ADDRESSING SHORTCOMINGS IN PPP POLICY

The progress of road transport infrastructure projects in the form of public-private partnership (PPP) investment method is being slowed down because investors are facing numerous obstacles with legal documents, according to the Vietnam Association of Road Systems Investors (VARSI).

Change in State holding ratio

The Law on PPP Investment stipulates that the State capital in PPP projects cannot exceed 50% of the total project investment budget. In addition, for a project with many component projects, one or some of which are invested in the PPP method, the State capital ratio is applied to component projects that the government is involved in.

In fact, all component projects of the Eastern North-South Expressway where the State capital ratio was below 50% could not find investors in 2016-2020.

According to experts, PPP projects carried out in remote and isolated areas where traffic volume is low will not be able to attract investors if State capital support is less than 50%. In addition, this ratio is not suitable for projects where the cost of site clearance and resettlement accounts for a big share.

Therefore, experts recommended lifting the cap on State funding ratio in PPP projects. In case this ratio is kept, VARSI proposed separating site clearance and resettlement into separate projects so as not to alter the state capital ratio in support of project implementation.

Raising fund from bonds

According to current regulations (Clause 1, Article 78 of the Law on PPP; Clause 3, Article 6 of Decree No. 28/2020/ND-CP; Clause 20, Article 4 of the Law on Securities), entities through which PPP project companies offer corporate bonds for sale must be professional securities investors which are commercial banks, financial companies, finance leasing companies, insurance firms, securities traders and individuals certified by professional securities investors securities organizations. This ruling unintentionally restricts buyers of PPP project bonds and restricts types of bonds that PPP project companies issue.

Experts suggested that Clause 3, Article 6 of Decree 28/2020/ND-CP should be adjusted as follows: “PPP project companies may issue and offer non-convertible or convertible bonds in private placement or in public offering in domestic and international markets under the Law on Securities after the PPP project contract is signed.”

Clarifying PPP contract termination regulations

The PPP Law stipulates that the PPP contract may be prematurely terminated when “one of the parties seriously violates the contract”. However, according to VARSI, this law does not specify what constitutes a serious breach of contract or the acts considered serious violations.

Companies asked for clarifying specific definitions and regulations on "serious breach of contract" mentioned above. This concept is defined in the Civil Code 2015 and the Trade Law 2005, but it is general, not specific. PPP projects are typically large in scale and the absence of clear explanations in specialized laws can seriously affect the real performance of a project.

Regarding provisions on PPP project contracts, industry experts also recommended adding regulations on legal liability measures or sanctions for subjects of the contract, especially the State party, when they breach the contract.

Updating the service tariff for road use

To ensure enough coverage for operating, maintenance and payback costs of PPP projects, according to experts, it is necessary to adjust the upper limit tariff for road use services in Circular 35/2016/TT-BGTVT and move toward abolishing the upper limit price for road use services to comply with pricing principles specified in the Law on Pricing and suit each period of the project contract.

Explaining reasons for proposals to change the above tariff, VARSI cited that the upper limit tariff for road use services specified in Circular 35/2016/TT-BGTVT and Circular 159/2013/ TT-BTC has been applied since 2013. However, the consumer price index (CPI) has risen by 27% since 2013. The price-constituting factors have changed, the operating and maintenance cost has increased due to price increases of electricity, petroleum, materials and labor. Meanwhile, the ceiling tariff for road services is not adjusted to cover cost increases.

Source: VCCI