural or farming function.

This was something that was foreshadowed by previous unofficial comments from various authorities.  With the FiT 2 regime due to expire at end of December 2020, it remains open whether and how private rooftop PPA arrangements can proceed on structures that don’t otherwise meet FiT criteria.

  1. Eligibility under FiT 2

Rooftop solar projects of a voltage level of more than 35kV are not eligible to receive FiT 2 under Decision 13.

Further, rooftop solar installations on agricultural farm land with a capacity of more than 1MW or 1.25 MWp are now also ineligible to receive FiT 2. 

  1. Recent info on fire prevention requirements for rooftop solar project

Separate from the above Official Letter, we have also seen recently some regulations on providing additional information in regards to fire prevention obligations for ground-mounted and rooftop solar power developments.

Specifically, projects listed in Appendix IV of Decree 79/2014/ND-CP must have a design for fire prevention approved prior to the construction phase.

Appendix IV includes residential areas, apartment buildings, industrial zones, hospitals, educational facilities, and shopping malls, amongst several other specific development sites.

Relative to the current uncertainty over application of construction permit regulations for rooftop solar project around the country, this at least seems a reasonably clear and consistent requirement.

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Should you have any further queries on rooftop solar power regulations or investment opportunities in Vietnam, please do not hesitate to contact us.

For more information, please contact Giles Cooper at GTCooper@duanemorris.com or Daniel Haberfield at DHaberfield@duanemorris.com. Giles is Chairman of Duane Morris Vietnam LLC and branch director of Duane Morris’ HCMC office. Daniel is an Australian qualified lawyer and associate in Duane Morris’ HCMC office.

New Draft Decree – Regulations Implementing the PPP Law 2020

Vietnam’s first uniform Public-Private Partnership Law (the “PPP Law”) was recently passed by the National Assembly, effective from 1 January 2021.

Whilst the new law provides a much needed legislative framework for the facilitation of PPP investment, it is not without criticism and several drafting uncertainties present potential concerns for developers and lenders alike.

A recently published draft decree serves to clarify such uncertainty, providing further guidance in several key regulatory areas.[1]

Eligible Project Sectors and Investment Size

The PPP Law introduced several general eligible sectors for PPP investment (e.g. Transport, Power, Water, Waste, Healthcare, Education and Training, IT) but did not provide further guidance on the specific sub-sectors or investment amounts pertaining to each.[2] The draft decree confirms the following:[3]

  • Transport: Transportation projects require a total minimum investment amount of VND 1,500 billion for projects in road, rail, inland waterway, maritime, and aviation;

 

  • Power: Power plant and grid projects require a total minimum investment amount of VND 2,300 billion;

 

  • Water: Clean water supply projects require a total minimum investment amount of VND 1,500 billion (urban areas) / VND 200 billion (rural areas) / VND 100 billion (difficult or especially difficult socio-economic areas);

 

  • Waste: Wastewater drainage and treatment projects require a total minimum investment amount of VND 1,500 billion (urban areas) / VND 200 billion (rural areas) / VND 100 billion (difficult or especially difficult socio-economic areas);

 

  • Health, Education, and Training: Minimum total investment amount of VND 100 billion; and

 

  • IT: Minimum total investment amount of VND 800 billion for concentrated IT park developments and VND 200 billion for technical IT projects (i.e. national information systems, government e-platforms and databases, information security, technical infrastructure, amongst others).

The Introduction and Role of Project Evaluation Councils

For each proposed PPP project, a State Evaluation Council (National Assembly-level investment) or Inter-Branch Evaluation Council (Prime Ministerial-level investment) or Grassroots Evaluation Council (People’s Council-level investment) will be established. [4]

Such councils are tasked with arranging an evaluation and official opinion on the submitted pre-feasibility and feasibility study reports. Councils will comprise of official representatives from the Ministry of Planning and Investment and other relevant agencies as decided by the Prime Minister.

The draft decree introduces the potential for domestic or foreign organizations to be formally hired as consultants to assist with such evaluation, as approved by the Prime Minister or relevant People’s Council. [5]

The Ability of Investors to Self-Propose Projects

Importantly, the draft decree seems to confirm that investors will be able to self-propose PPP projects. [6] Specifically, investors are required to submit formal proposals to the Department of Planning and Investment (“DPI”). The proposal must satisfy several criteria as detailed under Article 27.1 of the PPP Law. Following this, investors will be required to prepare a pre-feasibility report for submission.

Where two or more investors submit proposals for the same project, the DPI will select the most feasible project based on several factors including investor capacity and expertise, financial considerations, and potential socio-economic impacts, amongst others.[7]

Project Conversion: Public to Private

Projects currently funded by way of public capital may seek to formally convert to a PPP form as under the new law.[8] Conversion will require the current authorized agency to withdraw their public capital portion, with the investor undertaking the relevant re-capitalization.

It is unclear at this point if any limitations will apply to potential conversions. For example, a restriction on the conversion of projects which are already at a particular development phase (e.g. construction phase).

Whilst the opportunity to invest in underperforming pre-existing public projects is attractive and potentially lucrative, corporate restructuring under Vietnamese law is highly complex and requires careful further legal consideration.

 

 

 

Project Contract – Takeover Rights

The new draft decree provides that where an investor commits a serious breach of their contractual responsibilities and is unable to remedy such breach within a reasonable time, the procuring agency is granted a statutory right to temporarily takeover the management and operation of the project facility.[9] Such rights apply broadly, arising when the project is in the pre-construction, construction, and operational phases. [10]

Termination Rights – Procuring Agency

The draft decree details broad circumstances leading to the rights of a procuring agency to terminate for serious contractual breach by the project enterprise: [11]

  • Pre-construction: Failure to procure essential financing options, failure to execute the PPP project contract or to incorporate a project enterprise prior to the specific contractual deadline, failure to obtain the necessary licenses or approvals, failure to commence basic construction works or lodge formal project design documentation;

 

  • Construction: Failure to comply with building regulations or design criteria, failure to complete works within the agreed schedule; failure to comply with labor regulations and other public laws; and

 

  • Operation: Failure to supply services pursuant to quality standards prescribed by law and under contract, failure to comply with price controls, temporary interruption to the supply of services without consent, failure to maintain the facility in accordance with agreed quality standards, failure to comply with any imposed administrative sanctions or penalties.

 

Such termination rights are broad and potentially uncertain, greatly favoring the procuring agency, and will thus likely present as an unwanted contractual risk for prospective investors.

Termination Rights – Project Enterprise

Conversely, a project enterprise is provided with very limited grounds for termination should the procuring agency commit a serious contractual breach: [12]

  • Acts of corruption or bribery;

 

  • Failure to make the required payments to the project enterprise;

 

  • Failure to obtain the necessary licenses to operate the facility where such failure is not the fault of the project enterprise; and

 

  • Failure by the procuring agency to provide necessary support for the performance of the project contract.

Compensation for Contractual Termination

The draft decree confirms that compensation for termination should be included in the project’s contractual agreement as specifically negotiated between the procuring agency and the project enterprise. The draft decree also contemplates that a compensation clause should include reference to the fair value of work already performed up to the point of termination, as well as any further expense or loss, including loss of profit. [13]

Conclusion

The passing of Vietnam’s first Public-Private Partnership Law provides an exciting development in the evolution of the Vietnamese PPP market. Whilst the new law serves to protect investors via the codification of key legal rights, the drafting of the law is not without concern and numerous uncertainties exist as to statutory application.

It is anticipated that several guiding circulars and decrees will be issued to assist in the implementation of the new law. The first such decree, albeit currently in draft form, provides important further clarification on eligible PPP sectors, investment size, the role of project evaluation councils, contractual termination rights, and compensation terms.

Please do not hesitate to contact us should you have any further queries or wish to discuss how the incoming PPP Law may provide investment opportunities for you.

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For more information, please contact Giles Cooper at GTCooper@duanemorris.com or Daniel Haberfield at DHaberfield@duanemorris.com. Giles is Chairman of Duane Morris Vietnam LLC and branch director of Duane Morris’ HCMC office. Daniel is an Australian qualified lawyer and associate in Duane Morris’ HCMC office.

[1] Draft Decree, Detailed Regulations for Implementation of Law 64 on Public-Private Partnership Investment Form, 27 August 2020, (“Draft Decree”).

[2] Article 4.1, PPP Law 2020.

[3] Article 3, Draft Decree.

[4] Articles 7-16, Draft Decree.

[5] Article 17, Draft Decree.

[6] Article 31, Draft Decree.

[7] Article 32, Draft Decree.

[8] Articles 34-35, Draft Decree.

[9] Article 38, Draft Decree.

[10] Article 40, Draft Decree.

[11] Article 40, Draft Decree.

[12] Article 41, Draft Decree.

[13] Article 42, Draft Decree.

The Good, The Bad, and The Ugly – Vietnam’s New Public-Private Partnership Law 2020

Vietnam’s first Public-Private Partnership Law 2020 (the “PPP Law”) was passed by the National Assembly of Vietnam on 18 June 2020 and will come into effect from 1 January 2021. It is anticipated that further guiding decrees and circulars will soon be introduced to assist in the implementation of the PPP Law.  Here we take a look at the good, the bad, and the ugly.

The Good

The current Vietnamese PPP legal framework consists of numerous outdated circulars, decrees, and decisions. The incoming PPP Law serves to unify the current patchwork of laws into a stand-alone legislative instrument, thereby attempting to govern the full life cycle of inbound PPP activity, providing greater legal clarity and comfort to prospective foreign investors. The availability for the first time of codified minimum revenue guarantee and viability gap mechanisms will pique the interest of international investors and financiers. Likewise, the ability to select third country international arbitration provides increased comfort should a dispute scenario arise. Finally, the inclusion of competitive bidding processes enhances transparency and is welcomed.

The Bad

Concerns exist with respect to rigid project development timelines, restrictions on the assignment of rights, limitations in the scope of eligible investment sectors, and high minimum investment thresholds. Mandatory contract performance security and potentially mandatory use of template project documents are also areas of potential concern for investors and financiers alike.

The Ugly

From a project finance perspective, broad rights in favor of the procuring entity to terminate “in the interests of the nation”, rigidity with regards to the timing of financial close, and limitations in the choice of contractual governing law are all notable concerns, resulting in unfavorable risk allocation for investors. Further, the lack of express change in law provisions, step-in rights for lenders, and the inability of international financiers to take direct security over land in Vietnam will likely further negatively impact forthcoming project bankability assessments.

The table below provides an analysis of the key features of the new law, with comparative commentary from the perspective of primary PPP participants – namely, the government, developers, and lenders:

Key Legislative Features The PPP Law 2020 Government  View Investor View – Developers / Lenders
Permitted PPP Investment Sectors –  Reduces the list of eligible PPP investment sectors to the following only: Transport; Power Grids and Plants; Irrigation, Water, and Waste; Healthcare and Education; IT Infrastructure.

 

– Current Vietnamese law under Decree 63 recognizes a broader list of PPP investment sectors, which in addition to the above, also includes public lighting systems, agricultural developments, social housing, commercial infrastructure for economic and industrial zones, water drainage systems, waste treatment systems, amongst others.

 

– The reduced list clearly articulates and reinforces Hanoi’s current policy priorities regarding target PPP investment sectors.

 

 

– Limited scope, seemingly excludes important sectors (agriculture, public housing, public lighting systems etc).

 

– Potentially excludes sub-projects connected to the primary project (i.e. terminals, pipelines, transmission lines, storage facilities etc).

 

– Ambiguities surround the statutory scope of “power plant.” Potentially excludes some forms of renewables (i.e. rooftop solar systems).

 

Competitive Bidding – All proposed PPP projects must undergo competitive bidding, except for projects related to security, defence, high technology, and “other special cases as decided by the Prime Minister”.

 

 

 

 

 

– Global best practice.

 

– Attracts top international expertise.

 

– Demonstrates policy commitment to ensure development of quality and transparent public infrastructure works.

 

– Transparent process that encourages the participation of tier-one international expertise. However, implementation in practice must be transparent and efficient to be valuable.

 

– Some investors may however prefer to self-propose projects with the option of direct appointment.

Bid Security / Contract Performance Security – Investors must provide bid security of between 0.5%-1.5% of the total investment value of the project (to be later released).

 

– PPP project companies must provide contract performance security of between 1%-3% of the total investment value of the project (to be later released).

 

 

– Ensures only investors who are genuinely committed to completing the tender process are selected.

 

– Provides the government with some form of compensation should a non-completion scenario arise.

 

– Such requirements are problematic as financing may not yet be complete at this early stage of the PPP investment cycle.

 

– A lower security threshold or more flexible timing may be more appropriate.

 

Minimum Total Investment Threshold

 

– Minimum investment threshold of USD 8.7 million (for projects in the specific permitted investment sectors) reinforces current government policy focus on large-scale PPP ventures.

 

– NB: Minimum investment threshold lowered to USD 4.3 million for projects located in geographical areas with difficult or extremely difficult socio-economic conditions.

 

– Minimum investment threshold does not apply to O&M contracts.

 

– Reinforces Hanoi’s policy preference for large-scale high-impact PPP investments.

 

 

– Small-scale projects of significant social value may still require private sector investment and expertise, and thereby be unnecessarily excluded.

 

– Particularly relevant for smaller projects in health, education, science and technology, and environmental protection.

 

Statutory Definition of “Project Enterprise”

 

 

– The new law narrowly defines “project enterprise” to that of an entity executing and implementing a single PPP project contract. – Unclear policy objective but may be linked with desire to clearly ring fence projects for ease of administration (e.g. – assessing revenues and applying tax incentives). – This would seemingly prevent the enterprise from executing ancillary sub-projects connected to the primary project (e.g. construction of regasification assets connected to proposed gas turbine power plant development).

 

Assignment of Rights

 

 

– Restricts equity investors from assigning their shares/capital contribution/rights in a PPP project company until after the completion of the construction phase.

 

– Ensures only qualified investors are selected and thus genuinely capable of implementing the proposed project agreement.

 

 

 

– Rigidly prohibits assignment. Share ownership group structures should be flexible and allow for supplemental participation, including new and affiliate membership.

 

– The participation of new members can potentially add significant value and expertise to a project.

 

Contractual Governing Law

 

 

– The PPP project agreement must be governed by Vietnamese law.

 

In contrast to the incoming provision, the Vietnamese Civil Code permits parties to a PPP contract to select foreign law where the contract includes a “foreign element.”

– Projects are located in Vietnam and it is standard global PPP practice for the agreement’s governing law to be the same with that of the host government or procuring entity. – Important concepts of commonly used contract laws (e.g. English law) are not recognized under Vietnamese law.  For example, Vietnamese law does not recognize agreement on liquidated damages.

 

– The unpredictability of Vietnamese law will likely discourage foreign lending syndicates from providing debt funding and therefore significantly impact the project’s bankability assessment.

 

Dispute Resolution

 

– Where contractually agreed, parties to a project agreement may opt for international arbitration as a dispute resolution mechanism.

 

– The new law also references international treaties as a means to resolve disputes where applicable, leading to a possible application of formal Investor State Dispute Resolution.

 

– The potential to resolve disputes via international arbitration in a third country (i.e. Singapore International Arbitration Centre) is attractive and provides additional comfort to prospective foreign investors should a dispute scenario arise.

 

 

– Potential application of Investor State Dispute Resolution under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership / EU-Vietnam Free Trade Agreement is welcomed.

 

 

Viability Gap Funding

 

 

– Allocation of public funding designated for the construction phase, site clearance and compensation, and resettlement capped at 50% of the total investment amount. – Provides a tangible incentive for private investors to participate in projects which may otherwise not be economically viable or financially attractive.

 

–  Use of viability gap funding mechanism to attract investment is consistent with other comparative regional PPP markets (e.g. Indonesia, the Philippines, and India) and is welcomed.

 

Minimum Revenue Guarantee – Subject to satisfaction of certain conditions, where revenue reaches less than 75% of the revenue in the project’s financial plan, the government shall share with the investor and the PPP project company 50% of the difference between 75% of the revenue in the financial plan and the actual revenue realized. – Important financial risk allocation mechanism, providing additional encouragement to international financiers to join PPP infrastructure developments. – Availability subject to satisfaction of complex terms and conditions, heavily weighted against the private investor.

 

– Restricts revenue risk sharing to that of a change in plan, policy, or law scenario.

 

– Fixed threshold creates financial feasibility concerns.

 

– Threshold should be flexible and adjusted on a case-by-case basis, dependent upon the specific investment sector.

 

Financial Closing Timeline – Equity and debt financing into the project vehicle must be completed within 12 months (or 18 months for projects whose decisions on investment policy fall within the approval of the National Assembly or the Prime Minister) from the execution of the project contract.

 

– Deadlines ensure funding is provided in a timely manner, injecting the requisite equity and debt amounts into the project vehicle. – Too restrictive and unnecessarily prescriptive and threatens financial feasibility.

 

– Financial closing should be more flexible and account for the different forms of potential funding (i.e. bond solutions may take more time to prepare than bank solutions).

 

Step-in Rights: Lenders – Where a project contract is terminated early, the procuring entity, lender, investor, and project company have the ability to agree to coordinate with the government entity in the selection of an alternative investor.

 

–  This is more restrictive compared to the current position under Decree 63, whereby lenders have the right to step in on their own or to appoint another competent organization to take over all or part of the rights and obligations of investors and project companies if investors or project companies fail to discharge the obligations prescribed in the relevant project contracts or loan agreements.

 

 

 

 

– Allows participants to agree on the selection of an alternate investor should a termination scenario arise.  – Too restrictive and inconsistent with global PPP best practice. In practice, lenders will not lend without pre-agreed step-in rights recorded in Direct Agreements and we do not expect this to change.

 

 

Termination – Government may terminate in the “interests of the nation.” – Provides protection and contractual flexibility should proposed investments become unviable or inconsistent with the public interest. – Reference to national interests creates a very broad termination basis in favor of the government entity and is inconsistent with international best practice.

 

– Parties should be free to directly negotiate and define specific termination events in the project agreement.

 

Foreign Lender Security – The requirement to mortgage in accordance with the Law on Land remains, meaning that security over land use rights and real property is only available to domestic lenders. – The incoming law remains consistent with key Vietnamese concepts in relation to foreign legal interests over real property. – Foreign lenders’ inability to directly take security over land and assets attached to land is a serious impediment to attracting international project finance funding.

– The use of local security agents to hold land-related security remains fraught with uncertainty and practical constraints.

 

Change in Law – No specific stand-alone change in law provision. Government will however allow for amendment of project contract terms where changes in law result in actual project revenue to be 75% less than the anticipated revenue projected in the initial financial plan.

 

– Apparent policy decision to allocate change in law risk to investors though, more likely, in knowledge that terms will be subject to case-to-case negotiation and agreement.

 

 

– The PPP Law or government-issued contractual template should provide specific clauses protecting investors regarding change in law scenarios, as consistent with global PPP best practice.

 

– Particularly important given Vietnam’s evolving legislative landscape.

 

 

For more information, please contact Giles at GTCooper@duanemorris.com or Daniel Haberfield at DHaberfield@duanemorris.com or any of the lawyers in our office listing. Giles is Chairman of Duane Morris Vietnam LLC and branch director of Duane Morris’ HCMC office. Daniel is an associate in Duane Morris’ HCMC office.

Crunch time for PM’s decision on solar FIT2

In a 6 Feb 2020 report to the PM, the MOIT shares views received from the Ministry of Justice and Ministry of Finance on the long-awaited new FIT regime for solar projects. Interestingly, a new option has emerged: that FIT 2 could apply to all projects approved in principle prior to 23 November 2019 and that reach COD by 31 December 2020. While December 2020 is still very close and thus a practical limit, this option is still markedly broader than the MOIT’s earlier proposal that only projects that had commenced construction (with very narrow criteria of what that means) prior to 23 November 2019 (and reach COD by 31 December 2020) should be entitled to FIT 2.

If the PM accepts this new option it would significantly increase the number of already-approved solar projects potentially eligible for FIT 2. that would be welcome news for approx. 40 projects currently in FIT limbo.

With this document, it appears that all involved ministries and other stakeholders such as EVN have been formally consulted and their opinions formally shared with the PM. The ball is firmly in the PM’s court now.

See the original text of the 6 Feb report here: FIT 2

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.

BREAKING NEWS – Vietnam’s PM decides to do away with solar FiTs in favor of auctions

Get ready for auctions!  After months of confusion and uncertainty over the policy for solar power development in Vietnam Prime Minister Nguyen Xuan Phuc today issued his conclusions and looks to have signed the death knell for solar feed in tariffs (FiT) in favor of competitive auctions.

In Notification No. 402/TB-VPCP dated 22 November 2019, the Prime Minster concluded that rational future development of the sector necessitates introducing an auction system for ground-mounted solar projects.  FiTs will continue to apply only for rooftop solar projects and certain already-approved ground-mounted projects.

The decision comes nearly five full months after expiry of the blanket 9.35c/ kWh FiT issued in April 2017 that kicked off a huge, and largely uncontrolled, rush that culminated in some 4,500MW of solar generation capacity becoming operational by July 2019 and, reportedly, an incredible 35GW of registered interest.  The first number alone is some 500% more than the 850MW of solar that was planned to be operational by 2020 in National Power Development Masterplan 7 (revised as of 2016).  That both highlights just how frenetic the activity was and also how efficiently the private sector is able to get these projects developed, financed and constructed.  Just imagine what could be done with an international-standard PPA and a developed grid infrastructure.

The Prime Minister, in his conclusions, chides the MOIT for the helter skelter development over the past two years, with many projects concentrated in areas where grid infrastructure is unable to properly serve the facilities resulting in widespread curtailment problems.  The Prime Minister has urged the MOIT to learn its lessons and re-orient itself towards a new reality.  The gold rush days are over and developers can expect a more rigorous licensing and approval process for new projects now.

FiTs aren’t entirely dead yet though.  The Prime Minister’s conclusions suggest, without stating definitively, that certain projects will still be entitled to FiTs.  Specifically, ground-mounted projects that already have signed PPAs and can be put into operation in 2020 appear set to continue to enjoy FiTs.  Rooftop solar projects will also continue to enjoy FiTs.  The Prime Minister has instructed the MOIT to propose the final FiT terms, including a list of projects entitled to enjoy the new FiT, and present them for his approval by 15 December 2019.  While the number is still unknown, it is widely expected to be 7.09c for ground-mounted projects and stay at 9.35c for rooftop projects (which are favored due to not needing land to be allocated).

Certain, already announced, special rules for Ninh Thuan province will continue to apply with some adjustment.  Specifically, some already-approved projects in that province will continue to enjoy the 9.35c FiT but only until total operational capacity there reaches 2000 MW or until the end of 2020, whichever comes first.  The race is on there.

For all other ground-mounted solar projects, the Prime Minister has determined that competitive auctions are the way forward.  No doubt having an eye on the September 2019 auctions in Cambodia that resulted in solar tariffs as low as 3.87c, and record low prices in other markets around the world, this is seen as the appropriate way to marry investor appetite with actual conditions.  There is of course a huge question mark over how such auctions will function in practice and there remains a lot to be seen.  Most significantly, will there be any changes to the standard PPA terms to facilitate low prices.  If not, the market will have to put a firm price on the bankability and contractual risk.

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.

Playing by the rules: what is the value of the Singapore Infrastructure Dispute-Management Protocol in Vietnam?

Can a new Singapore dispute resolution protocol spur efficient infrastructure development in Vietnam?  It’s a question worthy of examination considering a slew of high-profile disputes, delays and cost overruns on major infrastructure projects in Vietnam in recent years.  Even more so considering forecast needs to spend more than US$300 billion on infrastructure in Vietnam over the next decade in order to serve the needs of Vietnam’s rapidly growing economy.

The answer is not clear cut.  While the protocol has clear prima facie value, the current legal framework in Vietnam isn’t supportive of a key fundamental principle: that outcomes of the process are binding on the parties.  However the time is right, and opportunity is ripe, for Vietnam to embrace the concept and make bold policy decisions backed up with legislative action.

New roads, bridges, ports, and power plants are all in high need in Vietnam and the government is hard at work improving the PPP legislation to facilitate and foster the conditions for successful projects.  Many such projects are complex and challenging, with numerous parties involved, and thus prone to disputes, or simply just differences of opinions that need resolving in order that works can complete. As a result, time spent developing, agreeing and implementing dispute resolution terms between involved parties is time well spent.  However it can also be inefficient and often unnecessary for parties to agree bespoke terms on a case-to-case basis.

Cognisant of the issues, and also no doubt sensing a potential market, a number of governmental and non-governmental organizations have developed best-practice standards, protocols and clauses that project investors and contractors can look to for support.  The latest comes from Singapore’s Ministry of Law, keen to cement Singapore’s reputation as a hub for all things infrastructure in Southeast Asia.  The Singapore Infrastructure Dispute-Management Protocol (SIDP) was launched in October 2018 and is intended to help parties involved in large infrastructure projects manage disputes and minimise the risks of time and cost overruns, thus maximizing chances of efficient delivery of infrastructure.

The SIDP doesn’t hide its ambition to serve mega projects, stating in its preamble that it is “designed and recommended for construction or infrastructure projects of more than S$500 million in value”.  Only a relatively small number of projects in Vietnam would fit that criterion though that doesn’t mean that concepts and recommendations underpinning the SIDP couldn’t be replicated by smaller projects.

So, what’s so good about the SIDP? Perhaps the most highlighted feature of SIDP is that it places a heavy emphasis on preventing disputes, or at least de-escalating differences, through detailed procedural terms and collaborative tools.  When parties agree to adopt the SIDP as their dispute resolution protocol, they must appoint a Dispute Board (DB) right at the outset of the project. The DB need not consist of lawyers, but can comprise industry experts and can vary from a single-person board to a multiple-member panel. The DB commences pro-active work right after establishment in the form of regular meetings and site visits.

While regular meetings are quite common in other dispute protocols, site visits are a relatively new feature.  Pursuant to the SIDP, a DB will conduct at least three site visits every 12 months unless otherwise agreed by the parties. The site visits aim at early detection of any potential problems. After each meeting and site visit, the DB will prepare a report with recommendation for early dialogue on real or potential issues, as necessary.

If the DB becomes aware of any differences between parties through site visits or upon request of the parties, the DB may move one step further by interviewing senior representatives of the parties to try to clarify, scope, and articulate the ambit of the differences. Such interviews are relatively informal with a view to enabling the DB to provide recommendations for specific processes or measures to resolve differences, ideally before they blow up or become entrenched or intractable.  These features represent the sensible underlying philosophy of the SIDP, in contrast with more traditional dispute resolution methods, that a ‘stitch in time saves nine’.

That is not to say that the SIDP doesn’t have teeth.  Should the parties involved feel the need to refer a dispute directly to the DB, a number of options are open for the DB to resolve the dispute, including by issuing an opinion on the matter in question or bringing the parties together for formal mediation.  Crucially, the SIDP provides that such opinions or results of mediation are binding on the parties.

There is no question that the SIDP is a well-conceived and thorough tool of great value to large infrastructure project participants. But how would it work in practice in Vietnam?

Operationally there is no reason to doubt that it would work just as intended.  The big issue for Vietnam is around the fundamental agreement of the parties that a DB decision or opinion or a DB-facilitated mediated agreement can be binding on the parties.  Without that, the efficacy of the protocol as a whole is called into doubt, at least from a purely legal perspective.

Take for example a case where a Singaporean-domiciled construction company provides services to a Vietnam-domiciled entity and the parties agree to use the SIDP to manage and resolve disputes.  Imagine that the parties do in fact effectively implement the SIDP during the course of their relationship, resulting in the DB handling a dispute and giving its opinion on the same (or facilitating a mediated settlement between the parties on the same).  Imagine further that the result of that process, agreed to by the parties, is that the Vietnam entity owes $100 million to the Singapore entity. The SIDP itself provides and envisages that the result of the SIDP process is automatically binding on the parties and that the courts of Singapore can act to enforce the same in the event that the Vietnam entity fails to comply.

The fact is however that there is currently no clear mechanism to enforce that against the Vietnam entity in Vietnam.  Vietnam law contains no terms that would enable the Singapore company to automatically enforce the DB decision, or a mediated settlement, against the Vietnam company in Vietnam.  The Singapore company could seek, and presumably obtain, a Singapore court award against the Vietnam entity enforcing the DB decision but then what?  In the absence of a formal bilateral judicial assistance treaty between the two countries, no special option under their bilateral investment treaty, and rare circumstances where a case for reciprocity might be made, there is essentially nil chance that authorities in Vietnam would act to recognize or enforce the Singapore court judgment in Vietnam under Vietnam law. One only has to look at the extreme difficulties international companies have had enforcing foreign arbitral awards in Vietnam – something for which there is an express legal mechanism in Vietnam law – to know that it would be mission impossible to enforce a foreign court decision.

As long as this remains the status quo in Vietnam, the true value of the SIDP in Vietnam is in doubt.  While there is inherent value in pro-actively managing, identifying and resolving disputes, if the final “agreed binding” outcome is, for all intents and purposes, worthless, why go to the bother in the first place?

Of course this is an extreme position and mega infrastructure projects tend to have many facets to them that count in favour of commercial settlements (not least of all government to government links that can add a political element to resolving disputes).  But lenders, contractors and their lawyers are duty bound to consider the harsh legal realities which currently speak against assuming that the SIDP can be an effective tool for use in Vietnam projects, especially where purely local counterparts are involved.

The time is right then for the government of Vietnam to take bold action, similar to its recent ISDS commitments in the CPTPP, to enable private commercial agreements on use of tools like the SIDP to mean something when push comes to shove.  Actions like this are a vital key to unlocking the private funds necessary to finance Vietnam’s vast infrastructure needs.

The opportunity also happens to be on the table right now in the form of a new UN convention on enforcement of international settlement agreements. Otherwise known as the Singapore Convention on Mediation, the convention would do for mediation what the New York Convention does for arbitration: provide an avenue to directly invoke and enforce mediated agreements in Vietnam, ostensibly without the courts re-examining the issues or interfering.  The Singapore Convention on Mediation was adopted by the UN General Assembly in December 2018 and will come into force when signed by at least three States. A signing ceremony for the Convention is expected to take place in August 2019 in Singapore.  One hopes Vietnam will be at the table.

***

For more information about Vietnam infrastructure projects please contact Giles at GTCooper@duanemorris.com.  Giles is co-General Director of Duane Morris Vietnam LLC and branch director of Duane Morris’ HCMC office.

Vietnam’s draft new solar tariffs – more sun, less cents, more sense

A new proposed tariff structure for solar energy projects in Vietnam sets out different rates for different irradiation regions and gives long-awaited indication of direction for the market after 30 June 2019.  On 29 January 2019, the Ministry of Industry and Trade (“MOIT“) released parts of a draft decision to update the country’s current feed in tariff (FiT) structure which is only valid until 30 June 2019 (the “Draft”).

The Draft is of course still just that, a draft, but forecasts a clear change in strategy with respect to FiTs.

Under the current FiT policy (regulated by Decision 11 and Decision 16) there is only one FiT for all projects regardless of location.  That is an internationally respectable FiT of 9.35 US cents per kWh for all on-grid solar power projects that achieve commercial operation date (“COD”) prior to 30 June 2019 (with the exception of some projects in Ninh Thuan province which have a later COD timeline).

The Draft however sets out a wide range of differing FiTs that vary based on: (i) when COD happens, (ii) location (3 regions are identified based on solar irradiation data), and (iii) the type of solar projects (i.e., floating, ground-mounted, integrated storage system or rooftop solar).

The table below shows what the Draft contemplates:

Projects with COD from 1 July 2019 to 30 June 2020

 

Solar power types Region 1 (see regions below)

(28 northern provinces with annual solar irradiation of up to 1,432.8 kWh/m2/year)

Region 2

(6 central provinces of Vietnam with annual solar irradiation of up to 1,676.1 kWh/m2/year)

Region3

(29 central highlands and southern provinces of Vietnam with annual solar irradiation of up to 1,910.3 kWh/m2/year)

VND / kWh US cent equivalent VND / kWh US cent equivalent VND / kWh US cent equivalent
Floating solar power projects 2,135 9.35 1,838 8.05 1,612 7.06
Ground-mounted solar power projects 2,095 9.18 1,802 7.89 1,583 6.94
Solar power projects with integrated storage system N/A N/A N/A N/A 2,052 8.99
Rooftop solar power projects 2,448 9.85 1,933 8.47 1,697 7.43
Projects with COD from 1 July 2020 to 30 June 2021

 

Floating solar power projects 2,028 8.88 1,746 7.65 1,531 6.71
Ground-mounted solar power projects 1,990 8.72 1,712 7.50 1,504 6.59
Solar power projects with integrated storage system N/A N/A N/A N/A 1,949 8.54
Rooftop solar power projects 2,023 8.86 1,740 7.62 1,527 6.69

 

While no changes will please everyone, especially the many developers who have committed considerable resources based on assumptions of the current FiT rate, the changes still indicate strong support for solar power projects generally and a rational approach to reflect the markedly different irradiation levels across the country.  Such an approach should take some pressure of heavily-stretched Southern hotspots (stretched from both power infrastructure and bureaucratic bottleneck perspectives).

We will continue to monitor this and update further as possible.  Meanwhile, we’d be delighted to hear views from developers and financiers about the change of strategic policy direction and FiTs forecast by the Draft.  Get in touch and tell us what you think.

Region 1: comprising 28 northern provinces of Vietnam with annual solar irradiation of 1,225.6 – 1,432.8 kWh/m2/year or daily solar irradiation of 3.36 – 3.92 kWh/m2/day. Including: Ha Giang, Bac Kan, Cao Bang, Tuyen Quang, Thai Nguyen, Lao Cai, Yen Bai, Lang Son, Quang Ninh, Phu Tho, Vinh Phuc, Bac Giang, Hai Duong, Hoa Binh, Hanoi, Ha Nam, Bac Ninh, Hung Yen, Hai Phong, Ninh Binh, Thai Binh, Ha Tinh, Nam Dinh, Quang Binh, Thanh Hoa, Lai Chau, Nghe An and Son La.

Region 2: comprising 6 central provinces of Vietnam with annual solar irradiation of 1,456 – 1,676.1 kWh/m2/year or daily solar irradiation of 3.99 – 4.59 kWh/m2/day. Including: Quang Tri, Dien Bien, Thua Thien Hue, Quang Nam, Da Nang and Quang Ngai.

Region 3: comprising 29 central highlands and southern provinces of Vietnam with annual solar irradiation of 1,703.9 – 1,910.3 kWh/m2/year or daily solar irradiation of 4.67 – 5.23 kWh/m2/day. Including: Kon Tum, Ca Mau, Hau Giang, Binh Dinh, Phu Yen, Bac Lieu, Kien Giang, Soc Trang, Gia Lai, Can Tho, Vinh Long, Tra Vinh, Dak Lak, Khanh Hoa, Lam Dong, Ben Tre, Tien Giang, An Giang, Dak Nong, Ho Chi Minh City, Dong Nai, Dong Thap, Ba Ria – Vung Tau, Long An, Binh Duong, Binh Phuoc, Tay Ninh, Ninh Thuan and Binh Thuan.

For more information about Vietnam’s solar and renewable energy sectors, please contact Giles at GTCooper@duanemorris.com, Tran Thanh at MTTran@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.

新規PPP関連法が立てうる、ベトナムのインフラ開発への道筋

著者:Giles T. Cooper

翻訳:志澤政彦(Masahiko Shizawa)

原文:https://blogs.duanemorris.com/vietnam/2018/06/19/will-a-new-ppp-law-pave-the-way-for-vietnams-infrastructure/

インフラというボトルネックに、ベトナムの急成長が直面している。政府には、今まさに必要な道路、鉄道、トンネルに資金を投下できるほどの予算がない。そこで専門家が目を向け始めているのは、民間セクターである。

この制約がある以上、非国家セクターの資金を輸送インフラ開発のため継続的に活用することが今すぐ必要となる。アジア開発銀行(ADB)によれば、2015年から2020年までの間のインフラへの投資のため、ベトナムは最大170億米ドルを必要とするだろうとのことである。

近年、ベトナム政府は官民連携(PPP)プログラムの下で投資プロジェクトに透明性を与えるよう進めてきた。PPPは、政府機関と民間投資家が協同してなす投資の一形態であり、インフラの建設、修復、運営、並びに管理、及び公共サービスの提供のために行われる。政府はPPPにより、開発目標達成のため民間セクターの効率性と専門性を活用することができる。

そうはいっても、そうしたプロジェクトの持続的な実施を阻む欠点や限界があり、現状で名乗りを上げるのに投資家は慎重を期している。

投資を勧奨する政令が提出されてきてはいる。しかし、その条件は魅力的とはいえず、そのようなプロジェクトに必要な柔軟性がないとの批判もある。PPP投資活動の主な規制は以前、PPP投資に関する政令15/2015/ND-CP号及び入札法の実施指針である政令30/2015/ND-CP号であった。

この国は、1990年から2016年までに総額162憶米ドルにも及ぶ84件のPPPプロジェクトを実施してきている。うち79%はエネルギー関連のものであった。 一方、2011年のPPPパイロットプログラムが制定されて以来、この法的枠組みを利用した新規PPPプロジェクトは一切登録されていない。

政府は最近、政令15/2015を改正し、ベトナムにおけるPPPプロジェクトの分野、投資条件、手続を特定した政令63/2018(政令63)を発行した。この新たな政令により、PPPプロジェクトにおける投資家の資本比率が20%にまで引き上げられる。政令63は2018年の6月に施行された。

これで十分といえるか

BOT(Build-Operate-Transfer)方式とBT(Build-Transfer)方式のプロジェクトに対する調査・監査結果によれば、そのほとんどにおいて、投資家選定の際の入札が限定され、低い競争性と透明性の欠如を招いたとのことである。また、プロジェクトの通知は未だにオープンな方法で実施されていない。

同時に、プロジェクト実施の管理は非効率的であり、建設作業の低質化等の様々な問題を引き起こしている。

これらの問題に対応して投資を促進するため、ベトナム国会は政府に、上記のような難点や法的制限を取り払うようなPPP関連法を作るよう求めた。

PPP関連法の成功に必要な3要素

  • 明確なリスク共有メカニズム

当局は未だ、政府がデベロッパーのため一定の最低収益を保証し、それに至らない場合に補填するようなリスク共有メカニズムを、明確に打ち出してきてはいない。この点は、プロジェクトがしばしば重大なリスクを伴うインフラの場合には特に重要である。規制の明確さにより投資家の信頼を得られるのではないだろうか。

現状のモデルでは、ほとんどのリスクを民間セクターに転嫁してしまっている。民間の投資家や事業者の誘致には、透明性のある政策枠組みと公平なリスク分配が鍵である。同様に、明確に定義されたプロジェクトの射程と期待できる金銭的な利益の適切な保証を伴った魅力的な取引のストラクチャーによって、PPPへの参加が奨励されるものと思われる。

  • 為替レート保証

長期的な融資は外貨によってなされるものの、ベトナムのインフラプロジェクトの収益は現地通貨ベトナムドンによる。これだと、プロジェクトの収益性に負の影響をもたらす。新たなPPP関連法を成功に導くには、長期的な建設プロジェクトの中で投資家が同等の交換レートを確保できるよう、政府による兌換保証メカニズムを盛り込む改善が必要となろう。

海外への外貨送金の制限も縮小される必要があろう。

こうした障害や通貨変動のリスクは、投資家の信頼に大きな影響を与える。これらを取り除くことが、この国の継続的前進に必要な種類のプロジェクト誘致に重要であろう。

  • 金銭的インセンティブ

典型的な長期投資であるインフラプロジェクトには、投資家に巨大な建築に必要な20年から30年もの間の関与をさせるため、対価としての追加のインセンティブや収益の保証が必要となろう。

このリスクを相殺するために、政府は開発の波及的効果の一部を投資家に報いることを考えてもよいだろう。インセンティブがあれば、収益が交通の流れや将来の予測不可能な状況に依存するといった、インフラ開発に内在的な不確実性を減らすことができるだろう。

要するに、やる気のある投資家の誘致にベトナムが必要なのは、信頼できる政策及び規制、加えて投資家の信頼を得られるようなPPPに特化した政府部門といった、透明性、公平性、予測可能性を確保できる枠組みである。

ライフサイクルコスト、安全性、レジリエンス(強靭性)、そして環境への影響といったその他の要素も、考慮される必要がある。

ベトナムのインフラ開発への需要は揺るぐまい。しかし、現状の立法状況が実現可能または収益性のあるPPPプロジェクトに繋がるとはいえない。PPP関連法の上述のような点をクリアにすれば、透明性を向上し、この国に目を向けている事業体のリスクを減らし、もって状況の改善が見込めるだろう。

ベトナム投資に関する情報については、GTCooper@duanemorris.comよりGiles弁護士または当事務所の弁護士一覧の弁護士にお問い合わせください。Giles はドウェイン・モリス・ベトナム法律事務所の共同代表であり、ドウェイン・モリス・ホーチミン支所の支所代表です。

ベトナム:インフラ開発のジレンマにグリーンボンドは効くか著者:Giles T. Cooper

翻訳:志澤政彦(Masahiko Shizawa)

原文:https://blogs.duanemorris.com/vietnam/2018/05/15/are-green-bonds-the-answer-to-vietnams-infrastructure-dilemma/ 

ベトナムを含む東南アジア諸国では、急成長とともに安定した資金源の確保が困難になってきた。

このことは、インフラ事業において顕著である。アジア開発銀行(ADB)の報告書によると、経済成長に伴い、2030年までにこの地域では2.8兆米ドルに相当する道路、橋梁、鉄道が必要になるとされている。

不安定さを増す政治情勢に直面している東南アジア諸国は、この先数年のインフラ開発の資金調達の選択肢としてより安全なものに目を向けている。「一帯一路」政策の下ですでに1兆米ドルものプロジェクトを支援してきた中国への過剰依存は、国内的解決策を経済が志向するにつれ、その規模が縮小されていくものであろう。従前に表明した境界線を踏み越えようとする中国の計画への恐怖は、資金の不正流用及び失敗したプロジェクトという具体的教訓と相まって、この地域周辺の国々に「一帯一路」の活用の再考を迫ってきた。

南シナ海の領域問題をめぐる政治的緊張及び増加傾向にある国際的な保護主義を前に、ベトナムのような国々は将来的な資金調達を自前で行う途を探る方向でいる。この地域全般で国家予算への負担は増加傾向にあり、この先数年で強く求められる成長のため投下すべき他の資金元を探そうとしている。一つの提案は、「グリーンボンド」の発行促進である。

「グリーンボンド」について知らなければならないこと

グリーンボンドは債券の一つであるが、発行者によって調達された資金は「グリーン」なプロジェクト、つまり、環境に配慮し、気候への懸念を考慮に入れたものに割り当てられる。グリーンボンドの発行が特に利益になるセクターは、再生可能エネルギー、インフラ、および建設業界である。

道路、橋梁、トンネル、そして鉄道の建設には、地域的及び全国的な気候に多大な負担をかけてしまう。そのため、環境フットプリントの低減を志向するプロジェクトの優先度は最も高い。

環境に配慮したプロジェクトに資金調達を集中させることに加えて、グリーンボンドは発行者の持続可能な開発への取り組みの深さを強調する意義もある。さらに、発行者はグリーン・ベンチャーにのみ投資をする特定のグループのグローバル投資家にアクセスできるようになる。国外のプレーヤーによるグリーンな投資への注目が高まっている中、資本調達のコスト削減にも貢献しうる。

ベトナムにとって意味するものとは

ドイツの開発機構であるGIZによれば、現在の炭素依存的成長からより持続可能な道筋へと移行し、その約束草案(Intended Nationally Determined Contribution、INC)に向けた行動をとるため、ベトナムは2020年までにおよそ307億米ドルを必要としている。

グリーンな成長のための資金のうち30%程度は国家予算、すなわち中央と各省の予算及び政府開発援助、からの拠出が見込まれているが、残りは民間セクターから供給されることとなるとみられる。

ベトナム政府が2011年から2020年の期間について承認したベトナム・グリーン成長戦略(Vietnam Green Growth Strategy, VGGS)の下では、資本市場がその目標達成のカギとなるだろう。グリーンボンドが死活的な役割を果たすのは、まさにこの点においてである。グリーンなプロジェクトや事業体のため特別に資金調達を行い、グリーンな商品のデリバティブの流通の素地を作り、さらに民間セクターの投資を持続可能な開発のため活用することになる。

国外からの関心としては、ベトナムのグリーンボンドの発行により、持続可能な開発、再生可能エネルギー、そして環境に配慮した成長を志向している国際投資家の誘致が期待されている。世界中の投資家が、気候変動の課題やエネルギーの移行につき、前にも増して注視している。環境問題を考慮に入れた投資ツール、特に開発途上国におけるものについて要求する投資家は、増加の一途を辿っている。

この地域で、ベトナムが持続可能な資金調達の見通しを見据えている唯一の国というわけではない。アセアン・グリーンボンド基準(ASEAN Green Bonds Standards、AGBS)が2017年11月に開発・実行され、アセアンでのグリーンボンドの発行に共通の基準が制定された。マレーシア、シンガポール、インドネシアの会社は、すでにアセアン・グリーンボンドと称された債券を発行している。

これらのグリーンボンドの発行によって調達された資金は、再生可能エネルギー、廃棄物処理、グリーンな建築物やインフラといった、持続可能性の要件を満たしたプロジェクトに配分され、さらに統合、連帯、アセアン全体の成長といった共通の目標に貢献するものである。何よりも、地域のリーダーたちは将来世代の犠牲のもとに成長は成り立たないことに気づいてきている。AGBSのような新たな取り組みが、環境に配慮した投資への資源の分配を促進するだろう。

成長不全を来しているグリーンな成長

2020年までに達成されるべき指標の一つは、グリーンボンド市場を、現在およそ90兆米ドルのグローバル債券市場の少なくとも1%にまで拡大することである。これを現実のものとするため、ソブリン債発行者は断固たる決断をする必要がある。

流動性の欠如、債券の構造の限定的な多様性、及び確実に収益の見込めるプロジェクトの定期的で大きな流れの不在といったものが、未だにアジアの現地通貨によるグリーンボンド市場の特徴である。

加えて、社会的責任を果たそうとしている投資家からの恒常的な要求はまだ限定的であり、この市場の成長の可能性を阻んでいる。

そうはいっても、ソブリン債発行者が環境を整備し、強力な枠組みが適用される限り、現地通貨でのグリーンボンド市場の成長の見込みは大きい。制約となりうるのは、確実に収益の見込めるグリーンな投資の数と大きさであろう。

もしベトナムが「グリーンボンド」の動きを十全に活用しようとするなら、上述したような方法での資金の注入が解決策を示してくれるだろう。それは、インフラ事業における資金調達の穴を埋め、より速い拡張に向けた基礎を固め、そして、これまで長い間痛めつけてきた環境には休息をもたらすものであるはずだ。

ベトナムのグリーンボンドに関する情報については、GTCooper@duanemorris.comよりGiles弁護士または当事務所の弁護士一覧の弁護士にお問い合わせください。Giles はドウェイン・モリス・ベトナム法律事務所の共同代表であり、ドウェイン・モリス・ホーチミン支所の支所代表です。

What’s next for green energy in Vietnam – 4 steps to the future

Now that the United States has retreated from the Paris Climate Accords, and relinquished its leadership role in the fight against climate change, it remains to be seen whether smaller nations will stick to their pledges of greenhouse gas reduction.

Eyes are on countries like Vietnam to see if they keep to their commitments or revert to the pursuit of cheap and dirty coal-powered solutions for their energy needs.

Vietnam, in particular, faces some of the biggest risks. Global warming is a major threat to the country, where rising sea levels are predicted to swallow up nearly half of the Mekong Delta, a crucial area for domestic food production, in coming decades.

Currently, coal-fired plants in Vietnam contribute to thousands of premature deaths and air quality in big cities is getting worse. In 2017, the capital Hanoi enjoyed just 38 days of clean air, with contaminant levels four times those deemed acceptable by the World Health Organization.

Business as usual?

Unlike Obama, the Trump administration seems unlikely to apply any real pressure on other countries to pursue clean energy or combat climate change, and so it will be up to domestic forces to really push for change.

According to the government’s current national plan, electricity generated from coal will rise five-fold between now and 2030, and GHG emissions will increase in lockstep. This is at odds with Vietnam’s pledge to the Paris Climate Accord, which targets 8 percent emissions reduction by 2030, and could rise as high as a 25 percent reduction with international support, such as financing for solar panels and wind turbines.

Energy and environment experts worry that the country’s next national power development plan, which is under revision this year, could hold to those figures or, worse, embrace a more aggressive coal strategy.

The story, however, is not all doom and gloom. Vietnam does have the potential to become a regional clean energy leader, if only the country’s energy development and investment environment can be reshaped. Business involvement in this process will be crucial, as the commercial and industrial sectors consume more than 60 percent of Vietnam’s electricity.

Khanh Nguy Thi, founder of the Vietnamese nonprofit Green Innovation and Development Centre, recently won the 2018 Goldman Environmental Prize for her work convincing state agencies to increase their use of renewable energy. Her efforts were instrumental in halting the construction of two hydropower plants in a national park and securing a 20,000 MW reduction in planned coal expansion.

Government leaders have also demonstrated a desire to utilise Vietnam’s abundant sunlight and over 2,026 miles of coastline in the pursuit of renewable energy.

4 solutions for a sustainable energy sector

Clearly, clean energy opportunities are available, the question is how to encourage more investment. Obstacles persist with the regulatory environment, preventing the country from tapping its potential in this area. Here are four small changes which could bridge the gap between policy and implementation, ensuring the green energy dream becomes a reality:

  1. Streamline regulations regarding Power Purchase Agreements (PPA) and support the use of Direct Power Purchase Agreements (DPPA).

Negotiating standard PPAs with EVN, the sole power purchaser, is time-consuming, which cause rising total project costs. The streamlining of such deals would render them more attractive to power producers and cut lengthy approval time, which often leads to execution delays or complete abandonment of projects.

USAID and Vietnam’s Ministry of Industry and Trade are working together to enable private sector electricity buyers and renewable energy providers to enter into DPPA. This would allow industrial energy buyers to purchase electricity directly from independent renewable energy producers.

Such a mechanism would help companies enjoy constant power prices and ultimately save power costs. By signing a long-term DPPA to buy power from a clean energy generator, businesses can have a constant power price, reducing risk and helping firms establish long-term business plans with no surprises down the road.

  1. Improve the transparency of electricity rate forecasting.

Electricity prices will have to increase in order for Vietnam’s national utility to finance new energy projects, but the schedule for such increases remains vague. Better transparency of expected price increases will allow buyers and investors to more accurately value fixed-cost renewable energy contracts, which can offer some price protection.

Additionally, improving the quality and sourcing of data on renewable energy can help clarify for investors available locations, infrastructure capabilities and government targets, as well as other information to help reduce risk on investment decisions.

  1. Encourage supporting industries.

Supporting industries plays a crucial role in the development and adoption of renewable energy technologies. The government should promote domestic SMEs through capital subsidy and incentives such as tax breaks and preferential loans. A competitive supporting industry will help in reducing the tariff and investment costs for renewable projects, nurturing their development as part of Vietnam’s energy sector.

  1. Develop a renewable energy model for industrial parks.

Given the expectation that industrial areas will continue to play a big role in Vietnamese manufacturing and commerce, these parks are an important place to explore renewable solutions. Aggregating demand from tenants in the parks would help scale clean energy and make it more affordable for all.

Green power pioneer

Renewable energy has the capacity to power Vietnam and with the right policies in place, the country can deliver affordable, safe and clean power for continued economic growth.

Vietnamese businesses and the government could chart an unprecedented course for clean energy, and represent a role model for Southeast Asia — if they can address some key barriers. The changes detailed above would help drive the country’s energy transition toward a sustainable, greener future, and demonstrate that the fight against climate change can continue without American leadership.

For more information about Vietnam’s renewable 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.