What is a PPP project? Financial plan contents of the PPP project in Vietnam

What is a PPP project? Financial plan contents of the PPP project in Vietnam (Internet image)

1. What is a PPP project?

According to Clause 9, Article 3 of the Law on Public – Private Partnership Investment 2020, a PPP project is a set of proposals related to the investment to provide public products and services through the implementation of one or the following activities:

+ Construction, operation and business of infrastructure works and systems;

+ Renovation, upgradation, expansion, modernization, operation and business of available works and systems;

+ Operation and business of available infrastructure works and systems.

2. Financial plan contents of the PPP project in Vietnam

The financial plan in the pre-feasibility study report and feasibility study report of a PPP project shall have the following contents:

- Total investment in the PPP project.

- Sources of financing for execution of the PPP project:

+ State capital (if any) for the purposes specified in Article 70 and Article 72 of PPP Law:

(i) Total public investment capital for assistance in construction of works and infrastructure system, compensation, land clearance, assistance, relocation; construction of temporary works;

(ii) Value of public property as prescribed by regulations of law on management and use of public property;

(iii) Schedule for disbursement of public investment capital; time for provision of capital in the form of public property.

+ The investor’s equity:

(i) Total equity in the PPP project;

(ii) Schedule for disbursement of equity.

+ Capital raised by the investor:

(i) Total capital raised (categorized by type of capital);

(ii) Time of loan, term of corporate bonds (if any), schedule for disbursement of capital raised by the investor;

(iii) Cost of capital raising: interest rate, interest rate of corporate bonds (if any) and necessary costs relevant to capital raising (if any).

+ Competent authorities shall consider medium-term and long-term loaning interest rates of commercial banks; loan interest rates of similar projects as the basis for development of the financial plan in the pre-feasibility study report or feasibility study report (if any).

- Proposal of incentives and guarantees (if any).

- Profit on the investor’s equity.

- Estimated costs during the operation of the project.

- Plan for recovery of investment capital and profit of the investor:

+ Prices and fees for probable public services, including initial prices and fees and rules for adjustment thereof according to regulations of law on prices, fees and relevant laws;

+ Estimated revenue from each lawful source of the PPP project enterprise;

+ Time of execution, operation, recovery of capital and profit of the investor;

+ If the PPP project is executed under a BTL contract, the BLT contract, the plan for recovery of capital and profit of the investor shall include regulations on sources of payment for the PPP project enterprise, including:

(i) The schedule for payment of public investment capital for execution of the PPP project:

(ii) Schedule for payment of regular expenditures of the PPP project enterprise during operation stage;

(iii) Revenue from provision of public services by the PPP project enterprise (if any).

- Payments to state budget (if any) in case the PPP project is executed under an O&M contract.

- Criteria for analysis, assessment of the feasibility of the financial plan:

+ Net present value (NPV);

+ Internal Rate of Return (IRR);

+ Benefit-cost ratio (BCR)

+ Impacts of the financial criteria above in case of changes to the total investment, operating cost, revenue, project contract duration;

+ On the basis of characteristics of the PPP project, the competent authority may add other financial criteria such as: ratio of debt to equity, solvency ratio, quick asset conversion rate, payment ability ration, measures for capital preservation as prescribed by applicable laws in order to select effective investment projects.

- Regulations of this Article are the basis for relevant authorities to prepare, assess, approve pre-qualification documents, bidding documents and conclude PPP project contracts.

(Article 4 of Decree 28/2021/ND-CP)

3. Rules for development of financial plans of PPP projects in Vietnam

Specifically, in Article 3 of Decree 28/2021/ND-CP, the rules for development of financial plans of PPP projects in Vietnam are as follows:

- The financial plan of the PPP project shall include all costs and lawful sources of income during the preparation, execution and operation of the PPP project.

- Financial indicators of the financial plan shall be calculated according to the after-tax cash flows that are discounted according to the weighted mean of discount rate of deposit interests and ratio of profit to equity of the investor.

- Actual revenue is the entire revenue from provision of public services, products, exclusive of VAT.

- The currency used in the financial plan shall be VND.

Thanh Rin

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