Published on VIR. (Vietnam) Projects in the form of public-private partnerships (PPP) are implemented in the form of investment on the basis of contracts between state agencies and financiers to implement, manage, and operate infrastructure projects and provide public services.
This is one of the newer forms of investment that Vietnam did not previously have much experience in implementing, as there were no clear regulations on this form as well as non-transparency and inequity in projects when signing PPP contracts with state agencies. This has caused anxiety among private investors, especially those from outside the country.
Thus, the Law on Public-Private Partnership Investment took effect in January with the expectation of attracting more overseas investors and private investment resources in the context of increasingly fierce competition.
PPP Law ensures publicity and transparency for PPP projects
Indeed, one of the issues that concern investors is the openness and transparency of PPP projects. Previously, since they were referenced in accordance with the Law on Bidding, project information was not transparent and the selection of investors was not public.
This led to the fear that investors have been appointed previously to carry out the project without fair competition. Thus, to solve that problem, the law on PPP regulates that some information must be published on the National Bidding Network System, specifically as information on investment policy decisions; decision approving the PPP project; information on investor selection; and main content of the PPP project contract, etc.
This is one of the key changes to ensure publicity and transparency for projects, thereby eliminating fear and creating confidence for domestic and international investors when funding PPP ventures in Vietnam.
Regulations on investor selection
In addition, the investor selection process is a rather complicated issue, which must be based on many evaluations and considerations. If there are no clear regulations, it may lead to the arbitrary application of forms of selection to choose them. Thereby this can lead to many mistakes or even fraud in investor selection.
Thus, the law PPP also stipulates quite strictly and clearly for each specific case on how investors will be selected, and which form of selection is chosen. Specifically, previously many PPP projects only applied the form of investor designation, causing investors to worry about the fairness of each of these projects. However, under the new regulations of the PPP law, most related projects will be applied in the form of wide investment except for special cases, creating equity and fair competition for investors when participating in project bidding.
The second form of investor selection, competitive negotiation, is applicable in the case of high-tech application projects on the list of high-tech schemes prioritised for development investment in accordance with the law on high technology or projects with requirements of new technology. Only investors who meet the implementation requirements are invited to attend.
This is really a beneficial form for foreign investors because they often hold high-tech and modern know-how which outperform domestic investors. Thus, this is also an important regulation to attract foreign financiers into technology PPP projects to promote tech transfer in Vietnam.
Finally, only projects that need to protect national defence, security, and state secrets will apply the form of investor designation. Therefore, the transparency of the selection process has ensured more fairness among investors and thereby attracted many domestic groups and foreigners to fund PPP projects.
Regulation on a risk-sharing mechanism
Another important change is the regulation on a risk-sharing mechanism with investors in PPP projects. According to Article 82 of the law on PPP, when actual revenues reach over 125 per cent of revenues in the financial plan in the PPP project contract, the investors shall share with the state 50 per cent of the difference between actual revenue and 125 per cent of revenues in the financial plan.
In addition, when the actual revenue is less than 75 per cent of that in the financial plan in the PPP project contract, the state shall share with the investors half of the difference between 75 per cent of planned revenues and the actual revenue, under certain conditions.
This sharing mechanism is expected to help investors limit financial risks, be more assured of the ability to recover capital, and preserve some of their benefits when implementing the project.
Pham Duy Khuong, Managing Director of ASL Law
ASL LAW is a Vietnam law firm with extensive consulting experience in PPP investment projects in Vietnam. If you need legal advice on PPP in Vietnam, you can contact us.