The new PPP Law enters into force

The new PPP Law enters into force

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.

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