2019 07 June

Vietnam Legal Update: Draft Public-Private Partnership Law

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Recently, the Ministry of Planning and Investment of Vietnam published a draft Law on Public-Private Partnerships (the “Draft PPP Law”). The Draft PPP Law is expected to be submitted to the Government during the 8th Session of Legislature XIV for consideration, with potential passage during the 9th Session of Legislature XIV.

The current public-private partnership (“PPP”) legal regime does not fall under one comprehensive law, but instead is comprised of various laws, decrees, and implementing regulations. The Draft PPP Law serves to consolidate this framework. It clarifies a number of issues raised by the current legislation and brings changes that are expected to further incentivize PPPs in a number of key sectors. 

The key changes relate to (1) the permitted sectors for PPP structure, (2) a minimum level of investment capital and debt/equity ratio, (3) the prohibition of alternative business activities for PPP project companies and (4) the possibility of issuance of Government guarantees for project revenue.

1. Modifications to the permitted sectors

The Draft PPP Law contemplates permitting a PPP structure in the following sectors:

  • Transportation: roadways, railways, inland waterways, maritime, aviation, and seaport infrastructure facilities;
  • Power plants and public lighting systems; 
  • Water treatment infrastructure systems;
  • Urban zone infrastructure (e.g. parks); 
  • Offices for state authorities, official resident housing;
  • Facilities related to health, education, training, culture, sports, and tourism;
  • Telecommunication and information technology;
  • Facilities for the development of science and technology;
  • Commercial infrastructure, including development of economic zones;
  • Agricultural and rural facilities; and
  • Other areas that require the private sector to invest in infrastructure or to provide public services.

The above sectors may be widely interpreted. However the Draft PPP Law precludes PPP projects which may have a “major impact” on the environment, such as nuclear power plants and projects which use land in a national park, preservation area, watershed protection forest, or would encroach on the sand or sea.

2. Minimum investment capital and equity commitment

Under the Draft PPP Law the minimum investment capital of a PPP project is VND 200 billion, the approval authority depends on the amount of investment capital, and the applicable minimum equity to debt ratio of a PPP project depends on which authority may approve it.

Authority Investment capital Equity to debt minimum
National Assembly Investment capital
VND 20,000 billion or more
15%
Prime Minister VND 4,500 billion to VND 20,000 billion

VND 1,500 billion to VND 4,500 billion

if the project requires any public investment capital

Minister, chairman of people’s committee, or equivalent decision maker All other PPP projects 20%

 

3. Project companies restricted from alternative business activities

The Draft PPP Law defines “project enterprise” narrowly to preclude project companies entering into alternative business activities outside of the PPP project. The plain reading of this definition may not appear to introduce any change from the present definition of a “special purpose entity” duly established to enter PPP agreements, under the current Decree 63/2018/ND-CP. However, based on Document No. 1979/BKHDT-QLDT issued by the Ministry of Planning and Investment of Vietnam dated 29 March 2019, we understand the policy intent behind this definition is to strictly limit the business activities of project companies and not permit any alternative of business activities.

4. Government guarantees for project revenue

Under the Draft PPP Law the Prime Minister shall consider issuing a guarantee of minimum project revenue, up to:

a) 75% for the first five years, and

b) 65% for the subsequent five years.

However, in instances where an investor benefits from this guarantee of minimum project revenue and the actual revenue exceeds 125% of the project’s proposed revenue within the first five years, or exceeds 135% in the five subsequent years, the investor is required to pay the excess revenue to the State. It is unclear under the Draft PPP Law precisely how the accounting of these revenues will be reviewed and calculated.

The Draft PPP Law article which provides the guarantee of minimum project revenue is in brackets, which indicates uncertainty as to whether this article will survive the legislative session.


The information provided in this article is for information purposes only and is not intended to constitute legal advice should be obtained from qualified legal counsel for all specific situations.


DFDL Contacts

Jerome Buzenet 

Partner & Managing Director, DFDL Vietnam

jerome.buzenet@dfdl.com

Hoang Phong Anh

Partner, DFDL Vietnam

phonganh.hoang@dfdl.com

Dave Seibert

Dave Seibert

Senior Legal Adviser, DFDL Vietnam

dave.seibert@dfdl.com


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