Equity of PPP investors must make up 20% of total investment

Investors involved in projects under the public-private partnership (PPP) must have equity accounting for at least 20% of total investment capital, according to a recently released decree of the Government.

Decree 63/2018 issued early this month to replace Decree 15/2015 will come into force on June 19, 2018, with some radical revisions, one of which is an equity requirement of 20% instead of 15%. However, this rule only applies to projects worth less than VND1.5 trillion or roughly US$65 million.

With projects whose total investments are over VND1.5 trillion, the ratio of equity cannot be lower than 20% of the VND1.5-trillion amount and is not smaller than 10% of the remaining amount. 

The involvement of the State in PPP projects includes capital contributed by the State, payments for investors, land, office space, infrastructure handed over to investors, business rights transferred to investors in case of build-transfer (BT) contracts, capital to assist construction of supporting works, compensation, site clearance and resettlement.

See more: Transfer of Investment Projects in Vietnam

Meanwhile, Decree 15/2015 limits State investments in PPP projects to State capital, government bonds, municipal bonds, official development assistance (ODA) capital, and concessional loans from international donors.

According to the Ministry of Planning and Investment, the old decree restricts the participation of other legal public capital sources, which hence does not make it attractive to investors.

Regarding project transfers, the new decree provides tighter conditions than the old one. In particular, Decree 15/2015 allows an investor to transfer partial or entire rights and obligations in a certain project to the lender or another investor, even when the project is being implemented or is already finished.

Meanwhile, under Decree 63/2018, the investor can transfer partial or entire rights and duties in the project to the lender or another investor after construction work is done or when the project is in operation.

Regarding investment incentives, investors are given preferential corporate income tax, and get land use fees exempted or reduced while implementing the project.

In addition, legal assets of investors are not nationalized or seized with administrative measures.

In case of asset seizure for security purposes, investors will get compensation.

Source: The Saigon Times

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What Are the Forms of Public Private Partnership (PPP) in Vietnam?

Public  Investment  Law  No.  49/2014  /  QH13  issued on  June  18th,  2014,  effective  January  1st, 2015 and Decree No. 15/2015 / ND-CP on investment  in the  form of public-private partnership issued February 14th, 2015, effective April 10th, 2015 has been expected to help overcome one of the  biggest  obstacles  in  the  attraction  of  investment  in  private  sector,  from  both  domestic  and foreign investment in public-private partnership (PPP) projects.

The key matter is that the new laws would share the  risks that investors face in terms of capital, fees  structures  and  fees  amount  determination. It  is  important  that  the  regulation  has  been changed  that  only  requires  the  minimum  of  owner’s  equity  of  not  less  than  15%  of  the  total investment  of  the  regular  project;  and  not  lower  than  10%,  if  the  project  investment  is  over  15 trillion  VND.The  investors  may  transfer  part  or  all  rights  and  obligations  under  the  project contract  to  the  lender  or  other  investors  if  the  transfer  does  not  affect  the  objectives,  scope, technical  standards,  progress  of  the  project,  and  must  meet  the  conditions  for  investment  and business in accordance with provisions the law on investment and other conditions agreed  in the project contract signed with the competent state agency.

Investment  in  PPP  has  now  been  expanded  to  vast  areas  requiring  significant  investment including transportation infrastructure, power plant, water, health, the environment management, education,  vocational  training,  culture,  sports  and  science  and  technology  projects,  economic zones, industrial zones.

The  investment  contracts  in  the  form  of  public-private  partnership  are  defined  in  Vietnam  as following.

BOT Contract

“Build – Operate – Transfer contract” (referred to as BOT contract) means a type of contract to build  an   infrastructure  project  between  a   competent  state  agency  and  an   investor;  after completing the construction, the  investor shall  be entitled to operate it  for a  specified period of time; eventually, the investor shall transfer it to the Vietnam competent state agency.

BTO Contract

“Build – Transfer – Operate contract” (referred to as BTO contract) means a type of contract to build  an   infrastructure  project  between  a   competent  state  agency  and  an   investor;  after completing  the  construction,  the  investor  shall  transfer  it  to the  competent  agency,  and  shall  be entitled to operate it for an agreed period of time.

BT Contract

“Build –  Transfer  contract”  (referred  to  as  BT  contract)  means  a  type  of  contract  to build  an infrastructure  project  between  a  regulatory  agency  and  an  investor;  after  completing  the construction, the investor shall transfer it to the competent agency, and then the investor will be allotted a land parcel used for carrying out another project.

BOO Contract

“Build – Own – Operate contract” (referred to as BOO contract) is a type of contract to build an infrastructure  project  between  a  competent  agency  and  an investor;  after  completing  the construction, the investor shall take ownership of this project and have the right to operate it for a specified period of time.

BTL Contract

The Build – Transfer – Lease contract (referred to as BTL contract) means a type of contract to build an infrastructure project between a competent agency and an investor; after completing the construction, the investor shall transfer it to the regulatory agency and shall be entitled to provide services  on  the  basis  of  operation  of  such  project  for a  specified  period  of  time;  the  competent agency shall lease and make payment for the investor’s services.

BLT Contract

“Build –  Lease –  Transfer  contract”  (referred  to  as  BLT  contract)  means  a  type  of  contract  to build an infrastructure project between a competent agency and an investor; after completing the construction,  the  investor  shall  have  the  right  to  provide  services  on  the  basis  of  operation  of such  projector  a  specified  period  of  time;  the  competent  agency  shall  lease  and  make  payment for the investor’s services according to the regulation; when the lease term expires, such project shall be transferred to the competent agency.

O&M Contract

“Operation & Management contract” (hereinafter referred to as O&M contract) means a type of contract to operate the project between a competent agency and an investor for a specified period of time.

The  law  on  Public  Private  Partnership  in  Vietnam  creates  an  important  legal  basis  in  the management of public investment. However, this is only the beginning of an inevitable trend that attract resources from private sectors.  The laws has been evolving and there will be changes in the coming time which ANT Lawyers will monitor and provide relevant update.

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