1
PPP Contracts and PPP Forms
Subject to the nature of a PPP project, Authorized State Bodies, investors and the project company may choose one of the following forms of PPP contract:
1) BOT contract;
2) BTO contract;
3) BOO contract;
4) BTL contract;
5) BLT contract;
6) O&M contract;
7) BT contract; and
8) Hybrid contract which is a combination of the above contracts.
In addition to the above PPP contracts, other contract forms may be used, but other contract forms must be proposed by the ministries or by municipal people’s committees, and they must be approved by the Prime Minister.
Subject to the nature of a PPP project, Authorized State Bodies, investors and the project company may choose one of the following forms of PPP contract:
BOT[1] contract;
2) BTO[2] contract;
3) BOO[3] contract;
4) BTL[4] contract;
5) BLT[5] contract;
6) O&M[6] contract; and
7) Hybrid contracts which are a combination of PPP contracts numbered 1) to 6).
Under current PPP legislation, BT contract is a permitted PPP contract whereby an investor and/or a project company (if any) build infrastructure work; upon completion, the investor must transfer such work to the Authorized State Bodies, and in return it will be compensated in land, head office buildings, infrastructure properties or concessions in order to implement other projects. This mechanism is another way for real estate developers to receive project land or for other investors to receive a concession to develop other projects. The BT contract no longer exists under the new PPP Law.
2
Governing law
Decree 63 refers to the Investment Law and the Civil Code that both allow foreign investors to choose a foreign law (with a few exceptions).
PPP contracts, appendices and related documents are governed by Vietnamese law. The PPP contracting parties may agree to incorporate provisions that relate to matters which are not regulated by Vietnamese law into their PPP contracts, on the condition that these provisions not contradict main principles of Vietnamese law.
PPP-contracts should be well drafted and prepared to cover matters that are not clearly stipulated in nor regulated by Vietnamese law (eg liquidated damages, sovereignty, force majeure, termination payments, etc.)
3
Minimum investment capital required
Not applicable
PPP projects must meet a minimum investment capital[7] (with a few exceptions):
200 billion Vietnamese dong[8] for the following sectors:
transport and transportation;
power grid, power plants (other than hydropower plants and sectors which are subject to the state monopoly pursuant to the Electricity Law); irrigation; supply of clean water and treatment of wastewater and wastes; IT and communications infrastructure.
100 billion Vietnamese dong for the following sectors: health care, education-training industries.
In the future, small-scale projects will not qualify under the PPP Law.
4
Requirement on minimum equity capital
The equity capital can vary, depending on total investment capital. The equity capital:
(a) must be at least 20% of the total investment capital if the total investment capital is less than 1,500 billion VND.
(b) will be determined on the basis of a partially progressive percentage if the total investment capital is 1,500 billion VND or more.
The equity capital must be at least 15% of the investment capital (excluding the state’s capital).
5
Permitted sectors[9]
transport and transportation;
(ii) power plants, electricity transmission lines;
(iii) public lighting systems; distribution networks for clean water; sewage and wastewater treatment systems; public parks; parking garages/places; cemeteries;
(iv) construction of head offices of state authorities, social houses, cemeteries, re-resettlement houses;
(v) health, education, training, culture, sports, tourism, technology, science, hydrometeorology; application of IT;
(vi) infrastructure work involving commence, infrastructure for urban areas, industrial zones, hi-tech parks, IT centralized zones; seeding areas, technical areas, co-working places for small and medium-sized enterprises;
(vii) agriculture and rural development; services to develop manufacturing, processing and distribution of agricultural products.
(viii) other sectors approved by the Prime Minister.
transport and transportation;
power grid, power plants (other than hydropower plants and sectors which are subject to the state monopoly pursuant to the Electricity Law);
irrigation; supply of clean water and treatment of waste water and wastes;
IT and communication infrastructure; and
healthcare, education- training.
6
Classification of PPP projects
PPP projects are classified and based on construction projects (Project Grade A, Project Grade B or Project Grade C) pursuant to classification in the Law on Public Investment.
PPP projects and the power and authority to approve PPP projects are delegated to and vested in Authorized State Bodies on the basis of the level of capital or the nature of the PPP project.
The National Assembly is authorized to approve (in principle):
PPP projects with public investment capital of VND10,000 billion or more; PPP projects that may cause material adverse effect on the environment; (e.g. nuclear power plants); PPP projects that use large areas of forest land or important forests (50 ha or more for specialized forests, upstream protection forests or border protection forests; 500 ha for protective forests used as wind or sand screens, wave breakers, or sea reclamation land; 1,000 ha for production forests); PPP projects that use wet rice land (500 ha or more); PPP projects that require resettlement of a large number of inhabitants (20,000 people or more in mountain areas, and 50,000 people or more in other areas); PPP projects that require a special regime /policy from the National Assembly.
The Prime Minister is authorized to approve (in principle):
PPP projects that require resettlement of a large number of inhabitants (10,000 up to 20,000 people in mountain areas, and less than 10,000 people in other areas); PPP projects that use ODA funds, the central state budge managed by the Ministries (or equivalent state bodies) with investment capital of Project Group A; PPP projects that develop large scale infrastructure such as new airports, terminals; new seaports (special seaports or project grade 1).
(c) Ministers/chairmen of provincial/municipal People’s Committees or provincial/municipal People Councils are authorized to approve (in principle) other PPP projects within their duties and powers.
7
State Evaluation Committee for PPP projects[10]
The evaluation of PPP projects is set out in different laws (the Investment Law, the Construction Law, the Law on Public Investment) in an inconsistent manner (based on the nature and investment scale of a project).
Upon proposal of the MPI[11], the Prime Minister may decide to set up: (i) a state evaluation committee (“SEC”) which is authorized to evaluate important PPP projects that are subject to the National Assembly’s jurisdiction or (ii) a multi-ministerial evaluation committee which is authorized to evaluate PPP projects that are subject to the Prime Minister’s jurisdiction.
The local evaluation committee is authorized to evaluate PPP projects that are subject to jurisdictions of the ministries/provincial People’s Councils.
8
Restriction on project companies
No restriction (other than general restrictions that apply to other companies).
A project company is not allowed to engage in business areas/sectors (other than business activities of the PPP project).
A project company may issue corporate bonds to mobilize capital for its PPP project. However, it is not allowed to issue (i) convertible bonds (in the form of private placement); (ii) convertible bonds together with warrants (in the form of private placement), and the total amount of corporate bonds must not exceed the loan capital as calculated in the financial model of PPP contracts.
A project company can be a limited liability company or a joint stock company, but it must not be a public listed company.
9
Risk allocation (sharing revenue in case of reduction or increase of actual revenue)
Not regulated
The new PPP Law introduces a new regime whereby the State and investors would share supplemental revenue/losses if the actual revenue exceeds or is less than agreed revenue. In particular:
If the actual revenue of a PPP project exceeds 125% of the projected revenue as calculated in the financial model under the PPP contract, the project company is required to share 50% of revenue in excess of 125% of the projected revenue. For example, the projected revenue is US$100, the actual revenue is US$135, in such case the project company is required to share its supplemental revenue with the State: US$5 [(135-125) x 50%]
In return, if the actual revenue of BOT, BTO or BOO projects is less than 75% of the projected revenue as calculated in the financial model under the PPP contract due to change of law/policies, the State will share 50% of revenue loss. For example, the projected revenue is US$100, the actual revenue is US$65, in such case the State is required to share revenue loss with the project company: US$5 [(75-65) x 50%].
10
Government guarantee for foreign exchange
The Government may guarantee the balance of foreign currency for PPP projects which are subject to approval by the National Assembly, or by the Prime Minister or may consider other important infrastructure projects.
Subject to (i) policies for foreign exchange, and (ii) ability to balance foreign currencies in each period, the Government may guarantee the balance of foreign currency for PPP projects which are subject to approval by the National Assembly, or by the Prime Minister. The maximum guaranteed amount must not exceed 30% of the VND-revenue (after deduction of VND-expenses).
11
Certificate of completion and finalization of project contracts
There is no requirement for a certificate of completion and finalization of project contracts. PPP regulations only require PPP companies/investors to finalize the investment capital of its project in the same way that applies to public investment projects.
Upon completion of a PPP project, the project company is required to submit a report on completion to the State Authorized Bodies which are allowed to sign PPP contracts, and which will issue a certificate of completion (“COC”). Project companies are allowed to operate and exploit PPP projects [only] after the COC has been issued.
The deadline for the Authorized State Bodies to issue the COC should be specified. The procedures and conditions to issue the COC (including consequences of failure to receive a COC) should also be specified in the draft law/ implementation regulations/PPP contracts. The involvement of independent experts in issuing the COC should be considered.
The COC should apply only to PPP contracts under which the Government is responsible to pay PPP investors (BLT, BTL), because investors of other PPP projects (BOT, BTO, …) are already required to obtain an operating license/permits upon completion of construction. The requirement to obtain the COC may cause an additional unnecessary burden for PPP projects under which the Government is not required to pay (BOT, BTO, …).
12
Bid security and performance security
The secured amount for performance security must be 1% to 3% of the total investment capital
Only credit institutions (commercial banks), branches of foreign banks, insurance companies or foreign banks which are licensed to operate in Vietnam are allowed to issue bid bonds/performance bonds.
The secured amount for bid security is 0.5% to 1.5% of the total investment capital.
The secured amount for performance security is 1% to 3% of the total investment capital.
Parent guarantees/bank guarantee issued by an offshore bank cannot be used for PPP projects under the new PPP Law.
13
Selection of a PPP investor
The matter is regulated in the Bidding Law
The matter is incorporated in the draft law in a simplified manner.
14
Capital transfer
Not specified
Investors who jointly participate in a PPP project in the form of a partnership can transfer their capital among other investors in the partnership on a conditions that the lead investor must hold at least 30% of the total equity capital and each of the other investors must hold at least 15% of the total equity capital.
The transfer of capital in PPP projects involving construction can be conducted only after construction work has been completed, and the transfer is conditional. Among other conditions, the transfer must be approved by the State Authorized Bodies/entities that are authorized to sign PPP contracts.
15
Financing closure
Not specified
The project company must complete financial closure within 12-18 months from the date on which the PPP contracts/agreements are signed.
16
Early termination
Not specified
A PPP contract can be terminated only in limited circumstances: (i) force majeure event; (ii) for national security, national interest or national defense reasons; (iii) bankruptcy of project company; (iv) material breaches of contractual obligations; (v) mutual agreement in event of material adverse change.
The PPP Law does not specify in detail consequences of early termination in such circumstances.
Important concepts (force majeure events, material adverse change, material breaches), termination payments should be addressed and specified in PPP contracts.
[1] BOT is an abbreviation of “Build-Operate-Transfer”.
[2] BTO is an abbreviation of “Build-Transfer-Operate”.
[3] BOO is an abbreviation of “Build-Own-Operate”.
[4] BTL is an abbreviation of “Build-Transfer-Lease”.
[5] BLT is an abbreviation of “Build-Lease-Transfer”.
[6] O&M is an abbreviation of “Operation & Maintenance”.
[7] Investment capital includes equity loan and loan capital.
[8] US$1=VND23,090 (September 10, 2020).
[9] Up to May 2019, there were 220 PPP projects in the transportation sector (accounting for 65.47%), 18 PPP projects in the power sector (accounting for 5.35%), and 18 PPP projects in water supply, treatment of waste water and enviromental areas (accounting for 5.35%).
[10] Evaluation committees are authorized to evaluate pre-feasibility studies and/or feasibility studies, government guarantees/undertakings and other related matters.
[11] The Ministry of Planning and Investment.
