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PPP decree to attract investment

Update: March, 26/2015 - 09:06

The Tendering Management Department under the Ministry of Planning and Investment introduced a decree, governing private-public-partnership (PPP) projects in Viet Nam yesterday, at a meeting in Ha Noi.

The Director of the Department, Le Van Tang, spoke to the local media about some of the important aspects of the new decree.

Le Van Tang

How will the decree bring about more economic development?

In the context that Viet Nam needs more capital to build and develop local infrastructure, PPP is considered an effective channel for attracting capital from the private sector.

Thus, the Government had issued a decree on February 14 regarding the same. It will take effect on April 10 and will better guide all the stakeholders in PPP's projects.

It will also replace the former legal framework for PPP mentioned in other Government documents. The decree has not only solved the limitations of the former documents, but also introduced more international principles to lure foreign investors for this type of investment in Viet Nam.

At the same time PPP projects, which use private capital, will reduce wasteful spending and corruption in infrastructure construction.

What are the new changes that make this decree different from the previous ones?

The PPP decree will introduce other types of contracts, together with the existing Build, Operate and Transfer (BOT), Build to order (BTO) and Build and Transfer (BT). They are Build, Own and Operate (BOO), Operate and Management (O&M), Build, Lease and Transfer (BLT) and Build, Transfer and Lease (BTL).

In addition, it will also expand the field of investment. With PPP projects, private investors can invest in transportation infrastructure and services, construction for different kinds of projects, from the water and sewage system to real-estate, offices, industrial zones, to cemetery construction.

It also encourages those who want to invest in agriculture and rural development, such as building infrastructure services that connect agricultural work and the production chain.

The State will also offer a viability gap funding for PPP investors. The fund is granted once to projects that are economically justified, but fall short of financial viability. It will help an unviable project become bankable.

We had divided projects into three categories: A, B and C, depending on the scale and capital requirement of the projects. Projects type A and B must follow all investment and tendering procedures in Viet Nam.

The projects under type C are defined by their smaller scale, and would have a capital of less than VND120 billion (US$5.6 million), but still have a good influence on socio-economic development.

They would be mostly agriculture-related projects, executed by local investors. Projects under type C can skip some procedures, such as making a feasible study report, registering for an investment licence or carrying out the pre-tendering process. So they will cost less time and money.

The decree will also pave the way for unsolicited investors boosting their creativity and honouring their contribution for local development. Those investors will be offered a 5 per cent incentive on policies, which is higher than others in the projects.

How transparent is the decree in creating and selecting good investors and bidders?

PPP projects can help avoid the history that State-owned constructors and investors only shake hands to work with each other for their own advantages, ignore the quality of the projects.

First of all, if a State-owned company wants to qualify as a PPP project, it must collaborate with a private company to set up a joint venture company.

Secondly, all the investors, including unsolicited investors must go through a tendering process to acquire these projects. Selectors will choose the best and most effective proposal with the most reasonable price, instead of choosing investors offering the lowest price.

Most of the unsolicited investors are extended support (as much as 5 per cent in incentives over the solicited investors) for winning the tender. But if they still fail in the tender, they must pay for all the self-research for the project themselves. In case they pass the feasibility study of the project, the winner of the tender will return it to unsolicited investors.

Thirdly, disputes will be solved by taking into account not only the local laws, but also international laws and arbitration procedures. This has been done to attract more foreign investors to the PPP projects and to be fair to all stakeholders.

In order to further help investors, especially foreign investors, the State will make no changes in the land use purpose during the entirety of the project, even when the investor is changed. The State will also support site clearance for the projects.

What response do you expect from private investors, especially foreigners?

I believe that foreign investors will pay attention to PPP projects in Viet Nam.

When we drafted the decree, we held a conference in Singapore to invite comments from the country's investors. We also received a lot of counselling from the World Bank, the Asian Development Bank, Japan Bank for International Co-operation and other big international credit institutions. We have also worked closely with Tony Blair's Association in Ha Noi for the PPP draft since early 2014.

Last week, we travelled to San Francisco, the commercial and financial centre of Northern California, United States. The community of investors there welcomed the decree, commenting that it sounded attractive to them.

We were also asked to provide more information by a Japanese financial newspaper so that it can disseminate the news to investors in Japan.

Together with the decree, the local Civil Code will also be amended by next year. Once finished, it will work better with the investment policy of Viet Nam. I think it will provide a big boost and attract more private investors to PPP projects. — VNS

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