Public-private partnership (PPP) investment has become one productive cooperation model between the government and the private sector in infrastructure development in Vietnam.

Private sector’s roles

The Global Infrastructure Outlook showed that Vietnam will need more than US$600 billion to meet its infrastructure targets by 2040. Against the backdrop of rising public debt and limited access to multinational development banks, the government will need to mobilize new investment flows.

According to the World Economic Forum on the Global Competitiveness Index, Vietnam's rate of paved roads is much lower than that of countries such as Malaysia, India and Indonesia. The Asian Development Bank (ADB) estimated that Vietnam's infrastructure investment needs will be about US$480 billion in 2017-2030. This is a large investment and a financial burden for Vietnam.

According to a report from ADB, PPP projects can be effectively funded by the private sector. Many governments are facing pressure to balance their finances to develop and maintain infrastructure due to population explosion and accelerating urbanization. Furthermore, infrastructure services often have high costs and slow capital recovery. Therefore, mobilizing private capital for infrastructure development is a good solution. PPP projects will attract private investment, increase productivity and use available resources more efficiently, and reform and reallocate roles, incentives and accountability.

The purpose of the private sector’s entry into a public-private partnership is to profit from its business management capabilities and experience (especially in public services). The private sector will recover capital by appropriate service fees and return on investment from the government.

The Public-Private Partnership Committee - National Council on Sustainable Development and Competitiveness Improvement stated that attracting private investment will effectively offset shortfall and increase investment resources. Moreover, expanding public-private partnership (PPP) also helps the Government take advantage of expertise and update technology from the private sector into the construction and management of infrastructure and public services; thus people enjoy improved services at a reasonable cost, while infrastructure development enables economic growth and generates many socio-economic benefits.

Investment incentive mechanism

According to the 2019 Global Infrastructure Investor Survey conducted by the EDHEC Singapore Infrastructure Institute, Vietnam is among the top five emerging countries worldwide for infrastructure market potential in the next five years, together with India, China, Brazil, and Indonesia. However, the Asian Development Bank's private sector development and PPP experts observed that only 10% of Vietnam's infrastructure is financed by the private sector, much lower than many other middle-income countries in Asia.

Recommending solutions to encourage private investment in PPP projects, the Vietnam Chamber of Commerce and Industry (VCCI) as well as the Public-Private Partnership Committee – National Council for Sustainable Development and Competitiveness Improvement, said that it is necessary to have a favorable investment environment and favorable conditions as well for investors to achieve a suitable reward/risk rate. This requires legal and policy reforms to create a consistent and sustainable foundation for public-private partnership.

In particular, the Law on PPP Investment 64/2020/QH14, ratified by the 14th National Assembly at its 9th session and enforced from January 1, 2021, has 11 chapters and 101 articles. This is one important tool to create a mechanism to attract PPP investment.

Regarding regulations on investor selection, in the past, the investor selection for PPP projects was governed by the Law on Tender, but is now governed by the Law on PPP Investment to ensure consistency, integrity and continuity of the PPP project implementation. A new important mechanism that has not been found in previous regulations is that the Law on PPP Investment stipulates sharing mechanisms for revenue increase (by more than 125%) and revenue reduction (by less than 75%) to minimize risks for PPP projects, especially risks from changes from the government. In addition to the traditional capital mobilization channel from banks, the Law on PPP Investment allows PPP investors to issue corporate bonds to mobilize capital for their PPP projects. This new content ensures compliance with international practices and creates favorable conditions for businesses to call for capital.