DECREE 63 ON INVESTING THROUGH PUBLIC-PRIVATE PARTNERSHIPS

LEGAL UPDATE

The Vietnamese Government issued Decree No. 63/2018/ND-CP (Decree 63) on the framework of Public-Private Partnerships (PPP), replacing Decree No. 15/2015/ND-CP from 2015. Decree 63 is effective as of 19 June 2018.

The new decree will likely bolster Vietnam’s PPP framework through simplified administrative procedures, increased transparency in investment projects, and strengthened decentralisation. Decree 63 is expected to minimise difficulties arising during the creation of PPP projects, thus promoting the PPP form of investment in Vietnam’s future.

Under Decree 63, PPP is defined as a form of investment on the basis of a contract between an authorised state agency and an investor, a project enterprise to build, upgrade, operate, manage infrastructure facilities and provide public service.

PPP projects will be significant for Vietnam’s long-term infrastructure development. According to estimates of Vietnam’s Ministry of Planning and Investment, the capital required for infrastructure development until 2030 is VND 3.3 quadrillion (approximately USD 145.3 trillion), excluding costs for high-speed railways, airports and waterway development. Accordingly, the need for clear and well-established procedures for private investors is vital.

Among the reforms introduced in Decree 63, some of the most note-worthy changes include minimum equity changes, abolishment of the IRC requirement, and more focused regulation of state’s participation in PPP projects.

1. PPP Projects applying High Technology

Normally, the feasibility study for a PPP project is prepared by the relevant Ministry or provincial People's Committee. However, when a PPP project applies high technology, the selected investor(s) will prepare the feasibility study. Decree 63 refers to the Law on High Technology for the determination of whether a project applies high technology.

2. Minimum Equity

Under Article 10, for any PPP project funded for a total investment of up to VND1,500 billion, the equity must account for at least 20% of the total investment. For projects funded for a total investment of more than VND1,500 billion, the equity must account for at least 20% for the portion up to VND1,500 billion; for portions exceeding VND1,500 billion, the equity must account for at least 10%.

Additionally, any Build-Transfer (BT) contract requires investors to meet equity requirements in accordance with the Law on Investment, the Law on Construction, the Law on Housing, the Law on Real Estate Business and other relevant legal provisions.

3. Regulation of State’s Participation

Article 11 frames the state’s participation in PPP projects. For example, state stakes in the project must be used for financing the construction of facilities to ensure the feasibility of the project and allocated from public investment capital or public property in accordance with the applicable law. Furthermore, Decree 63 provides guidelines for the determination of the value of state contribution to PPP projects.

4. Converting Public Investments into PPP Projects

Article 27 outlines the requirements for converting the form of investment of a PPP project, including, but not limited to, an application stating reason and plan for converting, a feasibility study report of the new PPP project, and an appraisal of the feasibility study report of the new project.

5. Model Contract for PPP Project

Article 40 sets out in detail what a project contract should contain. Ministries and ministry-level agencies shall provide detailed guidelines on model project contracts that are in conformity with the requirements for execution and management of projects under their scope of management.

6. Publication Project Contract

Under Article 41, the competent authority is required to make public certain details on the project within 7 days upon signing of project contracts (such as project name, contract signing date, contract term, info of the investor(s), location, total investment capital).

7. Abolishment of IRC Requirement

Article 76 of Decree 63 eliminates the Investment Registration Certificate (IRC) as required under Decree 15.

PPP projects issued with an IRC prior to the effective date of this decree shall proceed according to the terms of the issued IRC. In the event that project adjustments are made, an application for an amendment to the existing IRC is not required. Instead, contracting parties may proceed pursuant to the guidelines outlined under this decree. Important is that this is not in line with the requirements under the Law on Investment (which requires an IRC), so further guidance on the matter is needed.

8. Assignment Restriction

The new decree restricts investors from assigning its rights and obligations under a signed PPP contract until after completion of construction or the start of the project’s operational phase. The assignee must also provide the government with evidence of its ability to implement the PPP project under the existing contract.

9. The Future of PPP Projects

While Decree 63 offers much more clarity and direction regarding PPP, controlling authority on the topic remains in the various laws which govern PPP investment projects, such as the Law on Investment, the Law on Tendering, the Law on Construction, and the Law on Management and Use of Public Assets. Additionally, the industry still lacks specific incentives required to make PPP projects bankable by foreign investors, lacks clear policy on risk allocation for PPP projects, and discouraging capacity constraints still burden potential PPP investors.

Amendments to Decree 30 on the implementation of the Law on Tendering on bidding for PPP projects are expected to be introduced shortly. Additionally, it is expected that a PPP law (the PPP Law) will be submitted to the National Assembly later this year, which hopefully will deal with some of the top concerns of possible investors, such as the risk-sharing mechanism, exchange rates, and revenue guarantees. While the implementation of a PPP law could potentially benefit the industry in the long run through clear guidelines and administrative procedures, this may deter the much-needed investment until the law is introduced.

For more information, please contact:

Mark Oakley / Managing Partner

mark.oakley@acsvlegal.com

Hieu Pham / Special Counsel

hieu.pham@acsvlegal.com

© 2018 ACS Legal Vietnam Company Limited – All rights reserved

This legal update is not an advice and should not be treated as such.

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