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MINISTRY OF PLANNING AND INVESMENTPUBLIC PROCUREMENT AGENCY

OVERVIEW OF PPP IN VIET NAM

Hanoi, 31 May 2018

2. Orientation to develop a PPP Law

NỘI DUNG

1. PPP Legal Framework

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1. PPP Legal Framework

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1. General concept of PPP

“PPP” describe a partnership relationbetween the Public and the Private in theinfrastrucure sectors and other publicservice.

PPP is a partnershiprelation between the publicand private sector toimplement a project orservice that the Public isresponsible for provision.

Nghị định 63/2018/NĐ-CP:PPP means a form of investment on the basis of a contract between an authorized state agency and an investor, a project enterprise to build, upgrade, operate, manage infrastructure facilities and provide public service.

2009

2007

1997Decree 77/CP (1997) on BOT for domestic investors

Decree78/2007/ND-CP on BOT, BTO, BT

2015

Decree 108/2009/ND-CP on BOT, BTO, BT

Decree 15/2015/ND-CP on PPP and Decree 30/2015/ND-CP on investor selection

20182020 …

Decree No.63/2018/ND-CP on PPP and Decree… on investor selection

To-be Law on PPP

LEGAL FRAMEWORK: DEVELOPMENT

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LAW ProcurementLaw

CIRCULAR

(Tentative)

Circulars of Ministries on

specific sectors

Circular on RFQ, RFP

DECREE

Decree replacing

30/2015/NĐ-CP on investor selection (to be issued soon)

Decree 63/2018/NĐ-CP

on PPP

Public Investment

Law

Construction Law

Investment Law

Circularguiding

the implementation of

Decree 63

Law on management and use of

public assets

LEGAL FRAMEWORK: at a glance

- Transport- Urban, parks, parking

space - Energy- Social facilities - Commercial facilities,

facilities in economic zone, high-technology facilities, hạ tầng kỹ thuật công nghệ cao; cơ sở ươm tạo, technical facilities, common working area to support small and medium enterprises

- Agriculture- Others

Lĩnh vực khác

PPP Sectors

Public participation

• Capital contribution– Types: in cash, in kind– Sources: public investment fund, public assets

• Availability payment– Sources:

• Public investment fund• Public recurrent expenditure fund• Revenue from public services

• Land compensation/clearance costs, auxiliary works

Not apply to single source selection of investor8

Private participation

(apart from public capital and land clearance supports)

• Equity– 20% [for investment size of up-to VND 1500 billion ~ US$

70 million]– And 10% [for the part of investment above VND 1500

billion]• Debt

– Remaining %– Commercial

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BOT BOOBTO BTO&M BTL BLT

Mixed type: ✔Other type: approval of Prime Minister

Types of PPP Contracts

Payment Mechanism for PPP projects

BOT, BTO, BOO

Government

Special Vehicle Purpose

(Project enterprise)

Users

BTL, BLT, O&M

Government

Special Vehicle Purpose

(Project enterprise)

Payment

Users

Payment in BT Contract?

Structure of a PPP Contract

Investor/SPV

Authorized State Agency/People’s Committee

EPC Contractor

O&M Contractor

LendersLoan contract

PPP Contract

Pledge and securityDirect agreement

Note

Contract

Structure of a PPP Contract – Power project

People’s committee

Investor/SPV

Agency for contract

performance guarantee

Authorized State Agency/People’s

Committee

EPC Contractor

O&M Contractor Supplier of coal

Offtaker

Parties for loan

participation

LendersLoan Contract

Offtake

contractEPC

Pledge and securityDirect Agreement

Note:

Contract

Guarantee

Overal Procedure

Pre-FS stage

FS stage

Design stage

Construction

Operation

Project development Normal procedure Procedure for Other special projects (BT…)

Solicited or Unsolicited

Investor Selection

Investor Selection

Investor Selection

PPP

1. Social-economic benefits of the project

2. Financial

viability of the project

3. Key perfomance indicators

4. Risk allocation

5. Contract

type

Difference in preparation of PPP (in comparison with public project)

Prepation of PPP Projects

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Purpose: To identify whether to implement the project? Social and economic benefits:

Indicators for assessment of the social-economic benefits: ENPV, BCR, EIRR

The Social Discount Rate (SDR) is regulated in each sector. sẽ do từng ngành quy định. Trường hợp chưa được quy định thì có thể tham khảo giá trị 10%, hoặc đề xuất giá trị khác với thuyết minh cụ thể. In cases the SDR is not regulated, reference may be made to the SDR of 10%, or another value based on specific explanation

Quantitive factors Qualitative factors

Monetary factors

Non-monetary factors

Social-economic benefits of the Project

Circular 02/2016/TT

-BKHDT

Preparation of PPP projects

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Benefit – Cost Ratio (BCR)

The social-economic benefits of projects

0

0

(1 )

(1 )

nt

tt en

tt

t e

BB rBCR

CCr

=

=

+= =

+

∑

∑Bt = Benefits in the year t; Ct = Costs in the year t; t = The year in the project cycle (0, 1, 2, … , n); n = The contract term; re = The Social Discount rate of the Project. re is identified in accordance with the sector regulation. In case the rate is not specified in the regulation, the preparation unit can refer to the re=10% or another value based on the explanation.

Preparation of PPP Projects

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Purpose: To identify whether the project is financially viable orattractive to the market?

Indicators: NPV (Net Present Value), IRR (Internal Rate ofReturn), DSCR (Debt Service Coverage Ratio), ROE (Return onEquity), payback period..

Content of the financial model:

- Total investment;

- Capital structure and mobilization schedule;

- Public participation (if any);

- Requirement of price/tariff;

- Financial indicators (NPV, IRR, ROE, PP, DSCR).

Financial viability of the Projects

Preparation of PPP Projects

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Financial Viability of projects

0 (1 )

nt

tt

CFNPVr=

=+∑

00

(1 IRR)

nt

tt

CFNPV=

= =+∑

1. NPV - Net Present ValueCFt = Net cash flow of the Project in the year t ; t = The year in the project cycle (0, 1, 2, … , n); n = The contract term; r = Discount rate (in accordance with MOF’s guidance).

2. IRR - Internal Rate of ReturnIRR is the discount rate when NPV = 0Compare IRR with: (i)(WACC - Weighted Average Cost of Capital; (ii) inflation rate; (iii) Saving interest rate; (iv) IRR of other similar projects in the same sectors

Preparation of PPP Projects

Classification

Project of national

importance

Pre-FS approved by

NA

FS by Minister

/ Chairman of Province

Group ASome Pre-FS approved by

PM

FS by Minister / Chairman of

Province

OthersPre-FS by Ministry / Province

FSby Ministry /

Province

Abolishment of investment certificate20

Transparency

• Pre-FS and FS info after approval (pipeline)• Bidding plan, opportunities, selected investors

(deal)• Basic contract info for supervision

muasamcong.mpi.gov.vn ppp.mpi.gov.vn 21

New chapter for BT

• Procedure• Payment scheme: land, infrastructure facilities,

other rights• Principles:

– Pre-identifying resources– Bidding upon FS/design– Detailed master plan of land use (1/2.000 or 1/500

master plan)

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Investment incentives, tax incentives

Incentives

Tax incentives

Incentives on corporate income tax imposed on investor, project

enterprise

Incentives on import and export duties imposed on goods

imported to implement a project

Tax incentives for foreign and domestic contractors

participating in implementation of a project

exemption from or reduction of land rent or land use fees for the area of land allocated by the

State

Other incentives

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Investment guarantees and support

- Allow for mortgaging assets or the rights to commercially operatethe project facility

- Guarantee that the land use purpose of the project shall remainunchanged in the entire implementation term of the projectcontract

- Support land clearance and completing procedures for landallocation or lease of land to implement the project

Assigment / transfer of equity: after completion of construction phase

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Step-in right of lenders

Lenders

ASAs

Agreement on step-in

right

The lender shall have the right to take over on its own, or to appoint another competent organization to take over, all or some of the rights and obligations of the investor, project enterprise (hereinafter referred to as Step-in-Rights) in the event that the investor or the SPV fails to fulfill obligations under the project contract or loan agreements

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Guarantee on foreign currency conversion

Permitted transactions

Buy foreign currency

Conduct foreign exchange activities to satisfy current transactions, capital transactions and other transactions; remittance abroad of capital, profit, proceeds from investment.

Projects to be considered for

guarantee on foreign currency conversion

Infrastructure projects of national importance or with Pre-FS approved by

PM

Other important projects

Procedure

Initiated by Ministry /

Local People Committee

Reviewed by / co-ordinated

with SBV

Approved by PM

• No guarantee on Foreign Exchange Rate

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Dispute settlement

Dispute Settlement

- Mode of dispute settlement: negotiation, conciliation, by arbitration or bythe courts

- Dispute arising between the authorized state agency and a foreigninvestor or the project enterprise shall be settled by arbitration or by thecourts of Vietnam or by an arbitral tribunal established by the parties

Project contracts to which one party is foreign

investor

Contracts for which the GOV guarantees the

performance of obligations

Dispute shall be settled byarbitration or by the courts ofVietnam or by an arbitraltribunal established by theparties

Preferred treatment to unsolicited proponent

Incentives

Service price

5% of the service price to

the investors

not entitled to incentives

State capital contribution

5% of the proposed

State capital

contribution to the

investors not

entitled to incentives

Social and State benefit

5% of the amount

contributed to the

State budget to project

proponent

Combined method

incentives in proportion to the combined

method, however the total value not exceed

5%.

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2. Orientation to develop a PPP Law

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Challenges in PPP implementation

Challenge

Legal regulation

Personnel, database, communication

Limited capital

- Overarched by many Lawsand regulations, which are inconflict

Limited capabilities of thepersonnel

-Limited state budget- Short term credit or loansrequiring unprecedentedguarantee mechanism

On mobilization private capital for infrastructure development:

• Resolution No. 13-NQ/TW dated 16/01/2012 on the construction of synchronousinfrastructure system

• Resolution No. 19-NQ-TW dated 25/10/2017 on improvement of public serviceproviders

• Resolution No. 20-NQ/TW dated 25/10/2017 on healthcare

• Document of the 12th National Congress of the Communist Party of Vietnam

• Resolution No. 26/2016/QH14 dated 10/11/2016 of the National Assemby onsolutions to implement the 2016 – 2020 public investment plan

On develop PPP Law: On 21 October 2017, the Standing National Assemblyissued Resolution No. 437/NQ-UBTVQH14 requesting the Government to continueresearching and improving the regulations on BOT in the overall improvement ofthe regulations on PPP with the orientation to study, formulate and submit to theNational Assembly a Law on PPP to create a high and uniform legal basis for thisform of investment.

Orientation to develop a PPP Law

Timeline for developing PPP Law

• Proposal to develop PPP Law– April 2018: Submitted to the Government

(completed)– July 2018: Submit to the Standing National

Assembly– November 2018: Submit to the National Assembly– January 2019: To be included in the Law

Development program• Draft of PPP Law

– May 2019: 1st Draft– November 2019: 2nd Draft

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ContactsPublic Procurement Agency Ministry of Planning and InvestmentTel: 080 44681Fax: 080 44323Email: PPPoffice@mpi.gov.vnWebsite: www.ppp.mpi.gov.vn 33