18 March 2013

Legal News & Analysis – Asia Pacific – Vietnam – Energy & Project Finance

Vietnam has proposed expanding its public private partnership (PPP) laws to allow more sectors to benefit from this method of finance, according to local press reports.

Under the current regime PPP projects must fall into one of seven categories, with a particular focus on transport infrastructure. According to PPP Bulletin (registration required), PPP will be expanded to cover new sectors including agriculture, offices, culture and construction of markets.

Other changes will result in more incentives for investors, with the state set to cover more of the costs relating to project preparation and management, according to reports. In addition, the Prime Minister will be able to decide how large a stake the state takes in particular projects. Currently, state participation in PPP is limited to a maximum of 30%.

Infrastructure law expert Carl Watson of Pinsent Masons, said that the changes had the potential to encourage more investment from international infrastructure firms.

"The diversification of the range of sectors to which Vietnam's ambitious PPP programme applies may inject some much-needed momentum into the pipeline," he said. "However, it remains to be seen whether the enhancements to financing of bid support, together with Prime Ministerial determination of the state participation portion, will entice more international interest in this market."

PPP allows public services or private business ventures to be funded and operated through a partnership between the public sector and one or more private sector companies. Under a PPP arrangement, governments can contract out the design, building and operation of a facility for the benefit of the public to a private sector company, usually for a period of 25 to 30 years.

The new regulations will update Vietnam's existing detailed PPP Regulations, issued in November 2010. The regulations give Vietnam's Ministry of Planning and Investment (MPI) a central role in co-ordinating and implementing the national PPP programme, and set out certain terms that PPP contracts should include.

According to PPP Bulletin, the new regulations say that the state will cover the costs of project preparation and management as its contribution. Under the current system, the state covers project planning and feasibility studies but the investor has to reimburse the state for the cost of feasibility reports.

The new draft also provides for reimbursement to private sector investors in part or in whole for the cost of project proposals in cases where their proposals are rejected, according to the report.