Regulations on financial management for PPP projects to be developed

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The Ministry of Finance has announced consultation about the draft Decree on financial management mechanism for public-private partnershipinvestment projects.

This decree will regulate the financial management mechanisms for public-private partnership investment projects (PPP), including financial plan; bonds issuance of PPP project enterprises; management and use of State capital in PPP projects; investment capital settlement of the completed works, the infrastructure systems; order and procedures for handling properties to transfer works and infrastructure systems to competent state agencies; and revenue sharing.

This decree will also apply to parties in PPP project contracts; State management agencies and agencies, organizations and individuals involved in PPP investment activities.

Regarding the financial plan of PPP projects, the draft clearly states that the financial plans of PPP projects must fully reflect the legal costs and revenues as prescribed from the investment preparation and implementationto operation of PPP projects.

Moreover, the financial indicatorsin the financial plan are calculated on the basis of the after-tax cash flows which are discounted at the weighted average discount rate of the mobilizing interest rates and the return on equity of investors.

Actual revenue will be the total revenue from providing public products and services, excluding value added tax.

The draft Decree also provides for investors' equity. Accordingly, the investor’s equity of in the PPP project is capital of the independent legal entity or a partnership of independent legal entities that actually contributes capital under regulations of the PPP project enterprises and regulations described in the PPP project contract.

Grounds for determining the investor's equity will be the investor's financial statement in the latest year, which wasaudited by an independent auditing firm and be the audited interim financial statement in accordance with law (if any).

If the investor is an organization newly established in the year, the investor's equity is determined based on the financial statement audited by an independent auditing firm from establishing to joining the PPP project or on the latest audited interim financial statement to the time of participating in a PPP project according to the provisions of law.

At the same time, the representative of the owneror parent company makes a written commitment and a financial statement proving that there is enough equity to contribute capital according to the financial plan of the PPP project.

If at the same time, the investor invests in multiple projects and other long-term financial investments (if any), the investor makes a portfolio of those projects and long-term financial investments and ensures that the investor's total equity is sufficient for all projects and other long-term financial investments in accordance with regulations.

The draft states that the investor is responsible for sending the competent agency and the contracting agency a plan to ensure sufficient equity as committed in the PPP project contract as a basis for monitoring the capital mobilization of investors and PPP project enterprises.

Bidding documents provide specific provisions on grounds to determine the investor's equity and require the time of the determination of investor's equity to serve as the basis to assess financial capacity of the investor.

According to the draft, at the time of signing a PPP project contract, the investor and the PPP project enterprise are responsible for providing documental evidence for satisfying requirements on equity.

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Notably, the draft decree stipulates that the investor must be liable under the law for the accuracy and legality of the provided data and documents related to equity, equity allocation for on-going projects and long-term financial investments and plan to raise equity according to the implementation progress of the PPP project.