At last week’s roundtable to discuss solutions to infrastructure development under the public-private partnership (PPP) model, changes in the latest version of the draft law on PPP were top of the agenda, with revenue risk sharing mechanism, foreign currency convertibility guarantee, fields of PPP investment, scale of projects, types of contracts, and state funding being the areas of focus.
Nguyen Dang Truong, head of the Ministry of the Planning and Investment’s Public Procurement Agency which directly compiles the draft law, said that in order to share risks with investors, the draft would add a minimum revenue guarantee/revenue risk sharing mechanism, and a foreign currency convertibility guarantee. “These measures are only applied to particularly important national projects whose investment plans are approved by the National Assembly (NA) and the prime minister,” said Truong.
Therefore, for the first time a law in Vietnam would likely allow the state to commit to sharing revenue risks with private parties. It is also expected to allow the contracting state agency to agree to increase the tariff or service fees (or extend the operational term) of the project if the actual revenue derived from the project is lower than that in the financial model agreed in the concession contract.
If such adjustments are not sufficient to cover the project’s operating expenditures, the government may consider paying up to 50 per cent of the difference between the actual revenue of the project and the amount agreed in the concession contract. If the scheme turns a profit, PPP ventures share at least 50 per cent of the difference.
There would also be a cap on a foreign currency convertibility guarantee of 30 per cent of the net VND revenue.
The other highlighted changes state that a business which is established to carry out a PPP project is permitted to issue business bonds to raise funds, and that the fields of investment are limited but with flexible regulation.
While emphasising the positive alterations, several state agencies, experts, and investors are still concerned about the supply of foreign currency, the ability of PPPs to access this currency, and inconsistency with other relevant laws.
Nguyen Mai, chairman of the Vietnam Association of Foreign Invested Enterprises, argued that the draft law on PPPs should clarify the government guarantee mechanism, and that the state needs to pledge site clearance support to help financers carry out projects on schedule.
“In PPP investment, the risk-sharing mechanism is the most important aspect. A lack of it has limited attractiveness to international ventures for years,” said Mai.
PPP financiers also have similar worries. Tran Chung, chairman of the Association of Investors in Vietnam Road Traffic Works, told VIR, “These changes are meaningful to our members who are seeking opportunities in PPP projects, especially the eight sections of the Eastern Cluster of the North-South Expressway project,” Chung said.
“However, their involvement faces a challenge because of difficulties in accessing bank loans. Moreover, the overlapping of the draft law on PPP is also an issue.”
Tran Van The, vice chairman of Deo Ca Group, one of the biggest PPP transport project developers in Vietnam, said, “The draft law should verify regulations on the transfer of rights and obligations, because there is still controversy concerning the Law on Enterprises 2014 and the amended Law on Securities. We also agree that the issuance of business bonds should be allowed in the construction process to help investors raise funds.”
To ease concerns, Nguyen Duc Kien, Vice Chairman of the NA Economics Committee, cited Articles 75 and 76 of the draft stating that PPP investors have the right to buy foreign currency from currency trading units.
“They are given first priority in case the state authorities have to intervene as foreign currency trading units fail to meet their demands,” said Kien.
He added that in addition to the draft law on PPP, there are three related laws all being revised to ensure their relevance. Specifically, a regulation on allowing PPPs to issue individual bonds is being added to the draft amendments to the Law on Securities, while the Law on Investment 2014 and the Law on Enterprises 2014 are being revised towards facilitating fundraising, and giving power and responsibility to businesses.
As scheduled, the draft law on PPP will be debated next week at the NA’s ongoing session.
Nguyen Dang Truong - Director general Public Procurements Agency
The appraisal of PPP projects will be tightened to improve the process, which is being exercised at low performance, focusing on administrative procedures only.
PPP contracts will come in three types, including one where the state directly charges consumers, one where the state pays investors, and one where public assets are developed by private investors in exchange for remuneration by the state.
The law on PPP builds a legal framework for large-scale PPP projects in the long term, improving investor confidence and mobilising capital.
The law will also add some incentives and make sure that the state capital in PPP projects is used efficiently to improve chances of success.
Can Van Luc - Economist
PPP is a form of sharing and optimising the benefits of the private and public sector, as well as sharing their risks. In general, infrastructure projects are usually mobilised by four capital resources, including from owners, credit institutions, corporate bonds and project bonds, and funds.
The financial structure is rather complex. In the draft law on PPP, the capital of the state would be dedicated for clearance and construction partly. Each PPP project is required to have VND200 billion ($8.5 million) placed into it, at least in the draft, which is rather low in my opinion. This figure is usually in the range of $50-100 million, according to international practices. So, we should raise the minimum investment of PPP projects to appropriately choose those large enough ones, in order to not scatter resources and improve the efficiency of investment usage.
Cao Viet Sinh - Former Deputy Minister of Planning and Investment
Many laws had to be amended multiple times in a short time right after going into force. We should be careful yet remain flexible during the drafting process to make sure that the law lives for at least five years in the shape it was issued.
There are two major aspects of PPP, resources and efficiency. We should stipulate the minimum scale of PPP projects for every sector. For example, VND100 billion ($4.35 million) for a project in health and education, and much bigger amounts for infrastructure.
The law should also pay more attention to the transparency of PPP projects, especially in investment and operation, as well as promote the role of development banks.
