Overlaps and conflicts in land auctioning

The achievement of above target is dependent on current market conditions and purpose of land usage. However, our current regulations and the way these regulations are enforced lack transparency.

Identify land auction type

Based on international practices, there are two ways to bring public land into the market. 

Firstly, the government offers the ‘auction of rights to use land’, which is a price auction whereby the government can also select a winner. The government can also appoint a person to exploit the land, based on certain sets of criteria.

Secondly, the government applies ‘bidding for projects with land use’, whereby auctioning a project to find a successful bidder. In case of no auction, the government can decide to allocate the project to a qualified constructor who will use the land according to appropriate sets of criteria and rules.

The overlaps and conflicts in current regulations should be removed in order to ensure consistency between different laws, and between the main clause in the law and its sub-documents.

The project auction is applied on public assets when the government is the only one buying and companies are sellers. If the conditions are not favorable for auctions, the government can appoint a contractor based on set of stated requirements. When the assets are infrastructure, public office buildings or environmental treatment projects, the auctions are named ‘bidding for projects with land use’.

The price auction is applied on public assets when the government is the only seller and private investors are buyers. If the assets are land use rights, we call it ‘auction of rights to use land’.

Some people wonder if the laws pertaining to project auctions and price auctions are applied on the private sector as well? The answer is no, as private asset owners have full authority of their assets or their lands. And of course, the private enterprises can treat the auction law as reference if they use the auction mechanism to choose a constructor.

Recently, some local authorities proposed using the ‘bidding for projects with land use’ mechanism to replace the ‘auction of rights to use land’ for some projects.  It sounds strange as project bidding and price auctioning is not the same.

The project bidding is regulated by Public Investment Law, while the price auctioning is regulated by Investment Law. These are two different legal frameworks.

Overlaps in legal framework

By analyzing the current legal framework of price auctioning and project auctioning, we see many shortcomings.

This time, the purpose of the amendment of Land Law is to create a system which fits with the mechanism of public ownership of land, market mechanism, and avoidance of waste and corruption in use of public land.

The 2013 Land Law only regulates the mechanism of ‘auction of rights to use land’ or appointment of people to use public land, but does not regulate the ‘bidding for projects with land use’. The law also does not have specific criteria to guide the appointments process.

The Auction Law, approved in November 2013, points out the scope of regulations in Article 1. This Article consists of 4 clauses. Clause 1 and Clause 2 regulate public purchasing activities. Clause 4 adjusts the oil and gas project auctioning, while Clause 3 mentions PPP projects auctioning and ‘bidding for projects with land use’, but not specifically.

Bidding for PPP projects is governed clearly, so why is ‘bidding for projects with public land use’ not also regulated precisely?

The above complex regulations cause confusion in implementation of ‘bidding for projects with land use’. 

So should the projects that are defined in Point b, Clause 1, Article 1 of Decree 30/2013 and Circular 16/2016, be regulated by these legal documents or by the 2013 Land Law? This is a serious overlap and significant conflict in our current regulations. 

Currently, the price auction is implemented by the guidance of the 2013 Land Law as the enforcement of law is considered higher than decrees and circulars. However, the Auction Law of 2013 still has major legal shortfalls. There are no terms governing the criteria to appoint the constructor for projects with land use.

Solutions

What are the solutions to remove the legal conflicts and overcome shortfalls in our current regulations on price auctions and project auctions?

Firstly, the government should add to the Land Law an Article to regulate:
i.the mechanism of auction of rights to use land (price auction) and constructor appointment process of projects which are currently regulated in Investment Law.

ii.the implementation of bidding for projects with land use (project auction) and constructor appointment process of projects which are currently regulated in Public Investment Law.

The government should precisely determine the requirements for constructors of projects with land use.

The constructor selection process should be implemented by three rounds: the first round is the technical aspect, the second round is for land use effectiveness, and the third round is about cost and price. 

If the land value is higher than the investment cost, government should exchange the second round for the third round, meaning the second round will then be about cost and price of investment, and the third round will be about land use effectiveness.

To measure the effectiveness of land usage, government should use three indicators: land use area, land use co-efficiency and used land value.

The government should create a set of standards for selecting the constructor both by auction and by appointment. These requirements should be based on the character of different industries and investors.

Secondly, the government should replace Decree 30/2015 by a new decree specifying the implementation of the Auction Law in selecting the constructor for PPP and public projects with land use. The decree should clearly determinate the criteria of technology, finance, and bidding mechanism.

Thirdly, the government should replace Circular 16/2016 with a new circular to guide the implementation of the above Decree.