Removing PPP bottlenecks to attract FDI into infrastructure

	Japan leads foreign investors in Vietnam in 2018
	Drastic changes needed for further FDI opportunities from Japan
	Vietnam urged to focus more on dynamic advantages to attract FDI

PPP investment has great significance for the completion of Vietnam's infrastructure. Photo: ST.

The most successful PPP is in the electricity industry

In the last 20 years, about 200 projects have been licensed in the form of PPP, including 158 BOT and BT projects in the transport sector; 9 BOT projects in the electricity industry; and 5 wastewater treatment projects.

According to the evaluation of experts from the Infrastructure Working Group of Vietnam Business Forum (VBF), investment in electricity projects has been the most successful field in attracting foreign investment in BOT projects, with many multi-billion dollar projects under construction, in the pre-completion phase of financing or in operation. The Ministry of Industry and Trade and the Government in recent years have built for power projects a relatively appropriate risk sharing mechanism, providing certain clarity to foreign investors and lenders.

However, according to the evaluation of foreign investors, the form of PPP investment in Vietnam is still limited and this is the reason why they hesitate to invest in Vietnam. In particular, the risk sharing mechanism of PPP projects from the Vietnamese Government has not been really met the foreign investors’ expectations. Mr. Ryu Hang Ha, Chairman of the Korean Chamber of Business in Vietnam (KOCHAM) said that in order to promote investment in the PPP, investors should be allowed to have many different options to mobilize their investment capital. However, citing the current regulation that bond issuers must be profitable in the previous year to issue bonds, and must have safe assets (cash), Mr. Ryu Hang Ha affirmed that strict regulations have become an obstacle for investment. In particular, the representative of this Chamber emphasized the issue of risk sharing in PPP investment. “In the Decree 63/2018/ND-CP amending the regulation on PPP, there are also positive aspects such as streamlining administrative procedures for the PPP projects. However, the most important point, which is "Government guarantee" for risk sharing between the Government and investors, has not been revised. Therefore, the completion of the legal basis for recognizing the different methods of capital mobilization of private enterprises and the guarantee of the Government to minimize the risks of investors who can conduct PPP projects in the infrastructure sector will be more actively implemented”, said Mr. Ryu Hang Ha.

Many shortcomings in the current regulations

Mr. Kenneth Atkinson, Chairman of British Business Group in Vietnam also said that there are still some issues that need to be addressed before international financial resources can "flow" to support the PPP program in Vietnam. “The most important is the proper balance of risks. Foreign donors need to ensure certain effects in their project implementation and receive adequate benefits to avoid unexpected risks”, said Mr. Kenneth Atkinson. About foreign exchange risks, Mr. Kenneth Atkinson said, in fact, there must be a party to accept these risks. If foreign investors suffer the risks, they will calculate the prices of those risks into the project, resulting in higher project costs and low economy. Not to mention, besides foreign exchange risks, there are still risks with similar impacts.

Evaluating Vietnam's attraction of PPP investment, Mr. Koji Ito, Chairman of Japan Business Association in Vietnam, said that Vietnamese Government has understood the significance of PPP in improving infrastructure and has listened to enterprises' aspirations to share risks with them as well as has performed the Government’s role to bring the PPP projects come to success. However, during the implementation of the PPP projects, the content is still unclear.

According to a representative of the Japan Business Association, the Decree 63 stipulates that the relevant contracts of the project may apply foreign law, but this Decree does not specify whether foreign law can be applied to contracts that one of the signatories is a foreign legal entity. Therefore, it is necessary to specify more clearly cases of applying foreign law according to the Article 467 of this Decree. In addition, the Decree 63 allows investors and project enterprises to mortgage land use rights and assets attached to land and the right to trade in project’s equipments. However, the Law on Land and the Civil Law do not stipulate clearly that foreign bank branches in Vietnam are allowed to mortgage land use rights and assets attached to land. Therefore, there is still a problem that investors and businesses face difficulties in raising capital.

Regarding the funding for the PPP projects, the report of the Infrastructure Working Group of the VBF also emphasized, one of the biggest difficulties encountered by PPP projects is to identify funding sources to offset the project's financing gap. Since the preparation of a project proposal requires a lot of costs and resources, the absence of clear regulations on funding sources to compensate for financial shortages will make the competent state authorities or investors uninterested in the project preparation.

Another issue mentioned by investors is that according to the Decree 63, after the investor is selected and approved, the investor, including the foreign investor of the project, can establish a Project enterprise to implement the project. The Decree 63 does not stipulate that investors must apply for an investment registration certificate (IRC). The purpose of this change is to help them avoid "getting a license twice". However, without the IRC, investors and project enterprises may face difficulties in obtaining other important licenses for the project and in the daily activities of the project as well. The reason is that the relevant laws such as the Enterprise Law and the Land Law, which have higher legal effect than the Decree 63, stipulate that foreign investors must submit the Investment Registration Certificate to obtain the Business registration certificate and the Certificate of land use right. The fact that enterprises must provide these third parties with all PPP contracts to prove their rights in the PPP projects is not commercially viable.

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By the end of October 2018, there were 289 PPP projects implemented with a total investment of about USD 54 billion in the whole country. By type of contract, of the 289 projects, there are 141 BOT projects, 140 BT projects, 5 BOO projects,… including 207 traffic projects, 18 energy projects, 10 infrastructure projects...