Equity of PPP investors must make up 20% of total investment
Investors involved in projects under the public-private partnership (PPP) must have equity accounting for at least 20% of total investment capital, according to a recently released decree of the Government. Decree 63/2018 issued early this month to replace Decree 15/2015 will come into force on June 19, 2018, with some radical revisions, one of which is an equity requirement of 20% instead of 15%. However, this rule only applies to projects worth less than VND1.5 trillion or roughly US$65 million. With projects whose total investments are over VND1.5 trillion, the ratio of equity cannot be lower than 20% of the VND1.5-trillion amount and is not smaller than 10% of the remaining amount. The involvement of the State in PPP projects includes capital contributed by the State, payments for investors, land, office space, infrastructure handed over to investors, business rights transferred to investors in case of build-transfer (BT) contracts, capital to assist construction of supporting works, compensation, site clearance and resettlement. Meanwhile, Decree 15/2015 limits State investments in PPP projects to State capital, government bonds, municipal bonds, official development assistance (ODA) capital, and concessional loans from international donors. According to the Ministry of Planning and Investment, the old decree restricts the participation of other legal public capital sources, which hence does not make it attractive to investors. Regarding project transfers, the new decree provides tighter conditions than the old one. In particular, Decree 15/2015 allows an investor to transfer partial or entire rights and obligations in a certain project to the lender or another investor, even when the project is being implemented or is already finished. Meanwhile, under Decree 63/2018, the investor can transfer partial or entire rights and duties in the project to the lender or another investor after construction work is done or when the project is in operation. Regarding investment incentives, investors are given preferential corporate income tax, and get land use fees exempted or reduced while implementing the project. In addition, legal assets of investors are not nationalized or seized with administrative measures. In case of asset seizure for security purposes, investors will get compensation.
FDI highlighted as key driving force of the economy
Source: Vietnam Investment Review
The Vietnamese government have re-affirmed the great contributions that foreign direct investment (FDI) has made to the Vietnamese economy in the past three decades, stressing that this type of capital will continue being vital to the country. Minister of Planning and Investment Nguyen Chi Dung said that over the past few years it has become an established viewpoint that economic growth has been largely depending on FDI, and that Vietnam is now home to two smaller economies—the domestically-invested economy and the FDI-based economy. “This stance is to some extent reasonable, but there should be no worries about it, because FDI is an indispensable part of the economy, especially given Vietnam’s market-based economy and international economic integration efforts,” Dung said at yesterday’s dialogue with the business community in Vietnam, which was co-organised by Investors’ Magazine and KPMG. “FDI has been playing a crucial role in Vietnam’s growth over the past 30 years as a big trailblazer for the economy. FDI can be likened to a bee that has been both sucking honey and pollinating the economy,” the minister stressed. “Vietnam will continue attracting more FDI, but selectively. High-quality FDI will be prioritised in attraction.” According to Minister Dung, currently, FDI has been positively changing the economy. Specifically, it has contributed 12-25 percent of Vietnam’s total development capital in 1991-2017. Also, FDI currently accounts for over 50 percent of the economy’s total industrial production value and 70 percent of the total export turnover. FDI currently generates employment for over four million people directly and millions of others indirectly in Vietnam. However, Dung said, the issue now is to improve the competitiveness of Vietnamese enterprises, so that they can catch up with foreign enterprises. If this is done, the two types of enterprises can both be harnessed to power the economy and the development gap between them can be narrowed. “The Ministry of Planning and Investment (MPI) will introduce new policies to combine these two types of enterprises for a more sustainable growth path,” Dung said. During his meetings with leaders of foreign countries and global firms and investors, Prime Minister Nguyen Xuan Phuc always praises FDI for its very important role in Vietnam’s socioeconomic development. “We are building a government of integrity in service of the public and enterprises. We will continue developing a more business-friendly climate in favour of all enterprises and investors. Your successes in Vietnam are also our successes,” Phuc said at his meeting last week with Minister-President of Flanders Geert Bourgeois and 80 firms from the Flanders region in Hanoi. The firms are seeking investment opportunities in Vietnam in the sector of logistics, education, transportation, and especially agriculture. Phuc repeated this message during his meetings with Koh Dong-Jin, president and co-CEO of South Korea’s Samsung Electronics, late last month, and with T. Kakiuchi, president and CEO of Japan’s Mitsubishi Group, in late March, as well as with Hwang Kag Gyu, vice chairman of South Korea’s Lotte Group, in early March. Aaron Batten, country economist from the Asian Development Bank’s Vietnam Resident Mission, told VIR that FDI will continue serving as the key driver of the economy this year. “Vietnam’s strong growth over the last decade has been propelled by closer integration into the global economy and by an increasing market orientation in economic policy, as well as the growth of domestic private enterprises. Free trade agreements (FTAs), culminating in accession to the World Trade Organization in 2007, have also helped to trigger a sharp increase in FDI and portfolio capital flows,” Batten said. Future FDI prospects are bright thanks to the recovering local production and Vietnam’s participation in many FTAs, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the Vietnam-Korea FTA, the Vietnam-Eurasian Union FTA, and the Vietnam-EU FTA. Vietnam and nine ASEAN nations also established the ASEAN Community. All of these trade blocs will bring more FDI to Vietnam. FDI disbursement hit a record of $17.5 billion last year, and $5.1 billion in this year’s first four months. “The figure is expected to reach the new record of $19 billion this year,” Nguyen Mai, chairman of Vietnam Association of Foreign Invested Enterprises, told VIR. According to MPI, as of April 20, 2018, Vietnam attracted 25,524 FDI projects, with the total registered capital of $321.25 billion.
Vietnam considers allowing private investors to access ODA
Economists agree that private investors should also be allowed access to ODA (official development assistance) capital, but warn that credit may be used improperly. The Ministry of Planning and Investment (MPI) has compiled a draft decree on managing and using ODA and preferential loans from foreign donors. The decree says the private sector also has the right to access and use ODA and preferential capital. The draft decree mentions four ways for the private sector to access ODA. First, accessing ODA capital within credit programs set by domestic finance and credit institutions for activities in line with international treaties on ODA capital. Second, acting as a capital contributor to projects developed under the Public Private Partnership (PPP) mode using ODA/preferential capital. Third, borrowing ODA capital through the banking system and commercial banks, as lenders that bear credit risks. Finally, joining governing bodies’ programs on supporting the development of the private sector. The same proposal 10 years was rejected as economists argued that it is the government which borrows capital and uses it. Three or four years ago, state management agencies issued documents giving the private sector the right to access ODA capital. However, the documents had general content and did not mention specific ways of approaching the capital. The draft decree compiled by MPI is the first legal document legalizing the issue. Dinh Trong Thinh from the Finance Academy said that loans from ODA capital to be provided to private businesses may have relatively high interest rates, because commercial banks, which borrow money for re-lending, have to take into account the risks as lenders. They would set strict requirements on ODA borrowers like any other borrower. However, despite relatively high interest rates, the loans would still be attractive to private investors who find it difficult to access official capital sources. An analyst said that many technical issues need to be settled to be sure that the capital can go to the right addresses. Many questions need to be clarified: which banks can borrow ODA capital for relending? What will happen if the capital is ‘deviated’ and goes to the real estate sector? According to MPI, 2,591 projects received ODA capital in the 1993-2017 period, including 1,279 programs and projects invested in by ministries and branches, and 1,197 projects developed by local authorities. The others were from commercial banks and the Vietnam National Television. The lending interest rates of ODA loan packages were 1-2 percent on average.
New regulations to improve Vietnam commodity exchange
Trading through commodity exchanges will be more convenient in Vietnam with the Government’s new regulations on the establishment and trading on the commodity exchange. Decree No. 51/2018/ND-CP, which will be effective from June 1, 2018, amends and supplements a number of articles of the Government’s Decree No. 158/2006/ND-CP, dated December 28, 2006, on the conditions for the establishment of commodity exchange. According to Nguyen Viet Vinh, general secretary of the Vietnam Coffee and Cocoa Association, the new decree has solved many problems in trading activities on the commodity exchange in Vietnam and is expected to open a new era for both businesses and farmers to boost their sales through this channel. Decree 51 expands the list of goods traded on the commodity exchange, allowing all commodities that are not prohibited by the State and those subject to conditional trading, including the Vietnamese export commodities, as well as goods that Vietnam needs to import to serve the local production. The new regulations also extend the forms of trading order by accepting written documents and other forms such as telegraph, telex, fax or data message. An important content in this decree is that foreign investors will be allowed to contribute capital to establish commodity exchange in Vietnam. Their ownership in the exchange should not exceed 49 percent of its charter capital. Foreign investors are also permitted to trade goods on the commodity exchange as clients and can become members of the exchange (brokers or traders) without ownership restraint. In addition to this, the decree allows the interconnection of Vietnamese and global commodity exchanges. This is expected to help promote the integration process and development of the Vietnamese commodity exchanges. “This (interlink) will create a lot of advantages in terms of commodity trading volume and value information, better market assessment and stronger capital capacity to prop up infrastructure and human resources of local exchanges,” Vinh said at a conference introducing the decree last week.
Underdeveloped market: It has been eight years since the Vietnam Commodity Exchange, Vietnam’s first commodity exchange, became operational in 2010. Since then, very few exchanges have been established. The total value of transactions through commodity exchanges has reached only VND8 trillion (US$351 million) since, of which most transactions are focused on coffee products. Traders are mainly enterprises while farmers have no idea of the exchanges. According to Nguyen Loc An, deputy head of the Domestic Market Agency under the Ministry of Industry and Trade, commodity exchange in Vietnam is still underdeveloped mainly due to many legal obstacles. An said Decree 51 provided better legal basis for enterprises and farmers to participate and trade on the exchange as well as for welcoming foreign investment in the exchanges. With these changes along with hedging tools, the commodity exchange is expected to help businesses mitigate risks and secure operations as well as enhance their position in both the domestic and global markets.
Ministries urged to remove 49% foreign cap
The Prime Minister’s working group has asked the ministries of Finance and Planning and Investment to swiftly lift the foreign ownership limit of 49 percent at enterprises where foreign investment is not restricted. The request for removing the foreign ownership restriction at certain businesses is mentioned in a PM’s working group report on the implementation of the assignments given by the Government to ministries and agencies and on results of inspections last month. From January 1 last year to April 30, the Government assigned ministries, agencies, cities and provinces more than 26,700 tasks, of which nearly 15,900 have been completed. Particularly, ministries of Finance, Industry and Trade, and Agriculture and Rural Development have so far cut numerous business conditions. The PM’s working group said it conducted inspections at the Ministry of Finance and Vietnam Cement Industry Corporation (VICEM) in April. Accordingly, the group concluded that the Ministry of Finance has accomplished 1,340 out of nearly 1,600 assigned tasks. However, many business conditions for enterprises under its management still overlap and are unreasonable, so the ministry plans to simplify or abolish 188 of 370 conditions. In addition, the ministry is told to impose strict sanctions on officials found to harass businesses, and direct the General Department of Taxation and the General Department of Customs to lower tax debts to below 5 percent of State budget revenue. The ministry must also complete the drafting of a law amending tax regulations to support enterprises, ensure sufficient tax collections and propose new tax policy for small enterprises, especially those converted from household businesses. Meanwhile, the inspection at VICEM found that the corporation has grown strongly, and secured a domestic market share of 35-36 percent. It has created jobs for a huge number of workers, and contributed significantly to the country’s socio-economic development. However, VICEM must handle its shortcomings in some investment projects, the shift to advanced technology, land and property management and cooperation with other firms to make use of by-products of the sector.
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