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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.

Playing by the rules: what is the value of the Singapore Infrastructure Dispute-Management Protocol in Vietnam?

Can a new Singapore dispute resolution protocol spur efficient infrastructure development in Vietnam?  It’s a question worthy of examination considering a slew of high-profile disputes, delays and cost overruns on major infrastructure projects in Vietnam in recent years.  Even more so considering forecast needs to spend more than US$300 billion on infrastructure in Vietnam over the next decade in order to serve the needs of Vietnam’s rapidly growing economy.

The answer is not clear cut.  While the protocol has clear prima facie value, the current legal framework in Vietnam isn’t supportive of a key fundamental principle: that outcomes of the process are binding on the parties.  However the time is right, and opportunity is ripe, for Vietnam to embrace the concept and make bold policy decisions backed up with legislative action.

New roads, bridges, ports, and power plants are all in high need in Vietnam and the government is hard at work improving the PPP legislation to facilitate and foster the conditions for successful projects.  Many such projects are complex and challenging, with numerous parties involved, and thus prone to disputes, or simply just differences of opinions that need resolving in order that works can complete. As a result, time spent developing, agreeing and implementing dispute resolution terms between involved parties is time well spent.  However it can also be inefficient and often unnecessary for parties to agree bespoke terms on a case-to-case basis.

Cognisant of the issues, and also no doubt sensing a potential market, a number of governmental and non-governmental organizations have developed best-practice standards, protocols and clauses that project investors and contractors can look to for support.  The latest comes from Singapore’s Ministry of Law, keen to cement Singapore’s reputation as a hub for all things infrastructure in Southeast Asia.  The Singapore Infrastructure Dispute-Management Protocol (SIDP) was launched in October 2018 and is intended to help parties involved in large infrastructure projects manage disputes and minimise the risks of time and cost overruns, thus maximizing chances of efficient delivery of infrastructure.

The SIDP doesn’t hide its ambition to serve mega projects, stating in its preamble that it is “designed and recommended for construction or infrastructure projects of more than S$500 million in value”.  Only a relatively small number of projects in Vietnam would fit that criterion though that doesn’t mean that concepts and recommendations underpinning the SIDP couldn’t be replicated by smaller projects.

So, what’s so good about the SIDP? Perhaps the most highlighted feature of SIDP is that it places a heavy emphasis on preventing disputes, or at least de-escalating differences, through detailed procedural terms and collaborative tools.  When parties agree to adopt the SIDP as their dispute resolution protocol, they must appoint a Dispute Board (DB) right at the outset of the project. The DB need not consist of lawyers, but can comprise industry experts and can vary from a single-person board to a multiple-member panel. The DB commences pro-active work right after establishment in the form of regular meetings and site visits.

While regular meetings are quite common in other dispute protocols, site visits are a relatively new feature.  Pursuant to the SIDP, a DB will conduct at least three site visits every 12 months unless otherwise agreed by the parties. The site visits aim at early detection of any potential problems. After each meeting and site visit, the DB will prepare a report with recommendation for early dialogue on real or potential issues, as necessary.

If the DB becomes aware of any differences between parties through site visits or upon request of the parties, the DB may move one step further by interviewing senior representatives of the parties to try to clarify, scope, and articulate the ambit of the differences. Such interviews are relatively informal with a view to enabling the DB to provide recommendations for specific processes or measures to resolve differences, ideally before they blow up or become entrenched or intractable.  These features represent the sensible underlying philosophy of the SIDP, in contrast with more traditional dispute resolution methods, that a ‘stitch in time saves nine’.

That is not to say that the SIDP doesn’t have teeth.  Should the parties involved feel the need to refer a dispute directly to the DB, a number of options are open for the DB to resolve the dispute, including by issuing an opinion on the matter in question or bringing the parties together for formal mediation.  Crucially, the SIDP provides that such opinions or results of mediation are binding on the parties.

There is no question that the SIDP is a well-conceived and thorough tool of great value to large infrastructure project participants. But how would it work in practice in Vietnam?

Operationally there is no reason to doubt that it would work just as intended.  The big issue for Vietnam is around the fundamental agreement of the parties that a DB decision or opinion or a DB-facilitated mediated agreement can be binding on the parties.  Without that, the efficacy of the protocol as a whole is called into doubt, at least from a purely legal perspective.

Take for example a case where a Singaporean-domiciled construction company provides services to a Vietnam-domiciled entity and the parties agree to use the SIDP to manage and resolve disputes.  Imagine that the parties do in fact effectively implement the SIDP during the course of their relationship, resulting in the DB handling a dispute and giving its opinion on the same (or facilitating a mediated settlement between the parties on the same).  Imagine further that the result of that process, agreed to by the parties, is that the Vietnam entity owes $100 million to the Singapore entity. The SIDP itself provides and envisages that the result of the SIDP process is automatically binding on the parties and that the courts of Singapore can act to enforce the same in the event that the Vietnam entity fails to comply.

The fact is however that there is currently no clear mechanism to enforce that against the Vietnam entity in Vietnam.  Vietnam law contains no terms that would enable the Singapore company to automatically enforce the DB decision, or a mediated settlement, against the Vietnam company in Vietnam.  The Singapore company could seek, and presumably obtain, a Singapore court award against the Vietnam entity enforcing the DB decision but then what?  In the absence of a formal bilateral judicial assistance treaty between the two countries, no special option under their bilateral investment treaty, and rare circumstances where a case for reciprocity might be made, there is essentially nil chance that authorities in Vietnam would act to recognize or enforce the Singapore court judgment in Vietnam under Vietnam law. One only has to look at the extreme difficulties international companies have had enforcing foreign arbitral awards in Vietnam – something for which there is an express legal mechanism in Vietnam law – to know that it would be mission impossible to enforce a foreign court decision.

As long as this remains the status quo in Vietnam, the true value of the SIDP in Vietnam is in doubt.  While there is inherent value in pro-actively managing, identifying and resolving disputes, if the final “agreed binding” outcome is, for all intents and purposes, worthless, why go to the bother in the first place?

Of course this is an extreme position and mega infrastructure projects tend to have many facets to them that count in favour of commercial settlements (not least of all government to government links that can add a political element to resolving disputes).  But lenders, contractors and their lawyers are duty bound to consider the harsh legal realities which currently speak against assuming that the SIDP can be an effective tool for use in Vietnam projects, especially where purely local counterparts are involved.

The time is right then for the government of Vietnam to take bold action, similar to its recent ISDS commitments in the CPTPP, to enable private commercial agreements on use of tools like the SIDP to mean something when push comes to shove.  Actions like this are a vital key to unlocking the private funds necessary to finance Vietnam’s vast infrastructure needs.

The opportunity also happens to be on the table right now in the form of a new UN convention on enforcement of international settlement agreements. Otherwise known as the Singapore Convention on Mediation, the convention would do for mediation what the New York Convention does for arbitration: provide an avenue to directly invoke and enforce mediated agreements in Vietnam, ostensibly without the courts re-examining the issues or interfering.  The Singapore Convention on Mediation was adopted by the UN General Assembly in December 2018 and will come into force when signed by at least three States. A signing ceremony for the Convention is expected to take place in August 2019 in Singapore.  One hopes Vietnam will be at the table.

***

For more information about Vietnam infrastructure projects please contact Giles at GTCooper@duanemorris.com.  Giles is co-General Director of Duane Morris Vietnam LLC and branch director of Duane Morris’ HCMC office.

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!

ベトナム:インフラ開発のジレンマにグリーンボンドは効くか著者:Giles T. Cooper

翻訳:志澤政彦(Masahiko Shizawa)

原文:https://blogs.duanemorris.com/vietnam/2018/05/15/are-green-bonds-the-answer-to-vietnams-infrastructure-dilemma/ 

ベトナムを含む東南アジア諸国では、急成長とともに安定した資金源の確保が困難になってきた。

このことは、インフラ事業において顕著である。アジア開発銀行(ADB)の報告書によると、経済成長に伴い、2030年までにこの地域では2.8兆米ドルに相当する道路、橋梁、鉄道が必要になるとされている。

不安定さを増す政治情勢に直面している東南アジア諸国は、この先数年のインフラ開発の資金調達の選択肢としてより安全なものに目を向けている。「一帯一路」政策の下ですでに1兆米ドルものプロジェクトを支援してきた中国への過剰依存は、国内的解決策を経済が志向するにつれ、その規模が縮小されていくものであろう。従前に表明した境界線を踏み越えようとする中国の計画への恐怖は、資金の不正流用及び失敗したプロジェクトという具体的教訓と相まって、この地域周辺の国々に「一帯一路」の活用の再考を迫ってきた。

南シナ海の領域問題をめぐる政治的緊張及び増加傾向にある国際的な保護主義を前に、ベトナムのような国々は将来的な資金調達を自前で行う途を探る方向でいる。この地域全般で国家予算への負担は増加傾向にあり、この先数年で強く求められる成長のため投下すべき他の資金元を探そうとしている。一つの提案は、「グリーンボンド」の発行促進である。

「グリーンボンド」について知らなければならないこと

グリーンボンドは債券の一つであるが、発行者によって調達された資金は「グリーン」なプロジェクト、つまり、環境に配慮し、気候への懸念を考慮に入れたものに割り当てられる。グリーンボンドの発行が特に利益になるセクターは、再生可能エネルギー、インフラ、および建設業界である。

道路、橋梁、トンネル、そして鉄道の建設には、地域的及び全国的な気候に多大な負担をかけてしまう。そのため、環境フットプリントの低減を志向するプロジェクトの優先度は最も高い。

環境に配慮したプロジェクトに資金調達を集中させることに加えて、グリーンボンドは発行者の持続可能な開発への取り組みの深さを強調する意義もある。さらに、発行者はグリーン・ベンチャーにのみ投資をする特定のグループのグローバル投資家にアクセスできるようになる。国外のプレーヤーによるグリーンな投資への注目が高まっている中、資本調達のコスト削減にも貢献しうる。

ベトナムにとって意味するものとは

ドイツの開発機構であるGIZによれば、現在の炭素依存的成長からより持続可能な道筋へと移行し、その約束草案(Intended Nationally Determined Contribution、INC)に向けた行動をとるため、ベトナムは2020年までにおよそ307億米ドルを必要としている。

グリーンな成長のための資金のうち30%程度は国家予算、すなわち中央と各省の予算及び政府開発援助、からの拠出が見込まれているが、残りは民間セクターから供給されることとなるとみられる。

ベトナム政府が2011年から2020年の期間について承認したベトナム・グリーン成長戦略(Vietnam Green Growth Strategy, VGGS)の下では、資本市場がその目標達成のカギとなるだろう。グリーンボンドが死活的な役割を果たすのは、まさにこの点においてである。グリーンなプロジェクトや事業体のため特別に資金調達を行い、グリーンな商品のデリバティブの流通の素地を作り、さらに民間セクターの投資を持続可能な開発のため活用することになる。

国外からの関心としては、ベトナムのグリーンボンドの発行により、持続可能な開発、再生可能エネルギー、そして環境に配慮した成長を志向している国際投資家の誘致が期待されている。世界中の投資家が、気候変動の課題やエネルギーの移行につき、前にも増して注視している。環境問題を考慮に入れた投資ツール、特に開発途上国におけるものについて要求する投資家は、増加の一途を辿っている。

この地域で、ベトナムが持続可能な資金調達の見通しを見据えている唯一の国というわけではない。アセアン・グリーンボンド基準(ASEAN Green Bonds Standards、AGBS)が2017年11月に開発・実行され、アセアンでのグリーンボンドの発行に共通の基準が制定された。マレーシア、シンガポール、インドネシアの会社は、すでにアセアン・グリーンボンドと称された債券を発行している。

これらのグリーンボンドの発行によって調達された資金は、再生可能エネルギー、廃棄物処理、グリーンな建築物やインフラといった、持続可能性の要件を満たしたプロジェクトに配分され、さらに統合、連帯、アセアン全体の成長といった共通の目標に貢献するものである。何よりも、地域のリーダーたちは将来世代の犠牲のもとに成長は成り立たないことに気づいてきている。AGBSのような新たな取り組みが、環境に配慮した投資への資源の分配を促進するだろう。

成長不全を来しているグリーンな成長

2020年までに達成されるべき指標の一つは、グリーンボンド市場を、現在およそ90兆米ドルのグローバル債券市場の少なくとも1%にまで拡大することである。これを現実のものとするため、ソブリン債発行者は断固たる決断をする必要がある。

流動性の欠如、債券の構造の限定的な多様性、及び確実に収益の見込めるプロジェクトの定期的で大きな流れの不在といったものが、未だにアジアの現地通貨によるグリーンボンド市場の特徴である。

加えて、社会的責任を果たそうとしている投資家からの恒常的な要求はまだ限定的であり、この市場の成長の可能性を阻んでいる。

そうはいっても、ソブリン債発行者が環境を整備し、強力な枠組みが適用される限り、現地通貨でのグリーンボンド市場の成長の見込みは大きい。制約となりうるのは、確実に収益の見込めるグリーンな投資の数と大きさであろう。

もしベトナムが「グリーンボンド」の動きを十全に活用しようとするなら、上述したような方法での資金の注入が解決策を示してくれるだろう。それは、インフラ事業における資金調達の穴を埋め、より速い拡張に向けた基礎を固め、そして、これまで長い間痛めつけてきた環境には休息をもたらすものであるはずだ。

ベトナムのグリーンボンドに関する情報については、GTCooper@duanemorris.comよりGiles弁護士または当事務所の弁護士一覧の弁護士にお問い合わせください。Giles はドウェイン・モリス・ベトナム法律事務所の共同代表であり、ドウェイン・モリス・ホーチミン支所の支所代表です。

Will a new PPP law pave the way for Vietnam’s infrastructure?

Fast-growing Vietnam is facing an infrastructure bottleneck. With the state lacking the budgetary might to finance the nation’s much-needed highways, tracks and tunnels, experts are increasingly looking towards the private sector to fill in the financial shortfall.

 

Amid such constraints, the continuing mobilisation of financial resources from non-state sectors for transport infrastructure development is urgently necessary. According to the Asian Development Bank (ADB), Vietnam will need up to US$17 billion for infrastructure investment between 2015 and 2025.

 

In recent years, the Government has made moves to create a transparent legal framework for investment projects, under the public-private-partnership (PPP) programme. PPP is a form of investment between a government agency and a private investor for projects in construction, renovation, operation and management of infrastructure, as well as the provision of public services. Through PPP, governments can leverage efficiencies and expertise in the private sector to achieve their development goals.

 

However, shortcomings and limitations plague the sustained implementation of such projects and investors are wary of signing up in the current climate.

 

Although a number of decrees have been put forward to facilitate investment, critics have noted that the environment is not attractive and investors are not granted the necessary flexibility regarding these projects. PPP investment activities were regulated by Decree 15/2015/ND-CP on PPP investment and Decree 30/2015/ND-CP guiding the implementation of some articles of the Law on Bidding, as well as several other documents.

 

From 1990 to 2016, the country completed 84 PPP projects amounting to US$16.2 billion, with 79 percent of the projects in the energy sector. However, since the issuance of the PPP pilot programme in 2011, no PPP project has been signed under this framework. Compared with regional neighbours, foreign investment in infrastructure in Vietnam is lagging behind.

 

Recently, the government issued Decree 63/2018 (Decree 63), replacing Decree 15/2015, specifying the areas, investment conditions, and procedures for PPP projects in Vietnam. The new decree increases the investor equity ratio for PPP projects to 20 percent. Decree 63 takes effect in June this year.

 

Does this go far enough?

 

Inspection and audit results on build-operate-transfer (BOT) and build-transfer (BT) projects showed that most applied limited tendering in choosing investors, leading to low competitiveness and a lack of transparency. Meanwhile, the announcement of projects has yet to be implemented in an open manner.

 

At the same time, the supervision of projects’ implementation has been ineffective, leading to low quality construction works and many other problems.

 

In response to this range of issues, Vietnam’s National Assembly has requested that the government come up with a PPP law that removes such difficulties and legal restrictions in order to promote this form of investment.

 

3 things a successful PPP law should include

 

  1. A clear risk-sharing mechanism

 

Authorities have yet to clarify a risk-sharing mechanism in which the government guarantees a certain minimum revenue flow for the developer, agreeing to top it off if it isn’t met. This is especially important in the case of infrastructure, where projects can often carry significant risk. Some regulatory clarity would help investor confidence.

 

The current model transfers most of the risk on to the private sector. To attract private sector investors and operators, a transparent policy framework and fair allocation of risk are key. Similarly, attractive deal structures with a clearly defined project scope and adequate guarantees on the expected financial return will help to encourage participation in PPP deals.

 

  1. Exchange rate guarantees

 

Vietnam’s infrastructure projects will sell their output in the local currency, the Vietnamese dong, while long-term financing will be provided in a foreign currency. This has a negative impact on the bankability of such projects. A new and successful PPP law would need to improve on this point by including a mechanism for government guarantees of convertibility, so investors can be sure of the same exchange rate over the course of a long-term construction project.

 

Limitations on the remittance of foreign currencies overseas will also need to be scaled back.

These obstacles, and the risk of currency fluctuations, have a big impact on investor confidence. Their removal would go a long way in attracting the kind of projects needed to keep the country moving.

 

  1. Financial incentives

 

As a typically long-term investment, infrastructure projects will need added incentives and guarantees on return in order for investors to make the 20-30 year commitments required for big constructions.

 

To offset the risk, the government could look to rewarding investors with part of the spillover effect of development. Incentives could help to reduce the uncertainty inherent in infrastructure development, where revenues can depend on traffic flows and unpredictable circumstances in the future.

 

In short, to attract willing investors, Vietnam needs a framework that ensures transparency, fairness and predictability, including reliable policies and regulations as well as specialised PPP branches of government that investors can trust.

 

Other factors, like life cycle cost, safety, resilience and environmental impact also need to be taken into account.

 

The demand for infrastructure development in Vietnam is robust, but the legislative environment is not currently conducive to the signing of PPP projects that are viable or bankable. Clarification in the form of a PPP law that covers the above points would improve the situation by increasing transparency and reducing risks for enterprises eyeing the country.

 

For more information about investment in Vietnam, please contact Giles at GTCooper@duanemorris.com or any of the lawyers in our office listing. Giles is co-General Director of Duane Morris Vietnam LLC and branch director of Duane Morris’ HCMC office.

Are green bonds the answer to Vietnam’s infrastructure dilemma?

For many countries across Southeast Asia, including Vietnam, the rapid pace of growth has meant that finding stable sources of funding can be a struggle.

 

This is particularly true in the case of infrastructure. According to a report by the Asian Development Bank the region will need up to US$2.8 trillion worth of roads, bridges and railways by 2030 to keep up with economic growth.

 

Faced with an increasingly unstable political climate, Southeast Asian nations are looking at safer options to fund their infrastructure developments over the coming years. Over-reliance on China, which has already backed nearly US$1 trillion worth of projects under its ‘Belt and Road’ initiative, will likely be scaled back as economies turn to domestic solutions. Fears of China’s plan overstepping its stated bounds have caused countries around the region to rethink their embrace of the ‘belts and roads’, with instances of financial misuse and failed projects serving as cautionary tales.

 

Political tensions over territorial claims in the South China Sea and increasing international protectionism are also causing countries like Vietnam to seek self-sufficiency in future financing. State budgets across the region are coming under growing strain, so leaders are looking elsewhere to fund much-needed development over the coming years. One proposition is to promote the issuance of ‘green bonds’.

 

What you need to know about ‘green bonds’

 

A green bond is like any other bond, however the funds raised by the issuer are earmarked for ‘green’ projects, or in other words, those that are environmentally-friendly and take climate concerns into account. Particular sectors that stand to benefit most from the issuance of green bonds are renewable energy, infrastructure and construction.

 

Building roads, bridges, tunnels and tracks takes a huge toll on the climate, both locally and nationally, thus projects which seek to lessen their environmental footprint are a top priority.

 

On top of concentrating funding towards environmentally-friendly projects, green bonds also highlight the issuer’s commitment to sustainable development. Additionally, they provide issuers access to a specific set of global investors who invest only in green ventures. With the increasing focus of foreign players towards green investments, it could also help in reducing the cost of capital.

 

What does this mean for Vietnam?

 

According to German development agency GIZ, Vietnam will need roughly $30.7 billion by 2020 to move its current carbon-dependent development onto a more sustainable path, and towards its Intended Nationally Determined Contribution (INC).

 

Some 30 percent of the credit for green growth is expected to come from the state budget, consisting of central and provincial funds as well as official development assistance (ODA), whilst the remainder will be sourced from the private sector.

 

Under the Vietnam Green Growth Strategy (VGGS), approved by the government for the 2011-2020 period, the capital market will be key in achieving the country’s targets. It is here that green bonds will be vital – raising funds specifically for green projects and enterprises, creating a platform for green products’ derivatives trading, as well as tapping into private sector investment for sustainable development.

 

In terms of foreign interest, Vietnam’s issuance of green bonds is hoped to attract international investors with an orientation towards sustainable development, renewable energy and environmentally-friendly growth. Investors around the world are increasingly attuned to the challenges of climate change and the energy transition. More and more of them are clamoring for investment tools that take environmental issues into account, especially in the developing world.

 

Vietnam is not the only country in the region to see the promise of sustainable funding. With the ASEAN Green Bond Standards (AGBS) developed and launched in November 2017, common standards were laid down for the issuance of ASEAN green bonds. The AGBS label is to be used only for issuers and projects in the region and specifically excludes fossil fuel-related projects. Companies in Malaysia, Singapore and Indonesia have already issued bonds labelled as ASEAN Green Bonds.

 

Funds raised from these green bond issuances will be allocated to projects such as renewable energy, waste management, green buildings and infrastructure, which meet sustainability criteria and contribute to the common goals of integration, connectivity and overall ASEAN growth. Primarily, regional leaders are realising that growth cannot come at the expense of future generations. Initiatives like the AGBS will help in the allocation of resources towards climate friendly investments.

 

Stunted green growth

 

One of the milestones to be achieved by 2020 is to expand the green bond market to at least 1 percent of the global bond market, currently about US$90 trillion. For this to happen, sovereign issuers must be completely on board.

 

Asia’s local currency green bond market is still characterised by a lack of liquidity, limited diversification of bond structures, and the absence of a large regular stream of bankable projects.

 

Additionally, consistent demand from socially responsible investors is still limited, hampering the market’s growth potential.

 

There is, however, a lot of potential for growth in the local currency green bond market, as long as sovereign issuers establish an enabling environment and a strong framework is applied. The key constraint will be the number and size of bankable green investments.

 

If Vietnam fully embraces the ‘green bond’ movement, an injection of funds in this manner could prove a panacea – patching up the infrastructure funding gap, laying the foundations for more rapid expansion and ensuring the long-suffering climate gets a breather.

 

For more information about Vietnam’s green bonds, please contact Giles at GTCooper@duanemorris.com or any of the lawyers in our office listing. Giles is co-General Director of Duane Morris Vietnam LLC and branch director of Duane Morris’ HCMC office.

L’impact de l’initiative “La Nouvelle Route de la Soie” sur le développement de l’infrastructure au Vietnam

Peu abordé au Vietnam, “La Nouvelle Route de la Soie” est le sujet de ma présentation lors d’un colloque sur les PPP organisé par la Chambre de Commerce et d’Industrie France-Vietnam et L’Association des Juristes en Coopération Economique et Affaires Internationales (AJCEAI) le 2 mai 2018 à l’Institut Français de Hanoi. OBOR-Vietnam Infrastructures-AJCEI-2018-05-02-S

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

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

 

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

 

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

 

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

 

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

 

Intelligent implementation

 

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

 

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

 

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

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

 

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

 

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

 

Not all plain sailing

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

For more information about investment in Vietnam, please contact Giles at GTCooper@duanemorris.com or any of the lawyers in our office listing. Giles is co-General Director of Duane Morris Vietnam LLC and branch director of Duane Morris’ HCMC office.

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!

 

 

Smart cities: intelligent infrastructure for Vietnam’s grid

If not already mesmerised by the traffic, visitors to Vietnam’s large cities often comment on the mass of cables that hang like jungle vines across the streets.

 

Along with the ubiquitous motorcycle, the sight of electrical poles that look more like birds’ nests is emblematic of modern-day Vietnam. It is also a clear sign that the country’s power infrastructure has some serious catching up to do.

 

As mentioned in last week’s post, Vietnam has achieved significant growth over the last couple of decades. Reforms have paved the way for international trade and investment, as well as rising incomes for Vietnamese citizens. The face of cities like Hanoi and Ho Chi Minh City are changing rapidly, with shiny new developments cropping up as far as the eye can see. Many areas are unrecognisable compared to just ten or twenty years ago. Power needs are marching in lockstep with growth. Electricity of Vietnam (EVN) is the country’s largest power company, and as of 2015 had a transmission network of some 21,883 kilometres.

Continue reading Smart cities: intelligent infrastructure for Vietnam’s grid