Vietnam Infrastructure

1. Vietnam-Infrastructure
By Oliver Massmann
Developing infrastructure: the pacemaker of Vietnamese economy; in the focus of attention is
the Draft Decree on public-private-partnership programs.
1. Background
The next major challenge for Vietnam is infrastructure. This is an area where in the last couple of
years Vietnam has made remarkable gains, especially in terms of ports and roads, so that supply
is meeting demand more often. However, after the ending of the Vietnam War in 1975, the
infrastructure was just about non-existing and had to be rebuild from scratch. The investment
needs as well as the investment deficit in order to develop infrastructure in Vietnam is still vast.
The participation of the private sector in building Vietnam’s infrastructure is crucial. Otherwise
State borrowing will increase at even more alarming rates than currently, or infrastructure will
fail to keep pace with the country’s potential. At the interface between public and private
investment the draft decree on public-private-partnership programs (Draft Decree on PPP) comes
into play.
2. The Draft Decree on PPP
The Ministry of Planning and Investment is preparing a draft Decree which will replace both
Decree 71 dated 9 November 2010 on PPP pilot regulations and Decree 108 dated 27 November
2009, as amended, on Build-Operate-Transfer (BOT). The Draft Decree on PPP is a proposed
plan for investment based on contracts signed between State authorities and investors to build
or improve, upgrade, expand, manage, and operate infrastructure projects or to provide
public services in the sectors which are eligible for PPP investments. It is a mechanism to
manage and use incentives, supports and investment guarantees for projects, and it sets out the
rights, obligations, and risks sharing between parties.
The Draft Decree is currently being revised yet again, based on public comments. Just to name
three changes: (i) The sectors in which projects may be eligible for PPP funding have been
expanded, (ii) the State can contribute a maximum of 49% (instead of 30%) of the total
investment capital and (iii) the required equity from the private investors for each project varies

2. on a case by case basis (in place of a fixed minimum equity requirement of thirty percent). In
addition certain critics of private (international) investors have been addressed in introducing a
minimum revenue guarantee as well as an alternative dispute resolution clause.
3. Criticism
However, there are concerns regarding the proposed new PPP-programs, specifically that it
might replace the BOT program and even private infrastructure investments. In the following we
like to echo two main criticisms:
• Scope: It is not clear whether State support for a project is only possible through the PPP
mechanism, or whether a project with State support somewhere (e.g. rent-free land) can still be
implemented as a normal joint venture.
• Interaction BOT and PPP regulations: As previously mentioned, the Draft Decree will
replace Decree 108 on BOT. BOT projects in Vietnam were at least a known quantity and
investors had a reasonable idea of the outlines of what was involved at the time of starting a
development. The Draft Decree will terminate this possibility before it is clear whether and how
a PPP will work. This appears slightly rash to the international business community. It would be
better to abolish BOTs once PPPs have a solid track record (which may be years down the road)
in stipulating a corresponding sunset clause for the application of BOT regulations. All the same
there are quite a number of major projects being developed as BOT projects at the moment. The
issue of what would happen to these projects, on which developers have spent millions of
dollars, if the BOT regulations were to be repealed, needs to be considered carefully. The
current proposal, however, leaves open a vast number of questions.
4. Conclusion
Public-private-partnership programs have the potential to stimulate and optimize investments in
infrastructure, while allocating potential risks among the private and public sectors. However it is
essential to thoughtfully incorporate the Decree on PPP into its legal environment, considering
existing regulations and taking into account interim arrangements.
Should you have any question, please contact 0TUomassmann@duanemorris.comU0T;