- Is it fair to say that the biggest constraint on PPP execution has been the way public capital enters projects during construction, something this decree seeks to address? Are there other constraints that you see playing a significant role?
Yes, it is correct to say the biggest hurdle for these projects was how the government paid its share. Previously, private companies had to use their own money or borrow from banks to cover the government’s portion of the costs until the project was halfway done or fully finished. This created high interest costs and cash flow pressure.
Decree 312 fixes this by allowing the government to pay its share in parallel with the private investor. As soon as a part of the work is finished, the government pays its percentage.
However, other constraints remain, specifically regarding who bears the risk if the project does not make enough money (revenue risk) and whether local government agencies have the skills to process these payments quickly without causing administrative delays.
- Which entities are now responsible for certifying construction progress for the state capital portion – line ministries, project management units?
The responsibility now falls on the specific agency assigned to manage the state capital for that project. In practice, this is usually a Project Management Unit or a specific department within the Ministry or Province.
The key change is that this agency, along with the investor, is now fully responsible for the accuracy of the numbers. They do not need to wait for a higher-level contract-signing authority to approve every payment step, which should speed up the process.
- Are there any risks that you see in removing the 50% payment cap, and permitting disbursing state funds based on reported progress rather than final acceptance?
Removing the 50 percent payment cap and paying based on progress introduces two main risks:
- Recovering Money: If the government pays for 80 percent of the work but the investor abandons the project before it is finished, getting that government money back will be legally difficult.
- Audit Liability: Because the payments happen faster, there is less time for oversight. If a future audit finds that the reported work was inaccurate, the investor could face serious legal trouble for causing a loss of state assets.
- Do you expect Decree 312 to change bidding behaviour – for example, more aggressive pricing?
You should expect to see more competitive prices in future bids. Because the government is paying its share immediately, private companies do not need to borrow as much money or pay as much interest. This lowers their overall costs.
Consequently, bidders can offer lower service fees or ask for less government support while still making the same amount of profit.
- The decree lowers the financing drag without expanding fiscal commitments- do you expect this will be successful in attracting greater foreign investment?
Decree 312 makes these projects much more attractive by reducing the amount of debt the private sector has to carry. This aligns Vietnam with international standards, where milestone payments are common.
However, this change alone may not be enough to flood the market with foreign capital. Foreign investors still worry about whether they can convert their profits into foreign currency and which laws will apply if there is a dispute. The Decree fixes the cash flow issue, but not the broader legal protections foreign investors usually demand.
***
Please do not hesitate to contact Dr. Oliver Massmann under [email protected] if you have any questions or want to know more details on the above. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.