- Vietnam's Ministry of Industry and Trade recently released a new circular and power purchase agreement (PPA) templates for wind energy projects. - However, the new PPA templates provide little improvement over previous versions and still leave investors facing serious risks around lack of compensation for interruptions, force majeure conditions, and dispute resolution options. - While the new PPA confirms feed-in tariffs for wind projects until 2021 and addresses exchange rate fluctuations, major concerns remain around risks being transferred to producers for issues outside their control like transmission breakdowns.

1. VIETNAM – WIND POWER BREAKING NEWS – NEW MODEL POWER PURCHASE
AGREEMENT OUT – IMPROVED BANKABILITY? WHAT YOU MUST KNOW:
By Dr. Oliver Massmann
Vietnam’s Ministry of Industry and Trade (MoIT) released Circular 02 (effective from 28 February 2019)
in including final template power purchase agreements (PPA) for the wind energy sector. This Circular is
issued to guide the Prime Minister’s Decision 39 to regulate new FiT for onshore and offshore wind power
projects in Vietnam. Circular 02 will replace previous regulations under Circular 32 dated 2012 and
Circular 06 dated 2013 of the MoIT.
Circular 02 and PPA templates are stated to be mandatory templates for wind projects. Unfortunately, little
improvements have been made comparing with the old template PPA under Circular 06 / Circular 32.
Would-be investors now still have serious concerns over the amount and type of risk the PPA sought to
shift to investors, and the message delivered was that unless the government was willing to address some
of the most glaring problems, few reputable foreign wind players and, just as importantly, few reputable
financiers would be likely to sign up.
Issues include a lack of measures to compensate producers for interruption in the ability to receive power,
force majeure conditions, contract suspension, lender’s step-in rights subject to EVN’s approval and
settlement of disputes.
Tariff with actual foreign exchange rate
With the FiT rate of (i) 8.5 US cents / kWh applicable to onshore wind power projects, and (ii) 9.8 US cents
/ kWh applicable to offshore wind power projects confirmed, Decision 39 and Circular 02 confirm that the
FiT is available for 20 years to projects, or parts of projects, that reach commercial operation before 1
November 2021. Circular 02 further regulates that for grid-connected wind power projects having both
onshore turbines and offshore turbines, the power developer must agree with EVN / power buyers on a plan
for installing meters and on how to measure and calculate the separate power output of the onshore turbines
and that of the offshore turbines as the basis for applying the appropriate power trading prices.
The final PPA does not include any indexation of the FiT to the Consumer Price Index (CPI) to address
inflation risks. However, in response to concerns over fluctuating exchange rates, the circular does state
that the foreign exchange rate shall be the central exchange rates of the Vietnamese dong against the US
dollar announced by the State Bank of Vietnam on the payment date. This is a good step to address the
price fluctuation issue.
A risk still seem high?
Under Decision 39 (which also set the FiT) and the final version of the PPA appended to Circular 02,
Electricity of Vietnam (EVN) is responsible for purchasing the entire power output from grid-connected
projects at the stated FiT.

2. However, the PPA relieves EVN from payment obligations in cases where it is unable to take power due to
a breakdown of the transmission or distribution grid. With many wind projects currently focused on few
central locations, the capacity of existing facilities to absorb power must be a cause of some concern given
the PPA’s transfer of such risk to power producers.
The PPA lacks any mechanism to compensate power producers should interruptions happen outside of their
control. Not only does the PPA not provide for extension of time in case of force majeure, but if force
majeure were to prevent a power producer from meeting its obligations for a year then EVN could
unilaterally terminate the PPA with no compensation payable. In such circumstances, the power producer
is left alone in the dark.
Such arrangements might be acceptable to projects that manage to negotiate clear ‘take or pay’ terms and/or
government guarantees, but it is highly questionable whether and to what extent either of these will be
possible in the current climate. As a direct consequence, it is equally questionable to what extent private
finance will be prepared to bear the risk, a fact that will prompt capital to seek more favourable conditions
in other markets.
Playing by Vietnam’s rules
Investors may be further discouraged by the lack of specifics in terms of an investor friendly dispute
resolution. The PPA is governed by Vietnamese law and does not itself expressly include the right to agree
on international arbitration to resolve disputes, a condition that would typically be considered an important
requirement.
As it stands, disputes can be submitted to the Electricity Renewable Energy Department (formerly the
General Directorate of Energy) for mediation. If that doesn’t work, there is the option of escalating the issue
to the Electricity Regulatory Authority of Vietnam (ERAV) or pursuing litigation in Vietnam’s courts.
The PPA does allow for “another dispute resolution body to be agreed by the parties”, which potentially
opens the door for sellers to negotiate with EVN on dispute resolution, including international and offshore
or even domestic arbitration. But it is not clear if EVN will agree to directly amend PPAs to allow for
express prior agreement on offshore arbitration or simply open the door for such a discussion at the time of
a dispute. Clearly in the latter case the deck is firmly stacked in EVN’s favour.
Payment obligation
The PPA does exclude the due payment obligations of EVN / power companies from force majeure
exemption and it could ensure EVN and power companies to make payments regardless force majeure
events occurring.
The time for EVN making payment upon receipt of receipts is now increased from 15 days (from old
template PPA) to 25 days.

3. Default interest rate for unpaid amount of power companies to the developer is now the average inter-bank
trading interest (slightly decreased from current 1.5 times the average interbank trading interest rate for one
month).
Lender’s step-in Right
The Wind PPA appears to enable the developers to transfer the PPA or provide step-in rights to lenders but
subject to always written approval from EVN, provided that also it notifies EVN immediately in writing,
although the drafting is unclear. This is a disappointment as the old template allows lender’s step-in right
without approval from EVN.
One step forward… wait and see
The MoIT is well aware of the deficiencies in the PPA and knows that, in its current form, it will not attract
the kind of investment Vietnam needs if it is to meet both its energy demands and renewable targets. They
know that investors were hoping for some of the shortfalls to have been addressed, thus this Circular is the
step in the right direction .
We have information from our contacts in the MOIT that the standard Solar PPA will be amended within
coming months.
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For more information about Vietnam’s energy sector, please contact Dr. Oliver Massmann and lawyer
Thanh Tran Minh under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of
Duane Morris Vietnam LLC.