Addressing Shortcomings in PPP Projects

11:55:21 AM | 3/9/2020

In addition to achieved results, public-private partnership (PPP) investment projects are exposing some shortcomings. Project and investors selection is difficult. Most PPP projects use the contractor appointment mechanism to select investors that has proven to be potentially risky and wasteful. Tender-based investor selection is time-consuming.

Many limitations

Competing with other countries in attracting foreign investment in PPP projects is quite difficult because other countries have a more favorable legal and institutional environment for private investment than Vietnam.

Specifically, investors pointed out such barriers as incompetence to build quality projects, insufficient guidance for project negotiation, barriers from other relevant laws and regulations (PPP projects are subject to various laws and potential conflicts between the PPP legal framework and other laws, PPP projects are fully governed by regulations on public investment projects), limited competition in tender-based investor selection, unreasonabe risk sharing mechanism and policy risks.

Hasty project selection leads to careless project preparation and appraisal, narrow public consultation, and insufficient feedback mechanism for service users in service delivery of authorities.

Project announcement and investment portfolios in some projects are not carried out seriously, publicly and transparently. In the transport sector, some roads are just upgraded and improved but the people still have to pay fees or the people have no other choice because of monopolistic roads.

Financial instruments for investment preparation, project implementation and risk aversion for investors do not have enough resources for project arrangement and preparation owing to insufficient resources for making pre-feasibility and feasibility study reports. At the same time, PPP projects are less attractive to investors due to insufficient mechanisms to allocate public investment capital for PPP projects and lack of risk sharing tools for projects.

PPP Law - The foundation to address shortcomings

The Law on Public-Private Partnership (PPP Law) promises to create a more favorable policy foundation for capital pooling for PPP projects. For example, policies towards promoting open competitive bidding, reducing bidding procedures compared to current regulations and contractor appointment cases are increasingly tightened.

Investor selection process is simplified. Specifically, contents concerning investor selection plans (e.g. investor selection methods and forms, time for investor selection) are approved at the same time in the feasibility study report.

Careful PPP project selection and more methodical PPP project appraisal ensure that, after the appraisal process and guidance of interagency authorities, competent authorities will choose effective and feasible projects.

Regarding information disclosure and transparency, all steps such as project preparation, investor selection and contract signing are made public and transparent on the national bidding network system. In addition, in order to make information transparent to the people, especially those affected by the project, the law supplements consultation mechanisms for project-affected subjects. Specifically, in the investment preparation stage, the project preparation body must integrate consultation results with concerned agencies and individuals about project impacts.

The PPP Law introduces principles of applying right contract type. The user fee collection is only applied to new PPP projects and people have more than one choice of service usage. For upgrading and renovation projects, State payment contract will be applied to investors.

Clearly affirming that funding mechanism for public investment in PPP projects and financial tools for investment efficiency and risk aversion for investors, the PPP Law stipulates that State support capital for projects is sourced from public investment fund of the medium-term public investment plan or public asset value. The PPP Law also provides for the Government guarantees and revenue risk sharing mechanism for important PPP projects where the Government decides for each specific project case.

The law enhances the effect of PPP project inspection and audit, sanctions and penalties, and clearly defines responsibilities and obligations of competent authorities: Resolving petitions, disputes and violations; conducting general inspection, specialized inspection, State audit and supervision of PPP investment; and defining duties, powers and responsibilities of agencies, organizations and individuals in PPP investment; and declaring bidding result invalidation, contract termination, contract suspension and criminal prosecution. Specific sanctions and penalties are guided by the Government to ensure flexible operations of PPP investment method.

By Huong Giang, Vietnam Business Forum