The doorstep of 2021 also opens a new chapter for investment activities of public-private partnership (PPP) in Vietnam. Following the first Law on PPP, path and opportunities for investors continue to be clarified by the Government through Decree 28/2021/ND-CP (“Decree 28”) and Decree 35/2021/ND-CP (“Decree 35”) which have come into effect at the beginning of April. Accordingly, there are a number of regulations that the investors need to consider in order to correctly solve the problem of benefit optimization when investing in PPP.
Announcement of sector and minimum scale of PPP project
For the purpose of developing national infrastructure, PPP “playground” requires the investors to have a sufficient financial capacity to cooperate with the State in only six key sectors set forth in the Law on PPP 2020. Accordingly, Decree 35 concretizes and specifies the minimum scale of projects in each sector as follows:
|Sector||Specific projects||Minimum scale (billion VND)|
|Transportation||Road; railways; inland waterway; seaways; air-line||1,500|
|Power grid, power plant||Renewable energy||500|
|Power grid, power plant||Coal or gas thermal power; nuclear power; power grid (excluding projects under State monopoly e.g. electricity transmission)||1,500|
|Irrigation, water supply, drainage and waste treatment||200|
|Medical||Medical facility; preventive health care; medical test||100|
|Education & Training||Infrastructure, materials and equipment for education & training, vocational education||100|
|Information technology (IT) infrastructure||Digital economic infrastructure; IT modernization in State agencies; data facilities & centers; national platforms, applications & services, etc.||200|
Therefore, before setting foot on this “playground”, the investors should consider the permitted sector and the respective capital which are required to put into the project.
Clarification of criteria for investor selection
In addition to capability, the PPP Law also requires the investors to be independent legally and financially with related parties. Continually ensuring objectivity of investor selection, Decree 35 clarifies aspects of the above-mentioned requirement:
- The investors must not own capital of or have a parent-subsidiary relationship with any of the consulting contractors in the project.
- Each investor and project consulting contractor must not own more than 30% of capital of the same organization or individual.
- The investors and the relevant State agencies as well as the bid solicitors must not own more than 50% of each other’s capital.
- The investors under the parent company-subsidiary model must have their joint names in a single bidding application for the project.
Hence, the investors should pay special attention to the above requirements of interest conflict prevention to avoid the risk of being “eliminated before the game”.
Clarification of open competitive bidding
The PPP Law 2020 defines open competitive bidding for the first time as default form of investor selection. Accordingly, Decree 35 clarifies that depending on the number and nationality of the investors, open competitive bidding can have preliminary selection or not, and whether be performed internationally or domestically. Specifically: (1) having preliminary selection if there are at least 06 investors being interested and (2) international bidding if there is at least 01 foreign investor being interested.
As a result, the investors can easily determine the number and composition of “opponents” to come up with a suitable bidding strategy.
How to share revenue?
The mechanism for benefits and risks sharing between the State and enterprises according to increased or decreased revenue is a highlight of the Law on PPP 2020. With the spirit of “sharing joys and sorrows”, Decree 28 has built a detailed legal framework for this mechanism, specifically:
|Increased revenue||Decreased revenue|
|Tax||Deducted from taxable income||Not subject to VAT|
|Procedure||The project enterprise pays to the State Treasury||Relevant state agencies delivers payment requests to the Ministry of Finance (for central-level projects) or the Department of Finance (for provincial-level projects)|
|Time limit||60 days from the date of the State Audit’s audit report||60 days from the date of receipt of the valid application|
Thus, the investors need to understand clearly to avoid violating obligation to share increased revenue as well as take advantage from right to request the State to pay decreased revenue, ensuring their legitimate interests.