Lack of clarity stymies participation in PPPs

Pham Hoang Ngan, a senior economic expert working for an enterprise-supporting project at the Ministry of Planning and Investment (MPI), said that representatives of some major firms from the Republic of Korea and Japan had come to Vietnam, seeking opportunities in public-private partnership (PPP) projects in agriculture and development of roads, power, and water facilities.

In another example, a Qatari investor wants to cooperate with the Vietnamese government in projects worth several hundreds of millions of dollars to produce rice and build roads.

“Unfortunately, investors have encountered lots of PPP related obstructions in Vietnam. Notably, they would like the government to give them a specific list of credible PPP projects so that they can select the one most suited to them and implement it. However, such a list is unavailable right now,” Ngan said.

At a recent MPI meeting with the Japan Bank for International Cooperation (JBIC), the bank’s representative Kazumori Ogawa said Japanese investors were waiting for Vietnam’s release of a list of PPP projects in power, water, and waste treatment, so that they could begin investing.

The Asian Development Bank’s (ADB) country director for Vietnam Eric Sidgwick said the largest bottleneck impeding PPP investments in Vietnam was the challenge of bringing viable projects to market.

“In addition to providing an enabling legal framework, another key success factor for Vietnam is to build a robust and transparent pipeline of bankable infrastructure projects,” he said.

According to a recently-released ADB report on financing Vietnam’s infrastructure investment for 2016-2020, despite Vietnam’s large infrastructure financing needs, a long term PPP reform agenda, and the country’s increasing openness to private investment in infrastructure  has been very limited major public investments involving foreign investors, and still fewer cases of PPPs with foreign investors.

Sidgwick said the private sector often perceived the government as “stop and go” when it came to PPP policies and actions. The private sector also reviewed PPP bidding and negotiation processes as “unpredictable and lengthy”, and there was a perception of uncertain enforcement of foreign arbitration.

Vietnam has had some PPP projects averaging US$1 billion per year during 2000-2014. Large-scale projects have been concentrated in the power sector, mostly in the form of build-operate-transfer projects. For instance, one of the first was the Phu My 3 project, completed with loans from ADB and JBIC. The revenue stream was provided by a 23-year off-take agreement with state-owned Electricity of Vietnam.

Still, despite Phu My 3 and some other successful projects, the legal framework for PPPs has yet to be fully developed.

“The complex and time-consuming approval process has prevented many projects from being completed successfully, constraining growth in provate investment in infrastructure,” Sidgwick said.

To improve the PPP framework, the Vietnamese government issued Decree No.15/2015/ND-CP on PPPs, effective in April 2015.

Still, Hogan Lovells, a global legal services firm, commented that this decree was still placing obstructions on foreign investors wishing to join PPP projects in Vietnam.

For example, under the decree, there is no clear commitment on 100% foreign currency convertibility. Also, no time limit exists for the negotiation and signing of project contracts, which poses the risk of lengthy negotiations.

“Until these issues are resolved more definitively, we expect that investors will continue to press the government to adopt more bankable policies to encourage the development of PPPs,” said Hogan Lovells Singapore/ Vietnam partner James Harris.