PPP Investors Face Policy Disadvantages

10:12:01 AM | 10/20/2021

Decree 28 on financial management of public-private partnership (PPP) investment projects in Vietnam is controversial after half a year of practical application.

Changes in capital advance mechanism for businesses

According to experts, Clause 3, Article 8 of Decree 28/2021/ND-CP stipulates that the budget for infrastructure construction is paid for only completed volume that is verified by project contracting parties. This will put investors at risk because they have to spend equity and loan capital for their projects before the State fund is disbursed for completed items.

In PPP projects, investors and the government share investment capital. However, according to the investor of the North-South Expressway that is invested in the PPP form, it is irrational that investors cannot make an advance as per Decree 28/2021/ND-CP. Therefore, this clause needs to be revised to have State budget advance for investors and contractors when the project is prepared and executed.

Overdue interest rates need to be counted

Constraints in regulations on capital advance also make it difficult for businesses to sign credit contracts because banks are afraid of risks of delayed disbursement of State support budget.

In addition, regulations on the principle of controlling public budget payment in PPP projects in Clause 2, Decree 28 state: "State budget in PPP projects is paid when competent authorities assign capital plans and allocate budget estimates by law”. This regulation is reportedly unclear in settling slowed State budget payment under PPP project contracts, leading to heightened risks for investors and banks.”

Currently, some PPP projects, especially the North-South Expressway, have been delayed because competent governmental agencies do not timely allocate State budget. Therefore, some investors are asking to calculate interest if the State is slow to disburse the support capital.

Revising regulations on increased/decreased revenue sharing

Another shortcoming in regulations on revenue sharing of a PPP project under Clause 2, Article 17 of Decree 28/2021/ND-CP is that the contract-signing agency determines the value of the shared revenue while investors are not mentioned.

Dr. Tran Chung, Chairman of the Vietnam Association of Road Systems Investors (VARSI), affirmed that the project company is also a party and it therefore has the right to have a part in determining the revenue which serves as the basis for implementing the revenue sharing mechanism. This provision of Decree 28 is contrary to the principle of equity between the project company and the contracting agency, so it should be considered for amendment or cancellation.

Contractor appointment applied to only single investor registered

Circular 06/2020/TT-BKHDT provides: In case only one investor registers and meets requirements of bidding documents (HSMT), contractor appointment may be used or time may be extended for more registration.

Decree 25/2020/ND-CP stipulates that the contractor appointment shall only be applied in cases where only one investor registers and meets bidding requirements or it is only one qualified investor.

According to PPP Law and Decree 35/2021/ND-CP, contractor appointment is only applicable to projects that need to meet requirements of national defense, security, and state secret; or projects that need to immediately replace investors to ensure project continuity.

Thus, there are contradictions in contractor appointment. In ordinary projects, Decree 25/2020/ND-CP and Circular 06/2020/TT-BKHDT allow applying contractor appointment but Decree 35/2021/ND-CP disallows it.

In order to resolve this contradiction, according to experts, it is necessary to revise consistency of Decree 25/2020/ND-CP, Circular 06/2020/TT-BKHDT and Decree 35/2021/ND-CP to provide guidance on cases where there is only one registered investor who meets bidding requirements or only one investor wins the bid after extending the deadline for submitting tender documents which are not filed by any other new investors.

The Business Office for Sustainable Development (SD4B) under the Vietnam Chamber of Commerce and Industry (VCCI) and the Committee on Public Private Partnership under the National Council on Sustainable Development and Competitiveness Improvement are carrying out the Project "Strengthening participation of the private sector in public-private partnerships in Vietnam (2020-2024)".

Accordingly, the project supports building a policy framework to attract private investors into PPP programs, especially those in connection with sustainable development goals and social capital efficiency.

Huong Ly (Vietnam Business Forum)