Vietnam’s PPP office cranks up the engine
Published on by Edyta Bednorz, Global Water Intelligence - Brand Marketing Executive in Business
Vietnam’s PPP apparatus is rolling into place, with several pathfinder PPPs approaching the starting gates. International interest is high, although tensions between local and central government could delay progress.
The first water and wastewater projects to go ahead under Vietnam’s new PPP Decree received approval from the prime minister at the end of May. Although small in size, they herald much larger projects waiting in the wings. The Nhung River water supply system and the An Nghiep industrial wastewater treatment plant upgrade were among the first to receive the green light ( see table above ), while Hubert Jenny, principal urban development specialist at the Asian Development Bank (ADB) in Vietnam, told GWI that the first large-scale project likely to be tendered under the new rules is the $89 million Hoa Lien Commune water treatment plant in Da Nang Province. This 120,000m3/d facility will use the Cu De River to provide a second source of water to Da Nang city. A JICA-funded PPP feasibility study conducted by Kajima Corporation found that the project is viable as a long-term BOO or BOT contract without the need for viability gap funding (VGF). Da Nang city raised its water tariffs by 85% in 2011, making the project economically viable. The Da Nang People’s Committee is due to decide in June whether to make use of the ADB’s free PPP project development facility housed at the Ministry of Planning and Investment (MPI), run by French consultants Egis and Adetef in association with Agence Française de Développement (AFD), or tender the project on its own. Many local governments are reluctant to hand over any power to the central government, despite the free preparation support and greater investor access on offer. Unlike Hoa Lien, VGF is likely to be essential for WWTPs such as West Saigon or Tan Hoa-Lo Gom in Ho Chi Minh City (HCMC). JICA’s planned 270,000m3/d Yen Xa wastewater treatment plant in Hanoi, meanwhile, ran aground after the draft finance model suggested that up to 70% VGF would be needed. The ODA loan for the project was approved in 2013, and the project is now likely to be tendered as an EPC or DBO contract at the end of 2015. According to Vu Quynh Le, deputy director for public procurement in the MPI, the Vietnamese government is envisaging setting up “a $1 billion reserve state fund for participation in PPPs” with the ADB, in order to provide VGF or availability payments for all sectors. The PPP Decree removed the 49% cap on state contribution to PPP projects. “If everything goes to plan, the establishment of the VGF fund will take 1.5 to 2 years,” Le told GWI. In the meantime, however, strong local governments (such as HCMC or Da Nang) can participate using their own resources. The MPI’s PPP office is currently working on a project shortlist, and the country’s new five-year public investment plan is under preparation. According to Le, the centre is “working around the clock” to issue guidance on project preparation, while “conducting a series of foundation training courses for practitioners.” It is unclear to what extent all actors understand the changes embodied in the decree. Under the new system, unsolicited proposals are welcomed, but projects must be competitively tendered after the private proponent has completed a feasibility study. The proponent will then be given a 5% price discount in the evaluation phase, and if its bid is unsuccessful, it can recover the costs from the winning bidder if previously agreed with the client. Although several potential investors have expressed concerns that 5% is not a sufficiently generous incentive to justify the work necessary to prepare an unsolicited proposal, Jenny insisted that “frankly 5% of capex is a lot.” On 26 May, K-Water and Hanwha E&C announced they had signed an MOU with the HCMC department of planning and investment to develop the 300,000m3/d Tan Hoa-Lo Gom wastewater treatment plant as a PPP. This appears to follow the conventional model, whereby BOT proposals are published in local media and awarded to the proponent unless challenged by another investor. In tandem, however, the project is under consideration by the MPI for inclusion as a pathfinder PPP in a process committed to transparent competitive bidding. The extent to which these two processes conflict has yet to play out. Interested companies can keep an eye on the websites muasamcong.mpi.gov.vn and ppp.mpi.gov.vn for the official story. The new moves in the PPP market came shortly after prequalification closed for the first stage of Southeast Asia’s largest wastewater treatment plant, the World Bank-funded Nhieu Loc-Thi Nghe Canal (NLTN) WWTP in Ho Chi Minh City. Despite having what one bidder called the most stringent prequalification criteria they had seen anywhere in the world, the NLTN project attracted expressions of interest from 25 companies in 12 groups, in a clear indication that Vietnam’s environmental infrastructure needs are attracting global attention (see PPP Tracker p80). Several of these groups will likely fail to qualify, and others may fall foul of the client’s known preference for SBR technology (Doosan, for example, has partnered with GE to propose an MBR solution). As a DBO contract, this project is not affected by the new PPP Decree (which regulates procurement for BOT, BT, BTL and BLT models among others), although it has attracted interest from firms known to be interested in putting in project equity. United Engineers, for example, recently put up funds for the Changi II NEWater facility in Singapore, and is known to be conducting a feasibility study with a view to developing the West Saigon WWTP in HCMC as a BOT. Japan’s Swing Corporation, meanwhile – which is bidding alongside Korea’s GS E&C – was part of a consortium teed up by JICA to develop the 87,000m3/d Can Tho City WTP in 2011. GLOBAL WATER INTELLIGENCE Volume 16 / Issue 6/ June 2015