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10 May, 2019
The draft law on Public-Private Partnership proposes to establish a fund for PPP projects to manage and operate state capital, as well as providing government guarantee to PPP projects (a contentious topic that drew support from seven out of 14 ministries) or set up a budget using mid-term public investment capital (which is approved by five of 14 ministries and agencies).
Explaining the proposal, Nguyen Dang Truong, director general of the MPI’s Public Procurement Agency, said that the current regulations are not flexible enough to allocate such a budget due to incongruities between PPP and public investment projects. State capital in PPP projects is mainly allocated from public investment capital, so all procurements must comply with the Law on Public Investment.
The draft law on PPP also proposes government guarantees for PPP projects, which is not stipulated in the current regulations on PPP (Decree No.63/2018/ND-CP). Accordingly, the prime minister will decide whether to provide government guarantee for each project on a case-by-case basis. The draft proposed that in case revenue is less than the revenue necessary to break even, the government will guarantee 75 per cent of the break even revenue for the first five years of operation, and 65 per cent in the next five years.
In case the revenue is far more than expected, the amount surpassing 125 per cent of the revenue to break even in the first five years of operation, and 135 per cent in the next five years will be collected by the state.
However, at the second meeting of the Drafting Committee and the Editorial Team of the Law on PPP on May 4, 2019 at the headquarters of the MPI, representatives were largely divided about the issues of setting up the fund for PPP projects and the government guarantee.
The representative of the Ministry of Transport spoke in favour of the fund and the guarantee, proposing changes to the ratios of the guarantee and replacing the government by third-party in the guarantee scheme.
Meanwhile, deputy director general of the Department of General Economics of the Ministry of Foreign Affairs proposed balancing the rights, responsibilities, and benefits of both sides (public and private), which would mean the government guarantee for PPP projects would not be necessary, because both benefits and risks should be shared by the two sides.
The representative of the State Bank of Vietnam highlighted foreign exchange guarantee, saying that it needs to be considered carefully, according to a representative of the State Bank of Vietnam.
The representatives of ministries and agencies provided a great number of comments on the Draft Law on PPP, which includes 12 chapters and 113 articles focusing on the classification of PPP projects, setting up a state-level appraisal council, state budget allocation for PPP projects, government guarantees, BT (build-transfer) contracts, and post-checking, among others.
PPP is a very complex legal area, involving numerous legal provisions that the new Law on PPP needs to align with. A lot of PPP projects have been deployed and reported good performance with several achievements, especially in transport, contributing to improving the country’s infrastructure. However, some shortcomings have been detected over the last three years.
Related to measures on investment attraction, lessons from the success of some countries like South Korea, India, and the Philippines shows that the government should build a national strategy on specific support policies for PPP projects in addition to the usual tax and land incentive in the early period of PPP projects.
Accordingly, these countries have established some mechanisms such as funds for offsetting financial shortages, contingency funds for government guarantees, and guarantees for minimum revenue.
For further information, please contact:
Dang The Duc, Partner, Indochine Counsel
duc.dang@indochinecounsel.com
