PPP legal framework paves way for private capital in infrastructure

Laws - “PPP regulations will encourage private investors to approach the infrastructure sector”

A pilot public-private partnership legal framework, approved by the government last week, will bolster up private investment in the local infrastructure sector.

The legal framework accommodates specific regulations on implementation of a pilot public-private partnership (PPP) project, including the participation of the state, criteria to select a pilot project and investors, as well as the supervision of state authorities.

PPP implies the collaboration between the government and the private sector in carrying out a project with social benefits, under an agreement in order to share the responsibility and risks.

According to the legal framework, the government’s maximum stake in a PPP project is 30 per cent except for special cases as approved by the prime minister. The private investor’s equity must be 30 per cent of its stake and there are no government guarantees for loans to cover the remaining 70 percent.

“The promulgation of this PPP legal framework will allow private investors, especially foreign investors, to push their infrastructure investment plans in Vietnam,” said Dang Huy Dong, Vice Minister of Planning and Investment.

PPP investments are allowed in the airport and seaport, energy, road, railway, water supply, healthcare and urban transport sectors.

Last July, the government allowed domestic private firm Bitexco Group and IFC, World Bank Group’s financial arm, to be the first and the second investors in the Dau Giay-Phan Thiet expressway in PPP form. The third investor will be selected through an international competitive bidding early next year.

According to the Ministry of Planning and Investment (MPI), Vietnam needs about $170 billion for developing infrastructure during next 10 years, of which about half is expected to come from the private sector.

“PPP regulations will encourage private investors to approach the infrastructure sector,” said Dong.

Right after the promulgation of the legal framework, United States-based Airis Holding LLC rushed to preparation for two PPP projects at Noi Bai and Danang international airports.

“In the next months, we will sign two memorandums of understanding for investing into those projects under the form of PPP. We also want to involve into pilot PPP projects,” said Nguyen Trong Nguyen, chief representative of Airis Holding LLC in Vietnam. He said the legal framework, providing for the state to form partnerships with private investors, would help infrastructure projects in Vietnam reduce risks.

A source from the Ministry of Transport’s Department of Transport Infrastructure said Japan’s Nexco Central was also eyeing PPP projects in northern region.

While Airis Holding LLC said the state’s participation in up to 30 per cent of total investment capital was enough, some investors complained the 70 per cent stake that the private investor must hold in a PPP project was too much.

Bao Viet Trung, director at Vietnam Expressway Corporation Service Joint Stock Company, said this regulation would push domestic private investors away from PPP projects because they could not mobilise huge funds without government guarantees.

Dong said the government would not provide credit guarantees for private investors in PPP projects because it would lead to public debt.