Vietnam – Infrastructure and Waste Treatment Sector – Current Issues and Solutions for Investment and Outlook on the Major Trade Deals CPTPP, EUVNFTA and the EU Vietnam Investment Protection Agreement (IPA)

1. Vietnam – Infrastructure and Waste Treatment Sector – Current Issues and Solutions for
Investment and Outlook on the Major Trade Deals CPTPP, EUVNFTA and the EU
Vietnam Investment Protection Agreement (IPA)
Author: Dr. Oliver Massmann
A. Overview
The waste treatment and infrastructure sector in Vietnam faces several issues. The waste treatment is a
priority sector in Vietnam due to the urgent need to clean up urban environments in major provinces. This
leads to the urgent need of waste treatment projects. However, the incentives for sponsors are limited. In
particular, a regulation regarding solid waste treatment projects prevents, that the profit earned by the
sponsors can raise up higher than 5%, adversely affecting the financial viability of the projects.
Regarding the infrastructure, there are two main issues. Firstly, there are only a few options for sponsors to
raise capital for infrastructure projects. Besides the traditional project financing, sponsors of projects in
Vietnam have hardly any other options to raise capital for it. Secondly, the development of energy efficient
buildings is still in its infancy in Vietnam. Buildings are, and will remain, the largest consumers of
electricity. However, just around 100 buildings have a Green Building (GB) certification. Modern, efficient
infrastructure is vital to continued economic growth and lowers the costs of doing business for all investors
in Vietnam.
Regarding the problems of the waste treatment, it can be determined, that due to the rapid economic growth
and urbanization, public funding is unable to meet these needs. This gap has to be filled by other sources
like private investment in the form of Public-Private Partnerships (PPP). In order to find private sponsors
for waste treatment projects, the problem can be solved by setting a more flexible regulation instead of a
fix profit limit.
The infrastructural issues can be addressed by the state setting a governmental framework to promote
alternative options to raise capital. The issue regarding the energy efficiency of buildings
must already be taken up during the construction phase by using environmentally-friendly construction
materials without producing higher costs and, in addition, by using multiple systems and certificates of
“economic buildings”, letting the market determine which are practical and useful. These systems could be
licensed for operation based on a set of simple criteria such as transparency, reliability and coherence
according to recognized norms. These certificates must include incentives to encourage builders to build
energy efficient buildings.
B. Waste Treatment Sector
Waste treatment is an important sector for PPP’s. However, to date there is no customized guidance on
development of PPP projects in this sector. In particular, Circular 07/2017/TT-BXD (Circular 07) regulates
the method for determining the price of municipal solid waste (MSW) treatment service, which is used as
the basis for setting, evaluating and approving specific prices of MSW treatment services. It came into force
on July 01, 2017 and applies to organizations and individuals. It does not set out a pricing mechanism that
is workable for PPP projects. Circular 07 limits the profit earned by the sponsors in solid waste treatment
projects to 5%, adversely affecting the financial viability of the projects.

2. Instead of using a maximum limit, a flexible regulation is needed. The authorized State agencies must be
able to decide on appropriate service fees which will be finalized subject to the market and tender results
instead of setting a cap on the fees, which, if is not in line with the market, would make projects unattractive
to investors.
C. Lack of options for sponsors to raise capital for projects
Other than traditional project financing, sponsors of infrastructure projects in Vietnam have hardly any
other options to raise capital for projects. The regulations on project bonds or trading
equity are either not accommodating to the nature of an infrastructure project company (e.g. the law requires
that the bond issuer must be profitable in the preceding year to be eligible to issue bonds), or not available
at all (e.g. strict requirements on transfer of project equity preventing project companies from raising funds
on the capital market).
Being able to raise funds on the capital market would provide the sponsors with alternative financing
options, especially given the unresolved financing challenges of on-going projects. The government should
consider and put into place a legal framework to support such alternatives.
D. Development of green buildings in Vietnam and standards
A major issue that Vietnam faces is that energy-efficient houses hardly exist. Currently Hanoi has only
around 100 buildings that are Green Building (GB)-certified or are undergoing GB certification.
However, buildings are and will remain the largest consumers of electricity. The rapid growth of
urbanization and its associated life and working style, which includes intensive air-conditioning use,
accounts for a considerable proportion of the energy consumption growth in the major cities of Vietnam.
Proper building design can reduce this growth for the next 25 years of a building’s lifetime.
On the other hand, a development can be seen. Organizations such as the Vietnam Green Building Council
(VGBC) report a significant uptick in interest over the past couple of years. Many building owners have
been introduced to the concept of GB. The aim is to make buildings as energy efficient as possible. To
bring absolute a real change, the problem needs to be handled on several levels.
Firstly, buildings should become more energy efficient in any case. This does not mean higher investment
costs. The process can be applied from the architecture phase, with passive design and the use of
environmentally-friendly construction materials, to the implementation of energy-efficient devices during
construction. The aim should be that all buildings achieve the minimum standards of the VEEBC code
(or a simplified version) in order to receive the Building license at Basic Design Stage. Furthermore,
Electricity of Vietnam (EVN) could impose a tariff scheme that rewards low energy consumption
buildings with lower prices and impose higher prices to high consumption buildings.
Secondly, the Government must provide effective encouragement for building owners to certify their
buildings. In addition to international green building certifications already being used in Vietnam, such as
the United States Green Building Council (USGBC) Leadership in Energy and Environmental Design
(LEED) and International Finance Corporation (IFC) Edge, VGBC has developed the LOTUS certificate.
In conclusion, it would be useful, to recognize multiple systems for use in Vietnam, letting the market
determine which are practical and useful. These systems could be licensed for operation based on a set of
simple criteria such as transparency, reliability and coherence according to recognized norms.

3. E. Outlook on Major Trade Agreements TPP 11, EUVNFTA and IPA
In January 2017, US President Donald Trump decided to withdraw from the US’ participation in the TPP.
In November 2017, the remaining TPP members met at the APEC meetings and concluded about pushing
forward the now called CPTPP (TPP 11) without the USA. The provision of the agreement specified that
it enters into effect 60 days after ratification by at least 50% of the signatories (six of the eleven participating
countries). The sixth nation to ratify the deal was Australia on 31 October 2018, therefore the agreement
will finally come into force on 30 December 2018. Vietnam has now officially become the 7th
member of
the CPTPP.
The CPTPP is targeting to eliminate tariff lines and custom duties among member states on certain goods
and commodities to 100%. This will make the Vietnamese market more attractive bringing more foreign
direct investment to Vietnam. The agreement includes a stand-alone, enforceable chapter on the
environment. The chapter’s core obligations commit member countries to pursue high levels of
environmental protection, effectively enforce domestic environmental laws, not derogate from these laws
to encourage trade or investment and promote transparency and public participation. Those essential
regulations will help to improve the cleanliness of Vietnam.
One another notable major trade agreement is the European Union Vietnam Free Trade Agreement
(EUVNFTA). The EUVNFTA offers great opportunity to access new markets for both, the EU and
Vietnam. It will help to bring more capital into Vietnam. In addition, the EUVNFTA will boost the most
economic sectors in Vietnam.
Both agreements promise great benefits for the infrastructure and waste treatment sector in Vietnam and
will help to react on the fast economic and population growth. For instance, Vietnam will be bound by its
commitments in the Government Procurement chapter in the CPTPP and the EVFTA, including the
procedures to conduct a tender and in specific circumstances that the Government must conduct a public
tender. The investors now have the opportunity to participate in procurement by Vietnam’s government
entities and challenge the Government if it does not grant the investors the opportunity to do so in qualified
circumstances.
The CPTPP and the EVFTA make it possible that foreign investors could sue Vietnam Government for its
tender decisions according to the dispute settlement by arbitration rules. The violating party must take all
necessary measures to promptly comply with the arbitral decision. In case of non-compliance, as in the
WTO, the CPTPP and the EVFTA allow temporary remedies (compensation) at the request of the
complaining party. The final arbitral award is binding and enforceable without any question from the local
courts regarding its validity. This is an advantage for investors considering the fact that the percentage of
annulled foreign arbitral awards in Vietnam remains relatively high for different reasons.
In conclusion, Vietnam’s strong economic growth and its demand for infrastructure development are great
opportunities for investors planning to invest in Vietnam. The CPTPP and the EVFTA are effective tools
to support foreign investment in Vietnam’s infrastructure sector in the form of PPP. Under these
agreements, foreign investors could take recourse to arbitration proceedings and have the arbitral awards
fully enforced in Vietnam.
To enable at least some parts of the FTA to be ratified more speedily at EU level, the EU and Vietnam
agreed to take provisions on investment, for which Member State ratification is required, out of the main
agreement and put them in a separate Investment Protection Agreement (IPA). Currently both the FTA and
IPA are expected to be formally submitted to the Council in late 2018, possibly enabling the FTA to come
into force in the second half of 2019.

4. Furthermore, the Investor State Dispute Settlement (ISDS) will ensure highest standards of legal certainty
and enforceability and protection for investors. We alert investors to make use of these standards! We can
advise how to best do that! It is going to be applied under the TPP 11 and the EUVNFTA. Under that
provision, for investment related disputes, the investors have the right to bring claims to the host country
by means of international arbitration. The arbitration proceedings shall be made public as a matter of
transparency in conflict cases. In relation to the TPP, the scope of the ISDS was reduced by removing
references to “investment agreements” and “investment authorization” as result of the discussion about the
TPP’s future on the APEC meetings on 10th and 11th November 2017.
Further securities come with the Government Procurement Agreement (GPA), which is going to be part of
the TPP 11 and the EUVNFTA.
The GPA in both agreements, mainly deals with the requirement to treat bidders or domestic bidders with
investment capital and Vietnamese bidders equally when a government buys goods or requests for a service
worth over the specified threshold. Vietnam undertakes to timely publish information on tender, allow
sufficient time for bidders to prepare for and submit bids, maintain confidentiality of tenders. The GPA in
both agreements also requires its Parties assess bids based on fair and objective principles, evaluate and
award bids only based on criteria set out in notices and tender documentation, create an effective regime
for complaints and settling disputes, etc.
This instrument will ensure a fair competition and projects of quality and efficient developing processes.
If you have any question on the above, please do not hesitate to contact Dr. Oliver Massmann under
omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam
LLC.
Thank you very much!