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Investors expect positive changes in Vietnam’s PPP investment law
Minh Tam 13:36, 2019/08/30
The absence of guarantees related to minimum returns and foreign exchange risks have kept investors away from Vietnam’s large transport infrastructure projects.
The latest draft law on public-private partnership (PPP) investment includes several positive changes regarding the government guarantee mechanism and risk-sharing, which are currently big concerns of foreign investors when investing in the country’s infrastructure projects.
Vietnam needs about US$480 billion for infrastructure investment by 2020.
Vietnam needs about US$480 billion for infrastructure investment by 2020.
Specifically, the draft law, which is due to be submitted to the National Assembly (NA) for discussion in October this year, provides government guarantee of foreign exchange balance for PPP projects determined by the NA and the prime minister, with a ceiling of 30 percent of project revenue in the Vietnamese dong (VND).
The risk-sharing mechanism for revenue is also proposed in the bill to be extended to key projects subject to the approval of the NA and the prime minister.
Sanjay Grover, PPP specialist from the Asian Development Bank, said that many countries such as Indonesia, Turkey, India, and South Korea have risk-sharing mechanisms.
According to Sanjay, risk related to PPP shared by the government is critical for Vietnam to attract private sector capital. The PPP law should allow comprehensiveness (termination, foreign exchange, minimum revenue, and others) and flexibility in risk-sharing to suit project, sector, and market situations.
Some changes in the bill include criteria for sectors not open for PPP projects. Accordingly, PPP financing mechanism are proposed not to be applied in sectors that have so far seen no PPP projects, those having ineffective PPP projects, or those lacking appeal to investors, and others where other kinds of investment would be more fitting.
Under the draft, tourism; culture and sports; telecommunications infrastructure; infrastructure for science and technology development; infrastructure at industrial parks, economic zones, industrial clusters, and high-tech parks; and infrastructure for rural areas and agriculture are the sectors where PPP financing mechanism is not encouraged.  
In terms of minimum capital requirement, the bill provides a minimum of VND200 billion (US$8.7 million) capitalization for PPP projects.
According to Nguyen Dang Truong, head of the Public Procurement Agency of the Ministry of Planning and Investment, the draft law is aimed to build a bankable legal framework for PPP projects to effectively attract private investment in PPP projects to develop the national infrastructure, align with international commitments on investment and trade, and deal with inconsistencies with other laws.
Experts and foreign investors have so far mentioned many times that the absence of guarantees related to minimum returns and foreign exchange risks have kept investors away from Vietnam’s large transport infrastructure projects.
According to Tony Foster, head of the Vietnam Business Forum (VBF)’s Infrastructure Working Group, there is still no clarity on the mechanism for the state to provide financial viability gap fillers to PPP projects in high-risk sectors such as transport where there is often no offtake agreement to guarantee a revenue stream.
Without a guaranteed revenue stream, investors and lenders will have no means to assess and manage risks of these projects and will be deterred from participating in PPP projects in these challenging sectors, Tony said.
He also noted that a number of financial issues remain unresolved both in the legal framework and in the actual implementation of projects causing concern to potential lenders, such as narrowing government guarantees on foreign exchange risks and offtake risks, restrictions on the mortgage of land use rights to foreign lenders and taxes on interest on foreign loans.
Fast-growing Vietnam is facing an infrastructure bottleneck. As the state faces the budgetary constraints to finance the nation’s much-needed highways, tracks and airports, the government is increasingly looking towards private investors, especially foreign ones, to fill in the financial shortfall. It is estimated that the country needs about US$480 billion for infrastructure investment by 2020, but the state budget can only meet one third of the actual financial needs.
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