In the second of our guides to Vietnam's Public Private Partnerships programme, we focus on what the Vietnamese Government's framework regulations actually say and summarise the procurement timetable.
Private sector investment
The Vietnamese Government's Public Private Partnership framework regulations (PPP Regulations) are the base on which the Government plans to build its infrastructure investment ambitions. Effective and thorough implementing regulations may need to follow to flesh out the detail.
Prospective investors should note firstly that the PPP Regulations do not set up any distinct investment regime for PPP projects. Investors will still need to comply with all applicable investment regulations, including any limitations on foreign ownership.
The PPP Regulations set out a requirement that investments have a senior debt to equity ratio of 70:30. This means that investors will need to have a much higher proportion of their funding up front than is the case in comparable programmes in emerging markets - and, indeed, when compared to European ratios.
By definition, PPPs promote partnering between the public and private sectors at every stage of a project. The PPP Regulations allow the Vietnamese Government to make a state contribution to a project in the form of one or more of:
- direct state capital – for example budgeted investment capital, government bonds, official development assistance or state-guaranteed credit facilities;
- investment incentives – for example special tax treatment;
- relevant financial policies.
In practice, the most likely form of state participation would be in the form of existing real estate or assets by way of mortgage or otherwise. This would need to be in compliance with the relevant underlying regulatory regime.
The PPP Regulations cap state participation to a maximum of 30% of the total investment level, unless the Prime Minister decides otherwise. The Government can also support the project by providing land, roads and other supporting infrastructure. In addition, where the project is exposed to the risk of limited utility services the Government will prioritise the project. In specific circumstances the relevant state entity can arrange to guarantee the supply of materials, sale of products and other contractual obligations for investors or to oblige state enterprises to sell to or buy from the project vehicle.
However the Vietnamese Government will not provide automatic guarantees to PPP projects. These will be available on a case by case basis. The Government aims to have potential investors send proposals that will require the least amount of public support or funding and deliver the best value for money.
Project contract elements
The PPP Regulations stipulate specific details that must be covered in the project contract. These include:
- variation to the contract;
- the term, or length, of the contract;
- performance guarantees;
- transfer of project assets;
- funder step-in rights;
- assignment provisions;
- design, construction and operation requirements.
The existing Vietnamese project finance regime contains the same provisions, as well as dispute resolution procedures. An interesting departure from the existing regime is that the PPP Regulations do not contain an equivalent of the former's capital and asset assurance provision, which states that an investor's investment capital and lawful assets will never be nationalised or confiscated through administrative measures. This existing provision also goes on to state that when it is necessary to compulsorily purchase or requisition investors' assets, the State can only do so where it pays or compensates for those assets. The omission of this may need further clarification to reassure investors.
Procurement timetable for PPP projects
The PPP Regulations anticipate a procurement timetable which appears to borrow heavily from established European models. The Regulations aim to attract both domestic and – expressly – international private sector participants and raise capital for infrastructure in Vietnam. In order to do so the Regulations adopt principles of "competitiveness, fairness, transparency, economic efficiency and conformity with Vietnamese law and international practices".
A summary of the timeline for a prospective project as set out in the PPP Regulations is outlined below.
Stage 1 - Preparation of a Project Proposal: a relevant approved state agency or an investor prepares a project proposal. There is a requirement at this first stage for an analysis of the project's overall effectiveness, which appears similar to the public sector comparator and value for money assessment in the UK PPP regime.
Stage 2 – Submission of Project Proposal: the proposal is then sent to the Ministry of Planning and Investment (MPI), which has a central role in co-ordinating and implementing the programme. The MPI coordinates the appraisal of the proposal by all relevant ministerial entities. If approved, the project will be listed on the MPI's procurement e-portal and in mass media.
Stage 3 – Feasibility Study: following publication of the project on the approved list, a feasibility study of the project proposal will be undertaken.
Stage 4A – Bidding Process: the approved feasibility study forms the basis of the relevant state entity's bidding dossier. This forms the basis of the open bidding process and sets out details of the project including:
- the method of assessing the bids for the project;
- the bidding process detail;
- a draft of the project contract;
- a copy of the approved feasibility study;
- an indication of the state participation portion.
Stage 4B – Investment Certificate: following the agreement of the initial project contract the investor/preferred bidder will submit the contract along with the feasibility report and other documents to the MPI. The MPI will then issue an investment certificate, setting out the key details and financial mechanics of the project.
Stage 5 – Implementation: after receipt of the investment certificate, the relevant state agency and selected investor will sign the project contract having made any final modifications the MPI may stipulate. 'Financial close' is then achieved. The investor is then able to establish a special purpose vehicle for the project and set in motion all other measures necessary to implement the project - including design development, construction, operation and management mechanics.