Decree outlines PPP investment mechanisms

Wednesday, Mar 18, 2015 08:00

After nearly two years of drafting and stakeholder consultation, the Vietnamese government has promulgated a unified legislation (Decree No 15/2015/ND-CP) that governs private-public-partnership (PPP) investment projects (PPP Decree).

The PPP Decree was issued on February 14, 2015, and will take effect on April 10, 2015. Dedicated specifically to the identification, preparation and implementation of PPP projects, the PPP Decree will replace the current regulations governing the regime for pilot PPP projects (formerly Decision 71), as well as the regime for build-operate-transfer (BOT), build-transfer-operate (BTO) and build-transfer (BT) projects under Decree 108.

The PPP Decree is drafted similar to Decree 108, but seeks to introduce core PPP mechanisms, such as the value-for-money assessment of projects, viability gap funding, and PPP-structured feasibility studies, for which new terminology in the Vietnamese legal context (such as state investment capital, economic efficiency and project proposal) have been developed.

Some new features that distinguish the PPP Decree from preceding regulations include:

" It sets out a step-wise PPP project cycle that includes screening and publication of projects, reliance on a feasibility study (or project proposal for smaller projects) to determine value-for-money and optimal contract structure, approval of State support and competition amongst investors to win project awards;

" It provides basic eligibility requirements for PPP projects to assist agencies in the screening of projects;

" It applies to a wider scope of investment sectors;

" It introduces new types of contracts based on a broad division between user-fee type contracts and availability-payment type contracts and contemplates variations of the stipulated contract types;

" It does not cap the use of State capital participating in project implementation as a percentage of the total investment cost, but seeks to determine the optimal use of State capital based on the project needs;

" It makes available financial support during project selection and development by introducing the funding regime for such support, which would include the Project Development Facility (assisted by the Asian Development Bank and the French Development Agency);

" It provides for the possible use of State support (state investment capital) as a form of viability gap funding for PPP projects; " It reiterates lenders' step-in rights and right to assignment;" Foreign governing law may be permitted for foreign-invested projects; and " Foreign arbitration may be permitted for foreign-invested projects.

For the purpose of implementing a robust PPP programme in Viet Nam, the Decree is only a first step, albeit a very important one. To prevent the lack of implementation faced under the former Decision 71, the PPP Decree will have several elements come together over the coming months. First, there needs to be a pipeline of attractive and feasible PPP projects to attract investors, while meeting the country's need for key infrastructure. Currently, the planning and investment ministry is working with several authorised state agencies to prepare project proposals (formerly, pre-feasibility studies) on potential projects that have been shortlisted in the past year or so. An attractive project will be one that is sized within the financing appetite of lenders, has a clear role for the private sector to play (such as providing better technology or more efficient operations), has a clearly identified revenue stream (whether through user fees or availability payments) from which the investor can attract financing and obtain returns on its investment, and efficiently and fairly allocates risk between the State and investor.

Secondly, there needs to be consistent interpretation of the Decree by various stakeholders. Decision 71 lacked circulars to help both public and private sector players interpret its meaning. The PPP Decree was drafted with the recognition that many new concepts would need supporting circulars. An efficient approach would be for the key circulars of the Decree to be drafted in a stepwise fashion addressing the core concepts, such as contract form and tendering rules, anticipating the issues before they arise rather than to draft a massive all-encompassing circular. In addition to circulars, capacity building is key to ensuring a more uniform application of the PPP Decree. Currently, Viet Nam's development partners are supporting a countrywide PPP training program.

Thirdly, the impact of PPP, particularly the issuance of guarantees and viability gap funding, needs to be rationalised and budgeted in advance of projects. These issues are now with the finance ministry.

Finally, projects simply need to be implemented. Project implementation in Viet Nam is not new. Neither is PPP. Viet Nam's experience in BOT projects will lend itself to PPP implementation. A few new concepts and greater rigour in developing projects are introduced, but at the end of the day, investors and the State are still trying to seal a contract. – Frontier Law&Advisory


About the authors: Stanley Boots, CEO, and the team of Frontier Law&Advisory ( specialise in public-private partnerships, infrastructure projects and government advisory across the region, and have been advising the planning and investment ministry under technical support grants during the drafting of the PPP Decree and preparation of the environment for PPP in Viet Nam. The views expressed in this article are those of the Frontier team and do not represent the views or positions of the Viet Nam government or any of its development partners.

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