Vietnam’s low rank in the ease of doing business index and poor quality infrastructure and business environment are cited as the two major constraints to growth. Private investment in the country has so far been very limited. Historically, significant investment by state-owned enterprises (SOEs) in infrastructure projects has had a tendency to crowd out the private sector. These SOEs are incapable of taking on the entire onus of infrastructure development as they are bloated with bureaucracy and inefficiency and are a drain on the country’s limited resources rather than a contributor to them. A need to fund infrastructure projects vital to expanding Vietnam’s economy is pushing the government to turn to the private sector for support. Therefore, the country is aiming for greater project implementation via the public-private partnership (PPP) mode in the infrastructure space amidst fiscal constraints. The consistent revision of regulatory and legal norms for PPP is a positive step in this direction.

Need for private participation

According to the Ministry of Planning and Investment, Vietnam requires $480 billion to fund infrastructure investments by 2020, with more projects in the pipeline in the following decade. Among the key projects is the construction of a planned $13 billion, 10-lane road spanning 1,800 km between Hanoi in the north and Ho Chi Minh City in the south. It will be the largest road project till date and will boost north-south connectivity substantially. Other key projects include 11 power stations with a combined generation capacity of 13.2 GW, intercity and intra-city rail networks, and at least 1,380 km of additional highways. The state budget will be able to fund one-third of the $480 billion investment requirement for infrastructure. This means that the remaining funds need to be mobilised from the private sector.

Given the huge investment needs and constrained bank credit and government funding available, the government is now in the process of developing an improved enabling environment for PPP. Recognising the limited success in carrying out PPPs till date, specific actions are being taken to address existing legal, regulatory, institutional and financial constraints.

Revised PPP framework and its features

In February 2015, the government issued two long-expected decrees on PPPs, namely, Decree 15 on PPPs and Decree 30 on investor selection for PPP projects. Since these decrees became effective, one prime ministerial decision and eight implementing circulars have been issued, which contain detailed regulations on various issues ranging from the method of preparation of feasibility studies for PPP projects to PPP project registration procedures.

Wider application

Compared to previous regulations, Decree 15, which took effect on April 10, 2015, widens the scope of sectors in which the PPP model can be implemented by adding the following new categories to the earlier list of traditional infrastructure projects:

  • Infrastructure facilities for traffic and transportation and relevant services
  • Power plants, power transmission lines
  • Lighting systems; water supply systems; drainage systems; waste and wastewater collection and treatment systems; social housings, resettlement housings, cemeteries
  • Commercial infrastructure facilities, science and technology, hydro-meteorological facilities, economic zones, industrial zones, high technology zones, information technology (IT)-focused zones and IT applications and
  • Agricultural and rural infrastructure facilities, services for developing and connecting agricultural production with processing and sales of products.

More PPP formats

In addition to opening up sectors for investors seeking PPPs, Decree 15 also provides a single legal framework for private investments in the infrastructure sector. It repealed previous regulations on build-operate-transfer (BOT), build-transfer-operate (BTO) and build-transfer (BT) models. Decree 15 introduces four additional forms of PPP investments, namely, build-transfer-lease (BTL), build-lease-transfer (BLT), build-own-operate (BOO) and operate-and-manage-contract (OMC). At the same time, Decree 15 allows investors to charge a usage fee, a rental fee or an availability payment to recover their investments. This offers more flexibility to investors and should allow more industries to use the PPP structure to develop their projects than was the case previously.

Unsolicited proposals

Investors may propose projects that are not listed on the list of projects announced by the authorised state agencies, as long as they satisfy all the eligibility conditions of PPP projects. Unsolicited project proposals must be approved by the relevant authorised state agency.

State investment capital

Decree 15 has removed the 30 per cent cap for viability gap funding (VGF) by state capital, and allowed government agencies to determine the use of state capital based on the project’s needs, which in turn allowed the government to be flexible in funding projects. Decree 15 also has introduced a much improved VGF regime allowing the use of state capital to bridge the gap between the project’s investment and its return, in order to make the project financially viable for investors.

Investor selection

The New PPP Decree limits the possibility for direct contracting by stating that the selection of investors for PPP projects must be conducted by way of international competitive bidding, that is, open to both domestic and foreign investors, subject to certain restricted cases.

Tax holidays

Further, the government provides many incentives for PPP investors under Decree 15. These include incentives on corporate income tax imposed on investor, incentives on import and export duties, tax incentives for foreign and domestic contractors participating in project implementation, and exemption from or reduction of land rent for land allocated by the state.

Proposed PPP projects

During 2017-20, the Vietnamese government will mobilise resources to implement mega projects (mostly in the transport sector), which will play an important role in stimulating the development of Vietnam. Some of the potential PPP projects (see Table 1).

PPP penetration in other ASEAN countries

The PPP environment in Vietnam is less mature and developed in comparison to its ASEAN peers, including the Philippines, Thailand and Indonesia. The country’s newly and recently structured PPP framework is evidence of this. Southeast Asian Infrastructure Research takes a quick glance at the PPP penetration in select ASEAN countries…

Philippines

The strong PPP environment in the Philippines has positioned the country well to take advantage of the opportunities available through PPPs. The government recently shifted its strategy from the traditional PPP model to the hybrid PPP model in a bid to fast-track big-ticket infrastructure projects in the country. The rationale behind the move is to initiate project by tapping domestic sources as well as low-cost overseas avenues and then bid them out to private players for operation and maintenance (O&M).

Thailand

In an attempt to increase private sector participation and investment, a new PPP act was introduced by the Thai government in April 2013. The adoption of the Private Investment in State Undertakings Act, 2013 (PISUA) and the announcement of the strategic plan on private investment in state undertakings in 2015 demonstrate the specific policy objectives the government intends to achieve through using PPPs. Later, the government announced its strategic plan for 2017-21 under which THB 1.62 trillion worth of investment is envisaged via the PPP mode to mainly improve infrastructure and lower logistics costs. Of the total budget, 94 per cent will be for transport infrastructure and the rest for education and public health.

Myanmar

PPPs have been used in Myanmar for large infrastructure projects; however, significant institutional barriers still inhibit the effective use of the model. Myanmar currently lacks a multi-year infrastructure investment strategy dealing with financing plans, or with laws, regulations and policies towards PPPs, and with the involvement of the fiscal authorities in decision-making on modes of financing. There is a need for both an institution capable of promoting PPP use in infrastructure, and a history of awarding PPP projects through transparent and competitive processes.

Indonesia

PPP implementation in Indonesia has enjoyed varying degrees of success across sectors. While it has been somewhat successful for power and road projects, there has been insufficient interest in infrastructure assets such as airports and deep-sea ports. Ongoing changes in regulation, including reductions in the attractiveness of power purchase agreement terms, imply that the Indonesian government still has some way to go to attract new international investment on a consistent basis; however the demand is clearly there at a national level to support a long pipeline of projects.

Conclusion

Vietnam is taking gradual steps in liberalising its economy, in part by relaxing its industry regulations and in part by adopting the PPP mode to attract further private sector participation in the infrastructure space. Despite Decree 15, one of the key challenges that remain to private sector PPP investment in the country is the perceived lack of transparency in current PPP planning, tendering and monitoring processes. Further reform is required to bring the country in line with its Asian peers in this regard.