Linklaters Insights: Vietnam year in review 2021 and year to come 2022

clarifying the types of projects/sectors that can be carried out in the PPP form and the threshold capital required;
providing guidance for formulating standard form PPP contracts to be issued by the relevant ministries (including the key contents that must be included in the standard form PPP contracts);
setting out a requirement to include an early termination formula in the standard form contract. However, Decree 35 provides that after the parties have agreed on the conditions for termination of a contract, the contract signing agency must report to the relevant authority for determination on whether to pay such costs for dealing with early termination of the contract, the method, the amount and the sources for making such payments. This process deviates significantly from the current practice and provides less certainty for a project company, its sponsors and lenders;
providing guidance setting out a detailed process for selection of investors for PPP projects, including via open bidding, competitive negotiation and direct appointment;
introducing very detailed transitional provisions which provide further guidance and support during transitional phases; however a number of these transitional provisions go beyond the scope set out in the transitional provisions of the PPP Law which means their actual application in practice is questionable.

Meanwhile, Decree 28 provides guidance for various financial matters such as the principles for management of state capital in PPP projects, finalisation of investment capital upon completion of construction works, detailed guidelines on revenue sharing, and more.

Please refer to our Insight on this topic for a detailed analysis of key changes in the two Decrees.

EU-Vietnam Free Trade Agreement (EVFTA)

The EVFTA became effective on 1 August 2020, resulting in Vietnam becoming the second country (after Singapore) in ASEAN to have a free trade agreement (FTA) with the European Union (EU). The EVFTA, which is a new generation FTA between Vietnam and 27 EU member states, along with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), is among the highest level of commitments and broadest scope of FTAs entered into by Vietnam.

In the first 12 months following its implementation, the rate of export turnover using preferential tariffs under the EVFTA was higher than any other previous FTAs in a similar time period. This rate is two times higher than the rate seen through the ASEAN Trade in Goods Agreement, seven times higher than the ASEAN-India Free Trade Area and two times higher than the CPTPP in the first year.

These positive results arising from the EVFTA is as a result of the following:

elimination of tariffs to almost zero after a short roadmap (ie 7-10 years) of entry into force and granting preferential non-tariff measures;
in terms of service and investment, the EU's commitments to Vietnam have been among the highest when compared to other recent FTAs entered into by the EU, and Vietnam's commitment to the EU is at least equal to the highest market access that Vietnam has committed to other partners through recent FTAs (including the CPTPP);
modernisation, simplification and transparency in legal regulations and customs procedure; and
increasingly flexible regulations on rules of origin.

It is expected the EVFTA will boost economic growth post COVID-19. The Vietnamese Government has also recently launched a website to consolidate and update related information on FTAs.

Feed-in Tariffs (FiT) expired for wind power projects

In 2018, Vietnam's Prime Minister issued Decision 39/2018/QD-TTg (Decision 39), providing for a FiT of 8.5 US cents/kWh and 9.8 US cents/Kwh for onshore and offshore wind power projects respectively, if they achieve their commercial operation date (COD) before 1 November 2021. The FiT, if applicable, applies for 20 years from the COD of each wind power plant.

There have been various attempts from project companies, local authorities and even the Global Wind Energy Council to request extension of the deadline for the FiT, partially due to the recent serious outbreak of COVID-19 in Vietnam (see our Insight on this issue), but the MOIT has confirmed it will not submit any request for extension of the FiT to the Prime Minister for consideration.

Wind projects that have not achieved COD prior to 1 November 2021 will likely have to negotiate a tariff based on a tariff range issued at the time of negotiation.

Other important regulatory changes

There has been a raft of other important regulatory changes in Vietnam in the past year. Notably, the introduction of the amended Law on Construction and a new decree implementing the Law on Firefighting and Fire Prevention, both of which impact key permits of a construction project.

Law No.62/2020/QH14 dated 17 June 2020 has amended and supplemented a number of articles of the Law on Construction. Amongst other points, the amended law introduces changes:

revising the definition of the Pre-FS report and projects that are required to formulate the Pre-FS report;
requiring that insurance for civil liabilities to third parties, in addition to insurance for employees working on the construction side, is a compulsory form of insurance in the construction sector;
revising the list of projects that are subject to construction permit exemptions; and
shortening the timeline for obtaining different types of construction permits and simplifying the administrative procedure applicable to construction activities.

The amended Law on Construction, which came into effect from 1 January 2021, is drafted in a way to harmonise the provisions of the construction law to other laws such as the Law on Public Investment, Law on Public-Private Partnerships and the Law on Housing.

Meanwhile, Decree 136/2020/BD-CP issued by the Government and dated 24 November 2020 (Decree 136) took effect on 10 January 2021 and replaced the former Decree 79/2014/ND-CP dated 31 July 2014 to implement the Law on Firefighting and Fire Prevention. Decree 136 introduces further requirements in relation to the administrative procedures for firefighting and fire prevention work, with a view to simplifying and reducing the contents of application dossiers applying to firefighting permits or for putting construction work into operation. It also supplements the list of units and facilities subject to firefighting management. Detailed provisions and forms to implement Decree 136 are set out under Circular 149/2020/TT-BCA issued by the Ministry of Police dated 31 December 2020, which came to effect on 20 February 2021.

Year to come 2022

New e-commerce regulations

In 2021, the Vietnamese Government issued a new Decree 85/2021/ND-CP amending the current regulations on e-commerce, effective from 1 January 2022, to impose stricter control over the operation of e-commerce companies and foreign investment in the e-commerce sector in Vietnam.

The key changes include:

requiring a foreign investor that 'controls' a company in the list of five leading e-commerce companies in Vietnam (to be determined by the Ministry of Industry and Trade (MOIT) based on the number of visits, sellers, transactions and the total transaction value) to be appraised by the Ministry of Public Security. The appraisal requirement also applies retroactively to existing foreign investments prior to the effective date of the new Decree;
subjecting operators of e-commerce platforms to more responsibilities and requirements (including responsibilities for offshore sellers) to enhance customer protections and ensure better control by authorities;
requiring foreign entities operating (i) a website having a Vietnamese domain name or in Vietnamese language; or (ii) a website having more than 100,000 transactions from Vietnam, to comply with Vietnamese e-commerce regulations, including registration with the authority of Vietnam; and
designating social network platforms that enable users to sell and purchase goods and services through collection of fees (either directly or indirectly) to be e-commerce platforms and therefore subject to regulations imposed on e-commerce platforms.

New power development masterplan

The Vietnamese Government is in the final stages of approving the draft power development masterplan 8 (PDP8) for the period 2020 to 2030, with a view to 2045. PDP8 will replace the current power development masterplan 7 (PDP7) last updated pursuant to Decision 428/QD-TTG of the Prime Minister dated 18 March 2016.

The key points of PDP8 include:

reducing the overall power demand forecast compared to PDP7 for the same period. According to the draft PDP8, expected growth of the Northern region of Vietnam's share (as compared to the Southern region’s share) of total power demand and expected surplus in the Central and Southern regions are key elements driving policies for development of power sources;
setting out that renewable energy should be developed at a 'reasonable' level to reduce total investment capital required for power development and limit operational issues. More particularly, PDP8 contains limited scope for large inclusion of solar or onshore/near shore wind until 2030 above what is already in PDP7 and a limited scope for inclusion of offshore wind until 2030 (ie around 2000 MW by 2030);
allocating power sources in a way to best ensure intra-regional supply-demand balance and to avoid investment in the construction of new inter-regional transmission lines. Vietnam also expects an increase in importation from China and Laos (especially to the North of Vietnam);
setting out a reasonable schedule for reducing coal-fired power and developing LNG-to-power, considering investment requirements, environmental commitments, power security and fuel supply. Coal-fired power will be gradually reduced by removing or converting a number of unfeasible projects already approved in PDP7. Regarding LNG, more emphasis is placed on LNG-to-power projects in the North of Vietnam and there are deferrals of a number of projects planned for the South; and
introducing a number of criteria for determining prioritised projects. For example, Vietnam will prioritise projects with less direct impact on the environment and high capacity units with high efficiency and use of advance technology. The project location, its compliance with PDP8 and the ability to release capacity with limited impact to the transmission lines are also amongst the criteria for determining prioritised projects.

According to local media, the MOIT submitted the draft PDP8 to the Prime Minister in mid-October 2021 for approval and issuance. It is expected to be issued late 2021.

Renewable energy regulation developments

The Vietnamese Government has ended the fixed feed-in tariff (FiT) regime applied to solar and wind power projects on 1 January 2021 and 1 November 2021 respectively, after months of debate and despite calls from developers to extend the FiT regime for wind power due to delays as a result of the COVID-19 pandemic. Meanwhile, the MOIT is working on various draft regulations on renewable energy development, including the mechanism for selection of investors, the price framework and the new standard power purchase agreement (PPA) that will be applicable to solar and wind power projects.

The MOIT is considering a transitional regime for wind and solar power projects, including those under construction and not reaching commercial operation date before the FIT deadline. In the future, selection of investors for solar and wind power projects will be conducted via bidding or investor selection mechanisms, and the power selling price will be negotiated between investors and the power buyer according to a price range issued by the MOIT. Details of the draft regulations have not yet been made public, but it is expected that these new regulations will be issued in late 2021.

While there have been numerous discussions on the uncertainty of the new tariff, there could be opportunities for solar and wind power projects to progress after the FiT regime ends. The upcoming regulations could help increase the stability of the overall power system and, if so, current curtailment risk and resulting bankability issues for solar and wind power projects in Vietnam could be reduced in the future. Of course, whether this will come to pass remains to be seen.

Amended Law on Petroleum

In September 2021, the MOIT issued a draft amended Law on Petroleum aiming to address several issues which are not adequately regulated under the current Law on Petroleum dated 6 July 1993 as amended in 2000 and 2008. While a substantial part of the new draft is taken from existing implementing regulations, key changes include:

clearly requiring that investment procedures and investment guarantees in the petroleum sector follow the Law on Petroleum. In other words, the provisions of the Law on Petroleum will prevail in case of any consistency between the provisions of the Law on Petroleum and other laws;
regulating investment in non-conventional petroleum (eg shale gas or gas hydrate) under the new law;
extending the term of a petroleum contract (i) from 20 years to 30 years (for normal fields or blocks); and (ii) from 30 years to 35 years (for encouraged fields or blocks). Investors that propose additional investment at the end of the field life may be provided with priority in securing a new petroleum contract upon expiry of the original one;
setting out that the contract area under a petroleum contract may cover one or more blocks (compared to maximum two (2) blocks, unless otherwise approved by the Vietnamese Government, under the current law);
providing specially encouraged fields or blocks (being fields or blocks having unfavourable conditions, limited economic efficiency or requiring special technical solutions) with additional investment incentives (eg reduced tax rates or higher costs recovery ratio); and
exempting fees for use of sea area for petroleum activities (including for transportation of oil/gas downstream via pipeline).

The new Law on Petroleum is expected to be passed by the National Assembly by the end of 2022, with new implementing regulations (including a new model production sharing contract) to follow.

New law on environment protection

Law No. 72/2020/QH14 on environment protection was passed in 2020 and will take effect from 1 January 2022, except for the section on preliminary environmental impact assessments (PEIA) which took effect from 1 February 2021. The new law introduces the following key changes:

stipulating detailed criteria for classification of investment projects to determine whether a project is required to conduct or obtain PEIA, environmental impact assessment, environmental permit or environmental registration;
introducing new requirements including PEIA, environmental permitting and environmental registration;
introducing new regulations on residential communities and their roles during the process of environmental impact assessment of investment projects;
setting out more detailed regulations on mitigation of greenhouse gas emissions and protection of the ozone layer as well as the establishment and development of a carbon market for exchanging greenhouse gas emissions quotas and carbon credits; and
providing detailed guidance on environmental auditing, which is defined as a systematic and comprehensive consideration and assessment of the effectiveness of environmental management and pollution control by production, business and service establishments. Self-environmental audit is encouraged and the Ministry of Natural Resources and Environment (MONRE) will provide specific guidance on self-environmental audit.

Currently, the Vietnamese Government is working on regulations to guide the implementation of the new law. Notably, the MONRE has recently circulated a draft decree on mitigation of greenhouse gas emissions and protection of the ozone layer. This draft decree also stipulates a roadmap for the establishment and development of a domestic carbon market for Vietnam.

Draft amended insurance business law

Recently, the Vietnamese Government submitted a draft amended Law on Insurance Business (the Draft), which was prepared by the Ministry of Finance (the MOF), to the National Assembly of Vietnam.

The key changes in the Draft include:

expanding the scope of application of the Law on Insurance Business to cover mutual insurance organisations that provide microinsurance. The Draft also provides for an interpretation of the terms of the Law on Insurance Business to be consistent with general practice and the principles for provision and use of insurance services in compliance with relevant laws, international customs and international agreements to which Vietnam is a signatory, such as the European Union-Vietnam Free Trade Agreement and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership;
stipulating three types of insurance, being life insurance, non-life insurance and health insurance, and further limiting the scope for compulsory insurance to better reflect its nature;
expanding key contents of insurance contracts to cover loss control, prevention of insurance fraud and dispute resolution;
in relation to insurers and reinsurers, further allowing foreign financial groups to also conduct insurance businesses and simplifying licensing conditions for those insurers licensed in Vietnam to establish a new insurance business; and
a range of other matters such as improving corporate governance, amending conditions and principles for operation of insurance agents and brokers, and amending provisions on financial management of insurers and reinsurers on the basis of risk-based capital management.

The Draft will replace the 2000 Law on Insurance Business as amended from time to time and is expected to be passed by the National Assembly in May 2022 and take effect on 1 July 2023.

Proposed amendments to the Law on Electricity

The current Law on Electricity has been in effect for more than 15 years (with limited changes made in 2012 and 2018). The MOIT is proposing a number of important changes to the Law on Electricity for it to be up to date with the recent changes in the Vietnamese power market and other relevant laws and regulations. The draft outline of the law circulated by the MOIT in October 2021 is still in early stages and touches upon the following key policy changes:

clarifying the scope of state monopoly in power transmission activities to encourage private investment in this sector. In particular, it is proposed that the state reserves its monopoly in all transmission activities that are important to power system security. Foreign investment in transmission facilities is encouraged;
solving the master planning , including adding new power projects into the power development masterplan (PDP) without having to go through the lengthy process prescribed under the Law on Planning and assessing whether a project is compliant with the PDP if it is not listed in the PDP;
completing regulations on saving power, management of electricity demand and adjustment of the load based on requirements of the power system;
improving regulations on management and operation of the power system and ensuring the power's quality;
regulating power transmission prices, power system operation dispatching fees and power market transaction management fees to be suitable for the deployment of a competitive retail power market in the coming years;
in terms of power operating licences, empowering the Vietnamese Government to regulate conditions and application dossiers for issuance of power operating licences, adjusting the circumstances for being exempt from the power operating licence requirement, and adding circumstances where a power operating licence must be withdrawn; and
strengthening regulations on power safety in general and safety of hydroelectric dams, especially hydroelectric reservoirs.