VIETNAM – Power Development Planning VIII (“PDP8”) – Vietnam Government’s plan to De-carbonize the Country – what you must know:

Question#1. What impact is PDP8 likely to have on the country’s efforts to decarbonize the economy?

Answer#1:
The draft Power Development Planning VIII (“PDP8”) reinforces the Vietnam Government’s current view on prioritizing renewable energy sources to minimize negative impacts caused by electricity production on the environment. Importation of fuels (coal, LNG) are encouraged as a way to diversify the country’s primary energy sources, and the same goes for the establishment of transmission and distribution grid links with China, Laos and Cambodia in order to maximize each country’s energy potential. Imported electricity sources from neighboring countries are to be considered as prioritized projects because imported electricity will reduce environmental impact compared to domestic production.

As of 2020, the country’s total generation capacity is about 69.3 gigawatt (GW), including 16.5 GW of solar power (approx. 24% of the total capacity) and 0.6 GW of wind power. More than 50% Vietnam’s electricity generation came from coal in 2020. Vietnam’s reliance on coal-fired power remains heavily to meet rapidly increasing electricity demand. Hydroelectric generation is also significant as the country is home to a number of large rivers. Non-hydro renewable sources such as wind and solar made up 5% of Vietnam’s electricity generation in 2020. Under the draft PDP 8, Vietnam plans to increase solar capacity to 18.6 GW and wind capacity to 18 GW by 2030.

Question#2. Does PDP8 target specific regions of the country? Are these regions that are more likely to be impacted by the transition to a low carbon economy?

Answer#2:
Yes, one of the most notable differences between the Draft PDP 8 and Revised PDP 7 (the latest official national power development planning) is the level of power demand between the North and the South. According to PDP8, the proportion of commercial electricity in the North will gradually increase from 42.4% in 2020 to 45.8% in 2045, while the South will decrease its proportion from 47.4% in 2020 to 43.6% by 2045. By 2040, the North’s commercial electricity demand will start to exceed that of the South. As a result, this will significantly affect the strategy in PDP8 to develop the transmission grid and generation sources (including RE sources) to meet the demand.

The draft PDP 8 is oriented to focus on the development of transmission grid of at least 220KV to solve overcapacity issues that has been occurring in recent years. As to grid development, in the period of 2021-2030, MOIT sees the need to build 86 GVA with a capacity of 500kV per station and nearly 13,000 km of DLZ. From 2031-2045, an additional construction of 103 GVA with capacity of 500kV and nearly 6000 stations is required. The 220kV power grid needs construction of 95 GVA, nearly 21,000 km DMZ and 108 GVA, more than 4000 km NE. Total investment capital for electricity development in the period 2021-2030 is roughly USD 128.3 billion USD, of which: USD 95.4 billion for the power sources, USD 32.9 billion for the grids. The average structure of capital investment shall be 74% / 26%.

The draft PDP8 appears to concern a surging oversupply of solar power in 2030 in many regions, such as the Central Highlands (estimated 1,500 MW but registered 5,500 MW), the South Central (estimated 5,200 MW but registered 11,600 MW), or the Southern (estimated 9,200 MW but registered 14,800 MW). The wind power shares the same situation as the registered capacity exceeds normal estimated capacity in Central Highlands (estimated 4,000 MW but registered 10,000 MW) and Southern (estimated 6800 MW but registered 17,000 MW). Accordingly, the draft PDP8 must solve this unbalance to ensure the sustainable development of the renewable energy sources in Vietnam. It is expected that future policy on renewable energy will base on auction rather than FIT.

For example, below is the draft policy for solar power projects. In late January 2021, the Ministry of Industry and Trade (“MOIT”) issued the draft Decision of the Prime Minister guiding the selection of investors implementing solar power projects under the bidding mechanism (“the Draft”). According to the Draft, the Decision would be applicable to projects with grids connected directly to the national power network. The Ministry of Industry and Trade shall coordinate with the Electricity of Vietnam and the People’s Committees of localities to organize the formulation and approval of the renewable energy power source development plan for a period of 5 years and every 2 years to serve as a basis for the bidding system. In addition, every 02 years, the Ministry of Industry and Trade shall issue a Price Framework for electricity generation in order to determine the ceiling price for bidding to select investors of solar power projects with COD in the next 02 years. The plan for development of renewable energy power sources for a period of 5 years shall include the total capacity scale for each renewable energy power source in the 5-year period, the total capacity scale for each renewable energy power source for each load region (8 regions) and a list of transmission lines and substations (220 kV at least) to be put into operation for a period of 5 years. The 02-year plan shall have similar content but for a 2-year period only and shall be more provincial specific.

Question#3. Were issues of economic, racial, and gender equity considered in the development of PDP8?

Answer#3:
Yes, any policy of the Government must consider these issues but it is very challenging to identify whether they are well reflected into the policy including PDP8. This is a very broad and difficult question.

Question#4. Was there a debate amongst political leaders about the costs and benefits of PDP8?

Answer#4: Yes, of course. It appears that the new Government now has different views and priorities than the former and as a result the PDP8 must be revised to reflect such priorities.

As you may know, in late March 2021, the very first draft of PDP8 PM Decision (“Draft Decision”) has been published through unofficial sources (i.e. not through the Ministry of Industry and Trade (MOIT)’s website). Such PM Draft Decision was planned to be signed off at the end of March during the last days of Prime Minister Nguyen Xuan Phuc’s administration, but it was delayed as the hand-over to new administration was already under way. It appeared that the investors and LNG-to-power projects in this first PM Draft Decision were scaled down comparing to those in the PDP8 proposal published by Ministry of Industry and Trade (MOIT) earlier.

On 23 April 2021, the Deputy Prime Minister (DPM) Le Van Thanh directed a Government’s meeting on the PDP8 and concluded that, among others, PDP8 must be (i) updated with qualifications for prioritized projects, and (ii) revised to reasonably review and allocate development of power sources, especially LNG-to-power projects in PDP8 in order to ensure the competition, optimization on development of power system. DPM asked the MOIT to careful review and digest opinion from EVN in its official letter No. 1645/EVN-KH dated 2 April 2021. Finally, the DPM required the MOIT to submit the updated PDP8 proposal prior to 15 June 2021.

Unfortunately, due to Covid-19 situation and heavy workload on updating the PDP8 proposal, MOIT failed to submit a revised proposal to the Government for consideration. On 17 June 2021, the MOIT Minister arranged a press meeting to update the PDP8 progress and planned to submit the revised PDP8 proposal to the Government within June 2021. So far, based on our intel, the MOIT is still reworking its draft and PDP8 is expected to be approved COB this year ideally.

Question#5. What role did various stakeholders (e.g., business, not-for-profits) take in advocating for or against PDP8 or trying to influence its development?

Answer#5:
Yes, there are many stakeholders here, e.g., EVN, local developers, business communities (such as Chambers and VBF) and state authorities. However, please kindly note that the draft PDP8 is mainly drafted by the Energy Institution (NB: an institution under EVN until it was taken over by MOIT since 2010). The MOIT was collecting opinion from all stakeholders for the draft PDP8 made by the Energy Institution. It is worth noting that the opinion from EVN is always critically important as it (including its affiliates and subsidiaries) still remains the position of a monopoly wholesaler in the market. The new Government requested the MOIT to revisit EVN’s opinion for revising the current draft PDP8.

Question#6. Which key stakeholders were in favour of PDP8? How did they organize and influence decision making?

Answer#6:
Yes, it is very challenging to answer black or white on this question. PDP8 is the prioritized policy of the Government for the energy sector. Thus, there is always a favorable trend for this policy to come out soon. We however do note that there are different views on the contents of the PDP8, but not an issue of support or opposition.

Question#7. Which key stakeholders were against PDP8? How did they organize and influence decision making? Were there specific measures to address their concerns?

Answer#7:
Yes, it is very challenging to answer a black or white question. PDP8 is the prioritized policy of the Government for the energy sector. Thus, there is always a favorable trend for this policy to come out soon. We however do note that there are different views on the contents of the PDP8, but not an issue of support or opposition.

Question#8. Has PDP8 been well-received by the public?

Answer#8:
Yes, it has been well received by the public. However, the foreign invested business communities still have some concerns, among others, over the current PDP8:
• No clear plan for variable renewable energy in the technology mix. PDP8 must ensure Vietnam planning remains cutting-edge to include full representation of variability and assessing power system reliability.
• No plan for nuclear power.
• Need to construct a regulatory and permitting environment that attracts private sector investment in clean energy generation and energy efficiency.
• Need a clear policy to ensure EVN to share the market risks: e.g., a bankable (take or pay) power purchase agreement with generators.
• Need to halt further development of coal based projects: it is recommended to suspend the approval of any new coal thermal power plants and conducting a strategic review of those that are already approved but which do not have financing or power purchase agreements.
• Need to develop a flexible transmission network in view of the market orientation and increased variable renewable energy.
• Need to build schemes to address the uncertainties: from fuel prices to demand growth and oversupply and curtailment.

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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.

LAWYER IN VIETNAM DR. OLIVER MASSMANN KEY COMMENTS ON DRAFT PUBLIC PRIVATE PARTNERSHIP LAW DATED 5 MARCH 2020 (“PPP DRAFT”)

1. Positive:

– Eligible Sectors (Art. 5): business sectors, which are qualified for investment in PPP form, have been selectively considered and proposed, not as broad as the those under Decree 63/2018/ND-CP (“Decree 63”). This would help to concentrate the valuable resources and finance on efficient and necessary sectors. However, please refer to our notes on incompletion of this clause in the Negative Section as below.

– Language (Art. 34): language for selection of international investor may be in both Vietnamese and English.

– Step-in rights of lenders (Art. 55): Lenders have rights to take over the project and propose another investor to continue the project. This provision has addressed the constraints that inhibit cross-border financing will be essential for diversifying sources of funding for energy-sector investments. International financing can provide for both the electricity and midstream gas sectors in terms of longer tenors and fixed-interest rates, which domestic capital market cannot satisfy.

– Guarantee on Foreign Currency Conversion (Art. 82): it is positive that the PPP Draft still remains this guarantee regime, as the one under Decree 63. However, the scope and conditions to enjoy this are very limited and do not meet the expectation from the investors as discussed in the Negative Section as below.

– Revenue risk sharing (Art. 83): it is indeed a very bold proposal in the PPP Draft that enabling the State to share the revenue loss of investors, subject to certain conditions and qualifications. Though we have few comments on the scope of this mechanism as below. We highly appreciate that the drafter has tried to address one of current issues of PPP form, i.e., non bankability and high risk.

– Dispute Resolution (Art. 104): the relevant provision on dispute resolutions have been improved in comparison with those of Decree 63. In brief, it is crystal clear now disputes between investors involving at least a foreign investor and / or disputes between investors / PPP project company with foreign parties could be resolved by either local courts / arbitration and / or foreign or international arbitration. In terms of disputes between the state and investors / project company, the PPP Draft has in-principle required local courts / arbitration but enabled other agreement between the parties in the project contracts and / or otherwise provided by international treaties of Vietnam. This is a significant improvement as Vietnam has signed several major international treaties such as CPTPP and EVFTA. We give to your attention the advantage of some international treaties as below:

“The CPTPP and the EVFTA make it possible that foreign investors could sue Vietnam Government for its decisions according to the dispute settlement by arbitration rules. The violating party must take all necessary measures to promptly comply with the arbitral decision. In case of non-compliance, as in the WTO, the CPTPP and the EVFTA allow temporary remedies (compensation) at the request of the complaining party. The final arbitral award is binding and enforceable without any question from the local courts regarding its validity. This is an advantage for investors considering the fact that the percentage of annulled foreign arbitral awards in Vietnam remains relatively high for different reasons. It is crucial that foreign investors now could take advantage of the requirements under the CPTPP and the EVFTA (as also recognized by the PPP Draft) to enhance functionality of their PPP projects in Vietnam. In case these entities make wrongful decisions, foreign investors could take recourse to arbitration proceedings and have the arbitral awards fully enforced in Vietnam.”

2. Negative:

1. Art. 5 The scope of sectors eligible for PPP investment form is not crystal clear and need further guidance from the Government and Ministries. For example, in terms of power projects, in practice some major profile thermal power projects have been implemented in cooperation with the Government under the Build – Operate – Transfer (BOT) umbrella (a form of public private partnership (PPP), it appears that the Government would not offer this kind of treatment for renewable energy projects at large (except, perhaps in theory, for very large and prominent ones).

Foreign investors (most of them engaging small scale projects) do not prefer PPP structure for their power plant projects, due to complexity of this structure and the lack of clear guidance, especially feed-in-tariff and consequently bankability. However, on the contrary, BOT seems to be suitable for larger scale projects and often give investors a better position to negotiate with the Government on key project indicators at the outset, which may not be available in other investment platforms.

Recommendation: Consider clarification on the scope and scale of power projects eligible for PPP form. In addition, for large scale power projects, it is crucial to enable all sub-projects of a mega power project could be together invested in the PPP form. For example, a LNG-to-power project could only be efficiently invested with other sub-projects such as terminal, FSRU, pipelines, etc.

2. Art. 47 Lack of clear and bankable terms of PPP contract. It is critical that an international form of bankable PPP contract is provided in the PPP Draft. Other related transaction agreements could be further developed as agreed by the parties but bankable templates should be drafted and attached to the guideline for implementation of PPP Draft.

Recommendation Terms and conditions of PPP contract are too general and vague.

Considering to provide a bankable PPP contract template in the PPP Draft or in the guiding decree / circular for PPP Draft.

3. Art. 57 It is not reasonable for forcing governing law to be the Vietnamese law. Especially, Vietnam has signed several international treaties and in principle allowed rules of such international treaties to be applied in PPP projects.

It is an international norm and feasible for a foreign related transactions to be governed by foreign law of a third country (not Vietnam or investor’s country) to the extent certain specific areas / agreements must be in compliance with Vietnamese law such as land regime, taxes, etc.

Recommendation: Considering for the parties to agree on the governing law of a third country (not Vietnam or investor’s country, e.g., Singapore law) to the extent certain specific areas / agreements must be in compliance with Vietnamese law such as land regime, taxes, etc.

4. Art. 80 The investment incentives are underdeveloped and quite similar as those provided under Decree 63. This is a safe approach but it would confuse the investors on the incentives and how to enjoy them under the PPP Draft.

Recommendation: Considering not referring to other laws and regulations on determination of investment, land and tax incentives for PPP forms.

For example, at least the PPP Draft should determine whether the PPP project could enjoy incentives such as an encouraged investment project or special encouraged investment project, etc.

5. Art.82 The conditions for foreign currency balance is very limited. As discussed above, only large scale projects prefer and may satisfy conditions of PPP investment forms. Thus, the scope for application of this foreign currency balance would need to be extended to all PPP projects, or at least for power projects and grid projects.

Foreign currency balance ensuring scheme is only applicable to projects subject to investment policy decision of the Nation Assembly and Prime Minister. In addition, there is a ceiling of 30% to be imposed.

In practice, several projects could not reach financial closure as scheduled because they cannot agree with the government about the convertibility of profits earned in local currency into foreign exchange for repatriation and payment for input commodities (coal, gas).

The demand for foreign currency associated with BOT projects and associated tariff revenues to be covered in the energy sector could escalate dramatically through 2030, up to US$23 billion/annually by 2030.

Recommendation: Considering to extend the scope eligible for foreign currency balance.

Foreign exchange convertibility has been a concern among investors. In the absence of such government convertibility guarantees, there is limited availability of currency hedging instruments that would allow private investors to cover currency risks through the market. The assurance on the availability of foreign currency shall definitely facilitate investment procedures. The ceiling of 30% should be removed as well.

Government guarantees for other obligations such as off-taker obligations and obligations towards infrastructure, payment obligations (including deemed commissioning and termination payments), etc. depending on projects.

6. Art. 83 Revenue risk sharing mechanism: (i) the investors, PPP project enterprises shall share with the State 50% of the increase between actual revenue and committed revenue in the contract; and (ii) the State shall share with the investors, the PPP project enterprises 50% of the decrease between actual revenue and committed revenue in the contract if, inter alia, the project does not use state’s budget and the cause of the loss is the change of policies, laws.

Recommendation: The risk sharing mechanism should be further developed to cover all other risks that may arise during the implementation of the PPP project (e.g., force majeure, change in law, price fluctuation, low selling price, etc.)

7. N/A Long negotiation process: it is due to several issues: (i) no clear list of approvals for the Project to be ready-to-build and / or operation, (ii) land site clearance and compensation process is still very challenging, (iii) not all decisions / procedures having a clear time-limit.

Recommendation: Recommending to provide all time-limits for all decisions / procedures and it is deemed to be provided if the state authority fails to issue such decisions. In addition, it is recommended to have a basic ready-to-build approval list for the investors to pursue and operate the PPP projects.

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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.

CASINO BUSINESS UNDER STRICT REGULATIONS

On 20 January 2017, the Government issued a long-awaiting casino business decree No. 03/2017/ND-CP (Casino Decree). Although the issuance of the Casino Decree after almost 10 years of waiting opens a promising market to casino industry, foreign investors have been very hesitant and in the waiting mode for further clarification documents from competent authorities. Finally after more than six months since the Casino Decree’s effective date, on 05 October 2017, the Ministry of Finance issues Circular No. 102/2007/TT-BTC (Casino Circular) guiding the Casino Decree. The Casino Circular helps complete the regulatory framework for casino business in Vietnam and put the young industry in momentum growth.

Local Vietnamese eligible for gambling

Local Vietnamese will be permitted to gamble at specific casinos approved by competent authority on a 3-year trial basis (i.e. – calculating from the first day opening of the authorized integrated resorts). According to the public media, only 02 casinos are open to Vietnamese individuals on a 3-year piloting scheme, which are located within complex resorts in Phu Quoc District, Kien Giang Province (South Vietnam) and Van Don District, Quang Ninh Province (North Vietnam). A small likelihood that Ho Tram Resort would join the list.

Local players are permitted to enter casinos if they essentially satisfy the following conditions: (i) 21 years old or above; (ii) monthly salary of VND10 million or more (equivalent to approximately US$440); (iii) paying entrance fee of VND1 million (US$44)/24 hours/ person or VND25 million (USD1,100)/ month/ person; and (iv) not being objected in writing by siblings, spouses and/or biological and adopted parents to play at casinos. However, these conditions, especially the monthly income requirement, are complicated to prove and were not previously dealt with in the Casino Decree. The Casino Circular then substantiates this requirement as below:

– Having documents (tax declarations/ confirmation by tax authorities) proving taxable income at level 3 or above pursuant to the Law on Personal Income Tax;

– Notarized house/ assets lease contract, where the total monthly rent is VND 10 million or above;

– Notarized bank savings book or bank statement of savings with a term of one year or more and having monthly interest from VND10 million or above;

– Other documents proving that the usual monthly income of players being VND 10 million or above; or

– In case a single document mentioned above is not sufficient to prove the VND10 million monthly income, players can submit several documents to prove such total monthly income.

Casinos under strict supervision of tax authorities

Casino-operating enterprises must arrange a place in the casino with necessary means and equipment for state authorities to perform the casino management and surveillance directly or via electronic equipment and camera system. Transactions under supervision are monetary transactions and/ or tokens related ones. These transactions must also be recorded ad reported to the tax authorities.

In addition, state authorities also supervise, either directly or via electronic and camera system, the inventorying and calculation of transactions performed at cashier area and/ or areas for counting and storing cash and tokens.

Foreign currency control in casino business

Casino-operating enterprises must exchange Vietnamese Dong or other currencies for tokens and vice versa for players.

The exchange rates for Vietnamese Dong or other currencies to tokens and vice versa must be based on the purchasing rates on the transaction date announced by the licensed bank where the casino-operating enterprise’s specialized foreign currency account is opened. In case the transaction date falls on days off or public holidays, the exchange rates must be based on the rates announced on the previous transaction date.

A casino-operating enterprise may accept bank cards of players to exchange for tokens when they play in the casino. The transaction must be in Vietnamese Dong.

In case the Vietnamese players win the prizes, they are only allowed to receive the prize in Vietnamese Dong (whether in cash or by bank transfer). This is not the case for foreign players where they can also receive the prize in foreign currency.

Conclusion

The issuance of the Casino Decree and the Casino Circular timely open Vietnam’s young casino industry to attract foreign investment and limit foreign currency loss to other neighbouring countries. According to recent statistics, Vietnam loses about USD800 million in tax revenue annually from gamblers who cross the border to Cambodia. This is even more critical as many countries in the region already allows casino business such as Macau, Singapore, Philippines, Korea and recently Japan. In such scenario, the Vietnam Government still has a lot to do in order to not only retain Vietnamese players in the market but also attract foreign players who are already familiar with other casinos in the region.

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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!

 

 

 

Lawyer in Vietnam Oliver Massmann – First time in history – Government Procurement Tender Decisions will be subject to International Arbitration and Investments subject to Investor State Dispute Settlement And Enforcement

Vietnam is one of the countries with the highest ratio of public investment to GDP on the world (i.e., 39% annually from 1995). However, Vietnam has not agreed to coverage of their government procurement by the Government Procurement Agreement of the WTO (GPA). Indeed, Vietnam for the first time has undertaken to do so in a recent Free Trade Agreement with the EU (EVFTA).

Currently Chinese companies profit the most from Vietnam’s procurement market. 90% of power, mining, manufacturing, ferrous and chemical projects of state-owned companies in Vietnam are awarded to Chinese contractors. China State Construction Engineering Corp (CSCEC) keeps winning important contracts although it has a poor track record and has even been blacklisted by the World Bank due to bribery charges. With the EVFTA that attractive market would be open to European companies which probably would be welcomed.

How is government procurement addressed under the EVFTA?

The EVFTA on Government Procurement mainly deals with the requirement to treat EU bidders or domestic bidders with EU 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 EVFTA 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. These rules require all Parties, especially Vietnam, in the context of China’s bidders predominantly win the bids with cheap offer price but low-quality services, to reform their bidding procedures and protect their own interests by disqualifying tenders with poor performance and low capacity.

What is the covered procurement?

Government procurement of goods or services or any combination thereof that satisfy the following criteria falls within the scope of the EVFTA Government Procurement rules:

Criteria EVFTA
Monetary values that determine whether procurement by central government is covered under an agreement 130,000 Special Drawing Rights (SDRs) (US$191,000) after 15 years from the entry into force of the agreement

 

Initial transitional threshold: 1.5 million SDRs (US$2.23 million)

Procurement of construction services by central government entities Initial threshold: 40 million SDRs (US$58.77 million)

After 15 years, 5 million SDRs (US$7.35 million)

Entities covered 22 central government bodies

 

42 other entities (including 2 utility-related state-owned enterprises, 2 universities, 2 research institutes and 34 public hospitals under the control of the Ministry of Health

 

Sub-central government coverage: including Hanoi and Ho Chi Minh

Exclusion of preferences for SMEs Broad exclusion
Application of offsets Based on value of a contract

Currently the EU investors are expressing great interest in Long Thanh Airport project, whose total investment amount is approximately USD16 billion. This project is located in Dong Nai, 40km East from Ho Chi Minh City. When it is completed in 2025, it will become the biggest airport in Vietnam. The project is now at the feasibility study stage. Its result will be submitted to relevant authorities for approval in Q3 2017. It is expected that in 2019, the investor – Aviation Corporation of Vietnam will select the main constructor for the project. Selection form and requirements are not available at the moment. This is a great opportunity for European investors, considering that the next phase of the project will start when the EVFTA is already in effect.

How to appeal Government tender decision?

EVFTA makes it possible that the EU could sue Vietnam (or vice versa) for its tender decisions according to the dispute settlement by arbitration rules in a separate chapter of the EVFTA. The violating party must take all necessary measures to promptly comply with the arbitral decision. In case of non-compliance, as in the WTO, the EVFTA allows temporary remedies (compensation) at the request of the complaining party.

Enforcement of arbitral awards

In disputes regarding investment (for example, expropriation without compensation, discrimination of investment), an investor is allowed to bring the dispute to the Investment Tribunal for settlement (Investor-to- State dispute settlement mechanism – ISDS). The final arbitral award is binding and enforceable without any question from the local courts regarding its validity. This is an advantage for European investors considering the fact that the percentage of annulled foreign arbitral awards in Vietnam remains relatively high for different  reasons. According to report of the Supreme Court of Vietnam, the biggest reason lies in the relevant courts which are responsible for implementing the procedures for recognition and enforcement of foreign arbitration bodies. Specifically, in-charge judges do not fully understand nature of Vietnam’s commitments to New York Convention 1958, wrongly apply Vietnamese proceeding rules and, in some cases, are simply corrupted by the losing parties, often the local defendants.

Different from investment related disputes, disputes over a Government tender decision must be brought to the arbitration panel by a Government against the other Government.  It is not clear whether local courts could annul arbitral awards of the arbitration panel regarding a wrongful tender decision.  However, it is gradually becoming a less significant issue as over time, the number of rejected enforcement of arbitral wards in Vietnam is substantially on decline. The recognition and enforcement process is also shortened and is getting more straightforward and transparent. This is thank to efforts of the Supreme Court of Vietnam in training courts of lower levels, voices raised by foreign business communities and drastic changes in Vietnam’s proceeding laws recently.

We believe that the procedural and legal changes regarding government procurement will enable EU exporters to reach markets that were closed before and compete more effectively.

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

Thank you very much!

 

Lawyer in Vietnam Oliver Massmann Equitization Quality over Quantity

VIETNAM – Comment on a recent draft from the Ministry of Finance on strategic investors purchasing stakes from equitized state-owned enterprises (SOEs)

Author: Oliver Massmann – Chairman of the Legal Sector Committee – European Chamber of Commerce in Vietnam

On 4th August, the Ministry of Finance announced a Draft Decree on converting 100% state-owned enterprises (SOEs) into joint stock companies, which will replace Decree No. 59/2011/ND-CP, Decree No. 189/2013/ND-CP and Decree No. 116/2015/ND-CP.

Although the currently in force Decrees have brought positive results in  the re-structuring of state-owned enterprises since the beginning of the process in 2011, the restructuring quality has proven to be inefficient considering the small percentage of private participation in the company’s charter and management after the privatization. In addition, many big corporations with long financial history will need much more time and have to follow specialized rules to complete the privatization procedure. Many strategic investors have thus found it less attractive to participate in the process.

In order to tackle the above issues and bring substance to the equitization process in the context of new Enterprise Law, Investment Law, etc., there is a need to introduce a new Draft Decree on converting 100% state-owned enterprises into joint stock companies.

In particular, the draft’s Article 6 stipulates that a strategic investor must have the same business sectors as equitized SOEs. In addition, the strategic investor must have at least two years of profits (as of the time for buying stake of SOEs). Moreover, its equity in the latest financial report (which has to be audited by an independent auditing firm) must be sufficient for purchasing the stakes that it registers to buy.

Under the current regulations in Decree 59/2011/ND-CP, the strategic investor is only required to have sound financial capacity, and have a written commitment endorsed by an authorised agency. The commitment must state that after SOEs are equitized, the strategic investor must support SOEs in terms of technology transfer, human resource training, corporate governance, material supply and development of output markets.

This new stricter regulations in the draft will affect foreign firms who wish to buy stakes from SOEs and become strategic partners. In particular, foreign firms must be aware that they are not allowed to freely invest in any SOEs that have business activities not relevant to what they are doing, despite their strong interest in those sectors. This is to prevent cases where inexperienced foreign investors get into the management of the SOEs without having track record ability to manage them, and for example, aim at targeting Vietnam as a trial market for their business expansion.

In addition, we believe that the Government is showing its strong effort to select eligible investors to improve the equitization quality, and to make sure that the investors have proven financial status to efficiently recover the operating at loss status of SOEs. With stricter requirements, the Government will be able to attract investors with serious investment targets and with ability to contribute to the long-term development of SOEs.

Considering these new proposed stricter requirements, it is highly recommended that foreign investors conduct sufficient due diligence on the targeted SOEs, prepare themselves ready in terms of financial capacity and proven management skills, obtaining knowledge about Vietnam’s stock exchange market as well as regulations on bidding to come to a smart investment decision. We expect that with more substantive equitization, foreign investors will have more voice in the SOEs, via which being able to adopt development plans that serve the equitized companies’ future business outcomes, not any individual’s benefits.

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.

THANK YOU !

 

Lawyer Oliver Massmann interviewed by Channel News Asia on Reaction to new Vietnamese Government from the Business Community


1. Vietnamese legislators will elect the country’s new PM, President & NA Chair three months ahead of schedule. Reaction from business community?

So far, there has been no recorded official reaction from business community. But some unofficially view this move as unprecedented (though not entirely unusual).

As a foreigner having lived here for more than 20 years, I myself am not surprised at this change. The election result (who plays which role) perhaps has been set. This in fact is speeding up of the final formation process.

2. Does it show or mean anything about the “new regime”?

The expression of “new regime” isn’t one I would support and it is still too soon to conclude how the new premiership will unveil Vietnam politically and economically. It should be noted that Vietnam is a single party democracy therefore “regime change” is not technically correct in this case whatsoever.

However, the election result could be a signal that the Congress, or in other words, the conservative side, has gained an upper hand. This raises a concern about the reform progress in the upcoming time.

My recommendation to the Vietnamese Government at this stage: The new Government should not hesitate and make very clear via official channels that it will continue with its excellent strategy of high level international integration and speedy implementation of its signed trade pacts to pave the way for market access and strong growth in Foreign Direct Investment into Vietnam.

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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. Mr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.
Thank you!

Vietnam – Energy Sector – Direct Awards of Public Procurement Projects and The Trans-Pacific Partnership Agreement – What You Must Know

Q: Under what conditions can power projects be awarded without Government tender?

A: Power projects can be awarded directly without Government tender if the projects are not:
a. Investment projects for development using state funding by state agencies;
b. Investment projects for development of state-owned enterprises;
c. Investment projects for development other than those in a) and b) which are financed by the state; has 30% or more of total investment capital contributed by state-owned enterprises ; or less than 30% but more than VND 500 billion of the total investment capital of the project;
d. Procurement projects using state funding to provide public goods and/ or services; or
e. Investment projects in the form of public-private partnership or investment projects using land.

Q: Under which circumstances is direct appointment of an investor applied?
A: Direct appointment of an investor applies in the following cases:
a. There is only one investor registering the project’s implementation;
b. There is only one investor being able to implement the project as the project is related to intellectual property, commercial secret, technologies or capital arrangement;
c. The investor who proposes the project satisfies requirement of implementing the project with the highest feasibility and efficiency in accordance with regulations of the Government.
However, please note that direct appointment of an investor is still a part of a Government tender, meaning that this applies only when the abovementioned cases occur in the Government tender process.

Q: Under which circumstances is direct appointment of a contractor applied?
Direct appointment of a contractor applies in the following cases:
a. An event of force majeure such as disasters, war, change of the state policies, …which are objective, unpredictable and cannot be solved despite using all necessary measures within one’s own capacity. Vietnam is likely to face energy crisis in the coming years due to significant growth in energy demand. Thus, this is a good chance and foreign energy investors and companies should be prepared.
b. Bid packages need to be performed to ensure national secrets. National secrets are information in politics, national defence, security, foreign affairs, economics, science, technology sectors and other sectors that has not been disclosed or will not be disclosed by the state, and if disclosed, it will cause damage to the country.
c. Urgent bid packages need to be carried out to protect national sovereignty, national borders, and islands;
d. Bid packages of providing advisory services, non-advisory services, procurement of goods which must be purchased from previous contractors to ensure the compatibility of technologies and copyright which are unable to be purchased from other contractors; bid packages with research and testing nature; purchase of intellectual property right;
e. Bid packages of providing advisory services for making feasible study reports, construction designs which have been appointed to authors of designs of architectural works who won in a selection or are selected when authors have full capability in accordance with regulations; bid packages of constructing statues, reliefs, monumental paintings, art works in association with author right from the creation stage to construction stage of the works;
f. Bid packages of relocating technical infrastructure works directly managed by a specialized unit for site clearance;
g. Bid packages of providing public goods and services, bid packages with bid package price ranging from VND 500 million to VND 1 billion depending on types of projects.

Q: How is government procurement addressed under the Trans-Pacific Partnership Agreement (“TPP”) ?
A: The TPP on Government Procurement mainly deals with the requirement to open up bidding to companies in other nations when a government buys products or orders a public works project worth over a certain amount. Governments undertake to timely publish information on tender, allow sufficient time for bidders to prepare for and submit bids, maintain confidentiality of tenders. The TPP 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. These rules require all Parties, especially Vietnam, in the context of China’s bidders predominantly win the bids with cheap offer price but low-quality services, to reform their bidding procedures and protect their own interests by disqualifying tenders with poor performance and low capacity.

Q: How to appeal Government tender decision?
A: The TPP aims at protecting investors and their investment in the host country by introducing requirements on non-discrimination; fair and equitable treatment; full protection and security; the prohibition of expropriation that is not for public purpose, without due process, or without compensation; the free transfer of funds related to investments; and the freedom to appoint senior management positions regardless of nationality.
TPP also includes procedures for arbitration as means of settling disputes between investors and the host state. It is expected to cover new provisions such as transparency in arbitral proceedings, disclosure of filings and arbitral awards, and participation of interested non-disputing parties to make amicus curiae submissions to a tribunal.

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If you would like to have a legal concept for direct awards or detailed guidance on this topic please contact Oliver Massmann under: omassmann@duanemorris.com. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

Breaking News – Vietnam – Broadcasting Market – First time Investment of foreign investors possible!

Breaking News – Vietnam – Broadcasting Market – First time Investment of foreign investors possible!

For your information, on 7 January 2015, the Prime Minister of Vietnam issued Decision 01 amending the “master plan on radio and television transmission and broadcasting through 2020” (the “Master Plan”). Decision 01 officially came into effect as of 15 March 2015.

The biggest change that Decision 01 makes is involvement of enterprises of all economic sectors, arguably including foreign invested enterprises, in the transmission and broadcasting market of Vietnam. Before Decision 01, only State owned enterprises or enterprises where State has majority ownership were given access to such markets.

As a matter of fact, VTV and its affiliates/subsidiaries hold a dominant role in the TV market. The “group” is responsible for both content provision and transmission/broadcasting. When a number of software/telecommunication giants such as (Viettel, the biggest telecomunication or FPT, the largest telecommunications and software companies respectively) start their TV business by taking advantages of their available infrastructure, VTV has sought to isolate them by offering content to its affiliates and subsidiaries first. This results in a modest expansion of newcomers like FPT and Viettel for the last two years.

The cause behind such change is, on one hand, the Government’s plan to separate the pay TV transmission/broadcasting and content provision which fall inside the sphere of the Law on Telecommunications and the Law on Media of Vietnam respectively. On the other hand, the Government wishes to form major transmission/broadcasting companies of large scale which are able to cover services nationwide.

We hope the above is useful for your consideration and will keep you updated of latest developments in this sector from time to time.

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

INTERESTED IN DOING BUSINESS IN VIETNAM? VISIT: www.vietnamlaws.xyz

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