Tag: energy

Posted on by Dr. Oliver Massmann

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.
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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 !

Posted on by Dr. Oliver Massmann

Vietnam – Power/Energy Sector – Current Issues and Solutions for Investment and Outlook on Major Trade Deals TPP 11 and EUVNFTA

A. OVERVIEW
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 much FDI for developing clean energy projects.
Furthermore, the new Solar PPA was issued this year to solve the lack of regulation on solar power projects. Moreover, the issuance of the Circular 16/2017/TT-BCT on the power distribution of rooftop solar plants and the alleviation of the Operating License for power plants (lmw capacity) are notable developments in the power/energy industry in Vietnam. Moreover, the implementation of the Direct Power Purchase Agreement could step into pilot phase in the next time, thus, it is estimated to create better access to clean energy and increase of investment up to USD 2 billion in clean energy.
Another notable fact is the increase of the wind tariff in early August 2017. Now, Vietnam has implemented a wind power project with a capacity of 160 MW. The new tariff shall attract new and more foreign investments in the wind power industry in Vietnam.
B. ISSUES
1. Environment
The government is implementing more and more measures on protection of the environment. Vietnam plays a proactive role on reduction of emission and CO2 but the penalties for violation are very low. Furthermore, new regulations have to be issued to ensure more environmental protection, especially in terms of fossil power projects known to be a great danger for environment regarding to huge amounts of emissions and pollution. The project developers should be obliged to develop projects using highest environmental standards.
2. Solar PPA Policy
There are issues in the solar power policy necessary to be addressed.
In general, the goals on producing clean energy in large scale and the attraction of FDI cannot be reached sufficiently yet due to issues regarding electricity pricing and the content of the final power purchase agreement. These issues lead to restraining investments and delayed development of the clean energy industry in Vietnam.
Further, there are continuing concerns about lack of transparency regarding to solar power prices and due to lack of a published Roadmap for the retail sector. This leads to uncertainty of foreign investors regarding to stability of prices. Price transparency measures should be included in the Energy Plan and a Roadmap for the retail sector should be published. The issuance of a pricing framework can also lead to more investments in off-grid projects causing relieve of EVN’s pressure on power transmission, thus, the transmission system does not have to run near overstressing at daily peak hours. Moreover, the final template of the Solar PPA contains concerning provisions for investors such as (i) lack of EVN’s payment obligations in cases of transmission problems; (ii) lack of transparent possibilities for international arbitration; (iii) the lack of PPAs’ bankability. The final PPA needs to be amended to grant more security to investors and to attract more FDI. Moreover, the administrative regulations must be simplified for more efficiency in solar power project development as well as for easier market access, especially with regard on major trade agreements like TPP 11 and the EUVNFTA.
3. Power Storage
The Solar Battery is the most common way of storing energy but the technology is not well-developed yet in Vietnam. However, the country has the possibility to become leader in the new storage technologies in the eastern part of the world. This is another reason for the necessity of development of the solar industry and extremely important as power storage solution on remote islands in order with power production in those areas.
4. Project Applications
Currently, there is a very large number of applications for solar plants existing. This leads to concerns regarding to create a ,,bubble effect” which is causing gridlocks in project developing an delays in investment as well as uncertainty among investors.
For investors, to improve the chance on winning tendered biddings, it is important to provide conditions like (i) ensured safety for wildlife, people, environment or households; (ii) maintained grid connection, (iii) enough financial solvency regarding feasibility of the project; (iv) successful projects in energy or infrastructure areas in the past.
On the other hand, the Ministry of Industry and Trade (MOIT) guarantees that all investors of power projects will be able to connect the plants to the national grid. According to the MOIT, the total reserved capacity of all planned projects is only 30% of the whole capacity, so that, there is no reason for concerns regarding to finalized projects not able to start power producing because of missing opportunity on generating turnover.
C. OUTLOOK ON MAJOR TRADE AGREEMENTS TPP 11 AND EUVNFTA
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 agreement shall be signed by all member states by the first quarter of 2018. After that, it has to be ratified in each member state before taking effect.
The effects of the TPP 11 promising great benefits for the energy sector in Vietnam. The TPP 11 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.
One another notable major trade agreement is the EUVNFTA between the European Union and Vietnam. 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.
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.

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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!

Posted on by Dr. Oliver Massmann

VIETNAM – SOLAR ROOFTOP – WHAT YOU MUST KNOW:

Rooftop PV power projects having a capacity of under 1 MW are not subject to procedure to amend the Power Master Plan. The investor only needs to register the connecting terminal with a provincial power company and provide general information about expected capacity, specifications of solar panels and the power inverter.
Rooftop PV power projects having a capacity of 1 MW or over must be included in the master or provincial Power Master Plan. In addition, they must obtain the license for generating electricity.
There is a standard PPA for rooftop PV projects between the seller and EVN in Circular 16/2017/TT-BCT by the MOIT. Although the Investment Law does not prohibit investment in the form of a direct PPA, a direct off-grid PPA between the investor and the buyer other than EVN is still pending for further guidance now being worked on by the Electricity Regulatory Authority of Vietnam (“ERAV”). Our contacts in the ERAV informed us that these new rules might come out in the 3rd quarter of 2018.
Rooftop PV power projects shall apply the net-metering mechanism using the two-way electric meter system. In a billing cycle, if the amount of electricity generated from rooftop PV power projects is greater than the amount consumed, the excess amount shall be transferred to the next billing cycle. At the end of the year or the termination of the PPA, any residual electricity generated by rooftop solar projects shall be sold to EVN at the place of electricity delivery (VAT exclusive) to be VND 2,086/kWh (equivalent to U.S. cent 9.35/kWh, the “FiT”).
The electricity price of the following year shall be adjusted according to the central exchange rate of VND over USD quoted by the State Bank of Vietnam on the last working day of the previous year.
The mentioned FiT only applies to part of the rooftop PV power plant having the commercial operation date before June 30, 2019 and shall apply for 20 years from the commercial operation date.
In order to meet this tight deadline we recommend to start working on establishing the Project Company now because the whole procedure might take some months.
Industrial parks and zones are good places to build solar panels because they have large rooftops and strong electrical connections already available. The Provincial Competitive Index including the Industrial Zones of Vietnam provides an excellent starting point for working on developing your rooftop projects. Please let us know if we shall send you the Provincial Competitive Index of Vietnam and the Standard PPA for solar rooftop.
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!

Posted on by Dr. Oliver Massmann

Lawyer in Vietnam Dr. Oliver Massmann – Solar Power – Payment mechanism from Vietnam Electricity (former Electricity of Vietnam, EVN) to Solar IPP – What you must know:

1. The periodicity of payment for energy sales by client (EVN) to IPP

The IPP and EVN will together read the metering result on a monthly basis on a mutually agreed date to determine the power delivered and received in a month. The IPP will record the result in writing and send it together with the invoice to EVN within 10 working days from the result reading date. The payment deadline for EVN is within 15 working days from the receipt of the IPP’s invoice.

2. Frequency of price adjustment such that payment in VND reflects equivalent USD value

It is not clear in both Decision 11 and Circular 16, but we understand that the adjustment will be made at the time of payment for grid connected projects. For on-grid rooftop projects, the adjustment is made annually. Provision have been included in previous power project documents.

3. Mechanism for price adjustment (e.g. is applicable price adjustment is weighted average of adjustment period such that seller is not exposed to changes to VND/USD exchange rate).

For on-grid projects, the adjustment is made at the time of payment. For on-grid rooftop projects, the adjustment is made annually. It means that the FiT for on-grid rooftop projects remains the same in a year. The FiT for on-grid rooftop projects for the next year will be adjusted based on the announced VND/USD exchange rate on the last working day of the preceding year.

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.

THANK YOU !

 

 

 

 

Posted on by Dr. Oliver Massmann

Renewable Energy Vietnam – Duane Morris – We get deals done:

  1. Describe the role of yourself/company/department within renewable energy in Vietnam. 

Duane Morris, as both advisor and advocate, guides clients through the complex legal, financial and political issues that pervade the energy industry. For both producers and policy-makers, as well as industry participants and consumers, Duane Morris attorneys help manage the dynamic challenges of the energy market. Our attorneys counsel our clients on regulations, transactions, litigation, project development, facility construction, financing, government relations and policy matters concerning energy. Our attorneys draw upon legal and industry experience with fossil fuels, nuclear power and renewable sources to find creative solutions to meet our clients’ needs. We have been involved in several renewable energy deals in Vietnam until successful close of the respective deal. We can get bankable deals done.

  1. Describe those individuals/companies/government departments with whom you operate mostly with?

Electricity Regulatory Authority of Vietnam, Institute of Energy, General Department of Energy, EVN, Ministry of Planning and Investment.

  1. Explain the purpose of each of these connections whether they be formal, contracted relationships or informal relationships

They are formal relationships, where I either acted as the Chairman of the Legal Sector Committee of EuroCham, or work on behalf of our clients to connect with the authorities to get better understanding of the regulations in the sector and propose necessary changes.

  1. Describe any customs or habits that are features of doing business in the renewable energy industry? Likewise describe any customs or habits that are features of doing business in Vietnam. Explain how these customs or habits are used?

Build and maintain relationship with Government officials at all levels (central, provincial) is a must. Meetings can be formal or sometimes invite them out for lunch/ dinner. Do not go into too much details of your project or investment plan in the initial meeting. Save it for the next meetings. The first one should only be for “getting to know each other” purpose.

Vietnam has a consensus-driven system, meaning everyone has to say something. Any person has veto right. Thus, to make sure that a decision in favor of your investment is made, you have to gain support of every person who has the decision-making right.

In addition, decision making process in Vietnam has to go through many levels and thus takes quite long. Be patient then.

You should always set up a meeting some weeks in advance. Although some officials are able to communicate in English, it is advised to have a translator/ interpreter.

  1. In your opinion, who are the ‘big players’ within the renewable energy industry within Vietnam? This applies to private companies, national companies, government departments etc. 

EVN as the sole off-taker and its generation companies are the main players in the sector. Besides, the General Department of Energy, the Electricity Regulatory of Vietnam (both under the Ministry of Industry and Trade) play an important role in setting regulatory framework.

  1. Explain any rules or laws that dictate how you must operate within the renewable energy industry and within Vietnam. 

Wind: Decision No. 37/2011/QD-TTg, Circular No. 32/2012/TT-BCT

Biomass: Decision 24/2014/QD-TTg, Circular 44/2015/TT-BCT

Solid-waste power: Decision 31/2014/QD-TTg, Circular 32/2015/TT-BCT

Solar: Decision 11/2017/QD-TTg, Circular guiding the Decision and promulgating the PPA is being drafted

There are a number of laws and documents regulating an investment in Vietnam. I just name some major laws: Investment Law, Enterprise Law, Labor Law, Commercial Law, Civil Code, etc.

  1. In your opinion, to what extent does a hierarchy exist within the renewable energy industry in Vietnam? 

The development of renewable energy industry does not catch up with economic development speed. Although the Government has set out the increasing role of this sector in the energy development plan, I am afraid that the Government may fail to meet its target due to lack of support policies and bankable PPAs.

  1. Describe the main changes that have occurred to the renewable energy industry in Vietnam in the last 10 years. 

The renewable industry in Vietnam is very young. Indeed, it only started developing since the adoption of the Wind Decision in 2011. Following that Decision, the Prime Minister continued completing the legal framework for the sector by introducing Biomass Decision and Solid-Waste Decision in 2014, and the latest Decision being the Solar Decision issued in April 2017. The adoption of these policies was the joint effort of many relevant ministries, including the General Director of Energy under the Ministry of Industry and Trade, which was established at the end of 2011 to improve state management in the sector.

In 2009,  the first factory producing solar panels with total investment of USD10 million came into operation in Vietnam. Later in 2010, GE Energy invested USD61 million to establish the first factory producing wind turbines in Hai Duong. This was considered as a boost for the renewable energy market. However, by 2015, renewable energy only accounted for 5% in the total energy output, in which there is no wind and solar power but only small hydro power.

FYI, the first wind power plant came into operation in 2012 in Binh Thuan with a capacity of 30 MW. Recently, the first solar plant in Dong Thap also commenced its operation.
***
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.

Thank you!

Posted on by Dr. Oliver Massmann

Vietnam Solar Power  – Taking stock of Vietnam’s solar energy potential – What you must know:

With the latest official issuance of a Solar Decision, Vietnam has made steady progress on its solar energy potential. The FIT is introduced in the Solar Decision to be 9.35 UScents/ kWh for grid-connected solar projects. The draft solar Power Purchase Agreement has also been recently introduced in a draft Circular guiding the Solar Decision by the Ministry of Industry and Trade.

This webinar offers valuable insights into the newly formulated framework for Solar PV in the country and covers:

  • The roles and obligations for EVN carried forward by the draft
  • The bankability of the draft solar PPA, its guarantee scheme and room for negotiation
  • Insights how to make most of the opportunity for PV in the market – the 30MW off-grid rule – Getting Solar Power Project done in reasonable time:

More information of the webinar can be found here: https://www.pvtrademissionvietnam.com/webinar;

Please do not hesitate to contact Dr. Oliver Massmann if you have any questions under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam.

THANK YOU!

 

 

 

 

Posted on by Dr. Oliver Massmann

Vietnam – Solar Power – Breaking News Update First draft of the solar Power Purchase Agreement released by the Ministry of Industry and Trade

Following the issuance of Decision No. 11/2017/QD-TTg of the Prime Minister on mechanism for encouragement of development of solar power in Vietnam (Decision 11), the Ministry of Industry and Trade released the first draft of a Circular guiding the Decision last month (Draft Circular). The Circular is aimed at providing regulations on formulation, approval and amendment of the national as well as provincial power master plan. In addition, the draft solar Power Purchase Agreement (Draft PPA), which is of great interest for many foreign investors, is also provided in the Circular as a mandatory template for future solar power projects with only minor changes expected to be permitted during the contract negotiations.

In essence, the Draft PPA is almost the same as current applicable PPAs for renewable projects. This creates bankable issues for solar projects and a hindrance to foreign investors planning an investment in the sector.

Feed-in-Tariff (FiT)

The draft Circular repeats the solar FiT for power output from on-grid projects and excessive power output generated from rooftop projects specified in Decision 11 to be VND2,086/kWh or US 9.35 cents/kWh. However, unlike Decision 11, the Draft PPA does not require that the conversion between USD and VND be according to the exchange rate at the time of payment.

EVN’s rights and obligations as the sole off-taker

EVN is delegated to purchase all power output generated from solar power projects pursuant to terms and conditions of the draft PPA within 20 years.

It is noteworthy that the Draft Circular and the Draft PPA list out certain circumstances where EVN is not obliged to purchase power as negotiated with the seller, for example:

  1. when EVN is in the process of installing equipment, or making repairs, replacement, inspection or examination of the grid connection of the seller’s power plant;
  2. when the transmission grid or the distribution grid connected to EVN’s grid has a problem or grid equipment directly connected to EVN’s transmission grid or the distribution grid has a problem; and
  3. when EVN’s grid needs support to recover after the incident in accordance with the provisions of operation of the national power system and the standards, technical regulations of the electric industry.

Unfortunately, the current Draft PPA does not include provisions protecting the interests of the seller in the abovementioned circumstances. It is quite risky for the producer if the output is ready to be fed to the grid but the connection is not available to do so. Absent a clear indication of whether the Draft PPA is a ‘take or pay” agreement, investors will find it difficult to secure and ensure the profits and revenue of their projects.

Dispute resolution

The Draft PPA allows either party to the agreement to bring the dispute to local courts for litigation and other energy-related state bodies of Vietnam (General Directorate of Energy and the Electricity Regulatory Authority of Vietnam) for mediation and resolution.

The Draft PPA does not provide for international arbitration to be an option to resolve the dispute. This could be a great concern for foreign investors, especially those of large utility scale projects.

Other key issues of concern

  • No Government guarantee to enhance the credit of EVN as the sole off-taker;
  • No provision addressing the risks of changes in applicable laws; and
  • The Draft PPA is required to follow a specific template, which is not bankable.

While the current Draft PPA leaves certain key issues unresolved, we note that this is only the first draft. Thus, it will be subject to potential revisions before its official adoption. We believe that with lessons learnt from the PPA for other renewable projects, the Ministry of Industry and Trade will complete the Draft PPA towards a mutually beneficial agreement for both the seller and the purchaser.

How to avoid EVN – The 30 MW rule

Considering the monopoly role of EVN as well as tough negotiation of the PPA, investors could still get out of this trouble. According to Article 1.2 of Circular No. 56/2014/TT-BCT promulgating methods to determine electricity generation price and examination steps of the PPA, the important requirement to negotiate with EVN is whether it is an on-grid or off-grid project. If it is an on-grid project with capacity of more than 30 MW or under 30 MW but voluntarily participating in the power market, the investor must negotiate with EVN. This means if the project is off-grid, there will be no requirement to negotiate with EVN. Therefore, if you are new to the market, an off-grid 30MW project or less is a smart option to test the water. Once you have built up your track record, you can go for larger scale projects.

***

Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

 

 

Posted on by Dr. Oliver Massmann

VIETNAM – SOLAR POWER – AMAZING BREAKING NEWS – THE VERY FIRST SOLAR LAW – GOVERNMENT’S SUPPORTING REGIME FOR SOLAR POWER PROJECTS IN VIETNAM FINALLY OUT

 

On 11 April 2017, the Prime Minister officially approved the issuance of Decision No. 11/2017/QD-TTg on supporting regime for the development of solar power projects in Vietnam.

We note below some major points in this Decision:

Feed-in-tariff (FIT) rate

EVN is responsible for buying the whole electric output from on-grid solar power projects with the electric buying price at the point of electricity receipt to be 2,086 Vietnamese dong/kWh (equivalent to 9.35 UScents/kWh) (VAT excluded). This FIT only applies for on-grid projects with capacity of solar cell being over 16% or of solar module being over 15%.

There is no FIT for rooftoop solar power projects if such projects are not grid-connected. This is one of the differences compared with the previous Draft Solar Decision which sets a seperate FIT for rooftop projects when they are connected to the grid.

The FIT is based on the VND/USD exchange rate issued by the State Bank of Vietnam on 10 April 2017 (USD 1 = VND22,316). This FIT will be adjusted according to the fluctuation of the VND/USD exchange rate as specified in the standard Power Purchase Agreement (PPA) to be issued by the Ministry of Industry and Trade. We note that the solar PPA will have a term of 20 years from the commercial operation date of the solar plant and can be extended/ renewed based on regulations in effect at that time.

Investment incentives

Investment capital: Investors may mobilize capital from domestic or overseas organizations and individuals to invest in solar power projects.

Import duty: Solar power projects are exempted from import duty on goods imported to create fixed assets of the projects; components, materials and semi-finished products which are not available at home for the project’s operation.

Corporate income tax: solar power projects will also enjoy the same corporate income tax exemption and reduction as projects in sectors receiving investment incentives according to the current regulations on taxation. For example, corporate income tax rate of 10% will be applied for 15 years, tax exemptions within 4 years and tax reduction by 50% in the next 9 years.

Land: Solar power projects, lines and transformer stations connected to the national grid enjoy the same exemptions and reductions in land use, land rental as projects being entitled for preferential investment treatment. Such incentives, among other things, include exemption of land rental within 3 years from the operation date of the project.

Projects included in the Power Master Plan

The Power Master Plan, whether it is national or provincial, only applies for on-grid solar projects.

Projects of 50MW or below will be approved by the Ministry of Industry and Trade to be included in the Power Master Plan, while those of more than 50MW will be approved by the Prime Minister.

Thus, it could be understood that off-grid and rooftop projects do not have to be included in the Power Master Plan. This will save the investors the hassle of negotiating the PPA with EVN.

The Decision has effect from 01 June 2017 to 30 June 2019.

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Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

 

 

Posted on by Dr. Oliver Massmann

Vietnam – Wind Power Breaking News – One of the first foreign financed Wind PPAs signed – Duane Morris advised on this transaction – What you must know

 

EAB New Energy GmbH (“EAB”), a German privately held SME with business activities around the world (Asia, Latin America, South Africa), engaged Duane Morris Vietnam LLC to advise on one of the very first privately financed Wind Energy Power Purchase Agreements for a wind power project in Vietnam – the “Mui Dinh” wind project (SPV el-wind Mui Dinh LLC) with a total investment value at final stage of about 60 Million USD.

EAB, in close co-operation with its subsidiary in Vietnam – WPV Wind Power Vietnam LLC, has received the Construction Permit for the wind power plant in Ninh Thuan province and will start the wind farm construction works in due course. Duane Morris Vietnam LLC advised EAB in the negotiation of the Wind Power Purchase Agreement with the Electricity of Vietnam (“EVN”) to connect into to the national electricity and sell electricity to EVN (the “Project”). The Wind Power Purchase Agreement was signed on 01 February 2016. This is one of the first signed Wind Power PPA in Vietnam and EAB is one of the first foreign companies with this success.

Given the fact that Vietnam’s wind energy potential is highly appreciated by investors in comparison to its ASEAN neighbours, and very good for building large wind power plants, the success of this Project is considered to pave the way for development of another 40 wind power development in Vietnam, roughly 513,360 megawatts.

This is the beginning of a sizeable privately financed wind energy sector in Vietnam.

Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you want to know more details on the above or need our assistance in your project. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

 

 

Posted on by Dr. Oliver Massmann

Lawyer in Vietnam Oliver Massmann at Meeting with new Prime Minister Nguyen Xuan Phuc Sustainable Foreign Direct Investment is what Vietnam needs most:

We highly appreciate the Government’s efforts to integrate into the world’s economy, in particular it is worth mentioning the recent conclusion of important trade pacts such as the EU- Vietnam Free Trade Agreement, the Trans-Pacific Partnership, the Vietnam –Korea Free Trade Agreement. Foreign business community is expecting from the Vietnamese Government to stay course on its path of international integration and implementation of its international commitments. Foreign investment is an effective channel to develop the country, thus the Government needs to adopt preferential treatment for foreign investors in terms of policies, land and human resources.

But foreign investment cannot come at the price of unlimited environmental pollution and GDP should not be the only indicator of a fast-growing country. The current serious environment pollution in China as a result of its hot development in the recent years is a big lesson that Vietnam must learn from. The magic term for Vietnam’s future is “Sustainable Foreign Direct Investment”. Vietnamese Government should focus on encouraging sustainable development. One form is renewable energy. However, there has been done too little to move foreign direct investment forward in the renewable energy sector. Lack of sufficient supporting regime, low feed in tariff, project bankability are among hindrances to development in the sector.
But in my view the major hindrance for development in the Renewable Energy sector is the will of the Authorities in charge to really implement commitments of international agreements like the Paris agreement and make things happen in Vietnam. I conclude: Nothing will move without the real will to do it. We need the will and real action to create a sustainable framework for Renewable Energies and sustainable Foreign Direct Investment.

I am confident that the new Government will walk its talk to this regard.

Please contact Oliver Massmann under omassmann@duanemorris.com if you have questions on the above. Oliver Massmann is General Director of Duane Morris Vietnam LLC.

Thank you!

Best
Omassmann

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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