PPP Law Facilitating Private Investment

9:42:46 AM | 28/8/2020

The Law on Public-Private Partnership Investment (PPP Law) was passed by the 14th National Assembly of Vietnam at the 9th plenary session. The law consists of 11 chapters and 101 articles, regulating investing activity and private investment into important infrastructure sectors under the PPP mode.

Urgent requirement

Vietnam has plenty of room for PPP projects to be successful, especially in important fields such as energy, transportation and infrastructure development. For the time being, PPP is very important and necessary because the investment demand is huge amid limited financing capabilities of the Government.

The PPP Law focuses on five essential areas of PPP investment: Traffic; power grid and power generation (except for hydroelectric generation and fields where the State holds monopoly in accordance with the Law on Electric Power); irrigation, tap water supply, drainage, wastewater and waste treatment; health, education - training; and information technology infrastructure.

Dr. Vu Tien Loc, President of the Vietnam Chamber of Commerce and Industry (VCCI), said that making the PPP Law is a very difficult job, but the law is necessary as it will give a boost to economic recovery after the Covid-19 pandemic. The PPP Law should be built in the spirit of equality, cooperation and efficiency optimization.

The upgrade of the PPP Decree to the PPP Law is an important step to complete the legal framework for PPP in Vietnam. Coming to life, the law will solve current problems caused by regulatory overlaps, meet expectations of domestic and foreign investors, and unify and stabilize PPP-based investment. In particular, the PPP Law opens up many new opportunities to attract private funding into national infrastructure development in the coming time.

Breakthrough regulations

By investment scale, the PPP Law stipulates the minimum total investment for a PPP investment item at VND200 billion. For some projects in areas with difficult or extremely difficult socioeconomic conditions or in health, education and training fields, this value is VND100 billion.

By project classification and decision-making competence, the law stipulates project classification and decision-making competence are under the authority of the National Assembly, the Prime Minister, ministers, heads of central agencies, and Provincial People's Councils. The body that makes the investment decision shall decide on investment adjustment.

Regarding State capital in a PPP project, the law specifies the purpose of use and the method of State capital management in a PPP project. Where State funds are used to support infrastructure construction and site clearance, the share cannot exceed 50% of total investment value. The fund is managed and used in two modes: Split into sub-projects in a PPP project, or arranged to specific items according to the rate and value, progress and conditions specified in the contract.

Regarding investor selection, for the first time, investor selection is regulated in a legal document, aimed to ensure the consistency, integrity and continuity of a PPP project. At the same time, it helps narrow the current scope of investor appointment, specified in the Law on Tender of 2013.

Guiding Decrees for PPP Law Enforcement

The Government has planned to issue three decrees to guide the enforcement of the PPP Law: Decree detailing and guiding implementation of a number of articles of the PPP Law (led by the Ministry of Planning and Investment), Decree detailing and guiding the implementation of a number of articles of the PPP Law regarding investor selection (led by the Ministry of Planning and Investment), and the decree on financial mechanism for public private partnership investment (led by the Ministry of Finance).

These decrees will be issued soon to guide the enforcement of the PPP Law and brought into force on January 1, 2021.

As regards revenue sharing, the law stipulates that the revenue sharing mechanism is applicable to all PPP projects with a fixed rate of 50-50 for both parties and on the basis of periodic control of annual revenue. The sharing of reduced revenue is revised only when the actual revenue only reaches 75% of the revenue in the financial plan and is applied only when all measures to adjust prices, fees for public products, services or contract terms have been taken and the reduced revenue must be audited by the State Audit.

Regarding fund pooling, in addition to banks, a conventional funding channel, the PPP Law allows PPP project companies to issue corporate bonds to mobilize capital for their PPP projects.

Concerning the State audit for PPP projects, the law specifies the scope and content of State audit applied to PPP projects, including the management and use of public finance and public assets.

With reference to BT (build - transfer) projects, the PPP Law advocates stopping BT projects in the coming period. Accordingly, the transition of ongoing projects is specified in the law. Particularly, from August 15, 2020, BT projects that have not been approved for investment policy must be stopped.

By Huong Giang, Vietnam Business Forum