Vietnam is finalizing a much improved legal framework for public-private partnerships (PPP) with the goal to revitalize investment in infrastructure projects. The latest Ministry of Planning and Investment (MPI) drafts of the PPP Decree and the Investor Selection Decree provide more clarity compared to previous regulations. Opinions from international advisors, multilaterals, donors and  business associations appear to have had a positive impact on the drafts. The drafts are in the government’s hands now and hopes are high that they will become law soon. Of course, the new regulations will mean nothing without proper implementation. The MPI is holding seminars to educate local government officials, who are expected to administer PPP projects. A few highlights of the decree include:

  • More PPP projects forms (e.g., BOO)
  • Fiscal incentives for investor-proposed projects
  • Choice of foreign law and dispute settlement
  • Government guarantees and other incentives
  • Publication of PPP project status

Why PPP?

Vietnam’s infrastructure development has struggled to keep up with continued economic and population growth. Energy, waste, water treatment and transportation present major challenges. State budgets are constrained. Other countries have successfully implemented partnerships between the public and private sector. Simplified, the idea is that the public sector has the ‘users’ (or customers) and land and can provide other incentives, such as tax breaks. The private sector can bring in technology, capital, and efficiency through experience.

Legal framework development

Vietnam has had PPP regulations since 1997 with Decree 62 for domestic investors and Decree 77 in 1998 for foreign investors. In 2009, Decree 108 regulated BOT, BT and BTO projects. Decision 71 started another pilot program for PPP projects in 2010. And in 2011 Decree 24 amended Decree 108. These regulations were not successful in attracting foreign investment on a PPP basis. Critique included the lack of understanding of local authorities to support PPP projects. Regulations were not clear enough and left much room for discretion to officials.

New regulations on the horizon

The new PPP Decree (September 2014 draft) seeks to bring those developments under one decree and provide more clarity and incentives for private investors. The new Investor Selection Decree (October 2014 draft) guiding the Law on Public Procurement specifically provides incentives for investors who propose smaller PPP projects (Group C projects).

Forms of PPP projects

Besides the previously available forms of BOT (build-operate-transfer), BTO (build-transfer-operate) and BT (build-transfer), the draft PPP Decree has provisions for BOO (build-own-operate), BTL (build-transfer-lease), BLT (build-lease-transfer ) and O&M (operate and manage) contracts.

Fiscal Incentives for Unsolicited Projects

The current draft of the Investor Selection Decree provides incentives for investor-proposed (“unsolicited”) projects that are not on the government’s project lists. For example, unsolicited projects are still open to competitive bidding, but the proposing investor will receive a 5% advantage (service price, State capital or other method) over other bidders.  However, these advantages may only be applicable to smaller projects, and we are awaiting further guidance with respect to bigger projects.

Choice of foreign law and dispute settlement

MPI officials confirmed that Vietnamese law shall still remain the basic governing law, but choosing foreign law can be negotiated. The draft PPP Decree sets out clearly where project contracts can be governed by foreign law, namely contracts involving a foreign party and government agency guarantee contracts. Foreign arbitration can be selected for disputes involving a foreign investor and even for government-backed guarantee contracts. The draft also addresses an argument that Vietnamese courts have used to prevent the recognition and enforcement of foreign arbitral awards (i.e., the absence of a “commercial dispute”).

Publication and status updates

Publication obligations are meant to create more transparency for PPP projects. Once a PPP project proposal is approved, it must be published within 7 days on the government’s national procurement website (subject to exceptions for sensitive and confidential information). Besides general project information, the website is to provide updates with regard to the status of implementation. The progress made by the local authorities and selected investors would be open to public review.

What’s next?

The above highlights are just some of the many improvement we can expect from the new PPP Decree. Some changes such as the choice of foreign law and dispute resolution through offshore arbitration appear revolutionary compared to past regulations. If all improvements become law, the new decree could rejuvenate interest in PPP investment forms. In practice, it will all depend on the quality of implementation. The MPI is conducting programs to educate local officials and improve transparency with regard to future PPP projects.