Vietnam's PPP framework: what needs to change

Author: Ashley Lee | Published: 14 Aug 2012
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Public-private partnerships (PPPs) have been popular throughout Southeast Asia, but they haven’t yet taken off in Vietnam despite a desperate need for infrastructure. Here’s 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 Vietnam’s 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 since 2004.

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 implementation.”

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 framework.

In May, Vietnam’s 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 BOT’s 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 international community.

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 compliance requirements.

However, given recent developments such as a new procurement law being revised to increase transparency, Boots was optimistic. “We don’t yet have a proven track record of quickly-managed and transparent project tender processes,” he said. “But I don’t think we’re far away. I’m an eternal optimist, and believe that PPPs in Vietnam will achieve goals of transparency while being relevant to the international investor community.”