A foreign entity wishing to supply a power plant on a turnkey basis, must establish a legal presence in Vietnam by way of registering:
• a contractual business co-operation contract (akin to a partnership); or
• a joint venture enterprise; or
• a 100% foreign owned enterprise (i.e. a wholly owned Vietnamese subsidiary).
The Law on Foreign Investment in Vietnam permits business to be conducted in Vietnam through any of these entities.
Once the presence is established (with all the requisite approvals) the entity must obtain an approval and licence for carrying out construction work from the Ministry of Construction of the Socialist Republic of Vietnam. Licences issued by the Ministry of Construction are project specific and are not transferable.
It is likely that a foreign entity would choose to undertake such a project as a joint venture, with the foreigner providing the technical project managers, technical equipment and capital and the local partner providing the local construction workers. In fact, there is some uncertainty as to whether a foreign contractor can employ local labour directly and there is a requirement in any event that foreigners give preference to local labour and materials.
Further, if a foreign entity wishes to package a project (rather than act as a subcontractor as envisaged above), it must undertake the normal prequalification procedures typical of such projects. To obtain approval to erect a power plant in Vietnam approval from the Ministry of Energy, the Ministry of Industry and Trade, the Ministry of Science Technology and the Environment and the State Committee of Cooperation and Investment would all need to be obtained. No guidelines of how each department would assess a power project have been issued. In addition, approval from the People’s Committee where the plant is to be erected must be obtained. While no power plants have been put out to tender recently, the governing laws envisage the following procedures at least as far as the construction is concerned:
• Production of a feasibility study addressing, amongst other things, the necessity of the investment, ability to source raw materials, environmental impact, sourcing of equipment, the project structure and funding.
• Once the feasibility study has been approved and licences issued, the contractor will need to submit detailed technical designs for further approval by, amongst others, the Ministry of Construction. Only upon these later approvals being obtained may construction commence. If the foreigner wishes to sell equipment (without undertaking any obligation in relation to construction) to a packager who has obtained all the approvals necessary to construct a power plant, it may do so and, depending upon whether or not it is sold from within (unlikely) or outside Vietnam, the licensing of a legal presence may or may not be required.
It should be noted that the Vietnamese have placed restrictions on the import of used equipment. A foreigner is entitled to contribute equipment to the capital cost of a joint venture although there have been suggestions, in the past, that the value of used equipment has been inflated. Accordingly, it may be difficult to sell used power plants to Vietnam (unlike the Philippines) without special approval being obtained and, even then, arguments as to the equipment’s value may arise.
Finally, Vietnam has issued Regulations on Build – Operate – Transfer Contracts. Equipment which is sold to a BOT Company will be exempt from import duties. However, these duties will become payable if the BOT company then sells or transfers such equipment within Vietnam. If a foreign entity wishes to undertake a BOT project, such project may be put to tender or undertaken by direct negotiation.
In addition to the rules of the various countries, contractors should bear in mind the rules of organisations such as the World Bank, Asian Development Bank, Inter American Development Bank or the International Bank for Reconstruction. Whenever one of these organisations funds a project in a country, they insist on their procurement rules being followed in addition to whatever rules are already existing in that country. For instance, the World Bank prefers the International Competitive Bidding Guidelines to be used. Copies of these rules can be obtained from the respective organisations.
Please do not hesitate to contact Oliver Massmann under email@example.com if you have any questions on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.
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