Tag Archives: energy

VIETNAM – WHY YOU SHOULD INVEST IN RENEWABLE ENERGY NOW

It has never been easier and more beneficial to invest in renewable energy in Vietnam. The country has one of the most sun hours during the year and boasts a 3000km coastline suited for wind power development. The Government has been encouraging foreign investment in this sector by naming renewable energy one of the 5 sectors eligible for Public-Private Partnership development and the vast benefits thereunder, issuing standard Power Purchase Agreements taking into account opinions of foreign investors as well as Feed-in-Tariff (FiT) rates for wind and solar power projects, ratifying the EU-Vietnam Free Trade Agreement, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and so on.

I. Analysis of the energy sector in Vietnam

Vietnam has attained many successful achievements in the energy sector in the past 10 years. Oil and gas development output has increased, forming a number of large-scale petrochemical refining facilities; wind and solar power projects developing at high speed. However, as energy consumption increases and consumption structure shifts towards industrialization, Vietnam faces increasing energy import. Some indicators of energy security are already moving in an adverse direction. On top of this, the mass use of fossil energy sources has severely polluted the environment despite strict penalties measures.

In response to this, the Government has promoted the development of renewable energy sources to fully replace fossil ones. It is also encouraged to use wind, solar and hydrogen power for electricity generation, especially rooftop and water surface solar projects as well as offshore wind projects. Moreover, investors are encouraged to invest in the construction of power plants using urban waste, biomass and solid waste.

Promoting the development of renewable energy sources is a feasible and effective solution to counter power shortage issue because renewable energy projects can be constructed quickly and promptly for operation in the period 2021-2023, while taking advantage of the country’s natural potential without relying on extraneous factors such as imported fuels and is eco-friendly.

By 2030, Vietnam expects to see about 20% of renewable sources in the total primary energy supply. By 2045, this is anticipated to increase to approximately 30%. The Government is also looking to import about 8 billion cubic meters of LNG by 2030 and 15 billion cubic meters by 2045.

Vietnam aims to make gas electricity an important power supply source, especially gas-fired thermal power projects using LNG. The country is looking to improve technology for the exploration and development of domestic gas sources. It is commendable to develop thermal power projects synchronously from fuel supply, storage to plant construction phase with the electricity-selling price determined through bidding.

Solar power energy

Under Decision 13/2020/QD-TTg, the FiT rate is 7,09 US cents/kWh for grid-connected projects that have Decision on Investment Policy approved before 23 November 2019 and Commercial Operation Date (COD) between 1 July 2019 and 31 December 2020. With respect to Ninh Thuan province, purchase price of electricity in grid-connected solar power projects included in electricity development planning with COD before 1 January 2021 and capacity of no more than 2000MW is 9.35 US cents/kWh.

The FiT rate for floating PV project is 7,09 US cents/kWh. For rooftop projects, the rate is 8,38US cents/kWh but this is negotiable if the purchaser is not Electricity Vietnam (EVN).

On 31 August, the Ministry of Industry and Trade issued Circular 18, which entails the new standard Power Purchase Agreement (PPA) for grid-connected and rooftop solar power projects. The new PPA has helped to solve the lack of regulations on solar power projects since July last year. However, the template contains concerning provisions for investors, namely (i) the lack of EVN’s payment obligation in case of transmission problem, (ii) the lack of transparent possibility for international arbitration and (iii) the lack of bankability. Though parties can supplement details to the Agreement, such changes must not derogate substantially from the provision of the standard template.

Wind power energy

Under Circular 02/2019/TT-BCT, the FiT rate is 8,5 US cents/kWh for onshore projects and 9,8 US cents/kWh for offshore projects. The deadline for these rates is 1 November 2021. From then onwards, the Government is looking into the option of implementing the auction mechanism for the sale and purchase of wind energy with a view to promote competitiveness and transparency within the power market. The Ministry of Industry and Trade has been proposing to extend the FiT rate for wind power projects until the end of 2023 in order to give investors ample time to put their plants into operation. The standard template for wind power purchase agreement is also available under Circular 02.

Currently, the electricity grids in Vietnam is experiencing overload, leading to power plants have to operate below their maximum capacity. This has evidently resulted in breakdown of equipment and financial loss. EVN is the only company in Vietnam authorized to carry out upgrade for grids, so it can be very time-consuming for investors having to wait while they also have the expertise and funding to step in and ameliorate the grids. The issuance of a pricing framework leads to more investment in off-grid projects, thus relieving pressure on the transmission system.

Bioenergy

Bioenergy is the production of energy from biomass materials such as the byproducts of agricultural, food and forestry industries, as well as domestic and industrial waste management systems.

In Vietnam, metropolitans like Hanoi and Ho Chi Minh City have been dealing with rapidly increasing amount of waste and air pollution caused by the popular method of burning them. For instance, statistics produced by the Government show that HCM City produces more than 9000 tons of waste per day. As a result, Vietnam has strongly encouraged investment in the waste-to-electricity sector in order to protect the environment and boost energy efficiency.

In 2014, the Prime Minister issued Decision 31/2014/QD-TTg on supporting mechanisms for development of power generation projects using solid waste in Vietnam. Notable incentives include: (i) An obligation on purchaser to buy all power produced by the plants under its management, (ii) Exemption from import tax for goods imported to create fixed assets for the project and (iii) Land rent reduction/exemption (subject to the project’s location). The FiT rate is 10.05 US cents/kWh for projects that burn solid waste directly and 7.28 US cents/kWh for projects that combust gas collected from landfill. The standard PPA for solid waste-generated power projects that are connected to the grid is issued in Circular 32/2015/TT-BCT.

Hydrogen power

The only materials required for hydrogen production are nature-granted elements water and sunlight radiation, meaning hydrogen is an inexhaustible source of fuel. The use of hydrogen power has been strongly encouraged by the Vietnamese government given its eco-friendly characteristics and the fact that it can be used to build independent power stations that self-supply to cities without being connected to the national grid – which is almost overstressed daily during peak hours.

Hydropower is used in a fuel cell, which does not generate any types of pollution and has higher efficiency rate as well as save more energy compared to internal combustion engines (used for the burning of gas, oil and other fuels with air). Fuel cells are definitely a promising renewable energy source and investors are encouraged to explore the option of developing hydrogen projects in Vietnam.

II. The role of major trade agreements in supporting foreign investors

Foreign investors engaging in the energy sector can reap the benefits of various business guarantees under the EU-Vietnam Free Trade Agreement (EVFTA), the EU-Vietnam Investment Protection Agreement (EVIPA), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the Law on Investment in the form of Public-Private Partnership (PPP), the new Law on Investment 2021 and so on.

The EVFTA came into force on 1 August 2020 and is applicable to investors from the European Union. The EVIPA has been ratified and is pending the EU’s Parliament consent to be enforceable. The CPTPP took effect since 14 January 2019, its signatories including strategic allies to Vietnam such as Japan, Canada, Australia and Singapore. Many provisions under these two major trade agreements are directly related to investment in renewable energy sector, namely Government Procurement and Investor-State Dispute Resolution.

Government Procurement

Government procurement, in general, is the process in which a governmental authority (the procuring entity) purchases goods or acquires services for public purposes. Vietnam, for the first time, engages in international government procurement commitments through the CPTPP and EVFTA. The Government Procurement Chapters (Chapter 15 in CPTPP, and Chapter 09 in EVFTA) feature the determination of Vietnam to open the public procurement market. Specifically, Vietnam commits to enhancing transparency in the selection of contractors by disclosing bidding information and removing unnecessary qualification procedures. Concurrently, Vietnam recognizes the fair, impartial and confidential treatment of tenders. At the moment, Vietnam has implemented online bidding mechanism that allows investors to easily find information on quantity and price of a bidding package. Template dossier used for goods procurement and related consultancy are also published online.

It should be noted that there are some substantial differences between CPTPP and EVFTA with regard to government procurement. First, in CPTPP, Vietnam only commits to opening procurement by 21 ministries and central authorities. In the EVFTA, however, the scope of procuring entities is broader. In addition to central authorities, sub-central authorities and state-owned enterprises, public hospital, public institutes and universities are also entitled to partake in government procurement process. Second, the EVFTA sets out more circumstances in which a supplier shall be excluded from participating in procurement, including (i) insolvency; (ii) false declarations; (iii) significant deficiencies in the performance of substantive obligations in prior contracts and (iv) failure to pay taxes.

The Government Procurement mechanism is expected to provide opportunities and benefits for foreign investors in a way that they can compete fairly and transparently with Vietnamese state-owned enterprises (SOEs).


Dispute Resolution

Foreign investors are given high level of protection under the EVIPA. This Agreement is the combination of the New York Convention 1958 and the ICSID 1965. The EVIPA and CPTPP make it possible for foreign investors to sue the Vietnamese Government for its investment related decisions. The final arbitral award is binding and enforceable regardless of questions from the local courts regarding its validity.

In particular, EVIPA stipulates a two-tier arbitration mechanism, in which parties can appeal if they are not satisfied with the first award issued by the arbitration panel. However, if neither disputing parties has appealed against the provisional award, it shall become final and “shall not be subject to appeal, review, set aside, annulment or any other remedy” (Article 3 of the EVIPA).

There have been more and more energy projects operated by foreign investors in Vietnam. This inevitably leads to growing number of disputes between the State of Vietnam and investors. The interests of foreign investors, however, shall be fairly and completely protected by the dispute settlement mechanism under the EVIPA.
At the moment, Vietnam has reserved the right to fulfill this commitment for 5 years from the effective date of the EVIPA. Nevertheless, Duane Morris Vietnam has the legal and technical tools to make such provisions work in favor of investors from now.

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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.

VIETNAM – SOLAR POWER – MOIT’s PROPOSAL ON SOLAR POWER AUCTION POLICY – WHAT YOU MUST KNOW:

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 solar projects. FiTs will continue to apply only for rooftop solar projects and certain already-approved ground-mounted projects. Thus, the PM had instructed the MOIT to prepare and proposal solar power auction policy for his consideration and approval.

On 19 March 2020, the MOIT has finally submitted 3 options for implementation of competitive auctions on solar power projects to the PM under its Proposal No. 1986/TTr-BCT (“Proposal“). However, MOIT has suggested the PM to implement Option 1 first in the period up to June 2021. In terms of Options 2&3, MOIT would keep working on the pilots for implementation and report the PM for approval later. The MOIT also advised the PM to consider approving addition of 21 solar power projects into the power development plan after policy for Option 1 has been adopted.

Under the Proposal, 4000 MW solar power capacity must be supplemented for the period up to 2025 and 5,600 MW solar power capacity must be supplemented for 20226 – 2030.

In brief, the key contents of three Options are as follows:

Option 1: The plan is to select solar power projects based on competitive power prices offered by the investors. Total pilot capacity for participating the auction is approx. 1600 MW of which (i) 600 MW of solar power projects which already added into the power master plan and (ii) 1000 MW solar power projects which have not yet included in the power master plan approval. The final capacity is awarded to be only 1000 MW. This plan will be conducted up to June 2021. The ceiling competitive price for auction is FIT2 i.e., 7.06 UScent for ground-mounted projects and 7.69 UScent for floating projects. The most competitive price offers will be awarded. The PPA template for 20 years from COD and auction dossier / procedure will be guided and issued by the MOIT.

Option 2: The plan is to select solar power plants based on transformers location of EVN, the preferable projects will satisfy competitive prices, technical details and locations, etc.

Option 3: the plan is to select suitable investors via auction for specific large scale solar power projects. This plan is applicable for solar power projects of 100MW or more only.

We will closely monitor to update on any further changes.

Please contact Dr. Oliver Massmann under omassmann@duanemorris.com or any other lawyer in our office list if you have questions on the topic or any other lawyer in our office listing. Dr. Oliver Massmann is the General Director of Duane Morris LLC.

VIETNAM – SOLAR POWER – KEY POLICY NEWS – What you must know:

After Prime Minister Nguyen Xuan Phuc’s notification No. 402/TB-VPCP on 22 November 2019 on FiT 2 and auction scheme, we would like to update some key policy progress as belows:

1. Most recent draft of MOIT on FiT 2
The draft only allows only a tiny proportion of already-approved solar projects may qualify for FiT following MOIT document dated 22 November suggested that FiT 2 will only be available for projects with signed PPAs that are “under construction” and provided they reach COD by end of 2020. The MOIT document seeks to define what “under construction” means for this purpose. It takes a narrow view, referring to Article 6.1.b of Decree 59/2015/ND-CP dated 18 June 2015 re management of construction projects to suggest that for a project to be considered “under construction” the project must have completed appraisal of detailed / technical construction designs prior to 22 November 2019. According to the MOIT’s data contained in the draft, it appears that only 4 out of 23 projects having already-signed PPAs but not yet reached COD would meet this criteria (some sources indicate there may be in excess of 30 such projects).

2. Document no.9608/BCT-DL on suspension of the approvals for solar power projects

Vietnam’s Ministry of Industry and Trade has issued OL 9608/BCT-DL, in which it urges provinces and directly under the Central Government and the Electricity of Vietnam, on stopping proposals and agreements for solar power projects (SPPs) under Feed in Tariff (FIT) mechanism. The ministry said that only projects with signed FIT contracts that are scheduled for completion scheduled by the end of this year will be able to secure subsidies, while all of the remaining projects will have to compete again in future auctions. The Ministry of Industry and Trade is now working with ministries and agencies to complete the draft of a new auction mechanism.

3. Respond from EVN to MOIT
EVN has sent letter no. 6774/EVN-TTD dated 12/12/2019 to MOIT to suggested FiT 2 to be applied to the projects which have construction contracts before 22/11/2019 (of any part of the project) and have evidence on the implementation of the project. In addition, EVN suggested that to the grid-connected projects under COD before 1/7/2019, the remaining part which has not put under COD is entitled to FiT2.

4. Temporary accounting of FIT price for COD projects after 30/6/2019.
EVN has issued letter no.6909/EVN-TCKT, which instructs businesses to temporarily account FIT price of 1.916 VND/kWh (VAT excluded), unless any other guidance is issued.

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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.

Vietnam – Power Energy Action Plan – With Outlook on the Major Trade Agreements CPTPP, EUVNFTA and Investment Protection Agreement

A. Overview of the Power Master Plan 8

Vietnam contains huge potential regarding the production of clean energy. It has best conditions for developing solar power due to being one of the countries with the most sun hours during the year and best conditions for creating wind power due to 3000km coastline. As a result, Vietnam in general, is able to attract many Foreign Direct Investments (FDI) for developing clean energy projects.

Therefore, the aim of the current Power Master Plan 8 (PMP8) is to develop power sources, in which renewable energy (wind, solar, bio) will be prioritized, in order to stepwise increase the proportion of electricity generated from renewable energy sources. Core elements are to establish links between international and domestic companies. Thus, the international finance and technology should be connected to the domestic banks and the expertise of domestic companies. In addition, a market must be developed that attracts large-scale companies and small and medium sized enterprises (SMEs) equally.

Furthermore, there will be improvements to the solar power market and the Solar Power Purchase Agreement (PPA) model, which could apply from 1 July 2019. If the PPA is improved to meet the standards of international and domestic banks, the cost of financing solar power plants can be reduced. Feed-in tariffs could provide 2 billion USD in foreign investment in solar energy by 2020.

The new PPA should focus on the key areas termination payments, curtailment and failure to take or pay by Vietnam Electricity (EVN), dispute resolution / arbitration clauses and the application of the feed-in-tariff for 20 years the PPA for new solar projects, which reach their commercial operation date by 30th June 2021 with a reduced feed in tariff. These improvements should equally apply to the standard PPAs for wind power, biomass and waste to energy.

In addition, a government market-driven electricity price system should be created, which includes a welfare state price system and thus supports low-income citizens. To make this possible, the price for the middle class has to be raised. Furthermore, the need for government guarantees must be reduced. In order to counteract electricity wastefulness, incentives for private sector investment in distributed clean energy generation and energy efficiency with fair and transparent electricity tariffs are necessary.

With regard to the price of electricity, there will be essentially three types of movement. First, the daytime hourly tariff will be redesigned for commercial and industrial consumers. This is intended to reduce the peak load of the transmission system and transmission losses. Second, regional differences in retail tariffs are developed. Third, a market-based electricity tariff is set, which contains flexible regulations and thus allows adjustments and increases in efficiency.

It will be important for the government to upgrade transmission and distribution. A regulator regime is to build, which allows and encourages construction and use of bio-mass, solar, wind and other clean sources of power generation for private and public users – office, residential, manufacturing, communities, and industrial – small scale and large scale, and to speed up decision making and set predicative procedures to encourage development of off shore gas, LNG, efficiencies, and renewables.

B. Future recommendations for VL Direct Power Purchase Agreement

The Application of PPA should be extended and even used for commercial power consumers (offices, hotels, resorts and supermarkets), hence they can reduce their electricity costs. The project aim should be to make a major investment in clean energy generation. Guidelines could be to reach at least 300MW of new clean energy generation in 2018/2019 and to invest about 400 Million USD.

The Electricity Regulatory Authority of Vietnam (ERAV) and EVN must define as soon as possible a so-called “wheeling fee”. Wheeling is the transportation of electric energy (megawatt-hours) from within an electrical grid to an electrical load outside the grid boundaries. At least for the first 5 years of operation the fee should be fixed. Afterwards, an increase is possible in agreed in conjunction with business groups and WE.

C. Outlook on Major Trade Agreements TPP 11, EUVNFTA and Investment Protection Agreement

In January 2017, US President Donald Trump decided to withdraw from the US’ participation in the TPP. In November 2017, the remaining TPP members met at the APEC meetings and concluded about pushing forward the now called CPTPP (TPP 11) without the USA. The provision of the agreement specified that it enters into effect 60 days after ratification by at least 50% of the signatories (six of the eleven participating countries). The sixth nation to ratify the deal was Australia on 31 October 2018, therefore the agreement will finally come into force on 30 December 2018. Recently, on the 12th November 2018, Vietnam has officially become the seventh member of the CPTPP.

The CPTPP is targeting to eliminate tariff lines and custom duties among member states on certain goods and commodities to 100%. This will make the Vietnamese market more attractive due to technology advances, reduction of production costs and because of the high demand on renewable energy. Sustainable environments are a primary concern of the CPTPP agreement.

An increase of trade should not mean negative influence to the environment. In contrary, due to the increased focus on the need for energy efficiency and reduced emissions renewable energy could experience a crucial growth. The agreement is suitable to support Public-Private-Partnerships (PPPs), which could lead to a positive impact in development of innovative technologies and alternative energy sources. Lower or no trade tariffs can lead to lower import costs for the essential components of renewable energy production. This, in turn, results in lower investment costs and lower production costs, thus increasing the cost-effectiveness of introducing renewable energy technology.

One another notable major trade agreement is the European Union Vietnam Free Trade Agreement (EUVNFTA). The EUVNFTA offers great opportunity to access new markets for both the EU and Vietnam and to bring more capital into Vietnam due easier access and reduction of almost all tariffs of 99%, as well as obligation to provide better conditions for workers, which is a key aspect in terms of working at power plants. In addition, the EUVNFTA will boost the most economic sectors in Vietnam. Moreover, the EUVNFTA will provide certain tax reductions to 0% for clean technology equipment as well as equal treatment for companies. Due to easier opportunity on making business, trade and sustainable development will be a good consequence for an even more dynamic economy and even better investment environment in Vietnam in general and especially in the power/energy industry.

Both agreements promise great benefits for the energy sector in Vietnam and will help the PMP8 to connect international to domestic companies. The elimination of the tariff lines and custom duties are advantages to major companies and SMEs alike.

To enable at least some parts of the FTA to be ratified more speedily at EU level, the EU and Vietnam agreed to take provisions on investment, for which Member State ratification is required, out of the main agreement and put them in a separate Investment Protection Agreement (IPA). Currently both the FTA and IPA are expected to be formally submitted to the Council in late 2018, possibly enabling the FTA to come into force in the second half of 2019.

Furthermore, the Investor State Dispute Settlement (ISDS) will ensure highest standards of legal certainty and enforceability and protection for investors. We alert investors to make use of these standards! We can advise how to best do that! It is going to be applied under the TPP 11 and the EUVNFTA. Under that provision, for investment related disputes, the investors have the right to bring claims to the host country by means of international arbitration. The arbitration proceedings shall be made public as a matter of transparency in conflict cases. In relation to the TPP, the scope of the ISDS was reduced by removing references to “investment agreements” and “investment authorization” as result of the discussion about the TPP’s future on the APEC meetings on 10th and 11th November 2017.

Further securities come with the Government Procurement Agreement (GPA), which is going to be part of the TPP 11 and the EUVNFTA. The GPA in both agreements, mainly deals with the requirement to treat bidders or domestic bidders with investment capital and Vietnamese bidders equally when a government buys goods or requests for a service worth over the specified threshold. Vietnam undertakes to timely publish information on tender, allow sufficient time for bidders to prepare for and submit bids, maintain confidentiality of tenders. The GPA in both agreements also requires its Parties assess bids based on fair and objective principles, evaluate and award bids only based on criteria set out in notices and tender documentation, create an effective regime for complaints and settling disputes, etc.

This instrument will ensure a fair competition and projects of quality and efficient developing processes.

If you have any question on the above, please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

Thank you very much!

Vietnam – Power Sector Reform Competitive Auction Mechanism For New Generation Investment – What You Must Know:

On 31 August 2018, Asian Development Bank (ADB) and Ministry of Industry and Trade (MOIT) co-arranged a workshop to introduce the first ADB’s Technical Assistance (TA) on competitive auction mechanism for new power generation investment in Vietnam. The TA aims at improving the arrangements for investment to ensure adequate energy supply and to be compatible with Vietnam Wholesale Electricity Market (VWEM) in Vietnam’s power sector.
Please find below key topics of the workshop since this may affect the power generation sector and its policy in the upcoming years.

1. MOIT’s Highlights on Current Status and Challenges for New Generation

Vietnam has enjoyed one of the world’s most rapid economic growth rates i.e., an average of more than 6% p.a. Vietnam has a wide range of primary energy sources such as crude oil, coal, natural gas and hydropower for economic development. However, it has still relied heavily on less “environmentally friendly” primary fossil fuel, though it started to promote renewable energy recently.
The revised Power Development Plan for 2011 – 2020, vision to 2030 (revised PDP VII), adopted in 2016, is evidence of a growing appreciation of the role alternative sources of energy, targets a 7% share of electricity generated from renewable energy by 2020 and 10% plus by 2030. The revised PDP VII forecasts the electricity demand using an annual average growth rate at 10% from 2011 to 2030. The demand will increase from 86 TWh in 2010 to 265 – 278 TWh in 2020 and 572-632 TWh in 2030. The estimated installed capacity would be 60 GW in 2020 and 129.5 GW in 2030.

2. Foreign investment is a must!

Vietnam desperately need a significant amount of investment on new power generation to achieve its demand under the revised PDP VII, approx. US$7 billion to US$10 billion annually. However, the Government of Vietnam does not currently provide guarantee for this sector, and ODA loan is not a viable option for new generation investment. Local financing and resource are also constrained as Electricity of Vietnam (EVN)’s credit limit has been reached. Currently, several power generation projects have been delayed for 3 to 5 years, that would cause the revised PDPVII’s estimates for 2025 to be outdated very soon.
It is also noted that Vietnam is facing a high risk on fuel guarantee for power generation as one of its key sources (natural gas) is unstable as a result of crisis at Bien Dong area (or South China Sea). In fact, the progress of Block B and Blue Whale are very risky and delayed.
Accordingly, Vietnam must reform its playfield and framework to harmonize the system and policies to attract more foreign investment projects on power generation sector.
Vietnam Full Wholesale Electricity Market is coming soon!
The MOIT reported its 4 steps timeline for implementation of full VWEM: (i) 2016: Pilot VWEM Step 1 (Paper Market), (ii) 2017 to 2018: Pilot VWEM Step 2, (iii) 2019: Initiating VWEM under MOIT’s decision 3038, and (iv) finally after 2019: implementing full VWEM under MOIT’s Decision 8266.
Full VWEM will have the following key features:
– Market Model (Mandatory Cost-Based Gross Pool): (i) all generators (30MW or more) is required to directly participate the full VWEM to sell its power, (ii) all retailers (5 Power Corporations under EVN) must buy energy from the full VWEM, and (iii) gradually, the cost-based Pool will be transformed to Price-Based Pool.
– Trading and Dispatch intervals: will be reduced to 30 minutes from 1 hour.
– Generation Scheduling: will apply the model of full transmission network stimulation when the full market IT system available.
– Key types of contracts under VWEM: vesting contract, bilateral contract and centrally contract auction.

3. Competitive Auction Mechanism for New Generation Investment

The TA is to recommend the Vietnam Government to consider and implement policies for implementation of Competitive Auction Mechanism for new generation projects with the following key features:
– To ensure that new power generation projects to be selected through auction process based on least cost and greatest value;

– To improve and ensure the competition between domestic and international developers, and competition between technologies;

– To consistently implement VWEM-compatible contracting framework irrespective of type of developer or technology; and

– To apply and prefer BOO like long term CFDs (contracts for difference) rather than current PPAs (power purchase agreements) as the CFDs are more bankable and may produce more efficient outcome over the generator’s lifetime.

Unfortunately, details of Competitive Auction Mechanism such as forms of PPAs, CFDs, BOO projects, auction process, currency exchange and repatriation guarantee, will be researched and presented by ADB later within this year.

4. Other MOIT’s Highlight on Renewable Power Projects

At the workshop, the MOIT’s representative also commented on certain new policies for renewable power projects as below:

– The MOIT is drafting a policy to introduce new Feed-in Tariff (FIT) and draft PPA for Solar Power Projects that fail to meet COD deadline under Decision 11. The MOIT confirmed that such new FIT will be lower than the current 9.35 US Cent. This policy is likely to be approved by the Government within this year.

– The MOIT is drafting a policy to promulgate new FITs and draft PPAs for wind projects. This policy is likely to be issued within this year.

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Please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com or any lawyers in our office listing 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.

VIETNAM – SOLAR POWER BREAKING NEWS – EXTENSION PROPOSAL BY MINISTRY OF PLANNING AND INVESTMENT OF DEADLINE FOR FEED IN TARIFF REJECTED – WHAT YOU MUST KNOW

Last June, the whole solar energy industry rocked (and became excited!) with the news that the Deputy Prime Minister, in one of his meetings with the Ministry of Industry and Trade (MOIT) on 20 June 2018, has agreed in principle that the COD extension for solar energy projects under the Decision 11 shall be extended beyond the original deadline of 30 June 2019. According to Vietnam’s political tradition, this development would normally mean the subsequent issuance of official legislation to formalize the decision. One source infomed the market players that the decision for extension would first be issued by end of July for Ninh Thuan projects due to the province’s economic downturn, and by the end of this year, a decision to extend nationwide will follow. On 4 July 2018, the Ministry of Planning and Investment (MPI), in coordination with the MOIT, submitted an official letter No. 4545 (Letter 4545) to the Prime Minister to formally propose the COD extension. That letter 4545 was addressing Ninh Thuan solar energy projects only but market players expected that proposal for nationwide extension would follow very soon.
However, in a rare and unpredictable move, on 26 July 2018, the Government’s Office issued an Official Letter No. 7108 (Letter 7108) to reject the proposal for COD extension for Ninh Thuan solar energy projects, without mentioning any rationale behind it or any reference to the Deputy Prime Minister’s in-principle agreement with the MOIT. That means, as a result of Letter 7108, everything under Decision 11 would stay the same, at least for Ninh Thuan solar energy projects.
What remains unclear is whether the MOIT/MPI would continue pushing for a nationwide COD extension, amidst the Letter 7108. One source continues insisting that such a nationwide COD extension (which was planned to go through by end of 2018) is still reviewed by the Prime Minister. From the IPP’s perspectives, it is understandably viewed as a 50/50 decision. A high-yielder would continue go for bigger projects with hope that nationwide COD extension will take place, while others may choose to go with smaller one to ensure the construction time to be secured.
We will keep our clients updated on the development of this saga. Time is of essence now yet everything is still up in the air. For prudent reasons, we would have to advise IPPs to go with smaller projects now for the purpose of plausible construction time. We can help introducing such projects.
Please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com or any lawyers in our office listing 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.

Location, location, location – 5 areas to watch in Vietnam

With the second fastest growing economy in the world after China, Vietnam offers investors an almost overwhelming range of ways to get in on its continuing success story.

 

From energy to real estate, transport to tourism, a multitude of areas are experiencing growth and attracting domestic and foreign investment. The push to ease regulations is set to continue, and the government is working to ensure an evermore fertile business climate. But with so many options, where is a good place to start?

 

Here are five spots currently generating some real excitement:

 

  1. Soc Trang

 

The Mekong Delta province of Soc Trang recently held an investment promotion conference and, with the backing of the Prime Minister, managed to rally investment pledges totalling nearly US$5.4 billion. The 47 projects are mainly focused on clean power generation, high-tech agriculture and tourism services.

 

With work already underway to reform and streamline administrative procedures, a new injection of cash could inspire even more growth over the coming years.

 

During the conference, the PM set out an aggressive development strategy for the province, underlining his vision that the coming decade would see Soc Trang expand its economy to achieve middle-income status.

 

Specifically, the province was urged to set its sights on high-tech agriculture adapted to climate change, clean seafood production and processing targeting high-value markets and eco-tourism linked with ‘smart’ agricultural models. To achieve this kind of sustainable development, provincial authorities will need to invest in human resources and education. Co-operative models between farmers, investors, banks and distributors will help the development of value chains and quality standards for agricultural products.

 

  1. Ninh Thuan

 

For those with eyes on the renewable energy sector, the province of Ninh Thuan is looking like a hot prospect. Construction on the country’s biggest solar power plant, with a capacity of 168 MWp and total investment of roughly US$194 million, commenced in the southern province early in June.

 

The plant is a project by Singapore’s Sunseap Group – a large provider of clean energy solutions – and is slated to cover an area of 186 hectares. Once operational in June 2019, the plant is expected to supply over 200 million kWh of electricity to the national grid annually.

 

Sunseap is not the only player taking advantage of the province’s valuable location and abundance of sunlight, with four other plants kicking of construction this year in Ninh Thuan. With backing from provincial leaders, the province aims to become a renewable energy hub, with the generation of 2,000 MW of solar power by 2020.

 

So far, the province has 15 wind power and 27 solar power projects, with designed capacity of nearly 800 MW and 1,808 MW, respectively.

 

  1. Ho Chi Minh City

 

With properties priced at a fraction of those in neighbouring Singapore and Thailand, Vietnam is drawing a number of real estate investors and becoming a popular destination for foreign buyers.

 

Interest in Ho Chi Minh City, in particular, has been growing among foreign buyers with a number of projects already for sale and some approaching completion in the next one to two years. Given the political stability of the government, some investors see Vietnam as having the possibility to grow like China.

 

Home prices in Vietnam have been rising over recent years, making a modest increase last year on the back of 6.8 per cent economic growth and rapid increase in direct foreign investments.

 

  1. Coastal hot spots

 

The hotel and hospitality sector is experiencing a resurgence in Vietnam, with many properties reporting strong occupancy rates and a large number of new operators entering the market, especially in coastal areas such as Da Nang and Nha Trang.

 

These sites were already known as popular destinations for both domestic and foreign tourists, with the number of international guests visiting the country reaching over 13 million last year. In the first four months of 2018, more than 5.5 million international guests visited Vietnam, an increase of 29.5 percent over the same period last year. As interest continues to mount, so too do opportunities for investors in the hospitality sector.

 

Thanks to the strong development of tourism infrastructure and improvements in accommodation, cities like Da Nang and Nha Trang now offer a wide selection of hotels, luxury resorts and beach villas to suit a range of budgets and preferences.

 

Condotels are a growing trend in this sector, and several developers have adopted this model as a method of refinancing. Experts forecast that up to 18,000 condotel units will be added to the market in the next two years in key tourism destinations, accounting for 60% of the total new supply.

 

With major groups such as Vingroup, Sungroup, FLC, Muong Thanh and Empire, as well as well-known international brands snapping up segments of Vietnam’s hospitality market, this area will be one to watch in the coming years.

 

  1. Quang Binh

 

The central province of Quang Binh has drawn up a list of 48 projects to be completed in the 2018-2020 period, with total expected value of over US$2.2 billion.

 

The projects are expected to cover more than 8,000ha of land, with a focus on tourism, trade and services, industry, and agriculture, as well as education and health care.

 

Of the projects, 14 are in tourism, including coastal and ecological tourism and resort complexes. These are considered high-value projects that will spur local job creation, boost the budget and foster tourism development in the province.

 

For more information about investing in Vietnam, 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.

Vietnam – Solar Power Breaking News – Possible Extension of deadline for Feed in Tariff (9.35 USD cent per KW) – what you must know:

The current solar Feed-in-Tariff for on-grid projects in Vietnam is 2,086 Vietnamese dong/kWh (equivalent to 9.35 UScents/kWh) (VAT excluded). According to Decision 11/2017/QD-TTg, this solar FIT applies for projects which come into operation before 30 June 2019 and within 20 years from the commercially operational date (“COD”) (i.e., the date when the solar plant is ready to sell electricity to the buyer – EVN).

However, from our informal high level contact within the MOIT recently, it is very likely that the solar FIT of US9.35 cents/kWh will continue to apply beyond the original COD (i.e. 30 June 2019). The deadline shall be likely extended for another half a year or another year for solar projects across Vietnam, except for projects in Ninh Thuan. This policy is not yet formally adopted but very likely will be publicized at the end of this year.

For solar projects in Ninh Thuan, the COD deadline extension will be longer (i.e. for another one and a half year from 30 June 2019). This is due to the fact that, in Ninh Thuan province, nuclear energy development has been stopped and the Government would like to develop solar energy there to support the province’s economic development.The special policy for solar projects in Ninh Thuan will be coming very soon, according to our MOIT contact. He informed us that the Deputy Prime Minister has already approved this special policy for Ninh Thuan and all await formal procedures.

We will closely monitor to update on any further changes.

Please contact Dr. Oliver Massmann under omassmann@duanemorris.com if you have questions on the topic or any other lawyer in our office listing. Dr. Oliver Massmann is the General Director of Duane Morris LLC.

LAWYER IN VIETNAM DR. OLIVER MASSMANN LEGAL UPDATE MAY 2018 – SOLAR ENERGY ROOFTOP TAX BENEFITS – SOLAR POWER MASTER PLAN – PUBLIC PRIVATE PARTNERSHIPS – LATEST ON INDUSTRIAL AND ECONOMIC ZONES

1. Official No. 5111/VPCP-KTTH issued by the Government Office in response to Official Letter No. 5400/BTC-CST of the Ministry of Finance in relation to tax preferences applicable to solar roof projects of 50 kW or less.
Issuance date: 31 May 2018
Effective date: 31 June 2018
The Government in-principle approves the request from the Ministry of Finance on tax advantages applicable to solar roof projects of 50 kW or less. The Government also assigned the Ministry of Finance to issue relevant legal documents to implement this policy. Currently, request of the Ministry of Finance and draft future regulations on this topic have not yet been published.

2. Legal news: Solar power master plan – rumor on delay
The Ministry of Industry and Trade (“MOIT”) must report the list of approved solar power plants to the Prime Minister before 15 July 2018. The MOIT must also promptly finalize the national solar power development master plan for the Prime Minister’s consideration.
Currently, the number of solar power projects submitted by investors to the MOIT is significant. According to Vietnamnews, the MOIT has approved more than 70 solar power projects, with a total capacity of over 3,000MW, to come into operation before June 2019. The capacity is much larger than the combined capacity of projects by 2020 (i.e., 850 MW for solar power projects) as approved by the Prime Minister in the current power master plan VII.

Unconfirmed rumor: the MOIT (and other authorities) would likely not review and approve any application for addition of new solar power projects to the power development master plans / solar power development master plans from now until 30 June 2019. In addition, the MOIT would issue an official letter to confirm this temporary suspension.

3. Decree No. 63/2018/ND-CP issued by the Government on Investment in Form of Public-Private Partnerships (“PPP”) (“Decree 63”) replacing the old PPP Decree 15/2015/ND-CP (“Decree 15”)
Issuance date: 4 May 2018
Effective date: 19 June 2018
Decree 15, when introduced in 2015 was highly praised by legal commentators to be well drafted and make the PPP laws and regulations in Vietnam move closer towards bankable projects. However, in implementation process, there have been conflicting legal issues that deter investors from choosing PPP as an investment method, leading to a humble number of PPP projects thus far. Moreover, as PPP laws are only at Decree level, regulatory framework for PPP projects mainly includes the Law on Enterprises, Law on Public Investment, Law on Bidding, etc. most of which regulate public investment instead of private one or investment cooperation between the Government and private investors. The investors are also concerned about the stability of PPP regulations, as they are mainly Decrees. While a PPP project could take years to complete, regulations at Decree level may change and cause investors confusion in implementation of the laws. The state agencies also face certain difficulties in managing these PPP projects.
We provide below key notes on Decree 63:

Capital contribution responsibility
The investor is responsible for contributing and mobilizing capital for the project implementation, in particular, the ratio of the investor’s equity capital in total project investment capital is determined as follows:
– For projects with total investment amount of up to VND1,500 billion, the equity capital that the investor must maintain must be at least 20% of the total investment capital;
– For projects with total investment capital of more than VND1,500 billion:
o For investment portion of up to VND1,500 billion: the equity capital that the investor must maintain must be at least 20% of the total investment capital;
o For investment portion that exceeds VND1,500 billion: the equity capital that the investor must maintain must be at least 10% of the total investment capital.
There is no capital contribution requirement from the Government side.

Project approval authority
Decree 63 makes it clear the following authorities will approve PPP projects:
– The National Assembly decides the investment policy of important national projects;
– The Prime Minister decides the investment policy of the following projects:
o Projects Type A using state budget from 30% or above or below 30% but more than VND300 billion of the total investment capital of the project;
o Projects Type A using BT contracts.
– Ministers of relevant ministries decide investment policy of their own projects not falling within the approval authority of the National Assembly and the Prime Minister.
– Provincial People’s Councils decide investment policy of the following projects:
o Projects Type A not falling under the approval authority of the Prime Minister;
o Projects Type B using public investment budget; and
o Projects Type B using BT contracts.
– The provincial People’s Committee decides the investment policy of projects in their provinces not falling within the approval authority of the National Assembly, the Prime Minister and the provincial People’s Council.

Payment methods in BT projects
Practice shows that investors are very interested in well-located land when implementing BT projects. However, when such land fund gradually becomes exhausted, BT projects seem not to attract investors. Decree 63 has added another method in addition to the exchange of land for infrastructure, so that the investors will have more options in receiving payments. Specifically, the investor may also receive payment in the form of the transfer of right to conduct business, exploit works/ services, etc.

Conversion of existing public projects
Decree 63 contains procedures on converting existing public projects to PPP projects aside from other revised provisions. Those who are engaged in infrastructure projects in Vietnam may want to review how to implement such conversion in practice.

4. Decree No. 82/2018/ND-CP issued by the Government on the management of industrial zones and economic zones (“Decree 82”)
Issuance date: 22 May 2018
Effective date: 10 July 2018
Decree 82 regulates the planning, establishment, operation, policies and state management of industrial zones (IZ) and economic zones (EZ). It governs state management agencies, organizations and individuals related to investment, production and business activities in industrial zones and economic zones.
IZs are geographical areas eligible for investment incentives and enjoy preferential policies applicable to geographical areas with difficult socio-economic conditions under the investment law.
EZs are geographical areas eligible for investment incentives and enjoy preferential policies applicable to geographical areas with special difficult socio-economic conditions under the investment law.

Capital for investment on infrastructure of IZs
Investment projects on infrastructure development in IZs in areas with difficult socio-economic conditions or areas with particularly difficult socio-economic conditions shall be supported with capital from the central budget for the infrastructure investment.
Provincial People’s Committees shall balance local budgets to support investors in developing technical infrastructure systems inside and outside the IZs.

Capital for investment on technical infrastructure and social-economic infrastructure of EZ
EZ’s technical infrastructures, social infrastructure facilities and important environmental protection and treatment works shall be allocated capital from development investment sources of local budgets and support capital sources.
Large-scale infrastructure investment projects which play a key role in the development of EZs, may mobilize capital from bonds issuance. The technical and social infrastructure facilities, service works and public facilities of the economic zone may be financed by official development assistance (ODA) capital, preferential credit capital and supports other techniques.
Investment projects on construction and business of infrastructure in functional zones in EZ may mobilize capital by allowing investors to lease a part or whole of the land area in EZ for their investment or sub-lease business activities.
***
Please do not hesitate to contact Dr. Oliver Massmann and Tran Minh Thanh 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 and Tran Minh Thanh is the Vietnamese lawyer of Duane Morris Vietnam LLC.
THANK YOU !

Hanoi has long road ahead to become a ‘smart city’

Wirelessly managing streetlights to cut the cost of energy. Sensors providing real-time alerts on water leaks and air pollution. Intelligent management of public transport and road networks to avoid congestion. These are just some of the benefits a ‘smart city’ could provide, and if authorities and investors succeed, these advancements could be coming to Hanoi in the near future.

 

Plans are already in place to turn Vietnam’s capital into a smart city by 2030, with priority areas identified as health, education, transport and tourism. Taken together, the application of technology in these areas will bring significant improvements to residents’ quality of life and boost the city’s tourism potential.

 

Hanoi has already applied smart systems to monitor car parking in some districts, and an anticipated roll-out of this technology across the whole city aims to provide information on traffic status and better manage public passenger transport.

 

Similar implementations are planned for other sectors. With input and investment from major foreign players, the city sees the deployment of modern IT infrastructure utilising the Internet of Things (IoT). Citizens will be connected to their homes and primary services, as well as traffic infrastructure and vital information about their environment. For this to happen successfully, work is needed to set up modern infrastructure in transport, healthcare and education.

 

In order for these systems to be implemented and managed effectively, foreign know-how will be needed.

 

Intelligent implementation

 

According to local authorities, the process of transforming Hanoi into a smart city will take place over three phases. The first, from 2016 to 2020, will consist of building the foundations and infrastructure needed, as well as implementing smart applications in traffic, tourism, environmental management and security.

 

The second phase, from 2020 to 2025, smart city solutions will be put into operation and a digital economy will be formed. In the third phase, from 2025 to 2030, the different parts of the project will be connected and Hanoi will become a functioning smart city.

 

The capital city is not alone. According to the Ministry of Information and Communications, the government has set a target of creating five smart cities by 2020, and is designing

criteria for such projects, making it more convenient for foreign investors to jump in.

 

The southern hub, Ho Chi Minh City, has its own plans to get ‘smart’ in the near future. Tran Vinh Tuyen, deputy chairman of the city People’s Committee and head of the smart city management board plans “a comfortable, positive, healthy and safe living environment with convenient public transportation, good healthcare, less crime and clean water and environment.”

 

In addition to these benefits, smart cities will bring sustainable economic growth, and help develop a digital, knowledge-based economy. Such moves are sure to generate interest and attract investment.

 

Not all plain sailing

 

Domestic firms like Viettel, VNPT, FPT, and CMC are keen to get involved with the development of smart cities in Vietnam. Various countries with experience in smart cities have also expressed a desire to cooperate with Hanoi in this endeavour. In particular, leaders from Singapore have shown a willingness to partner with Vietnam on hi-tech parks and software industrial zones, as well as working together on the smart city project. In addition to funding, Singapore is ready to provide training and support to implement and manage smart city technology and software.

 

With Vietnam continuing to grow rapidly, concerns over rising energy demands are high on the agenda. As a key component of a smart city, a greater focus will be needed on green and sustainable energy if the country is to successfully fuel onward growth.

 

There is clearly a lot of potential in this sector, however, energy is just one challenge standing in the way. Specifically, Hanoi faces problems in ICT infrastructure, traffic congestion, water shortages, wastewater treatment and increasing environmental pollution. A dearth of qualified human resources will also present difficulties in implementing some of the proposed solutions.

 

However, for many sites, construction has yet to begin. A lack of clear regulations is proving to be a major roadblock for the development of smart cities, with the implementation of a US$37.3 billion smart city in Hanoi’s Dong Anh district struggling to get off the ground. More than 20 large Japanese firms, including Sumitomo, Mitsubishi, Panasonic and Tokyo Metro have signed up to provide various services but are yet to begin work.

 

The 310 hectare project will be designed by Nikken Sekkei Group and is expected to be completed in 2023, if they get the green light.

 

In this case it is authorities lagging behind in the provision of clear criteria. The novelty of such projects is one issue, with city leaders unsure on how these new developments will fit into existing city-planning norms.

 

If the target of five smart cities by 2020 is to be met, the government will need to come up with some clear and detailed legislation soon, so that both investors and authorities are happy with the planned projects. Of course, updating regulations in Vietnam can prove to be a drawn-out affair and investors may be waiting some time before ground is broken on the cities of the future.

 

For more information about investment in Vietnam, 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.