Vietnam raises private capital requirements for PPPs

The government has updated its legislation, increasing investors’ required equity participation from 15 to 20 percent of the cost minus the state’s contribution.

The Vietnamese government has adopted a new PPP framework aimed at attracting private capital to the country’s infrastructure sector.

The new decree outlines the sectors, investment conditions and procedures for public-private partnership projects, including a significant increase in the investor equity ratio required.

For PPP projects worth up to 1,500 billion Vietnamese dongs ($65.8 million; €56.2 million), the private sector will have to invest 20 percent of equity – up from 15 percent previously – of the total project cost, excluding the government’s contribution. The latter includes capital investment, investor payments, transfer of land and office space, capital for construction of supporting work, compensation, site clearance, and resettlement, consultancy firm Dezan Shira & Associates said in a briefing.

For larger projects, the investor equity ratio is split in two: for investment capital up to 1,500 billion Vietnamese dongs, the ratio must be at least 20 percent; while for the remaining capital above that amount, the equity ratio must be at least 10 percent.

However, the new decree, which goes into effect on 19 June, provides several incentives to investors, including preferential corporate income tax and reduced or exempted land use fees during project implementation, as well as preferential treatment on import/export taxes for goods imported for the project, according to Dezan Shira & Associates.

“At first look, the new decree appears to streamline some processes, which is of course welcome, but there are many more pieces in the puzzle,” Manfred Otto, a Vietnam-based senior associate at law firm Duane Morris told Infrastructure Investor. “Whether the new PPP decree will be successful depends on more than just the decree – implementation is often the main concern,” he said.

“Raising the minimum equity ratio is not necessarily beneficial as investors do not want to commit larger amounts to projects where implementation is not guaranteed,” he said. “So, being able to contribute equity in stages is a plus. The new decree expressly provides that the project parties can agree to a roadmap on that point.”

Otto added that the old decree was viewed by many as “non-functional” for a number of reasons and he saw no PPP projects actually implemented under the 2015 decree framework. “Investors were not satisfied with the risk-allocation model between the government and the private side as well as the complex procedures, while the public side did not seem convinced either,” he said.

The Vietnamese government is encouraging PPP investments in areas such as transportation, power generation and transmission, public utilities, social infrastructure, commercial infrastructure and agricultural and rural development. Other sub-sectors can also be targeted under the prime minister’s discretion.

Based on current investment trends, Vietnam is expected to invest $503 billion across all infrastructure sectors by 2040 – $102 billion less than the $605 billion needed, the Global Infrastructure Hub estimates in its Global Infrastructure Outlook.