Vietnam ‘frustrates’ investors with PPP law stumbles

A clear risk-sharing mechanism, foreign exchange guarantees, and financial incentives are essential for a successful PPP law if Vietnam wishes to attract private sector capital, according to Giles T. Cooper, a Vietnam-based co-director at law firm Duane Morris.

Last month, the Vietnamese government issued a new PPP decree that outlines sectors, investment conditions and procedures for PPP projects and “appears to streamline some processes,” said Manfred Otto, a senior associate from the law firm at that time. The decree went into effect on Tuesday.

Despite the government’s efforts to create a transparent PPP programme, including issuing a number of new decrees and rules on PPPs in recent years, the current infrastructure-investment landscape in Vietnam is “frustrating”, Cooper told Infrastructure Investor in an interview.

“When it comes to risk sharing, there remains an element of staunch national interests involved. Law and policy makers remain reluctant to be seen to be ‘giving too much away’ to foreign investors and aren’t accurately assessing the cost-benefit analysis,” he said. He also added that the current state budget has simply not had the capacity to underwrite policies that would rapidly stimulate the PPP market.

“There are many interested and actively engaged investors who are keen to invest in infrastructure in Vietnam, many with long track records of success internationally. The lack of a true, enabling regulatory environment does not send the right message and the result is a lot of frustration,” Cooper said, adding that long-term, capital-intensive projects need a secure and certain environment and that is “unfortunately lacking here at present”.

M&A and direct investment into infrastructure outside the PPP framework are also possible and often a quicker route to market if finance is there and the business model makes sense, he noted. Meanwhile, in terms of any privatisation opportunities from the state, the procedures are opaque.

Since the establishment of the PPP pilot programme in 2011, no PPP project has been signed under this framework. “Compared with regional neighbours, foreign investment in infrastructure in Vietnam is lagging behind,” Cooper wrote in a recent commentary.

From 1990 to 2016, 84 PPP projects amounting to $16.2 billion reached financial close in Vietnam, with 66 of those in the energy sector, according to the latest PPP monitor report released by the Asian Development Bank in 2017. Over the 17-year period, around 37 percent of the projects presented foreign sponsor participation, the report added.

“International and local banks have the appetite and capacity to finance PPP projects in Vietnam; however, lack of well-prepared and structured projects limits the development,” theADB said, adding that it also saw growing interest from institutional investors, such as pension funds in PPP financing in the country.