Well-crafted PPP law to help upgrade Vietnam’s infrastructure: ADB experts

12-Oct-2019 Intellasia | The Saigon Times | 6:02 AM Print This Post

If Vietnam can create a sound legal and regulatory environment, investors will appear. The key is a well-structured law on public-private partnerships (PPP), which is expected to present a strong opportunity to upgrade Vietnam’s infrastructure, according to experts at the Asian Development Bank (ADB).

Donald Lambert, a principal private sector development specialist at the ADB’s Southeast Asia Department, and Sanjay Grover, a PPP specialist, noted in a blog post that only 10 percent of Vietnam’s infrastructure is funded by the private sector, far lower than in many other middle-income countries in Asia.

Formulating a PPP law, however, is tricky. If it is too generous, governments can be saddled with millions of dollars in contingent liabilities. If it is too conservative, investment stalls and governments typically wait several years before trying to pass a new law, according to the experts.

Against this backdrop, they suggested several key points that Vietnam should keep in mind while drafting the PPP law.

“Now more than ever, guarantees are the most efficient way to crowd the private sector into infrastructure development in Vietnam,” they stated.

With increasing fiscal constraints, a high debt-to-gross domestic product ratio and limited resources to meet overwhelming demand for infrastructure, guarantees can more efficiently and effectively allow Vietnam to support the “public” role in PPPs.

To keep guarantees affordable, they must target the specific risks that make a project unbankable, according to the specialists.

For example, if investors are worried about demand on a greenfield expressway project, targeting that specific risk, through a minimum revenue guarantee, is usually cheaper and more effective in allaying investor concerns than generic viability gap funding.

The experts also suggested a PPP maximises value for money by allocating risk to the party that is best able to manage it.

“The support that Vietnam may need to provide could vary from absorbing demand risk for an expressway of strategic national importance to absorbing construction cost escalation caused by unknown geological conditions on hilly terrain or land acquisition delays in an urban area,” they said.

As Vietnam moves forward, it is important that the new PPP law be comprehensive enough to allow the government the flexibility to structure project risk allocation to maximise value for money.

Given that Vietnam is a civil law country, where case law is secondary and subordinate to statutory law, these provisions must be explicit to avoid legal ambiguities, they noted.

A broad and comprehensive PPP law can be further buttressed by deferring details to sector-specific decrees and circulars. Circulars are revised much more frequently than laws and can be updated to respond to market movements.

“This ensures that despite the flexibility afforded by the law, governments do not lose fiscal control and guarantees are provided only if necessary and no more than necessary to make a project bankable,” they explained.

The experts urged authorities to set targets, not quantities. “A PPP brings private sector capital, yes. But equally if not more importantly, it brings private sector expertise, which in countries like Vietnam is critical in maximising the benefit of a PPP procurement,” they said.

In this regard, a PPP project’s structure and performance should be assessed by the required output rather than its input. Focusing on output is also good for competition, allowing the private sector the flexibility to choose how best to meet the project’s needs.

“A well-crafted PPP law can drive infrastructure financing in Vietnam and across the region, while helping governments maintain fiscal discipline and use development assistance more productively,” they stated.

https://english.thesaigontimes.vn/71929/well-crafted-ppp-law-to-help-upgrade-vietnam percente2 percent80 percent99s-infrastructure-adb-experts.html


Category: Economy, Vietnam

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