Vietnam is seeking to develop public-private partnerships (PPPs) to help meet its large infrastructure needs, as the state budget can only fund about 50% of required investment. However, to date no major PPP projects have been successfully implemented due to issues with Vietnam's legal framework for PPPs, lack of viable projects in the pipeline, and lengthy negotiation times for projects. The government is working to address these challenges through a new PPP decree, a list of priority projects, and project preparation support facilities. But continued effort is needed to develop clear and stable regulations, conduct rigorous project assessments, and streamline approval processes to attract more private investment through PPPs.

1. Vietnam - Public – Private Partnerships - 2015
Overview
Modern, efficient infrastructure is vital to continued economic growth and lowers the costs of
doing business for all investors in Vietnam. Rapid economic growth and urbanisation is
driving high demand for roads, power, airports, ports, waste and water treatment, hospitals,
and other public infrastructure for goods and services. However, the State budget is estimated
to be able to meet only about 50% of Vietnam's infrastructure needs, which are estimated at
USD 170 billion from 2011-2020. The balance would need to come from other sources,
including from private investment in the form of Public-Private Partnerships (PPPs).
Although Vietnam has had a 'pilot' PPP programme since 2011, no PPP project has been
signed under this framework. The slightly more established Build-Operate-Transfer (BOT)
framework (most recently under Decree 108 has had more success, including, with the
financial close of Mong Duong 2 in 2011, making it the first significant foreign-invested
BOT power project to reach financial close in Vietnam since 2003. Furthermore, the market
has been encouraged by the financial close of the Nghi Son refinery project earlier in 2014,
which represents the largest financed project to ever close in Vietnam (although not under the
PPP/BOT regime). However, such successes are still limited, and foreign investment in
infrastructure in Vietnam continues to be low when compared with some other jurisdictions
in Southeast Asia.
Several factors contribute to the difficulties in financing PPPs/BOTs in Vietnam. One is the
lack of a clear legal framework. In this regard, the Government of Vietnam has made some
progress over the last year on the legal framework, including the issuance of a new Law on
Public Procurement that specifically applies to PPPs, and the preparation of a new PPP
decree (expected in late 2014), which is hoped to bring further clarity to the PPP legal
framework.
Secondly, to date the Government of Vietnam has had difficulty in bringing viable, attractive
PPP projects to the market. A number of tools are being set up to assist the Government in
their support for PPPs. These include the Project Development Facility (PDF), which is
envisioned to help undertake a rigorous assessment of potential projects, and the Viability
Gap Fund (VGF), which will provide needed Government support to make them financially
viable (if they are not otherwise). The Government has also recently released a List of
National Projects Calling for Foreign Investment which is a promising start to developing a
pipeline of viable projects.
Thirdly, the timeline for the negotiation of projects that have been awarded can often take
years. There are some concrete ways in which the Government of Vietnam could reduce the
timeline and uncertainty involved in the negotiation of PPPs. For example, it is important to
have precedent projects to look to, as well as consistent procedures and documents.

2. A clear legal framework for PPP Projects
Relevant State authorities: Ministry of Planning and Invest (MPI), authorised State bodies,
and other related
Issue description
Vietnam’s current regulation on Public-Private Partnership (PPPs), Decision 71, only
provides a basic framework for PPPs. It does not clarify key issues such as guarantees of
foreign currency convertibility, the use of foreign governing law, the availability of
Government support and guarantees, and other important bankability concerns. Where other
regulations do clarify an issue, it is often more worrying for investors (such as Letter 1604 on
BOT power projects, which arguably limits guarantees of foreign currency convertibility to
30%). Procurement rules for the selection of investors for PPPs have also been unclear, and
while there has been some improvement with the issuance of the new Law on Public
Procurement, many details are left for future implementing regulations.
The fact that there is a separate regulation on BOT projects, Decree 108, also creates
confusion. It is often unclear to investors which regime applies to a project, and there is no
cohesion within the various State bodies as to which regime to use.
The remaining legal framework relevant to PPPs, such as the Land Law , seems unable to
provide comfort on key bankability issues such as taking security over land under the Land
Law.
By the end of 2014, however, a new PPP Decree is expected to supersede Decision 71 and
Decree 108, and unify the two regimes into one comprehensive PPP regime. The new decree
is hoped to clarify some of the questions that persisted under the current PPP framework.
Among other things, it is expected to remove previous limits for State contribution,
permitting instead the level of State contribution to vary depending on the financial feasibility
of each project. It is also expected to set out a method for investors to propose projects, and
clarify the process of developing a project, including the institutional roles of each State body
involved in the project. The new PPP Decree will not have the legal reach, however, to solve
all of the legal issues that have affected the implementation of PPP programmes in Vietnam.
Potential gains/concerns for Vietnam
Other ASEAN countries such as the Philippines, Indonesia and Thailand have embarked on
ambitious PPP programmes (though not always under the ’PPP’ moniker) that start with a
foreign-investor friendly PPP legal framework. While Vietnam remains without a clear PPP
legal framework, these other countries will continue to become more attractive and it will be
difficult for investors to take the risk of deciding to invest in PPPs in Vietnam.
Recommendations

3. • Continue to develop detailed policies and guidelines related to PPPs that are attractive
to foreign investors looking to invest in infrastructure in the country, in cooperation with the
Government of Vietnam as a whole
• Test these regulations with actual projects, so that investors can get comfortable with
how they will be interpreted in the context of developing a PPP
Developing a Pipeline of Visible Projects
Relevant Ministries: Ministry of Planning and Invest (MPI), authorised State bodies, and
other related
Issue description
Currently, most Public-Private Partnership (PPP)/Build-Operate-Transfer (BOT) projects in
Vietnam are proposed by an investor to the Government of Vietnam and selected without a
transparent, competitive tender. To align Vietnam better with international best practices (and
its own policies), the Government may consider taking the lead in identifying potential PPP
projects, assessing them, and then offering them to investors through a competitive, open
tendering procedure.
The Government of Vietnam recently made significant progress in this regard through the
issuance of Decision 631, a list of 127 national projects seeking foreign investment,
approximately 35 of which are specified to be developed under the PPP investment form.
While Decision 631 provides guidance on the Government’s priorities, individual projects
will first need to be carefully studied for technical and financial feasibility before bringing
them to market.
One helpful tool will be the Project Development Facility (PDF), a donor-sponsored USD 20
million facility (due to be launched in 2015) that will be used to assess the feasibility of
potential PPPs. The facility will be a revolving fund that is paid into by the winning investor
of the projects that do reach market (i.e., the winning bidder will be expected to cover the
costs of preparing the project). The Government has also set aside a new Viability Gap Fund
(VGF) of up to USD 1 billion in order to support projects that would not otherwise be
financially viable.
These are good starts, but there will also be a need to coordinate among the various
Government bodies (possibly through the PPP Office under the MPI) to resolve some key
bankability issues before a project can be successfully tendered. For example, currently the
scope of a government guarantee is negotiated after the project is awarded. It would be more
efficient if such policies were set out in the bidding documentation (with a view to ensuring
developer and lender bankability upfront). Furthermore, the Government of Vietnam will
have to address the role that state-owned enterprises (SOEs) play in a new PPP framework.
Currently, the perception is that SOEs have an unfair advantage as they often are given
projects without a competitive tender.
Potential gains/concerns for Vietnam

4. The list of projects under Decision 631, the PDF and the VGF send a strong and positive
signal to the market that the Government of Vietnam is dedicated to developing PPPs.
However, bringing a viable project to the market will require a rigorous, independent analysis
of the project and significant commitment from all of the various State bodies involved to
ensure that the project is bankable. Investors already noted that there is a lack of projects
being brought for international competitive tender, and there is often an assumption that
SOEs have a 'special status’ against which foreign investors cannot compete. If the
Government of Vietnam wants to encourage foreign investment (and the foreign funding that
often comes with it), it will need to show a concerted commitment to foreign investment in
PPPs.
Recommendations
• Prioritise the projects slated as PPPs on the list in Decision 631
• Make use of the PDF and put potential projects through a rigorous assessment
(with the help of international technical and financial consultants)
• Rally the support of key State bodies for such projects, including developing the
scopes of guarantees and legal opinions early in the process (to remove uncertainty)
• Submit selected projects to a competitive, transparent tender as contemplated under
the new Law on Public Procurement
Reduce Negotiation Time for Projects
Relevant Ministries: Ministry of Planning and Invest (MPI), authorised State bodies, and
other related
One consistent issue raised by investors in Public-Private Partnership (PPPs) in Vietnam is
the length of the negotiation time for projects. For the independent power projects that have
been negotiated under the Build-Operate-Transfer (BOT) model, it usually takes several
years from the tender award to financial close. One foreign-invested power project currently
being negotiated had a recent hiatus of two years. This results in unnecessary costs for the
investors. Anecdotally, we understand that some investors, while eager for their projects to
move forward, are losing patience with the lack of progress.
The lack of a clear legal framework, which is the first issue raised in this Chapter, contributes
to the length of the negotiation time. Indeed, it is difficult for decision-makers to know which
rules to follow, resulting in delays as issues are decided on a case-by-case basis. As there are
many Government bodies involved in the development of PPPs, the Government of Vietnam
also faces bottlenecks from an institutional framework that can sometimes be inefficient. A
specified Authorised State body (ASB) leads the development of the PPP, the Ministry of
Justice is involved in the contract negotiation and subsequent issuance of a legal opinion, the
State Bank of Vietnam is involved where there is a need for foreign currency conversion, and
the local People’s Committees are involved where there is a land requirement. It would be

5. helpful if such State bodies coordinated more smoothly with one another under a high-level
direction.
The timeline is also slowed down by the need to negotiate the same issues with every project
'from scratch’ rather than relying on precedent or standardised documents as a starting point,
and the fact that the Government counterparties have not built up enough of a projects
portfolio to negotiate the contracts efficiently. Further capacity-building and experience in
negotiating PPPs would address these issues.
Potential gains/concerns for Vietnam
Multilateral banks and commercial banks are wary of Vietnam as a market for PPPs because
of the length of time it takes to negotiate documents. This is in comparison to some other
markets in Southeast Asia (such as Thailand, Indonesia and Laos) which have more robust
PPP frameworks and pipelines of projects and thus are much more attractive to investors.
Vietnam must present well-structured, attractive projects in an environment which reduces
risk and increases returns for investors, to better compete with its neighbours for a finite
amount of private sector capital for infrastructure.
Recommendations
• Concentrate on bringing a few 'landmark' projects to financial close, in order to set
expectations in the market (and build capacity for PPPs within key Government
bodies)
• Include key contracts and guidelines in the bidding documents to reduce negotiation
time after the tender is awarded
• Clarify roles of the various institutions related to the development of PPPs (especially
the role of the PPP Office under the Ministry of Planning and Investment) and ensure
that all ASBs have a consistent approach to PPPs
Please contact Oliver Massmann under Uomassmann@duanemorris.comU if you have any
questions.