Creating Best Conditions for Japanese Investors

According to Deputy Minister of Planning and Investment (MPI) Dao Quang Thu, the profound diplomatic relation between the governments of Vietnam and Japan has become closer after the two countries became strategic economic partners. This is clearly demonstrated through the fact that now Japan is the largest ODA donor of Vietnam. And the Government of Vietnam also greatly appreciates the support of Japan in the socio-economic development course in general and infrastructure development in particular. Mr Thu added that in the first meeting on PPP in Vietnam, the MPI in collaboration with the Japan Bank for International Cooperation (JBIC) organised 3 technical meetings. Through these meetings, the MPI appreciated the contributions of Japan in supporting Vietnam draft decree on PPP, helping Vietnam address these critical issues and facilitating to open up opportunities for cooperation under PPP. In the second meeting, Deputy Minister Thu said that it’s expected that the Decree on PPP investment would be issued in the third quarter of this year. According to the draft, many of the key issues are addressed, creating conditions for the development of PPP projects. This policy framework also opens up more opportunities for cooperation between Vietnam and JBIC in the future. This meeting is an opportunity for JBIC to share their views about PPP draft decree and problems which can occur when implementing the new law.

 

On the Japanese side, Mr Hiroshi Watanabe, President and CEO of JBIC reiterated the results achieved in the first high-level meeting on promoting PPP projects in Vietnam held in March 2013. Accordingly, in the first meeting, MPI and JBIC signed an MOU to draw up a meeting framework between JBIC, MPI and the concerned agencies of Vietnam to promote the PPP projects. The objective of the framework is to form and promote PPP projects in Vietnam which are feasible, reliable and can be used for bank loan. After the first high-level meeting, 3 technical meetings have been held by the MPI and JBIC in the past year to discuss more specific issues directly related to the implementation of PPP projects, such as risk-sharing mechanism from the perspective of investors and lenders, minimum revenue guarantees and foreign exchange guarantee.

 

Also to open more roads for Japanese investors to penetrate the Vietnamese market as well as express his goodwill, Hiroshi Watanabe said that JBIC currently was playing a big role in Southeast Asia, having extensive experience in PPP and looking forward to contributing to the government of Vietnam. JBIC is not only interested in making profit, but also creating a stable regulatory environment to attract Japanese investment to Vietnam under PPP model. Also in the framework of this meeting, JBIC launched BOT projects being considered by Japanese investors including Nghi Son II BOT coal power project, Vung Ang II coal power project and Van Phong I coal power project. These 3 projects are in the period of exchange, negotiation, creating concern for Japanese investors.

 

Analysing the content of the draft decree on the PPP investment, Le Van Tang, Director General of Public Procurement Agency (MPI) added that the Draft Structure consisted of 12 chapters and 82 articles. Decree on PPP investment is built according to the main directions: to attract strong investment, especially in the area of foreign direct investment (FDI); to do competitive bidding when there are two or more investors are interested in; to publicize policy/price framework to reduce the negotiation time; to clearly define responsibilities of the State in PPP projects, ensuring a commitment to stabilize investment environment for PPP projects; and to ensure that the fields of PPP projects are under the responsibility of the State for the society.

 

In addition, the ultimate target of PPP Draft Decree this time is to overcome the limitations and shortcomings in the implementation of the Decree 108/2009/ND-CP dated November 27^th 2009 of the Government on investment in the form of Building - Business - Transfer contracts, Building - Transfer - Operate contracts, and Building - Transfer contracts and the Decision 71/2010/QD-TTg dated November 9^th 2010 of the Prime Minister promulgating the Regulation on pilot investment under the PPP model. At the same time, the draft decree builds a uniform, transparent and effective legal framework to continue strong commitment of the Government of Vietnam in encouraging the private sector in domestic and foreign countries to participate in the development of infrastructure, contributing to the restructuring of the investment with the focus of public investment. On the exact moment to put the Decree into practice, Mr Tang said that since September 2013, the Prime Minister has advocated consolidating Decree 108/2009/ND-CP and Decision 71/2010 / QD-TTg into a decree on PPP investment. To date, the Drafting Committee has completed the 4^th PPP Draft Decree to submit to the Ministry of Justice to assess and the Government to issue in the third quarter of 2014.

 

However, according to representative of investors, Mr Tatsuhiko Takesada, Executive Officer for Asia and Pacific, JBIC, Japanese investors are concerned that 90 percent of the profit of investors has to be converted into the US dollars for remittance to their home country, while the convertible ability of Vietnamese dong is still quite limited. The principle of risk sharing is to be allocated to the party which best manages that risk. The investors cannot manage well the risks of foreign exchange in the Vietnamese foreign exchange market, so instead of the investors being fully responsible for the risks, the Vietnamese Government should take measures to steer the banking system as well as the relevant authorities in Vietnam to have the incentives for investors to convert foreign currency easily.

 

On this particular issue, Mr Le Van Tang said that the Government of Vietnam will ensure the needs of foreign currency for important projects are met, according to government’s investment plan and other projects under the decision of the Prime Minister. However, the Government of Vietnam can not ensure the stability of the exchange rate in the entire life cycle of PPP projects, because the PPP project can last for a long time and even up to a maximum of 40 years. Therefore, investors should choose two solutions. First, investors must calculate the risk of exchange rate fluctuations in the bidding price. Second, the investors should divide their projects by roadmap of 5 years, 10 years or 15 years to calculate the volatility in the exchange rate in contracts. During operation, if the variation exceeds a certain threshold, the contracts will specify the mechanism of how to share. Such regulations would be more flexible and not rigid, reducing investors' disadvantages if bad situations happen, Mr Tang said.

 

In terms of Japanese investor concerns about the risk of inconsistency of legal documents for PPP, Deputy Minister Dao Quang Thu said the PPP Decree only specified frame of principle and on the basis of which, other ministries will propose specific policies of each sector and issue their own instruction circulars. The Instruction Circular must be advised by Steering Committee of the PPP, led by Deputy Prime Minister Hoang Trung Hai to unify the legal framework. As for projects out of the general framework, the Government will have flexible mechanisms under each project with the motto to facilitate optimal incentives for investors to implement projects in Vietnam, stressed Deputy Minister Thu.