On 9 November 2010 Vietnam's Prime Minister Nguyen Tan Dung issued the much anticipated legal framework for Public-Private Partnership (PPP) in Vietnam. Promulgated as Decision No. 71/2010QD-TTg (Regulation on pilot investment using Public-Private Partnership model), this "PPP Framework" will take effect on 15 January 2011 and is expected promote the development of PPP projects in Vietnam for the next three to five years. Vietnam's Ministry of Planning and Investment (MPI) lead the development of the PPP Framework with the goal of improving the legal basis for investments in Vietnam's infrastructure on a PPP basis. The PPP Framework is intended to promote pilot projects across a wide range of infrastructure sectors, including:

  • roads, bridges, tunnels, ferries;
  • railways, railway bridges, railway tunnels;
  • urban transport;
  • airports, seaports, river ports;
  • fresh water supply systems;
  • power plants;
  • healthcare (hospitals in particular);
  • environment (waste treatment plants in particular); and
  • other infrastructure needs identified by the Prime Minister.

The PPP Framework covers pilot projects, meaning that this legislation is itself a pilot, which explains why the law is somewhat truncated when compared to other draft frameworks proposed to the MPI in the past two years. From our experience with projects in Vietnam developing under the build-operate-transfer (BOT) model (former Decree 78 and the current Decree 108), we expect that the PPP Framework will rapidly evolve during the actual implementation of the pilot programs and the testing of real life issues of Vietnam's version of the PPP model.

In this note, we summarize some of the key provisions of the PPP Framework, focusing in particular on those provisions of relevance to investors and lenders regarding financed PPP projects. This note concludes with our commentary on some of the anticipated investor and/or lender issues that are likely to arise on projects implemented under the PPP Framework. Our summary below follows the order of the PPP Framework.


  1.  Defining PPP and the budgetary policy behind the PPP Framework

The PPP Framework introduces the PPP model as the form of investment by which the State and investors coordinate to implement projects for infrastructure development or public service provision on the basis of a project contract. A project contract grants the investors the right to invest in and exploit infrastructure facilities or to provide public services for a fixed period. Likewise, the PPP Framework sets forth the State's involvement in a PPP project. The State's contribution toward a PPP project make take several forms, such as State capital, investment preference and specific financial policies (collectively, State Contribution) to be further discussed below.

  1.  Project criteria

As above, the following sectors are covered by the PPP Framework: (i) roads, bridges, tunnels, ferries; (ii) railways, railway bridges, railway tunnels; (iii) urban transport; (iv) airports, seaports, river ports; (v) fresh water supply systems; (vi) power plants; (vii) healthcare (hospitals); (viii) environmental projects (waste treatment plants); and (ix) other infrastructure needs as decided by the Prime Minister.

To be selected as a pilot project under the PPP Framework, the project must satisfy one of the following criteria:

  • The project is of great significance, large scale and/or is of urgent demand in respect of the need of economic development as stipulated under the previous Decision No. 412/QD-TTg dated 11 April 2007 of the Prime Minister (Decision 412);
  • The project is capable of returning investment capital to the investor from reasonable revenue collected from consumers;
  • The project is capable of taking advantage of the private sector's technology, management and operations experience and effective use of financial capacity; or
  • The project meets other criteria as decided by the Prime Minister.

Decision 412 names the following projects as those to urgently be developed:

  • Expressways: Dau Giay - Phan Thiet, Cau Gie - Ninh Binh; Ninh Binh - Thanh Hoa and etc.
  • Seaports: Lach Huyen in Hai Phong, Van Phong international transhipment container terminal in Khanh Hoa etc.
  • Airports: T2 Noi Bai in Hanoi, Da Nang international airport in Da Nang, Long Thanh international airport in Dong Nai.
  • Bridges: Vam Cong, Cao Lanh
  • Railways: Lao Cai - Hanoi - Hai Phong; Dong Dang - Hanoi; Yen Vien - Lao Cai, and etc.
  1.  Capital requirements

Capital requirements are described as (i) those that may be contributed by the State (State Contribution), and (ii) the contribution to the project by the investor and its lenders.

State Contribution. The State Contribution to a particular project is to be determined by the Prime Minister on the basis of the proposal from the Authorized State Body and evaluation by the MPI. The PPP Framework limits State Contribution to no more than 30% of the total project investment except as otherwise decided by the Prime Minister. State Contribution may take the following forms:

  • State capital in the form of monies from the State budget, official development aid, government bonds, credit capital guaranteed by the State, State development investment credited capital, investment by State-owned enterprises and other forms of public debt;
  • investment preference such as tax incentives and land rental exemption; and
  • specific financial policies,

all of which are deemed included in the calculation of the total investment of a PPP project. The PPP Framework prohibits State Contribution from taking the form of equity capital in the project company. Rather, State Contribution may be used to:

  • cover part of the costs of the project;
  • fund the building of auxiliary construction work;
  • fund site clearance and resettlement (and compensation relating thereto); and
  • cover such other costs as determined by the State.

The State does not commit itself to funding any project related guarantee, such as viability gap guarantees, but rather leaves such commitment to be made on a case by case basis.

Investor Equity Capital. As inferred, at least 70% of the total investment costs of a PPP project must be provided by the investor. The investor's contribution (Privately Owned Capital) to the total investment project costs may be made through a combination of equity, debt and other forms that do not require State Contribution. Specifically, the investor must contribute as equity no less than 30% of the Privately Owned Capital in a PPP project.

  1.  Authorized State Body and PPP unit

PPP projects are to be administered by the "Authorized State Body" which may be ministries, ministerial equivalent bodies, government bodies and people's committees of provinces or cities under central authority, depending on the nature and scope of the project. The Authorized State Body is required to establish a specialized unit or to appoint its subordinate unit to act as a focal point for (i) carrying out the work relating to PPP projects and (ii) exercising its rights and obligations as specified in the project contract. In addition (and similar to the Government oversight structure under Decree 108 governing BOT projects), an inter-branch working group will be established by the MPI to assist the Authorized State Body during the formulation and implementation of the project. The inter-branch working group will be comprised of representatives of the MPI, the Ministry of Finance, the Ministry of Justice, the Ministry of Industry and Commerce, the Ministry of Transport, the Ministry of Construction, the State Bank of Vietnam and other relevant agencies.

  1.  Project proposals

The Authorized State Body is entrusted to formulate and propose projects that comply with the project criteria identified and forward the same to the MPI. The MPI will coordinate and/or consult with relevant State agencies for consideration and evaluation. The Prime Minister shall approve the project portfolio which is then publicized in the Bidding Newspaper, the electronic portal of the MPI and other Ministries, branches, Provincial People's Committees, and other means of mass media (if necessary).

Projects will require a feasibility study, produced by consultants selected through an open tender managed by the Authorized State Body.

In addition to the projects identified by the Government, investors may propose PPP projects to the competent Authorized State Body, with notification given to the MPI. Investor proposals must comply with the same criteria and procedures applicable to proposals developed by the Authorized State Body. This includes the requirement that such investor proposals must be published in the Bidding Newspaper and will be subject to competitive bidding. There are no provisions in the PPP Framework addressing whether or how investor proposals would be weighted.

  1.  Investor selection

Investors seeking to implement specific projects are to be selected on the basis of open domestic or international tendering. The Authorized State Body, in consultation with the MPI, is entrusted to manage the appraisal of qualified bids and the selection of investor. The investor will cover certain "Investment Preparation Costs" which include the costs of the feasibility study and the Authorized State Body's costs related to select investors as well as exercise its tasks in respect of implementing the project.

  1. Project contract negotiation and finalization

Once the investor is selected, the parties move on to negotiate, complete and initial the project contract within 30 business days. With the project contract initialized, the investor applies to the MPI for the "Investment Certificate" according to the procedures set out in the PPP Framework. Assuming that all procedural requirements are met, the MPI evaluates the application and issues the Investment Certificate within 45 business days of the date of receipt of the valid application.

  1.  Performance guarantee

The project company is responsible for providing security to the State for the duration of construction of a project, the value of which must not be less than two percent (2%) of the total investment capital of the PPP project. This security may take the form of a bank guarantee or another form as prescribed under Vietnamese civil law.

  1. Incentives and investment guarantees

Incentives. The Government will provide certain incentives to the project company and investors for implementation of the PPP project, including tax incentives, reduced import and export duties and exemptions from land use fees and rent for the duration of the project. Foreign contractors on projects may benefit from certain tax exemptions and reductions.

Mortgages and security. The project company will have the right to pledge and mortgage the assets and the land use rights in the project (in accordance with Vietnam's laws on security) to the extent such transferral of security interest does not adversely affect the objectives, implementation and operation of the project.

Currency conversion. The PPP Framework addresses the right to convert foreign currency, deviating little from the provisions set out in the Decree 108. The PPP Framework provides that during construction and commercial operations of a project, the project company shall be permitted to buy foreign currency from authorized institutions for making foreign payments, importing goods and services, repaying loans, remitting of capital, profits, proceeds and other legitimate income. Certain projects of high importance in the energy, transport and waste treatment sectors (identified on a case by case basis) may benefit from a decision of the Prime Minister to assure or support the foreign currency balance of Vietnam. As noted in our comments, this provision could face some of the interpretation difficulties currently being dealt with in respect of Decree 108.

Public services. Project companies are to enjoy the benefit of the use of land, roads and other ancillary facilities needed to implement the project, as well as priority for such services where public services and facilities are scarce or limited. The Authorized State Body is responsible for assisting the project company with the necessary procedures and documents to achieve priority use of public services and facilities.

Government guarantee. On a case by case basis, the Authorized State Body may submit to the government a proposal for a guarantee in favor of the project whereby a competent authority would guarantee (i) the supply of materials, sales of goods and other contractual obligations to the investors, project company or other enterprises engaged in the project and (ii) the obligations of State-owned enterprises in selling materials, purchasing goods and/or services of the project company.

  1.  Lender step-in rights and assignment of rights

The PPP Framework provides that the parties may agree on the right of lenders to take over part or all of the rights and obligations of the project company (in the event of a default under the project contract or loan agreement). After exercising such step-in right, the lender must discharge all of the corresponding obligations of the project company pursuant to the project contract. Any lender step-in right must be specified in the loan agreement, the security agreement for the loan and other relevant agreements and must be approved by the Authorized State Body.

Investors may assign partly or wholly rights/obligations under the project contract to any third parties, subject to the Authorized State Body's consent. Such assignment must not adversely affect the objectives, size, technical criteria and schedule for implementing the project and other conditions already agreed in the project contract.

  1.  Choice of law

The ability to choose foreign law as the governing law of the PPP project contract and relevant agreement(s) shall be decided on the case-by-case basis. Any such right would be specified in tendering invitation dossier.


Over the past year, there has been a great deal of attention given to the development of the PPP Framework as a way to bolster foreign investment in large scale infrastructure projects in Vietnam. Since 2007 and the promulgation of Decree 78 (formerly known as the BOT Law), we have observed a stepwise evolution in the development of the necessary regulations for investment in Vietnam's infrastructure. Decree 108 (on BOT projects) replaced Decree 78 with effect from 15 January 2010, and although it is an improvement over the former BOT Law, investors and lenders continue to experience a number of inefficiencies in implementation of the regulations, which may diminish the bankability of projects negotiated there under, not the least of which is the difficulty of the Authorized State Body to interpret the decree due to the lack of finalized implementing regulations such as circulars.

Implementing regulations. Our first comment on the PPP Framework is the immediate need for implementing regulations. Typical of Vietnamese legislation, the PPP Framework sets out the larger policies and legal concepts in respect of implementing a PPP model in Vietnam but does not contain the detailed provisions to which investors and their lenders seek in implementing a project. For example, although it is clear that an investor must hold at least 30% equity in the overall Privately Owned Capital of the project, the PPP Framework does not tell us whether shareholder loans may be deemed equity. Therefore, implementing regulations are now needed to facilitate the interpretation of the PPP Framework.

Thorough preparation and standardized documentation. In order for the Authorized State Body to achieve finalization of the project documentation of a PPP project within the 30 business days following investor selection, all project preparations will need to be thorough and complete prior to the issuance of bid requests for the project. To meet such a tight negotiation schedule, issues for negotiation must minimized. To minimize all commercial, technical, legal and financial issues, the project documentation must be up to the best international standards and readily bankable on their face. Further, all technical requirements and the scope of Government support must be clearly and thoroughly presented to investors with the request for proposals.

In addition to strong documentation and preparation, it is essential that prior to issuance of bid requests the government has in place a trained PPP unit with sufficient human resources and budget to manage the implementation of the project. With sufficient preparation on the part of the Authorized State Body, bids may be evaluated on the basis of the bidder's conformance with the standardized agreements, pricing and technical solution for the project.

Investor project proposals. We would expect potential investors to be somewhat wary of making a project proposal under the PPP Framework because such proposals appear destined to competitive bidding without the benefit of weighting. The implementing circulars to the PPP Framework will hopefully address this issue and offer some incentives for innovative potential investors to propose a project. Without weighting or some form of priority, there is little incentive for a potential investor to proffer a project proposal under the PPP Framework.

Investment preparation costs. An issue for some of the current BOT projects is the scope of the Authorized State Body's costs to be borne by the investors. The PPP Framework suggests that investors may be required to bear the investment preparation costs, but the scope and absoluteness of the obligation is not clear.

Foreign currency conversion. The foreign currency conversion provisions of the PPP Framework are nearly identical to those found under Decree 108. These provisions appear to offer comfort to investors and their lenders that project revenues (and other project related monies) may be converted to hard currency and remitted abroad. We are aware, however, that parties negotiating some current BOT projects are facing significant issues in respect of interpreting the equivalent provisions under Decree 108. In particular, lenders to some of the current BOT projects complain that the Government has not assured that all of the revenues may be convertible into hard currency but rather has indicated that only a percentage of revenues can be assured to be convertible. This is a core concern affecting the bankability of a large scale infrastructure project and must be resolved if Vietnam PPP deals are to find the necessary funding.

Government guarantee. There is little difference between the Government guarantee provision of Decree 108 (Art. 40) and the one found in the PPP Framework. As suggested prior, investors and lenders have valid concerns about the interpretation of provisions appearing to offer hope of Government support for a project, where such provisions may subsequently be interpreted to water down any support. We recognize that the Vietnamese Government is hesitant to commit itself to guarantees that go on the Government's balance sheet, but in turn, the Government must recognize that investors and lenders need clarity as to the real level of commitment and support the Government will offer in respect of costly infrastructure projects, such as those contemplated under the PPP Framework. Where two jurisdictions offer similar opportunities for investment, but one of those jurisdictions offers better risk hedging (e.g. government guarantees, guaranteed currency conversion and so forth), the investor will naturally follow the path of least resistance and go with the safer, easier jurisdiction.

In sum, the PPP Framework is a welcome piece of legislation that has been eagerly anticipated by international investors with an interest in Vietnam's various infrastructure sectors. The PPP Framework is another step in the evolution of Vietnam's regulatory regime for private investment in much needed projects that will benefit the economy and people of Vietnam. While it is a step forward, the PPP Framework still requires implementing regulations and real life testing through implementation.