Major infrastructure projects in Vietnam

Major infrastructure projects in Vietnam Indochina Legal October 2012 www.indochinalegal.com Major infrastructure projects in Vietnam Over the past...
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Major infrastructure projects in Vietnam Indochina Legal October 2012

www.indochinalegal.com

Major infrastructure projects in Vietnam Over the past decade, Vietnam has emerged as one of the major economic actors among the Southeast Asian countries. From 2000 to 2012, Vietnam’s Gross Domestic Product (GDP) annual growth rate averaged 6.45%, reaching an all time high of 8.5% in 2007. For the year 2012, the GDP growth is estimated at 5.7% and is expected to improve and rise to 6.2% in 2013 (for a global view of Vietnam’s economic growth, see Appendix 1). However, the Vietnamese robust economic growth potential is being stifled by the obsolescence of the country’s existing infrastructures. According to a survey conducted by the World Economic Forum in 2010, foreign investors point out that the two main problematic factors for doing business in Vietnam are the inadequate supply of physical infrastructure and the difficult access to financing (see table summarizing the results in Appendix 2). Hence, the country’s economic development can only be assured under the condition that the transportation network and other basic infrastructures are improved. Consequently, the Vietnamese government initiated the implementation of several development plans aiming to improve or develop the country’s infrastructures. Most of the large-scale projects are slated for the two main cities in Vietnam: Hanoi and Ho Chi Minh City (HCM City). While Hanoi is the administrative capital of Vietnam, HCM City remains the heart of the State’s economic development. Indeed, HCM City represents on its own 21% of the nation’s GDP and nearly 30% of the State budget revenues. The city has an average economic growth rate of over 11% per year (1.5 times the national growth rate) and a per capita income 2.4 times higher than the national level. HCM City also represents 28% of the nation’s export 1 turnover and nearly 44% of its tourism revenues . In the first half of 2012, HCM City’s GDP is estimated at 288.6 trillion VND (over USD 13.8 billion) - a year-on-year increase of 8.1% - and the total investments in the city reached 2 56 trillion VND (nearly USD 2.7 billion), up 10.2% from the same period last year . As the improvement of its infrastructures is a necessity, Vietnam is currently offering potential for interesting opportunities for private and institutional investors.

LEGAL FRAMEWORK FOR FOREIGN INVESTMENT IN INFRASTRUCTURE PROJECTS During the past ten years, many laws have been adopted, together with a number of regulations from the Government and competent authorities to encourage domestic and foreign private investment in the country, especially in two regulated areas: Laws and regulations applicable to foreign contractors’ activities in the construction industry; Laws and regulations applicable to foreign investments in Vietnam.

Activities of foreign contractors The Law on Construction (No. 16-2003-QH11) The Tendering Law of Vietnam (No. 61/2005/QH11) Decree No. 58/2008/ND-CP on tendering

26 November 2003

Governs construction activities

29 November 2005

Regulates tendering and its process

5 May 2008

Decision No. 87/2004/QD-TTg promulgating the regulation on

19 May 2004

Provides guidelines for implementing the Tendering Law and for the selection of building contractors pursuant to the Construction Law The Ministry of Construction allows the Construction Departments of Hanoi and HCMC to grant licenses to

1 2

“City infrastructure overloaded”, Vietnam Investment Review, 09/07/2012 “City ratifies infrastructure action plan”, Vietnam News, 05/07/2012

management of operations of foreign contractors in the construction industry in Vietnam Circular No. 05/2004/TT-BXD issued by the Ministry of Construction

15 September 2004

Decision No.131/2007/QD-TTg

9 August 2007

Circular No. 40/2009/TT-BXD issued by the Ministry of Construction

9 December 2009

foreign contractors operating in Vietnam’s construction sector. This decision has been amended by the Decision No. 03/2012/QD-TTg issued on 16 January 2012 in order to simplify the procedure for granting licenses. Provides guidance on procedures for, and management of, the granting of contracting licenses to foreign contractors operating in the construction industry in Vietnam. Promulgates the regulation on hiring of foreign consultants in construction activities in Vietnam Application of foreign construction standards to construction activities in Vietnam

Foreign investments in Vietnam The Law on Investment (No. 59-2005-QH11)

29 November 2005

Decree No. 108/2009/ND-CP on investment in the form of BuildOperate-Transfer, BuildTransfer-Operate or BuildTransfer Contract

27 November 2009

Decision No. 71/2010/QD-TTg promulgating the regulation on pilot investment in the PublicPrivate Partnership (PPP) form

9 November 2010

Sets out the different authorized investment forms: 1. To establish economic organizations in the form of 100% capital from domestic investors or 100% capital from foreign investors. 2. To establish joint venture structures between domestic and foreign investors. 3. To invest in the contractual forms of: BCC; BO; BTO; and BT. 4. To invest in business development. 5. To purchase shares or to contribute capital in order to participate in management of investment activities. 6. To invest under the form of a merger and acquisition of an enterprise. 7. To carry out other forms of direct investment. Replaces Decree No. 78/2007/ND-CP on infrastructure projects built under build-operate-transfer (BOT), build-transfer-operate (BTO), build-transfer (BT) contracts. For projects with a budget of less than 1.5 trillion VND, bidding enterprise’s equity must equal 15% of the total project budget, instead of the previous 30 %. Some of its provisions have been amended by Decree No. 24/2011/ND-CP of 15 April 2011. Effective as of January 15, 2011, it is the first legal document that regulates PPPs in Vietnam (for more information about the PPPs in Vietnam, see Appendix 3)

MAJOR INFRASTRUCTURE PROJECTS IN VIETNAM This paper focuses on infrastructure projects in the five major sectors: transports, roads, ports, airports and energy.

I.

TRANSPORTS

The current population in Vietnam is estimated at 90 million, with an annual 3 growth rate of 1.077% . While the two main cities, Hanoi and HCM City, are already facing traffic congestion and an increasing number of traffic accidents, those problems are worsening as more motorbike users are buying automobiles with the increase in their income. By the end of January 2012, HCM City had about 5.6 million personal vehicles, including 5 million motorbikes, and their annual growth rate in 2011 was of 13% 4 according to the city Road Traffic Infrastructure Exploitation Department . HCM City is suffering from constant traffic congestion despite investment efforts from the municipal government. Hanoi is also facing real traffic issues. Even though a lot of money has been invested, transport infrastructure in the city remains inadequate. It is estimated that Hanoi accounts for an increase of 4,000 automobiles and 20,000 motorbikes 5 every month . The Government is currently trying to reduce the use of personal vehicles by developing urban transportation systems in both cities.

 Urban Mass Rapid Transit (MRT)

HCM City is now calling for foreign investment into 17 infrastructure projects, most of which aim to develop the city's public transport system. Key projects are estimated to cost billions of dollars and are expected to be built under the BOT and PPP investment forms. However, most of those projects are behind schedule for the moment because of a lack of funding. The capital demand for roads and public transportation infrastructure development in HCM City is estimated at USD 39 billion from now to 2020, or some USD 3-4 billion a year, while the local budget can only provide USD 500 million each year. “City in severe shortage of capital for traffic infrastructure”, The Saigon Times Daily, 04/07/2012

On January 22, 2007, the Prime Minister approved the planning of the development of communications and transport in HCM City up to 2020 and an after-2020 vision by decision No. 101/GD-TTg. The project was undertaken by The Department of Transport of HCM City and aims to develop (for a map of HCM City metro lines, see Appendix 4): 6 Metro lines; 3 tram/monorail lines; 1 elevated railway line. The city authorities are aiming to bring the entire network into operation by 2025. Project

Location

Monorail/Tramway No.2 Monorail/Tramway No.3

District 2, 7, Binh Thanh District 1, 2, Go Vap

3

Required Investment capital USD 127 million

Investment method

BOT or PPP

Total length: 14 km

USD 329 million

BOT or PPP

Total length: 8,5 km

Statistics for 2011, http://www.state.gov/r/pa/ei/bgn/4130.htm “HCM City to limit personal vehicle use, reduce parking lots”, Tuoi Tre, 27/02/2012 5 “Limiting personal vehicles to reduce traffic congestion”, Bao Moi, 07/10/2011 4

Info

Metro Line No. 1

The project originally required USD 1.1 billion. The total investment capital has been revised up to USD 2.08 billion, due to adjustments in some components and exchange rate fluctuations

Funded primarily by Japanese ODA (USD 900 million) and State budget

Thu Thiem Peninsula to Tay Ninh Bus Station in District 12

USD 1.24 billion

Metro Line No.3

Thu Duc to Phu Lam

USD 2,2 billion

Funding from the Asian Development Bank (USD 540 million), German Development Bank (USD 325 million), and European Investment Bank (USD 203 million) Preferential loans from Japan

Metro Line No.4

District 1, 4, 7, 12, Go Vap, Phu Nhuan, Nha Be

USD 2.5 billion

ODA, BOT, PPP

Total length: 33.7 km (16.3km underground and 17.4 km elevated)

Metro Line No.5

District 5, 8, 10, 11, Binh Thanh, Phu Nhuan, Tan Binh, Binh Chanh District 6 –Tan Phu

USD 2,3 billion

PPP

Total length: 26 km

First stage costs 500 million € funded by Spain USD 600 million

ODA, BOT, PPP

Total length: 6 km

Metro Line No. 2

Metro Line No.6

district 1 to suburb of Thu Duc (Ben Thanh Market to Suoi Tien Theme Park)

Total length: 19.5 km Construction started on August 28 and is scheduled to end in 2017 The line will run through an underground cluster, including a trade center underneath Le Loi Street and the Ben Thanh Market Square (USD 900 million) Total length: 19 km Expected to be finished in 2017

Total length: 30,35 km

For Hanoi, the Prime Minister approved the planning for the development of the nation’s capital communications and transport program until 2020 (Decision No. 90/2008/QD-TTg). The project, undertaken by the Hanoi Metropolitan Rail Transport (HRB), is to build five urban railway lines from the centre to the suburbs, linking urban centers, industrial parks, trade-service-tourist centers and schools (for a map of Hanoi city metro lines, see Appendix 5): Line No 1 (38.7 km, Ngoc Hoi - Yen Vien - Nhu Quynh), will serve the outskirts of northeast and southern Hanoi to the city centre. Line No 2 (35.2 km, Noi Bai Airport - city centre - Thuong Dinh), will be the backbone of the urban transport system. Line No 3 (21 km, Nhon-Hanoi Railway Station - Hoang Mai), will link the city's western area with the city centre and southern region. Line No 4 (53 km, Dong Anh - Sai Dong - Vinh Tuy - Thanh Xuan - Tu Liem - Thuong Cat - Me Linh of West Lake - Ngoc Khanh - Lang-Hoa Lac), will link the city centre with urban areas along the Lang-Hoa Lac road. Line No 5, (34.5 km, southern West Lake - Ngoc Khanh – Lang- Hoa Lac), will connect Hanoi's heart with urban centers along the Lang - Hoa Lac corridor.

Project

Location

Hanoi metro pilot project (line 3) Phase 1

Phase 2

Phase 3

Investment capital

Investment method

Info Total length: 81.5km

Nhon – Hanoi Railway Station

18.408 trillion VND (approximately 783 million €)

110 million € in the form of a loan from the AFD 500,000 € of subsidies for institutional support

Nhon to Hoang Mai District Nhon to Son Tay

12.5 km Scheduled to be finished and in operation by the end of 2015 21 km

48 km

 Bus Rapid Transit (BRT) system Along with the development of MRT systems, the Government also aims to implement green Bus Rapid Transit systems in Hanoi and HCM City as a complement to the future metro systems. To develop green buses appears a good way to respond to both traffic congestion and pollution. The project is to create reserved or prioritized lanes for 80-seat buses. As such, the BRT system is an optimal way to develop public transportation as it can serve a great number of passengers while costing less than other transportation infrastructures. It is said to be the 6 cheapest and most effective solution to traffic congestion . Project HCM City BRT

Hanoi BRT (2 rapidtransit bus routes)

Location Along the Dong Tay Avenue, from the Mien Dong Bus Station in Binh Thanh District through to the central railway station in District No. 2’s Thu Thiem Ward - The first starts at Ba Dinh district's Giang Vo street and ends at Ha Dong district's Yen Nghia Bus Station

Investment capital USD 1 to 2 million per km (estimated cost)

USD 115 million

- The second starts at Thanh Tri district's Van Dien township and ends at Hoan Kiem district's Hoan Kiem Lake

6

“HCM City to build green bus rapid transit system”, Bao Moi, April 2012

Investment method

Info

World Bank will finance USD 300 million to help the city develop the system

Total length: 21km

Loan from the World Bank

Over 17km long

The first stage is expected to be complete by 2013

11km long

 Railways The railways in Vietnam are under the responsibility of two authorities: the Vietnam Railways Administration (VNRA), responsible for planning and supervising all the railway projects in the country, and the Vietnam Railways Corporation (VRC), in charge of the commercial operations. Both organizations, under the responsibility of the Ministry of Industry and Trade (MoIT), drafted a master plan on the development of rail transportation in Vietnam until 2020, Vision 2030. The Prime Minister approved this th master plan on September 10 , 2009 (pursuant to Decision No. 1436/QD-TTg). According to this Decision, by 2020, railway transportation will satisfy at least 13% and 14% of demands for passenger transportation and cargo transportation, respectively, in the total transportation volume of the entire transport sector. The plan is to renovate the existing railway system and to develop a better railway link between Hanoi and HCM City (for a map of the planned railway system in Vietnam, see Appendix 6). One of the projects was to develop a high-speed line linking Hanoi and HCM City. The line was planned to be 1,750 km-long, and require an investment capital of USD 56 billion. However, the National Assembly voted out the project, finding it too costly and economically unsound. Despite this vote, the Government reaffirmed its 7 willingness to go ahead with this venture . The construction of a 370 km-long high-speed line, linking HCM City to Nha Trang, as part of the project to rehabilitate the railway system between HCM City and Hanoi, is expected to start One of the main issues is that the this year. This new line will handle the transportation of both passengers and goods, and proceed along the new Long Thanh international airport that is under capital required to develop 8 construction in the Dong Nai province . expressways in Vietnam are 1.5 to 2 times higher than those of neighboring countries such as China, Indonesia, or Thailand, II. ROADS creating a burden for the State as it is not easy to attract or recoup Vietnam’s roads, covering 140,000 km across the country, are still in poor investments for these expensive condition and require both maintenance and major upgrade. The slow investment projects. For instance, when an in construction of highways, more or less affects the speed of socio-economic expressway costs USD 6 million development in the country. For now, upgrading roads is the most important task per kilometer in China, it rises to that the Government is facing. USD 18.3 million per kilometer for Long Thanh – Dau Giay The Prime Minister approved planning for road transportation improvement up to expressway and to USD 28.2 2020 with further planning to the year 2030 (Decision No. 1327/QD-TTg dated 24 million per kilometer for Ben Luc August 2009) (for a map of the planned expressway network in Vietnam, see – Long Thanh expressway. Appendix 7) and has appointed a state-owned company (SOE), the Vietnam Expressway Corporation (VEC), in charge. VEC is directly under the authority of the Ministry of Transport (MoT). Established in October 2004, VEC is in charge of investing and developing Expressway System network in Vietnam. In this task, VEC can mobilize various funds such as Official Development Assistance (ODA), ordinary loans and PPPs with local and foreign investors.

“It’s too costly to build expressways in Vietnam”, Tuoi Tre News, 02/05/2012

The Government focuses on the completion or the development of ring roads around Hanoi and HCMC in order to ease the traffic pressure in the inner cities. Expressways and highways are also under construction to shorten the travelling time between major cities in Vietnam, especially around Hanoi and HCM City.

7 8

“Vietnam to reconsider high-speed railway project in three years”, Bao Moi, 01/03/2011 “Work to begin on high-speed rail line”, Vietnam News, 16/07/2012

Project

Location

Investment capital

Investment method

Info

RING ROADS Creating transport connection to complete the Ring road No.2 Ring road No.3 -

Part I

-

Part II

Ring road No.4

-

Part I

-

Part II

HCM City: Thu Duc District

1,6 billion VND (Clearance: 1043 billion VND)

BOT or PPP

Length: Approximately 4.7 km

Van Tan to District 9-Nhon Trach bridge-road Binh Goi bridge to National Highway No. 22nd

3,5 billion VND

BOT or PPP

Length: 7,6 km Cross section: 6-8 lanes

18,7 billion VND

BOT or PPP

Length: 39.8 km Other works in project: Binh Goi bridge (600m, cost: 700bil.VND)

HCM City (Cu Chi, Nha Be District)

8,3 billion VND

Phu Thuan bridge to Long An boundary Long An boundary to Hiep Phuoc Industry zone

5,9 billion VND

BOT or PPP

2,4 billion VND

BOT or PPP

Length: 15.8 km Cross section: 10 lanes Length: 6.18 km Cross section: 10 lanes

HCM City (District 1, 3, Phu Nhuan, Tan Binh) HCM City (District 10, 5, 8, 7, Binh Chanh) HCM City - Long Thanh - Dau Day

USD 720 million

BOT or PPP

USD 500 million

BOT or PPP

Total investment cost (phase 1): USD 932,4 million

BOT project Funding from JICA’s ODA loan (USD 516,5 million), ADB’s loan (USD 410,2 million) and VEC’s capital (USD 5,7 million) First PPP project

55 km 4 lanes (phase 1) 6-8 lanes (phase 2)

BOT

The project, which will include nine large bridges, 21 mediumsized bridges and 22 flyovers, is expected to

HCM City: District 9 to Hoc Mon District

EXPRESSWAYS Elevated expressway No.1 Elevated expressway No.3 North-South expressways

Dau Giay-Phan Thiet

USD 745 million

Hanoi – Hai Phong

35,000 billion VND (more than USD 2 billion)

About 10.8 km Expected cross section: 4 lanes Length: 7,2 km Cross section: 4 lanes

Over 60% completed and scheduled for completion in 2013 but the project is moving far too slowly

128 kilometers six-lane road

HIGHWAYS Hanoi-Hai Phong national highway

Road connecting Halong to Hanoi-Hai Phong highway

Hanoi city, Bac Ninh, Quang Ninh provinces

USD 609 million

State and local budgets, investment funds (domestic and foreign)

be completed in 2012 The upgrade will add four lanes to the existing two and allow vehicles to travel speeds of up to 120 km per hour

 Bridge The HCM City Infrastructure Investment Company is undertaking the Saigon Bridge No. 2 project. According to Deputy Prime Minister Hoang Trung Ha, it is one of the most important projects in the city. The Saigon Bridge No. 2 is expected to reduce the traffic pressure on the current Saigon Bridge and to increase traffic capacity at the city’s northeastern gateway. Project Saigon Bridge No.2

Location Binh Thanh District - District 2 (next to the current Saigon Bridge)

Investment capital nearly VND 1.1 trillion (USD 52.38 million)

Investment method BT

Info four-lane bridge 987.3m-long 23.5m-wide

 Tunnel The Deo Ca tunnel is Vietnam’s largest tunnel project. An investor consortium (Hanoi Construction Corporation, South Central-Central Highlands’ Mai Linh Group, Hai Thach BOT and Asia Joint Stock Company) is developing the project. In order to make this venture appealing to investors, a special incentive scheme has been created. Under the Official Letter No. 476/TTg-KTN issued on 11 April 2012 by the Prime Minister, project investors will be granted the right of exclusive advertising and trade in services and infrastructure alongside the route. The Government has expressed its willingness to underwrite for the project developers to source a commercial loan package worth 9 around USD 800 million for project implementation .

Project Deo Ca Tunnel

9

-

Tunnel

-

access road, bridge and Co Ma tunnel

Location crosses Deo Ca on National Highway 1 and south-central Phu Yen province

Investment capital USD 750 million

Investment method

Started in April 2012 and to be finished in 2016

USD 507 million

BOT

USD 216.7 million

BT + State budget USD 193 million for site clearance

“Tunnel project sees the light”, Vietnam Investment Review, 18/06/2012

Info

3.9km

III.

AIRPORTS

At present, there are twenty civil airports in Vietnam of which: seven international airports and thirteen local airports. Among the seven international airports, only Noi Bai Airport in Hanoi and Tan Son Nhat in HCM City 10 receive frequent international flights . Between 2001 and 2010, the Vietnamese air traffic sector grew by 15.6% annually in terms of travelers and by 16.5% in terms of freight. In 2011, the number of travelers transiting Vietnamese airports reached nearly 36 million, an increase of 13% from 2010 that allowed Vietnam to rank fifth in ASEAN. The International Air Transport Association (IATA) forecasted that in the next three years, The project has been put on hold 11 Vietnam will see the second fastest growth in the air traffic sector in the world . due to a lack of funding: the Nhat Tan Bridge and its link roads To face the growing demand, the Government started the implementation of two currently lacked about 1.4 trillion projects: VND (USD 67.2 million) in order Noi Bai Airport upgrade to progress on schedule. Hanoi The construction of a new international airport in Long Thanh (HCM City) has put up about 100 billion VND (USD 4.8 million) so far. The T2 terminal project will also require  Noi Bai Airport upgrade another 693 billion VND (USD 33.2 million) for site clearance Currently, the Noi Bai Airport has only one single terminal that can handle 6 million and resettlement, but has passengers a year on average. According to the Airports Council International (ACI), Noi received only 189 billion VND Bai was among some of the world's busiest airports in 2010 with 9.5 million travelers, (USD 9 million). constituting an increase of 22% from 2009. “Deputy PM urges haste on airport projects”, Vietnam+, 20/02/2012

According to the development strategy to 2020 (see Decision No. 90/2008/QD-TTg cited above), a total investment capital of more than USD 3.2 billion will be dedicated to the Noi Bai Airport upgrade. Following which, the airport will be able to handle 20-25 million passengers and 26,000 tons of goods each year. A second terminal (T2) is also under construction. After 2020, the plan is to expand Noi Bai Airport to the south, with a new runway (2A) and a new terminal (T3) increasing the number of passengers to 50 million/year. Project T2 at Noi Bai International Airport

10 11

Location Hanoi

Investment capital Approximately 70 billion Yen (nearly USD 900 million)

Investment method

Info

In March 2010, JICA concluded the first loan agreement with the amount of 12.6 billion Yen and further loans will be provided in accordance with the progress of the project

To be completed in November 2014 Capacity: 15 million passengers/year

“The airport sector in Vietnam”, UK Trade & Investment, 2011 “Striving To Modernize Air Traffic Infrastructure”, Vietnam Economic News, 13/04/2012

In addition, the construction of a six-lane road linking Noi Bai International Airport and Nhat Tan Bridge (investment capital 5 trillion VND/USD 245 million ODA from Japanese government and local capital contribution) is scheduled

 Long Thanh International Airport Under Decision No. 909/QD-TTg dated 14 June 2011, the construction of a new international airport in the south of Vietnam was approved: the Long Thanh International Airport. For now, the largest airport in Vietnam is Tan Son Nhat International Airport, located in HCM City and only 6 km north from the center (District 1). With one domestic terminal and one international terminal, the airport handled 15.5 million passengers in 2010. Tan Son Nhat Airport was upgraded in 2008 with the construction of a new international terminal and other supportive systems. However, it is likely that the airport will be unable to cope with the increasing arrivals in the next 5 to 7 years and its expansion would be too expensive in terms of 12 compensation cost for site clearance in its current location . As a result, Long Thanh Airport is intended to replace Tan Son Nhat Airport as Vietnam’s main international airport in terms of passenger and cargo handling capacity. For the period between 2020-2035, it is anticipated that the new Long Thanh airport will receive up to 90% of international flights and 20% of domestic services, while the proportions for Tan Son Nhat will be 10% and 80% respectively. 13

According to the Civil Aviation Authority of Vietnam (CAAV) , Long Thanh Airport will be a leading competitive 14 international airport and a key entry point to the Southeast Asian region . Situated in the Dong Nai province, the future airport will be located 40 km east of HCMC, 70 km from Vung Tau seaport (for a map of the airports location, see Appendix 8). It is anticipated that Long Thanh Airport will address the growing air traffic as the number of passengers has increased by more than 2 million travelers per year, with 21 million inbound passengers and 10.7 million outbound in 2010. Project Long Thanh international airport

Location Long Thanh, Dong Nai Province

Investment capital More than USD 10 billion. The estimated investment for the st 1 phase nears USD 7 billion.

Investment method Airport’s infrastructural construction will be funded by the State while the terminals and some other commercially viable work items will call for private investment

Info 5000 ha 80-100 million passengers 5 million metric tons of cargo a year at full capacity Construction to begin in 2015 and airport to be operational in 2020 Infrastructures connecting: - highways from HCM City to Long Thanh, and from Vung Tau to Bin Hoa - high-speed railway line linking HCM City to Nha Trang

12

“Ministry told to complete report for Long Thanh Airport”, Saigon Times Daily, 13/08/2012 An agency under the Ministry of Transport that performs the function of advising and assisting the Minister of Transport of the State management of civil aviation in the country. 14 “Plans unveiled for new international airport”, CAAV website, 13/08/2011 13

IV.

PORTS

The actual port system in Vietnam is divided between a number of ports of varying sizes, along the 3,200 km coastline of Vietnam. Presently, most Vietnamese goods are exported by sea. However, the actual port infrastructures are insufficient to support the demands. The main problem is that the ports do not meet international operating standards, especially in terms of size and depth. They are too small and the waters are too shallow to host ships with large tonnage, forcing exporters to proceed to transshipment of their goods from larger ports like Hong Kong and Singapore. As a result, additional costs are burdening the country’s import-export activity while Vietnam is able to produce at a cheaper cost than China. 15

Moreover, according to experts , Vietnam’s geopolitical location is clearly an advantage. Developing a large port in the North (Hai Phong), would be an opportunity to reach the south China market; Vietnam being able to offer more competitive prices than Hong Kong or Singapore. In the center, Vietnam could offer to export goods from northern Thailand, Laos and even Myanmar, taking advantage of the East-West Economic Corridor that links the four countries. Finally, developing a large port in the South would put Vietnam in the center of a major shipping hub with Cambodia and southern Thailand, as there is actually not enough demand for a third major hub like Singapore or Hong Kong. The Prime Minister approved two master plans in this matter (Decision No. 202/1999/QD – TTg dated 12 October 1999 and Decision No. 2190/QD-TTg dated 24 December 2009) in order to reorganize and renovate the seaport system (for a map showing the actual port system and their reorganization, see Appendix 9). The total investment cost amounts to between 810 and 990 trillion VND (USD 46 to 56 billion) in stage to 2030, and 360 to 440 trillion 16 VND (USD 20 to 25 billion) in stage to 2020 . According to Deputy Minister of Transport Ngo Thinh Duc, on the 800 trillion VND (nearly USD 40 billion) that is needed for the development of key traffic projects from now to 2015, the investment capital in seaports accounts for 30-40% of the budget for the transport sector. Thus, the private investor should be prioritized to develop the 17 main seaport projects . Project Name

Location

Cai Mep-Thi Vai Port

Ba Ria-Vung Tau Province

Lach Huyen international port

Hai Phong

15

Investment capital More than 4,731 billion VND

USD 250 billion

Investment method 85 % from the Japan Bank for International Cooperation and 15 % from the Vietnamese state budget Participation by foreign port operators such as Hutchison Port Holdings, Maersk, PSA Singapore Terminals PPP (ODA fund and counterpart capital contribution worth about USD 900 million) and direct investment by Vinalines and Japanese

Info Total length of nearly 20,000 m² Seven container and general ports, including first deep water ports

Total volume of goods transported by seaway in the North of Vietnam may reach 60 million tons a year in 2015 and about 100 million tons a year until

“Vietnam port’s port potential – the Economic and political implications of Vietnam’s port renovation”, Amanda C. Morrow Jensen, Project 2049 Institute 16 Summary of Master Plan for Vietnam Seaport system development till 2020, orientation to 2030 issued by the Vietnam Maritime Administration, October 2009 17 “Huge budget needed for key traffic projects”, Saigon Times, 13/03/2012

Van Phong International Transshipment terminal

Near the southern area of Nha Trang

USD 3.6 billion

investors with total investment capital of USD 321 million Either through direct investment or through PPP

2020

12,500 meters Over 200 million tons of goods per year and container ships of up to 17,000-TEU in capacity Will constitute the only international transshipment port in the country

V.

ENERGY 18

According to a statement made by the Deputy Minister of Industry and Trade Hoang Quoc Vuong , Vietnam needs to develop several energy projects in the next 10-20 years to be able to cope with the growing demand for energy, following the country’s economic development. The power sector in particular would need almost USD 50 billion in investment capital in the next 10 years. However, state budget investment would be insufficient. For this reason, domestic and foreign investors will play an important role in developing the energy sector.

 Power plants 

The Vietnamese power market

Since 1995, energy sector operations have been organized into three general companies, which are among the largest companies in Vietnam: PetroVietnam, Vinacoal and Electricity of Vietnam (EVN). While foreign and private companies are allowed to participate in the market since 2002, EVN is still the dominant player for electricity generation, transmission, distribution and sales in Vietnam. Independent Power Producers (IPPs) active in the power market are estimated to account for 31 % of the production capacity and 41 % of energy 19 volume . However, the Electricity Law (dated 3 December 2004, which came into effect on July 1, 2005 and currently under review as of 2012) draws a roadmap for the Vietnamese power market development, in order to abolish EVN’s monopoly on electricity within 20 years. The roadmap has been approved by the Prime Minister in Decision No. 26/2006/QD-TTg dated January 26, 2006 and is being implemented by the Electricity regulatory Authority of Vietnam (an entity under the Ministry of industry and Trade – “MoIT”) and comprises three stages:

18 19

Stage 1 By 2014

A competitive power generating market To implement this phase, the MoIT issued Circular No. 18/2010/TT-BCT on 10 May 2010. This phase aims to set a competitive electricity generation market that will st replace the current system of State monopoly. This step has been launched on the 1 July 2012.

Stage 2 2014-2020

A competitive wholesale market The distribution companies owned by EVN will be allowed to convert into IPPs and to buy electricity directly from generating entities. The generating entities, in turn, will compete to sell to these IPPs. The wholesalers will also compete to sell to the distribution companies and large wholesale customers.

Deputy Minister of Industry and Trade Hoang Quoc Vuong interview, Vietnam Economic News, 19/01/2012 “EVN to invest in nine power-gen projects to meet Vietnam's growing electricity demand”, Gas to Power journal, 09/01/2012

Stage 3 After 2020

A competitive retail market Eligible customers will be allowed to choose electricity suppliers that best suit their demand (retailers) or purchase electricity directly from the spot market.



The power plants projects in Vietnam

According to the National power development plan for the 2011-2020 period with a view into 2030 (the “Power Master Plan VII”, approved by Decision No. 1208/QD-TTg dated 21 July 2011), power plants will have a combined capacity of about 75,000 MW by 2020 and 146,800 MW by 2030. The total investment for the local electricity sector by 2020 is estimated at USD 48.8 billion, increasing to USD 20 123.8 billion in 2011-2030 . However, Mr Hoang Quoc Vuong stressed that EVN would only be able to arrange 21 about 47% of total investment capital . In July 2012, EVN called for an investment capital of 20 trillion VND for urgent electricity projects. Deputy Prime Minister Hoang Trung Hai, requested EVN to work actively with the State Bank of Vietnam, as well as credit institutions to arrange funding for these projects. In order to help EVN to borrow funds, the Government has agreed to some favorable mechanisms, such as, loan guarantees, project evaluations, foreign currency loans and 22 mortgage loans. Below are some of the most important electricity projects :

Project Name

Location

Mong Duong II Power plant

Cam Pha, Quang Ninh province

Vinh Tan 2 Thermal power plant

Duyen Hai thermal power plants

500kV transmission line project from Pleiku to Cau Bong

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Binh Thuan province

An Thành Commune, Duyên Hải District, southern province of Trà Vinh Provinces of Gia Lai, Dac Lak, Dak Nong, Binh Phuoc, Binh Duong and HCM City

Investment capital USD 1.95 billion

USD 1.3 billion

Investment method

Info

100% foreign investment under BOT scheme. The Plant will be transferred to Government after 25 years of operation

Capacity: 1120 MW with 2 units of 560 MW each Fuel: coal fired

85% to be provided by the Chinese government and the export credit agency China Eximbank

Capacity: 1,244 MW including two machines of 622 MW each Fuel: coal

EVN has yet to source the remaining 15%

EVN announced plans to bring the first turbine online at the end of 2013. The remaining one would see commercial operations commencing six months later. Capacity: 1,245 MW with an annual output of 7.5 -8 billion kWh

USD 1.3 billion

Contract between EVN and a consortium of Chinese companies

9.3 trillion VND

While the equipment components of the project will be funded by ADB, the installation and ground clearance will be financed by the Viet Nam Bank for Industry and Trade

Construction is expected to be completed in 2015

500kV electric grid connecting five provinces and HCM City

Prime Minister Nguyen Tan Dung’s opinion, “Vietnam prioritizes renewable energy development”, 24/07/2011 Interview of Deputy Minister of Industry and Trade, Hoang Quoc Vuong, Vietnam Economics New, 19/01/2012 22 “EVN needs VND 20 trillion for urgent electricity projects”, Business Times, 09/07/2012 21

(Vietinbank) and Viet Nam Development Bank (VDB)

 Renewable Energy (RE) As part of the Government’s plans to respond to growing energy demand, emphasis has also been put on renewable energy. The National Energy Development Strategy of Vietnam of December 27, 2007 gives priority to the development of renewable energy with the aim to increase the share of renewable energy to 3% of the total commercial primary energy in 2010, 5% in 2020, 8 % in 2025, and 11 % in 2050. The Government also acted to grant some incentives and support in this area, such as, support in land clearance and land lease fee, reduced Corporate Income Tax (CIT) rate or CIT exemption, free import tax for production lines or equipment necessary to the project etc. More specifically, the government focused on Vietnam’s potential in wind energy. Vietnam is located in the monsoon wind zone, with two main wind directions: the cold North-East monsoon wind from Siberia and China during winter and the hot South-West and South-East monsoons from the equator during summer. Some areas offer great wind resources: in the central and southern regions of the country (particularly in highlands, islands and 23 coastal areas), the potential realizable wind energy is respective of about 880 MW and 855 MW . The Government plans to increase the proportion of wind energy to 4.5% of the total electricity output in 2020 and 24 6% in 2030 (against 3.5% in 2010) . Under Decision No. 37/2011/QD-TTg dated 29 June 2011, specific incentives have been adopted such as: Exemption from import tax for turbine components and tools Lower income tax: 10% for 15 years (the rate can be extended until 30 years for large-scale projects with new technology and special needs for investment) Support with the land fee and rent (exemptions or reductions) 25 A feed in Tariff (FIT) for wind energy: the Power Price Agreement (PPA) is made with EVN directly and the amount payable is 7,8 USct/kWh. The price is guaranteed for 20 years and can be upwardly adjusted. Project Name Ninh Thuan farm project

Location Thuan Nam and Ninh Phuoc Districts

Investment capital USD 251 million

Investment method Investments by Belgium-based Enfinity Company

Info 553 hectares Total capacity of 124.5 MW

 Nuclear energy At the 6th meeting session on 25 November 2009, National Assembly XII adopted a resolution approving the development of nuclear energy in the Ninh Thuan province. The Ninh Thuan Nuclear Power Project Management Board has been established under EVN’s authority. Even after the Fukushima incident, the Prime Minister reaffirmed Vietnam’s determination to build a nuclear power plant to cope with serious power shortages that the country will be facing in the near future. Below are the major nuclear energy projects currently considered:

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“Wind Energy Market development in Vietnam – Potentials and status quo”, Institute of Energy presentation during the Forum on wind development between Germany and Vietnam, 04/06/2012 24 National power development plan for the 2011-2020 period with the vision to 2030 (the “Power Master Plan VII”) 25 A FIT is a favorable price paid by power companies to purchase all electricity from eligible renewable energy producers in their service area over a long period of time (usually from 15 to 20 years) for each unit of electricity fed into the grid. The advantages are: strengthen the viability of RE projects, enhance the competitiveness of RE operators with conventional energy operators, create opportunities for development of the most efficient technologies.

Project Name Ninh Thuan 1 nuclear power plant

Ninh Thuan 2 nuclear power plant

Location

Investment capital

Investment method

Phuoc Dinh Commune, Thuan Nam District in Binh Thuan Province Vinh Hai commune, Ninh Hai district, Ninh Thuan province

Originally estimated at USD 3.4 billion but reassessed by Rosatom at USD 8 billion + USD 96 million of training costs in Russia VND 552 billion for the consultancy contract

Bid won by Rosatom Nuclear Power Group (Russia) and EVN (joint venture)

Loan agreement with Japan + EVN investment

Info To start in 2014, end in 2022. 2 turbines (4,000 MW). st The 1 turbine to be operational in 2020. 2,000 MW

KEY CHALLENGES Some of the projects described above are behind schedule or have been put on hold because of the lack of funds since traditional capital sources (state budget, government bonds, development assistance from foreign governments) only help satisfy half of the demand. Therefore, cooperation between the State and the private sector is crucial. However, according to Pham Sy Liem, Deputy Chairman of the Vietnam Federation of Civil Engineering Associations, private investors are still reluctant to invest in Vietnam because of their lack of confidence in the Vietnamese market with its inconsistent regulations on construction and investment management, the tardiness of capital allocation, complicated administrative procedures, price fluctuations, and a 26 particularly time consuming and costly land clearance process (especially in HCM City and Hanoi) , to list just the major deterrents. As such, the Government still has to work on these issues to redress the situation or risk losing the interest of foreign investors to other countries in the region. The need to improve the PPP framework Implementing PPPs in Vietnam was to constitute another form to seek private investments in infrastructure projects. However, this form has not taken off yet as private investors prefer the BOT model, as its legal framework is better known and tested. For example, the Ha Long – Hai Phong highway was one of the projects chosen to be conducted under the PPP model. However, the Quang Ninh provincial people’s committee, the local authority in charge, signed a Memorandum of Understanding (MoU) with private investors according to which, the highway will be constructed under the BT form, whereas the bridge (part of the project) will be funded by ODA capital. The 27 PPP form would only be the third option . The reason is that the actual PPP legal framework is unclear, as private investors do not know the exact limits of the public financial participation or the duties and tasks of the involved parties. However, as is explained in Appendix 3, the Government’s aim, with Decision 71, was not to establish a comprehensive legal framework but guidance principles to help public and private parties draft their own work frame. A reform in this area is expected in the next five years. The governmental commitment to a better use of ODA funds A recurring issue regarding ODA funds is that their disbursements remain too slow. According to the Ministry of Planning and Investment (MoPI), Mr. Nguyen Quang Vinh, this is due to the lack of uniformity in legal documents, especially those concerning ODA and public investment, signed between Vietnam and donors, but also to practical issues such as land clearance and shortage of counterpart (i.e. local) capital. The main ODA donors in Vietnam like Japan or the ADB are pressing Vietnam to accelerate the disbursements. Therefore, improving the efficiency of the 28 use of ODA is a priority . In this perspective, the Government is working to reform Decree No. 131/2006/ND-CP dated 09 November 2006, providing regulations on management and use of official development assistance. In this trend, the Prime Minister, under Decision No. 106/QĐ-TTg dated 19 January 2012, approved the National project for attraction, management and utilization of ODA capital and preferential loans from other sources in the 2011-2015 period. Under this initiative, the Government’s aim is to disburse USD 2.8-3.2 billion from ODA funds annually from now to 2015. The 29 project also makes infrastructure projects a priority use of ODA funds . Finally, the Government is considering letting the private sector access ODA funds and other loans, with preferable conditions from donors. However, there are no indications as to what purposes these funds would be allocated to the business sector.

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“Infrastructure draws private investment”, Vietnam News, 20/04/2011 “BOT more favored than PPP by foreign investors for infrastructure projects”, Vietnam Economy, 07/06/2012 28 “ODA still not used efficiently enough”, Vietnam News, 05/07/2012 29 “ODA prioritized for infrastructure in next five years”, The Saigon Times, 07/02/2012 27

Experts suggested that a more efficient PPP legal framework combined with the possibility for the private sector to access ODA loans would improve ODA disbursement rate and contribute to a more efficient use of those 30 resources . Vietnam remains an investment opportunity Despite the Vietnamese government’s struggle to find funds, the 2012 edition of United Nations Conference on th Trade and Development (UNCTAD) World Investment Report still places Vietnam at the 11 rank of the 20 top prospective host economies for foreign direct investment during 2012-2014. For Herb Cochran, executive director of the American Chamber of Commerce in Vietnam, foreign investors are still interested in Vietnam thanks to its political and social stability with a "business-like” government, increase in improved infrastructure including industrial parks, transportation, telecommunications and strong positive trends of economic and social 31 development .

Founded in 2007 and integrating a practice of over 20 years in the Indochina region, INDOCHINA LEGAL is a premiere boutique lawand-tax firm, with a diversified transactional and litigation work. Indochina Legal operates from Vietnam through its 2 integrated offices in Ho Chi Minh City and Hanoi. Indochina Legal is the correspondent firm in Vietnam of CMS Bureau Francis Lefebvre (France) and is the member for Vietnam of Legalink, an international network of independent firms. Visit us at www.indochinalegal.com to find out more about our practice. The material contained in this Article is intended for information purposes only. Accordingly, the contents herein should not be treated nor relied upon as legal advice. For further information or clarification in relation to any matter or legal instrument in this Article, kindly contact any of our Vietnam offices. This Article is current as at April 2013. Other than the illustration appearing on this page, no copyright is claimed for any of the images, graphics or illustrations used herein.

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Private sector to access ODA capital, Vietnam News, 25/06/2012 « Massive investment potential is untapped », Vietnam Investment Review, 23/07/2012

Appendix 1: Vietnam GDP growth – ADB forecast

Appendix 2: Most problematic factors for doing business in Vietnam

Appendix 3: Focus on PPPs in Vietnam PPPs have been recognized as a well-established mechanism for delivering cost-efficient investment around the world. PPPs are in fact one of the few public financial instruments to leverage available public money for infrastructure by mobilizing additional private capital. More than 50 countries have started PPP programs. More specifically, Vietnam along with many Southeast Asian countries such as Indonesia, Malaysia, Philippines and Thailand, have developed their own PPP regulations. By developing PPPs in Vietnam, the Government mainly aimed to fill the funding gap that threatens infrastructure 32 projects in the country, as until 2020 it is expected that USD 160 billions investment capital will be needed , whereas traditional capital sources will only help satisfy half of the demand. Effective on January 2011, Decision 71 is the first regulation that provides a definition of PPP in Vietnam: “Public-private partnership investment means the form of investment in which the state and the investor coordinate to implement projects for infrastructure development or public service provision on the basis of a project contract”. The decision clearly states that the aim is to “attract private sources of the domestic and foreign private sector for infrastructure development and provision of public services”.

PROJECT PROPOSAL

Project proposal by any competent State Agency (SA) (art. 12)

Project proposal by a private investor (art. 13)

Project proposal submitted to MoPI for assessment after collection of opinions from relevant state agencies

PROJECT LIST Project proposal submitted to the Prime Minister: the approved projects are included in the project list (art. 14)

A tender is conducted by a SA to select a consultant, in charge of drafting the Feasibility Study Report (FSR) (art. 16 to 18)

FSR

30 working days The FSR is submitted to Prime Minister for an assessment regarding the form and level of State Participation

An international tendering process is conducted to select an investor for the approved FSR (art. 19)

Selection of the investor: investors application are evaluated by a SA and the MoPI (art. 19) 30 working days

PC

Negotiation, completion and initialing of the project contract between the SA and the selected investor (art. 20)

Issuance of Investment Certificate, business registration and establishment of the project enterprise (art. 29 to 32)

SIMPLIFIED SCHEME OF THE PROCEDURE FOR PROPOSING AND IMPLEMENTING A PPP PROJECT

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Signing of the Project Contract (PC) between the SA and the investor (art. 21 to 28)

Forum économique et financier franco-vietnamien, 19-21 mars 2012, Hanoi (AFD)

For the implementation of the approved PPP projects, the Government can provide investment incentives but on a discretionary and individual basis. Those incentives can be one or several of the following: preferential tax incentives (Corporate Income Tax and import/export tax), exemptions from land use fee for the allocated area by the State or from land rent for the project duration, foreign exchange guarantees, performance guarantees with respect to Vietnamese counterparts. While the Government’s endeavor to provide a broad framework for PPP has to be acknowledged, this framework remains insufficient and some major flaws are yet to be remedied. However, it must also be noticed, that the regulations set out under Decree 71 are not intended to be a comprehensive framework, but a first step to a more formal PPP regime. Through the implementation of PPP pilot projects, the Government seeks to identify the difficulties that may arise, and correct them in the new regulations that are to be enacted in the next five years. In fact, investors are already facing many challenges that will have to be settled by this new decree, such as: 1.

The actual process is too complex: investors have to liaise with several state bodies, the Prime Minister and other ministries being part of the process. There is a need to delegate decisions to appropriate levels and an improved and transparent process.

2.

The proposed projects are not sufficiently profitable for investors: investing in infrastructure requires major financing efforts and consequently cost recovery over a long period. Thus, private investors will not engage in a long-term commitment unless they find an attractive return on their capital investment. But PPPs in Vietnam currently offer low rates of return, mainly because of: -

-

The capital requirements under Decree 71 are too severe so that most PPP projects are not commercially viable. The total State participation portion must not exceed 30% of the total investment project and can take several forms. The remaining investment capital must be funded by the private sector, but commercial loans must not exceed 49% of the total investment capital. The low tariffs applied: most of the population cannot afford the prices that the private sector would charge. The tariffs of services provided are managed directly by the Government or SOEs.

Capital requirements under Decision 71 State contribution 49% 30%

Equity capital

21% Loan capital

3.

Funding issues: implementing a PPP project requires large investment capital. As investors are facing issues to access capital resources in Vietnam, they have to seek funds from foreign banks. However, the Government refuses to provide credit guarantees to support them. Hence, private investors are asking for more credit enhancements and guarantees.

4.

Slow site clearance process: the provincial people’s committee is responsible for site clearance while the ASB is the entity party to the project contract. This separation of roles and responsibilities requires sufficient coordination between the administrative agents and is the cause of additional delays in the projects.

Appendix 4: "Preparing the Ho Chi Minh City Metro Rail System Project: Technical Assistance Reports". Asian Development Bank. Retrieved 2010 -06-10.

Appendix 5: Hanoi city metro map

Appendix 6: Map of the planned railway system in Vietnam(provided by M oT)

Appendix 7: The planned expressway network in Vietna m (provided by MoT)

Appendix 7: HCM City airports map

Appendix 8: Seaports group map (provided by MoT)