infrastructure – Duane Morris Vietnam

September 18, 2019September 18, 2019 by Dr. Oliver Massmann

VIETNAM – THE WORLD BANK IS ASKING DUANE MORRIS ABOUT BENCHMARKING INFRASTRUCTURE PUBLIC-PRIVATE PARTNERSHIPS – WHAT YOU MUST KNOW:

CASE STUDY ASSUMPTIONS

· The Private Partner (the Project Company) is a Special Purpose Vehicle (SPV) established by a consortium of privately owned firms, which operate in Vietnam.
· The procuring authority is a national/federal authority in Vietnam that is planning to procure the design, build, finance (full or partial), operation and maintenance of a national/federal infrastructure project in the transportation sector (i.e. national highway) with an estimated investment value of USD 150 million (or the equivalent in your local currency) funded with availability payments and/or user fees.
· To this end, the procuring authority initiates a public call for tenders/ invitation for bids/ request for proposal/ request for qualification, following a competitive PPP procurement procedure.

DEFINITIONS

· “Public-Private Partnership (PPP)” refers to any contractual arrangement between a public entity or authority and a private entity, for providing a public asset or service, in which the private party bears significant risk and management responsibility. For the purpose of this survey, this definition applies irrespective of the terminology used in the particular country or jurisdiction and applies both to government-pays or user-pays PPP.
· The “regulatory framework” encompasses all laws, regulations, policies, binding guidelines or instructions, standard PPP contracts, other legal texts of general application, judicial decisions and administrative rulings governing or setting precedent in connection with PPPs. In this context, the term “policies” refers to other government-issued documents that are binding to all stakeholders, enforced in similar ways to laws and regulations, and provide detailed instructions for the implementation of PPPs. It should not be confused with Policy in the sense of a government’s statement of intent to use PPPs as a course of action to deliver public services. The “regulatory framework” includes but is not limited to those laws, regulations, policies, etc. dealing with PPPs (i.e. procurement of PPPs may be governed by the general procurement framework; planning and budgeting issues may be regulated instead by broader public finance related laws and regulations).
· The “Procuring Authority” is the Ministry, Department or Agency responsible for ensuring that the relevant assets and/or services are provided by the private partner after successful completion of procurement/ bidding process. It is the authority in charge of the PPP (i.e. identifying, preparing, procuring, awarding and managing the PPP contract).
· Procurement terminology: Considering that procurement-related terminology varies across jurisdictions, depending on the type of procurement procedure and the stage of the process, the terms used in the survey should be interpreted by contributors to best fit the local naming conventions. In particular, the following non-exhaustive list of terms can be broadly understood as interchangeable in the context of the survey:
o Bidding/tendering process/selection process/procurement
o Bid/tender/proposal
o Call for tenders/tender notice/invitation for bids/request for qualifications (RFQ)/request for proposals (RFP) – in cases when there is not an RFQ.
o Tender documents/bidding documents/specifications/request for proposals (RFP)

A. REGULATORY AND INSTITUTIONAL FRAMEWORK FOR PPPs
Q1 : Does the regulatory framework in your country allow procuring PPPs?
A1 : Yes. The basic principles and general regulations on PPPs are set out under Decree 63/2018/ND-CP of the Government dated May 4 2018 on investment in the PPP form (the “Decree 63”).
Following the Decree 63, the Ministries formulated and issued the following guidelines:
(i) Circular No. 19/2019/TT-BGTVT dated May 23 2019 on detailed guidance on investment fields and contents of feasibility study reports of investment projects in public-private partnership form in transport sector (“Circular 19”)
(ii) Circular No. 09/2018/TT-BKHĐT dated December 28 2018 providing guidance on the implementation of a number of articles of government’s Decree No. 63/2018/ND-CP dated May 4, 2018 on investment in a public-private partnership form. (“Circular 09”)
(iii) Circular No. 88/2018/TT-BTC dated September 28 2018 regulating financial management and expenses of investor’s selection of investment projects in PPP form (“Circular 88”)
(iv) Circular No. 21/2016/TT-BTTTT dated September 30 2016 on guidelines for PPP investment model under management of the Ministry of Information and Communications (“Circular 21”)
(v) Circular No. 16/2016/TT-BKHDT dated 16 December 2016 on guidelines for pre-qualification documents, bidding documents for selection of investors carrying out projects using land (“Circular 16”)
(vi) Circular No. 15/2016/TT-BKHĐT dated September 29 2016 on guidelines for pre-qualification document, bidding documents on selection of investors carrying PPP projects (“Circular 15”)
(vii) Circular No. 19/2015/TT-BKHDT dated 27 November 2015 on detailing the establishment of evaluation report in the bidder selection process.
Q2 : Are you aware of any reforms (in the regulatory framework – laws, regulations, policies, etc. or in generally followed practices) related to PPPs that took place in or after June 2017 and before June 1 2019 and that are ongoing and/or planned to be adopted after June 1 2019?
A1 : Yes. There are two reforms relating to PPPs took place between June 2017 and June 1 2019. Decree 63/2018/ND-CP on investment in the form of public-private partnership was issued on May 4 2018, in replacement of Decree 15/2015/ND-CP dated February 14 2015. Also, the Law on PPP has been in the drafting process since December 2018.
On June 19 2018, Decree 63/2018/ND-CP came into force. The Law on PPP is now being drafted and will be adopted in near future (possibly in 2020) to replace all current PPP-related documents.
Q3: For which of the following sectors is the above-mentioned regulatory framework applicable?
A3: The regulatory mentioned above applies to:
– Transportation (Article 4.1(a) of the Decree 63/2018/ND-CP; Article 5(1)(a) of the draft PPP Law released on 20 May 2019 (“Draft PPP Law”) )
– Water Supply, Sewerage, Solid Waste Management and irrigation (Article 4.1(c) of the Decree 63/2018/ND-CP; Article 5(1)(c) of the Draft PPP Law)
– Energy generation/transmission and distribution (Article 4.1(b) of the Decree 63/2018/ND-CP; Article 5(1)(b) of the Draft PPP Law)
– ICT (Article 5(1)(g) of the Draft PPP Law)
– Social infrastructure, including hospitals, education, prisons, housing, etc. (Article 4.1(d),(d) of the Decree 63/2018/ND- CP; Article 5(1)(d),(e) of the Draft PPP Law)
– Other ( Article 4.1(g) of Decree 63/2018/ND-C; Article 5(1)(g) of the Draft PPP Law; infrastructure facilities serving the development of science and technology; commercial infrastructure; infrastructure of economic zones and industrial zones (Article 5.1(h)-(i) of the Draft PPP Law).
Q4: Besides national defense and other matters of national security, does the regulatory framework explicitly prohibits or restricts PPPs in any of the following sectors?
A4: No. The regulatory framework does not explicitly prohibit or restrict PPPs in any sectors.
Q5: Please identify the PPP procuring authorities in Vietnam and provide their website(s) (if available)
A5: The procuring entities are ministries, ministry-level agencies and provincial people’s committees.
List of websites of ministries: http://chinhphu.vn/portal/page/portal/chinhphu/bonganh –
List of websites of provinces: http://chinhphu.vn/portal/page/portal/chinhphu/cactinhvathanhpho
Q6: Is there a specialized government entity(ies) that facilitates the PPP program (PPP Unit)?
A6: Yes. The PPP Steering Committee is the PPP Unit. In addition, each ministry/ministry level agency/provincial people’s committee may establish a PPP coordinating unit, responsible for management.
Website: http://ppp.mpi.gov.vn/en/Pages/default.aspx
The year of establishment: 2012
The relevant legal/regulatory basis: Decision No. 2048/QD-TTg dated October 27 2016 on consolidation of PPP steering committee (“Decision 2048”); Decision No. 369/QD-BCDPPP promulgating the regulation on activities of the public – private partnership steering committee, which replaces Decision No. 161/QD- BCDPPP dated December 11, 2012 on promulgating the regulation of the Public – Private Partnership Steering Committee.
Its main responsibilities: (Article 2 of Decision No. 369/QD-BCDPPP dated November 23, 2016 on promulgating the regulation of the Public – Private Partnership Steering Committee)
– PPP regulation and policy guidance.
– PPP capacity building for other public authorities.
– PPP promotion among the public and/or private sectors in national and international forums
– Identification and selection of PPP projects from the pipeline.
– Oversight of PPP implementation.
Q7: Additionally, is there a central project development fund (support mechanism) for project preparation?
A7: Yes. The Project Preparation Technical Assistance fund (PPTAF)
Website: http://pptaf.mpi.gov.vn/pptaf.aspx,
The year of establishment: 2010
The relevant legal/regulatory basis: Decision No. 1968/QD-BKH dated 12 November 2010 (as amended by Decision No. 56/QD-BKHDT dated 19 January 2015).

B. PREPARATION OF PPPs
Q8: Does the Ministry of Finance or Central Budgetary Authority approve the PPP project before launching the procurement process?
A8: No
Q9: Does the Ministry of Finance or Central Budgetary Authority approve the PPP project before signing the PPP contract?
A9: Yes (stipulated in Article 19.5, Decree 63/2018/ND-CP)
Q10: Does the Ministry of Finance (or government more broadly) have a specific system of : Budgeting for PPP projects, Reporting Liabilities or Accounting Liabilities?
A10: Yes. Pursuant to Article 69 (1) of Decree 63, Responsibilities of the Ministry of Finance includes:
– Budgeting for PPP projects (e.g., including the estimated total cost of the PPP project over the life of the project in the budget cycle)
– Accounting liabilities (explicit and implicit, direct and contingent) arising from PPPs (e.g., the public sector commitments to the PPP project are recorded in the national accounts)
Q11: Which alternative best describes the regulation is?
A11: International Public Sector Accounting Standards (IPSAS). Clause (II)(2)(a) of the Action Plan of Decision No. 3036/QD-BTC dated November 27, 2014 provides: Solutions for professional competence in statistics…. Study and deploy method of government finance statistics, associate government finance statistics with International Public Sector Accounting Standards (IPSAS).
Q12: Does the Ministry of Finance (or government more broadly) disclose PPP liabilities (explicit and implicit, direct and contingent) on an online platform/database?
A12: No.
Q13: Besides the procuring authority and the Ministry of Finance or Central Budgetary Authority, do(es) any other authority(s) approve the PPP project before launching the procurement process (e.g. Cabinet, Cabinet Committee, Parliament, Supreme Audit Office, etc.)?
A13: Yes. They are Prime Minister, Ministries, ministry-level agencies and provincial People’s Committees (Article 176 of Decree 63 on the power to approve project investment proposal; Article 24(2) of Decree 63)
Q14: Besides the procuring authority and the Ministry of Finance or Central Budgetary Authority, does any other authority(s) approve the PPP project before signing the PPP contract?
A14: No.
Q15: Please select the option that best describes the way your government ensures that PPP projects are consistent with other government public priorities (e.g., in the context of a national public investment system, multi-year perspective plans, medium-term budgetary framework)
A15: The regulatory framework provides for the inclusion of PPPs in the national public investment system/medium-term budgetary framework and details a specific procedure to ensure the consistency of PPPs with other public investment priorities (Articles 4(2) and 20(1) of Decree 63; Article 3(4) of Circular no. 21/2016/TT-BTTTT; Article 8 of Circular No. 19/2019/TT-BGTVT)
Q16: Which of the following assessments are conducted when identifying and preparing a PPP in order to inform the decision to proceed with it?
A16: The assessments conducted are:
– Socioeconomic analysis (cost-benefit analysis of the socioeconomic impact of the PPP project) is regulated in Articles 20(1)(a), 24(2)(a) and 29(1)(dd) of Decree 63.
There is a specific methodology for it.
Article 20(1)(a) of Decree 63 provides that conditions for approving a project proposal includes: In conformity with the planning for the development of sectors, regions; and the plan for the local socio-economic development that are approved by competent authorities;
In article 24(2)(a), it is regulated that If at least 2 investors submit two project proposals for the same project (made in accordance with Article 23 hereof): The ministry or provincial People’s Committee shall consider choosing a project proposal which is the most feasible and effective proposal based on factors related to the need for investment; technical-based and financial-based feasibility; socio-economic effectiveness; investor’s qualifications and other factors;
Similarly in article 29(1)(dd), contents of feasibility study report includes the socio-economic effect and the impacts of the project on environment, society and national defense and security.
– Fiscal Affordability assessment (including the identification of the required long-term public commitments (explicit and implicit, direct and contingent liabilities) (Articles 18(3)(g) and 29(1)(g) of Decree 63, Article 14(4)(g) of Decree 19).
There is a specific methodology for it.
Pursuant to Articles 18(3)(g) and 29(1)(g) of Decree 63, the feasibility study report of the project shall include the project financial plan (including the contents prescribed in Point g Clause 3 Article 18 of this Decree).
Article 14(4) of Decree 19 provides As for projects that need the State capital contribution to ensure their financial feasibility, describing information concerning the State capital contribution specified in Clause 1 Section IX Appendix III enclosed with the Circular No. 09/2018/TT-BKHDT dated December 28, 2018 based on the project’s financial model and analytical data of the selected project contract.
– Risk identification, allocation and assessment (risk matrix) (Article 29(1)(l) of Decree 63; Article 3(8) of Decree 21)
There is a specific methodology for it.
Pursuant to article 29(1)(l) of Decree 63, a feasibility study report of the project shall include an analysis of risk, responsibilities of the parties for the risk management during the execution of the project;
Decree 21 in its Article 3(8) on Risk analysis and proposed incentives and guarantees regulates that According to specific conditions in terms of technical, economic and financial aspects of the project; financial analysis results to evaluate impact of risks on the project as well as costs and benefits of solutions for risk reduction shall be specified. The feasibility study report shall specify the proposed distribution of risks and responsibility between relevant parties in risk management during the project execution; proposed specific grants given by competent authorities, and risk-sharing mechanism between competent authorities and investors.
– Comparative assessment to evaluate whether a PPP is the best option when compared to other procurement alternatives (i.e., value for money analysis, public sector comparator) (Article 29(1)(a) of Decree 63; Article 3(3)(c) of Decree 21)
There is a specific methodology for it.
Pursuant to Article 29 (1)(a) of Decree 63 the feasibility study report of the project shall include: A detailed analysis of the need for the investment and the advantages of the project in comparison with other forms of investment; consultation on impact of the project with one of the following: People’s Council, People’s Committee, National Assembly delegation of province or city where the project is undertaken; professional association in conjunction with to the investment sector
According to article 3(3)(c) of Decree 21, analysis of advantages of PPP investment model must be included in the feasibility study report.
– Financial viability or bankability assessment (Article 29(1)(g) of Decree 63)
There is a specific methodology for it.
Pursuant to Article 29(1)(g) of Decree 63,the feasibility study report of the project shall include the project financial plan (including the contents prescribed in Point g Clause 3 Article 18 of this Decree)
– Procurement Strategy (i.e., quick assessment to plan and better strategize the tendering process in advance so it is fit for purpose) (Article 8(3), 9(2), 19(2) of Decree 63).
There is a specific methodology for it.
Pursuant to Article 8(3) of Decree 63, the ministry shall assign an affiliate, People’s Committee of province shall assign a specialized agency or affiliate or the People’s Committee of district level to prepare for the PPP project, including making of pre-feasibility study report, feasibility study report, and selection of preferred bidder in accordance with this Decree and law on bidding
However, regulation in Article 9(2) of Decree 63 further specifies that with regard to Group C projects, pre-feasibility study report and approval for project investment proposal are not required to be made or appraised as prescribed Point a Clause 1 hereof, but the project must be announced once the feasibility study report is approved.
In addition, Article 19(2) of Decree 63 provides that documents required to apply for approving project proposal include the pre-feasibility study report.
– Market sounding/assessment including the potential interest from contractors and capacity in the market for the contract (Article 29(1)(h) of Decree 63)
There is a specific methodology for it.
Pursuant to article 29(1(h) of Decree 63, A feasibility study report shall contain h) The capital mobilization for the project; evaluation of the need and the liquidity ratio of the market; the survey on the interest of the investors and the lenders in the project.
– Environmental impact assessment (Articles 18(3)(dd), 20(1)(e) and 29(1)(dd) of Decree 63, Section C Appendix I of Circular 09)
There is a specific methodology for it.
It is regulated in Article 20(1)(e) that the availability of environmental assessment report is a requirement for the approval of the project.
Pursuant to Article 18(3)(dd), bases for making of feasibility study report includes expected socio-economic effectiveness of project; environmental impact assessment report in accordance with law on environmental protection.
Similarly, provided in Article 29(1)(d), the feasibility study report of the project shall include the socio-economic effect and the impacts of the project on environment, society and national defense and security.
Pursuant to Section C Appendix I of Circular 09 on documentation included in the application package for evaluation of PSR, it shall include Full texts of the environmental impact assessment report prepared in accordance with law on environmental protection
– Social impact assessment (Article 29(1)(dd) of Decree 63; Section III(2) Appendix III of Circular 09)
There is a specific methodology for it.
Provided in article 29(1)(dd) of Decree 63, The feasibility study report of the project shall include (dd) the impacts of the project on environment, society and national defense and security.
Pursuant to Section III(2) Appendix III circular 09, Technical Interpretation of a project of feasibility study report shall include Making the interpretation of elements affecting society during the project implementation period, such as resettlement support, gender equality, labor or job creation, etc., and measures to minimize negative impacts
Q17: Does the procuring authority include the assessments in the request for proposals and/or tender documents?
A17: No.
Q18: Are tender/bidding documents made available online?
A18: No.
Q19: Do the tender documents include a draft PPP contract?
A19: Yes. According to general guidelines for content of project contracts in accordance with law on PPP investment, and nature, scope, and field of each specific project, the Competent Person, the Procuring Entity shall make a Draft Contract attached to the Bidding Documents. The Draft Contract specifies terms and conditions of the contract serving as bases for preliminary negotiation, negotiation, finalization, and signing of investment agreement, signing and execution of contract in conjunction with clear division of responsibilities, risks, rights and legal interests of contracting parties in accordance with applicable law (Circular No. 15/2016/TT-BKHDT on guidelines for pre-qualification document, bidding documents on selection of investors carrying public-private partnership projects).
Q20: Have standardized PPP model contracts and/or transaction documents been developed?
A20: Yes. Provided in Circular No. 16/2016/TT-BKHDT (Form 11), Circular 09/2018/TT-BKHDT (Annexes V.A and V.B)
Q21: Does the procuring authority/responsible government entity have a role in either providing or facilitating any of the following requirements: obtaining the required environmental permits, obtaining the possession of required land, obtaining the required right of way?
Q21: The responsible government entity have a role in obtaining the possession of required land. Pursuant to Article 49 (1) of the Decree 63, the provincial people’s committee is responsible for site clearance and for completing procedures for allocation or lease of land to implement the project in accordance with the law on land, the project contract and related contracts. However, the provincial people’s committee is not necessarily the procuring entity.

C. PROCUREMENT/TENDERING OF PPPS
Q22: Which best describes the required qualifications of the bid evaluation committee members?
A22: The membership of the bid evaluation committee is specified and its members are required to meet detailed qualifications as follows:
a) Have certificates of training in bidding, bidding practice certificate as prescribed;
b) Have professional competence in bidding;
c) Have at least three years of experience in the areas assigned; for bid packages to be implemented in remote areas or severely disadvantaged areas, only one year of experience is required;
d) Have adequate English level for international bid packages;
e) Have a written commitment in the Appendix enclosed herewith;
f) Persons who are mothers, fathers, mothers-in-law, fathers-in-law, children, adopted children, daughters-in-law, sons-in-law, brothers and sisters of the individuals involved in the establishment of EOI requests, prequalification document, invitation for bid, and request for proposals shall not be allowed to be involved in the assessment of such documents.
g) Persons who are mothers, fathers, mothers-in-law, fathers-in-law, children, adopted children, daughters-in-law, sons-in-law, brothers and sisters of the individuals involved in the assessment of EOI response, technical proposals, result of selection of contractors shall not be allowed to be involved in the assessment of such documents.
Q23: Does the procuring authority issue an invitation for bids/ tender notice for the PPP project?
A23: Yes. The invitation for bids/ tender notice must be published on the national bidding system (www.muasamcong.mpi.gov.vn) and Bidding Newspaper (Article 8.1, Bidding Law)
Q24: Is the public procurement notice published online?
A24: Yes. On website http://muasamcong.mpi.gov.vn/
Q25:Are foreign companies subject to any of the following restrictions when participating in the bidding process?
A25: They are subject to a requirement to form a joint venture with domestic firm(s) to be allowed to bid in the public tender. (Article 5(1)(h) of the Bidding Law)
Q26: Does the procuring authority grant the potential bidders a minimum period of time to submit their bids?
A26: Yes. Pursuant to Articles 6 (5) and (6) of Decree 30/2015/ND-CP, the time-limit for formulation of a set of proposals is within a minimum thirty (30) days from the first date of issuing the set of requirements before bid closing time. Investors must lodge their sets of proposals before bid closing time. The time-limit for formulation of bids is within a minimum sixty (60) days for domestic bids and ninety (90) days for international bids as from the first date of issuing the bid invitation documents before bid closing time. Investors must lodge their bids before bid closing time. The time calendar day: 60-90 days.
Q27: What are the procurement procedures available and/or set as default for PPP contracts?
A27: The default procurement procedures for PPP contracts are:
– Open competitive tendering/bidding (Article 37 of Decree 63; Article 9 of Decree 30)
– Competitive tendering/bidding with prequalification stage (Restricted tendering) (Article 16.1 of Decree 30)
– Multi-stage tendering/bidding (with shortlisting of final candidate(s)) (Articles 30-31 of the Bidding Law)
– Competitive dialogue (Article 38.3 of the Bidding Law, Articles 58-59 of Decree 63)
– Direct negotiation (Article 22 of the Bidding Law)
– Others (Articles 24-25 of the Bidding Law)
Q28: If direct negotiation is either an available or default option, does the regulatory framework restrict this procedure to certain exceptional conditions and circumstances (including cases of single source providers or applicable to a certain threshold)?
A28: Yes according to Article 9(3) of Decree 30
Q29: Do the tender documents detail the procedure of the procurement process, providing the same information to all the bidders?
A29: Yes pursuant to Article 26.2 of Decree 30.
Q30: Do the tender documents unambiguously specify the qualification requirements (or the prequalification requirements when applicable) making them available to all potential bidders as part of the tender notice/ invitation for bids?
A30: Yes. According to Article 26.2 of Decree 30.
Q31: Are there any parameters/limits to the qualification requirements to ensure that they do not unduly restrict competition of qualified bidders?
A31: No.
Q32: Can potential bidders/tenderers submit questions to clarify the public procurement notice and/or the bidding/tender documents?
A32: Yes pursuant to Article 30.3 of Decree 30.
Q33: If yes, can the bidders also suggest innovations to improve the tender documents or procurement approach, including for example the provision of value engineering and/or technologically neutral options?
A33: No.
Q34: If yes, is there a timeframe for the procuring authority to address questions and clarifications by bidders?
A34: No.
Q35: If yes, notwithstanding confidential information pertaining to the bidders, does the procuring authority disclose those questions and clarifications to all potential bidders?
A35: Yes according to Article 30(3) of Decree 30.
Q36: If yes, does the procuring authority extend the proposal submission deadline due to the modifications introduced in the bidding/tender documents?
A36: No.
Q37: Besides questions and clarifications, can the procuring authority conduct a pre-bid conference?
A37: Yes according to Article 16 of Decree 30.
Q38: If yes, notwithstanding confidential information pertaining to the bidders, does the procuring authority disclose the response to the queries raised by the bidders in the pre-bid conference to all bidders?
A38: Yes according to Article 18.2(c) of Decree 30.
Q39: Does the procuring authority require the bidders to prepare and submit a financial model with their proposals / bids?
A39: Yes pursuant to Articles 25.4, 45.4, 56.4 and 70.1(b) of Decree 30.
Q40: Does the procuring authority evaluate the bids/tenders strictly and solely in accordance with the evaluation criteria stated in the bidding/tender documents?
A40: Yes pursuant to Articles 33(1), 47, 58, 72 and78 of Decree 30.
Q41: Can criteria other than price (non-price attributes) be used when evaluating the tenders/bids of a PPP contract?
A41: Yes in consistent with Articles 41, 53, 67, 73 and 79 of Decree 30.
Q42: If criteria other than price are used, does it have to be justified, objective and quantifiable?
A42: Yes, according to Articles 27, 36, 39, 58.2, and 58.3 of Decree 30.
Q43: When price is used as one of the evaluation criteria, does the procuring authority provide a cost estimate?
A43: Yes pursuant to Article s 41.4, 53.4, 67.4, 73.4 and 79.4
Q44: In the case where only one proposal is submitted, which best describes the way the procuring authority deals with them?
A44: The procuring authority follows a specific procedure before awarding a PPP contract where only one proposal is submitted. Direct appointment applies (Articles 22.4 of the Bidding Law, Article 9.3 of Decree 30)
Q45: Does the procuring authority publish the contract award notice?
A45: Yes. It is not clear but it seems that the notice would be published online at muasamcong.mpi.gov.vn (Article 42 (6) of Decree 30.)
Q46: If yes, is the contract award notice published online?
A46: Yes, on website: www.muasamcong.mpi.gov.vn
Q47: Does the procuring authority notify all the bidders individually about the result of the PPP tendering/bidding process?
A47: Yes, pursuant to Article 42 (6) of Decree 30
Q48: Does the notification of the result of the PPP procurement process include the grounds for the selection of the winning bid/tender?
A48: Yes, according to Article 42 (6) (b) of Decree 30.
Q49: Does the procuring authority provide bidders/tenderers with the option of holding a debriefing meeting to discuss why their bid/tender was not selected?
A49: No.
Q50: Is there a standstill (or pause) period after the contract award and before the signing of the contract in order to allow aggrieved unsuccessful bidders to challenge the award decision?
A50: Yes, in consistent to Article 92.2 of the Bidding Law and the time in calendar days: 10 days.
Q51: Is the standstill period set out in the notice of intention to award?
A51: No.
Q52: Does the regulatory framework restrict material negotiations (for example price or scope) with the winning bidder between the award and the signature of the PPP contract?
A52: Yes, according to Article 43.2 of Decree 30.
Q53: Does the regulatory framework allow for complaint review mechanisms pertaining to the PPP bidding/tendering process?
A53: Yes, pursuant to Article 92.1 of the Bidding Law.
Q54: Is there a timeframe in which decisions on complaints are issued?
A54: Yes. The timeframe is 7 days according to Article 92.1(b) of the Bidding Law
Q55: Are decisions subject to appeal?
A55: Yes, according to Article 92.1(c) of the Bidding Law.
Q56: Is the original complaint and/or the appeal reviewed resolved by an independent administrative authority (other than the procuring authority or the courts)?
A56: Yes. Pursuant to Article s 82.2(c), 84.3 and 92.1(c)-(d) of the Bidding Law. The approving authority includes the Government, the Prime Minister, Ministries, ministerial agencies and People’s Committee of all levels.
Q57: Does the procuring authority publish the PPP contract? (notwithstanding the protection of commercially sensitive information)?
A57: No.

D. CONTRACT MANAGEMENT
Q58: Does the procuring authority or contract management authority establish a system to manage the PPP contract (i.e., attributing responsibilities or establishing specific management tools)?
A58: Yes, pursuant to Article 51 of Decree 63
Q59: If yes, which of the following tools does it include?
A59: The applicable tools are:
– Establishment of a PPP contract management team (Articles 8(6)-(7) of Decree 63)
– Participation of the members of the PPP contract management team in the PPP procurement process and/or vice versa (Article 8(7) of Decree 63)
Q60: Which best describes the required qualifications of the PPP contract management team members?
A60: The PPP contract management team members are required to meet sufficient qualification without specific details, provided in Article 8.6 of Decree 63.
Q61: Does the procuring or contract management authority establish a monitoring and evaluation system of the construction of the PPP project (i.e., system for tracking progress of construction, monitoring and evaluation of performance, etc.)?
A61: Yes, provided in Article 52 of Decree 63
Q62: Is the PPP contract construction performance information made available to the public (e.g. by request or published in the official gazette/bulletin board)?
A62: No.
Q63: Is the PPP contract construction performance information made publicly available online?
A63: No.
Q64: Does the procuring or contract management authority establish a monitoring and evaluation system of the PPP contract implementation after construction?
A64: Yes stipulated in Articles 53-55 of Decree 63.
Q65: If yes, which of the following tools does it include?
A65: The included tools are:
– Payments are linked to performance (Articles 16.3, 18.1 and 21.1 of Circular 88/2018/TT-BTC)
– Performance is assessed against output/ Key performance indicators (KPI) set in the tender documents and the PPP contract (Articles 16.3, 18.1 and 21.1 of Circular 88/2018/TT-BTC)
– The private partner must provide the procuring or contract management authority with periodic operational and financial data (Article 56.2 of Decree 63.)
– The procuring or contract management authority must periodically gather information on the performance of the PPP contract (Articles 52.1, 52.2, 73 and 74 of Decree 63)
Q66: Is there an economic/technical regulator to oversee the implementation of PPP contracts?
A66: Yes. They are Ministry of Finance (www.mof.gov.vn), Ministry of Construction (www.moc.gov.vn) and Provincial People’s Committee pursuant to Article s 69, 72 and 74 of Decree 63.
Q67: If yes, does the economic regulator have?
A67: Though each Ministry has its own establishment decision, the economic regulator has:
– Political autonomy (for example, through independence of its Directors’ appointments of the Line Ministry or other similar mechanisms).
– Managerial autonomy (freedom to determine the use of its budget and organization of resources)
– Tariff setting authority.
– Dispute resolution authority.
Q68: Are foreign companies restricted from repatriating the income resulting from the operation of a PPP project?
A68: No.
Q69: Does the regulatory framework (including standard contractual clauses) expressly regulate changes in the ownership structure (i.e. stakeholder composition) of the private partner and/or assignment of the PPP contract?
A69: Yes, pursuant to Article 43(1) of Decree 63
Q70: If yes, which of the following circumstances are specifically regulated?
A70: It regulates the changes of ownership/contract assignment, at any time during the contract, must preserve the same technical qualifications as the original operator, provided in Article 43(2) of Decree 63, but only allowed upon completion of the works (if the project has construction phase) or upon operation stage (if the project has not construction phase)
Q71: Does the regulatory framework (including standard contractual clauses) expressly regulate the modification or renegotiation of the PPP contract (once the contract is signed)?
A71: Yes, provided in Article 67 of the Bidding Law, Article 44 of Decree 63
Q72: If yes, is an approval from a government authority, other than the procuring authority, required?
A72: Yes, pursuant to Articles 30, 31, 32 and 44 of Decree 63.
Q73: If yes, which of the following circumstances are specifically regulated?
A73: The circumstances specified in law include:
– A change in the scope and/or object of the contract (Article 44 of Decree 63)
– A change in the financial and/or economic balance of the contract (Article 67.6 of the Bidding Law, Article 32.1(b) of Decree 63.)
– A change in the duration of the contract (Article 67.6 of the Bidding Law)
– A change in the agreed price or tariff or annuity payments (Articles 67.3-5 of the Bidding Law)
Q74: Is there a threshold for which a new tendering process is required?
A74: Yes. Article 32 of Decree 63 provides that A project shall be adjusted in the following cases:
a) The project is affected by natural disasters or other force-majeure events;
b) There are elements that may make the project more effective in terms of finance and socio-economic aspects;
c) There is any change in the planning that directly entails changes to the objectives, location and scope of the project;
d) The project fails to attract the investor after the survey, initial selection or bidding;
e) Other cases according to special law or the regulations stipulated by the Prime Minister.
Q75: Can the procuring/contract management authority modify a PPP contract unilaterally?
A75: No.
Q76: Does the regulatory framework (including standard contractual clauses) expressly address the following circumstances that may occur during the life of the PPP contract?
A76: The law addresses circumstances on:
– Force Majeure. (Article 67.6 of the Bidding Law)
– Subcontracting and replacement of the subcontractors. (Article 43 of Decree 63 on transfer of rights and obligations under the project contract)
Q77: Does the regulatory framework (including standard contractual clauses) allow for alternative dispute?
A77: Yes pursuant to Article 67 of Decree 63; Point 23, Section 3, Form 11 of Circular No. 16/2016/TT-BKHDT
Q78: Is arbitration available as an option?
A78: Yes. Domestic arbitration and international arbitration (Article 67 of Decree 63; Point 23, Section 3, Form 11 of Circular No. 16/2016/TT-BKHDT)
Q79: If applicable, are arbitration awards enforceable by local courts?
A79: Yes, according to Article 427 of the 2015 Civil Procedures Code.
Q80: Are other Alternative Dispute Resolution (ADR) options available (including mediation or dispute resolution boards)?
A80: Yes pursuant to Article s 67(1) and (2) of Decree 63.
Q81: Does the regulatory framework (including standard contractual clauses) allow for the lenders to take control of the PPP project (lender step-in rights) if either the private partner defaults or if the PPP contract is under threat of termination for failure to meet service obligations?
A81: Yes, pursuant to Article 42 of Decree 63.
Q82: If yes, which best describes the lender step-in right?
A82: The regulatory framework expressly regulates the lender step-in rights. Article 42 of Decree 63 on Lenders’ right to take over the project provides:
1. Lenders are entitled to take over or appoint a competent organization to take over a part or all of the rights and obligations of investors, special purpose entities (hereinafter referred to as the take-over right) in case the investor or special purpose entity fails to fulfill the obligations specified in the project contract or loan agreement.
2. A written agreement on the project must be made between the lenders and regulatory agencies or the contracting parties.
3. After taking over the project, the lender or his/her authorized organization shall assume all of the obligations as an investor, project business as prescribed in the project contract and agreement on the project take-over right.
Q83: Does the regulatory framework (including standard contractual clauses) expressly address the grounds for termination of a PPP contract?
A83: Yes. Project contract may be terminated if the agreed contract term expires, or else the project contract may be terminated prior to the maturity date due to the violation of one of the parties without that defaulting party’s effective remedies, due to force majeure events or other cases specified in the project contract. (Article s 45(2) and (3) of Decree 63).
Q84: If yes, does the regulatory framework (including standard contractual clauses) also addresses the consequences for the termination of the PPP contract?
A83: Yes, pursuant to Point 22, Section 3, Form 11 of Circular No. 16/2016/TT-BKHDT.

E. UNSOLICITED PROPOSALS
Q85: Are unsolicited proposals in Vietnam?
A85: It is explicitly allowed by the legal framework (Article 22(1) of Decree 63, Investors may propose the projects other than the ones approved by ministries, regulatory bodies and People’s Committees of provinces)
Q86: Does the procuring authority conduct an assessment to evaluate unsolicited proposals?
A86: Yes, pursuant to Articles 20.1, 22.2 and 23 of Decree 63.
Q87: If yes, is there any vetting procedure and/or pre-feasibility analysis before fully assessing the unsolicited proposal?
A87: Yes, provided in Article 23(2) of Decree 63.
Q88: Which best describes how the procuring authority ensures that unsolicited proposals are consistent with existing government priorities?
A88: The procuring authority follows a specific procedure to ensure the consistency of PPPs with other government investment priorities. Article 24(1) of Decree 63 and Article 15(1) of Decree 15 (A project must satisfy all the following conditions to be eligible for selection for development in the PPP investment form: (a) Conformity with the developmental master plan and developmental plans of the branch and region and with the local socio-economic developmental plan)
Q89: Does the procuring authority initiate a competitive PPP procurement procedure when proceeding with the unsolicited proposal?
A89: Yes pursuant to Article 24.2 of Decree 63, Article 4 of Circular No. 09/2018/TT-BKHDT.
Q90: Does the procuring authority grant a minimum period of time to additional prospective bidders (besides the proponent) to prepare their proposals?
A90: No.
Q91: Does the procuring authority use any of the following incentive mechanisms (Access to the best and final offer (BAFO) process and/or automatic shortlisting, Developer’s fee, Bid Bonus, Swiss challenge or other) to reward/compensate the submission of unsolicited proposals?
A91: No.

Please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com or any other 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.

November 15, 2018 by Dr. Oliver Massmann

Vietnam – Infrastructure and Waste Treatment Sector – Current Issues and Solutions for Investment and Outlook on the Major Trade Deals CPTPP, EUVNFTA and the EU Vietnam Investment Protection Agreement (IPA)

A. Overview
The waste treatment and infrastructure sector in Vietnam faces several issues. The waste treatment is a priority sector in Vietnam due to the urgent need to clean up urban environments in major provinces. This leads to the urgent need of waste treatment projects. However, the incentives for sponsors are limited. In particular, a regulation regarding solid waste treatment projects prevents, that the profit earned by the sponsors can raise up higher than 5%, adversely affecting the financial viability of the projects.
Regarding the infrastructure, there are two main issues. Firstly, there are only a few options for sponsors to raise capital for infrastructure projects. Besides the traditional project financing, sponsors of projects in Vietnam have hardly any other options to raise capital for it. Secondly, the development of energy efficient buildings is still in its infancy in Vietnam. Buildings are, and will remain, the largest consumers of electricity. However, just around 100 buildings have a Green Building (GB) certification. Modern, efficient infrastructure is vital to continued economic growth and lowers the costs of doing business for all investors in Vietnam.
Regarding the problems of the waste treatment, it can be determined, that due to the rapid economic growth and urbanization, public funding is unable to meet these needs. This gap has to be filled by other sources like private investment in the form of Public-Private Partnerships (PPP). In order to find private sponsors for waste treatment projects, the problem can be solved by setting a more flexible regulation instead of a fix profit limit.
The infrastructural issues can be addressed by the state setting a governmental framework to promote alternative options to raise capital. The issue regarding the energy efficiency of buildings
must already be taken up during the construction phase by using environmentally-friendly construction materials without producing higher costs and, in addition, by using multiple systems and certificates of “economic buildings”, letting the market determine which are practical and useful. These systems could be licensed for operation based on a set of simple criteria such as transparency, reliability and coherence according to recognized norms. These certificates must include incentives to encourage builders to build energy efficient buildings.

B. Waste Treatment Sector
Waste treatment is an important sector for PPP’s. However, to date there is no customized guidance on development of PPP projects in this sector. In particular, Circular 07/2017/TT-BXD (Circular 07) regulates the method for determining the price of municipal solid waste (MSW) treatment service, which is used as the basis for setting, evaluating and approving specific prices of MSW treatment services. It came into force on July 01, 2017 and applies to organizations and individuals. It does not set out a pricing mechanism that is workable for PPP projects. Circular 07 limits the profit earned by the sponsors in solid waste treatment projects to 5%, adversely affecting the financial viability of the projects.
Instead of using a maximum limit, a flexible regulation is needed. The authorized State agencies must be able to decide on appropriate service fees which will be finalized subject to the market and tender results instead of setting a cap on the fees, which, if is not in line with the market, would make projects unattractive to investors.

C. Lack of options for sponsors to raise capital for projects
Other than traditional project financing, sponsors of infrastructure projects in Vietnam have hardly any other options to raise capital for projects. The regulations on project bonds or trading
equity are either not accommodating to the nature of an infrastructure project company (e.g. the law requires that the bond issuer must be profitable in the preceding year to be eligible to issue bonds), or not available at all (e.g. strict requirements on transfer of project equity preventing project companies from raising funds on the capital market).
Being able to raise funds on the capital market would provide the sponsors with alternative financing options, especially given the unresolved financing challenges of on-going projects. The government should consider and put into place a legal framework to support such alternatives.

D. Development of green buildings in Vietnam and standards
A major issue that Vietnam faces is that energy-efficient houses hardly exist. Currently Hanoi has only around 100 buildings that are Green Building (GB)-certified or are undergoing GB certification.
However, buildings are and will remain the largest consumers of electricity. The rapid growth of urbanization and its associated life and working style, which includes intensive air-conditioning use, accounts for a considerable proportion of the energy consumption growth in the major cities of Vietnam. Proper building design can reduce this growth for the next 25 years of a building’s lifetime.
On the other hand, a development can be seen. Organizations such as the Vietnam Green Building Council (VGBC) report a significant uptick in interest over the past couple of years. Many building owners have been introduced to the concept of GB. The aim is to make buildings as energy efficient as possible. To bring absolute a real change, the problem needs to be handled on several levels.
Firstly, buildings should become more energy efficient in any case. This does not mean higher investment costs. The process can be applied from the architecture phase, with passive design and the use of environmentally-friendly construction materials, to the implementation of energy-efficient devices during construction. The aim should be that all buildings achieve the minimum standards of the VEEBC code (or a simplified version) in order to receive the Building license at Basic Design Stage. Furthermore, Electricity of Vietnam (EVN) could impose a tariff scheme that rewards low energy consumption buildings with lower prices and impose higher prices to high consumption buildings.
Secondly, the Government must provide effective encouragement for building owners to certify their buildings. In addition to international green building certifications already being used in Vietnam, such as the United States Green Building Council (USGBC) Leadership in Energy and Environmental Design (LEED) and International Finance Corporation (IFC) Edge, VGBC has developed the LOTUS certificate.
In conclusion, it would be useful, to recognize multiple systems for use in Vietnam, letting the market determine which are practical and useful. These systems could be licensed for operation based on a set of simple criteria such as transparency, reliability and coherence according to recognized norms.

E. Outlook on Major Trade Agreements TPP 11, EUVNFTA and IPA
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. Vietnam has now officially become the 7th 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 bringing more foreign direct investment to Vietnam. The agreement includes a stand-alone, enforceable chapter on the environment. The chapter’s core obligations commit member countries to pursue high levels of environmental protection, effectively enforce domestic environmental laws, not derogate from these laws to encourage trade or investment and promote transparency and public participation. Those essential regulations will help to improve the cleanliness of Vietnam.
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. It will help to bring more capital into Vietnam. In addition, the EUVNFTA will boost the most economic sectors in Vietnam.
Both agreements promise great benefits for the infrastructure and waste treatment sector in Vietnam and will help to react on the fast economic and population growth. For instance, Vietnam will be bound by its commitments in the Government Procurement chapter in the CPTPP and the EVFTA, including the procedures to conduct a tender and in specific circumstances that the Government must conduct a public tender. The investors now have the opportunity to participate in procurement by Vietnam’s government entities and challenge the Government if it does not grant the investors the opportunity to do so in qualified circumstances.
The CPTPP and the EVFTA make it possible that foreign investors could sue Vietnam Government for its tender 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.
In conclusion, Vietnam’s strong economic growth and its demand for infrastructure development are great opportunities for investors planning to invest in Vietnam. The CPTPP and the EVFTA are effective tools to support foreign investment in Vietnam’s infrastructure sector in the form of PPP. Under these agreements, foreign investors could take recourse to arbitration proceedings and have the arbitral awards fully enforced in Vietnam.
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!

October 4, 2017 by Dr. Oliver Massmann

VIETNAM – MAIN ISSUES RESTRAINING INFRASTRUCTURE DEVELOPMENT AND OUTLOOK ON THE EUROPEAN UNION-VIETNAM FREE TRADE AGREEMENT (EVFTA)

Vietnam’s ability to continue expanding its economy is linked to competitiveness. It is clear that supporting institutional regulatory reform and infrastructure development will ensure economic growth in the country. In practice, this approach is feasible by promoting public-private partnership (PPP). This goal includes a long-term investment in infrastructure that harmonizes PPP investors and Vietnamese Government’s interests.

By way of illustration, State-owned enterprises (SOEs) remain dominated in Vietnam. However, due to budget pressure, the government is committed to reform SOEs. Accelerating the development of foreign investment requires new approach to create a favorable legal framework for PPP. The issuance of a long awaited Decision 58/2016/QD-TTg (Decision 58) on classification of SOEs, is expected to facilitate the process.

Another key aspect to consider is SOE equitization for revenue reasons. In 2016, the State received approximately USD800 million from equitization and allocated some of these funds to reduce budget deficit.[1] Although the equitization process started in 1992, only around 2,600 firms have been equitized in the first 13 years of that program.[2] Meanwhile, the goal during 2014-2015 was to equitize 432 SOEs.[3] According to Decision 58, it is expected to rearrange 103 SOEs and equitize 137 SOEs within 2016-2020 period.

The historic poor performance of SOEs equitization is about to change gradually. Furthermore, there are some questions to address from the investors perspective since the State plans to retain ownership from below 50% (in 106 enterprises), 50%- 65% (in 27 enterprises) and above 65% (in 4 enterprises) by 2020 across different sectors.

Despite the efforts to enhance investments in infrastructure and energy, many issues related to the implementation of current regulations that affect transparency and enterprise value remain unresolved, namely:

Share price

Currently share price as determined by the Government must be market price. There are cases when market price is determined based on the listed price or transaction price in the UpCom market. However, such market price determination is not fair and accurate when the shares are sold to strategic shareholders due to the nature of the participants in the securities markets (i.e., participants are mainly financial institutions and speculators) as well as the minority percentage of listed stock compared with the total shares of the listed companies. Indeed, share price when sold to strategic shareholders must be the lowest successful bid price in an IPO. In addition, share price of joint stock companies listed on UpCom market must not be within the price range of that securities code on the transfer date.

Public-private partnership (PPP)

Implementation of Decree 15 on PPP has shown certain limitations. Opening a new chapter of PPP requires further work in understanding strategic factors that make PPP effective and ensure that key risk minimizing solutions are undertaken properly.

Bankability is a crucial issue during the project structuring phase. The requirements for a project to be bankable differ from sector to sector or by jurisdictions. However, there are common factors that render the project bankability and raise its risk exposure such as restrictions on mortgaging land use rights to foreign lenders, complex investment approvals to investors (e.g., land acquisition process), and payment ability of an SOE off-taker. Therefore, practical preferential policies should be issued to strengthen PPP investment.

In addition, investment in the form of PPP is more complex than public investment. However, in the management of PPP projects, public investment laws and regulations have currently been applied, resulting in lengthy investment procedures. Furthermore, there is a problem regarding the limited resources allocated to authorized state agencies (ASAs). It is expected that Decision 522 on managing and using project development fund raised by Asia Development Bank and Agence française de développement (AFD) will help to support the ASAs in preparing for the project development.

With regard to infrastructure projects, the current legislation allows some flexibility regarding the use of incentives under the Investment Law. Nevertheless, the principle of the PPP framework is to develop highly-efficient projects through loans from private investors such banks or credit institutions and thus releasing the State from financial burdens. If local companies borrow from commercial state banks, this will not meet the PPP principle. In addition, the limited attractiveness of PPP framework also deter local and foreign non-State banks from offering loans.

It is worth considering a risk allocation framework that harmonizes with the general principle that risks should be allocated to parties that are in the best position to manage them or make reasonable determination of that risk.

Power project developments

One issue is project implementation timeline in Circular 43/2016/TT-BCT. Specifically, this legal instrument requires project development commitments from investors and requirements to seek the MOIT’s approval when there are delays in the project implementation. According to Circular 43, if a BOT project falls behind the agreed timeline, the adjustments will only be approved under limited exceptions such as (i) force majeure events; (ii) the misconduct of competent authorities or (iii) the misconduct of a third party. In practice, the schedule agreed between the MOIT and investors is difficult to meet as a result of complex project preparation process as well as involvement of many related parties.

Outlook on the EVFTA

The market access commitment in the EVFTA goes largely beyond both those in the WTO and other FTAs ratified by Vietnam, thereby giving EU enterprises the best possible access to the Vietnamese market. Accordingly, provisions on SOEs are considered the most ambitious disciplines that Vietnam has ever reached. Such rules will put private enterprises on an equal level with enterprises where the Government is the owner. Under the EVFTA, EU companies will be permitted to bid for contracts in infrastructure, power distribution, railway and healthcare projects the same as Vietnamese bidders.

Conclusion

Investment in infrastructure is considered as a strategic measure to reach sustainable development in Vietnam. Indeed, the government has improved the legal framework to support PPP model and privatization of energy and power sectors. However, it needs a much clearer plan in improving the quality of new regulations in order to ensure a fair and transparent process. Furthermore, the equitization progress seems to be disappointing since only 52 SOEs were equitized in 2016. In this context, to ensure the equitization efficiency, it is urgent to address the impact of these remaining issues on project’s viability and aim at the highest level of risk management. Finally, Decision 58 represents a good opportunity for EU companies to engage in large- scale PPP projects. However, investors need to carefully conduct a due diligence before any investment.

***

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!

January 13, 2017 by Dr. Oliver Massmann

VIETNAM – INFRASTRUCTURE DEVELOPMENT – OUTLOOK ON THE EUROPEAN UNION VIETNAM FREE TRADE AGREEMENT (EVFTA)

The Government has enacted several laws in order to promote infrastructure development especially through private investment. The latest one, Decree 15/2015/ND-CP on public-private partnership investment (the PPP Decree), was very promising regarding the forms of contract concerned, the various sectors targeted, the State support or participation and tender requirements. As a matter of fact, its enforcement revealed that more efforts were needed to achieve a successful PPP program.

To implement the PPP Decree, many documents were adopted in various sectors: project development procedures with Circular 02/2016/TT-BKHDT and Decision No. 06/2016/TT-BKHDT issued by the Ministry of Planning and Investment; financial management of PPP projects with Circular 55/2016/TT-BTC issued by the Ministry of Finance; power and energy tackled by the Ministry of Industry and Trade in Circular 23/2015/TT-BCT and Circular 38/2015/TT-BCT and finally transport sector with Circular 86/2015/TT-BGTVT issued by the Ministry of Transport.

Transparency and clearance of the PPP program

The issues remaining after the PPP Decree implementation concern the viability gap funding (VGF) and the project development fund (PDF) which differentiate PPP projects from Build-Operate-Transfer (BOT) ones. Indeed, through availability payments incurred for PPP project, private operators are guaranteed with a profitable VGF regardless of the users’ fees and of the time before being profitable. Regulations on VGF and PDF should be established in order to fully control the PPP scheme.

Furthermore, infrastructure projects do not necessarily have to comply with PPP requirements since other contracts may be less demanding in terms of obligations and using incentives stated in the Investment Law of 2015. The idea, within the PPP program, is to attract private investors such as banks or credit institutions into financing highly-efficient projects and therefore relieving the State from the projects’ funding. This implies granting of more incentives to motivate foreign and local non-state banks.

Under the former regime concerning BOT contracts, a double licensing system was necessary for investors to qualify at selection stage and then for approval of the project and their own capacity. The new PPP Decree does not clarify the process therefore a simplified procedure should be adopted.

Some difficulties, stated during the development of the drafts of the PPP Decree, are restraining project lenders. The first one concerns the impossibility of a mortgage on land use right for foreign contractors in BOT contracts and the issue regarding the interpretation of the land law. A provision of this law stipulates that a mortgage of land use rights is only possible if all land rents have been paid, whereas in BOT contracts land is granted for free. The Government decided then that a mortgage under this circumstance was impossible as no rent has been paid. The PPP Decree seems to allow payment of a nominal rent but this does not solve the mortgage problem for BOT foreign contractors. A practical provision should allow a certain land security for private investors.

Uncertainty regarding Government’s guarantees

Another concern tackles the guarantee on convertibility and remittability of VND income. Without such a guarantee, some BOT projects would not be bankable and sponsors even with the guarantee of exchange rate might be left with a residual risk of unconvertible income. A clear position on guarantees of exchange rates for project with VND revenues would remove the uncertainty.

The governing law for projects with a foreign contracting party or guaranteed by a competent authority in case the parties are two Vietnamese entities, may be a foreign law if not contradictory to the Vietnamese conflict of law rules. There is an uncertainty as whether the Government guarantees offtake or revenues for PPP projects or contracts under foreign or international law.

Furthermore, projects in sectors such as transport, renewable energy as well as traditional thermal power projects should be prioritized and if PPP projects’ proposals were not satisfactory, this implies to attract more foreign investors to develop sustainable projects. In this idea, the Vietnamese Government should financially support projects through guarantees or profitable VGF. In addition, establishing new guidelines on the preparation of PPP program will enhance projects’ planning and financing.

Opportunities within the PPP program

Many PPP projects are signed or about to be signed and all information related to PPP programs are compiled in a dedicated website provided by the Ministry of Planning and Investment and the Authorized State Agencies (ASAs), the latest also having its own list of projects. Achieving a successful PPP program and promoting infrastructure development in Vietnam require more efforts which could start with letting investors choose between PPP Decree and Investment Law. Indeed, imposing the PPP Decree as the exclusive way of developing infrastructure would be counter-effective regarding economy competitiveness.

As power demand is increasing in Vietnam, coal-fired power projects are under negotiations to be set in place for the time renewable energy will be sufficient to replace coal-fired energy. Due to the Paris Agreement, private investors in the coal-fired power sector will be getting rarer to turn to green energy projects.

Finally, the road sector is vital for economy and climate and yet, the risk allocation and concession principles as well as precisions on the bidding process are still expected in the Vietnamese legislation. Those issues should be solved to allow foreign investors’ involvement in the development of transport infrastructure.

Outlook on the EVFTA

As the EVFTA, officially signed on December 2^nd 2015, is expected to enter into force by January 2018, many consequences will emerge. Concerning access to market, Vietnam will be in a privileged situation as the only country of South-East Asia (except for Singapore which does not stand as a direct concurrent) to have signed such an agreement. Both Vietnam and the EU will access a market of hundreds of millions people.

Besides, Vietnam and the EU’s commitments go further than the World Trade Organization’s ones especially in power/energy sector, maritime transport which shows a real effort to create the most sustainable and profitable environment for business and investment. In this idea, the Vietnamese legislation has been amended to become investor-friendly like the Law on Enterprises, the Investment Law and the PPP Decree. Some regulations still need development or implementation but we can expect new provisions and legislation with the entry into force of the EVFTA.

Most important issues

– The impossibility of a mortgage on land use rights for BOT foreign contractors must be rearranged urgently by allowing a certain form of land or building security to insure BOT projects.

– The licensing procedure for BOT investors and contractors should be simplified and regulations on VGF and PDF should be provided.

– A review of the Government’s guarantees and conditions of granting guarantees should be established as to avoid investors’ discouragement at the preparation phase.

– Investment in coal-fired sector might become rarer due to the Paris Agreement which encourages investment in green energy.

– The road sector investment is uncertain when it should be supported to allow foreign investors’ involvement in transport infrastructure development.

***

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!