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MINISTRY OF PLANNING AND INVESMENTPUBLIC PROCUREMENT AGENCY
OVERVIEW OF PPP IN VIET NAM
Hanoi, 31 May 2018
1. General concept of PPP
“PPP” describe a partnership relationbetween the Public and the Private in theinfrastrucure sectors and other publicservice.
PPP is a partnershiprelation between the publicand private sector toimplement a project orservice that the Public isresponsible for provision.
Nghị định 63/2018/NĐ-CP:PPP means a form of investment on the basis of a contract between an authorized state agency and an investor, a project enterprise to build, upgrade, operate, manage infrastructure facilities and provide public service.
2009
2007
1997Decree 77/CP (1997) on BOT for domestic investors
Decree78/2007/ND-CP on BOT, BTO, BT
2015
Decree 108/2009/ND-CP on BOT, BTO, BT
Decree 15/2015/ND-CP on PPP and Decree 30/2015/ND-CP on investor selection
20182020 …
Decree No.63/2018/ND-CP on PPP and Decree… on investor selection
To-be Law on PPP
LEGAL FRAMEWORK: DEVELOPMENT
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LAW ProcurementLaw
CIRCULAR
(Tentative)
Circulars of Ministries on
specific sectors
Circular on RFQ, RFP
DECREE
Decree replacing
30/2015/NĐ-CP on investor selection (to be issued soon)
Decree 63/2018/NĐ-CP
on PPP
Public Investment
Law
Construction Law
Investment Law
Circularguiding
the implementation of
Decree 63
Law on management and use of
public assets
LEGAL FRAMEWORK: at a glance
- Transport- Urban, parks, parking
space - Energy- Social facilities - Commercial facilities,
facilities in economic zone, high-technology facilities, hạ tầng kỹ thuật công nghệ cao; cơ sở ươm tạo, technical facilities, common working area to support small and medium enterprises
- Agriculture- Others
Lĩnh vực khác
PPP Sectors
Public participation
• Capital contribution– Types: in cash, in kind– Sources: public investment fund, public assets
• Availability payment– Sources:
• Public investment fund• Public recurrent expenditure fund• Revenue from public services
• Land compensation/clearance costs, auxiliary works
Not apply to single source selection of investor8
Private participation
(apart from public capital and land clearance supports)
• Equity– 20% [for investment size of up-to VND 1500 billion ~ US$
70 million]– And 10% [for the part of investment above VND 1500
billion]• Debt
– Remaining %– Commercial
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BOT BOOBTO BTO&M BTL BLT
Mixed type: ✔Other type: approval of Prime Minister
Types of PPP Contracts
Payment Mechanism for PPP projects
BOT, BTO, BOO
Government
Special Vehicle Purpose
(Project enterprise)
Users
BTL, BLT, O&M
Government
Special Vehicle Purpose
(Project enterprise)
Payment
Users
Payment in BT Contract?
Structure of a PPP Contract
Investor/SPV
Authorized State Agency/People’s Committee
EPC Contractor
O&M Contractor
LendersLoan contract
PPP Contract
Pledge and securityDirect agreement
Note
Contract
Structure of a PPP Contract – Power project
People’s committee
Investor/SPV
Agency for contract
performance guarantee
Authorized State Agency/People’s
Committee
EPC Contractor
O&M Contractor Supplier of coal
Offtaker
Parties for loan
participation
LendersLoan Contract
Offtake
contractEPC
Pledge and securityDirect Agreement
Note:
Contract
Guarantee
Overal Procedure
Pre-FS stage
FS stage
Design stage
Construction
Operation
Project development Normal procedure Procedure for Other special projects (BT…)
Solicited or Unsolicited
Investor Selection
Investor Selection
Investor Selection
PPP
1. Social-economic benefits of the project
2. Financial
viability of the project
3. Key perfomance indicators
4. Risk allocation
5. Contract
type
Difference in preparation of PPP (in comparison with public project)
Prepation of PPP Projects
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Purpose: To identify whether to implement the project? Social and economic benefits:
Indicators for assessment of the social-economic benefits: ENPV, BCR, EIRR
The Social Discount Rate (SDR) is regulated in each sector. sẽ do từng ngành quy định. Trường hợp chưa được quy định thì có thể tham khảo giá trị 10%, hoặc đề xuất giá trị khác với thuyết minh cụ thể. In cases the SDR is not regulated, reference may be made to the SDR of 10%, or another value based on specific explanation
Quantitive factors Qualitative factors
Monetary factors
Non-monetary factors
Social-economic benefits of the Project
Circular 02/2016/TT
-BKHDT
Preparation of PPP projects
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Benefit – Cost Ratio (BCR)
The social-economic benefits of projects
0
0
(1 )
(1 )
nt
tt en
tt
t e
BB rBCR
CCr
=
=
+= =
+
∑
∑Bt = Benefits in the year t; Ct = Costs in the year t; t = The year in the project cycle (0, 1, 2, … , n); n = The contract term; re = The Social Discount rate of the Project. re is identified in accordance with the sector regulation. In case the rate is not specified in the regulation, the preparation unit can refer to the re=10% or another value based on the explanation.
Preparation of PPP Projects
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Purpose: To identify whether the project is financially viable orattractive to the market?
Indicators: NPV (Net Present Value), IRR (Internal Rate ofReturn), DSCR (Debt Service Coverage Ratio), ROE (Return onEquity), payback period..
Content of the financial model:
- Total investment;
- Capital structure and mobilization schedule;
- Public participation (if any);
- Requirement of price/tariff;
- Financial indicators (NPV, IRR, ROE, PP, DSCR).
Financial viability of the Projects
Preparation of PPP Projects
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Financial Viability of projects
0 (1 )
nt
tt
CFNPVr=
=+∑
00
(1 IRR)
nt
tt
CFNPV=
= =+∑
1. NPV - Net Present ValueCFt = Net cash flow of the Project in the year t ; t = The year in the project cycle (0, 1, 2, … , n); n = The contract term; r = Discount rate (in accordance with MOF’s guidance).
2. IRR - Internal Rate of ReturnIRR is the discount rate when NPV = 0Compare IRR with: (i)(WACC - Weighted Average Cost of Capital; (ii) inflation rate; (iii) Saving interest rate; (iv) IRR of other similar projects in the same sectors
Preparation of PPP Projects
Classification
Project of national
importance
Pre-FS approved by
NA
FS by Minister
/ Chairman of Province
Group ASome Pre-FS approved by
PM
FS by Minister / Chairman of
Province
OthersPre-FS by Ministry / Province
FSby Ministry /
Province
Abolishment of investment certificate20
Transparency
• Pre-FS and FS info after approval (pipeline)• Bidding plan, opportunities, selected investors
(deal)• Basic contract info for supervision
muasamcong.mpi.gov.vn ppp.mpi.gov.vn 21
New chapter for BT
• Procedure• Payment scheme: land, infrastructure facilities,
other rights• Principles:
– Pre-identifying resources– Bidding upon FS/design– Detailed master plan of land use (1/2.000 or 1/500
master plan)
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Investment incentives, tax incentives
Incentives
Tax incentives
Incentives on corporate income tax imposed on investor, project
enterprise
Incentives on import and export duties imposed on goods
imported to implement a project
Tax incentives for foreign and domestic contractors
participating in implementation of a project
exemption from or reduction of land rent or land use fees for the area of land allocated by the
State
Other incentives
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Investment guarantees and support
- Allow for mortgaging assets or the rights to commercially operatethe project facility
- Guarantee that the land use purpose of the project shall remainunchanged in the entire implementation term of the projectcontract
- Support land clearance and completing procedures for landallocation or lease of land to implement the project
Assigment / transfer of equity: after completion of construction phase
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Step-in right of lenders
Lenders
ASAs
Agreement on step-in
right
The lender shall have the right to take over on its own, or to appoint another competent organization to take over, all or some of the rights and obligations of the investor, project enterprise (hereinafter referred to as Step-in-Rights) in the event that the investor or the SPV fails to fulfill obligations under the project contract or loan agreements
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Guarantee on foreign currency conversion
Permitted transactions
Buy foreign currency
Conduct foreign exchange activities to satisfy current transactions, capital transactions and other transactions; remittance abroad of capital, profit, proceeds from investment.
Projects to be considered for
guarantee on foreign currency conversion
Infrastructure projects of national importance or with Pre-FS approved by
PM
Other important projects
Procedure
Initiated by Ministry /
Local People Committee
Reviewed by / co-ordinated
with SBV
Approved by PM
• No guarantee on Foreign Exchange Rate
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Dispute settlement
Dispute Settlement
- Mode of dispute settlement: negotiation, conciliation, by arbitration or bythe courts
- Dispute arising between the authorized state agency and a foreigninvestor or the project enterprise shall be settled by arbitration or by thecourts of Vietnam or by an arbitral tribunal established by the parties
Project contracts to which one party is foreign
investor
Contracts for which the GOV guarantees the
performance of obligations
Dispute shall be settled byarbitration or by the courts ofVietnam or by an arbitraltribunal established by theparties
Preferred treatment to unsolicited proponent
Incentives
Service price
5% of the service price to
the investors
not entitled to incentives
State capital contribution
5% of the proposed
State capital
contribution to the
investors not
entitled to incentives
Social and State benefit
5% of the amount
contributed to the
State budget to project
proponent
Combined method
incentives in proportion to the combined
method, however the total value not exceed
5%.
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Challenges in PPP implementation
Challenge
Legal regulation
Personnel, database, communication
Limited capital
- Overarched by many Lawsand regulations, which are inconflict
Limited capabilities of thepersonnel
-Limited state budget- Short term credit or loansrequiring unprecedentedguarantee mechanism
On mobilization private capital for infrastructure development:
• Resolution No. 13-NQ/TW dated 16/01/2012 on the construction of synchronousinfrastructure system
• Resolution No. 19-NQ-TW dated 25/10/2017 on improvement of public serviceproviders
• Resolution No. 20-NQ/TW dated 25/10/2017 on healthcare
• Document of the 12th National Congress of the Communist Party of Vietnam
• Resolution No. 26/2016/QH14 dated 10/11/2016 of the National Assemby onsolutions to implement the 2016 – 2020 public investment plan
On develop PPP Law: On 21 October 2017, the Standing National Assemblyissued Resolution No. 437/NQ-UBTVQH14 requesting the Government to continueresearching and improving the regulations on BOT in the overall improvement ofthe regulations on PPP with the orientation to study, formulate and submit to theNational Assembly a Law on PPP to create a high and uniform legal basis for thisform of investment.
Orientation to develop a PPP Law
Timeline for developing PPP Law
• Proposal to develop PPP Law– April 2018: Submitted to the Government
(completed)– July 2018: Submit to the Standing National
Assembly– November 2018: Submit to the National Assembly– January 2019: To be included in the Law
Development program• Draft of PPP Law
– May 2019: 1st Draft– November 2019: 2nd Draft
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ContactsPublic Procurement Agency Ministry of Planning and InvestmentTel: 080 44681Fax: 080 44323Email: [email protected]: www.ppp.mpi.gov.vn 33