VIETNAM - PUBLIC-PRIVATE PARTNERSHIPS – What you must know:

1. VIETNAM - PUBLIC-PRIVATE PARTNERSHIPS – What you must know:
OVERVIEW
Modern, efficient infrastructure is vital to continued economic growth and lowers the costs
of doing business for all investors in Vietnam. Rapid economic growth and urbanisation is
driving high demands for roads, electricity, ports, waste and wastewater treatment,
hospitals, and other public infrastructure for goods and services. However, the State budget
is estimated to be able to meet only about 50% of Vietnam’s infrastructure needs, which are
estimated at USD170 billion from 2011-2020.[1]
The balance would need to come from other
sources, including from private investments in the form of Public-Private Partnerships
(PPPs).
In recent years, the Government of Vietnam has conducted a rigorous legal reform process
aimed to increase foreign and private investment in the country. In 2015, the Government
issued two long-expected decrees on PPPs, namely Decree 15 on PPPs (the PPP Decree)[2]
and Decree 30 on investor selection for PPP projects (Decree 30),[3]
replacing the previous
regulatory framework relating to Build-Operate-Transfer (BOT) projects and pilot PPP
projects.
Since these decrees became effective, one Prime Ministerial decision and eight
implementing circulars have been issued, which contain wide ranging detailed regulations
covering a number of issues ranging from the method of preparation of feasibility studies for
PPP projects to PPP project registration procedures. Nonetheless, there remain some gaps
and inconsistencies in the legislative framework.
During the course of the past 20 years, there has been some limited success in
implementing a handful of power projects under previously existing BOT regimes.[4]
However, successful private investment in the public infrastructure sector has been the
exception rather than the rule, particularly in the case of private investment in PPP form.
The few reported cases of such BOT or PPP investments are usually implemented under
relatively basic project contracts and arrangements with the State that, although acceptable
to the local market, are insufficient in terms of risk allocation and legal protections to form
the basis of significant foreign cross border investment and financing.
Due to difficulties with the existing PPP regime, investors, and particularly foreign private
investors, have, in several cases, simply either (i) relied on constituting an investment
project under the Law on Investment or (ii) implemented build–transfer (BT) projects,
whereby the construction of public infrastructure, most often expressways, is rewarded by
the State granting the investor rights to implement a private project, usually for urban
development or real estate development.[5]
Although the PPP Decree, Decree 30 and the implementing regulations constitute an
important legal development, this will not by itself translate into a series of successful
privately invested infrastructure projects. In this chapter, we will discuss the following
recommendations to promote the PPP program in Vietnam:
 Develop a pipeline of visible projects.
 Improve the capacity and coordination amongst related Government agencies.
 Adopt the allocation and procedures for utilising viability gap funding (VGF).
 Streamline the detailed regulations on PPP program in Vietnam.
dEVELOPING A PIPELINE Of VIsIbLE PROJECTs
Relevant Ministries: Ministry of Planning and Investment (MPI), authorised State bodies,
and other related authorities
Issue description
The success of the PPP Decree and the robust legal reform process of Vietnam in the last
five years will largely depend on the government’s ability to bring about and promote viable

2. projects. In order to boost the credibility of Vietnam as a potential destination for PPP
investment, it is, in our view, essential that a small number of PPP projects be identified and
prioritised for tendering to the market rapidly.
Since Decision 631 of the Prime Minister was issued in 2014,[6]
which lists 127 national
projects seeking foreign investments of which approximately 35 projects are slated to be
developed under the PPP regime, to date no updated list of PPP projects has yet been
formally issued by the Government. As of 28th September 2016, it was reported that the
MPI has submitted a list of 108 priority projects to the Prime Minister’s office for approval
(the content of the list is not disclosed to the public in full).[7]
Once such a list is published, it remains to be seen how the Government envisages the
structuring and financing of such projects, including how the projects will benefit from the
State capital or other support.[8]
While lists of these types shed some light on the
Government’s priorities, in order for a Government-led PPP program to be successful,
individual projects first need to be carefully studied for technical and financial feasibility
before they are introduced to the market. These projects need not necessarily be the largest
and most high profile; they should be those projects which could be technically and
financially viable, allowing (i) lenders to become comfortable with the repayment risk and
profile attaching to their debt financing of the project and (ii) investors to recoup costs and
an attractive enough return on its investment after taking into account financing costs.
One helpful tool for developing a pipeline of projects will be the Project Development Facility
(PDF), a facility sponsored by the Asian Development Bank and Agence Française de
Développement (AFD) to assist the authorised State agencies in preparing and assessing
potential PPPs. The PDF will be administered by the Ministry of Planning and Investment,
which is currently drafting with the Ministry of Finance a joint Circular providing guidance for
management of the PDF. According to the latest draft Circular, the PDF will be a revolving
fund to be reimbursed by the winning investors of projects before the signing of the project
contracts (i.e. the winning bidder will be expected to cover the costs of preparing the
project).[9]
To date, there is no news on when the Circular will be issued and whether the
PDF will be launched in the near future.
Potential gains/concerns for Vietnam
Having tangible projects identified and announcing them to the market is of the highest
priority to maintain the momentum of Vietnam’s PPP program. Although the PPP Decree has
been a good start for the government to develop a visible project pipeline, an effective and
rapid implementation process with support and coordination amongst all related authorities
is now crucial to the success of the program.
Recommendations
 Update Decision 631 with a new list of key national projects, particularly in sectors
which are highly sought after by foreign investors such as transportation, prioritising
economically viable projects as those slated to be implemented as PPPs.
 Implement the PDF and put potential projects through a rigorous assessment (with
the help of international technical and financial consultants) involving homogenous
international standard screening procedures.
 Submit selected projects to a competitive, transparent tender as contemplated under
the Law on Public Procurement and its implementing Decree 30 and/or allow projects
to be developed by leading global sponsors on the basis of direct appointment as
pilot projects in specified high priority sectors in order to develop a baseline standard
of documentation and risk allocation which would be bankable in the international
markets.
II. ImPROVE CAPACITY ANd COORdINATION AmONGsT GOVERNmENT
AGENCIEs

3. Relevant Ministries: Ministry of Planning and Investment (MPI), authorised State bodies,
and other related authorities
Issue description
The lack of capacity, coordination and the lack of unified approach amongst Vietnamese
government authorities are what are most frequently cited by potential international project
investors and sponsors as major difficulties for doing PPP projects in Vietnam.
This issue is compounded by the fact that although BOT, BT and BTO regimes have been in
place for nearly 20 years, the legal framework for carrying out PPP projects is not yet fully
developed. The PPP Decree, in particular, does not fully address a number of key risk
allocation and commercial issues (including, for example, change in law and convertibility
risk) and also fails to provide detailed procedures for contract/project assignment rights
(including lender step in) resulting in uncertainty for the implementing authorities and, in
turn, delay in project contract conclusion and practical project implementation. There are
also only very limited precedents of financed and completed privately invested projects. The
government authorities, therefore, often do not have sufficient legal and practical guidance
to smoothly manage the implementation of projects, particularly outside the conventional
power sector.
It appears that there is often some confusion on the side of authorities discussing projects
with foreign investors between the traditional public investment and the PPP regime. The
former focuses more on input elements instead of outputs, does not require a sophisticated
project assessment process and a rigorous risk management and allocation mechanism.
Government authorities therefore often appear not to have sufficient experience and/or
understanding of the commercial drivers concerning private investors, such as elements
relating to the financial viability of a project and risk sharing mechanisms between the
private and public sector. In addition, limited exposure to international practice has also led
to a substantial gap in the approach between government authorities and foreign parties in
PPP projects, the former appearing more concerned with internal administrative procedures
and the latter with practical and commercial realities.
Finally, the lack of coordination by Government and amongst related authorities has also
caused confusion to investors. Although the PPP Decree contemplates a centrally monitored
program for managing PPP projects, there is work to be done to unify the practice of central
and provincial government authorities. Different industry sectors under separate authorities
are beginning to develop differing PPP investment practices. Provincial governments,
especially in more remote provinces, continue to be left outside the reform process.
Potential gains/concerns for Vietnam
The institutional and practical capacity and coordination issue will, in our view, outside the
commercial and economic realities of individual PPP projects, continue to be the single most
important factor reducing the competitiveness of Vietnam’s PPP program. It will continue to
cause delay and it will increase costs for projects when compared with projects in other
jurisdictions, including in the Association of South East Nations (ASEAN), potentially
resulting in a loss of investor patience and interest in the Vietnamese PPP program. Given
the robust PPP program in some other markets in Southeast Asia (such as Thailand,
Indonesia and the Philippines), failing to address this issue will make it even more difficult
for Vietnam to develop a competitive and visible project pipeline. We understand, however,
that work is being undertaken on some of these aspects with some of Vietnam’s
development institutions and this is very encouraging.
Recommendations
 Organise regular and quality workshops and capacity building sessions for the related
government authorities, especially officials at provincial levels.
 Continue to develop implementing regulations as well as project manuals to assist
the authorised State agencies in carrying out projects.

4.  Develop (with the help of international consultants with experience in other markets)
sets of approved bidding documents, including project contracts containing
internationally acceptable risk allocation models as a basis for bidding to reduce the
potential for delay.
 Bring in tangible projects in line with international best practice to provide the
authorised State agencies with hands-on experience.
 Require a participative implementing process with involvement of all key Ministries
and authorities for a unified practice in developing projects, potentially leveraging of
those individuals who have gained experience of bankability and finance ability
issues in the power context.
III. RATIONALIsING dETAILEd ImPLEmENTING REGULATIONs
Relevant State authorities: Ministry of Planning and Investment (MPI), authorised State
bodies, and other related authorities
The new detailed implementing guidelines for the PPP Decree and Decree 30 are welcome
and a testimony to the importance that the Government of Vietnam places on the
development of PPP as a means of attracting foreign investment and finance to the Vietnam
infrastructure market. Circular 06/2016/TT-BKHDT dated 28th June, 2016 on the conversion
of public funded projects to PPPs is, in particular, a significant step forward allowing the
Government to free up capital invested in existing projects for investment in other priorities.
Unfortunately however, notwithstanding the raft of new texts, some gaps and
inconsistencies remain, including relating to key bankability aspects, meaning that investors
will either be faced with situations where projects stall pending further guidance, or they
receive conflicting instructions. Further work will be needed to eliminate these problems.[10]
Viability Gap funding (VGf)
The fact that viability gap funding (VGF) for projects implemented under the new PPP
Decree 15 is uncapped is a very encouraging step forward for foreign participants in the PPP
market. For future PPP projects, the Government is reported (although it is unconfirmed) to
have set aside a Viability Gap Fund of up to USD 1 billion to support projects that would not
otherwise be financially viable. There is no detailed guidance to date on the management of
and eligibility to VGF. Transparent and clear procedures must be in place in a way that
assure project sponsors and lenders that the funding will be available in accordance with
project needs as part of the launching of any new PPP project on the market.
Land use right and right to mortgage
The PPP Decree provisions regarding the right to mortgage land use rights are ambiguous,
especially if the investor has been exempted from land use fees. Exemption from land use
fees or rent is allowed under the PPP Decree, in accordance with the Law on Land which also
provides for the exemption of land use fees. Regarding the mortgage of land use rights, the
PPP Decree does not respond to the inconsistent provision of the Law on Land under which
the right to mortgage is only granted if the rent or fees have been fully paid by the investor.
Thus, both regulations follow the interpretation that an investor having benefited from an
exemption of the land use or rental fees may not be entitled to mortgage the land. This
scheme discourages lenders from supplying PPP investors with loans, and renders the whole
PPP framework less efficient. No new guiding regulations have yet been issued on this
matter, whether for the Law on Land or the PPP Decree.
Foreign currency exchange rate guarantee
Though the State guarantees the balance of foreign currency, the government guarantee for
foreign exchange rates is a central issue for investors seeking to remit capital overseas. The
PPP Decree does provide for the government guarantee of foreign exchange rates for three
categories of projects, including projects for the construction of infrastructures within the
investment programs of the government. However, no clear guidance exists regarding the
ratio of the foreign exchange rates guaranteed by the State. Unlike the Official Letter
1604/TTg-KTN dated 12th September 2011 under the previous PPP Decree which limited

5. the guarantee for thermal BOT power projects, the PPP Decree has not yet benefited from
clearer regulations. Foreign investors in particular are unable to predict the conversion of
their project revenue, and thus remain unsure of the potential gains or losses when
investing on the long term in a PPP project. Guiding documents are still awaited, as it would
greatly benefit to a more stable investing environment for foreign investors seeking PPP
projects in Vietnam.
Investor-state dispute resolution
Access to alternative methods of dispute resolution has been an on-going challenge in
Vietnam, particularly when one of the parties involved in the dispute is a State entity. The
PPP Decree provides that disputes between investors and State authorities can be settled
through a Vietnamese arbitration organisation, or through an arbitration tribunal to which
the parties have agreed if dispute involves a foreign investor. It also provides for the
enforcement of foreign arbitral awards. Nonetheless, an important amount of arbitral
awards are set aside each year by Vietnamese courts and the record of successful
enforcement of foreign arbitral awards in Vietnam remains low. The current framework of
Investor-State arbitration remains ineffective, affecting the overall functioning of PPP
regulations which inherently involves both State authorities and foreign and private
investors.
Overlapping regulations on investment procedures
A number of the new circulars mention the need to prepare an environment impact
assessment report (EIA Report). However, whereas the Ministry of Industry and Trade
(MOIT) issued Circular 23/2015/TT-BCT on 13th July 2015 on the sequence and procedures
for developing BOT thermal power plant projects, which requires the EIA Report to be
approved by the Ministry of Natural Resources and Environment (MONRE) before the MOIT
will consider the feasibility study, the Ministry of Planning and Investment (MPI) issued
Circular No. 02/2016/TT-BKHDT on 1st March 2016 on preliminary project selection,
establishment, appraisal and approval for PPP project proposal (which applies to all PPP
projects), which includes instructions on the preparation of the feasibility study, which itself
must contain an EIA Report. It is unclear how the EIA Report should be included in the
feasibility study. If it is a draft, it remains subject to the approval from the MONRE and may
change after it has been included in the feasibility study, whereas if the EIA Report has to
be first approved by the MONRE before being included in the feasibility study, then it is not
clear whether the MPI will require changes to the EIA Report as part of its review of the
feasibility study. In short, this requirement needs clarification and coordination between the
two Ministries.
In another example, Circular 38/2015/TT-BCT dated 30th October 2015 issued by Ministry
of Industry and Trade (MOIT) specifies that a PPP project in 'logistic centre' would fall under
the management of the MOIT, whereas Circular 86/2015/TT-BGTVT dated 31st December
2015 issued by the Ministry of Transportation (MOT) specifies that ports and airports will be
under the management of the MOT. If a port or airport PPP project includes a ‘logistic
centre’, there is a question whether it will be under the management of both the MOIT and
the MOT.
The above are only some examples of issues that may arise from the current implementing
regulations. They may of course in due course be resolved by ad hoc decisions of the
relevant governmental ministries. However, they add a layer of legal uncertainty and
complexity to the project development process, and thus should be improved by
amendments to the relevant regulations.
Potential gains/concerns for Vietnam
The new guiding regulations in relation the PPP Decree play an important role in continuing
the broad legal reform required to attract private capital into the infrastructure market.
However, as Vietnam advances into a new phase of PPP development, the Government’s
efforts must be pursued to ensure a consistent, sound and accessible legal environment.

6. Investing in infrastructure projects in Vietnam remains problematic for foreign investors,
who continue to face persistent and unsolved difficulties during the PPP project cycle.
Recommendations
 Continue to streamline the policies and guidelines related to PPPs to attract foreign
investors looking to invest in infrastructure in the country, focussing on certain key
elements such as the availability and disbursement of VGF.
 Test these regulations with actual projects so that investors can get comfortable with
how they will be interpreted in the context of developing a PPP.
 Developing project manuals (in addition to normative legal texts) which can be
tested and adjusted based on the actual issues encountered in practice.
 Develop sets of approved bidding documents, including project contracts containing
internationally acceptable risk allocation models in areas where the regulations are
silent.
 Establish an attractive policy on government guarantee of foreign currency needs.
 Continue to work of developing the capacity of the judiciary to enforce arbitral
awards to increase investors’ confidence in their ability to enforce their civil and
contractual rights in Vietnam.
Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if
you have any questions or want to know more details on the above. Oliver Massmann is the
General Director of Duane Morris Vietnam LLC.
Thank you!
[1] Strengthening Public-Private Partnerships’, VCCI News, 16th April 2014. Available at
<http://vccinews.com/news_detail.asp?news_id=30318>.
[2] Decree 15/2015/ND-CP dated 14th February 2015 on investment in the form of public-
private partnership.
[3] Decree 30/2015/ND-CP dated 17th March 2015 on implementing the Law on Tendering
regarding investors selection.
[4] Since the date of the PPP Decree, two large-scale, Malaysian investor-led coal-fired
power plants, Duyen Hai 2 and Hai Duong, have achieved financial
close and commenced construction. Their investment and financing arrangements, however,
were well under way before the PPP Decree was adopted;
and they are considered 'legacy' projects rather than the direct result of the issuance of the
PPP Decree.
[5] Examples: (i) the project to construct the Pham Van Dong Road in HCM city connecting
Tan Son Nhat airport to industrial zones in Binh Duong and Dong
Nai, in which the government entered into an agreement with the investor (GS Engineering
& Construction) in which the investor finances and develops
the infrastructure in exchange for the development rights and land use rights of certain lots
of land in Districts 2, 9 and 10 for real estate developments,
or (ii) the project in which the investor (Gamuda International) constructed Yen So sewage
treatment plant in Hanoi in exchange for a lot of land for real
estate development in the city.
[6] 'Medium-term public investment plan reviewed', MPI, 3rd October 2016,
<http://www.mpi.gov.vn/en/Pages/tinbai.aspx?idTin=34461&idcm=92>.
[7] Gov’t lists top Public-Private Partnership projects
<http://www.mpi.gov.vn/en/Pages/tinbai.aspx?idTin=34485&idcm=92>

7. [8] Decision 631/QD-TTg dated 29th April 2014 of the Prime Minister on the promulgation of
the list of national projects in which foreign investments are
called for by 2020.
[9] Draft circular on Management of the PDF (unclear planned issuance date). Available at
<http://ppp.mpi.gov.vn/Pages/tinbai.aspx?idTin=31>.
[10] There are some inconsistencies in the texts relating to the valuation and payment of
land use rights in the context of BT projects. We have not focussed
on these issues in this paper, which is more concerned with the legal and institutional
framework for encouraging private investment outside this
structure.