Harmonizing Interests among Stakeholders in PPP Projects

9:38:20 AM | 16/10/2020

The performance of public-private partnership (PPP) investment projects should be based on the principle of harmonizing interests of the government and investors, and balancing affordability for the people and lendability for banks.

Balancing interests

The goal of the PPP Law is to engage individual and institutional investment resources for the country’s socioeconomic infrastructure in general and for localities and sectors while the State budget is not enough.

According to experts, if a project has better benefits for the government, private investors will shrug it off. On the contrary, if it is only for the sake of investors’ interests and no State interests are taken into consideration, it cannot guarantee its objectives and effectiveness. Therefore, a PPP project must ensure the following factors: Ensuring no loss and no abuse, ensuring governmental interests; ensuring competitiveness, safety and attractiveness to entice investors; easily accessing good international practices.

Mr. Aguin Toru, Chief Representative of the Japan Bank for International Cooperation in Hanoi (JBIC), said, based on experience from Japan, PPP needs to take into consideration interests and expectations of four parties. To sustain long-term PPP cooperation, it is necessary to ensure sustainability and affordability for users, the creditworthiness of investors, the stability of the Government and the public sector, and the lendability of banks/credit institutions.

Mr. Tran Van The, Vice Chairman of Deo Ca Group, said, his Deo Ca Group is investing in national key projects but there is no risk sharing mechanism in the investment license because the PPP Law and related regulations were not in place at the time of commencing the projects.

Referring to regulations in the Law on Investment on policy changes that benefit investors, Mr. The proposed applying a revenue sharing mechanism.

Dr. Tran Chung, Chairman of the Vietnam Association of Road Traffic Investors (VARSI), agreed that many investors are wondering about the transition to the PPP Law. In Article 82 of the PPP Law, the revenue increase and decrease sharing mechanism is only applied to projects that include this content in the investment decision. “So, for ongoing projects, even five North - South expressways which are being carried out with the PPP mechanism, is the revenue risk sharing applied?"

Risk sharing mechanism

According to the Ministry of Planning and Investment of Vietnam, the risk sharing mechanism in revenue increase or decrease in PPP projects is a breakthrough mechanism of the PPP Law. Many agreed with revenue risk sharing rather than by loss/profit sharing. This matter was carefully studied in line with international practices and corporate financial viability.

Specifically, if the investor has its revenue dropping to 75%, the government must share the risk and it must revise the contract before applying this risk sharing like collection term and collection rate. When this mechanism is activated, the risk is shared 50-50 by the government and investors. Thus, the revenue reaches 76% or more, investors must be self-responsible. If the revenue increases to above 125%, for any reason, the excess will be shared 50-50 by the government and the private sector.

According to experts, in risk sharing in PPP projects, risks of site clearance, policy changes and planning changes will be allocated to the government, while the private investors are exposed to construction risks (quality, progress and capital). Matters concerning capital arrangement will be borne by the investors although this clause depends on the government's support/guarantee and agreements between the government and the investors.

Some other risks shared by the government and the investors are traffic flow/revenue, foreign currency purchase, exchange rate and force majeure reasons. If risks are higher, profit and cost will be higher as a result.

As a PPP project is not purely public-invested, its contract execution should be performed by a competent authorized governmental agency and a company subject to transparency of audit, contractor selection, service quality and project value transferred to the governmental agency in charge. The private investor can hire an independent auditor to audit its business activities.

By Huong Giang, Vietnam Business Forum