Tag Archives: power

Direct Corporate Power Purchase Agreement (DPPA) to be piloted in Vietnam in 2019 in Vietnam – Opportunities for producers of renewable energy and foreign firms as buyers – how best to use the CPTPP and the EUVNFTA to make it work

In recent years, Vietnam has enjoyed one of the world’s most rapid economic growth rates i.e., an average of more than 6% p.a. Such growth has transformed the country from one of the poorest in the world into a middle-income country. Vietnam has long recognized the important role of renewable energy in achieving energy security, sustainable development and stable growth rate.

Vietnam has a wide range of primary energy sources such as crude oil, coal, natural gas and hydro power for economic development. However, Vietnam has experienced formidable risks for its economy to be based on fossil fuels. For example, in April 2015, thousands of residents blocked a national highway for more than 30 hours in a protest against pollution by the Vinh Tan 2 coal power plants. It seems most of the hydro resource potential for hydro power plants will be fully exploited soon. Those are just two examples of incidents that could significantly affect the national power security power of Vietnam. Accordingly, Vietnam must reduce its reliance on less “environmentally friendly” primary fossil fuel, and promoting renewable energy promptly.

The revised Power Development Plan for 2011 – 2020, vision to 2030 (revised PDP VII), adopted in 2016, is evidence of a growing appreciation of the role alternative sources of energy, targets a 7% share of electricity generated from renewable energy by 2020 and 10% plus by 2030. The revised PDP VII forecasts the electricity demand using an annual average growth rate at 10% from 2011 to 2030. The demand will increase from 86 TWh in 2010 to 265 – 278 TWh in 2020 and 572-632 TWh in 2030. The estimated installed capacity would be 60 GW in 2020 and 129.5 GW in 2030.

Since early 2017, there has been a surge of solar and wind projects approved by the Government after the promulgation of new feed-in-tariffs (“FITs”) for on-grid solar projects and other reforming policies to attract foreign and local investment on this green industry.

On 12 June 2018, at a seminar on renewable energy, the Electricity Regulatory Authority of Vietnam (“ERAV”) discussed and disclosed information on regulations for implementation of a pilot for Direct Corporate Power Purchase Agreement (“DPPA”) and renewable energy sector. Generally, DPPA is an agreement made between the power generator and a corporate customer in which power output is physically delivered and sold to the corporate customer for its operation. ERAV informed that it is a time consuming process since ERAV and its consultants had to conduct research and collect massive information on fundamental issues, design, details and criteria for DPPAs, especially for similar cases such as Vietnam. It is also challenging for ERAV to cooperate and consult other departments of MOIT on the DPPA pilot.

Currently, ERAV’s consultants have submitted a first preliminary report on international experience regarding basic design, mechanism and operation of DPPA. It is known that ERAV and its consultants also sent questionnaire papers to several industry and sectors, companies and stakeholders aimed at seeking their opinion on consumer market, demand, participants, and other issues.

When such report is available, ERAV will arrange a seminar for introduction of the same and seeking opinion from all stakeholders. At this stage, there is no final decisions on capacity, licensing process, participants, location, wheeling fee, and contractual terms for the piloted DPPA. However, ERAV is considering some models as below:

• Physical DPPA: (a) onsite DPPA where the power plants to be constructed around the consumers, and / or (ii) offshore DPPA where power plants to be constructed anywhere.
• Financial DPPA: this would be formed with competitive market for selling power.

ERAV also shared that the DPPA pilot would be preferably designed for 110 KV or more system (not 220 KV or 22-25 KV) since this system is the most popular, efficient and feasible.

Market access in the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) and EU – Vietnam FTA (EVFTA)

Currently, there is no foreign ownership restriction in energy sector in local laws or Vietnam’s international commitments. The foreign investor may choose among permitted investment forms: 100% foreign invested company, joint venture or public private partnership in the form of BOT contract. For your information, Vietnam ties in first place with Singapore in terms of market access liberalization.

The recent conclusion of the EVFTA negotiation and legal review and the signing of the CPTPP further opens 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 such as Germany, to Vietnam with less market access barriers and being more secured. In particular, the CPTPP and the EVFTA 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.

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

What’s next for green energy in Vietnam – 4 steps to the future

Now that the United States has retreated from the Paris Climate Accords, and relinquished its leadership role in the fight against climate change, it remains to be seen whether smaller nations will stick to their pledges of greenhouse gas reduction.

Eyes are on countries like Vietnam to see if they keep to their commitments or revert to the pursuit of cheap and dirty coal-powered solutions for their energy needs.

Vietnam, in particular, faces some of the biggest risks. Global warming is a major threat to the country, where rising sea levels are predicted to swallow up nearly half of the Mekong Delta, a crucial area for domestic food production, in coming decades.

Currently, coal-fired plants in Vietnam contribute to thousands of premature deaths and air quality in big cities is getting worse. In 2017, the capital Hanoi enjoyed just 38 days of clean air, with contaminant levels four times those deemed acceptable by the World Health Organization.

Business as usual?

Unlike Obama, the Trump administration seems unlikely to apply any real pressure on other countries to pursue clean energy or combat climate change, and so it will be up to domestic forces to really push for change.

According to the government’s current national plan, electricity generated from coal will rise five-fold between now and 2030, and GHG emissions will increase in lockstep. This is at odds with Vietnam’s pledge to the Paris Climate Accord, which targets 8 percent emissions reduction by 2030, and could rise as high as a 25 percent reduction with international support, such as financing for solar panels and wind turbines.

Energy and environment experts worry that the country’s next national power development plan, which is under revision this year, could hold to those figures or, worse, embrace a more aggressive coal strategy.

The story, however, is not all doom and gloom. Vietnam does have the potential to become a regional clean energy leader, if only the country’s energy development and investment environment can be reshaped. Business involvement in this process will be crucial, as the commercial and industrial sectors consume more than 60 percent of Vietnam’s electricity.

Khanh Nguy Thi, founder of the Vietnamese nonprofit Green Innovation and Development Centre, recently won the 2018 Goldman Environmental Prize for her work convincing state agencies to increase their use of renewable energy. Her efforts were instrumental in halting the construction of two hydropower plants in a national park and securing a 20,000 MW reduction in planned coal expansion.

Government leaders have also demonstrated a desire to utilise Vietnam’s abundant sunlight and over 2,026 miles of coastline in the pursuit of renewable energy.

4 solutions for a sustainable energy sector

Clearly, clean energy opportunities are available, the question is how to encourage more investment. Obstacles persist with the regulatory environment, preventing the country from tapping its potential in this area. Here are four small changes which could bridge the gap between policy and implementation, ensuring the green energy dream becomes a reality:

  1. Streamline regulations regarding Power Purchase Agreements (PPA) and support the use of Direct Power Purchase Agreements (DPPA).

Negotiating standard PPAs with EVN, the sole power purchaser, is time-consuming, which cause rising total project costs. The streamlining of such deals would render them more attractive to power producers and cut lengthy approval time, which often leads to execution delays or complete abandonment of projects.

USAID and Vietnam’s Ministry of Industry and Trade are working together to enable private sector electricity buyers and renewable energy providers to enter into DPPA. This would allow industrial energy buyers to purchase electricity directly from independent renewable energy producers.

Such a mechanism would help companies enjoy constant power prices and ultimately save power costs. By signing a long-term DPPA to buy power from a clean energy generator, businesses can have a constant power price, reducing risk and helping firms establish long-term business plans with no surprises down the road.

  1. Improve the transparency of electricity rate forecasting.

Electricity prices will have to increase in order for Vietnam’s national utility to finance new energy projects, but the schedule for such increases remains vague. Better transparency of expected price increases will allow buyers and investors to more accurately value fixed-cost renewable energy contracts, which can offer some price protection.

Additionally, improving the quality and sourcing of data on renewable energy can help clarify for investors available locations, infrastructure capabilities and government targets, as well as other information to help reduce risk on investment decisions.

  1. Encourage supporting industries.

Supporting industries plays a crucial role in the development and adoption of renewable energy technologies. The government should promote domestic SMEs through capital subsidy and incentives such as tax breaks and preferential loans. A competitive supporting industry will help in reducing the tariff and investment costs for renewable projects, nurturing their development as part of Vietnam’s energy sector.

  1. Develop a renewable energy model for industrial parks.

Given the expectation that industrial areas will continue to play a big role in Vietnamese manufacturing and commerce, these parks are an important place to explore renewable solutions. Aggregating demand from tenants in the parks would help scale clean energy and make it more affordable for all.

Green power pioneer

Renewable energy has the capacity to power Vietnam and with the right policies in place, the country can deliver affordable, safe and clean power for continued economic growth.

Vietnamese businesses and the government could chart an unprecedented course for clean energy, and represent a role model for Southeast Asia — if they can address some key barriers. The changes detailed above would help drive the country’s energy transition toward a sustainable, greener future, and demonstrate that the fight against climate change can continue without American leadership.

For more information about Vietnam’s renewable energy sector, 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

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

A. OVERVIEW
Vietnam contains huge potential regarding the production of clean energy. It has best conditions for developing solar power due to being one of the countries with the most sun hours during the year and best conditions for creating wind power due to 3000km coastline. As a result, Vietnam in general, is able to attract much FDI for developing clean energy projects.
Furthermore, the new Solar PPA was issued this year to solve the lack of regulation on solar power projects. Moreover, the issuance of the Circular 16/2017/TT-BCT on the power distribution of rooftop solar plants and the alleviation of the Operating License for power plants (lmw capacity) are notable developments in the power/energy industry in Vietnam. Moreover, the implementation of the Direct Power Purchase Agreement could step into pilot phase in the next time, thus, it is estimated to create better access to clean energy and increase of investment up to USD 2 billion in clean energy.
Another notable fact is the increase of the wind tariff in early August 2017. Now, Vietnam has implemented a wind power project with a capacity of 160 MW. The new tariff shall attract new and more foreign investments in the wind power industry in Vietnam.
B. ISSUES
1. Environment
The government is implementing more and more measures on protection of the environment. Vietnam plays a proactive role on reduction of emission and CO2 but the penalties for violation are very low. Furthermore, new regulations have to be issued to ensure more environmental protection, especially in terms of fossil power projects known to be a great danger for environment regarding to huge amounts of emissions and pollution. The project developers should be obliged to develop projects using highest environmental standards.
2. Solar PPA Policy
There are issues in the solar power policy necessary to be addressed.
In general, the goals on producing clean energy in large scale and the attraction of FDI cannot be reached sufficiently yet due to issues regarding electricity pricing and the content of the final power purchase agreement. These issues lead to restraining investments and delayed development of the clean energy industry in Vietnam.
Further, there are continuing concerns about lack of transparency regarding to solar power prices and due to lack of a published Roadmap for the retail sector. This leads to uncertainty of foreign investors regarding to stability of prices. Price transparency measures should be included in the Energy Plan and a Roadmap for the retail sector should be published. The issuance of a pricing framework can also lead to more investments in off-grid projects causing relieve of EVN’s pressure on power transmission, thus, the transmission system does not have to run near overstressing at daily peak hours. Moreover, the final template of the Solar PPA contains concerning provisions for investors such as (i) lack of EVN’s payment obligations in cases of transmission problems; (ii) lack of transparent possibilities for international arbitration; (iii) the lack of PPAs’ bankability. The final PPA needs to be amended to grant more security to investors and to attract more FDI. Moreover, the administrative regulations must be simplified for more efficiency in solar power project development as well as for easier market access, especially with regard on major trade agreements like TPP 11 and the EUVNFTA.
3. Power Storage
The Solar Battery is the most common way of storing energy but the technology is not well-developed yet in Vietnam. However, the country has the possibility to become leader in the new storage technologies in the eastern part of the world. This is another reason for the necessity of development of the solar industry and extremely important as power storage solution on remote islands in order with power production in those areas.
4. Project Applications
Currently, there is a very large number of applications for solar plants existing. This leads to concerns regarding to create a ,,bubble effect” which is causing gridlocks in project developing an delays in investment as well as uncertainty among investors.
For investors, to improve the chance on winning tendered biddings, it is important to provide conditions like (i) ensured safety for wildlife, people, environment or households; (ii) maintained grid connection, (iii) enough financial solvency regarding feasibility of the project; (iv) successful projects in energy or infrastructure areas in the past.
On the other hand, the Ministry of Industry and Trade (MOIT) guarantees that all investors of power projects will be able to connect the plants to the national grid. According to the MOIT, the total reserved capacity of all planned projects is only 30% of the whole capacity, so that, there is no reason for concerns regarding to finalized projects not able to start power producing because of missing opportunity on generating turnover.
C. OUTLOOK ON MAJOR TRADE AGREEMENTS TPP 11 AND EUVNFTA
In January 2017, US President Donald Trump decided to withdraw from the US’ participation in the TPP. In November 2017, the remaining TPP members met at the APEC meetings and concluded about pushing forward the now called CPTPP (TPP 11) without the USA. The agreement shall be signed by all member states by the first quarter of 2018. After that, it has to be ratified in each member state before taking effect.
The effects of the TPP 11 promising great benefits for the energy sector in Vietnam. The TPP 11 is targeting to eliminate tariff lines and custom duties among member states on certain goods and commodities to 100%. This will make the Vietnamese market more attractive due to technology advances, reduction of production costs and because of the high demand on renewable energy.
One another notable major trade agreement is the EUVNFTA between the European Union and Vietnam. The EUVNFTA offers great opportunity to access new markets for both the EU and Vietnam and to bring more capital into Vietnam due easier access and reduction of almost all tariffs of 99%, as well as obligation to provide better conditions for workers which is a key aspect in terms of working at power plants. In addition, the EUVNFTA will boost the most economic sectors in Vietnam. Moreover, the EUVNFTA will provide certain tax reductions to 0% for clean technology equipment as well as equal treatment for companies. Due to easier opportunity on making business, trade and sustainable development will be a good consequence for an even more dynamic economy and even better investment environment in Vietnam in general and especially in the power/energy industry.
Furthermore, the Investor State Dispute Settlement (ISDS) will ensure highest standards of legal certainty and enforceability and protection for investors. We alert investors to make use of these standards! We can advise how to best do that! It is going to be applied under the TPP 11 and the EUVNFTA. Under that provision, for investment related disputes, the investors have the right to bring claims to the host country by means of international arbitration. The arbitration proceedings shall be made public as a matter of transparency in conflict cases. In relation to the TPP, the scope of the ISDS was reduced by removing references to “investment agreements” and “investment authorization” as result of the discussion about the TPP’s future on the APEC meetings on 10th and 11th November 2017.
Further securities come with the Government Procurement Agreement (GPA) which is going to be part of the TPP 11 and the EUVNFTA.
The GPA in both agreements, mainly deals with the requirement to treat bidders or domestic bidders with investment capital and Vietnamese bidders equally when a government buys goods or requests for a service worth over the specified threshold. Vietnam undertakes to timely publish information on tender, allow sufficient time for bidders to prepare for and submit bids, maintain confidentiality of tenders. The GPA in both agreements also requires its Parties assess bids based on fair and objective principles, evaluate and award bids only based on criteria set out in notices and tender documentation, create an effective regime for complaints and settling disputes, etc.
This instrument will ensure a fair competition and projects of quality and efficient developing processes.

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

Thank you very much!

VIETNAM – SOLAR ROOFTOP – WHAT YOU MUST KNOW:

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

Thank you very much!

Vietnam – Solar Energy – Action plan for getting deals done with the new Power Purchase Agreement

Interview with Dr. Oliver Massmann\

1. Which significant changes does the new PPA contain for the solar energy sector?

Decision 11 introduces the Feed-in-Tariff (FiT) rate of UScents 9.35 per kWh. The FiT rate is only applicable for on-grid solar power project with efficiency of solar cells greater than 16% or with efficiency of the modules greater than 15%. The FiT rate depends on the currency exchange rate of the Vietnamese Dong and the US-Dollar. The rate remains the same throughout the whole year. It is adjusted by the Vietnamese State Bank on the last working day of the year for being used in the following year.

As a result, the financial planning is easier and it grants certain security for investors such as protection against currency fluctuation.

2. Which aspects in the new PPA have changed compared with the draft PPA from April 2017?

Compared with the draft PPA, the FiT rate is now indicated in the final version and there is reference to the adjustment of the FiT in case of USD/VND exchange rate fluctuation.

The MoIT made no big changes regarding the shortcomings of the draft of the PPA from April 2017.

The investor still has to bear the biggest risk.

3. Is the PPA bankable?

No, in general the PPA is not bankable in its final version.

4. Is there a way to make it bankable?

Yes, it is possible to make the PPA bankable. We have 20 years of experience making PPAs bankable for gas and coal fired power plants and wind energy plants in Vietnam. The investor should use all business channels and experienced negotiators to make the PPA bankable.

It is a matter of negotiation and experience. Decision 11 is granting investors the possibility to negotiate the conditions with EVN. The price remains fixed.

Agreements such as the EU – Vietnam Free Trade Agreement (“EVFTA”) or the Trans-Pacific Partnership (“TPP”), which is now called the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (“CPTPP”), lay a big milestone for making the PPA bankable.

The EVFTA was signed in 2015 and is expected to be ratified by all member countries by 2018. It is probably going to take effect in 2019. It is estimated to generate an increasing GDP and to liberalize the economy of Vietnam. Another aspect is the elimination of almost all custom duties (over 99% of all tariff lines). As a result, there will be a huge impact on trade development and the interest of investors.

Another important agreement is the CPTPP. On 4th February 2016 the TPP was signed between 12 countries. The signing nations made up 28% of the global trade and 40% of the global GDP. However, at the beginning of 2017, the US President Trump decided to withdraw from the TPP. The remaining 11 member states discussed the future of the TPP in APEC event in Da Nang, Vietnam and agreed to push ahead with the TPP but now under the name of CPTPP. Furthermore, the states agreed to work out a new framework agreement, which includes changes to the previous TPP agreement. The largest amendment was made in the field of intellectual property, for example, easing the protection of copyright or the special protection of biologics and pharmaceuticals.

However, the level of market access is still the same as in the first TPP. For some countries, further negotiations have to take place and they need time to adapt their laws to the CPTPP rules. The negotiators have set the goal of signing the revised TPP by the first quarter of 2018. After 6 countries have ratified the partnership, it will come into effect.

With the CPTPP, market access to more sectors will be opened than the WTO such as telecommunication, distribution of goods, manufacturing and fabrication. However, there will remain a few restrictions in the power/energy sector as discussed below.

As a result of the EVFTA and the TPP, Vietnam will get access to a huge part of international markets. This gives Vietnam the possibility to increase the amount of imports and exports (estimated up to 37% higher until 2025) and to improve foreign investments.

Another essential instrument is the Investor-State Dispute Settlement (ISDS)[N1] which is going to be applied under the EVFTA and the TPP. 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.

As a conclusion, the bankability of the PPA will get enhanced as a consequence of the EVFTA and TPP in the next few years if the legislative framework is being reformed in the right direction. The economy will become more dynamic because of access to other markets and further foreign investments. With the implementation of the ISDS in the TPP, investors will be more secured in relation to dispute resolution and protection against the risks of international trading. As a result, banks will be more willing to finance PPAs.

Our recommendations: For now, the bankability of the PPA is not as it is expected. But you should be aware of the upcoming agreements which will lead to a big impact on the economy growth and the economy itself. If everything is improving in the right direction as it is now, the PPAs will be more bankable in the future and there will be better investment opportunities.

5. How was the bankability issue handled in the past years?

The TPP and the EVFTA are not the only agreements regarding the bankability of the PPA.

Vietnam and the USA signed the Bilateral Trade Agreement (BTA) in 1999 which was implemented in 2001. It was a huge success and very important agreement for the economy of Vietnam. It was the first opening of the Vietnamese market and important for the creation of more business opportunities and new standards for financing projects.

Another important fact was Vietnam’s accession to the WTO in 2007. This has improved trade relations between Vietnam and other countries by removing trade barriers and the commitment to non-discrimination. It was also a political sign to show Vietnam’s will to get integrated in the international trade by accepting international trading rules.

To be able to fulfill the commitments, it is necessary to make legislative adjustments and adopt laws that ensure the viability and efficiency of the projects. In the last years, many important laws have been introduced. They have helped to enhance the bankability of the PPA, for example, the 2014 Investment Law, 2014 Enterprise Law, 2012 Labor Law, etc.

In addition, in 2011, the legal framework for wind power projects was introduced.

Our recommendation: You should use existing international agreements and local laws as the bases for negotiation. Remember to rely on existing precedents and keep in mind that there are some difficulties for project development. But with a well-structured project development, it is still possible to getting a bankable PPA done.

6. What are the main risks of the PPA for investors?

With many solar projects currently focused on a few central locations, the capacity of existing facilities to absorb power must be a cause of some concerns given the PPA’s transfer of such risk to power producers.

EVN holds a monopoly of distribution, repair, maintenance, inspection and examination of the grid.

There is a big risk because of the lack of the government’s guarantee for EVN’s payment obligation in cases energy is provided from the producer but cannot be transmitted due to interruption of EVN’s grid connection. One solution for bridging that guarantee gap can be the use of the MIGA backup from the Worldbank (Multilateral Investment Guarantee Agency) or backup from the Asean Development Bank.

Reasons for the interruption can be, for example: force majeure or termination of contracts. EVN can refuse transmitting the energy in cases of maintenance or repairing.

Circular 16 does not contain any guarantee or compensation for investors in these cases.

Our recommendations for avoiding potential risks: Be aware of veto rights of EVN and Vietnamese authorities. You have to be patient because the decision making process in Vietnam goes through many levels and takes time.

7. There will be conflicts between the investors and EVN because of the shift of risks to the investors. Which means of conflict resolution does the PPA grant to investors?

In general, the PPA is governed by the Vietnamese law.

The PPA does not provide for international arbitration as a means of dispute resolution.

Conflicts can be submitted to the Department of Electricity and Renewable Energy. If this option fails, investors can seek help at the Electricity Regulatory Authority of Vietnam (ERAV) or with application to a Vietnamese court.

The PPA implicitly allows the involvement of domestic and offshore arbitration. However, whether it can be a prior agreement with EVN in the PPA or only until there is an arising dispute simply lies in the hands of EVN.

Our recommendations for successful negotiations with EVN: You have to understand how EVN is working and what their targets are. Be aware of their monopoly position in the energy sector in Vietnam. Don’t try “to reinvent the wheel”!

Do not overexert them with too ambitious intentions related to the development proposal. They might be afraid of so many new things. Rely on workable precedent strategies and make reference to successful projects.

8. Which view does the MoIT hold regarding the shortcomings of the PPA?

The MoIT knows about the shortcomings of the PPA and is aware about the fact that the PPA will not attract investors to meet the power demand or to solve problems regarding the development of renewable energy.

The MoIT also knows that the solar energy sector in Vietnam has a lot of potentials.

Finally, the MoIT expects to attract smaller investment projects where bankability is not really an issue for the investors.

9. Is the view of the MoIT realistic?

In our opinion, the MoIT’s view is not realistic. It may lead to unfeasible projects because of the existing risks of the final version of PPA and without assurance for supportive services from a bank. Furthermore the success of projects depends on the result of the negotiation with EVN.

10. Which advice can you give to future investors regarding their project development?

Be aware! You have to take care of your project on a step-by-step-base and get well prepared for the negotiations with EVN when you decide to invest in an on-grid power project.

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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!

 

 

 

Vietnam’s waste-to-energy projects should be low hanging fruit

While alchemists of years past failed to turn lead into gold, technology today can turn waste into energy, and more efficiently than ever before, proving there is not only money to be made from rubbish, but also neat solutions to perennial problems.

Vietnam has long struggled with issues of waste management, with a recent study estimating that Ho Chi Minh City alone discharges 8,300 tonnes of waste each day. At the same time, power shortages and outages remain a part of daily life in parts of the city.

The country’s most popular method of solid waste treatment is still burial, with up to 76 per cent of trash ending up in landfills. Dump sites are prevalent thanks to their relatively low cost, little initial investment and ability to handle most types of solid refuse. However, the increasing amount of waste, lax management and disregard for technical protocols are rapidly making this method unsustainable. A number of environmental incidents have also raised the alarm over the pollution and contamination caused by this method of waste management.

Rapid urbanisation is partly behind the vertiginous increase in waste ­– rising urban populations are creating serious waste management problems for cities all over the world. In Vietnam in particular, with economic growth, urban residents are enjoying rising wages and living standards, in turn producing more waste.

Rising populations are also putting the strain on the country’s power-generation capabilities – a problem that will require significant investment over the coming years.

 Waste not, want not

A number of companies are working in Vietnam’s clean energy space, and while headlines are usually dominated by wind and solar power projects, the waste-to-energy sector has been enjoying some development too. The idea of converting Vietnam’s growing waste problem into a solution for its shortage of power could kill two birds with one stone.

The capital city of Hanoi inaugurated its first industrial waste-to-energy facility in April this year, supplying electricity to the national grid. With a waste treatment capacity of 75 tonnes per day and a power generation capability of 1.93MW, the facility is a pioneering project in Vietnam’s industrial waste treatment industry.

Almost all of the factory’s equipment was supplied by the Hitachi Zosen Company of Japan. With total investment capital of US$29 million, including more than US$22.5 million of non-refundable aid from Japan’s New Energy and Industrial Technology Development Organisation (NEDO) and the remainder extracted from the city’s budget.

With advanced technology from Japan, the factory demonstrates the potential in this area of clean energy and its attraction to foreign investors. If all goes well, the company has plans for another plant in the capital city and more across the country.

Australia’s Trisun Energy is another firm showing interest in this field, having set a major investment target of building up to 20 power-generating waste treatment plants in Vietnam over the next 5 to 10 years. The company, founded in 2011, is currently completing a comprehensive study of a waste-to-power plant in Ho Chi Minh City. According to Trisun, the plant will be capable of burning up to 3,000 tonnes of garbage per day, or more than 40 per cent of the city’s waste.

In addition to Japan and Australia, some leading Finnish companies are at the forefront of addressing the issues of waste and energy.

A delegation of 16 Finnish exhibitors set out some of their plans at the Vietwater 2017 expo, which recently concluded in Ho Chi Minh City. These include solutions for contaminated landfill sites and waste-to-energy projects; the development of biogas technology; and the generation of electricity from biomass and waste.

Doranova is one such firm. Since early January 2017, Doranova has been constructing a landfill gas plant in Binh Duong, north of Ho Chi Minh City. The plant will extract harmful methane emissions from a nearby landfill, generating electricity while reducing environmental pollution. According to the company, the plant will provide additional power generation options from waste materials for residents and businesses in the city.

 Not a wasted opportunity

These projects in Vietnam’s biggest cities represent small steps towards solving the country’s waste epidemic. They also help to diversify the national energy mix, which is crucial in ensuring the supply of energy meets the expected rise in consumption.

The increased focus on the clean-technology sector and particularly energy efficiency, renewable energy technologies and waste management provides business opportunities for international players who have the knowledge, expertise and technology needed in this field. The question is whether Vietnam will take full advantage of the opportunity.

Though a promising start has been made, the widespread implementation of waste-to-energy facilities will require a more concerted effort from authorities. The country’s Ministry of Natural Resources and Environment (MoNRE) has set ambitious targets for the collection, reduction, reuse and recycling of waste nationwide. By 2020, 90% of urban domestic solid waste is to be collected and treated, with 85% recycled and reused.

Indeed, Hitachi Zosen Company (behind Hanoi’s waste-to-energy plant) has expressed concerns over the incentives and investment conditions provided by the Vietnamese government. The company, as well as a number of Japanese investors, are keen on rolling out the waste-to-energy model across the country. However, a lack of favourable investment conditions for foreign investors is holding back the industry. At present, investors are waiting for Vietnam to enact new public-private partnership regulations, before deciding on next-step investments.

The waste-to-energy sector in Vietnam holds a lot of potential, and technological advances mean that win-win solutions to both an abundance of waste and shortage of power are more affordable than ever. Combined with efforts in other areas of renewable energy, and the entry of international players, significant progress can be made in green power generation. As ever, the amount of progress depends on the attractive policies set out by the government. Investors are ready, and Vietnam would be wise not to let the opportunity go to waste.

For more information about Vietnam’s energy sector, 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.

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

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

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

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

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

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

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

Please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details on the above.

THANK YOU !

 

 

 

 

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!

 

 

VIETNAM SOLAR POWER – THE FIRST OFFICIAL PPA – VIETNAM INVESTMENT REVIEW INTERVIEWING DR. OLIVER MASSMANN

1. Could you point out for me the good point of this solar PPA?

While the previous draft solar PPA does not require the Feed-in-Tariff (FiT) conversion between USD and VND be according to the exchange rate at the time of payment, this newly issued solar PPA repeats the language in Decision No. 11/2017/QD-TTg (Decision 11) that the FiT will be adjusted according to the fluctuation in the VND/USD exchange rate. This is consistent with what is stipulated in Decision 11.
In addition, I note that while the FiT for power output from on-grid projects is adjusted according to the fluctuation in the VND/USD exchange rate, meaning at any time during the year, it is not the same for rooftop projects. Instead, the mentioned FiT for excessive power output generated from rooftop projects remains the same throughout the first year of operation, and the new FiT for the next year will be adjusted based on the announced VND/ USD exchange rate of the last working day of the previous year.

2. Are there any concerns of investors that the solar PPA has not solved?

The rights of the investors are not fully protected in the following cases:
– when EVN is in the process of installing equipment, or making repairs, replacement, inspection or examination of the grid connection of the seller’s power plant;
– when the transmission grid or the distribution grid connected to EVN’s grid has a problem or grid equipment directly connected to EVN’s transmission grid or the distribution grid has a problem; and
– when EVN’s grid needs support to recover after the incident in accordance with the provisions of operation of the national power system and the standards, technical regulations of the electric industry.
– allocation of feeding points into the grid
It is quite risky for the producer if the output is ready to be fed to the grid but the connection is not available to do so. Absent a clear indication of whether the Solar PPA is a ‘take or pay” agreement, investors will find it difficult to secure and ensure the profits and revenue of their projects.
• No international arbitration dispute resolution clause
• No Government guarantee to enhance the credit of EVN as the sole off-taker;
• No provision addressing the risks of changes in applicable laws; and
• The Solar PPA is required to follow a specific template, which is not bankable.

3. Is this PPA solar bankable or not?

This PPA is not bankable due to reasons specified in 2).

4. In your opinion, how Vietnam government should do in order to reach their target for solar power capacity in the coming to time?

There is an increasing interest of foreign investors in the sector, proven by the fact that there are many solar projects with total capacity of 10,000 MW registered with the MOIT. However, not many of them have submitted the pre-feasibility study to the MOIT for consideration. There are many reasons behind this, but the most important ones are the lack of Government guarantee of EVN’s payment obligation in the PPA and currency hedging. Thus, the Government should consider a mechanism where EVN has to fulfil its payment obligation and the investors are ensured that they will be able to remit their profits abroad in foreign currency.

***
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!