Saigon Investment details below some comments made by Dr. Vu Tien Loc, Chairman of Vietnam Chamber of Commerce and Industry (VCCI), on implementation of the PPP law.
The implementation of the PPP law shows that even in favorable economic conditions, mobilizing public investment capital and private capital for infrastructure development is always a difficult challenge in most of the developing countries. In the present scenario affected by the Covid-19 pandemic, almost all economic activities have been paralyzed, which has greatly reduced revenue in the government coffers. Simultaneously, the cost of containing and tackling the pandemic in a heightened social security situation is indeed very high, leading to a huge budget deficit and directly affecting Government investment resources in the next quarter.
Investors are currently cautious about further investing in infrastructure development projects given the unpredictability of the Covid-19 pandemic. In order to implement PPP projects, they must be more open and transparent now, have no barriers obstructing their implementation, ensure more flexibility and high resilience and the benefits must be much more for all concerned. Therefore, it is not necessary to have the minimum number of projects in PPP, because this will miss small-scale PPP projects that are meant to promote socio-economic conditions in many localities. On the other hand, restrictions on PPP investments are also a barrier to attracting private investment in other infrastructure fields. The expansion of the investment fields in the form of PPP do not mean that the State resources should be scattered.
The expansion or not restricting the field of investment in the form of PPP plays an important role in maximizing the mobilization of financial, technological and technical resources of the private sector to meet the diverse needs of infrastructure and public services of the country in the near future. To promote investment in the PPP model, five areas have been proposed by the drafting committee as priority areas for PPP projects. Other areas, except for those areas that may affect national defense and security, may call for PPP investments according to their specific requirements and conditions.
Change in guidelines
During the current Covid-19 pandemic, lockdowns and social distancing resulted in almost zero use of transport infrastructure, and far less consumption of electricity and water, and thereby far less revenue from many projects. Given this practice to attract private investment in long-term infrastructure projects, the PPP Law should be considered a framework law, not on how the State shares its risk ratio. The detailed provisions of some types of government guarantees for PPP projects as in the bill are both redundant and insufficient. They are redundant because they do not provide flexibility for both public and private sectors in various PPP projects. They are lacking when considering other risks that require State participation, for example, guarantee for contract performance in the context of low national credibility.
Based on the framework law, depending on the orientation of policies and national resources in each period, the Government will set specific guidelines and regulations. In case the National Assembly still decides to introduce specific risk-sharing measures, I support the plan to increase and decrease revenue, not to share profits. I also suggest that, in order to share risks, it is necessary to supplement an important measure, which is to guarantee the contract performance responsibilities of state agencies. At present, a major risk in contract performance is the phenomenon of state agencies not respecting PPP contracts. This is a top concern of private investors, so I suggest adding this to the bill.
Preparing projects seriously
The PPP bill should supplement regulations or encourage ministries and localities to seriously consider preparation prior to implementation of projects, as well as formulate a professional project development unit, prepare new generation PPP projects methodically, and create a balance of interests and risks of the project participants. This can be said to be a concern of private investors, so I suggest adding this to the bill, because good project preparation has guarantee of at least 50% success.
Specifically, in order to overcome the current difficulties when the state budget for project preparation is very limited, I suggest adding Clause 1, Article 73 to allow the mobilization of other reasonable capital sources, apart from the state capital source. This will help to prepare timely and high quality projects for investment. Along with that, encourage private investors to actively prepare and propose projects with state agencies.
Quang Ninh has implemented the PPP law very well, and not only large projects but also small and medium-sized infrastructure and public service development projects have over 62% of private capital from the private sector. Particularly for PPP projects, VND 1 of State investment capital entails VND 8 to VND 9 in capital investment from the private sector. This is a very good model for localities to replicate and raise capital for infrastructure projects for local development.