Public-Private Partnerships in Vietnam

Introduction and Background

Vietnam’s public-private partnership (PPP) regime started approximately 30 years ago. In the early 1990s, PPPs were initially considered an eligible form of foreign investment in Vietnam, which allowed for the development of Build-Operate-Transfer (BOT) projects[1]. The PPP regime was further refined through governmental decrees in 1993, allowing BOT contracts to be carried out with 100 percent foreign capital, or in combination with capital contributed by the government of Vietnam and/or Vietnamese organizations or individuals. Decrees 18 and 87 issued in 1993 required that a foreign investor shall be provided with a timeframe for operating the project, in order to recover its invested capital and make reasonable profits. Upon the expiry of this timeframe, the investor would concede the project to the government without further compensation. In 1997, Decree 77 introduced a mechanism under which the domestic private sector could participate in BOT projects. Additional PPP contract forms were introduced by the Law on Foreign Investment of 1996, adding the Build-Transfer-Operate (BTO) and the Build-Transfer (BT) contracts as eligible for foreign or domestic private investment using the PPP mechanisms. The Public-Private Partnership Law (PPP Law), effective from 1 January 2021, is a consolidation of the regulations and practices that were previously utilized. While a number of issues material to foreign investors remain to be fully resolved, the PPP Law has brought about welcome clarifications on a number of historical issues important to foreign investors and signals the Vietnamese government’s ongoing commitment to enhance the commercial viability of PPP projects in Vietnam.

Regulatory Framework

From 1 January 2021, PPP projects are implemented pursuant to the PPP Law, which identifies the following PPP forms eligible for investment:

The PPP Law identifies the sectors eligible for attracting investment under the various PPP mechanisms listed above[2], along with minimum total investment requirements[3] and equity contribution thresholds per sector:          

a) Transportation projects require a minimum investment of VND 200 billion, or VND 100 billion for projects in areas with difficult socio-economic conditions;

b) Power transmission and distribution projects and power generation plants require a minimum investment of VND 200 billion, or VND 100 billion for projects in areas with difficult socio-economic conditions;

c) Systems for irrigation, clean water supply, waste treatment and wastewater infrastructure require a minimum investment of VND 200 billion, or VND 100 billion for projects in areas with difficult socio-economic conditions;

d) Information technology infrastructure projects require a minimum investment of VND 200 billion, or VND 100 billion for projects in areas with difficult socio-economic conditions; and

e) Health and education projects require a minimum investment of VND 100 billion.

Private investors must contribute equity of at least 15% in the project[4].

Depending on the total investment value and the nature of the project, it may require an investment policy decision from one or more of the government authorities listed in the below table[5]:

In respect of the procurement process of PPP projects, the bidding process is conducted via the national bidding network system (NBNS) found at http://muasamcong.mpi.gov.vn. The NBNS publishes bid information for projects up for tender. This information includes investment objectives, scale, estimated investment capital, project requirements/parameters, investment schedule/timeline, location, land use, master plan information (if any), deadline for bid submission, experience requirements, etc.

In 2022, the Ministry of Planning and Investment issued the following regulations regarding the PPP project bidding process:

(i) Circular No. 08/2022/TT-BKHDT dated 31 May 2022 providing detailed regulations on the provision and publication of information on bidding and selection of contractors on the national bidding network system (Circular 08);

(ii) Circular No. 10/2022/TT-BKHDT dated 15 June 2022 providing detailed regulations on the provision and publication of information on bidding and selection of investors on the National Procurement Network (Circular 10); and

(iii) Circular 15/2022/TT-BKHDT dated 30 June 2022 providing detailed regulations on the preparation of bidding documents for construction and installation bidding packages within the scope of the CPTPP, EVFTA, and UKVFTA agreements (Circular 15).

In brief, both Circular 08 and Circular 10 provide guidelines for using the types of application documents, bidding timelines, document submissions, bid result announcements and how to use the NBNS.

Circular 15 provides standard forms of bidding documents for use during the bidding process. 

Market Snapshot

According to the World Bank’s PPP Database for Vietnam[7], 147 PPP projects have reached financial closure since 1990, accounting for USD 27.8 billion, with a significant portion of these projects being in the energy and power generation sectors.

The PPP Law focuses on a wider range of strategic sectors deemed critical for the future socio-economic development of Vietnam. These include transportation, power generation, transmission and distribution, irrigation, clean water supply, waste-water treatment systems, health and education, and information technology infrastructure[8].  However, the energy sector will likely remain the dominant sector for PPP projects.

For instance, during the conference on the National Power Development Plan VIII for the 2021-2030 period with a vision to 2045 held in Hanoi in 2020, the Vietnam Energy Institute reported that a total investment of USD 133.3 billion would be required until 2030 to cover imminent needs for power generation projects (USD 96 billion) and the development of the national power grid (USD 37.3 billion).[9] While the forecasted power generation segments have been revised as a result of Vietnam’s COP 26 commitments, the Vietnamese government’s aggressive push towards increased installed power generation is clear.  

Key Issues for International Investors

There are some issues which have historically impacted the viability and appeal of PPP projects in Vietnam for international investors. With the implementation of the PPP Law, some further clarity is expected in key areas relevant to an investor’s decision to participate in PPP projects. 

(a) Viability gap funding – guidelines and procedures to be further considered

The Viability Gap Funding (VGF) mechanism of the PPP Law is welcomed by international investors, bolstering investor confidence. VGF is intended to serve as a mechanism for the government to inject capital into projects for a duration during which the project would not otherwise be commercially viable for the private sector.

Historically, it has been reported that further specifications should be provided for the definition of accessibility, eligible stakeholders and overall conditions governing the VGF mechanism in Vietnam.[10]

The PPP Law, regarding the refinement of the VGF mechanism, sets out some key specifications, namely, (i) the purpose for the use of the State capital in PPP projects, (ii) the ratio of the State capital (to private capital) in PPP projects, (iii) the procedure to amend PPP projects requiring the increase of the State capital, (iv) preparation of the State investment capital plan used in PPP projects and (v) financial arrangements for the implementation of PPP projects (including investors’ capital contribution and bond issuance for financing the implementation of PPP projects).

There is not a public VGF budget line nor detailed parameters/criteria of project evaluation to qualify for VGF benefits, so investors can expect this to be a point of negotiations and considered on a case-by-case basis until further regulations are issued.

(b) PPP project implementation – one-stop service

The PPP implementation procedures were previously stipulated by Decree 63 (2014) and the Law on Public Investment (for projects that would receive public funding). A similar decree under the PPP Law has not been implemented, nor has a public regulation been introduced. Under the Law on Public Investment, the process of receiving various approvals (including, for instance, licenses or consents/non-objections, depending on the nature of the proposed project) from multiple authority levels has been considered complicated and time consuming as compared to PPP systems in neighbouring jurisdictions that have implemented a “one stop” or “one window” service. Investors should be prepared to proceed under a process of obtaining approvals, licenses, and consents that is more akin to the historical method, until further regulations are issued pursuant to the PPP Law.

(c) Timeline to reach financial close

The PPP Law requires that the “completion of financial arrangements,” (presumably this includes financial close), must be achieved within 12 months after the signing date of the PPP contract. Projects of which the  investment policy decision is issued by the National Assembly or the Prime Minister can be subject to a six-month extension, giving a total deadline of 18 months.[11] While this timeline is feasible, it should be considered carefully by investors as they implement PPP projects in Vietnam.

(d) Immovable asset mortgages

Pursuant to Article 80.4 of the PPP Law, a PPP project enterprise is permitted to mortgage assets, land use rights and the right to commercially operate the works of a PPP project with a lender in accordance with the Law on Land and the Civil Law.[12]

For land (immovable property) mortgages according to Article 183 of the Law on Land, a foreign-invested enterprise that has leased land from the state of Vietnam is allowed to mortgage assets attached to the leased land only to credit institutions licensed to operate in Vietnam.[13] Investors should take note of this security limitation in structuring their loan arrangements.

The Way Forward

While the PPP Law provides many welcome rights and benefits to investors, the implementation of the PPP Law, and specifically the issuance of implementing procedures, remains to be published by the regulators. Some key underlying national policies, such as the finalized Power Development Plan VIII, also remain to be published. We can expect many new regulations and policies to be introduced in the near term. There is a large, domestic push for many national priority projects in infrastructure, including power generation, highways/transportation, clean water systems, as well as healthcare and education. This wide-ranging push for these development initiatives is paired with the understanding that the government will support these sectors through PPP projects implemented under the new PPP Law. It is fair to conclude there will be many large-scale critical infrastructure projects on the horizon for years to come.

Further Reading

• Vietnam Ministry of Planning and Investment – Vietnam Institute for Development Strategies (MPI-VIDS) Official Website
• The World Bank, Infrastructure Finance, PPPs & Guarantees Official Website
• The World Bank, Potential Benefits of Public Private Partnerships
• The World Bank, ‘Private Participation in Infrastructure (PPI): 2021 Half Year Report’.

This publication is intended to provide a high level overview of PPPs in Vietnam. It is provided for general informational purposes only and should not be construed as legal advice. King & Wood Mallesons does not practice Vietnamese law, and works closely with local lawyers to support our clients' needs in Vietnam. We are grateful to DFDL for their co-operation on this publication.