Public-private partnerships (PPPs) have
been popular throughout Southeast Asia, but they havent yet taken off in
Vietnam despite a desperate need for infrastructure. Heres why.
The preferred structure for project
financings in Vietnam has to-date been the build-operate-transfer (BOT) model,
which is encouraged by local ministries such as Vietnams MOIT (Ministry of
Industry and Trade). Though the BOT framework has existed for over ten years,
few projects have come to the financing stage; Mong
Duong II closed in 2011, representing the first BOT to close in Vietnam
PPPs are governed by a nascent legal
structure introduced in 2010, Decision 71/2010/QD-TTg.
Truong Nhat Quang, YKVN managing partner,
told IFLR that market participants had
expected further elaboration on Decision 71. At the time of issuance Decision
71 attracted immense attention from investors in Vietnam looking to diversify
financing structures, he said. It was issued on a pilot basis, and follow-on
guidance from the government or relevant ministries was expected regarding its
But since its issuance in 2010, there have
been few regulations issued to provide further clarification to investors
regarding PPPs in Vietnam. Instead, investors continue to rely on the BOT
May, Vietnams Ministry of Planning and Investment Foreign Investment
Department deputy head Dang Xuan Quang said that the ministry
had upgraded the inter-ministerial PPP Unit to a PPP Office that would play
an administrative role to develop PPP projects. The establishment of a PPP Office has left
counsel optimistic. Hogan Lovells Hanoi counsel Stanley Boots said international
investors needed to know who to talk to regarding projects, how to obtain
information and how to file or bid on a project. A PPP office simplifies that task for the international
community, he said.
Though the PPP Office is helpful for its
guidance, international investors turn to BOTs because its legal framework is
better established. As the BOT framework was issued in Vietnam ten years ago,
while the PPP framework was only issued two years ago, Truong said the BOTs
regulatory framework was clearer on certain areas and provided more clarity on
the allocation of risk for investors.
Boots agreed. He recommended that the
government provide standardised agreements across infrastructure sectors to
ease the difficult process. He explained that in some sectors in Vietnam, the
current practice is that investors will provide drafts of all agreements,
including a concession contract, and negotiate over an extensive period of time
with the government.
Boots also encouraged the development of a
balanced risk-sharing and risk-assessment matrix understood by the
Support of Vietnamese PPPs in the project
pipeline could prove an issue, however. Although there are currently three
pilot PPP projects in the pipeline, sources point out that market conditions
are not favourable for foreign investment in Vietnam, and that interest in even
BOT projects has slowed.
Moreover, project sponsors such as MOIT,
which supports energy in the form of electricity, encourage BOT structures and
it is difficult to find suitable transactions for a PPP model.
Boots said the kind of project that may be
a forerunner to PPPs should be medium-sized, rather than a large or complex
project, so the government could manage it as sort of a bite-sized morsel to
prove its capabilities.
Nonetheless, even if a suitable project is
found, sources warn that closing project financings is a slow process in
Vietnam. Another investor concern is transparency in the bidding process,
especially given Foreign Corrupt Pratices Act (FCPA) and the UK Bribery Act
However, given recent developments such as
a new procurement law being revised to increase transparency, Boots was optimistic.
We dont yet have a proven track record of quickly-managed and transparent
project tender processes, he said. But I dont think were far away. Im an
eternal optimist, and believe that PPPs in Vietnam will achieve goals of
transparency while being relevant to the international investor