HIGHLIGHTS OF LAW ON PUBLIC - PRIVATE PARTNERSHIP INVESTMENT 2020

The term "Public Private Partnership" investment (hereinafter referred to as PPP investment "), is understood as an investment method conducted on the basis of a time-limited partnership between State and private investors by signing and implementing PPP project contracts to engage private investors to participate in PPP projects. In this partnership, there will be two parties, Party in the public sector - the State and Party in the private sector - private investors. The two parties will cooperate by signing and implementing PPP project contracts. 

Basically, there are certain differences in the definition of this term between Decree 63/2018/ND-CP on Investment in the form of Public-Private partnership, in which the “partnership” shall be “time-limited” in accordance with The Law on Public-Private partnership investment, but the “time-limited” it is not stated in the Decree.

For the rest of the definition, both this Law and Decree 63/2018 / ND-CP stipulate that the two parties are state agencies and investors; and the purpose of the project is to construct, renovate, operate, conduct business, manage infrastructure works, and provide public services.

PPP projects must be in the following public investment sectors: transport; power grids, power plants, except for hydroelectric power plants and cases of State monopoly as per stipulated in the Law on Electricity Irrigation; water supply; drainage and wastewater treatment; waste treatment; Healthcare; education - training and Information Technology Infrastructure.

In accordance with the law, the minimum total investment capital of a PPP project is 200 billion VND; in the domain of Healthcare, education and training, or in geographical areas with difficult socio-economic conditions, or areas with extremely difficult socio-economic conditions in accordance with the law on investment, the minimum total investment capital is 100 billion.

Based on the PPP project formulation/proposing subjects, there are 2 types of PPP projects: PPP projects formulated by competent agencies and PPP projects proposed by investors.

Based on the in-principle investment approval competence, PPP projects are classified into: (i) Project under in-principle investment approval competence of National Assembly (ii) Project under in-principle investment approval competence of Prime Minister; (iii) Project under in-principle investment approval competence of Minister, Head of central-level agency, other agency stipulated in this Law; (iv) Project under in-principle investment approval competence of Provincial-level People’s Council.

Law on Public – Private partnership investment 2020 specifies the process of investor selection following the steps below: (i) Selection of short list (if applicable); (ii) Preparation of investor selection; (iii) Organization of investor selection; (iv) Evaluation of bids; (v) Submission, appraisal, approval and publication of the investor selection result; (vi) Negotiation, finalization, signing PPP project contract and publication of the contract information.

In which, investors shall be eligible or in other words meet certain requirements. In case these requirements are not met, they will be sanctioned in accordance with the provisions of Decree 50/2016/ND-CP on Penalties for Administrative violations against regulations on planning and investment. Previously, Decree 63/2018/ND-CP on Investment in the form of Public-Private partnerships regulated the criteria for investor selection prescribed in the law on bidding, according to which criteria for investor selection in the Law on Bidding 2013 is regulated in a larger scale, more broadly and depends on other detailed documents. But Law on Public – Private partnership investment 2020 has shortened and narrowed the qualified subjects eligible to become project investors.

In addition to regualtions on methods and criteria for evaluation of bids, the Law on Public – Private partnership investment 2020 also stipulates the methods and criteria applied to pre-qualification applications. While the Law on Bidding 2013 does not stipulate the criteria for evaluating prequalification applications. 

In terms of pre-qualification application, Law on Public – Private partnership investment 2020 stipulate the method of scoring on the scale of 100 to 1.000 regulated in the pre-qualification document. The above scale is scored based on criteria including:

a) Financial-commercial capabilities and experiences, capital arrangement capabilities; experiences of similar project implementation.

In case of joint-venture, capabilities, experiences of the investor will be determined by the total capabilities and experiences of the joint-venture members; the leading members of joint-venture must have minimum equity contribution of 30%, and each of other members of joint-venture must have minimum equity contribution of 15%.

b) Preliminary project implementation plan and project implementation commitment;

c) The history of disputes and lawsuits against past and on-going contracts.

Therefore, in accordance with the current regulations, the pre-qualification application includes mainly the content of financial and commercial capacity and experience, not including the technical capacity. Thus, the pre-qualification application evaluation process will be simpler and faster for the procuring entity.

In terms of bids, the procuring entity shall have to evaluate more criteria than when evaluatuing pre-qualification application, which includes the experience and capacity just like pre-qualification application, with the addition of technical capacity on the scale of 100 to 1.000, based on criteria including: standards for quality, capacity and efficiency; standards for operating, managing, conducting business, maintaining; standards for environmental protection and safety; other technical standards; and  financial and commercial evaluation shall be based on the comparison and ranking method stipulated in the bidding document, based on the following criteria: (i) Criteria for tariff, fee of public goods and services; (ii) Criteria for state capital supporting the construction of facility, infrastructure system; (iii) Criteria for social benefit and state benefit.

This Law dedicated a Chapter to regulate the establishment and operation of PPP project enterprises and PPP project contracts.

In terms of the establishment and operation of PPP project enterprises, investors shall establish PPP project enterprise under the model of limited company or non-public joint stock company. These enterprise are established only for the single purpose is to sign and implement PPP project contract. 

In addition, this enterprise will be allowed to issue corporate bonds in accordance with the specific regulations for PPP projects in Article 78 of this Law.

Beside mentioned above provisions, the establishment, management, operation, dissolution, and bankruptcy of PPP project enterprises shall comply with the law on enterprise and other relevant regulations and PPP project contracts (Decrees on PPP project contracts, Law on Bidding 2013, ...)

In terms of PPP project contract, there are three groups: The group of project contracts which applied mechanism of collecting fee directly from users or off-taking the public goods and the group of project contracts which apply the State payment mechanism based on the quality of public goods, services and Mixed contract of both of the above. The basic contents of contracts, the signing, termination and other contents related to the PPP project contract are specified in detail in the Chapter IV of this Law.

State capital shall be used for:

a) To support the construction of facility, infrastructure system of PPP project;

b) To make payment to the PPP project enterprise which provides of public goods, services;

c) To pay the cost of compensation, land acquisition, support and resettlement; support on constructing the temporary facility;

d) To pay the revenue decrease;

đ) Expenditures of the competent agency, the contract signing agency, the PPP project preparation unit, the procuring entity in order to implement their duties as stipulated in Article 11 of this Law;

e) Expenditures of the appraisal council of PPP project, the assigned unit for appraisal of PPP project

It should be noted that the state capital percentage at Article 69.1.a and c can not exceed 50% of the total investment of the project, which include not only the investment amount of the PPP project, but also the project composing of various component projects. For project composing of various component projects, including the component project applying PPP investment modality, the percentage of state capital as stipulated in this clause shall be determined on the total investment of that component project.

Capital of investor and PPP project enterprise in PPP project: Investor, PPP project enterprise shall mobilize lawful sources of capital for the project. The total loans of various borrowing forms must not exceed the total borrowing amount specified in the PPP project contract. The forms of mobilization include:  contribution of equity and issuance of PPP project enterprise bond. 

Although there is no specific provision on incentive regime, this Law still mentions that investors and PPP projects are entitled to incentives on tax, land use fees and other incentives as prescribed by laws and regulations on taxation, land, investment and other relevant regulations. As such, the current incentives are not exclusive to PPP projects but are still available in the land and investment legislation.

On the other hand, the Government stipulates that PPP project enterprises are guaranteed investment in accordance with the law on investment and this Law, for example, The land use purpose of the project shall remain unchanged for the entire implementation term of the contract, including the case that lenders exercise their rights as prescribed in Article 53 of this Law; or the PPP project enterprise is allowed to use public facilities and other anciliary works to implement the project in accordance with law,….

In addition, this Law also stipulates a new mechanism: Mechanism for sharing revenue surplus and decrease: The law stipulates that this mechanism is applicable to all PPP projects with a fixed rate of 50% -50% to both parties and on the basis of periodic control of annual revenue. The sharing of the revenue decrease when the actual revenue only reaches 75% of the revenue in the financial plan is only applied after having implemented all measures to adjust the price, fees of public goods and services and duration of PPP project, and must be audited by the State Auditor of the revenue decrease. 

Examination, State inspection and audit activities in PPP investment are activities of competent agencies to examine specific contents when conducting this investment activity. They are regulated by this Law, Law on inspection and Law on state audit.

In addition to the three above activities, this Law also stipulates the supervision of investment activities in the PPP, in which the supervision will be decided by the entities who have in-peinciple investment approval competence (specified at Point a, b, c and d, Article 4.3 of this Law), in addition, the Vietnam Fatherland Front and the community are also responsible for supervising the above investment activities, in accordance with the law on the Vietnam Fatherland Front and law and regulations on community’s investment supervision. Supervision content includes the main stages in the process from bidding until the product is completed and other contents at the request of the National Assembly and the Prime Minister, Provincial People's Councils.

The Law on Public – Private partnership Investment 2020 aims to concentrate resources to invest in essential areas under the direction of the State. This law has created a legal framework to promote the implementation of PPP projects in Vietnam.