A financial management mechanism for public-private partnership (PPP) investment projects will be developed in accordance with prevailing management principles to create a favourable and attractive environment for investors who really have financial capacity and experience in project management.

The Ministry of Finance is consulting about the draft decree on financial
management mechanism for public-private partnership (PPP) investment projects.

Financial plan for PPP projects ?

The Law on Public-Private Partnership (PPP Law) was issued to create a general legal framework, with high, long-term and stable validity for the implementation of PPP projects in Vietnam.

According to the Ministry of Finance, the PPP Law basically coversissuesto be managed in PPP investment activities. However, for the content of financial management that needs flexibility in application and ensures compliance with reality, the law only stipulates the management principles and the Government will specify them in detail.

Under tasks given by the National Assembly to the Government on guiding the PPP Law, Prime Minister Nguyen Xuan Phuc in Decision No. 1109 / QD-TTg dated July 24, 2020, assigned the Ministry of Finance to review and develop the draft decree on the financial management mechanism for PPP investment projects.

The decree aims to improve policies to attract investors in PPP projects and comply with international practices and Vietnam’s conditions to create a favourable and attractive environment for investors who really have financial capacity and experience in project management.

One of the most important provisions regulations of the draft is on the financial plans of PPP projects.

The Ministry of Finance said that the financial plans are developed on the basis of after-tax cash flows which are discounted at the weighted average discount rate of the mobilising interest rates and the return on equity. Actual revenue will be the total revenue from providing public products and services, apart from value added tax.

For the financial plan in the pre-feasibility study report, the feasibility study report of PPP project includes eight contents: total project investment; capital sources for the project’s implementation; proposing incentives and guarantees (if any); return on equity; estimated expenses during operation phase; plan to recover invested capital and profits of investors; remittances to the state budget (if any) for projects implemented in the form of O&M contracts (Operation and Maintenance Contracts); criteria to analyse and evaluate the financial feasibility of the project.

"The above provisions will be the basis to develop and pass the financial plan in preparation and approval of bidding documents, negotiation and signing of PPP project contracts," the Ministry of Finance said.

Three management principles

The management, use and payment of state capital in the implementation of PPP projects have been specified in the draft decree.

Accordingly, there will be three principles of management and use of State capital to support PPP projects.

The first principle is that the percentage of State capital funded for building works and infrastructure systems, compensation, site clearance, resettlement and building temporary works must not exceed 50% of the total project investment level. The use of investment capital must be specified in the PPP project contract in terms of the rate, value, schedule and payment conditions.

The second principle is that the procedures and authority to decide on the use of public assets to support the construction of works and infrastructure systems must comply with the law on management and use of public assets.

The value of public assets is evaluated in accordance with the law on prices, the law on management and use of public assets as a basis for authorities to approve project investment policies.

The third principle is that State capital to pay for PPP projects must be done under BTL contracts (Build - Transfer - Lease) or BLT (Build - Lease - Transfer) contracts.