Flexible Stability Needed to Attract Funding for PPP Projects

1:21:06 PM | 5/29/2020

The draft law on public-private partnership (PPP) is scheduled to be submitted to the National Assembly for approval at the 9th meeting in May 2020. The drafting agency and the appraising agency have hosted many meetings and discussions with investors and experts with the aim of perfecting the law to attract private participation in PPP projects.

Breakthrough, equality and flexibility

According to Dr. Vu Tien Loc, President of the Vietnam Chamber of Commerce and Industry (VCCI), the draft law on PPP is being compiled with a strong commitment of the Government to building an effective, stable and convenient legal and institutional environment for the implementation of PPP projects. Vietnam defined that infrastructure is one of three strategic breakthroughs in national development and PPP is considered an important instrument to promote infrastructure development.

Other than being limited to traditional fields such as traffic, energy and water supply, PPP projects are expected to be extended to the fields that make major breakthroughs in improving national competitiveness, labor productivity and people’s livelihoods such as information technology, railway, aviation, logistics, healthcare, environmental sanitation and education, he said.

Without breakthroughs in infrastructure development, human resources, and institutions, Vietnam could not keep up with the wave of trade and investment of the modern world. “We are in a competitive market for investment capital. If other countries have better laws and environment, they will attract more investors. Therefore, in order to compete for investment funds, the Construction Law must meet advanced standards and we must have breakthrough efforts,” said Dr. Loc.

Vietnam has experience in public investment management, but it is bogged down in this area. US$30 billion is locked to ministries, branches and localities and it cannot be disbursed because of procedural matters. “We should not let PPP confront procedural problems as well. Then, we will not be able to mobilize resources for development. In the current context - the world is reshaped, Vietnam has the opportunity to receive foreign investment flows and the Law on PPP must also be formulated with an innovative spirit,” he added.

Besides, Dr. Vu Tien Loc emphasized that the PPP legal system and contracts must ensure legal equality to all partners no matter who they are - the State or the private sector. Both benefits and risks must be shared.

The Law on Public Investment refers to the legal framework for long-term investment. We need stability, but flexible stability because rigidity is not suitable in the current changing world.

Investor support policy in focus

According to a representative from the American Chamber of Commerce in Vietnam (AmCham), the lack of clarity of current regulations and some contradictions in the draft PPP law with other regulations limit incentives for PPP investors. The drafting agency also needs to develop current regulations toward international standards to increase the magnetism of Vietnamese PPP projects to foreign investors. For example, providing a clear and consistent framework for PPP projects will help these projects benefit from the Viability Gap Fund (VGF), a financial assistance program for PPP projects, and ensure minimum revenue and risk-sharing measures.

Experts recommend supplementing regulations on bidding preferences for PPP project investors. Detailed incentives should be specified in decrees that instruct the implementation of the PPP Law. In particular, the draft law should not mandate the employment of domestic contractors or domestic subcontractors, but should allow the employment of both domestic and foreign suppliers at the wish of the investor. In addition, it is necessary to further streamline policies and guidelines concerning PPP projects, including regulations that will be issued after the enactment of the PPP Law to attract foreign investors seeking investment opportunities in infrastructure in Vietnam, focus on key factors such as availability and disbursement of VGF and credit support measures.

Mr. Oliver Massmann, General Director of Duane Morris Vietnam Law Firm, said that some outstanding issues are cumbersome administrative procedures and foreign currency balancing plans. According to the bill, the foreign currency balance plan is applied to only projects adopted by the National Assembly and the Prime Minister at a rate of 30%. As such, only large-scale energy projects are eligible. The government should expand the scope of projects eligible for foreign currency balancing to attract private investors.

Mr. Antoine Logeay from Audier & Partners Vietnam Law Firm said that the two thresholds of funding end-time in projects approved by the National Assembly or the Prime Minister - 12 months and 18 months - are too tight and rigid. Moreover, the bill has not specified how investors will be treated if they do not comply with the funding time frame. This must be clarified.

According to Mr. Dao Viet Dung, representative of the Asian Development Bank (ADB) in Vietnam, development funds must be set up to create a foundation for the implementation of PPP projects. The establishment of these funds must be conducted in a transparent process with monitoring tools. This fund is a financial source and also a guarantee for the funding diversification policy for PPP projects as the Government committed to investors.

By Huong Ly, Vietnam Business Forum