Client Briefing

July 2010

Public Private Partnerships in Vietnam

PPP in Vietnam Key Issues

 PPP in Vietnam
Introduction
 Background & BOT in Vietnam
Vietnam’s Ministry of Planning and Investment (MPI) is currently finalising
legislation with respect to the introduction of Public Private Partnerships (PPP)  Proposals and Draft Legislation
in Vietnam.
 Pilot Project
Under the MPI's proposal, PPP will be deployed under a pilot scheme applicable
 Structuring and Financing
to a wide variety of infrastructure and public sector projects. According to the
Ministry of Transport, there are currently 10 projects requiring domestic and  Project Implementation
foreign investment in the form of PPP. A 14.3 trillion-VND highway linking Dau
Giay with Phan Thiet city is expected to be the first PPP project.1

PPP is expected to be implemented in parallel with the existing Build Operate

and Transfer (BOT) framework however it is expected that the current draft If you would like to know more about the
subjects covered in this publication or our
legislation may be significantly amended after the pilot launch. services, please contact:

Geraint Hughes +65 6410 2212

Background geraint.hughes@cliffordchance.com

Tran Tuan Phong +84 4 3934 8530

Infrastructure requirements & BOT projects in Vietnam phong@vilaf.com.vn

The World Bank estimates that Vietnam’s infrastructure investment Marc Rathbone +65 6410 2222
Marc.Rathbone@cliffordchance.com
requirements are equal to approximately 11 per cent of GDP and that there may
be a financing gap of 5 per cent of GDP as the country seeks to meet this Denzel Eades +84 4 3934 8530
demand. Demand for power is estimated to grow at between 15-18 % per denzel.eades@vilaf.com.vn
annum and the MPI estimates that core infrastructure will require investment in Clifford Chance (Thailand) Limited
excess of $139 billion over the next 5 years. 21 Floor
Sindhorn Building Tower 3
130-132 Wireless Road, Pathumwan
Vietnam has recently attained middle income status and the level of official
Bangkok, 10330
development assistance which the country receives in the coming years is www.cliffordchance.com
expected to fall. Consequently the government has turned to PPP in an effort to
VILAF
bridge a potential funding gap in public projects and in recognition that the HCO Building (Melia), Suite 603
existing BOT legislation in the form of Decree 108, which is designed primarily 44B Ly Thuong Kiet Street
for private projects, should be complimented by PPP focused legislation. The Hanoi, Vietnam
Tel: (84-4) 3934 8530 (ext. 130)
PPP framework will seek to attract non-government investment in a wide variety Fax: (84-4) 3934 8531
of public projects, create a framework for governmental support where a funding www.vilaf.com.vn
viability gap exists and provide a mechanism for the implementation of a
feasibility study which will form the basis for determining the amount and form of
government support prior to the selection of an investor.

1
The feasibility study report on the basic design and total capital of the project has recently been approved by the Ministry of Transport.

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Proposals and Draft Legislation

Pilot Projects
The government has released draft legislation which provides the conditions, procedures and principles for a pilot launch
of PPP. The pilot scheme is promoted as being focused around three main principles, being:

 Attracting private and foreign investment in infrastructure development and public service provision;

 Avoidance of public debt; and

 Selection of investors based on a competitive, fair, transparent and economically effective basis

A pilot project may be deployed in any one of the following areas: roads, bridges, tunnels, ferry, railways, railway bridges,
railway tunnels, urban transport, airports, seaports, river ports, fresh water supply system, power plants and other
infrastructure development and public services supply projects as decided by the Prime Minister.

In selecting the pilot projects preference will be given to landmark projects and those which address an urgent demand. It
will be necessary to demonstrate (i) an ability to repay the investment capital from operational revenue, (ii) an ability to
utilise technological, management and operational experience and (iii) that there is the capacity to mobilize the financial
capacity of the private sector.

Structuring and Financing

All PPP projects will be eligible for receipt of “State Contribution” and the benefit of “Special Mechanisms”. State
Contribution is defined as state capital2, investment preference and investment subsidies which are deployed to ensure
investment effectiveness; it may not exceed 30% of total project investment (except as otherwise decided by the Prime
Minister) and cannot be equity capital nor attach to dividend rights. Special Mechanisms are defined as a commitment of
the state to ensure the success of the project including commitments on foreign currency guarantee levels, foreign
exchange balance and other commitments on handling risks which are beyond the investor’s “control”. It will not be
permissible for the Government to incur public debt with respect to a project.

State Capital may be used for building support, construction work, land clearance, resettlement organisation and
compensation and to cover project costs. The allocation of state capital must be conducted in accordance with the
Budget Law.

Investor equity must account for at least 30% of private sector investment in the project and commercial loans may not
exceed 70% of private sector investment.

Project Implementation, Project Proposal and Project Portfolio

A project proposal may originate from the relevant authorized state agency or an investor. An approved project proposal
will be assessed and, if successful, developed into a “project portfolio” which will be subjected to a feasibility study.
Responsibility for the feasibility report will be subject to international tender and based on the feasibility report the
authorised state body shall organize the tender process for the selection of the investors. The MPI will evaluate investor
applications and these will be submitted for Prime Ministerial approval.

Within 30 days of appointing the investor the project contract must be initialled. The Project Contract shall detail the
state’s participation and the Special Mechanisms for the project and shall reflect the Prime Ministerial approval. Following
the issuance of an Investment Certificate the investor, via the project company and the authorised state body is able to
sign the contract. Following the granting of Prime Ministerial approval the investor may establish a project enterprise and
conduct the business registration in respect of this entity. The investor will be responsible for and have control over the
organization, rights and responsibilities of the project enterprise in accordance with the provisions of the project contract,
Law on Enterprises and Law on Investment.

2
State capital includes state budget, official development aid, government bonds, credit capital guarantees, state
development investment capital and development capital investment of state owned enterprises

© Clifford Chance May 2010

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VIETNAM - Equitisation Update

The key state actors in the application process and the implementation of the project will be the MPI, Ministry of Finance,
Ministry of Justice, State Bank of Vietnam and the relevant authorised state agency. Consideration is being given to
whether a single body should be granted authority to coordinate the process and as such act as a “one stop shop”.

World Bank Draft Proposals

The World Bank’s stated objective in its draft PPP framework report published last year was to provide a roadmap for a
clear process that sets out the key decision points, roles and interrelationships of various Institutions, criteria for project
selection, eligibility for viability gap financing and criteria for evaluating competing bids and the basis for a draft PPP
Decree. The proposals outlined in the framework report have only partially been incorporated by the Vietnamese
government; however they may well yet influence the shape of future legislation. The proposals have been outlined in
draft legislation included in the draft framework report.

Experts in privatisations & Vietnam

VILAF and Clifford Chance have a strong working relationship which dates back to the early 1990s. The close alliance
between the two firms, which transcends the typical affiliation between a local and an international firm, allows Clifford
Chance and VILAF to offer a seamless and effective service with international standards and local expertise.

The international reach of Clifford Chance’s practice combined with VILAF’s unrivalled local knowledge, expertise and
contacts enable us to together understand local issues with an international perspective.

Clifford Chance has acted on some of the most high profile privatisations globally, across all sectors and in a wide variety
of locations. We have a deep understanding of the oil and gas sector, risks and structuring issues. In Vietnam VILAF has
worked on some of the major equitisations which the country has seen. VILAF recently acted for an international
telecommunications company in connection with the ongoing privatisation process of Vietnam's three state owned mobile
telecommunications companies. With long experience and strong working relationships with various Government
agencies and SOEs, VILAF and Clifford Chance understand the working methods and expectations of these
organisations and can leverage this understanding to assist clients in dealing and negotiating most effectively with them.

Clifford Chance

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 "International Law Firm of the Year" - IFLR Asian Awards 2010
 "Best law firm in the Asia Pacific syndicated loan market" - Euroweek Asia - Syndicated Loans & Leveraged
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 "Asian Counsel Firm of the Year 2009" - China Alternative Investment Funds, Hong Kong Alternative Investment
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Chambers and Partners 2009/2010 quotes "VILAF offers the best of both worlds: practical business advice on
Vietnamese law and depth of experience at dealing with international clients and transactions". "Rivals agree that Vilaf-
Hong Duc provides "excellent" counsel" and point out that the firm is frequently sought after by international firms..." IFLR
1000 2009.

© Clifford Chance May 2010