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VIETNAM – CAPITAL MARKETS – HOW THE CPTPP, EVFTA/IPA CAN EFFECT MORGAN STANLEY’s 2020 RATING

One of the significant events Vietnam was hoping to occur this June unfortunately did not transpire—being on the Morgan Stanley Capital International (MSCI) watch list for emerging markets. Instead, Vietnam was not upgraded and remained on the frontier-market listing. It is estimated Vietnam could receive up to US $10 billion worth of foreign capital in frontier market-focused funds, but could receive much more from emerging market-focused funds.[1] The Vietnamese Government considers MSCI’s watch list as a top-priority target as it could lure a huge amount of foreign capital to the Vietnamese economy.[2] According to Nguyễn Thị Bích Nga, deputy director of the State Securities Commission’s International Co-operation Department, [Vietnam] has been making the best efforts to improve the legal framework, introduce new securities products and make the market more professional.[3]

One of those “best efforts” is the amendment of the securities law that would make the market fairer between domestic and foreign investors (draft law to amend law on securities; last revised by Decree 60/2015/ND-CP). That 2015 revision eased restrictions on Foreign Ownership Limits (FOL); however, MSCI wants to see even further progress on relaxing those restrictions. According to the draft version (as a general rule), foreign investors are allowed to own 100 per cent of the shares of a Vietnamese company that operates in a non-critical business sector. This applies to listed firms, equitized state-owned enterprises (SOEs), and private non-listed businesses. Shareholders of each company will decide for themselves the amount of foreign-owned shares eligible.[4] This is different from the current Securities Law, which automatically sets the FOL at listed companies in Vietnam at 49 percent. Some sectors, such as banking or aviation, have a stricter limit at only 30 percent.

Experts believe that with the relaxed rules, Vietnam would be likely to attract at least US $5 billion of new capital from abroad and receive the upgrade that it has been waiting for.[5] With fewer restrictions on foreign ownership, Vietnamese firms would become more attractive to major investment funds who are willing to pour millions of USD into Vietnamese businesses. With more foreign-ownership, companies will have a broader, global, perspective and a level of accountability to help drive transparency and change. Mai Le, analyst at PYN Asia Research, noted that out of all the changes in the Securities Law, the [capital] market is most anxiously waiting the FOL rule to take effect.[6]

MSCI Decision and Criteria

Kuwait was upgraded to the MSCI emerging market watch list (and not Vietnam) specifically because of, “…enhancements [that] removed foreign ownership restrictions on listed banks and simplification of requirements for investor registration.”[7] Not coincidentally, those are the areas that Vietnam has not satisfied under MSCIs criteria.[8] Under MSCIs criteria of “Openness to Foreign Ownership”, Vietnam ranks as improvement needed in FOL level, foreign room level, and equal rights to foreign investors. Many experts felt that Vietnam has met more standards of an emerging market than similar markets such as Pakistan and the Philippines (or Kuwait), but also had the best qualitative indicators among frontier markets.[9] While that may be true, it is apparent that MSCI is more concerned with long-term sustainability, which is why “openness to foreign ownership” is MSCIs top criteria for assessing upgrades.

CPTPP, EVFTA, EVIPA and Their Potential Effects on MSCI 2020

If Vietnam rectifies the discrepancies in their laws regarding investments and securities with the trade agreements of CPTPP (Comprehensive and Progressive Trans Pacific Partnership), EVFTA (European Union—Vietnam Free Trade Agreement), and EVIPA (European Union—Vietnam Investment Protection Agreement), they will have a greater chance at making the MSCI watch list upgrade for 2020. Vietnam will most likely not make the list if they continue to table or endlessly debate these critical, progressive revisions. Streamlining the draft laws on investment and securities with CPTPP, EVFTA, and EVIPA, and implementing them expeditiously will give MSCI hard-data to use in their June 2020 evaluation instead of mere speculation.
Moving in that direction, one of the most significant changes in the draft law on securities is the expansion of the foreign holding cap in public companies. Accordingly, public companies would be subject to no restrictions on foreign holdings, unless otherwise prescribed by “treaties to which Vietnam has acceded or a specialized law.”[10] There is a minor legal distinction between “treaties” and “agreements”; however, in the spirt of the law and especially for cementing these new trading relationships, Vietnam should draw no distinction and apply them as such. Under the CPTPP and EVFTA/EVIPA, Vietnam has expressly restricted FOL in specific, listed industries that are of national significance or security[11]; therefore, the government should aggressively restructure their current drafts to mirror that CPTPP, EVFTA, and EVIPA specific language. The CPTPP does have FOL set to what the current Vietnamese law is (currently 30 percent); however, it only states that it is relative to whatever the “current” law is—so, change the law.

This would mean removing the 30 percent FOL cap in the banking industry that is currently in place (even in the draft law to revise the law on securities).[12] According to Long Ngo, associate director at the Research Department at Viet Capital Securities, investment trends in the banking industry will depend on when the government lifts the FOL.[13] As long as the government keeps FOL at the 30 percent level, Vietnam’s capital markets will not expand and MSCI will not consider Vietnam for the watch list upgrade.[14] By maintaining their current operational paradigm, Vietnam is only hampering its own development and future.

If Vietnam would internalize operating from a global perspective, there should be no distinctions between a foreign investor and a domestic one (other than protected industries of national security). CPTPP, EVFTA, and EVIFA create “National Treatment” of any foreign-investor, which grants (in effect) domestic status.[15] Article 9.1 of CPTPP stipulates all “covered” investments (EVIPA is essentially the same list), including: (a) an enterprise; (b) shares, stock and other forms of equity participation in an enterprise; (c) bonds, debentures, other debt instruments and loans;…(f) intellectual property rights; (g) licences, authorisations, permits and similar rights conferred.[16] If Vietnam would stipulate in their draft laws this position already agreed to in CPTPP, EVFTA and EVIPA, it would virtually eliminate all three of MSCIs concerns that it has with Vietnam currently.

With the guarantee of no distinction between a foreign-investor and a domestic one, entities that have been reluctant to invest millions of USD in Vietnamese businesses will now feel much more comfortable about the investment environment; thus creating a large influx into Vietnamese capital markets. MSCI will notice these changes and most likely add Vietnam to 2020s watch list for emerging markets, creating another large inlay to Vietnam’s markets. If the government would match their investment and securities laws with the current trade agreements of CPTPP, EVFTA, and EVIPA, they would realize their self-stated goal of achieving MSCI watch list for emerging-market status.

Summary

A major goal of Vietnam’s government was not realized in July. Despite strong economic activity and other positive indicators, MSCI did not place them on the highly anticipated watch list for emerging markets. If Vietnam takes a hard look at the criteria that kept them from the upgrade, it is apparent that the solution for most of the roadblocks cited have already been addressed in the CPTPP, EVFTA, and EVIPA. The government merely needs to incorporate the trade agreement language into their existing laws. The tabling until May 2020 of the passage of the draft law to amend the law on investments through Resolution 8 (July 2019) was not a strategically beneficial move for Vietnam in order to make the 2020 MSCI watch list. Several key provisions in that draft (if in-place and operational) would give MSCI concrete data to observe (rather than speculative) and improve Vietnam’s chances of an upgrade. Additionally, changes to the draft law on the law on securities to be in line with the provisions of CPTPP and EVIPA would also be in Vietnam’s favor. Investor’s (and MSCI) minds would be eased if Vietnam will aggressively pursue regulatory reform and potentially add another US $15 billion to their capital markets.

The best indicator that reform is required to the current draft laws on amending the law on securities and investments came from the government itself. “Some items are unclear while others are unreasonable and no longer fit the Vietnamese market’s conditions,” the Government said in a report submitted to the National Assembly’s Economic Committee.[17] Those issues may “befuddle investors, market members and regulators,” adding that “policymakers must adjust the law [emphasis added] so it matches international standards and agreements to which Vietnam is committed.”[18]

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

Thank you very much!
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[1] https://vietnamnews.vn/economy/520886/vn-hopes-to-enter-msci-watchlist-this-year-but-experts-are-uncertain.html#3jsO5FxXs7UjKbiz.97
[2] Id. Footnote 1.
[3] Id. Footnote 1.
[4] https://www.vir.com.vn/fol-ambiguities-in-new-securities-law-64118.html
[5] Id. Footnote 4.
[6] Id. Footnote 4.
[7]https://www.msci.com/documents/10199/238444/RESULTS_OF_MSCI_2019_ANNUAL_MARKET_CLASSIFICATION_REVIEW.pdf/f134c97c-73da-71c7-4b3c-d1f637c3eaee
[8]https://www.msci.com/documents/1296102/1330218/MSCI_Market_Accessibility_Review_Country_Comparison_2019.pdf/142b5a29-e385-2922-4f79-8d6f4a04a467
[9] Id. Footnote 4.
[10] http://vietnamlawmagazine.vn/draft-securities-law-proposes-expanding-foreign-holding-cap-6517.html
[11] EVIPA, Chapter 2, Article 2.1.2 ; Annex 2

VIETNAM—FOREIGN DIRECT INVESTMENT AND UNINTENDED EFFECTS AND OPPORTUNITIES OF CPTPP/EVFTA

According to the Ministry of Planning and Investment (MPI), in the first 5 months of 2019, foreign direct investment (FDI) projects were US $7.3 billion, up 7.8% as compared to the same period in 2018. In addition, FDI contribution to the state budget rose from US $1.8 billion during 1994-2000 to US $14.2 billion during 2001-10, and to US $23.7 billion during 2011-15. In 2017 alone, FDI contributed US $8 billion to the state budget, accounting for 17% of the total state budget.[1] Phan Huu Thang, Vice Chairman of Vietnam’s Association of Foreign-Invested Enterprises, told Vietnam Investment Review that hi-tech processing and manufacturing, smart agriculture, healthcare, education and training, and renewable energy will be the hottest sectors for FDI in the coming months and years.[2] All these numbers and projections sound fantastic, but there are always impediments to a flourishing FDI program, as well as untapped (or under-utilized) opportunities. More importantly, how can the Comprehensive and Progressive Trans Pacific Partnership (CPTPP) and European Union—Vietnam Free Trade (EVFTA) agreements foster and support FDI?

Two important draft laws affecting FDI originally slated for passage in July 2019 have, unfortunately, been postponed for passage until May 2020 per Resolution 78 (78/2019/QH14) in the Vietnam National Assembly: the Law on Investment in the Public Private Partnership Form [Law on PPP] and the Law Amending the Law on Investment and the Law on Enterprises.[3] There will be more to come on the effect of those laws after passage.

Unintended Effects of CPTPP and EVFTA on FDI

In the first five months of 2019, Vietnam’s FDI attraction reached a total value of US $16.7 billion, up 69 percent over the same period last year.[4] Currently, there are 131 countries and territories with valid investment projects in Vietnam, of which the Republic of Korea (RoK), Japan and Singapore claim the top three places (Japan and Singapore are CPTPP countries).[5] Since the beginning of 2019, however, a new top contender is emerging—China. In the past, China has been the seventh largest investor in Vietnam (with US $15 billion total); however, in the first half of 2019, their FDI alone was US $2 billion.[6] This is not a great surprise as the US—China “trade war” continues, but it does highlight that China is intending to exploit Vietnam’s entrance into the CPTPP and EVFTA (Agreements that China does not currently benefit from). This year, the Vietnamese government licensed the US $280 million ACTR tire-manufacturing project in the southern province of Tay Ninh, and a US $214.4 million project by the Advance Vietnam Tire Co., Ltd in the Mekong Delta province of Tien Giang.

ACTR manufactures steel-radial tires for trucks and busses, and is a joint venture between China’s Sailun Vietnam Co., Ltd, (with 65% equity) and the US’s Cooper Tire and Rubber Co. (35% equity). Because of the more stringent Certificate of Origin (COO) requirements under the CPTPP, China could no longer import tire components from CPTPP countries and process them domestically to obtain CPTPP member-country benefits (or vice versa—export components for assembly). They would need to have a physical processing plant located in Vietnam to claim “Made in Vietnam” COO. With that member-country COO, China now enjoys zero-tariffs on those products exported to member nations. That is a significant counter to the US—China trade tariffs, and a direct result of CPTPP. Advance Vietnam Tire Co. (owned by Guizhou Advance Type Investment co., Ltd, of China) is an almost identical example to ACTR; other than Advance is not a joint venture. China could have invested in other CPTPP countries, but Vietnam is the most attractive and cost-effective venue for FDI compared to others.

The EVFTA contains similar provisions as the CPTPP regarding tariffs and duties. With the EVFTA now in force, China has poised itself to take advantage of this new regulatory environment for the European markets. Using the examples from above, China will now be able to compete (in effect with domestic-preference) directly with Europe’s largest physically domestic producer of tires, Michelin.

Before CPTPP, EVFTA, and the US—China trade tensions, Chinese investors were mainly small businesses with out-dated technology, but now many large corporations are funding large-scale projects. Five of the seven biggest foreign-invested projects in the last five months came from Chinese backers, including not only the ones already discussed, but also a US $260 million electronic equipment and multimedia audio products manufacturing project invested by Hong Kong-based Goertek Co., Ltd.[7] Chinese investors are also increasing merger and acquisition (M&A) activities. Hong Kong topped foreign investors in Vietnam with the US $3.8 billion purchase of Vietnam Beverage Co. Ltd, in Saigon Beer-Alcohol-Beverage Corp (SABECO).

It appears clear from the investment activity in Vietnam since the onset of CPTPP that it has had a substantial positive impact on FDI. With the advent of EVFTA coming in force (and providing similar—if not more—beneficial trade platforms), Vietnam will have a multitude of investors rushing to reap the benefits of those trade agreements. For Vietnam be able to absorb this inevitable expansion of its FDI landscape the government needs to adapt holistically (and quickly) to the new global trade environment they have embarked on to realize its full potential.

EVFTA and CPTPP Vocational Training Market Opportunity

As Phan Huu Thang mentioned, education and training and renewable energy will be some of the hottest sectors in the coming months and years for FDI. An often-overlooked aspect of FDI is Vocational Training Schools. Vocational training will be critical to the long-term success of Vietnam’s infrastructure platforms, especially when operating and maintaining an enhanced energy and power sector. With highly advanced and technologically complex energy platforms (especially renewables) comes a requirement for competently trained personnel to sustain them. Vietnam has a large workforce pool; however, technical training for these opportunities is currently limited.

The EVFTA and CPTPP both have provisions easing the access of engineering and technology support to assist in achieving the required knowledge and training skillsets.[8] Vietnam recognized this also and updated their regulatory requirements regarding vocational schools through Decree 15 (15/2019/ND-CP), which specifies the order and procedures for opening foreign-invested vocational training schools.[9] The FDI project would need to be in line with the national planning of vocational training in Vietnam, but the threshold capital requirements have been lowered to VND 5 billion (US $216,000) to open a vocational training centre, VND 50 billion (US $2.2 million) for a vocational secondary school, and VND 100 billion (US $4.4 million) for a vocational college.[10] In addition, if a project is aligned with an industry of national priority or significance (enter renewable-energy), the Ministry of Labour will be the sole authority on issuing licenses[11]—a departure from the traditional methodology in an effort to streamline the process. This is good news for many renewable energy projects. Not only will a foreign business have more opportunities for development under CPTPP and EVFTA, but they can also add a minimal supplement to that investment and create the necessary workforce to support it.

An example from USA clearly demonstrates the opportunity in vocational training schools. In 2011, Boeing, Inc. opened a final assembly facility for the 787 Dreamliner in Charleston, South Carolina. Along with that came a demand for technically trained personnel to operate the complex facility and to have personnel trained in the intricate technology involved in assembling the aircrafts. Boeing invested US $80 million to have an aeronautical vocational training facility built near Boeing’s assembly plant (completed June 2019).[12] This is a win-win for Boeing. They provided the initial funding to build the vocational facility; in return, they have professionally trained personnel, and the government takes over costs of maintaining the training facility. Boeing also gets guarantees from the government to repay Boeing’s initial investment through tax incentives and bond issuance. This is a textbook case of vocational FDI supplementing an already significant investment.

As many foreign investors establish their presence even more in Vietnam’s infrastructure landscape, this is another opportunity for FDI to affect Vietnam’s (and the investor’s) bottom-line. The EVFTA and CPTPP are enablers as they both allow services to flow less restrictively between the parties. Phan Huu Thang noted that for Vietnam to realize its fourth-industrial-revolution plan (4IR), local enterprises [must] be encouraged to cooperate with foreign-invested enterprises to learn experience, transfer technology, and receive support in training.[13] Vocational training centers will help fill that need.

Summary

Vietnam’s FDI has been steadily increasing for decades. FDI has helped transform Vietnam from a poor nation to the verge of a massive middle-class population. CPTPP and EVFTA are two vehicles that will propel Vietnam across that line and perhaps even further. The tangible benefits of CPTPP are already proving themselves as evidenced by the hard-data collected. The unintended effects on FDI from non-member countries, however, have a distinct possibility of compounding those benefits exponentially as others see the potential of CPTPP and EVFTA. Traditionally under-utilized sectors for FDI in education and training are also poised to take advantage of these trade agreements. While not the most high profile, E&T are necessary support vehicles to sustain the larger sectors. Vietnam has been slow, thus far, in aggressively changing their regulatory environment to adapt; however, they need to act expeditiously to fully reform their regulatory environment in order to meet this inevitable influx of FDI.

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

Breaking news: The EU – Vietnam FTA to be signed next Sunday (30th June)

In a notice made by the EU Council on 25 June, EU Commissioner for Trade Mrs. Cecilia Malmstrom, together with Romanian Minister in charge of business, commerce and business Mr. Stefan-Radu Oprea will represent the EU to sign the EU – Vietnam FTA (EVFTA) in Hanoi on 30th June.

On 26 June 2018, the EVFTA was split into two separate agreement, one on trade and one on investment. In August 2018, EU and Vietnam completed the legal review of the EVFTA and the EU – Vietnam Investment Protection Agreement (EVIPA). The EVFTA needs to be ratified by the European Commission and European Parliament while the EVIPA must be additionally ratified by the Parliament of each EU member countries.

The EVFTA and the EVIPA are said to bring the best advantages and benefits ever for enterprises, employees and consumers in both EU and Vietnam. Vietnam’s GDP is expected to increase by 10-15% and exports are predicted to rise by 30-40% in the next 10 years. Meanwhile, the real wages of skilled labourers could rise up to 12%, while the real salaries of common workers could increase 13%.

The EVFTA is the first comprehensive and ambitious trade and investment agreements that the EU has ever concluded with a developing country in Asia. It is the second agreement in the ASEAN region after Singapore and it will intensify the bilateral relations between Vietnam and the EU. Vietnam will have access to a potential market of more than 500 million people and a total GDP of USD15,000 billion (accounting for 22% of global GDP).

Market access for goods

The EU agreed to eliminate duties for 84% of the tariff lines for goods imported from Vietnam immediately at the entry into force of the FTA. Within 7 years from the effective date of the FTA, more than 99% of the tariff lines will have been eliminated for Vietnam.

Vietnam will benefit more from the EVFTA compared with other FTAs since Vietnam and the EU are considered to be two supporting and complementary markets: 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 cannot produce domestically.

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.
The FTA commitments on Government Procurement mainly deal 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 FTA 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, 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.

Enforcement of ISDS

This is now covered in the EVIPA. In disputes regarding investment (for example, expropriation without compensation or discrimination of investment), an investor is allowed to bring the dispute to the Investment Tribunal for settlement (Investor-to-State dispute settlement mechanism – ISDS). This means the investors do not need to lobby its Government to file the case on their behalf. To ensure fairness and independence of the arbitration court, a permanent international investment tribunal with 9 members, 3 nationals appointed from each of the EU and Vietnam together with 3 nationals appointed from third countries. Cases will be heard by a 3-member Tribunal selected by the Chairman of the Tribunal in a random and unpredictable way. This is also to ensure consistent rulings in similar cases, thus making the dispute settlement more predictable. The EVIPA also allows a sole Tribunal member where the claimant is a small or medium-sized enterprise or the compensation of damaged claims is relatively low. This is a flexible approach considering that Vietnam is still a developing country.

In case either disputing parties disagree with the decision of the Tribunal, it has another chance to appeal it to the Appeal Tribunal. While this is different from the common arbitration proceeding, it is quite similar to the 2-level dispute settlement mechanism in the WTO (Panel and Appellate Body). We believe that this mechanism could save time and cost for the whole proceedings.

The final settlement is binding and enforceable without question from the local courts regarding its validity, except for a five-year period following the entry into force of the FTA for Vietnam.

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Please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com or any other lawyer listed in our office list if you have any questions on the above. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

THANK YOU VERY MUCH!

VIETNAM ECONOMIC TIMES INTERVIEWING DR. OLIVER MASSMANN ON PROSPECT FOR FOREIGN INVESTMENT ATTRACTION IN 2019

1. What do you forecast the prospect for FDI attraction in Vietnam in the last 6 months of 2019?

Vietnam continues to attract record foreign direct investment (FDI) in virtually all sectors. In the first five months of the 2019, Foreign Investment Agency (FIA) shows that FDI in Vietnam has reached a four-year high of US$16.74 billion, which demonstrates a year-on-year increase of 69.1 percent. It is expected that FDI investment will continue to grow robustly. The only barrier is to maintain its growth with appropriate strategy for government reforms. Its government has begun prioritizing ‘high-value’ FDI (advanced technology and manufacturing, tourism etc) as well as adequate training for the working population to raise the standards for specialized areas.

2. Which sectors would be the most attracted to foreign investors in Vietnam? Which countries/territories would be the top FDI ones in Vietnam?

The industry and construction sector grows the fastest at 8 percent, followed by services at 7.44 percent and agriculture, forestry and fishery at 2.90 percent. The industry sector grows at 7.85 percent. Accommodation and catering services grows the fastest at 8.98 percent. Others like the financial, banking etc. peak at 8.14 percent. Real estate business grows by 4.07 percent, its highest since 2011. These would be the most attractive sectors to foreign investors in the upcoming time.

FDI inflow from China into Vietnam has been plummeting. Investors from Singapore, Japan, South Korea will continue as top foreign investors in Vietnam.

3. Many China-based manufacturers have moved to Vietnam due to impacts of the US-China trade intensions. Could the trend influence Vietnam’s FDI performance? Why?

With the US-China trade war showing no signs of abating, Vietnam’s free trade agreements, cheap labor, and young working population provide a powerful concoction for it to thrive.
The growth in FDI inflows from China into Vietnam is expected regarding the impact of the ongoing US-China trade war with many Chinese enterprises grasping opportunities by Vietnam’s participation in many new-generation free trade agreements. Therefore, it is necessary for Vietnam to proactively choose to attract FDI projects with high technology content, ensuring the principle of generating high added-value for the economy in accordance with Vietnam’s FDI attraction policy in the new period.

4. Vietnam will not attract FDI at all cost and expects high-quality FDI inflows after CPTPP ratification. What challenges will Vietnam face when pursuing the strategy?

First, the FDI sector’s linkage with other domestic sectors remains weak and its spillover effect on productivity remains low. Second, the attraction and transfer of technology from the FDI sector has not yet achieved the expected results. Third, the attraction of foreign investment into a number of prioritized sectors of the country and from transnational corporations is still limited. Fourth, a small number of FDI projects have not yet strictly observed the laws on environmental protection, employment of foreign workers and tax. Also, the reduction and removal of import tariffs under the deal will lead to a decrease in the state revenue.

5. From your observations, how should the Vietnamese government select appropriate partners and focus on sectors with potential and advantages?

To maintain and develop bilateral investment and commercial relations, trade must be liberal and equal. In terms of geographical areas, foreign investment attraction will suit the advantages, conditions, development levels and plans of each locality and its regional linkages, ensuring economic-social-environmental effectiveness. For sensitive areas related to national defense and security, the foreign investment attraction will be strictly scrutinized, with national defense and security and sovereignty being primary concerns.
Vietnam will step up the diversification of foreign investment attraction from potential markets and partners. It focuses on top developed nations and transnationals with source and advanced technologies and modern governance expertise.

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

Thank you very much!

VIETNAM CHAMBER OF COMMERCE VCCI INTERVIEWING DR. OLIVER MASSMANN ON IMPACT OF INDUSTRY 4.0 ON VIETNAM’s GARMENT AND TEXTILE INDUSTRY

1. How will the Fourth Industrial Revolution affect Vietnam garment and textile industry?

Like other industries, industry 4.0 will affect Vietnam garment and textile industry in 3 aspects: productivity, scale and management structure. High technology, including software development, and big data will be used as the main growth force of the industry. By applying high technology and automation in certain stages of the production, productivity increases as well as the owner can better control the operation of the whole production/ distribution system. However, a side effect of Industry 4.0 is replacement of human force by machines, which may cause substantial exuberance in work force, especially in sector that consumes one of the most manual work force like the garment and textile industry.

2. According to you, how should enterprises do to ensure good labor force in such a fierce competition?

Enterprises should encourage innovation spirit among workers. Workers who run high tech machines must be well trained (either via short training courses or high-level education at educational establishments) so that machines are operated to their full use.

3. It is said that upgrading technology and machinery is necessary to survive in Industry 4.0, what do you comment on this?

Technology and machinery play an important role in industry 4.0. However, it is not to say that the more technology is applied in the industry and more modern machines are used, the better productivity a company may achieve. Such application must go together with the improvement of work force quality and adjustment ability to new environment.

4. In order to lessen negative impacts of Industry 4.0 as well as to turn labor force into an advantage, according to you, what should Vietnam do?

Vietnam needs to set a clear vision for Industry 4.0 and work out on how to implement and achieve that vision. It must be aware that education and training is the core condition for business development. Textile and garment industry should not be considered as the industry for low level labor force as it used to be. In addition, Vietnam must invest in research facilities and encourage innovation in the sector. Only by doing so that labor force can be an advantage of Vietnam in terms of quality and knowledge instead of low price.

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

Thank you very much!

VIETNAM ECONOMIC TIMES INTERVIEWING DR. OLIVER MASSMANN ON DEVELOPMENT IN THE FINANCIAL SERVICE SECTOR

1. It can be said that FDI inflows has become the growth momentum for Vietnam’s banking and finance industry over the past few years. How do you comment on the changes in the local financial services sector recently?

There has been increasing foreign investment in Vietnam’s banking and finance industry, especially via M&A at the end of 2017 and the beginning of 2018. Currently, foreign investors are very optimistic about Vietnam’s steady economic growth and plan to expand their coverage in the market. They believe economic development will drive more demand for banking and finance activities, thus more opportunities for growth in the sector. Moreover, M&A activities have helped local banks improve their financial capacity and competitiveness in the market. Local credit institutions have diversified their products and services, applied more modern technology in their operation. Under competition pressure from foreign credit institutions, local ones have no way but to also enhance banking governance capacity as well as human resources quality. These in turn help local credit institutions grow in a more stable and safe manner.

2. How have foreign financial organizations been contributing to improve Vietnam’s financial services sector so far?

Foreign financial organizations which have track recorded experience in other countries, with wide network and customer resources, when coming to Vietnam have brought in high technology, wide variety of finance and banking products/ services, as well as management/ governance capacity. Vietnam’s financial organizations have learnt a lot from these new players, thus modernizing their own system, creating more products/ services for Vietnamese customers who have not become a major part of customer portfolio of foreign financial organizations. These local organizations and Vietnam’s financial services have somehow developed to a modern, internationally standardized level, thus making them more attractive to foreign investors.

3. A number of free trade agreements (FTAs) that Vietnam will ratify shortly are expected to drive FDI flows into the country’ financial services sector in the coming time. How do you see about this prospect?

Both the CPTPP and the EVFTA have higher level of market access commitments than the WTO. In addition, investors are better protected under the CPTPP and the EVFTA in Vietnam. The Investor State Dispute Settlement (ISDS) will ensure highest standards of legal certainty and enforceability for investors. Under that provision, for investment related disputes, the investors have the right to bring claims to the host country by means of international arbitration. The arbitration proceedings shall be made public as a matter of transparency in conflict cases. Such legal certainties along with the Government’s attempts to improve investment environment drive more FDIs flows into the country.

4. How do you forecast about some investment trends of international financial organizations into Vietnam this year?

Given the Government’s recent encouragement of investing in current banks rather than establishing new ones, M&A in the sector will be very vibrant. It is the fact that in recent years many investors have expressed their interest in becoming shareholders in certain commercial banks, especially weak/ VND 0 banks that need assistance in recovery, handling bad debts and restructuring. Moreover, Basel II standards will begin to apply from 2020, so there will be huge demand for capital to meet such strict requirements. However, as local banks are still looking for appropriate partners, we expect more major successful deals in the upcoming time.

5. What should Vietnamese government do to make the local financial services sector more accessible to foreign investors?

The Government should open more room for foreign ownership in local financial institutions, as most of them have nearly reached the allowed limit. This will lure more foreign participation in the market, thus creating opportunities to local financial sectors to absorb experience, management capacity, technology, etc. to become a stable and promising market in the region. The Government should also continue to complete the legal framework on financial services sector to comply with its commitments under signed FTAs, thus raising investors’ confidence in the system and willingness to invest further.

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

VIETNAM INVESTMENT REVIEW INTERVIEWING DR. OLIVER MASSMANN ON POTENTIAL FOR ONLINE SPORT BETTING

1. What potential do you see in e-sports? Is there future in the betting business for e-sports? Does this carry a risk of illegal activities like other sports?

Online sport betting is a place of unearthed opportunities in Vietnam. You can see Vietnamese people are a big fan of many sports, especially football and volleyball. Economic growth and rise in real wages have led to more and more money ending up being placed on sporting events. Though there is no official number on the amount of money that people bet in online unofficial websites during big football events, I believe the number must not be lower than millions of dollars. Legalizing online betting for sports would help reduce tax losses by the Government, thus reducing public debt. Moreover, we are now in 4.0 industry so it is an unavoidable business trend in the future. It is important that we have sufficient regulations and management capacity to prevent illegal activities in this sector.

2. Vietnam does not yet have regulations on e-sports and betting in this sector. However, the government has issued Decree No. 06/2017/ND-CP on betting business on horse racing, dog racing, and international football. Do you think that this regulatory framework can be extended to include e-sports betting?

Decree 06 sets out a pilot program for betting business on horse racing, dog racing, and international football. It is even uncertain that this activity will continue being permitted after the trial period has lapsed, as it depends on the result of the pilot program. Moreover, I understand that international football betting is currently permitted only via terminal devices and telephones (i.e., sms only). Thus, it may take some other years to implement international football betting via internet, not to mention extension to online betting for other sports.

3. Are there any international regulations on e-sports betting? What regulations could Vietnam use as a basis for the domestic management of to manage betting business in this sector?

There is no international regulations on e-sports betting but each country has its own set of regulations. Vietnam can have a look at China whose lottery market is split into two segments: Welfare Lottery (since 1987) and Sports Lottery (since 1994) or the UK, which is one of the most liberal, and yet highly regulated, gambling markets in the world.

4. It is a widely held view that e-sports target a younger audience than football and especially horse and dog racing. How is this relevant to the regulation of e-sports and betting in this area? Are there other fundamental differences setting e-sports apart from more traditional sports?

I believe the adoption of regulations on e-sports betting does not depend on the coverage of e-sports (young/ old players). As long as e-sports and e-sports betting have potential negative impacts on the society, they need to be regulated. However, it is true that how they are to be regulated depends on the age range of the players. Regulating traditional sports betting must be different from e-sports betting given the difference in their nature, the extent the players can participate in the games, interaction among players, role play, etc.

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

VIETNAM – SOLAR POWER – FINAL DRAFT DECISION ON SOLAR POWER FEED-IN-TARIFFS (FIT2) FOR THE PERIOD FROM 1 JULY 2019 TO 31 DECEMBER 2021

On 22 February 2019, the Ministry of Industry and Trade of Vietnam (“MOIT”) published a second draft decision of the Prime Minister on the mechanism for encouraging the development of solar power projects in Vietnam to solicit public comments (“FIT2”). The time for soliciting public comments on FIT2 draft has expired on 15 April 2019.

By 16 April 2019, Electricity and Renewable Energy Agency of MOIT (“EREA”) coordinated with VBF Power and Energy Working Group to arrange a seminar for discussion of the final draft FIT2 of EREA (the “Final FIT2 Draft”). The Head of EREA confirmed in the seminar that the Final FIT2 Draft would be submitted to the Government for evaluation and approval. It is expected that the Final FIT2 Draft would be issued with a guiding circular (including new model solar PPAs) by 30 June 2019 or earlier. Duane Morris would like to highlight some key contents of the Final FIT2 Draft as follows:

New FITs for Solar Power Projects – from 1 July 2019 to 31 December 2021

Compared to the previous drafts, the Final FIT2 Draft has (i) increased the FITs for floating solar power projects in order to compensate the high costs of this technology, (ii) removed FITs for solar power projects with integrated storage system as there is low interest on this option, and (iii) sets a single commercial operation date (COD) deadline of 31 December 2021 (instead of 30 June 2021) for this new FIT2 program. The Final FIT2 Draft also adjusted and classified solar power projects into three groups as follows:

• Floating solar power projects, which are defined as grid connected solar power projects having solar PV panels installed on structures floating on the water surface.
• Ground-mounted solar power projects, which are defined as grid-connected solar power projects having solar PV panels installed on the ground, or on rooftops or attached to civil buildings and having an installed capacity of more than 1 MWp.
• Rooftop solar power projects, which are defined as solar power projects having solar PV panels installed on the roof, or attached to a civil buildings, and having an installed capacity of 1 MWp or less.

The proposed tariffs (as below) will apply to part or the whole of solar power projects achieving actual COD before 31 December 2021 for application for a PPA term of 20 years from the COD.

No. Technology Region I Region II Region III Region IV
VND / kWh US cent equivalent VND / kWh US cent equivalent VND / kWh US cent equivalent VND / kWh US cent equivalent
1 Floating solar power projects 2,281 (second draft: 2,159) 9.98 ( second draft: 9.44) 1,963 (second draft: 1,853) 8.13 (second draft: 8.13) 1,758 (second draft: 1,664) 7.69 (second draft: 7.28) 1,655 (second draft: 1,566) 7.24 (second draft: 6.85)
2 Ground-mounted solar power projects 2,102 9.20 1,809 7.91 1,620 7.09 1,525 6.67
3 Rooftop solar power projects 2,486 10.87 2,139 9.36 1,916 8.38 1,803 7.89

Region I comprises 28 northern provinces of Vietnam, including: Ha Giang, Bac Kan, Cao Bang, Tuyen Quang, Thai Nguyen, Lao Cai, Yen Bai, Lang Son, Quang Ninh, Phu Tho, Vinh Phuc, Bac Giang, Hai Duong, Hoa Binh, Hanoi, Ha Nam, Bac Ninh, Hung Yen, Hai Phong, Ninh Binh, Thai Binh, Ha Tinh, Nam Dinh, Quang Binh, Thanh Hoa, Lai Chau, Nghe An, and Son La.

Region II comprises 6 central provinces of Vietnam, including: Quang Tri, Dien Bien, Thua Thien Hue, Quang Nam, Da Nang, and Quang Ngai.

Region III comprises 23 central highlands and southern provinces of Vietnam, including: Kon Tum, Ca Mau, Hau Giang, Binh Dinh, Bac Lieu, Kien Giang, Soc Trang, Can Tho, Vinh Long, Tra Vinh, Lam Dong, Ben Tre, Tien Giang, An Giang, Dak Nong, Ho Chi Minh City, Dong Nai, Dong Thap, Ba Ria – Vung Tau, Long An, Binh Duong, Binh Phuoc and Tay Ninh.

Region IV comprises 6 central highlands and southern provinces of Vietnam, including: Phu Yen, Gia Lai, Dak Lak, Khanh Hoa, Ninh Thuan, and Binh Thuan).

Model PPA for Solar Power Projects

For all solar PPAs with EVN / its subsidiaries as buyers, a model PPA will be required. EREA said that after the PM approves the Final FIT2 Draft, the MOIT would issue a circular to promulgate new model PPAs. We asked directly their plan to disclose these model PPAs and circular but the Head of EREA could not answer, pending approval of the Final FIT2 Draft. EREA’s representative hinted that there should be not many major changes in model solar PPAs.

At the seminar, Head of EREA confirmed that the risk of network system of EVN remains the same. This means EVN shall have the right to refuse the power purchase in case any errors / curtailment issues of the power network / system.

Regarding direct PPA between generators and power purchasers (other than EVN and its subsidiaries) for rooftop solar power projects, the Final FIT2 Draft allows the parties to agree the terms of such direct PPA in line with the applicable law.

Direct PPA for Rooftop Solar Power Project and for other Solar Power Projects

Technically, the power purchaser in the Final FIT2 Draft includes EVN, EVN’s subsidiaries and other power purchasers. However, EREA’s intention in this final draft is to regulate the other power purchasers for direct PPA of rooftop solar power projects only. There is also no clear definition of other power purchasers in the Final FIT2 Draft as EREA would like to let it open for further guidance in the circulars.

The direct power purchase in the Final FIT2 Draft is for (i) rooftop solar power project of 1 MW or less installed capacity, and (ii) not connected to the grid. In this case, the price and PPA will be agreed by the parties.

The direct PPA between generators and power consumers other than EVN for solar power projects of more than 1 MW is currently under ERAV’s scheme, and not included in this Final FIT2 Draft. At the seminar, ERAV explained that they were working with counsels on this. The draft model would be likely disclosed for soliciting comments by early June 2019, then submitted to the PM for approval. If it goes smoothly, by end of 2019 – early 2020, ERAV would provide the answer on whether the DPPA scheme would be implemented.

Ninh Thuan Province – COD prior to 1 Jan 2021

In the Final FIT2 Draft, solar power projects in Ninh Thuan enjoy FiT of US cent 9.35 if (i) it has been approved in a power master plan, (ii) it could achieve the COD prior to 1 January 2021, and (iii) it is included in a group of 2000MW solar power projects. We asked about the status of 2000MW group in Ninh Thuan had been approved, and whether there is any chance for new investors to join this scheme. Head of EREA confirmed that by 31 December 2018, 1930 MW projects had been approved in Ninh Thuan. It is not legal feasible for new solar power projects in Ninh Thuan to be approved. However, it is possible for foreign investors to take over any current projects, even in the case such projects are withdrawn from current investors due to violation of Investment Law.

Solar Power Project Auction Pilot

In the Final FIT2 Draft, by 2020 MOIT will prepare and submit the draft to the Government for approval of the pilot. However, at the seminar, Head of EREA confirmed that it is impossible for implementation of power project auction prior to 2021. Thus, similar as the case of wind projects under Decision 39, it is intended that solar power project auction will be scheduled for at least since early 2021.

Power Network Bottleneck Issue

MOIT is proposing to the Government to enable private investment in network by way of BOT or a mode that allowing investors to construct and then hand-over network to EVN with some special compensation.

What if the Final FIT Draft could not be approved and issued

This is the final draft which would be submitted to the PM for approval. If it is not approved, then there will be no FIT regulations for solar power projects. EREA confirmed this situation in the seminar.

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

VIETNAM – PHARMACEUTICALS – ASEAN IN CONTEXT – Come to Vietnam – you will be treated just – think no more of Indonesia

What happens in Indonesia now?

Any pharmaceutical product not being made in Indonesia must obtain a compulsory license, according to a recent new regulation adopted in Jakarta. While joint venture with a local partner is required for investors doing business in pharmaceutical sector in Indonesia, this compulsory licensing regulation has deterred foreign investment and no one wants their intellectual property stuck in the hand of their local partner. Lack of foreign investment, Indonesia has to face with challenges in establishing a knowledge-based economy due to technological expropriation.

Vietnam pharmaceutical market potential

Vietnam has a population of more than 90 million people, with its average age of 29. The Universal Healthcare Coverage in Vietnam is with 73% of the population with regards to essential health services, relatively high compared with other countries in the Western Pacific region. Vietnam’s generic penetration in tendering and ex-manufacturer prices of producers is with 97%. On the other hand, the accessibility of new pharmaceuticals is still low. Only 6% of recent launched pharmaceuticals in the last 3-7 years are available in Vietnam, thus, the value (22%) and the volume (4%) share of producers is among the lowest in APAC area. This is leading to outbound medical tourism with an estimated amount of USD2 billion a year.

According to the United Nations Fund (UNFPA), although Vietnam is still in the golden population period, the population has started aging since 2017. In a World Bank’s report, this aging process will not last very long, i.e., around 15 years and be completed by 2040. Aging population together with growing income among the Vietnamese people and a steady economic growth in recent years has led to potentially more demand for healthcare services.

Expenditure for the healthcare constituted 7.5% of the GDP (USD16.1 billion) and is expected to increase to 12.5% between 2017-2021. Between 2016 and 2020, sales of pharmaceutical are predicted to grow the fastest at 10.5%, compared to medical devices and private healthcare spending, which will grow at 9.3%and 7.2% respectively. Spending on pharmaceutical products per capital will double in 2020 (USD 85) and USD 163 in 2025, with average growth of 14%/year, according to Business Monitor International.

Medical devices are estimated to grow from US$ 981 million in 2016 to US$ 1.4 billion in 2020, while private healthcare spending is predicted to grow from US$ 6.6 billion in 2016 to US$ 8.7 billion in 2020.

Legal certainties as a result of the Comprehensive Trans-Pacific Partnership (CPTPP) and the EU – Vietnam Free Trade Agreement (EVFTA)

On 8 March 2018, the CPTPP was finally signed in Chile and officially takes effect since 30 December 2018. The effects of the CPTPP promise great benefits for pharmaceutical sector in Vietnam. The CPTPP is targeting to eliminate tariff lines and custom duties among member states on certain goods and commodities to 100%. With the National and Most-Favored Nation Treatment principle, the CPTPP is ensuring a fair competition, which will attract new foreign investment, also in the pharmaceutical sector.

Furthermore, the investors gain some securities due to prohibition of expropriation, so that, Vietnam cannot expropriate intellectual property rights from pharmaceutical companies. However, the EVFTA will also ensure certain growth for the pharmaceutical sector in Vietnam. For instance, Article 14.2 Chapter 2 of the agreement requires Vietnam to create and implement legal instruments to allow foreign establishment in Vietnam. In addition, this Article also requires Vietnam to allow foreign invested enterprises to sell pharmaceuticals legally imported by them directly or through distributors or wholesalers who are not required to have a Good Storage Practice (GSP) certificate or directly. If the Vietnamese legislation is responsible for certification requirements and process, the EVFTA creates real influence as it encourages establishment of foreign enterprises and their extended scope of activities. Lastly, the EVFTA is removing all additional requirements for all pharmaceuticals, biologics and drugs.

Additionally, both the CPTPP and the EVFTA offer further protection for investors in Vietnam. The Investor State Dispute Settlement (ISDS) will ensure highest standards of legal certainty and enforceability for investors. Under that provision, for investment related disputes, the investors have the right to bring claims to the host country by means of international arbitration. The arbitration proceedings shall be made public as a matter of transparency in conflict cases. In relation to the CPTPP, the scope of the ISDS was reduced by removing references to “investment agreements” and “investment authorization”. The final settlement is binding and enforceable without question from the local courts regarding its validity.
The second instrument is the Government Procurement Agreement (GPA). The GPA in both agreements mainly deals with the requirement to treat bidders or domestic bidders with investment capital and Vietnamese bidders equally when a government buys goods or requests for a service worth over the specified threshold. Vietnam undertakes to timely publish information on tender, allow sufficient time for bidders to prepare for and submit bids, maintain confidentiality of tenders. The GPA in both agreements also requires its parties assess bids based on fair and objective principles, evaluate and award bids only based on criteria set out in notices and tender documentation, create an effective regime for complaints and settling disputes, etc. This instrument will ensure a fair competition and projects of quality and efficient developing processes.

Think no more of Indonesia – Come to Vietnam!

Vietnam has been proven a very attractive destination for foreign investors in pharmaceutical and healthcare sector. In particular, in 2016 and 2017, Vietnam witnessed a number of M&A deals in the sector where foreign investors accessed the market by taking over existing big local enterprises. These deals include Abbott taking over 51.69% shares in DOMESCO Medical Import-Export Joint Stock Corporation after its purchase of two factories producing Western medicines in Vietnam – Singapore Industrial Zone in Binh Duong. Taishi Corporation also became Hau Giang Pharma Company’s shareholder by owning 24.4% of its stakes. In September 2016, Vinapharm cooperated with Sanofi Corporation to produce and market Sanofi’s products in Vietnam.
In contrast, Indonesia – a country not a member to both the CPTPP and any FTA with the EU, is actively driving out biopharmaceutical and other sophisticated ventures. In its recent regulations, Indonesia requires the compulsory licensing of any pharmaceutical product not being made in the country.

It is then clear that Vietnam is creating a biopharmaceutical sweet spot in the region!

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

VIETNAM – SOLAR POWER SECTOR – NEW MODEL PPA FOR ROOFTOP SOLAR POWER PROJECTS

On 8 January 2019, the Prime Minister issued Decision 02 to amend certain articles of Decision 11 on mechanism for encouragement of development of solar power in Vietnam. Decision 02 promulgates new payment scheme to replace the troublesome net-metering structure of the rooftop solar power projects under Decision 11. However, Decision 02 was alleged to be a lackluster as it did not provide any model PPA for rooftop solar power projects and it only applies to limited rooftop solar power projects which having commercial operation date – COD, together with electricity meter readings confirmation, prior to 1 July 2019. It is worth noting that Circular 16 required a rooftop solar power generator to enter into a model PPA (in the form attached to Circular 16) with EVN or its authorized subsidiary. However, such model PPA and the net-metering under Circular 16 were not supported by EVN due to its payment complexity nature. In fact, following Decision 02, Ministry of Industry and Trade (”MOIT”) did not issue any model PPA for rooftop solar power project to support Decision 02 until 11 March 2019.

On 11 March 2019, the MOIT has issued Circular 05/2019/TT-BCT (“Circular 05”) to replace old model PPA for rooftop solar power projects attached to Circular 16 and extend the FITs for all rooftop solar power projects. Circular 05 will become effective on 25 April 2019. We highlight some key items of this Circular as follows:

FITs for all Rooftop Solar Power Projects

Circular 05 has abolished the requirement on COD deadline of rooftop solar power projects to enjoy FITs in Article 16 of Circular 16.

Prior to 1 January 2018, FIT for rooftop solar power projects is VND2,086 / kWh not inclusive of VAT (approx. USD9.35 as the central exchange rate between VND / USD of the State Bank of Vietnam on 10 April 2017, i.e., VND22,316 / USD1). This FIT is supposed to apply for outstanding rooftop solar power projects came into operation prior to 1 January 2018.

From 1 January 2018 onward, the FIT must be adjusted according to the last applicable central exchange rate between VND / USD issued by the SBV on the previous year.

Improved Model PPA for Rooftop Solar Power Projects

The new model PPA has been simplified for the sale of solar power from the rooftop solar generators to EVN / power purchasers, and completely canceling the net-metering structure which mixing of sale / purchase of power between the parties. In addition, the sale of power from EVN / retail power companies to rooftop solar power generators shall be made under separate retail power purchase agreements and in accordance with the rules for supplying retail powers to end-user consumers.

We outline below some improvements:

(i) The model PPA indicates clearly that the FIT will be applicable for 20 years from the COD.
(ii) The model PPA provides a detail but simple formula to calculate the power generated and the price paid to the generators.
(iii) The model PPA separates payment and invoice procedure for corporate entities from the one for individuals / households.
(iv) The model PPA regulates the obligation of power purchasers to pay default interest (i.e., average inter-bank interest rate of 1 month issued by SBV on the payment date) on
any late payments owing to rooftop solar generators.

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