LAWYER IN VIETNAM DR. OLIVER MASSMANN LEGAL UPDATE MAY 2018 – SOLAR ENERGY ROOFTOP TAX BENEFITS – SOLAR POWER MASTER PLAN – PUBLIC PRIVATE PARTNERSHIP

LEGAL UPDATE MAY 2018 – SOLAR ENERGY ROOFTOP TAX BENEFITS – SOLAR POWER MASTER PLAN – PUBLIC PRIVATE PARTNERSHIPS – LATEST ON INDUSTRIAL AND ECONOMIC ZONES

1. Official No. 5111/VPCP-KTTH issued by the Government Office in response to Official Letter No. 5400/BTC-CST of the Ministry of Finance in relation to tax preferences applicable to solar roof projects of 50 kW or less.

Issuance date: 31 May 2018

Effective date: 31 June 2018

The Government in-principle approves the request from the Ministry of Finance on tax advantages applicable to solar roof projects of 50 kW or less. The Government also assigned the Ministry of Finance to issue relevant legal documents to implement this policy. Currently, request of the Ministry of Finance and draft future regulations on this topic have not yet been published.

1. Legal news: Solar power master plan – rumor on delay

The Ministry of Industry and Trade (“MOIT”) must report the list of approved solar power plants to the Prime Minister before 15 July 2018. The MOIT must also promptly finalize the national solar power development master plan for the Prime Minister’s consideration.

Currently, the number of solar power projects submitted by investors to the MOIT is significant. According to Vietnamnews, the MOIT has approved more than 70 solar power projects, with a total capacity of over 3,000MW, to come into operation before June 2019. The capacity is much larger than the combined capacity of projects by 2020 (i.e., 850 MW for solar power projects) as approved by the Prime Minister in the current power master plan VII.

Unconfirmed rumor: the MOIT (and other authorities) would likely not review and approve any application for addition of new solar power projects to the power development master plans / solar power development master plans from now until 30 June 2019. In addition, the MOIT would issue an official letter to confirm this temporary suspension.

1. Decree No. 63/2018/ND-CP issued by the Government on Investment in Form of Public-Private Partnerships (“PPP”) (“Decree 63”) replacing the old PPP Decree 15/2015/ND-CP (“Decree 15”)

Issuance date: 4 May 2018

Effective date: 19 June 2018

Decree 15, when introduced in 2015 was highly praised by legal commentators to be well drafted and make the PPP laws and regulations in Vietnam move closer towards bankable projects. However, in implementation process, there have been conflicting legal issues that deter investors from choosing PPP as an investment method, leading to a humble number of PPP projects thus far. Moreover, as PPP laws are only at Decree level, regulatory framework for PPP projects mainly includes the Law on Enterprises, Law on Public Investment, Law on Bidding, etc. most of which regulate public investment instead of private one or investment cooperation between the Government and private investors. The investors are also concerned about the stability of PPP regulations, as they are mainly Decrees. While a PPP project could take years to complete, regulations at Decree level may change and cause investors confusion in implementation of the laws. The state agencies also face certain difficulties in managing these PPP projects.

We provide below key notes on Decree 63:

Capital contribution responsibility

The investor is responsible for contributing and mobilizing capital for the project implementation, in particular, the ratio of the investor’s equity capital in total project investment capital is determined as follows:

– For projects with total investment amount of up to VND1,500 billion, the equity capital that the investor must maintain must be at least 20% of the total investment capital;

– For projects with total investment capital of more than VND1,500 billion:

o For investment portion of up to VND1,500 billion: the equity capital that the investor must maintain must be at least 20% of the total investment capital;

o For investment portion that exceeds VND1,500 billion: the equity capital that the investor must maintain must be at least 10% of the total investment capital.

There is no capital contribution requirement from the Government side.

Project approval authority

Decree 63 makes it clear the following authorities will approve PPP projects:

– The National Assembly decides the investment policy of important national projects;

– The Prime Minister decides the investment policy of the following projects:

o Projects Type A using state budget from 30% or above or below 30% but more than VND300 billion of the total investment capital of the project;

o Projects Type A using BT contracts.

– Ministers of relevant ministries decide investment policy of their own projects not falling within the approval authority of the National Assembly and the Prime Minister.

– Provincial People’s Councils decide investment policy of the following projects:

o Projects Type A not falling under the approval authority of the Prime Minister;

o Projects Type B using public investment budget; and

o Projects Type B using BT contracts.

– The provincial People’s Committee decides the investment policy of projects in their provinces not falling within the approval authority of the National Assembly, the Prime Minister and the provincial People’s Council.

Payment methods in BT projects

Practice shows that investors are very interested in well-located land when implementing BT projects. However, when such land fund gradually becomes exhausted, BT projects seem not to attract investors. Decree 63 has added another method in addition to the exchange of land for infrastructure, so that the investors will have more options in receiving payments. Specifically, the investor may also receive payment in the form of the transfer of right to conduct business, exploit works/ services, etc.

Conversion of existing public projects

Decree 63 contains procedures on converting existing public projects to PPP projects aside from other revised provisions. Those who are engaged in infrastructure projects in Vietnam may want to review how to implement such conversion in practice.

1. Decree No. 82/2018/ND-CP issued by the Government on the management of industrial zones and economic zones (“Decree 82”)

Issuance date: 22 May 2018

Effective date: 10 July 2018

Decree 82 regulates the planning, establishment, operation, policies and state management of industrial zones (IZ) and economic zones (EZ). It governs state management agencies, organizations and individuals related to investment, production and business activities in industrial zones and economic zones.

IZs are geographical areas eligible for investment incentives and enjoy preferential policies applicable to geographical areas with difficult socio-economic conditions under the investment law.

EZs are geographical areas eligible for investment incentives and enjoy preferential policies applicable to geographical areas with special difficult socio-economic conditions under the investment law.

Capital for investment on infrastructure of IZs

Investment projects on infrastructure development in IZs in areas with difficult socio-economic conditions or areas with particularly difficult socio-economic conditions shall be supported with capital from the central budget for the infrastructure investment.

Provincial People’s Committees shall balance local budgets to support investors in developing technical infrastructure systems inside and outside the IZs.

Capital for investment on technical infrastructure and social-economic infrastructure of EZ

EZ’s technical infrastructures, social infrastructure facilities and important environmental protection and treatment works shall be allocated capital from development investment sources of local budgets and support capital sources.

Large-scale infrastructure investment projects which play a key role in the development of EZs, may mobilize capital from bonds issuance. The technical and social infrastructure facilities, service works and public facilities of the economic zone may be financed by official development assistance (ODA) capital, preferential credit capital and supports other techniques.

Investment projects on construction and business of infrastructure in functional zones in EZ may mobilize capital by allowing investors to lease a part or whole of the land area in EZ for their investment or sub-lease business activities.

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Please do not hesitate to contact Dr. Oliver Massmann and Tran Minh Thanh under [email protected] if you have any questions or want to know more details on the above. Dr. Oliver Massmann is the General Director and Tran Minh Thanh is the Vietnamese lawyer of Duane Morris Vietnam LLC.

THANK YOU !