Public-Private Partnership Investments (“PPP”) are a particular form of investment projects negotiated directly by private investors with the competent State agency, mainly aimed to build or renovate, upgrade, extend, manage and operate infrastructure works as well as to provide public services.
In Vietnam, this matter is now regulated by the new Law on Public Private Partnership (“PPP Law”), which entered in force on January 1st, 2021 and replaced the previously issued PPP regulations under Decree No. 63/2018/ND-CP (“Decree 63”), except for Article 101.6 which halts the application of the BT contract form from 15 August 2020. Vietnamese laws are generally drafted in relatively broad terms and are usually followed and implemented by decrees, circulars and directives, to specify details and a more narrow framework. However, in the past that overlapping provisions have led to grey areas and conflicting interpretations resulting in a lack of certainty, mostly raising doubts and hesitations in foreign investors looking for a predictable business environment. The PPP Law unifies the existing intricate legal framework with a fresh turn to foreign investment, reducing ambiguity and uncertainty.
Major changes from the previous PPP Law
Applicable projects (Article 4): The investment sectors in which PPP investments are permitted has been reduced, from the Decree 63, to five essentials: 1. transportation; 2. power grids and power plants (except for hydro-power plants and State monopolies as prescribed by the Electricity Law); 3. irrigation, clean water supply, water drainage, sewerage and waste treatment; 4. health care, education and training ; 5. IT infrastructure. Other projects of interest to potential investors in Vietnam, such as those relating to upstream oil and gas, mining, petroleum refineries and plants, steel mills and aluminum refineries are not expressly included. However, while Decree 63 left the door open for the Prime Minister to approve such projects under a PPP framework, the PPP Law doesn’t provide such discretion. The Ministry of Planning and Investment (MPI) explained that limiting the sectors was a way to avoid focusing on sectors with national security issues.
Minimum Investment Capital: PPP project’s value must be at least VND 200 billion (around 8,7 million USD), while for health care and education projects where the threshold is VND 100 billion (around 4,3 million USD). The lower threshold also applies to PPP investment in geographical areas with difficult socio-economic conditions. Furthermore, the capital contributed by private investors must be at least 15% of the total investment capital (20% under the Decree 63). Capital shall be contributed within 12 months from the signing of the PPP contract. This period can be extended to a maximum of 18 months.
State capital participation: The new law sets the limit to 50% of the total investment capital capital of the project, which includes the funding for land clearance.
Risk-sharing mechanism (Article 82): if actual project revenue is greater than 125% of the expected revenue, the state will share 50% of the revenue exceeding the 125% threshold. For BOT, BTO and BOO, if actual project revenue is less than 75% of the expected revenue, as a result of reformed policies or laws, the State will share 50% of the downside below the 75% threshold.
Government guarantees (Article 81): the new PPP Law removes the general provision of a government guarantee and performance guarantee for state-owned enterprise. The Government provides foreign investors with a guarantee in relation to the availability of foreign currency to meet the investors request. However, such guarantees will be limited to 30% of project revenue after subtracting project expenses. .
Governing law (Article 55): Vietnamese law must be the governing law of the contract, different from the current practice of contracts governed by foreign jurisdictions, particularly English law, which have an established system of case law and jurisprudence. This is potentially a significant change as concepts, which are well established in other common-law jurisdictions such as liquidated damages and consequential loss exclusion may be more difficult to establish. There could also be a mismatch between project documents and financing documents, if a foreign law governs the latter. If there is any provision in the PPP contract relating to matters that have not been regulated by Vietnamese law, the parties may agree that foreign law will govern those specific terms and conditions, provided that such agreement shall not contradict the basic principles of Vietnamese law. Currently, there is no definition of “basic principles of Vietnamese law”.
Standard Form Contracts (Article 47): the Government will provide standard form contracts for the 7 types of project agreements such as BOT (build-operate-transfer), BTO (build-transfer-operate), BOO (build-own-operate), O&M (operate-maintain), BTL (build-transfer-lease), BLT (build-lease-transfer) and mix contracts combining the aforementioned . The BT (build-transfer) is not included and no longer recognized as a form of PPP investment. Regarding lenders’ step-in right, in case of termination of PPP project contract before the agreed, the lender must coordinate with the State to select and replace the alternative contractor.
Local content (Article 28) – investors committing to use domestic contractors, goods and materials are eligible for preferential treatment during the bid evaluation process. The previous Decree 63, didn’t mentioned this matter, which remain a discretionary and not mandatory choice.
Conclusions
The infrastructure sector in Vietnam represents a significant opportunity for foreign investors, contractors and financiers. The new PPP law should boost infrastructure development in Vietnam, that requires more than USD 600 billion to reach its infrastructure goals by 2040 and an expected construction growth of 6,8% a year from 2021 to 2029.
PPPs offer an ideal framework for utilizing private sector finance whilst also deriving the benefit of domestic and foreign expertise, know-how and innovation, both technically and technologically, and will no doubt be utilized more frequently. The clarification of the investment procedures for PPP projects, especially the investor selection process, relaxation of private sector equity capital contribution requirements and introduction of revenue sharing and revenue support mechanisms will be greeted by the private developer, investor and lending communities.
What remains to be seen is whether infrastructure procurement under the PPP Law will offer adequate protection and an appropriate risk profile to encourage foreign participation and investment, particularly in respect of major road projects, which are outside of densely populated cities, such as the North-South Expressway project linking Hanoi to Ho Chi Minh City. As always, it will be important for infrastructure investors, contractors and financiers to consult and reach the relevant Authorities for further guidance and seek legal advice from professionals familiar with the constantly evolving legal framework in Vietnam.
In February 2024, Vietnam adopted a new Construction Industry Development Strategy for 2030 – 2045, aiming to boost the construction market, especially in urban infrastructure and housing. The strategy prioritizes key infrastructure projects in major cities and sets ambitious goals for housing construction, including doubling urban housing rates by 2030 and building 1,000,000 housing units
In today’s globalized business landscape, companies come to manage labor disputes. The intricate interplay of local laws, cultural nuances, and procedural requirements significantly shapes the resolution process. This article embarks on a comparative journey through four distinct jurisdictions—China, India, Italy, and Vietnam—to illuminate the strategies and challenges involved in addressing labor disputes. Central to this
Over the past 30 years, foreign direct investment (FDI) has played a crucial role in the socio-economic development of Vietnam, enhancing the position and reputation of Vietnam on the international stage. Particularly, in 2023, the FDI inflow reached a record high, marking the highest level in the past 5 years since 2019.
