Public-private partnership is a good investment model for Vietnam to limit borrowing in the context of its high public debts, but poses potential risks to private investors, Nobufumi Miura, chairman of the Japanese Chamber of Commerce & Industry in Vietnam (JCCI) said at the Vietnam Business Forum (VBF).

"It is instrumental that the government clarifies the risk allocation between the government and the private party and to provide comprehensive support for the private party to ensure a reasonable return from the investment."

The chamber highlighted the necessity of the government adopting foreign currency exchange guarantees and applying "foreign law" as a governing law.

Tomaso Andreatta, vice chairman of the European Chamber of Commerce in Vietnam (EuroCham), urged the country to soon pass the Public Private Partnership Law, which is being drafted by the Ministry of Planning and Investment (MPI).

Vietnam also needs to build a permanent relationship of trust and set out clear rules with foreign investors, he said at the forum, a dialogue between the government and the private sector.

"Infrastructure is a long-term business and one which not only needs good, transparent and rapid decision-making mechanisms for a project to start, but also one where unexpected behavior changes in either the state or the corporate partner can have dire consequences."

Vietnam needs to dispense with the mindset "what is not regulated cannot exist", which impedes the freedom of businesses, he added.

Government guarantees are among the 10 points the MPI listed in a document it sent to relevant ministries and agencies in April to collect opinions for its PPP bill.

It said the absence of guarantees related to minimum returns and foreign exchange risks have kept investors away from large projects like the Dau Giay – Phan Thiet and Tan Van-Nhon Trach road projects.

Under the MPI bill, projects considered for minimum revenue guarantees will be those that need National Assembly and prime ministerial approval. The guarantees will be considered on a case-by-case basis.

For projects entitled to guarantees, for the first five years the guaranteed minimum revenue will equal 75 percent of revenue estimated in the contract. It will come down to 65 percent for the following five years.

However, if the revenue exceeds 125 percent of the estimated revenue in the first five years of operation and 135 percent in the following five years, the investor must hand over the excess portion to the government.

The MPI's draft law also envisages fixing a cap on exchange rate fluctuations for a certain period of time, for instance five years, and the government compensating the investor if the actual rate exceeds it.

The bill also proposes a government guarantee to meet 30-50 percent of investors’ foreign currency requirements.

PPP is a form of investment between a government agency and a private investor for projects in areas like construction of infrastructure and provision of public services. Through PPP, governments can leverage efficiencies and expertise in the private sector to achieve their development goals.

Fast-growing Vietnam is facing an infrastructure bottleneck. With the government lacking the resources to finance much-needed highways, railroad tracks and airports, the government is increasingly looking toward the private sector to make up the shortfall.

It is estimated that the country needs around $480 billion for infrastructure by 2020, but the government can only provide a third of that.