PPP project has been and will be Promised Land which attracts the investors to come and shake hands with the State in the transportation development and electricity. However, the legal troubles arising and policy changes lead to breakdown of financial plan during implementation are always a fearful obsession of the enterprises.
Responding to their expectation about legal framework more stable, the National Assembly has approved and promulgated Law on PPP investment which shall take effect as of the beginning of 2021. The enterprises are going to experience many remarkable changes from this Law in comparison with the current regulations of Decree No. 63/2018.
Limitation on the PPP investment sectors
Removing many sectors (park, parking lot, public office, etc.) and BT (build – transfer) contract, the new regulations only allow PPP project in: (1) transportation; (2) power grids, power plant (except hydropower plants and those subjected to the State’s monopoly); (3) irrigation, clean water supply, drainage, waste and wastewater treatment; (4) healthcare; education and training; (5) information technology infrastructure.
Thus, PPP projects are limited to the important sectors of the country requiring large capital and financial resources; therefore it needs hands from private subjects. Accordingly, as the case may be, the minimum scale of PPP projects must not be lower than 100-200 billions.
Removal of the provincial People’s Committee’s authority of investment guidelines decision
The provincial People’s Committee has no longer decision of investment guidelines for PPP projects in the province from 1 January, 2021. Accordingly, such projects must be approved by the People’s Council at same level. It is expected to create transparency and consistency, this change also prolongs the duration of procedure, as the enterprises still have to submit application of all local PPP projects to the provincial People’s Committee who will submit to the People’s Council for approval.
Selection of investors
Instead of referring to the current bidding law, Law on PPP clearly provides the method to select the investors including: (1) competitive negotiation (at least 03 investors satisfying the requirements, or for the projects applying high-tech such as AI, cloud computing, etc. or new technology); (2) appointment of domestic investors (in which need to ensure the national defense, public security, the State’s secrets); (3) special cases decided by the Prime Minister; (4) open bidding (for most remaining PPP projects).
Breakthrough called “mechanism for revenue sharing between the State and enterprises”
The revenue sharing mechanism is a new revolutionary point for attracting the investors. Accordingly, if the actual revenue reaches more than 125% of the estimated revenue in PPP contract, the project enterprise shall contribute 50% of the disparity to the State.
Otherwise, if it is lower than 75%, the State will support 50% of the disparity to the project enterprise, provided that it shall satisfy all following strict conditions: (1) the PPP projects shall be under BOT, BTO, BOO contracts (excluding O&M, BTL, BLT ); (2) the decrease in revenue due to change of the State’s policy; (3) the enterprise has adjusted price or PPP contract’s term but still fails to achieve the revenue of at least 75%; (4) the State Auditor must confirm that the revenue decrease is accurate, (5) the revenue sharing mechanism shall be provided in the investment guidelines decision.
The revenue sharing mechanism helps the investors feel more secure about the ability to recover capital from PPP projects. It limits also the financial risks and partly preserves their benefits. However, its effectiveness in practice still needs time to prove.
The PPP Law represents great legal step in respect of public-private cooperation and is expected to create momentum promoting win-win relations between the State and the enterprises for socio-economic development.