State may boost PPP stake

The Ministry of Planning and Investment (MPI) recently  introduced  draft amendments to the governmental Decision 71/2010/QD-TTg which regulates the implementation of PPP projects in Vietnam. According to this draft, state contribution limitation could increase up to a 49 per cent of the total investment capital of a PPP project from the current 30 per cent.

PPP implies the collaboration between the government and the private sector in carrying out a project with social benefits, under an agreement in order to share the responsibility and risk.
In another case, the MPI also proposed to remove the limitation of the state contribution to PPP projects, enabling the state contribution to be considered on a case-by-case basis.

“We are weighing to raise the limitation or remove it. Whatever we do, it just aims to make PPP projects more feasible to private investors,” said Le Van Tang, director of tehe MPI’s Public Procurement Agency.

The MPI estimated that from now to 2020, Vietnam would need around $170 billion to develop the nation’s infrastructure network, including transport systems, bridges, power plants, water supply, waste treatment plants and seaports. Meanwhile, traditional capital sources such as the state budget, government bonds and official development assistance from international donors only help satisfy less than half of the demand. This means that more than 50 per cent of the needed investment must be mobilised from private domestic and foreign investors. And the Vietnamese government expected to attract more private investments via PPP.

Although the Decision 71 was issued in 2010, unclear regulations on the state contribution to PPP projects still raised questions on how the state would share risks with private investors.
For example, private investors complained that they did not know whether the cost of land rental, land clearance and compensation to be counted with the 30 per cent or state-owned enterprises’ capital contributed to the PPP project would be considered as a part of the state contribution. In addition, investors were also concerned if tax incentives to be counted as the state contribution. This leads to an unclear issue is what risks the state will bear and what risks will be allocated to private investors.

“It would be better not to have a limit because if there is any limit at all then it will be necessary to have specific and detailed regulations on what falls within or outside the limit and then numerous valuation issues arise,” said Tony Foster, managing partner at law firm Freshfields Bruckhaus Deringer’s Hanoi and Ho Chi Minh City offices.

According to the draft amendments, the state contribution to PPP project include the state fund and other financing supports such as the value of land usage right and the value of available trademark. Meanwhile the state fund will comprise fund from state-owned enterprises and fund guaranteed by the government.

In order to push the development of PPP projects in Vietnam, the Asian Development Bank (ADB) announced that it would provide a $20 million loan from its Asian Development Fund to fund Vietnam’s Public Private Partnership Support Project that is expected to increase private sector investments in infrastructure sector.

“The project will use the fund for establishment of a project development facility that would help bring bankable PPP projects to the market,” the bank stated in an announcement.

According to the ADB, Vietnam’s ministries and government agencies would use the project development facility to fund PPP project preparation activities including pre-feasibility studies, full feasibility studies and the engagement of transaction advisors who would structure deals to bring to the private sector for bidding.