Rules aim to promote infrastructure investment

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VietNam News English - 46 month(s) ago 3 readings

The Ministry of Planning and Investment estimates that between now and 2020, Viet Nam will need some US$150-160 billion for infrastructure development, while the State budget and official development assistance (ODA) will only be able to provide half of this amount.

To seek other funding sources for infrastructure development, the Prime Minister issued Decision No 71/2010/QD-TT in November on the pilot application of the public-private partnership (PPP) model, which took effect on January 15. The regulation is intended to apply to pilot projects for three to five years until it is replaced by a more comprehensive decree governing PPP investments.

The regulation sets forth conditions and procedures applicable to infrastructure development projects or the provision of public services on a trial basis using the PPP model.

The concept was first introduced in Viet Nam in the 1996 Law on Foreign Investment in the form of build-operate-transfer (BOT), build-transfer-operate (BTO) or build-transfer (BT) contracts, and was further refined with the promulgation of the 2005 Law on Investment and Government Decree No 108/2009/ND-CP on BOT, BTO and BT investments.

However, the ability of these forms to attract PPP investment fell short of expectations. According to MPI statistics, since 1996, there have been only 90 PPP projects nationwide with a total registered capital of $7.1 billion. Among them, only two major foreign projects, namely the Phu My 2 and Phu My 3 gas-fired power plants, commenced operations under a BOT regime.

The new regulation, with comprehensive and open provisions, is expected to create a breakthrough in luring private investment in infrastructure development. The regulation expands sectors available for PPP investment, including some which used to be exclusively reserved for State enterprises, such as roads, bridges and tunnels; ferry landings; rail infrastructure; urban traffic systems; airports, seaports and river ports; water supply and waste treatment systems; and hospitals.

Under the PPP model, an authorized State body and an investor jointly implement a project on a contractual basis. The authorized State body can be any ministry, ministerial-level agency, Government-attached agency or provincial-level People's Committee as decided by the Prime Minister while its contractual partner can be an individual or institutional investor at home or overseas.

Partners to a PPP project may use equity capital, domestic or foreign commercial loans or funds raised from other sources, provided that the financing does not give rise to public debt. Of the total capital contributed by the private investor to the project, its equity capital must account for at least 30 per cent while the remaining 70 per cent can be raised from other sources without Government guarantee.

The regulation removes the current 49-per-cent cap on State capital invested in these projects and replaces it with a new concept of State portion which is limited at 30 per cent unless otherwise decided by the Prime Minister. The State portion can be in the form of capital or investment incentives, or tax policies.

The regulation specifies project preparation steps from investor selection through project implementation. Compared to current regulations, conditions and criteria for selection of PPP projects and project investors are clearer and more transparent, helping screen out inappropriate proposals while reducing risks to investors in the initial period.

Under the regulation, a project proposal, regardless of whether it is originated by an authorized State body or a private investor, will be first assessed by the MPI and, if qualified, incorporated into a project portfolio to be approved by the Prime Minister. This project portfolio will then be announced in the Tendering Bulletin and the MPI website.

Based on the approved project portfolio, the authorized State body will hold a tender process to select a consultant to formulate a feasibility study and execute a consultancy contract with the selected contractor within 30 business days after the tender results are approved. The State portion, investment security mechanisms and other matters will be decided upon by the Prime Minister during this phase based on the proposal of the authorized State body and the MPI evaluation report.

After the feasibility study is approved, the authorized State body will issue bid dossiers and hold an open domestic or international bid process to select the project investor. Competitive tender is always required under the regulation, alhough exceptions for direct appointment of contractors are available under Decree No 108.

The regulation also states that a project contract must be finalised and initialed within 30 business days after the project investor is selected for submission, together with other relevant documents, to the MPI for the grant of an investment certificate. The time limit for the MPI to conduct evaluation and grant an investment certificate is 45 business days from receipt of a valid application.

As the regulation does not allow operating enterprises to manage and implement PPP projects, after receiving the investment certificate, project partners will jointly establish a new enterprise, called the project enterprise, to implement the project.

The regulation also devotes a separate chapter to investment incentives. These make project enterprises entitled to corporate income tax incentives and exemptions from land use fees for the entire duration of operation. Goods imported for project implementation will enjoy incentives under the Law on Import and Export Duties. Project enterprises will also be permitted to pledge or mortgage assets and land use rights on the condition that such pledge or mortgage does not affect the project's objectives, schedule or operation. In the process of building and operating the project works, the investor and the project enterprise may acquire foreign currency from licensed banks to pay for current and capital transactions, or machinery and equipment purchased or leased from foreign parties, or transfer profits abroad.

A project enterprise may also have priority access to public utilities, services and facilities needed to complete the project. The Government may appoint an agency to guarantee the supply of raw materials or products necessary for the performance of the contractual obligations of the project investor. — VNS

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