ATTRACTING FOREIGN INVESTMENT INTO INFRASTRUCTURE

19/06/2019, 09:06 AM

The Draft of Law on Private Public Partnership (the Draft) has been published by the Department of Planning and Investment on the Government Portal for public comments.

One of the most important goal of the Draft is attracting private investment into infrastructures, especially foreign investment.

According to statistic, since 1997 (the year when private public partnership (PPP) model was firstly applied in Vietnam), PPP projects[1] have been implemented in a few sectors such as traffic[2], electricity, water supply, wastewater treatment, in which only electricity BOT projects were funded by foreign investors. The rest have been dominated by domestic investors that are typically illustrated in traffic sector.

According to some points of view, the reason electricity projects attracting foreign investors is the Government has made commitments and guarantees more than those provided by investment laws, such as revenue guarantee, performance bond of the Ministry of Industry and Trade and foreign currency conversion guarantee.

The demand for infrastructure development in Vietnam is huge, meanwhile the state budget allocation only meets 50% of the demand and foreign investment is limited. Therefore, creating attractive playing field to attract foreign investment is crucial factor to facilitate for infrastructure development.

After reviewing the Draft, we find that, in terms of investment incentives, the Draft proposes no amendments in comparation to the existing regulation that include enterprise income tax preferential, import and export duties preferential on imported goods under tax laws.

Regarding investment guarantee, several new regulations have been proposed in the Draft:

Revenue Guarantee

The Draft proposes the minimum revenue guarantee that could be granted by the Prime Minister on case-by-case basis.

In the first 5 years of operation, a revenue guarantee up to [75]% of the estimated revenue defined in the concession contract and up to [65%] for the next 5 years could be granted.

In the first 5 years of operation, in case the actual revenue exceeds [125%] of the estimation and [135%] for the next 5 years, the investors must pay the exceeding amount to the State.

Guarantee on foreign exchange balance

The Draft repeats the existing regulations which provide the State guarantees to satisfy the demand on foreign currency of investors and project companies. There is no guarantee on reimbursement of losses that investors and project companies may bear due to exchange rate fluctuations during project implementation.

Performance bond

The existing regulations only requires investors and project companies provide performance bond, warranty guarantee. There are no regulations require competent state agencies provide guarantees to investors

The Draft proposes the competent state authority in turn may provide performance bond to investors to guarantee for the State's commitments in the concession contract.

 

 

[1] Under the Report No. 25/BC-CP dated 30//1/2019 of the Government on summing up PPP implementation, up to date, there have been 366 PPP contracts signed, of which 140 BOT, 188 BT and 8 projects in other forms

[2] 220 projects, accounted for 65,47%

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