The Ministry of Industry and Trade recently published a Draft Circular on Project Development and Standardized Power Purchase Agreement for both grid-connected and rooftop solar power projects (“the Draft”). After publishing new solar power purchase prices under Decision 13/2020/QD-TTg (“Decision 13”), the Draft is another move of MOIT to replace Circular 16 that failed to address necessary changes in PPA terms. The Draft is anticipated to takes effect in June 2020, but note that there’s not yet any official announcement on this. Also, with Decision 13’s price being effective until 31 December 2020 only, this raised questions on the effectiveness of laws and regulations in Vietnam on in the long run.
Notable provisions of the Draft Circular:
v Upon specific conditions and technical requirements of each individual rooftop solar power system, the Seller and the Buyer shall decide the chronology of items and tasks implementation sequence.
v Beside the contents stipulated in the standardized PPA, the Seller and the Buyer are only allowed to supplement contents for clarification of responsibilities and power of each party. Supplementary contents must be consistent with contents of the standardized PPA.
v If grid-connected solar power projects and rooftop solar power systems have commercial operation date between, and including, 1 July 2019 and the effective date of the Draft, the Seller and the Buyer are allowed to revise and sign the PPA based on the new standardized PPA in the Draft.
v Operational plan
a) Before or on the date of performance of the PPA for grid-connected projects, the Seller provides the Buyer with the chart of annual power generation capacity at the connection point by months in line with the appraised design;
b) Before every November 30th, the Seller provides the Buyer with the power generation plan of the following year, including:
_ Monthly operational plan in the year (power output and available capacity);
_The monthly plant repair and maintenance schedule in the year (if any).
Overall, the new standardized PPA for grid-connected solar power projects does not mitigate the problems already existed in the current template under Circular 16, namely:
v The PPA does not impose a clear “take or pay” obligation on Buyer and so does not assure Seller a guaranteed revenue stream and adequate return. Buyer has the right not to purchase power in certain circumstances (Seller is in breach of the Agreement, Buyer is instructed by the regulator not to purchase power, force majeure). We note that this is not realistic in practice and note that the main issue here is curtailment, which mostly occurred due to overload of grid. Thus to alleviate this problem, Buyer and Seller need to undertake thorough grid studies to ensure the effectiveness of the project in the future.
v Electricity purchase price is the one outlined in Article 5 of Decision 13/2020/QD-CP, which is applicable to projects that obtained Decision on Investment Policy before 23 November 2019 and have COD between 1 July 2019 and 31 December 2020. With the deadline approaching by the end of this year, investors have been hurry to finalize every steps of the project as per the approved schedule with EVN, and the attractive FiT rate also attracts foreign investors to invest in Vietnam fast. However, in the past few months, regions where there’s high level of concentration of solar power projects, have experienced problems of grid-overcapacity is anticipated to be solved by 2021. This issue leads to the question whether the signing of PPA with developers at this point is beneficial if due to grid-overload, power plants will not be able to operate at full capacity which will lead to machine erosion/breakdown and financial loss to investors?
v The PPA provides simple provisions relating to Force Majeure Event and does not distinguish natural force majeure event (Non-Governmental Force Majeure Event), and force majeure event due to political issues (Governmental Force Majeure Event). As EVN is a State-owned company, there may be possibility that EVN relies on Government Event to repudiate its obligation under the PPA, especially payment obligations. Accordingly, it is recommended to distinguish these two types of force majeure events with a view to ensuring that Governmental Force Majeure Event – including change in law or tax regimes – will not be used by EVN as an excuse to its obligations.
v Regarding compensation of damages, the violating party must demonstrate damages and consequential loss, which is quiet difficult as these will mostly based on estimation. As a result, it may be preferable not to terminate the PPA in case of breach by the Buyer and instead continue to insist upon performance without triggering this cap on compensation. In that case, the Buyer would be obliged pursuant to general Vietnam law principles to compensate Seller for damages directly caused by the breach (including loss of profits). In this case, there is no specific cap and the obligation would be to compensate for actual direct losses caused. However, this obligation is not expressed in the PPA as an “indemnity” obligation, but rather a general Vietnam law obligation to compensate following breach of contract. The party claiming the breach would be obliged to prove the losses and also to mitigate losses.
v There is currently no precedent of Buyer being sued for damages under the standard form PPA. The dispute resolution terms of the PPA expressly provide for local dispute resolution and, as a matter of practice, this makes it very challenging to claim against Buyer.
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Please do not hesitate to contact the author Dr. Oliver Massmann under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC, Member to the Supervisory Board of PetroVietnam Insurance JSC and the only foreign lawyer presenting in Vietnamese language to members of the NATIONAL ASSEMBLY OF VIETNAM.