Introduction

The number of public-private partnership (PPP) projects in Vietnam remains relatively low, including those related to solid waste management. Meanwhile, addressing solid waste management has become an urgent and critical issue.

To address this challenge, the National Assembly of Vietnam passed the Law on Public-Private Partnership Investment on 18 June 2020, commonly referred to as the "Law on PPP". This legislation establishes a comprehensive legal framework that applies to all PPP projects, with the primary objective of attracting increased private investment for the improvement of Vietnam's infrastructure. This article focuses on the legal framework surrounding PPP contracts for waste to energy projects.

There is a lack of guidance on how to structure the compulsory contents of a PPP contract for solid waste management projects to encompass the mandatory elements specified in the Law on PPP and related guidelines. A PPP contract for a solid waste management project may be divided into separate parts, as outlined below, to facilitate ease of review and negotiation.(1)

PPP contract parts

Contract agreement
This section includes general information about the:

• contracting parties;
• legal basis for signing the project contract;
• contract documentation and legal priorities; and
• duration of the contract.

General conditions contract
This section may contain general conditions when entering into a PPP contract, including:

• the information of the project;
• general provisions during the operation of the project for the assigned stages;
• rights and obligations;
• parties in each phase of the project; and
• other miscellaneous terms in compliance with respective regulation of Vietnam.

One of the primary concerns for investors in PPP contracts is the rights and obligations of both parties in a PPP contract which will vary across different project stages. Depending on the level of investor involvement for each stage (including build, operate, lease, transfer or finance), investors should conduct a thorough assessment and secure commitments from state agencies for each phase. This is to ensure seamless and unimpeded project implementation and to protect the investors in the event of a change in the conditions of the contract, due to a breach by one party or a force majeure event.

In addition, in numerous instances, state agencies may delay payments beyond the anticipated schedule due to internal administrative issues or ambiguities in legal regulations. To safeguard the legal rights and interests of investors, it is imperative to address and mutually agree on payment conditions, procedures and termination clauses within the contract.

Particular conditions contract
The particular conditions contract (PCC) section expands and amends, if necessary, the general conditions contract section to reflect the detailed negotiation of the contracting parties. The PCC section may be organised into various modules for ease of management and organisation, increase the interactivity and flexibility and ease of updating. Regarding the pricing of solid waste treatment and production of energy, Circular 02/2022/TTBTNMT, issued by the Ministry of Natural Resources and Environment on 10 January 2022, outlines the methodology for pricing domestic solid waste treatment services.

Investors must adhere to the service price determination when negotiating with state agencies in PPP contracts for solid waste treatment. The key factor in determining the service price is the total, reasonable and valid cost associated with providing domestic solid waste treatment services, including:

• direct material costs;
• direct labour costs;
• direct costs of machinery and equipment;
• general production costs; and
• enterprise cost management.

The Law on PPP provides that investors and PPP project enterprises will be entitled to tax incentives, land use, land rental and other incentives in accordance with relevant laws. However, there is a lack of guidance and clarification in the application of investment incentives. Investors may negotiate, in detail, with government agencies to determine specific levels of incentives and support based on the satisfaction with the regulatory conditions and requirements.

Contract appendices
These appendices provide other detailed definitions, other technical and specifications of the project.

Comment

PPP contracts for waste to energy projects can come in various forms, such as:

• BOT or BTO; and
• DBO or DBFO.

Depending on the specific project requirements and investors' involvement. However, in Vietnam, the concept "Build – Transfer – Lease" (BTL) or "Build – Lease – Transfer" is the most common type of contract where the investor to build a waste treatment facility, transfer it to a public organisation or local government, and then lease it back for a predetermined period. Under BTL contracts, the private partners build and transfer the facility, incentivising efficiency and sharing risks, while their revenue generation eases the financial burden on local governments.

‍Endnotes

(1) Section 1 Appendix VI, Decree 35/2021/ND-CP dated 29 March 2023.

‍* Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For legal advice, please contact our Partners.