Tag Archives: vietnam

VIETNAM – WHY YOU SHOULD INVEST IN RENEWABLE ENERGY NOW

It has never been easier and more beneficial to invest in renewable energy in Vietnam. The country has one of the most sun hours during the year and boasts a 3000km coastline suited for wind power development. The Government has been encouraging foreign investment in this sector by naming renewable energy one of the 5 sectors eligible for Public-Private Partnership development and the vast benefits thereunder, issuing standard Power Purchase Agreements taking into account opinions of foreign investors as well as Feed-in-Tariff (FiT) rates for wind and solar power projects, ratifying the EU-Vietnam Free Trade Agreement, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and so on.

I. Analysis of the energy sector in Vietnam

Vietnam has attained many successful achievements in the energy sector in the past 10 years. Oil and gas development output has increased, forming a number of large-scale petrochemical refining facilities; wind and solar power projects developing at high speed. However, as energy consumption increases and consumption structure shifts towards industrialization, Vietnam faces increasing energy import. Some indicators of energy security are already moving in an adverse direction. On top of this, the mass use of fossil energy sources has severely polluted the environment despite strict penalties measures.

In response to this, the Government has promoted the development of renewable energy sources to fully replace fossil ones. It is also encouraged to use wind, solar and hydrogen power for electricity generation, especially rooftop and water surface solar projects as well as offshore wind projects. Moreover, investors are encouraged to invest in the construction of power plants using urban waste, biomass and solid waste.

Promoting the development of renewable energy sources is a feasible and effective solution to counter power shortage issue because renewable energy projects can be constructed quickly and promptly for operation in the period 2021-2023, while taking advantage of the country’s natural potential without relying on extraneous factors such as imported fuels and is eco-friendly.

By 2030, Vietnam expects to see about 20% of renewable sources in the total primary energy supply. By 2045, this is anticipated to increase to approximately 30%. The Government is also looking to import about 8 billion cubic meters of LNG by 2030 and 15 billion cubic meters by 2045.

Vietnam aims to make gas electricity an important power supply source, especially gas-fired thermal power projects using LNG. The country is looking to improve technology for the exploration and development of domestic gas sources. It is commendable to develop thermal power projects synchronously from fuel supply, storage to plant construction phase with the electricity-selling price determined through bidding.

Solar power energy

Under Decision 13/2020/QD-TTg, the FiT rate is 7,09 US cents/kWh for grid-connected projects that have Decision on Investment Policy approved before 23 November 2019 and Commercial Operation Date (COD) between 1 July 2019 and 31 December 2020. With respect to Ninh Thuan province, purchase price of electricity in grid-connected solar power projects included in electricity development planning with COD before 1 January 2021 and capacity of no more than 2000MW is 9.35 US cents/kWh.

The FiT rate for floating PV project is 7,09 US cents/kWh. For rooftop projects, the rate is 8,38US cents/kWh but this is negotiable if the purchaser is not Electricity Vietnam (EVN).

On 31 August, the Ministry of Industry and Trade issued Circular 18, which entails the new standard Power Purchase Agreement (PPA) for grid-connected and rooftop solar power projects. The new PPA has helped to solve the lack of regulations on solar power projects since July last year. However, the template contains concerning provisions for investors, namely (i) the lack of EVN’s payment obligation in case of transmission problem, (ii) the lack of transparent possibility for international arbitration and (iii) the lack of bankability. Though parties can supplement details to the Agreement, such changes must not derogate substantially from the provision of the standard template.

Wind power energy

Under Circular 02/2019/TT-BCT, the FiT rate is 8,5 US cents/kWh for onshore projects and 9,8 US cents/kWh for offshore projects. The deadline for these rates is 1 November 2021. From then onwards, the Government is looking into the option of implementing the auction mechanism for the sale and purchase of wind energy with a view to promote competitiveness and transparency within the power market. The Ministry of Industry and Trade has been proposing to extend the FiT rate for wind power projects until the end of 2023 in order to give investors ample time to put their plants into operation. The standard template for wind power purchase agreement is also available under Circular 02.

Currently, the electricity grids in Vietnam is experiencing overload, leading to power plants have to operate below their maximum capacity. This has evidently resulted in breakdown of equipment and financial loss. EVN is the only company in Vietnam authorized to carry out upgrade for grids, so it can be very time-consuming for investors having to wait while they also have the expertise and funding to step in and ameliorate the grids. The issuance of a pricing framework leads to more investment in off-grid projects, thus relieving pressure on the transmission system.

Bioenergy

Bioenergy is the production of energy from biomass materials such as the byproducts of agricultural, food and forestry industries, as well as domestic and industrial waste management systems.

In Vietnam, metropolitans like Hanoi and Ho Chi Minh City have been dealing with rapidly increasing amount of waste and air pollution caused by the popular method of burning them. For instance, statistics produced by the Government show that HCM City produces more than 9000 tons of waste per day. As a result, Vietnam has strongly encouraged investment in the waste-to-electricity sector in order to protect the environment and boost energy efficiency.

In 2014, the Prime Minister issued Decision 31/2014/QD-TTg on supporting mechanisms for development of power generation projects using solid waste in Vietnam. Notable incentives include: (i) An obligation on purchaser to buy all power produced by the plants under its management, (ii) Exemption from import tax for goods imported to create fixed assets for the project and (iii) Land rent reduction/exemption (subject to the project’s location). The FiT rate is 10.05 US cents/kWh for projects that burn solid waste directly and 7.28 US cents/kWh for projects that combust gas collected from landfill. The standard PPA for solid waste-generated power projects that are connected to the grid is issued in Circular 32/2015/TT-BCT.

Hydrogen power

The only materials required for hydrogen production are nature-granted elements water and sunlight radiation, meaning hydrogen is an inexhaustible source of fuel. The use of hydrogen power has been strongly encouraged by the Vietnamese government given its eco-friendly characteristics and the fact that it can be used to build independent power stations that self-supply to cities without being connected to the national grid – which is almost overstressed daily during peak hours.

Hydropower is used in a fuel cell, which does not generate any types of pollution and has higher efficiency rate as well as save more energy compared to internal combustion engines (used for the burning of gas, oil and other fuels with air). Fuel cells are definitely a promising renewable energy source and investors are encouraged to explore the option of developing hydrogen projects in Vietnam.

II. The role of major trade agreements in supporting foreign investors

Foreign investors engaging in the energy sector can reap the benefits of various business guarantees under the EU-Vietnam Free Trade Agreement (EVFTA), the EU-Vietnam Investment Protection Agreement (EVIPA), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the Law on Investment in the form of Public-Private Partnership (PPP), the new Law on Investment 2021 and so on.

The EVFTA came into force on 1 August 2020 and is applicable to investors from the European Union. The EVIPA has been ratified and is pending the EU’s Parliament consent to be enforceable. The CPTPP took effect since 14 January 2019, its signatories including strategic allies to Vietnam such as Japan, Canada, Australia and Singapore. Many provisions under these two major trade agreements are directly related to investment in renewable energy sector, namely Government Procurement and Investor-State Dispute Resolution.

Government Procurement

Government procurement, in general, is the process in which a governmental authority (the procuring entity) purchases goods or acquires services for public purposes. Vietnam, for the first time, engages in international government procurement commitments through the CPTPP and EVFTA. The Government Procurement Chapters (Chapter 15 in CPTPP, and Chapter 09 in EVFTA) feature the determination of Vietnam to open the public procurement market. Specifically, Vietnam commits to enhancing transparency in the selection of contractors by disclosing bidding information and removing unnecessary qualification procedures. Concurrently, Vietnam recognizes the fair, impartial and confidential treatment of tenders. At the moment, Vietnam has implemented online bidding mechanism that allows investors to easily find information on quantity and price of a bidding package. Template dossier used for goods procurement and related consultancy are also published online.

It should be noted that there are some substantial differences between CPTPP and EVFTA with regard to government procurement. First, in CPTPP, Vietnam only commits to opening procurement by 21 ministries and central authorities. In the EVFTA, however, the scope of procuring entities is broader. In addition to central authorities, sub-central authorities and state-owned enterprises, public hospital, public institutes and universities are also entitled to partake in government procurement process. Second, the EVFTA sets out more circumstances in which a supplier shall be excluded from participating in procurement, including (i) insolvency; (ii) false declarations; (iii) significant deficiencies in the performance of substantive obligations in prior contracts and (iv) failure to pay taxes.

The Government Procurement mechanism is expected to provide opportunities and benefits for foreign investors in a way that they can compete fairly and transparently with Vietnamese state-owned enterprises (SOEs).


Dispute Resolution

Foreign investors are given high level of protection under the EVIPA. This Agreement is the combination of the New York Convention 1958 and the ICSID 1965. The EVIPA and CPTPP make it possible for foreign investors to sue the Vietnamese Government for its investment related decisions. The final arbitral award is binding and enforceable regardless of questions from the local courts regarding its validity.

In particular, EVIPA stipulates a two-tier arbitration mechanism, in which parties can appeal if they are not satisfied with the first award issued by the arbitration panel. However, if neither disputing parties has appealed against the provisional award, it shall become final and “shall not be subject to appeal, review, set aside, annulment or any other remedy” (Article 3 of the EVIPA).

There have been more and more energy projects operated by foreign investors in Vietnam. This inevitably leads to growing number of disputes between the State of Vietnam and investors. The interests of foreign investors, however, shall be fairly and completely protected by the dispute settlement mechanism under the EVIPA.
At the moment, Vietnam has reserved the right to fulfill this commitment for 5 years from the effective date of the EVIPA. Nevertheless, Duane Morris Vietnam has the legal and technical tools to make such provisions work in favor of investors from now.

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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 – NEW LAW ON INVESTMENT PROVES THE GOVERNMENT’S EFFORT TO ATTRACT FOREIGN DIRECT INVESTMENT

The new Law on Investment will take effect on 1 January 2021 (“the Law”) and replace the current Law on Investment 2014. The Law is praised to play an important role in attracting the foreign capital quickly flowing out of China due to increased political instability and the country’s poor response to the novel corona virus. The Law is also seen as another respectable effort of the Vietnamese Government to increase FDI alongside the ratification of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), EU-Vietnam Free Trade Agreement (EVFTA) and Law on Investment in the form of Public-Private Partnership (PPP Law).

Under the new Law on Investment, a business organization is deemed as a foreign investor if foreign investors hold 50% or more charter capital (the current law stipulates 51%). In case the business organization is a partnership, then the majority of the general partners/members must be foreigners.
Before foreign investors can establish a business organization, they must have identified an investment project and obtain Investment Registration Certificate for that project. The latter is not required for investors engaging in the establishment of a small and medium-sized creative start up or fund for such start up.

How the new Law on Investment encourages Foreign Direct Investment?

1. Market access conditions for foreign investors are the same for domestic investors, except for industries and trades that don’t allow for such market access or those that come with conditions on foreign investors. The Government, before 1 January 2021 expectedly, will announce a list of the abovementioned industries and trades. The list will cover topics such as ownership of charter capital, investment form, scope of investment activities, evaluation of investors’ capacity and partners participating in the investment activity.

2. Foreign investors can reap the benefits of various business guarantees, including guarantee on investment in case of change in laws, guarantee of property ownership, guarantee on investment activities and guarantee on the right to transfer assets abroad.

For example, under the guarantee on investment activities, investors are not required to prioritize the purchase and usage of goods or services produced by a domestic manufacturers or service provider; investors are not compelled to self-balance foreign currency from export sources to meet import demand; it is also not an obligation to achieve a certain localization rate for domestically-produced goods.

Additionally, after fulfilling all financial obligations under Vietnamese laws, foreign investors can transfer abroad investment capital/liquidation, income from investment activities, money and other assets legally owned by investors.

3. Dispute between foreign investors and the State can be taken to international arbitration given that the contract between the parties includes such clause or international treaties in which Vietnam is a signatory allows for international arbitration. Dispute between investors, of which at least one party is a foreign investor as defined by the Law, can be taken to foreign or international arbitration with no attached conditions.

4. The Government has added more types of investment incentives, such as: Exemption from import tax on goods imported to create fixed assets; Exemption or reduction of land use levy, land rent, land use tax; Quick depreciation, increase deductible expenses when calculating taxable income.

5. The Government has added more business lines eligible for investment incentives, covering preservation of drugs, manufacture of medical equipment, university education , and manufacture of products on the list of industries prioritized for development such as new materials, new energy, clean energy, renewable energy, products with 30% or more added value, energy-saving products, waste collection, waste treatment, waste recycling and waste reuse.

Some other notable provisions of the new Law on Investment:

– Organizations and individuals are banned from providing debt collection service.
– In case of overlapping between the new Law and other laws, this Law does not apply when the project involves public investment capital, business investment and operation on the securities market, the project is carried out in public-private partnership mode. The legal framework prescribing PPP projects will be set out in the PPP Law, rather than in the Law on Investment as previously.
– 26 business lines are removed from the list of conditional business activities, including services of commercial arbitration organizations, debt trading services, franchising and logistics services to name a few. Conditional business activities must satisfy all conditions related to national defense and security, social order and safety, social ethics and community health. The removal of 26 conditional business lines under the new Law will increase market access for foreign investors.
– The Provincial People’s Committee now has the authority to approve Decision on Investment Policy related to (i) Projects request for permission to convert land use purpose (ii) Specific projects for construction of residential housing and urban zones (iii) Projects for construction and commercial operation of golf course (iv) Projects in areas affecting national defense and security. Under the current law, investors would have to request for the above-mentioned project approval from the Prime Minister and the process for that is very time-consuming.

Compared to the current Law on Investment 2014, the new Law taking effect on 1 January 2021 enhances legal certainty with regards to the rights and obligations of investors, reduces administrative burden and sets forth more investment benefits for foreign investors, showing the State’s effort to boost capital inflow from abroad. The ratification of the new Law on Investment is another inherent proof that the Government undertakes to recover the national economy post Covid-19 outbreak, promote citizens’ living standards while observing its international commitments.

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 – THE EU-VIETNAM FREE TRADE AGREEMENT TAKING EFFECT FROM 1 AUGUST 2020

The date has been set for the landmark EU-Vietnam Free Trade Agreement (“EVFTA” or “Agreement”) to take effect on 1 August 2020. The Agreement is anticipated to bring significant advantages for enterprises, employees and consumers in both the European Union (“EU”) and Vietnam. According to analysis carried out by the Government as well as the World Bank, Vietnam expects an increase in the country’s GDP to be 2,18 – 3,25% (years 2020 – 2023); 4,57 – 5,30% (years 2024 – 2028) and 7,07 – 7,72% (years 2029 – 2033). Concurrently, exports from Vietnam to EU are to rise 20% in 2020, the figure is to double in 2025. In addition, with the possibility of skilled laborers’ wage to rise by up to 12%, with salaries of common workers increasing by 13%, the Agreement can help lift around 800,000 people out of poverty by 2030.

The EVFTA is the most comprehensive and ambitious trade and investment agreement that the EU has ever concluded with a developing country in Asia. It is the second free trade agreement in the ASEAN region with EU, after Singapore, and it will intensify bilateral relations between Vietnam and the EU. Coupled with the trend of investors continuously withdrawing capital and production out of China in recent months, the EVFTA is contributing to turn Vietnam into the manufacturing hub of Asia.

Under the EVFTA, Vietnam has not only opened additional sub-sectors for EU service providers, but also made commitments deeper than those outlined in the WTO, offering the EU the best possible access to Vietnam’s market. Sub-sectors that Vietnam commits to under the EVFTA (but not WTO) include: Interdisciplinary Research & Development (R&D) services; nursing services, physiotherapists and para-medical personnel; packaging services; trade fairs and exhibitions services and building-cleaning services.

Some notable provisions of the EVFTA:

Tax

Vietnam commits to eliminate import duties on 48.5% of tariff lines, equivalent to 64.5% of EU exports immediately after the Agreement comes into effect.
After 7 years, import taxes on 91.8% of tariff lines (equivalent to 97.1% of EU exports) will be removed by Vietnam. After 10 years, the elimination rate will be 98.3% of the total tariff lines, equal to 99.8% of the EU’s exports respectively.

Similarly, nearly 100% of Vietnam’s exports to the EU will be eliminated import tax after 10 years. So far, this is the highest level of commitment a partner has given Vietnam in a trade agreement. This is especially meaningful when the EU has been one of the two largest export markets of the country.

Market access

For the sectors listed in each party’s Specific Schedule of Commitments, except where there is a specific reservation, the two parties undertake to not apply restrictions related to: (i) the number of businesses allowed to participate in the market, (ii) the transaction value, (iii) the number of activities, (iv) foreign capital contribution, (v) the form of legal entities, and (vi) the number of natural persons recruitment.

Public procurement packages

Under the EVFTA, Vietnam commits to allow EU contractors to participate in bidding packages that simultaneously meet the three conditions regarding Value of bidding package; Procurement agency; Goods and services require procurement.

Vietnam’s commitments on Government procurement mainly deal with the obligation to treat EU bidders, or domestic bidders with EU investment capital, equally with Vietnamese bidders when the Government purchases goods or requests a service worth over the specified threshold. Vietnam undertakes to follow the general principles of National Treatment and Non-discrimination. The EVFTA also requires its parties to assess bids based on fair and objective principles, evaluate and award bids only based on criteria set out in notices and tender documentation and create an effective regime for complaints and settling disputes. These rules require parties to ensure that their bidding procedures match the commitments and protect their own interests, thus helping Vietnam to solve its problem of bids being won by cheap but low-quality service providers.

It should be noted that Vietnam reserves the right to retain a certain proportion of the value of bidding packages for domestic contractors, goods, services and labor.

Distribution service

Vietnam has agreed to abolish the requirement of economic needs test five years after the date of entry into force of the Agreement, but Vietnam reserves the right to implement the distribution system planning on a non-discriminatory basis. Vietnam also agrees not to discriminate in the production, import and distribution of alcohol, allowing EU businesses to reserve their operating conditions under current licenses and only need one license to carry out import, distribution, wholesale and retail activities.

It should be noted that the EVFTA contains a Memorandum of Understanding concerning Bank Equity, in which Vietnam pleads to favorably consider allowing EU credit institutions to raise foreign ownership to 49% of charter capital in two Vietnamese joint stock commercial banks. This commitment, if enacted, will be valid for 5 years only (after the expiry of 5 years Vietnam will not be bound by this commitment) and is not applicable to 4 banks where the State is holding majority shares (i.e. BIDV, Vietinbank, Vietcombank and Agribank).

Vietnam will benefit more from the EVFTA compared with other such agreements, since Vietnam and the EU are considered to be two supporting and complementary markets. In other words, Vietnam exports goods that the EU cannot or does not produce itself (i.e. fishery products, tropical fruits, etc.) while the products imported from the EU are also those Vietnam does not produce domestically, including machinery, aircraft and high-quality pharmaceutical products.

Vietnam has been making visible efforts and progress to meet the high standards set out in the EVFTA. From 1 August 2020, the Agreement will create sustainable growth, mutual benefits in various sectors and be an effective tool to balance trade relations between the EU and Vietnam.

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Please do not hesitate to contact the author Dr. Oliver Massmann via email 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 – EVALUATION OF THE IMPLEMENTATION OF THE EU-VIETNAM FREE TRADE AGREEMENT AND THE COMPREHENSIVE AND PROGRESSIVE AGREEMENT FOR TRANS-PACIFIC PARTNERSHIP

Globalization, global economic integration and trade liberalization have now become prominent in the world economy. Following such trend, Vietnam has been taking better steps to integrate into the world economy. Looking back at the nearly 30-year journey since Vietnam was a closed economy and started to implement the Doi Moi (Renovation) policy from the Party’s sixth national congress when the international economic integration was simply referred to as an open economy, up to now, Vietnam’s international integration policy has become much more detailed and complete. The first significant milestone in when Vietnam officially became the 150th member of the World Trade Organization (WTO) on 11 January 2007, after 11 years of accession negotiations. From then, a new period began: Vietnam’s economy has integrated more deeply and comprehensively into the world economy.

Vietnam has participated in integration at both regional and international levels and has established meaningful relationships with major partners. Especially in recent years, Vietnam has actively participated in negotiations and signed the Free Trade Agreements (FTAs), which is complementary to the goal of multilateral trade and investment liberalization when such cooperation has been facing many hurdles. Among 13 Free Trade Agreements that Vienam has signed, the FTA with the European Union (EVFTA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) must be highlighted. These two agreements are considered new-generation free trade agreements because they contain unprecedented commitments under the previous FTAs signed by Vietnam. They have encouraged and accelerated institutional reform in order to improve the legal environment in compliance with Vietnam’s commitments. As a result, they help Vietnam to become a competitive economy, attract foreign investment, advanced technology and other important resources for development.

However, in order to take advantage of the incentives under these Agreements to attract foreign investment, in this article, I would like to evaluate the outstanding advantages of EVFTA and CPTPP as well as the implementation of these two Agreements from the perspective of a foreign investor with regard to: (1) market access; (2) government procurement; and (3) dispute resolution.

I. ADVANTAGES
1. Market Access
a. EVFTA
Market Access for Goods
Vietnam commits to eliminate import duties on 48.5% of tariff lines, equivalent to 64.5% of EU exports immediately after the EVFTA comes into effect on 1 August 2020. After 10 years, the elimination rate will be 99% of the total tariff lines, equal to 99.8% of the EU’s exports respectively. For some products such as motorcycles over 1,500cc, automobile parts and about half of EU exported medicine products, the tax reduction mechanism will apply after 7 years from the effective date. For the remaining tariff lines, Vietnam will have a roadmap of over 10 years or give preferential treatment to the EU on the basis of tariff quotas. This is considered an unprecedented commitment to deep tax cuts for a developing country like Vietnam, which has demonstrated the ambition for deep integration and strengthened trade relations with the EU.

Market Access for Services
Although Vietnam’s commitments under the WTO are used as a basis for negotiating its commitments under the EVFTA, Vietnam has not only opened additional sectors/sub-sectors for EU service providers but also made higher commitments than those outlined in the WTO resulting in EU investors being given best access to Vietnam’s market. Sectors/sub-sectors that Vietnam is not committed to under the WTO, but are open for EU investors include, but not limited to: interdisciplinary Research & Development (R&D) services; nursing services, physiotherapists and para-medical personnel; packaging services; trade fairs and exhibitions services and building-cleaning services. It is worth noting that the EVFTA includes the most-favored-nation (MFN) treatment provisions that allow a party to give the other party the highest level of treatment it is negotiating with any third party in other agreement.

b. CPTPP
Market Access for Goods
Vietnam commits to eliminate nearly 100% of tariff lines, in which: (i) 65.8% of tariff lines have 0% tax rate after the CPTPP takes effect from 14 January 2019; (ii) 86.5% of tariff lines have a 0% tax rate in the fourth year after the CPTPP takes effect; (iii) 97.8% of tariff lines have 0% tax rate in the 11th year after the CPTPP takes effect; (iv) import tax on remaining items shall be abolished in the 16th year or in accordance with tariff quotas. The CPTPP also covers issues that have never been addressed in the WTO including import duties, export duties for re-manufactured goods, re-furbished goods, market access for re-furbished goods, monopolies and goods in transit.

Market Access for Services and Investment
All 11 member-states give consent to a liberalized trade in this area. More sectors are opened under the CPTPP compared with the WTO, such as telecommunications, distribution and manufacturing sectors.
In addition, besides incorporating basic WTO principles (national treatment (NT), most-favored nation treatment (MFN), market access, and local presence), the CPTPP takes a negative approach, meaning that their markets are fully open to service suppliers from other CPTPP Parties, except otherwise indicated in their commitments (i.e, non-conforming measures). In order to make such reservations, the member state must prove the necessity of such preservation and negotiate with other member states. If approved, non-conforming measures must only be limited to such list, except for measures in certain sensitive sectors that are included in a separate list. Member states are only allowed to adopt policies that are better than what they commit (ratchet principle). The CPTPP also includes obligations on removal of performance requirements (i.e., no conditions on local content requirements, export conditions, use of certain technology, location of the investment project, etc.) and reasonable requirements on senior management and board of directors. Notably, the CPTPP Chapter on Investment for the first time successfully clarified the MFN principle- countries operating in multi-state regime must give foreign investors the best investment conditions in all states, regardless of the location of the state where the investment takes place. Investors are also allowed to petition against the Government from the investment registration stage.

2. Government Procurement
Vietnam has one of the highest ratios of public investment-to-GDP in the world (39% annually from 1995). However, until now, Vietnam has not agreed to its government procurement being covered by the Government Procurement Agreement (GPA) of the WTO. Now, for the first time, Vietnam has undertaken to do so in the EVFTA and CPTPP. Investors of member states will surely get access to large government procurement market with many incentives and advantages.

a. EVFTA
The Government Procurement Chapter mainly deals with the requirement to treat EU bidders, or domestic bidders with EU investment capital, equally with Vietnamese bidders when a Government purchases goods or requests a service worth over the specified threshold. Vietnam undertakes to publish information on tender in a timely manner, allow sufficient time for bidders to prepare for and submit bids and maintain the confidentiality of tenders. The EVFTA also requires its Parties to assess bids based on fair and objective principles, evaluate and award bids only based on criteria set out in notices and tender documents and create an effective regime for complaints and settling disputes, and so on. These rules require Parties to ensure that their bidding procedures match the commitments and protect their own interests, thus helping Vietnam to solve its problem of bids being won by cheap but low-quality service providers.

We also believe that these changes in procedures and laws related to government procurement will allow EU exporters to access previously closed markets and compete more effectively.

b. CPTPP
The CPTPP makes a list of government entities and agencies whose procurement of particular goods and services at a particular amount must be subject to public tender. In other words, a bidding package is only subject to CPTPP if it satisfies all 3 criteria on the subject matter of procurement, type of goods and services, and procurement threshold. Any negotiation to expand coverage of the Government Procurement chapter, particularly in relation to state government and local government contracts, will be delayed. Parties will only initiate talks on this issue at least five years after the date of entry into force of the CPTPP.
This chapter includes NT and MFN principles, removes tender conditions favoring local tenders such as using local goods or local suppliers, conditions on technology transfer or two-way trade and investment, etc. These rules require all parties, to reform their bidding procedures and protect their own interests by disqualifying tenders with poor performance and low capacity.

3. Dispute resolution
a. EVFTA
For any investment-related dispute (i.e. expropriation without compensation, investment discrimination), an investor is allowed to bring such dispute to the Investment Court for settlement (Investor-state dispute settlement mechanism- ISDS). The final arbitration award is binding and enforceable without the local courts’ review of its validity. This is an advantage for European investors as the fact shows that the percentage of applications for enforcement of foreign arbitral awards being rejected by the Vietnamese courts is notably high for various reasons.

b. CPTPP
The CPTPP aims at protecting investors and their investment in the host country by introducing requirements on non-discrimination; fair and equitable treatment; full protection and security; the prohibition of expropriation that is not for public purpose, without due process, or without compensation; the free transfer of funds related to investments; and the freedom to appoint senior management positions regardless of nationality.
For the first time investors of a party may sue the Government of the other party for its violation of investment-related commitments when the investors make investment in that party. However, please note that under the CPTPP, investors will not be able to sue the Government using ISDS clauses if there is any dispute in connection with an investment agreement. An investment agreement is a written agreement that is concluded and takes effect after the date of entry into force of the CPTPP, between an authority at the central level of government of a Party and a covered investment or an investor of another Party, that creates an exchange of rights and obligations, binding on both parties under the applicable law. Investment agreement refers to an agreement in writing, negotiated and executed by both parties, whether in the form of single or multiple instruments. A unilateral act of an administrative or judicial authority, such as a permit, license, authorization, certificate, approval, etc. and an administrative or judicial consent decree or order will not be considered a written agreement.
The CPTPP also includes procedures for arbitration as means of settling disputes between investors and the host state. It covers new provisions compared with existing agreements such as transparency in arbitral proceedings, disclosure of filings and arbitral awards, and participation of interested non-disputing parties to make amicus curiae submissions to a tribunal. Arbitral awards are final, binding and fully enforceable in CPTPP countries.

II. DIFFICULTIES
1. Market Access
a. Market Access for Goods
As mentioned above, both the EVFTA and CPTPP contain commitments to broad tariff cuts. However, how enterprises can make full use of these commitments is somewhat closely related to the rules of origin of goods.
Vietnam’s manufacture sector currently depends on raw materials imported from non-EU member countries as the value-added amount generated from abroad is higher than in the country. If this situation does not improve, it will be difficult for Vietnamese goods to meet strict rules of origin in these two agreements. Therefore, the Government should issue policies to encourage enterprises to participate in the global value chain, reduction of trade costs, simplification of customs procedures, and transparency in non-tariff policies.
Besides, regarding the mechanism of certification of origin, when as the EVFTA and Vietnamese law stipulate that the competent authorities to issue certificates of origin, the CPTPP requires applying a self-certification of origin mechanism- importers, exporters and manufacturers can make self-certification of origin. This creates an obstacle for Vietnam because Vietnam only allows a few pilot cases of self-certification of origin in ASEAN. Furthermore, enterprises themselves are not flexible and proactive in determining the origin of goods, possibly leading to a delay in tariff preferences under the CPTPP. Because there are projects where the cost and time spent working with authorities issuing a certification of origin is in excess of the preferential tariffs granted, some enterprises are hesitant to apply for the certification of origin under the agreements. As a result, tariff preferences for goods originating from member states are not used.
Although the CPTPP does not require Vietnam to immediately implement this self-certification mechanism, some importing countries may have/will apply this mechanism after the CPTPP takes effect. Therefore, the Vietnamese government should issue regulations on self-certification of origin as soon as possible and consult with the business community on how to structure enterprises and maximize the benefits of the CPTPP.

b. Market Access for Services
The CPTPP and EVFTA are considered to have created more services sectors than the WTO. However, in reality, enterprises still meet difficulties when carrying out investment in Vietnam, specifically as follows:
• Enterprise registration: Although the investor has submitted the application for enterprise registration online, the information technology system of the enterprise registration agency is somewhat outdated, leading to disruptions and delays in the process. Post-licensing procedures such as social insurance registration, seal registration, bank account opening, payment of licensing costs, etc. …are cumbersome and time-consuming for enterprises. The Government should consider reducing unnecessary steps, or create conditions for enterprises to carry out post-licensing procedures through a portal.
• Infrastructure for electricity, transport and logistics: Weak infrastructure is a barrier to the development of Vietnam’s economy. The shortage of power occurs frequently in industrial parks. Deep-sea ports currently do not meet the high demand for maritime transportation. The Government should consider development of transportation infrastructure, ensuring that seaports and airports are accessible to people but not too close to residential areas to avoid congestion.
• High cost of legal compliance: Many overlapping and conflicting documents make it difficult for enterprises to implement compliance. In particular, in many areas such as taxation, insurance, enterprises must comply with too many regulations, and many new regulations are regularly introduced which affect the stable and predictable operation of enterprises. Therefore, the Government should ensure the stability of policies, especially tax policies to attract more foreign investments.
• Corruption: Action by the Government has reduced corruption rate in recent years, however, enterprises still face with petty corruption when they carry out administrative procedures. In order to prevent this situation, the Government should apply information technology in carrying out administrative procedures (such as online filing, cameras installation to monitor administrative officers at check-in counters, etc.) as well as conduct unplanned inspections more often to control any negative issues.
• Land registration and management: It is difficult for investors to access Vietnam’s land database. Public and transparent information on real estate is limited. Therefore, investors face with many difficulties when developing projects, especially projects that need to consume large land area. In order not to hinder foreign investment in the development of high quality projects, it is necessary to create favorable conditions for investors to access land information, which can be charged if necessary.

In addition, a preliminary review indicates that although Vietnam has opened more service sectors under the EVFTA and CPTPP, domestic laws still set out restrictions that should be removed soon by the Government to comply with Vietnam’s commitments:
• Accounting, auditing and bookkeeping services (CPC 862): Vietnam economy is fully integrated under the CPTPP and EVFTA, but Vietnam laws do not allow the establishment of wholly foreign-owned enterprises operating in accounting and auditing sectors.
• Architectural services (CPC 8671): Vietnam opens this sector under the CPTPP and EVFTA but Vietnam laws require investment in this area in the form of a joint venture or foreign investors must use Vietnamese subcontractors.
• Basic telecommunications services: Vietnam law complies with the commitments under the CPTPP but it is not compatible with the level of accession required under the EVFTA.
• Regarding the list of goods that foreign investors are not permitted to distribute: CPTPP makes a longer list than that set out in Vietnam laws.
• Higher education services (CPC 923), adult education (CPC 924), and other education services (CPC 929 including foreign language training): Vietnam is committed to fully open these under the CPTPP and EVFTA (except requirements on foreign teachers’ experience and qualifications). However, Vietnam law sets out conditions for foreign investors such as conditions on facilities, number of lecturers, etc.
• Customs clearance/customs brokerage services: Vietnam is committed to fully open these services under the CPTPP and EVFTA, but Vietnam law provides restrictions.
• Container handling services (CPC 741): Vietnam is committed to fully open these sectors under the CPTPP, but domestic laws provide restrictions.

2. Government Procurement
Both the CPTPP and EVFTA require the disclosure of bidding information and transparency in the selection of contractors, however, in fact the bidding period is prolonged, openness and transparency in the bidding information is limited, many bidding packages are invited only for formality, evaluation of bid documents are not based on criteria of tender documents. If this situation continues, foreign investors will hesitate to participate in bidding in Vietnam.
To solve this problem, the Ministry of Planning and Investment has vigorously promoted online bidding. Online bidding has contributed to the end of “blue army, red army” situation (“quân xanh, quân đỏ”), which limited transparency in bidding. In addition, template dossiers used for goods procurement, construction and consultancy are posted on the system, helping investors to fill in information for each step and each stage. After completion, information will be processed by the system to provide bidding price based on the bidding unit price and the quantity of goods/services of the bidding package to make the bidding process take place more quickly and conveniently.
Despite many advantages, the online bidding rate is not high. This is because the bidding network system is weak, is not regularly upgraded and its interface is not friendly with users. Furthermore, the awareness of enterprises about the advantages of online bidding is limited, so they are not willing to participate in electronic bidding packages. In order for online bidding to become popular and further enhance transparency, the Department of Public Procurement should propagate and train enterprises on online bidding so that they are willing to participate in more electronic bidding packages in the system.

3. Dispute Resolution
Under the Civil Procedure Code, any judgment or decision (civil) of a foreign jurisdiction is effective in Vietnam if the competent court of Vietnam recognizes it. The Vietnamese court will recognize any judgments or decisions issued by the courts of the country with which Vietnam has signed a mutual legal assistance agreement. In addition, recognition can also be considered on a reciprocal basis without any mutual legal assistance agreement.
However, under the CPTPP and EVIPA, the arbitral award will be final and binding on the parties and can be enforced directly without recognition and enforcement mechanism of foreign arbitral awards in Vietnam. Although Vietnam has reserved the right to fulfill this commitment for 5 years, the Government should study and revise the domestic laws in this regard right now to ensure they comply with the commitments under CPTPP and EVIPA. Any amendments of domestic regulations made on timely basis will make foreign investors feel safe and secured in their investments in case any dispute occurs.

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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.

VIETNAM – THE NEW LAW ON PUBLIC PRIVATE PARTNERSHIPS – MAIN IMPROVEMENTS OVER THE OLD LEGAL FRAMEWORK:

1. Main improvements of the new PPP law over the old legal framework:

-Investment sector reduction: Article 04.01 of the new law sets out 05 investment sectors. Compared to Article 04.01 of Decree No. 63/2018/ND-CP, the scope of investment sectors in the new law has been narrowed down to 5 sectors: transportation, healthcare, education, transmission grid, water. This list implies the intention of the Government in promoting primary and sustainable economic sectors. If investors engage in projects related to these sectors, they will benefit from investment incentives (Article 79 & 80), especially those set forth in the new Law on Investment 2020 such as preferred enterprise income tax, exemption or reduction of land lease fee, credit support to name a few.
The PPP law also stipulates the total investment capital requirement for a PPP project. For instance, excluding Operation & Maintenance Contracts, power projects must have the minimum total invested capital of VND 200 billions. The figure is lower (VND 100 billions) for projects in areas with difficult socio-economic conditions.
-Open bidding commitment: While Decree No. 63/2018/ND-CP does not prescribe the open bidding process, the new law of PPP treats it as a prerequisite. In specific, Article 37 of the new law requires that all PPP projects must apply the open bidding process for selection of preferred investors, except for cases provided in Article 38; 39; 40 (e.g. there are less than 3 qualified investors, the project applies technologies that are prioritized for development, there’s a need to protect national security…). The open bidding process entitles investors to compete in good faith for the PPP projects. Hence, foreign investors should make use of this process, also with their advantages of substantial investment capital, to win the bids of major projects.

2. Do you think the new law is likely to make PPPs in Vietnam more attractive to foreign investors specifically? Our understanding has been that at least in the water sector, foreign investors have felt reluctant towards PPPs due to the previous lack of guarantees.

Absolutely. The main goal of the new law is to attract investors, especially foreign investors, to execute PPP projects. Types of guarantees under the new PPP law include:
– Guarantee of access to land, exercise of land use right and other public goods.
– Guarantee of provision of civil service.
– Guarantee of right to mortgage of property, right to operate project and infrastructure.
– Guarantee of revenue risk sharing.
-Guarantee of foreign-currency balance-ensuring scheme.
Vietnam commits to provide guarantees for private and foreign investors. The issue, however, lies on the enforcement ability of officials. Thus, in case investors are deprived of above guarantees, investors shall assert claim against authorities before Vietnamese courts or arbitration bodies to be granted award (article 97 of the new law).

3. In your opinion, are there any sectors where the appetite for PPPs will be larger than in other sectors? Does this reflect the current attitudes towards PPPs in different sectors, or is it something that could change with the new law?

The new law reflects market demand: the 5 eligible sectors under PPP law are also the sectors that have been, are and will in the long run require funding from foreign investors. This is due to the increasing demand in those sectors not corresponding with the limited State budget.

4. In the water sector, while we haven’t seen much large-scale activity under the previous PPP decrees, we have seen privately financed projects proceed under the Direct Investment Law – could this have a negative impacts on PPPs under the PPP law in the sense that such projects are ‘competing’ with the PPP law?

A reason why projects may have chosen to follow the route set out in the Law on Investment is because the framework for investment procedures under it is less complex and less time-consuming than the one set out for PPP projects. However, for large-scale projects, it is recommended that investors follow the latter form since PPP projects come with certain guarantees and commitment from the Vietnamese government, which can help investors to avoid substantial risks if risks cannot be managed well.

5. Obstacles which the new law does not address might bother potential investors:

– The difficulty in disbursement of state budget: The overlapping regulations in legal documents such as Law on State Budget and Law on Public Investment deters special purpose entities from receiving investment capital from state budget.
– Legal uncertainty in the judgment of Vietnamese courts: Indeed, for most foreign investors, international arbitration centers are the preferred choice, rather than Vietnamese courts, whose judgments maybe biased. Investors may struggle for dispute settlement if trial clarity does not improve.
– Burden of administrative procedures: In 2018, the Vietnamese government issued Resolution No. 19/2018/NQ-CP on implementation of major duties and measures to improve business environment. The Resolution featured determination of central authorities in reducing and reforming administrative procedures. Investors, however, still have to fulfill lengthy and unclear administrative procedures before operation of business and investment.

6. Opinions on how likely it is that there will be political will in favor of PPPs:

In the 1980s, Vietnam, with a central-planning economy, put an unfriendly attitude towards private sector and foreign investment. The accession to WTO and a variety of FTAs, however, has changed the attitude of Vietnamese authorities as to these economic sectors. Indeed, respectively in 2017 and 2019, the Central Committee and the Politburo of the Communist Party of Vietnam (CPV) issued two resolutions on private sector and foreign investment, particularly the Resolution No. 10/NQ-TW on developing the private economy sector into an important motivation of the socialist-oriented market economy and the Resolution No. 50/NQ-TW on orientations to perfect mechanisms, policies, raise quality and efficiency of foreign investment by 2030. These resolutions significantly emphasized the promotion and variation of PPP projects to which private and foreign investors are parties. Therefore, Vietnamese government and other authorities, in accordance with the CPV’s directions, will certainly assist investors in implementing PPP projects, especially large-scale ones.

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 – 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 – THE NATIONAL ASSEMBLY INCORPORATED DUANE MORRIS’S RECOMMENDATIONS INTO VIETNAM’S FIRST EVER LAW ON INVESTMENT IN THE FORM OF PUBLIC-PRIVATE PARTNERSHIP (PPP)

On 13 May this year, Dr. Oliver Massmann discussed about the Draft PPP Law with key personnel of the National Assembly. On 8 July 2020, Vietnam’s first-ever Law on Investment in the form of Public-Private Partnership was published, incorporating the following recommendations suggested by Duane Morris:

1. Clarify the scope and scale of power projects eligible for PPP investment

Article 4 of the PPP Law envisages that 5 sectors eligible for PPP investment include:
a/ Transportation;
b/ Power grids, power plants, except for hydroelectricity power plants and cases of State monopoly in accordance with Electricity Law;
c/ Irrigation; water supply; drainage, and wastewater treatment; waste treatment;
d/ Healthcare, education, training
dd/ Infrastructure for application of information technology
The PPP law also stipulates the total investment capital requirement for a PPP project. For instance, excluding Operation & Maintenance Contracts, power projects must have the minimum total invested capital of VND 200 billions. The figure is lower (VND 100 billions) for projects in areas with difficult socio-economic conditions.

2. Emphasize the importance of bankable PPP contracts

Duane Morris suggested that the National Assembly should consider providing a bankable PPP contract template in the Law itself or in its guiding decree/circular. In Article 47 of the PPP law, it was supplemented that the Government shall regulate the issuance of standard contracts for BOT, BTO, BOO, O&M, BTL, BLT, BT or mixed contracts projects.
Regarding lenders’ step-in right, PPP Law sets forth that in case of termination of PPP project contract ahead of the deadline and it is required to select a replacement contractor to ensure the progress of the project, the lender must coordinate with the State to select the alternative investor.

3. Determine in details investment incentives that investors can enjoy

Article 80 specifies that investors are provided with security regarding land access rights, right to use land and other public properties, property mortgage right, right to trade the project and its infrastructure system. PPP project enterprises are also given priority to utilize public services for implementation of the project, and competent agencies must assist investors in carrying out necessary procedures in order to optimize this priority.

Other notable provisions in the new PPP Law:

1/ Foreign currency balance-ensuring scheme is applicable to projects subject to the National Assembly or the Prime Minister’s issuance of decision on investment policy. The latter applied for projects with total invested capital of at least VND 5000 billions, suggesting that all power projects eligible for PPP investment are automatically eligible for this foreign currency scheme. In addition, there is a ceiling of 30% to be imposed for all PPP projects.

2/ Revenue risk sharing mechanism
When the actual revenue reaches more than 125% of the revenue in the financial plan of the PPP project contract, investor to share with the State 50% of the increase between actual revenue and committed revenue in the contract.
When the actual revenue reaches less than 75% of the revenue in the financial plan of the PPP project contract, the State to share with investor 50% of the decrease between actual revenue and committed revenue in the contract. This revenue reduction sharing mechanism is applied when the following conditions are met:
1. Type of contract: BOT, BTO or BOO;
2. The cause of loss is change in laws and policies;
3. Measures to adjust product and public service prices and contract terms have been implemented but the total revenue is still less than 75%; and
4. The State Audit has audited the revenue reduction.

3/ Selection of contractors to execute PPP projects
PPP contracts must contain binding content on the contractor’s responsibility if the quality of the project does not meet the agreed requirements.
Usage of domestic contractors is encouraged for works that can be carried out by them.

4/ Governing laws: PPP contract, its annexes and related documents are to be construed and interpreted in accordance with Vietnamese laws.

Conclusion
It is our pleasure that the National Assembly took into consideration Duane Morris’ advice and recommendations. These moves are a step in the right direction.
It remains to be seen whether there will be the political will to fully implement PPP projects regularly and on large scale.

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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.

VIETNAM – PM ANNOUNCES NAME OF WIND POWER PROJECTS TO BE CONSIDERED FOR INCLUSION IN THE ELECTRICITY DEVELOPMENT PLANNING

On 25 June 2020, under Dispatch No.795/TTg-CN, the Prime Minister announced list of wind power projects and grids to be considered for inclusion in the national electricity development planning. The list entails name, location, capacity, connection plans and conditions to release capacity of each project.

The list focuses on 5 regions, of which the Southwest area (including Bac Lieu, Ben Tre, Soc Trang provinces) has the highest number of projects – 3166.8 MW waiting to be included in the power master plan. Follow up is the Central Highlands (Gia Lai, Dak Lak, Dac Nong provinces) with 2432 MW. Next is the North Central region with 941.2 MW of wind projects concentrated mostly in Quang Tri province waiting to be included in the national power development planning.

All wind power projects in the South Central region are located in Ninh Thuan province. The South East region has only 1 project to be considered for inclusion – the Cong Ly Ba Ria Vung Tau project.

Dispatch 795 is expected to serve as a basis for the supervision of investment/construction process of wind power projects, so that these projects can quickly go into operation, supplement the electricity supply for the country and combat electricity shortage. Having a clear, official list of projects to be included in the master plan also helps to combat bribery/corruption among developers and relevant authorities – the latter enables low quality projects to be connected to the national grid thus subsequently damage the infrastructure of the distribution system and create financial loss for the buyer and consumers.

The Ministry of Industry and Trade is responsible for making sure wind power projects and power grids connected to the national electricity system to be appraised in accordance with laws and can contribute to common economic efficiency. The Ministry must also ensure there will be no overload of power grid when putting these projects into operation.

For names and more information of the wind power projects to be considered for inclusion in the electricity development planning, 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 – BREAKING AMAZING NEWS: EU-VIETNAM FREE TRADE AGREEMENT COMES INTO FORCE ON 1 AUGUST 2020

With the EVFTA coming into effect, Vietnam will eliminate import duties on 91.8% of tariff lines, equivalent to 97.1% of EU exports.

Some notable provisions of the EVFTA are as follows:

Tax:
Vietnam commits to eliminate import duties on 48.5% of tariff lines, equivalent to 64.5% of EU exports immediately after the Agreement came into effect.

After 7 years, import taxes on 91.8% of tariff lines (equivalent to 97.1% of EU exports) will be removed from Vietnam. After 10 years, the abolition rate will be 98.3% of the total tariff lines, equal to 99.8% of the EU’s exports respectively.

Banking:
Vietnam pled to favorably consider allowing EU credit institutions to raise foreign ownership to 49% of charter capital in two Vietnamese joint stock commercial banks. This commitment will be valid for 5 years only (after the expiry of 5 years Vietnam will not be bound by this commitment) and is not applicable to 4 banks where the State is holding a large sum of shares (i.e. BIDV, Vietinbank, Vietcombank and Agribank).

Market access:
For the sectors listed in the Specific Schedule of Commitments, except where there is a specific reservation, the two parties undertake to not apply restrictions related to: (i) the number of businesses enterprises are allowed to participate in the market, (ii) the transaction value, (iii) the number of activities, (iv) foreign capital contribution, (v) the form of legal entities, (vi) the number of natural persons recruitment.

Public procurement packages:
Under EVFTA, Vietnam commits to allow EU contractors to participate in bidding packages that simultaneously meet the three conditions regarding Value of bidding package; Shopping agency; Goods and services need shopping.

Distribution service:
Vietnam has agreed to abolish the requirement of economic needs test five years after the date of entry into force of the Agreement, but Vietnam reserves the right to implement the distribution system planning on a non-discriminatory basis. Vietnam also agrees not to discriminate in the production, import and distribution of alcohol, allowing EU businesses to reserve their operating conditions under current licenses and only need one license to carry out import, distribution, wholesale and retail activities.

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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.

VIETNAM – SECURITIES AND BANKING – COUNTRY UPDATE 2020

The State Bank of Vietnam (Ngan hang Nha nuoc Viet Nam, SBV) is the central bank of Vietnam. It is a ministry-level body under the administration of the government. The SBV governor is a member of the cabinet. The prime minister and the parliament of Vietnam (National Assembly) act jointly to nominate the governor of the SBV. The SBV’s principal roles are to:
· Support monetary stability and implement monetary policies.
· Support institutions’ stability and supervise financial institutions.
· Support banking facilities and recommend economic policies to the government.
· Support banking facilities for financial institutions.
· Manage the country’s foreign exchange reserves.
· Manage foreign exchange and gold trading activities.
· Manage the borrowing and repayment of foreign loans, the provision of loans to foreign parties and recovery of foreign debts.
· Print and issue bank notes.
· Supervise all commercial banks’ activities in Vietnam.
· Lend State money to commercial banks
· Join the Ministry of Finance in issuing government bonds and government-guaranteed bonds.
· Act as an agent for the State Treasury in organising bids and in issuing, depositing and making payment for treasury bonds and bills.
· Be in charge of other roles in monetary management and foreign exchange rates.

In 1990 the bank system was reorganised. This process led to a separation of the SBV from other commercial banks and was the start of the establishment of the private banking sector. A small number of major state-owned commercial banks still dominate Vietnam’s banking sector.

However, today a process of privatisation is underway and the goal is to reduce the state’s share of ownership step-by-step to at least 65 percent during 2018 – 2020, and 51 percent during 2021 – 2025 under Decision No. 986/QĐ-TTg dated August 8, 2018 of the Prime Minister approving the plan for development of Vietnamese banks up to 2025, vision to 2030.
Until May 8, 2020, the State’s ownership ratios in 4 largest state-owned commercial banks are as follows: (i) 80.99 percent in BIDV, (ii) 74.8 percent in Vietcombank, (iii) 64.46 percent in Vietinbank, and (iv) 100 percent in Agribank.

Foreign ownership restrictions for Vietnamese Credit Institutions

On January 3, 2014, the government-adopted Decree 01/2014/ND-CP on purchase by foreign investors of shareholding in Vietnamese credit institutions. Decree 01 became effective on February 20, 2014 and replaced Decree 69/2007/ND-CP on purchase by foreign investors of shareholding in Vietnamese commercial banks.

In Decree 01, Vietnamese credit institutions, which may offer shares, include:
· shareholding credit institutions (i.e., a credit institution established and organised in the form of a shareholding company and include shareholding commercial banks, shareholding finance companies and shareholding finance leasing companies); and
· credit institution currently converting its legal form from a credit institution operating in the form of a limited liability company to become a credit institution operating in the form of a shareholding company.
Foreign investor includes foreign organisations [institutions] and foreign individuals. Foreign organisations include:
· organisations established and operating under the laws of a foreign country and any branch of such institutions overseas or in Vietnam; and
· an organisation, closed-ended fund, members’ fund or securities investment company established and operating in Vietnam with foreign capital contribution ratio above 49 percent.

Foreign individual means any person who does not hold Vietnamese nationality.

Decree 01 defines that shareholding ownership [shareholding] includes direct and indirect ownership. However, Decree 01 does not explain clearly the scope of direct and indirect ownership.
In a case of purchase of shareholding by a foreign investor in a Vietnamese credit institution resulting in such foreign investor’s ownership of shares below 5 percent charter capital of the Vietnamese credit institution, a prior approval of the SBV is not required. In other cases, any acquisition by foreign investors of shareholdings in a Vietnamese credit institution requires the prior approval of the SBV.

The shareholding ratio of any one foreign individual must not exceed 5 percent of the charter capital of one Vietnamese credit institution. The shareholding ratio of any one foreign organisation must not exceed 15 percent of the charter capital of one Vietnamese credit institution.

Any foreign investor being an organisation owning 10 percent or more of the charter capital of any one Vietnamese credit institution is not permitted to assign the shareholding it owns to any other organisation or individual within a minimum three year period as from the date of ownership of 10 percent or more of the charter capital in such credit institution.

The shareholding ratio of any one strategic foreign investor must not exceed 20 percent of the charter capital of one Vietnamese credit institution. The investor may not transfer its shares in the Vietnamese credit institution within five years after becoming the foreign strategic investor in the Vietnamese credit institution.

A strategic investor is defined as a foreign organisation with financial capacity and whose authorised person provides a written undertaking to have a close connection regarding long-term interests with the Vietnamese credit institution and to assist the latter to transfer to modern technology, to develop banking products and services, and to raise its financial, managerial and operational capacity.

The shareholding ratio of any one foreign investor and its affiliates must not exceed 20 percent of the charter capital of one Vietnamese credit institution. The total shareholding ownership of [all] foreign investors must not exceed 30 percent of the charter capital of any one Vietnamese commercial bank.

The total shareholding ownership of [all] foreign investors in any one Vietnamese non-banking credit institution shall be implemented in accordance with the law applicable to public companies and listed companies (i.e., 49 percent of charter capital of such institution).

In a special case in order to implement restructuring of a credit institution which is weak [and/or] facing difficulties, in order to ensure safety of the credit institution system, the Prime Minister may, on a case-by-case basis, make a decision on the total shareholding ratio of any one foreign organisation [or] any one foreign strategic investor, and the total level of shareholding of foreign investors in any weak shareholding credit institution which is restructured, in excess of the limits described above.

At the time of writing, Vietnam’s banking sector is looking forwards to the adoption of the EU-Vietnam Investment Protection Agreement (EVFTA) to resolve capital shortage bottleneck in domestic banks. Under EVFTA, within 5 years from the effective date of EVFTA, Vietnam committed to allow European investors to own up to 49% in 2 commercial banks of Vietnam banks (except the aforementioned 4 largest State-owned banks: Vietcombank, Vietinbank, Agribank and BIDV). The Agreements were signed in June 2019 and are expected to be approved by Vietnam’s National Assembly by June 2020.

Foreign exchange regulations

The Ordinance on Foreign Exchange, which was enacted by the Standing Committee of the National Assembly in December 2005 and became effective in June 2006, and amended on March 18, 2013, regulates currency exchange activities in Vietnam. The government has promulgated Decree No. 70/2014/ND-CP to provide guidelines for both the Ordinance on Foreign Exchange and its amendments on March 18, 2013.

Decree 70 became effective on September 5, 2014 and replaced Decree No. 160/2006/ND-CP dated December 28, 2006 to provide detailed implementation of the ordinance.

Decree 70 governs the foreign exchange activities of residents and non-residents in current transactions, capital transactions, foreign loan borrowing, use of foreign currency and provision of foreign exchange services, the foreign currency market and rates of exchange, and the management of import and export of gold in Vietnam.

With regards to foreign loan borrowing, the government has also promulgated Decree No. 219/2013/ND-CP dated December 26, 2013 on the management and repayment of offshore loans that are not guaranteed by the government. Decree 219 became effective on February 15, 2014 and replaced Decree 134/2005/ND-CP on the same subject.

Decree 219 governs all businesses that are incorporated under the Enterprises Law, credit institution and foreign bank branches under the Law on Credit Institution, and cooperatives and unions of cooperatives established and operating under the Law on Cooperatives.

Offshore loans under Decree 219 include loans from non-residents under loan agreements, deferred payment commodities sale and purchase agreements, entrusted loan agreements and debt instruments issuance agreements that are not guaranteed by the government. In general, foreign borrowing must comply with the regulations of, and is subject to, registration with the SBV.

However, Decree 219 does not state clearly that requirements and types of loans should be registered, or any licensing/registration procedures. These issues have been addressed by the SBV’s guidelines i.e., Circular 03/2016/TT-NHNN dated February 26, 2016 providing certain guidelines on foreign exchange control in relation to foreign borrowing activities (as amended by Circular 05/2016/TT-NHNN dated April 15, 2014 and Circular No. 05/2017/TT-NHNN dated 30 June 2017). Circular 03 is expected to improve the legal framework for management of the borrowing and repayment of enterprises in general and enterprises not guaranteed by the government. Some highlights of the Circular 03 are as follows:
· Loans made in the form of deferred payment for import of goods no longer requires registration with the SBV. However, the opening and use of bank accounts and remittance activities must comply with the requirements of Circular 03.
· Loans subject to registration with the State Bank include: (i) mid-term and long-term foreign loans, (ii) short-term foreign loans which are renewed to have loan terms to be more than 01 (one) year; and (iii) short-term foreign loans which are
· not renewed but loans’ outstanding principal amounts have not been fully repaid prior to or within 10 days after 1 year from the date of first loan withdrawal.
· A borrower which is not a foreign invested enterprise must open a bank account for the purposes of the foreign loan at the authorized banks in Vietnam. For foreign invested enterprises, their direct investment capital bank accounts may be used for this purpose.
· If the schedule of loan disbursement, repayment or interest payment changes by less than 10 days from the schedule already registered with the SBV, the borrower must only notify its bank, and does not need to register the changes with the SBV. However, if the schedule changes by more than 10 days, then reregistration with the SBV is required.
· Circular 03 also allows notification to SBV (instead of change registration) with regards to certain corporate changes of information that has been registered with SBV such as change of address of the borrower within the province/city where it has head quarter, or change of trade names of the relevant banks who provide account services, etc.

The government issued Decree No.88/2019/ND-CP on November 14, 2019 on sanctions of administrative violations in the field of monetary and banking operations. Decree 88 became effective on December 31, 2019 and replaced (i) Decree No.96/2014/ND-CP dated December 12,2014, (ii) Decree No. 95/2011/ND- CP dated December 20, 2011, and (iii) Decree No. 202/2004/ND-CP dated December 10, 2004 on sanctions of administrative violations in the field of monetary and banking operations.

According to this decree, penalties in relation to gold and forex trading, price listing/payment/advertising in forex/gold, etc. range from a warning to VND400 million (approximately $17,000). For instance, the slightest penalty, warning, is applied to exchanging foreign currency of the value under $1,000 between individuals or unlicensed organizations. However, the maximum penalty relating to foreign exchange activities (VND250 million, approximately $10,700) could be imposed to any violations in trading and supplying foreign exchange derivative products, violations in exporting and importing foreign currency or VND cash, or conduct foreign exchange activities without license. The maximum penalty relating to gold trading (VND400 million, approximately $17,000) could be imposed to any trading of gold bars or gold raw materials without a license. On another note, forex/gold relevant to trading violations may be confiscated and certificate of registration for forex agent and business operation license of gold of relevant parties may be also suspended or revoked.

Developments in securities regulation

In early 2007 the first Securities Law of Vietnam (No. 70/2006/QH11, 2007) came into effect, which consisted of 11 chapters and 136 articles (as amended on November 24, 2010). The Securities Law primarily covers domestic issues of Vietnam dong- denominated securities and is, therefore, limited to public issues of securities and does not apply to the private placement of unlisted securities. The term “securities” covers a wide range of valuable instruments, including:
· Stocks.
· Bonds.
· Warrants.
· Certificates.
· Put and call options.
· Futures contracts, irrespective of their form.
· Investment capital contribution contracts.
Specifically, the Securities Law governs:
· Public offerings of securities.
· Listings.
· Dealing.
· Trading.
· Investment in securities.
· Securities services.

The establishment and regulation of securities companies and investment funds

The Securities Law’s area of application considers two types of domestic securities trading market — the Securities Trading Centre and the Stock Exchange. The local regulator, the State Securities Commission, controls and supervises both markets; however, they are independent legal entities. The SSC is a State body that the Ministry of Finance oversees.

The government and the MoF have issued several decrees, decisions and circulars to implement the Securities Law. Under the Securities Law, publicly offered securities in Vietnam have to be denominated in VND. The par value of a listed share offered to the public for the first time is VND 10,000; the minimum par value of a publicly offered loan is VND 100,000.

On January 10, 2012, the MoF issued Decision No. 62/QD-BTC re: approval of project plan for restructuring of securities companies. This decision was known as a key in the master plan to renovate the stock market/sector, insurance market and securities companies which have been submitted to the Party Politburo by the MoF. According to this decision, securities companies shall be evaluated based on available capital/risk/accumulated losses index and categorised into three groups (normal, control and special control).

The decision does not provide any clear restructuring plan but promulgates certain controlling methods and penalties applicable to securities companies not satisfying the required available capital/risk index such as disclosure/report requirements, supervising or license withdrawal..

Dated July 20, 2012, Decree No. 58/2012/ND-CP was issued to provide guidelines for the Securities Law and the Law amending certain articles of the Securities Laws on offers for sale of securities, listing, trading, business and investment in securities, and services in relation to securities and securities market. This decree abolished Decree No. 14/2007/ND-CP dated January 19, 2007, Decree 84/2010/ND-CP dated August 2, 2010 and Decree 01/2010/ND-CP dated January 4, 2010 and Decree No. 58/2012/ND-CP.

On June 26, 2015, the government promulgated Decree No. 60/2015/ND-CP amending certain articles of Decree 58 and providing guidelines for Securities Laws. Decree 60 became effective on September 1, 2015 and abolish Decision No. 55/QD- TTg dated April 15, 2009 of the Prime Minister on foreign ownership ratio in Vietnamese stock exchanges.

Decree 60 does not limit foreign ownership applicable to companies engaging in non-conditional businesses in Vietnam, and allow foreign companies to invest in government’s and companies’ bonds in Vietnam.

Public offerings

With the promulgation of the Securities Law and its amendments, guidelines, rules, procedures and restrictions were set down for the issuance of public shares and bonds. According to Article 12.1 of the Securities Law and its amendments, an issuer must have already deposited nominal capital amounting to at least VND10 billion at the time of registration of the offer. In addition, an applicant for quotation has to prove profit was made in the year before the offering.

The establishment of a fund stipulates a minimum capital of VND50 billion. Other types of enterprise may have to apply to additional conditions e.g., a public company registering a public offer of securities must provide an undertaking, passed by its general meeting of shareholders, to place the shares for trading on an organised trading market within one year from the date of completion of the offer tranche (Law amending certain articles of the Securities Law dated November 24, 2010 and Decree No. 58/2012/ND-CP dated July 20, 2012 guiding Securities Law and Law amending certain Article of the Securities Law).

To open the procedure for public offering it is necessary to file an application in the form of a registration statement, which includes:
· The prospectus.
· The audited financial statements for the preceding two fiscal years.
· The issuer’s constitutional documents and relevant corporate resolutions.

The main contents of a prospectus are prescribed in Circular No. 29/2017/TT-BTC dated April 12, 2017 of the MoF providing guidance on listing of securities on stock exchanges. Before the Law on Securities 2019 comes into effect (01/01/2021), foreign investors should be aware of the lack of fixed standards for financial statements and accounting in Vietnam, which can result in inconsistencies in financial reporting and quality levels.

Private placements

A private placement is defined in the Securities Law and its amendment as an arrangement for offering securities to less than one hundred investors, not professional securities investors, without using mass media or the internet. Decree 58/2012/ND-CP dated July 20, 2012 (as amended by Decree 60/2015/ND-CP dated June 26, 2015) and Securities Law provide conditions for a private placement made by public companies as follows:
· Resolution of the general meeting of shareholders approving the plan for a private placement of shares / convertible bonds and utilisation of proceeds earned from the offer tranche; and this plan must specify the objective, target investors and criteria for selection of target investors, the number of investors and proposed offering scale;
· The lock-up period on transfer of the private placed shares or convertible bonds is a minimum one year from the date of completion of the offer trance, except for certain cases such as a private placement pursuant to a plan selecting employees, etc.;
· The issuing company is not the parent company of the company which purchasing private placed shares; or neither of companies are subsidiary companies of a parent company;
· There must be a minimum interval of six months between tranches of private placements of shares or convertible loans; and
· Other conditions set out by the applicable law.

If an application file is incomplete and invalid, the competent State authority shall, within five days from the date of receipt of the application file for registration of a private placement of shares, provide its opinion in writing requesting the issuing organisation to amend the file. The date of receipt of the valid and complete file shall be the date on which the issuing organisation completes amendment and addition to the file.

Within 15 days from the date of receipt of the valid and compete file for registration, the State authority provides notification to the registering organisation and publish on its website the private placement of shares of the registering organisation. The issuing organisation shall, within 10 days from the selling tranche completion date, submit a report on the results of the private placement to the competent State authority on the standard form annexed to Decree 58 (as amended).

Listing

Ho Chi Minh Stock Exchange (HOSE)

Decree 58/2012/ND-CP provides conditions for listing shares in HOSE as follows, among other things:
· The company has its paid-up charter capital of one hundred and 120 billion dong or more at the time of registration for listing;
· The company has operated for at least two years in the form of a shareholding company calculated up to the time of registration for listing; the ratio of equity over after-tax profit (ROE) in the most recent year was a minimum five percent and the business operation in the two consecutive years immediately preceding the year of registration for listing must have been profitable; it does not have debts payable which are overdue for more than one year; it does not have accumulated losses calculated to the year of registration for listing; and it complies with the provisions of law on accounting and financial statements;
· Any member of the board of management or board of controllers, the director (general director), deputy director (deputy general director), chief accountant, a major shareholder and affiliated persons must make public disclosure of any debts they owe to the company;
· At least 20 percent of the voting shares in the company must be held by at least 300 shareholders who are not major shareholders; and
· Certain shareholders such as members of the board of management or board of controllers, etc. must undertake to hold 100 percent of the shares they own for six months from the date of listing and 50 percent of this number of shares for the following six months.
Hanoi Stock Exchange (HNX)
Decree 58/2012/ND-CP provides conditions for listing shares in HNX as follows, among other things:
· The company has its paid-up charter capital of 30 billion dong or more at the time of registration for listing;
· The company has operated for at least one year in the form of a shareholding company calculated up to the time of registration for listing; the ratio of equity over after-tax profit (ROE) in the most recent year was a minimum five percent; it does not have debts payable which are overdue for more than one year; it does not have accumulated losses calculated to the year of registration for listing; and it complies with the provisions of law on accounting and financial statements;
· At least 15 percent of the voting shares in the company must be held by at least 100 shareholders who are not major shareholders; and
· Certain shareholders such as members of the board of management or board of controllers, etc. must undertake to hold 100 percent of the shares they own for six months from the date of listing and 50 percent of this number of shares for the following six months.
Registration at HOSE and HNX
Companies wishing to register to list securities must lodge an application file for registration for listing with the HOSE/HNX. An application file for registration to list shares shall comprise the following key documents, among other things:
· General meeting of shareholders’ approval;
· Register of shareholders, as entered one month prior to the date of lodging the application;
· Prospectus;

Undertaking of certain shareholders such as members of the board of management or board of controllers, the director (general director), deputy director (deputy general director) and the chief accountant of the company, etc. to hold 100 percent of the shares they own for six months from the date of listing and 50 percent of this number of shares for the following six months;

Certificate from the Securities Depository Centre confirming registration by the institution and deposit of the shares at such Centre; and

Written consent from the State Bank in the case of a shareholding credit institution.

The HOSE/HNX shall approve or refuse to approve an application for registration for listing within 30 days from the date of receipt of a complete and valid application file, and in a case of refusal shall specify its reasons in writing.

Decree No. 60/2015/ND-CP dated September 1, 2015 on foreign ownership in stock market

In April 2009, the Prime Minister issued Decision 55/2009/QD-TTg governing the purchase and sale of “securities in Vietnam’s stock market”. It stipulates the difference between local investors and foreign investors, in accordance with foreign-invested local investment funds. It also states the 49 percent rule. This means that local investment funds and local securities investment companies are considered foreign investors if foreigners hold more than 49 percent of the interest of a corporation.

The above limitation of 49 percent was removed on September 1, 2015 under Decree No. 60/2015/ND-CP, i.e., generally there is no limitation on foreign ownership ratio except for “conditional” sectors. In particular, the new limitation will now be subject to the WTO commitments or other specific domestic law (e.g., the 30 percent cap in the banking sector).

If there is a conditional business that specific foreign ownership restriction under domestic law has yet to be specified, then the limitation is 49 percent. If there is no restriction and the sector is not a conditional business under domestic law (e.g., distribution companies), then there is no limit for the foreign shareholding ratio.

This rule also applies to equitized state-owned enterprises in order to attract more foreign investments. Decree 60 also removes all restrictions to foreign investors to invest in bonds. With respect to securities investment certificates or derivative products of stocks of public companies, the restriction will be also removed.

Circular 123/2015/BTC

At the end of 2008, two years after the first Securities Law, the SSC and the MoF enacted Decision 121/2008/QD-BTC to make the market more interesting for foreign investment as well as to penalise those who disobey the Securities Law. Decision 121 governed the activities of foreign investors in the Vietnamese securities market.

On December 6, 2012, the MoF adopted Circular 213/2012/TT-BTC governing foreign investors’ activities in Vietnamese securities market. Circular 213 became effective on February 15, 2013 and replaced Decision 121.

On August 18, 2015, the MoF issued Circular 123/2015/TT-BTC governing foreign investment activities in Vietnamese securities market (became effective on October 1, 2015), to guide Decree 60 and replace Circular 213.

Circular 123 provides detailed documents and procedure for foreign investors to operate in the Vietnam’s stock exchanges. The circular streamlines the procedures for market participation of foreign investors in the Vietnam’s stock market by reducing the amount of necessary documentation and simplify the procedure. For example, the circular removes the need to translate documents into Vietnamese by allowing them to be submitted in English.

The circular sets out that domestic business organizations with foreign ownership of 51 percent or more, are required to apply for the Securities Trading Code (STC) before trading shares, bonds or other types of securities under the securities market regulations.

Notification procedure on foreign ownership limits (FOL)

Circular 123 requires that public companies are responsible for determining the applicable FOL. Following the determination of the FOL which is applicable to them, companies not subject to any limit are obliged to file a notification dossier with the State Securities Commission (SSC). This dossier includes: (i) extracted information on business lines as uploaded on the National Business Registration Portal and the electronic address linking to such information; and (ii) Minutes of Meeting and the Resolution of the Board of Management approving the unrestricted FOL (if the company does not wish to maintain an FOL) or Minutes of Meeting and the Resolution of the General Shareholders’ Meeting approving and the charter providing for the specific FOL (if the company wishes to maintain FOL).

The SSC will have 10 working days to acknowledge in writing the notification on FOL. Within one working day of the receipt of SSC’s acknowledgement on the applicable FOL, public companies are required to publish this information on their website, which gives effect to the published FOL.

Circular 123 provides that foreign ownership in securities companies is unlimited. However, foreign investors must satisfy certain qualification and conditions provided by the applicable law. A qualified foreign investor who wishes to own more than 51 percent in a securities company must obtain the SSC’s prior approval, which may be issued within 15 days from the date when the SSC receives the application and the transaction resulting in the change of ownership must occur within six months from the date of SSC approval. If this does not occur then SSC approval will be revoked automatically.

Law on Security 2019

The new Law on Securities 2019 has been issued and will come into effect on January 01, 2021. Although the current Law on Securities 2006 and its guidance are relatively complete and comprehensive, the robust economic development and the need to equitize state-owned enterprises require the law to be amended and supplemented. In the spirit of Resolution no. 83/NQ-CP dated August 31st, 2017, the Law on Securities 2019 is expected to bring many significant changes to consolidate and improve the security market with the expectation to raise fund for and develop the economy.

Some of the main changes include:
· Regarding public offer, the new regulations are more stringent.
For first public offers, the condition on charter capital increases from VND10 billion (approximately USD430,000) to VND30 billion (approximately USD1.3 million), and the business of the last two years must be profitable, no accumulated losses, and no overdue liabilities over one year.
Besides, there are more conditions for public offers such as: major shareholders must commit to hold at least 20% of the issuer’s charter capital for at least 01 year from the end of the offering, at least 15% of the voting shares must be issued to non-major shareholders and this ratio is 10% for the issuers having charter capital of more than VND 1,000 billion (approximately USD430,000), the issuer is not undergoing criminal prosecution and does not have any unspent conviction for economic crimes, etc.
A new significant point is the requirement that shares and/or bonds must be listed on the securities trading system after the end of the offering.
Moreover, the new law provides more conditions and requirements to follow-on offering to make it as stringent as the first offering to ensure the quality of the offering share. Regulations on private placement is added as well.
· Regarding licensing for securities companies, the new law requires securities companies to carry out enterprise registration. Before this, securities companies are only licensed by the SSC.
· Regarding information transparency, the Law on Securities 2019 supplements more objects to comply with information disclosure: organizations that publicly offer corporate bonds, organizations that have corporate bonds listed, etc. There are more requirements to enhance information disclosure. Significantly, financial reports for public offer must be audited by an accredited audit organization for public interest entities operating in security sector.
· Regarding securities market, there shall be only one securities market namely Stock Exchange and its subsidiaries. The Securities Trading Centre shall no longer exist; and many other changes. This is a step to the unification of the management and administration, technology platform, standardization of listing criteria, reporting regime, information disclosure, membership and transaction standards, etc to replace for the current dual system.

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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.