Tag Archives: Investors

VIETNAM – BIOMASS POWER PROJECTS – NEW LAWS AND HOW TO GET HIGHEST LEVELS OF LEGAL CERTAINTY AND BANKABILITY UNDER EU-VN INVESTMENT PROTECTION AGREEMENT (“EVIPA”) AND COMPREHENSIVE AND PROGRESSIVE TRANS-PACIFIC PARTNERSHIP (“CPTPP”)

On 07 July 2020, the Ministry of Industry and Trade (“MOIT”) issued Circular No. 16/2020/TT-BCT to amend and supplement certain provisions of Circular No. 44/2-15/TT-BCT dated 09 December 2015 of the MOIT Minister on project development, avoided cost tariff and standardized power purchase agreement for biomass power projects.

In particular, this new Circular provides that investors be only allowed to build on-grid biomass power investment projects, which have been included in the approved Power Development Plan or Provincial Power Development Plan.

In addition, feed-in-tariff for on-grid biomass power projects will follow Decision No. 08/2020/QD-TTg dated 05 march 2020, which increases the feed-in tariff for biomass co-generation heat power to 7.03 US cents per kilowatt hour (up from 5.8 US cents), and for other types of biomass projects to 8.47 US cents per kWh (up from 7.3 to 7.5 US cents depending on location).

Investors whose projects operated before 25 April 2020 will sign a new Power Purchase Agreement (“PPA”) with the buyer in order to be entitled with the abovementioned feed-in-tariff from 25 April 2020 until the expiry of the signed PPA.

How to get highest levels of legal certainty and bankability under the EU-Vietnam Investment Protection Agreement and the CPTPP

The recent EVIPA and CPTPP further open the market to foreign investors. The investors now can bring their technology and know-how, especially those from countries with high level of development in renewable sectors to Vietnam with less market access barriers and being more secured. In particular, the CPTPP and the EVIPA make it possible that foreign investors could sue Vietnam’s Government for its investment related decisions according to the dispute settlement by arbitration rules. 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.

Although the transition period for the aforementioned Investor-State Dispute Settlement (ISDS) mechanism is 5 years from the effective date of the EVIPA, Duane Morris Vietnam has the legal and technical tools to make such provisions work in favor of investors from now.

For more information on the above, please do not hesitate to contact the author Dr. Oliver Massmann under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC, Member to the Supervisory Board of PetroVietnam Insurance JSC and the only foreign lawyer presenting in Vietnamese language to members of the NATIONAL ASSEMBLY OF VIETNAM.

Vietnam  – Real Equitization Progress – Opening State Owned Enterprises up to Foreign Investors except for 11 Sectors

 

Decision No 58/2016/QD-TTg issued by the Government establishes 11 sectors in which the state will retain full ownership (103 SOEs):

  1. Mapping measurement for military and national security purpose;
  2. Industrial explosive material production and trading;
  3. Transmission, system regulation and management of the national electricity distribution grids; multi-purpose hydropower, nuclear power of particularly importance for economy – society attached to defense and security,
  4. Management of infrastructure system of national railway, urban rail invested by the State; running transportation of national rail, urban rail invested by the State;
  5. Air traffic services, notification services of aeronautical information; search and rescue services;
  6. Maritime security (excluding dredging, maintaining public navigable channels);
  7. Public post;
  8. Lottery business;
  9. Publishing (not including printing and publishing publications sectors);
  10. Printing, minting money, producing gold bars and golden souvenirs; and
  11. Credit policy for economic and social development, securing banking system and credit institutions.

It also lists 137 SOEs in which state will retain ownership from below 50%, 50%-65% and over 65%. These SOEs will be equitized during 2016-2020 period. Among these SOEs include big names such as VNPT, Mobifone, Agribank, Electricity Corporations, Post Corporation of Vietnam, Oil & Gas Corporation of Vietnam, etc.

Sectors in which the state will retain ownership of over 65% (there are 4 companies in total) include:

  1. Operation management of airports; operating flight area services;
  2. Navigation information services, surveillance, aviation meteorological services;
  3. Mineral mining of large scale according to current regulations on classification of mine scale;
  4. Exploration, development and exploitation of oil and gas mines; and
  5. Finance and Banking (excluding insurance, securities and fund management companies, finance companies and financial leasing companies).

Sectors in which the state will retain ownership of 50%-65% (there are 27 companies in total) include:

  1. Production of basic chemicals;
  2. Air carriage;
  3. Enterprises whose market share is 30% or higher, having a role to ensure major balance of the economy and stabilize the market, operating in the following areas:
  4. a) Rice wholesale;
  5. b) Focal petroleum imports.
  6. Production of cigarettes;
  7. Provision of telecommunications services with network infrastructure;
  8. Growing and processing rubber, coffee in strategic areas, mountainous and remote area linked to national defense and security;
  9. Enterprises ensuring basic needs for the development of production and improving material life, spirit of ethnic minorities in mountainous, remote and isolated area;
  10. Electricity retail business (consistent with the formation and development of the electricity market levels).

The publication of companies with state ownership will encourage the equitization process. Investors will find it much more easier to know which enterprises still allow for foreign investment. Yet, equitization of SOEs is raising many concerns due to the leaders’ fear of losing their employment to private investors.

The Government should improve information disclosure and lift the cap on the number of strategic shareholders in SOEs so that both the state and private investors find interest in the equitization process.

Clarified regulation on Foreign Ownership Limit

With an attempt to attract more foreign investment in the securities market and expedite the current equitization process, on 26 June 2015, the Government issued Decree No. 60/2015/ND-CP to relax foreign ownership limit in certain sectors.

However, Decree 60 has had a limited impact on the stock market. The complicated and inconsistent procedures restrain private initiatives and onerous requirement of hiring consultant and lawyers constitutes a significant drag for investors.

To encourage foreign capital inflow to the stock market especially for newly privatized SOEs, clear guidelines creating a transparent environment should be established. Indeed, a sustainable investment environment would be supported by a clear statement that the Law on Investment does not apply for public companies but the Law on Securities.

Moreover, enterprises not operating in sectors where there is explicit limit to foreign ownership in Vietnam laws or international agreements to which Vietnam is a party should be eligible to 100% foreign ownership.

In addition, all foreign-invested public companies or public investment funds must be treated the same as local entities, except for specific cases being explicitly stated in the Vietnamese legislation or international agreement to which Vietnam is a party.

Companies operating in the banking sector subject to equitization are quite limited. Foreign ownership should be raised, for instance, to 35% for banks in which the State is a majority shareholders, 49% for private banks and 100% for banks bought at 0VND by the state.

Transparent privatization schedule and enforcement

The privatization schedule as well as bid offers of each SOEs concerned should be publicly published. In order to ensure the equitization efficiency, the State should oblige privatized companies to strictly follow the schedule by imposing fine of 10% of the company’s net profit. Besides, by holding members of the board personally accountable for the company’s violation, the state would press the newly privatized company to meet with the Government’s schemes.

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