A difficult road to smooth PPP projects

Public-private partnerships (PPP) came into discourse in Vietnam at about the same time Freshfields arrived in Vietnam in 1994. But at that time only one specific subpart of PPP – the one called build-operate-transfer (BOT) - existed. So we all did our best to develop BOT projects.

But, there were challenges. In the intervening years, only a handful of BOT projects have made it through to successful non-recourse financing by banks not owned by the state – the ultimate goal of providing public infrastructure without use of state funds.

There were various problems with BOTs, which lawyers working in the field rehashed in countless conferences, seminars and workshops over the years and analysed in endless papers all of which said much the same thing in different ways.

Ultimately, two problems stymied most BOT projects. One was that the purchaser/off-taker could not afford, or would not agree to pay, the price that made the project bankable. The other was that the line ministry responsible for the project found it arduous to get a myriad of other state entities with responsibility over discreet aspects of the project to agree to provide the necessary support.

When foreign infrastructure developers began to lose some of their vitality, certain elements within the government realised that change to the BOT regime was needed. In a classic manoeuvre that would have made Sir Humphrey (Yes Minister) proud, the new scheme purported to solve the two overarching problems that afflicted BOTs in one stroke.

Like all good ideas, it was simple. Years of trying to amend the BOT regulations had gone nowhere except at the edges. So the idea was to sidestep the BOT regulations entirely and pass a new, parallel set of regulations that allowed one central ministry to bid out a project. The regulations would solve the bankability problem by getting the state to pitch in if the project was not viable financially. And the icing on the cake was that donor countries, most of which like the PPP acronym, would pay for the groundwork.

That was about five years ago.

Since then a massive amount of work has been done, with financial assistance from donors, to set PPP into motion and a friendly discussion over turf has been ongoing among relevant ministries. By contrast, much of the foreign private sector, though frequently convened and consulted, has not managed to retain a high level of excitement over the course of these five years. Its general view of PPP at this point is a variation on Jim Morrison’s view of life – the future is uncertain, but the end is always near, so tell us when to pay attention again.

It is difficult to tell when that will be. To those with an interest, it is of course a fascinating subject. But, at this point the fascination is in the granular detail of what remains to be sorted out:

• The pilot PPP regulations in Decision 71 of November, 2010 are being revised to provide greater procedural specificity that should remove some bureaucratic obstacles.
   
• The Procurement Law should be amended to provide procedures applicable to tenders for PPPs.
   
• Guidelines for allocation of risks in PPP projects would be useful so that contracts can be prepared efficiently.
   
• Pipelines of PPP projects should be created so that developers have some comfort that they do not spend millions of dollars on a one-off proposal that, if they lose, cannot be recycled into another tender for a similar project.
   
• PPP offices with the capacity to sift through proposals that come in from the line ministries and provinces should exist to identify the gems efficiently and return the dross.
   
• Feasibility studies need to be conducted for projects that are prima facie viable as PPPs.
   
• The mechanics of building or buying project development skills above those shown in the Nghi Son 2 tender remain to be determined.
   
• Principles for viability gap funding are central to effective roll-out of PPPs.
   
• Standard principles for incentives, such as foreign exchange guarantees, likewise remain to be clarified.
   
• Appreciable institutional capacity building underlies the whole effort.

The relevant government ministries and some valiant donors are working hard on all of these knotty matters. The question in the half vacant mind of developers following the subject tends to be “how long”? Apart from some PPP mutations, such as “Japanese PPP” (e.g. Lach Huyen), that move along in their parallel universes, there is no good answer yet. Patience is a word that also starts with P.