On 18th June, 2020, the National Assembly Deputies officially passed through Law on Public Private Partnership (The PPP Law). Although the PPP investment has been implemented for a period of time, the issuance of a separate law is expected to create the most favorable conditions to attract and mobilize capital of private enterprises to PPP projects.
Public Private Partnership (herein referred to as PPP) means a form of investment implemented on the basis of temporary cooperation between competent authorities and private investors by signing PPP project contracts in order to attract private investors to participate in constructing investment, infrastructure systems, supplying public products and services that the competent authorities are responsible for.
As the country is developing rapidly, it is necessary to raise this form of investment to promote the development of infrastructure and public services in Vietnam. At the same time, there are 3 main requirements for the PPP law: the first is to prevent losses, capitalization and to ensure the interests of competent authorities; the second is to ensure transparency, efficiency, competitiveness and safety to attract investors; and the third is to access good international practices.
With new regulations, the PPP Law has the following notable changes:
- Regarding fields of investment:
The PPP Law focuses to invest on five essential areas related to infrastructure development (transport, irrigation), provision of essential services (electricity, water, environmental treatment). ), social security guarantee (health, education – training) in conformity with the development of the 4.0 industrial revolution (information technology infrastructure) that to promote socio-economic development of the country and improve the quality of people’s life. These are key fields related to large projects with regional cohesion, spillover to the socio-economic development and locality.
Regarding “power station”, the authorities encourage the policy of developing thermal power plants to conform with the national energy development strategy. However, “hydroelectric station” is an exception due to its impact on natural resources and the safety of people’s lives. In addition, “clean water supply” is also governed by this Law, which allows the authority to strictly control capacity, clean water quality and services provided through contractual mechanism, and to limit the matter of private water supply invested in recent years.
- Regarding investment scale:
In order to concentrate resources, the PPP Law stipulates the implementation of PPP investment in e-commerce project of VND 200 billion and above, except projects in difficult socio-economic conditions, or health, education and training fields (of VND 100 billion and above). This regulation is aimed at serving socio-economic development in difficult areas and providing assistance to other beneficiaries while public investment resources are still limited and unsuitable. In particular, the total minimum investment for PPP projects applying operation and management contracts would not be limited since such projects have no construction components.
- Regarding the competence of issuing decisions on investment policies :
The Law stipulates the classification of projects subjected to the competence of issuing decisions on investment policies (National Assembly; Prime Minister; Ministers, People’s Committee,..). Three levels of Appraisal Council (state, inter-sector and grassroots) of PPP projects correspond to 3 levels of competence on issuing decisions of investment policies, which to ensure the effectiveness and feasibility of PPP projects before brought to the market.
- Regarding risk-sharing mechanism:
The payback period of a PPP project can be up to dozens of years from the signing date of the contract. In fact, a PPP project is only defined as a loss or loss of capital if it does not reach the point of return (profitable point) under a financial plan. Moreover, due to many factors during the project implementation, operation and utilization (such as changes of exchange rates, loan interest rates …), the enterprises may raise management expenses to avoid huge profits or looses. Therefore, the PPP Law stipulates the risk-sharing mechanism (for increase of over 125% revenue) and (for under 75% of turnover) to minimize risks of PPP projects, especially risks due to the variation of the State’s policy.
- Regarding State Audit of PPP projects:
This is one of remarkable contents in the PPP law. Accordingly, to conform with the Constitution and the law on State Audit, which only stipulates auditing of public finances and public assets, the PPP Law stipulates auditing PPP projects for management and use of public finance and public assets in PPP projects; State budget used for sharing revenue reduction; and property value when transferred to the State. In addition, the Law also defines the role of independent auditors in PPP projects, particularly: the authorities and the enterprises should come into agreement on selecting an independent audit organization with capacity and experience to carry out the audit of construction investment capital, infrastructure systems.
The PPP Law is hopefully to create a strong legal framework to ensure the fulfillment of contractual obligations and to be stable in a long term of PPP project contracts. The PPP Law will officially take effect from January 1, 2021.