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 since 2004.
PPPs are governed by a
nascent legal structure introduced in 2010, Decision
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
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
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
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.
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
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