Stemming from need of diversify financial sources and to promote the participation of the private sector to invest in infrastructure development, creating a foundation for the development of other sectors of the economy, PPP method investment paradigm is increasely effective in Vietnam. In the ambience of limited investment capital came from the state budget, the policy of maximizing resources for infrastructure investment through the society policy of investment with the PPP paradigm has brought successfully obvious results in recent years. The growth development of infrastructure has promoted economic development and increased national competitiveness.

1. What is PPP?

This is an activity of investment under the public-private partnership, that mean the State and private investor implement the investment project through the conclusion and execution of a PPP project agreement. With the PPP paradigm, the State will establish standards for service supply. The private sector is encouraged to provide by a payment–for–service mechanism. This is a form of cooperation that optimizes investment efficiency and provides high-quality public services, bringing benefits to both the State and the people.

The PPP paradigm has different peculiarity with other investment methods, which can be seen through a few relevant terms, such as:

• PPP project enterprise: refers to an enterprise established by an investor to serve the sole purpose of concluding and executing PPP project contracts.
• PPP project: is a set of proposals related to the investment to provide public products and services through the implementation of one or the following activities:

                + Construction, operation and business of infrastructure works and systems;

+ Renovation, upgradation, expansion, modernization, operation and business of available works and systems;

+ Operation and business of available infrastructure works and systems.

• PPP investor: is an independent legal entity established under the provisions of law, or established by entering into partnership amongst multiple legal entities involved in PPP investments.
• PPP project contract: means a written agreement between a contracting authority and a PPP project investor or enterprise on the State’s concession to that investor or PPP project enterprise to execute a PPP project.

2. PPP investment sectors

• Transportation;
• Power grids, power plants, except hydropower plants and those subject to the state monopoly requirement as provided in the Law on Electricity;
• Water resources and irrigation; clean water supply; water drainage and wastewater treatment; waste management and disposal;
• Healthcare; education – training;
• Information technology infrastructure.

3. Types of PPP contract

The competent state agencies and investors, project enterprises can sign one of the following types of PPP contracts for the construction of infrastructure works and systems.

• BOT contract (Build – Operate – Transfer):
  After completion of the work, the investor or the project enterprise is entitled to operate the work for a certain period; At the end of the period, the investor or the project enterprise shall transfer the work to a competent state agency.
• BTO contract (Build – Transfer – Operate):
  After completion of the work, the investor or the project enterprise transfers the work to a competent state agency and is entitled to operate the work within a certain period.
• BOO contract (Build – Own – Operate):
  After completion of the work, the investor or the project enterprise owns and is entitled to operate the work for a certain period; At the end of the period, the investor or the project enterprise shall terminate the operation of the investment project in accordance with the provisions of the law on investment.
• O&M contract (Operate – Manage contract):
  The competent state agency and investor, project enterprise sign a contract to operate a part or whole of the work within a certain period.
• BTL contract (Build – Transfer – Lease):
  After completion of a work, the investor or project enterprise transfers the work to a competent state agency and is entitled to provide services on the ground of operating and developing that work within a certain period; the competent state agency hires services and make payment to the investor and project enterprise.
• BLT contract (Build - Lease – Transfer):
  After completion of a work, investors and project enterprises are entitled to provide services on the basis of operating and exploiting the works for a certain period of time; competent state agencies hire services and make payments to investors and project enterprises; At the end of the service provision term, the investor or the project enterprise shall transfer the work to a competent state agency.
• Mixed contract is a combination of those above types of contracts.

4. Why choose PPP sectors

In the past period, PPP has attracted economic sectors from the private sector to invest in infrastructure, contribute to the reduction the burden on the state’s investment budget in the condition of limited investment capital. Through PPP, the appearance of infrastructure has changed markedly in a short time, contributing to attracting domestic and foreign investment, creating a motivation for socio–economic development, protecting the environment, and ensuring national defense–security and competitiveness.

Compared with the traditional sectors of investment, the PPP sectors achieves a higher efficiency in using the budget capital and at the same time opens up an attractive investment way, many enterprises have the opportunity to participate in the implementation of large projects, consuming a large amount of domestically produced materials, creating thousands of jobs for labors and providing people with better quality services at a reasonable charge.

Besides the obvious effects, PPP has quite certain limitations. PPP projects have complex peculiarities and many binding relationships between the State and investors, so the project implementation faces plenty of risks. Domestic capital market is still weak, difficult to access international capital market; Personnel of the state agencies are still mainly working part-time, their professional qualifications have not been able to keep up with the rapid development of technology. In addition, although the legal system on PPP has been codified into law, it is still incomplete; there is an overlap between the different laws which is not yet harmonized with the PPP project implementation process. Specific policies and regulations on investment incentives, investor selection, project contracts and operation management are still limited that leading to an unattractive investment environment, PPP projects have not achieved the desired effect. It is expected with the obvious effectiveness of PPP and the high demand for infrastructure development as the foundation for socio-economic development, in the future, the limitations of the PPP investment paradigm will be increasingly improved so that investors can rest assured to invest, bringing benefits to the State, investors and people.

Phong & Partners provide a full range of consulting services and carry out procedures related to investment activities of domestic and foreign investors.

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