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Vietnam Investment Review interviewing lawyer in Vietnam Dr. Oliver Massmann on trends in Mergers and Acquisitions in Vietnam

1. How do you judge the M&A trends in Vietnam at the current time?

The M&A market in Vietnam since the beginning of this year is very active. Foreign investors tend to invest in public listed companies or companies with good brand in the market. Sectors that attract the most interest of foreign investors are finance, real estate, retail, consumer goods, etc.
The reason is that the investors are very optimistic about the development of Vietnam’s market. In addition, the Government has also made several successful attempts to improve the investment environment, including the consideration for the amendment of the Law on Securities, which is believed to bring better financial sources to the country.

2. What should foreign investors benefit from the trends and what should they be aware of?

The Government’s privatization of many state-owned enterprises this year together with the fact that many enterprises with large capitalization and of great interest to foreign investors in these sectors are now preparing for the public listing give foreign investors more investment choices. However, they should conduct a full due diligence on the target to make sure that their investment is secured and in compliance with Vietnam laws.

3. What are still the shortcomings of the M&A deals in Vietnam?

Transparency is a barrier to foreign investors. The local target companies do not adopt international accounting standards or the equivalent, or are not willing to disclose sensitive information to their potential partners. In certain cases, for example, in real estate development projects, under table expenses are of great concern to foreign investors, especially those from the US, EU, UK, Japan and Korea.

4. Many people keep worry of the loss for not only local brands but also the local culture with more foreign domination after the M&A. What are your opinions about the matter?

It should not be of great concern. Foreign investors when buying in local companies/ brands usually bring technology, high-quality management standards and capital, which local companies lack. This helps the local companies/ brands better compete in the market, especially in case of Vietnam’s deep integration into the world and regional economy. Moreover, culture is something that foreign investors have to adapt to be able to survive in Vietnam. The case of Grab and Uber is an example.

5. What is the forecast of the trend in the future? And how they will drive the market?

Leading enterprises with good financial capacity and high growth in the sectors will attract both foreign and domestic investment. It is noted that in 2018, there will be a number of state-owned enterprises privatized under the Prime Minister’s decision. These enterprises include Habeco, Vinamilk, etc. which is believed to be successfully privatized following the recent success of Sabeco, another state-owned enterprise in the beverage sector under the Ministry of Industry and Trade’s management.
In terms of capital sources, we can expect a cash flow coming from major Asian economies such as Japan, Korea, Singapore, Hong Kong and especially mainland China which increases their strong presence in the market.
We strongly believe that the equitisation of SOEs of a larger scale and with a strong determination from the top would play a key role in driving the market.

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

Why you shouldn’t miss out on Vietnam’s industrial property market

Though comparatively young among its regional peers, Vietnam’s economy is turning up some exciting areas of opportunity. One of the most promising is the industrial property market, comprising industrial land, ready-built factories, warehouses and other logistics properties.

 

Slowly but surely, the country is moving from a labour-intensive to a capital-intensive economy, and over the next few years we will continue to see a shift towards the more value-added sector.

 

This means that the industrial sector will begin to incorporate more sophisticated requirements, demanding a higher level of expertise and technical equipment. At the moment, industrial parks remain sparse and there is no concerted effort to gather industries on a regional level.

 

However, Vietnam’s manufacturing and processing sector accounted for over 40 percent of the country’s foreign direct investment (FDI) last year, which surged to a record high of US$36 billion overall. This trend looks set to continue.

 

Get in on industry

 

Currently, the city of Hai Phong and province of Bac Ninh are the two localities boasting the highest number of industrial parks in the country. They are also the biggest draws for industrial investment in the northern economic region.

 

France’s FM Logistic, a leading warehouse supplier, recently launched a 5,000 sq.m logistics warehouse in Bac Ninh while purchasing an additional 50,000 sq.m in the north to build the first European-standard storage centre in Vietnam.

 

Other areas around the country are showing similar signs of strong development and investors would be wise to get in early.

 

In fact, the country’s largest supplier of industrial property, the BW Industrial Development JSC, debuted in the southern province of Binh Duong earlier this year. BW is a joint-venture between US private equity fund Warburg Pincus and Vietnam’s Investment and Industrial Development Corporation (Becamex IDC), with investment of over US$200 million.

 

Betting on the country’s booming manufacturing sector and rising domestic consumption, the company has bought land for eight projects in five localities around Vietnam, with a focus on developing institutional-grade logistics and industrial properties.

 

A well-connected hub

 

Among several notable advantages increasing Vietnam’s attractiveness to industrial investors, the country’s proximity to some of the world’s major sea trading routes offers huge opportunities to develop maritime transport, particularly for logistics services.

 

The country’s border with China makes it a promising option for manufacturers looking at alternative locations in Southeast Asia while operating costs in China continue to head upwards.

 

Additionally, the nation’s household income is likely to increase. According to recent research, Vietnam is expected to enjoy the strongest growth in the middle-income population bracket, with a Compounded Annual Growth Rate (CAGR) of 19 percent from 2018-2020, and an increase of 14 percent from the previous decade.

 

A young population coupled with growth in average income will boost purchasing power and help the country retain its spot as a top investment destination in Southeast Asia.

 

The fruits of free trade

 

Vietnam’s industrial real estate sector is also expected to get a helping hand once the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) comes into effect.

 

The passage of the deal has been smooth so far, and players both at home and abroad are already considering ways in which they can benefit from each other’s markets. Tariff cuts and streamlined regulations will precipitate a surge in investment, and a big slice will go into the industrial sector.

 

Acknowledging the oncoming wave of interest, the Prime Minister approved spending of up to US$921 million on infrastructure development around economic zones and industrial parks by 2020. This heavy investment has been earmarked for roads, drainage and water waste treatment facilities, as well as power infrastructure for industrial parks and clusters, hi-tech parks and hi-tech agricultural zones.

 

Major cities are also eyeing increased industrial attraction, especially from abroad. Under the development plan for Hanoi, the city will have nine more industrial parks on a total area of 2,360 hectares by 2020, an increase of 132 percent against current supply.

 

Easing the entry of foreign players to such parks would help in boosting occupancy. It remains to be seen whether the pledged cash will complete the connection of factories to road networks, as well as promote the growth of residential and commercial areas around the parks. If the strong demand is anything to go by, these requirements are likely to be met soon.

 

For these reasons, Vietnam is becoming more appealing to foreign manufacturers, their associated suppliers and supporting industries. Investor interest in the industrial market is on the up, in industrial zones as well as in income-producing industrial assets, build-to-suit opportunities and logistics-based warehousing.

 

Huge opportunities exist in Vietnam for both existing players and new manufacturing firms to snap up significant market share and get in on the ground floor. This area is certainly one to keep an eye on.

 

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

Location, location, location – 5 areas to watch in Vietnam

With the second fastest growing economy in the world after China, Vietnam offers investors an almost overwhelming range of ways to get in on its continuing success story.

 

From energy to real estate, transport to tourism, a multitude of areas are experiencing growth and attracting domestic and foreign investment. The push to ease regulations is set to continue, and the government is working to ensure an evermore fertile business climate. But with so many options, where is a good place to start?

 

Here are five spots currently generating some real excitement:

 

  1. Soc Trang

 

The Mekong Delta province of Soc Trang recently held an investment promotion conference and, with the backing of the Prime Minister, managed to rally investment pledges totalling nearly US$5.4 billion. The 47 projects are mainly focused on clean power generation, high-tech agriculture and tourism services.

 

With work already underway to reform and streamline administrative procedures, a new injection of cash could inspire even more growth over the coming years.

 

During the conference, the PM set out an aggressive development strategy for the province, underlining his vision that the coming decade would see Soc Trang expand its economy to achieve middle-income status.

 

Specifically, the province was urged to set its sights on high-tech agriculture adapted to climate change, clean seafood production and processing targeting high-value markets and eco-tourism linked with ‘smart’ agricultural models. To achieve this kind of sustainable development, provincial authorities will need to invest in human resources and education. Co-operative models between farmers, investors, banks and distributors will help the development of value chains and quality standards for agricultural products.

 

  1. Ninh Thuan

 

For those with eyes on the renewable energy sector, the province of Ninh Thuan is looking like a hot prospect. Construction on the country’s biggest solar power plant, with a capacity of 168 MWp and total investment of roughly US$194 million, commenced in the southern province early in June.

 

The plant is a project by Singapore’s Sunseap Group – a large provider of clean energy solutions – and is slated to cover an area of 186 hectares. Once operational in June 2019, the plant is expected to supply over 200 million kWh of electricity to the national grid annually.

 

Sunseap is not the only player taking advantage of the province’s valuable location and abundance of sunlight, with four other plants kicking of construction this year in Ninh Thuan. With backing from provincial leaders, the province aims to become a renewable energy hub, with the generation of 2,000 MW of solar power by 2020.

 

So far, the province has 15 wind power and 27 solar power projects, with designed capacity of nearly 800 MW and 1,808 MW, respectively.

 

  1. Ho Chi Minh City

 

With properties priced at a fraction of those in neighbouring Singapore and Thailand, Vietnam is drawing a number of real estate investors and becoming a popular destination for foreign buyers.

 

Interest in Ho Chi Minh City, in particular, has been growing among foreign buyers with a number of projects already for sale and some approaching completion in the next one to two years. Given the political stability of the government, some investors see Vietnam as having the possibility to grow like China.

 

Home prices in Vietnam have been rising over recent years, making a modest increase last year on the back of 6.8 per cent economic growth and rapid increase in direct foreign investments.

 

  1. Coastal hot spots

 

The hotel and hospitality sector is experiencing a resurgence in Vietnam, with many properties reporting strong occupancy rates and a large number of new operators entering the market, especially in coastal areas such as Da Nang and Nha Trang.

 

These sites were already known as popular destinations for both domestic and foreign tourists, with the number of international guests visiting the country reaching over 13 million last year. In the first four months of 2018, more than 5.5 million international guests visited Vietnam, an increase of 29.5 percent over the same period last year. As interest continues to mount, so too do opportunities for investors in the hospitality sector.

 

Thanks to the strong development of tourism infrastructure and improvements in accommodation, cities like Da Nang and Nha Trang now offer a wide selection of hotels, luxury resorts and beach villas to suit a range of budgets and preferences.

 

Condotels are a growing trend in this sector, and several developers have adopted this model as a method of refinancing. Experts forecast that up to 18,000 condotel units will be added to the market in the next two years in key tourism destinations, accounting for 60% of the total new supply.

 

With major groups such as Vingroup, Sungroup, FLC, Muong Thanh and Empire, as well as well-known international brands snapping up segments of Vietnam’s hospitality market, this area will be one to watch in the coming years.

 

  1. Quang Binh

 

The central province of Quang Binh has drawn up a list of 48 projects to be completed in the 2018-2020 period, with total expected value of over US$2.2 billion.

 

The projects are expected to cover more than 8,000ha of land, with a focus on tourism, trade and services, industry, and agriculture, as well as education and health care.

 

Of the projects, 14 are in tourism, including coastal and ecological tourism and resort complexes. These are considered high-value projects that will spur local job creation, boost the budget and foster tourism development in the province.

 

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

Vietnam – Solar Power Breaking News – Possible Extension of deadline for Feed in Tariff (9.35 USD cent per KW) – what you must know:

The current solar Feed-in-Tariff for on-grid projects in Vietnam is 2,086 Vietnamese dong/kWh (equivalent to 9.35 UScents/kWh) (VAT excluded). According to Decision 11/2017/QD-TTg, this solar FIT applies for projects which come into operation before 30 June 2019 and within 20 years from the commercially operational date (“COD”) (i.e., the date when the solar plant is ready to sell electricity to the buyer – EVN).

However, from our informal high level contact within the MOIT recently, it is very likely that the solar FIT of US9.35 cents/kWh will continue to apply beyond the original COD (i.e. 30 June 2019). The deadline shall be likely extended for another half a year or another year for solar projects across Vietnam, except for projects in Ninh Thuan. This policy is not yet formally adopted but very likely will be publicized at the end of this year.

For solar projects in Ninh Thuan, the COD deadline extension will be longer (i.e. for another one and a half year from 30 June 2019). This is due to the fact that, in Ninh Thuan province, nuclear energy development has been stopped and the Government would like to develop solar energy there to support the province’s economic development.The special policy for solar projects in Ninh Thuan will be coming very soon, according to our MOIT contact. He informed us that the Deputy Prime Minister has already approved this special policy for Ninh Thuan and all await formal procedures.

We will closely monitor to update on any further changes.

Please contact Dr. Oliver Massmann under omassmann@duanemorris.com if you have questions on the topic or any other lawyer in our office listing. Dr. Oliver Massmann is the General Director of Duane Morris LLC.

VIETNAM – THOMSON REUTERS INTERVIEWING DR. OLIVER MASSMANN ON INITIAL PUBLIC OFFERINGS (IPO)

1. Why has there been so much IPO activity in Vietnam of late? What has been driving it?

The investors are very optimistic about the development of Vietnam’s market. Vietnam’s GDP in Q1/2018 is 7.4%, the highest rate in the past 10 years. In addition, there is growing middle class with great purchasing power. The World Bank predicts that the middle class will account for 26% of Vietnam’s population by 2026, double than the current statistics. The Government has also made several attempts to improve the investment environment.

2. How is this resulting in the legal work that the law firm is seeing out of Vietnam? What kinds of clients are you advising, and what kinds of advice are they requesting?

When the investors are new to the market, they will need legal advice to secure their investment and comply with Vietnam laws. We see this a great chance to improve our business and show our expertise in the sector. Most of our clients are from the US and Europe, who would like to take advantage of the upcoming free trade agreements such as the EU- Vietnam FTA and the CPTPP and expand their business to other neighboring countries. We mainly advise clients on due diligence of the partner, how to structure the investment and the best cooperation form.

3. What are some of the key trends you have seen among Vietnamese IPOs? How are these different from other markets in Asia/Southeast Asia?

In my view, the Government of Vietnam is more than ever expected to get money to cover its huge investment and regular payment expenses. This would serve as a key engine for a new waive of equitisiation of large State owned enterprises, especially after the successful placement of Sabeco’s shares.
In a short term, the cash flow may come to portfolio of SCIC’s list including major manufacturing companies but, in a long run, we may expect a come-back of banks, retails and real estate’s shares.
In terms of capital sources, we can expect a cash flow coming from major Asian economies such as Japan, Korea, Singapore, Hong Kong and especially mainland China which increases their strong presence in the market.
When it comes to how the IPO market of Vietnam may differ from the rest of Asia/Southeast Asia, we strongly believe that the equitisation of SOEs of a larger scale and with a strong determination from the top would play a key role in driving the market.

4. What industries are seeing the most activity – and can expect to see the most activity going forward? Why?

Financial (with major focus on real estate) sector, banking, consumption services and power sectors have been and will see further significant growth. The reason is in Q2/2018, many enterprises with large capitalization and of great interest to foreign investors in these sectors are now preparing for the public listing.

5. What are your predictions for the Vietnam IPO market in the immediate future?

The Vietnam IPO market will continue the growth. Leading enterprises with good financial capacity and high growth in the sectors will attract both foreign and domestic investment. It is noted that in 2018, there will be a number of state-owned enterprises privatized under the Prime Minister’s decision. These enterprises include Habeco, Vinamilk, etc. which is believed to be successfully privatized following the recent success of Sabeco, another state-owned enterprise in the beverage sector under the Ministry of Industry and Trade’s management.

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Please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com or any lawyer in our office listing if you have any questions or want to know more details on the above. Dr. Oliver Massmann is the General of Duane Morris Vietnam LLC.

Anwalt in Vietnam Dr. Oliver Massmann – ERNEUERBARE ENERGIEN – DIREKTE STROMABNAHMEVERTRÄGE („DPPA”) – DER PLAN DER ELEKTRIZITÄTSREGULIERUNGSBEHÖRDE FÜR DPPAs

Am 12. Juni 2018 erörterte und veröffentlichte die Elektrizitätsregulierungsbehörde von Vietnam [engl. Electricity Regulatory Authority of Vietnam („ERAV‘)] auf einem Seminar über erneuerbare Energien, weitere Informationen über Regelungen für die Umsetzung einer Pilotvereinbarung zu direkten Stromabnahmeverträgen [engl ‚Direct Power Purchase Agreement‘ (“DPPA”)] und über den Sektor der erneuerbaren Energien. Die direkten Stromabnahmeverträge werden es Energieerzeugungsunternehmen ermöglichen, ihren Strom direkt an private Abnehmer zu verkaufen. Wir möchten die folgenden Schlüsselthemen skizzieren:

Direkte PPA
Seit Anfang 2017 hat das MOIT die ERAV beauftragt mit USAID und Beratern zusammenzuarbeiten, um internationale Erfahrungen und umsetzbare Modelle für DPPA in Vietnam zu recherchieren. Die ERAV teilte mit, dass dies ein zeitaufwendiger Prozess sei, da die ERAV und ihre Berater umfangreiche Informationen zu grundlegenden Fragen, Gestaltung, Details und Kriterien für DPPAs, insbesondere für ähnliche Fälle wie Vietnam recherchieren und sammeln mussten. Darüber hinaus ist es für die ERAV eine Herausforderung mit anderen Abteilungen des MOITs an dem Pilot-DPPA zusammenzuarbeiten und diese zu beraten. Gegenwärtig haben die Berater der ERAV einen ersten vorläufigen Bericht über internationale Erfahrungen in Bezug auf grundlegende Gestaltung, Mechanismen und die Ausführung von DPPA vorgelegt. Es ist bekannt, dass die ERAV und ihre Berater Fragebögen an verschiedene Industriezweige und Sektoren, Unternehmen und Interessenvertreter geschickt haben, um ihre Meinung zu Verbrauchermarkt, Nachfrage, Teilnehmern und anderen Themen zu erhalten. Die ERAV erwartet, dass ihre Berater den endgültigen Bericht über die DPPA Modelle im Juli 2018 ausarbeiten können. Wenn ein solcher Bericht vorliegt, wird die ERAV gegen Ende Juli 2018 ein Seminar zur Vorstellung desselben organisieren, um sich die Meinungen der Interessenvertreter einzuholen. Gegenwärtig gibt es noch keine endgültigen Entscheidungen im Hinblick auf Kapazität, den Lizensierungsprozess, Teilnehmern, Standort, Netzdurchleitungsgebühr und Vertragsbedingungen für das Pilot-DPPA. Die ERAV prüft jedoch einige Modelle, wie die Folgenden:
• Physisches DPPA: (a) Onshore-DPPA, bei dem die Solarkraftwerke um die Verbraucher herum gebaut werden, und/ oder (ii) Offshore-DPPA, bei dem die Solarkraftanlagen irgendwo gebaut werden,
• Finanzielles DPPA: dies würde mit einem wettbewerbsfähigen Markt für den Verkauf von Strom gebildet werden. Die ERAV teilte auch mit, dass das Pilot- DPPA vorzugsweise für 110 KV (nicht 220 KV oder 22-25 KV) ausgelegt sein sollte, da dieses System in Vietnam am beliebtesten, effizient und machbar ist. Es wird erwartet, dass das erste Gesetz, das DPPAs ermöglichen wird, im 4. Quartal dieses Jahres 2018 in Kraft treten wird.

Solar- und Windprojekte
In Bezug auf den FIT für Solar- und Windenergie bleiben diese Preise unter den geltenden FIT-Vorschriften unverändert (z. B. Decision 11). Die ERAV erklärte, dass die Technologie- und Infrastrukturkosten für Solar- / Windenergie in Zukunft niedriger sein werden, sodass dann die Einspeisetarife entsprechend angepasst und gesenkt werden müssten. Die ERAV teilte darüber hinaus mit, dass das MOIT nun ein System zur Bestimmung von Einspeisetarifen durch Ausschreibung / Versteigerung in Erwägung zieht, um eine jährliche Änderung des FIT zu vermeiden. Zu diesem Punkt gibt es jedoch keinen Gesetzentwurf. Es steht zur Diskussion, die Nettomessung gemäß der Entscheidung 11 für Dach-Solarprojekte zu beseitigen, da sie in der Praxis sehr schwer umzusetzen ist. Sie könnte durch eine praktikablere Lösung ersetzt werden. Es ist sehr wahrscheinlich, dass keine Ergänzung zum Solar- / Windmasterplan gemacht werden kann, bis der Energiemasterplan 8 fertiggestellt ist. Gegenwärtig haben genehmigte Projekte für Windkraft- / Solarkraftwerke ihre kombinierte Kapazität deutlich über den Schätzungen des Strommasterplans VII (z. B. 3000 MW für genehmigte Solarstromprojekte gegenüber nur 850 MW im Strommasterplan VII). Die erneuerbaren Energien in Vietnam, insb. im Solarsektor, entwickeln sich schnell. Schauen Sie zu, wie es passiert, oder seien Sie ein Teil davon!
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Bitte zögern Sie nicht, Herrn Tran Minh Thanh oder Herrn Dr. Oliver Massmann unter omassmann@duanemorris.com zu kontaktieren, wenn Sie Fragen haben oder mehr über das obenstehende erfahren wollen. Oliver Massmann ist der Generaldirektor von Duane Morris Vietnam LLC.

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

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

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

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

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

Business as usual?

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

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

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

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

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

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

4 solutions for a sustainable energy sector

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

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

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

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

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

  1. Improve the transparency of electricity rate forecasting.

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

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

  1. Encourage supporting industries.

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

  1. Develop a renewable energy model for industrial parks.

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

Green power pioneer

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

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

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

Cometh the EU-Vietnam Free Trade Agreement

The Vietnam – EU Free Trade Agreement (EVFTA), a new-generation free trade agreement between Vietnam and the EU’s 28 member states, is a comprehensive and high-quality trade pact that is expected to bring a range of benefits to both Vietnam and the EU.

For many years the EU has been the second largest overseas market for Vietnamese products and Vietnam’s second most important two-way trading partner after China. On average, Vietnam’s exports of commodities to the EU account for around 19 percent of its exports to global markets. This figure has seen double-digit growth for the past decade, annualised at 13-15 percent, and even reaching 25 percent in certain years.

The EVFTA, which is expected to be signed this year, will have a wide-ranging impact on bilateral trade and investment thanks to tariff cuts and strong commitments from both sides. The deal has been heralded as the most ambitious of its kind between the bloc and a developing nation, and one which will put an end to 99 percent of customs duties on goods. Some predictions are that the agreement will boost the Vietnamese economy by up to 15 percent of GDP and exports to Europe by a third or more.

On top of providing more development opportunities for Vietnam’s industries it will also help to improve the country’s investment environment and raise the quality of its export products.

What can investors expect to change with the new deal?

The most prominent benefits to be expected are an increase in the trade of goods promoted by the reduction or elimination of tariffs and non-tariff barriers, whereby key economic sectors as textiles, footwear and the high-technology industries in Vietnam would benefit most.

One sector in particular hoping for a big boost is fisheries. Under the EVFTA, aquatic products, excluding canned tuna and fish balls, will enjoy a zero tax for a maximum of seven years. Similarly, in good news for shrimp processing firms, Vietnam will enjoy a reduction in import duties on raw shrimp and export duties on processed shrimp to the EU.

The reduction of tariff lines will help Vietnamese seafood exporters reduce prices significantly, improve competitiveness and export turnover. Vietnamese aquatic firms will also have space to improve technology and product quality, join regional supply chains and diversify supply sources.

Additionally, Vietnam’s commitments to ensure an open and transparent investment and business environment will help to boost high quality investment from the EU into Vietnam.

Sink or swim

However, Vietnamese companies should also be aware of the challenges brought about by free trade agreements, and especially the EVFTA. These are related to higher requirements from the EU market in terms of transparency and competition, both for private and state-owned enterprises (SOEs).

The FTA is not necessarily seeking complete privatisation, but rather the opening up of those economic sectors where SOEs are present. Vietnamese enterprises may expect to see an impact from this process, provided that the FTA promotes reforms in public procurement.

The tax cuts will put a greater burden of competitiveness on domestic producers in terms of prices, product quality and food hygiene and safety. Firms will face a choice – either adapt and move up the global supply chain, or stand by while imported goods flood the market.

The livestock industry is forecast to be at the biggest disadvantage as taxes on chicken and pork will be cleared under an 8 to 10-year roadmap, while import duties on beef, milk and dairy products will be eliminated over a shorter period of 3 years. Consequently, over the short and long term, the animal husbandry industry will be under fierce competition with products imported from the EU.

Additionally, many Vietnamese products have not yet met the necessary food hygiene and safety regulations or the technical standards of importers.

To benefit from the trade deal’s incentives will require exports to satisfy the EU rules of origin, which presents its own challenges for several Vietnamese sectors. For instance, the EU has set rather stringent rules of origin on the cashew nut sector that depends on 63 percent of imported materials. To satisfy all EU regulations, Vietnam is required to use local raw material supply.

The EVFTA also stipulates detailed regulations on procedures and legally binding conditions covering the time-limit and manner in which countries must obey certificates of origin procedures for each specific case. This is a big challenge for Vietnam as the origin traceability capacity to prove those origins remain inadequate and the necessary system for such diligence is yet to be seen.

Short term pain, long term gain?

As Vietnam’s economy grows and the country continues to integrate more deeply into the global marketplace, the kind of dilemmas thrown up by pacts like the EVFTA will become more commonplace. In the short term, domestic firms may feel the heat as increased competition takes its toll. However, greater export opportunities and requirements to reach higher standards will underpin future economic growth.

If predictions are correct and the EVFTA is signed within the next few months, Vietnam is destined to become the most promising business destination for European businesses in ASEAN.

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

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

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Does this go far enough?

 

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

 

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

 

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

 

3 things a successful PPP law should include

 

  1. A clear risk-sharing mechanism

 

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

 

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

 

  1. Exchange rate guarantees

 

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

 

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

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

 

  1. Financial incentives

 

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

 

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

 

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

 

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

 

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

 

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

Vietnam’s Special Economic Zones – sorting fact from fiction

A significant amount of recent media coverage has been devoted to the subject of special economic zones (SEZs) and controversies surrounding their establishment in Vietnam. Faced with mounting public anger, Vietnam had delayed a final decision on the establishment of three new SEZs.

 

Economic zones are not a new phenomenon, with 18 coastal economic zones and 27 border economic zones already present in Vietnam. The establishment of these areas was part of the country’s early economic reforms and they were designed to offer a range of incentives to investors, including free tariffs on selected items, lower personal income tax and reduced rent and fees. There are a further 325 state-supported industrial parks, which offer a more limited range of incentives.

 

What is an SEZ?

 

An SEZ is a designated area in a country that is subject to unique economic regulations that differ from other areas in the same country. Such areas are used to convey financial and legal advantages on businesses and encourage them to invest. SEZs are one of the most widely used methods to attract foreign direct investment (FDI), and have been deployed successfully around the world.

 

The Vietnamese government has shown a strong desire to develop SEZs, where it hopes relaxed regulations will in turn spearhead regional and national growth. This issue has been high on the agenda, especially at a point where the country needs breakthrough institutional reforms to maintain its growth momentum.

 

To ensure the success of SEZs in Vietnam, the Ministry of Planning and Investment studied experiences from 13 other countries around the world with both successful and failed SEZ development models. Based on that research, a model for SEZ development suitable for Vietnam’s economic conditions was drawn up in the new Law on Special Administrative-Economic Zones.

 

At a cost of VND1.5 trillion (US$66 billion), three new SEZs were proposed for the provinces of Quang Ninh and Khanh Hoa, as well as on the southern resort island of Phu Quoc. As per the plan, investors were to be offered greater incentives and fewer restrictions than available in other parts of the country, kickstarting investment. The freedom from local regulations is expected to make them competitive internationally and foreigners were to be lured with tax breaks and streamlined routes to permanent residency.

 

Notably, based on the specific geographic advantages of the three SEZs, the MPI proposed several preferential industries to focus on and develop for each zone, including high-tech sectors, tourism and trade.

 

The development of Phu Quoc in particular is high on the agenda, as the government has highlighted its potential as a commercial, service and trade hub which adheres to international standards. Indeed, land prices shot up on Vietnam’s largest island following news that it was slated to become an SEZ and authorities stepped in to suspend land use conversions and land transfers in the zones until a new SEZ law is passed.

 

Among infrastructure projects planned for Van Don, in the northern province of Quang Ninh, is an international airport which would connect the area with other Asian cities such as Shenzhen, Shanghai and Hong Kong. This is in line with the government’s plans to establish Van Don as a tourist hub.

 

Courting controversy

 

The draft legislation on the new SEZs submitted to the National Assembly earlier this year sparked concern over an article allowing land in the three special zones to be leased by foreign investors for up to 99 years.

 

Critics of the bills say allowing foreigners to own land for nearly a century could pose serious threats to the country’s national security, with simmering tensions over the South China Sea an ominous backdrop to the proposals.

 

Attempting to allay concerns, the Prime Minister announced that the 99-year term would be reconsidered. Even so, approval of the plan has been pushed back until the next session of the National Assembly so that kinks can be ironed out.

 

Unfortunately, reducing such terms could limit the ability of SEZs to attract foreign investment. Experts have argued that such provisions are essential to incentivise and stabilise long-term investment projects. Extended timeframes for land allocation are crucial to attract the big investors required to ensure success of the zones. In comparison, legislation in other countries allows significant extensions when investing in an SEZ.

 

Other issues raised include the generous tax incentives, which could breed unhealthy competition, and a lack of consideration for environmental issues.

 

Investing in three SEZs at the same time is a risky gamble for Vietnam and requires careful management and resource distribution to ensure their success. Quibbles over the details risk unsettling investors, and watering down attractive land use and tax policies could doom the endeavour before it’s begun.

 

The development of SEZs should be considered a framework for testing economic reforms for the economy as a whole, creating spillover effects and building experience to perfect institutions.

 

A reform-oriented mindset and willingness to experiment with incentive models will be crucial in bringing the SEZs to life. More thought will be needed to address the concerns of voters, but lawmakers shouldn’t lose sight of the need to incentivise investors with radical ideas.

 

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